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Meredith Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

The information included in the foregoing interim financial statements is unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal and recurring basis. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. Readers are referred to the company's Form 10-K for the year ended June 30, 2003 for complete financial statements and related notes. Certain prior-year amounts have been reclassified to conform with current-year presentation.

The following table presents the calculations of earnings per share:

For the three months ended December 31, antidilutive options excluded from the above calculations totaled 61,500 options in 2003 (with a weighted average exercise price of $49.76) and 94,000 options in 2002 (with a weighted average exercise price of $45.31). For the six months ended December 31, antidilutive options excluded from the above calculations totaled 66,500 options in 2003 (with a weighted average exercise price of $49.66) and 400,500 options in 2002 (with a weighted average exercise price of $42.01).

In the six months ended December 31, 2003 and 2002, options were exercised to purchase 196,000 shares and 488,000 shares, respectively.

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.

Meredith adopted Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, effective July 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized to earnings, but be reviewed at least annually for impairment. SFAS No. 142 also establishes requirements for the periodic impairment review of goodwill and intangible assets with indefinite lives. Reviews are based on a fair-value approach as described in SFAS No. 142, which required an initial review of goodwill and intangible assets with indefinite lives as of the beginning of the fiscal year of adoption. This initial review resulted in transitional impairment losses of $139.9 million ($85.7 million after-tax), or $1.68 per diluted share.

This charge was recorded net of tax as the cumulative effect of a change in accounting principle in the first quarter of fiscal 2003. The impairment losses related to certain television Federal Communication Commission (FCC) licenses/network affiliation agreements ($33.7 million) and goodwill at certain television stations ($106.2 million). The fair values of the FCC licenses/network affiliation agreements and goodwill were determined by developing discounted cash flow analyses. The impairments were primarily the result of lower revenues and cash flows at television station WGCL-TV in Atlanta as compared to the projections on which the purchase price was based. The annual review for impairment will be performed as of May 31, 2004.

In response to a weakening economy and a widespread advertising downturn in fiscal 2001, management took steps to reduce the number of Meredith employees, including a one-time, voluntary early retirement program. Other selective workforce reductions were achieved through attrition, realignments and job eliminations. Approximately 200 positions were eliminated in fiscal 2001 and early fiscal 2002. The company also wrote-off certain Internet investments. These actions were the primary factors in a fiscal 2001 fourth-quarter nonrecurring charge of $25.3 million for personnel costs ($18.4 million), asset write-downs and other ($8.2 million), offset by the reversal of excess accruals ($1.3 million). The accrual balance remaining was $1.3 million at June 30, 2003. Details of the activities affecting the accrual since that date follow:

Payments made during the quarter were for enhanced retirement benefits. These payments will continue for approximately five years.

Major components of inventories are summarized below. Of total inventory values shown, approximately 25 percent are under the LIFO method at December 31, 2003 and 30 percent at June 30, 2003.

Intangible assets and goodwill consisted of the following:

Amortization expense for intangible assets was $0.3 million for the six months ended December 31, 2003. Annual amortization expense for intangible assets is expected to be as follows: $0.7 million in fiscal 2004, $0.6 million in fiscal 2005, $0.5 million in fiscal 2006, $0.3 million in fiscal 2007, and $0.1 million in fiscal 2008. The noncompete agreements are being amortized on a straight-line basis over periods of 3 or 5 years.

The changes in the carrying amounts of goodwill for the first six months of fiscal 2004 and 2003 are as follows:

At December 31, 2003, Meredith had interest rate swap contracts to pay fixed-rates of interest (average 5.3 percent) and receive variable-rates of interest (average 3-month LIBOR rate of 1.2 percent) on $127.5 million notional amount of indebtedness. These contracts expire in June 2004. The average notional amount outstanding under the contracts is expected to be $132 million in fiscal 2004. The fair market value of the interest rate swap contracts was a liability of $2.5 million at December 31, 2003. This amount is included in accrued expenses on the balance sheet.

As a result of the debt refinancing completed in April 2002 and subsequent debt repayments, Meredith had interest rate swap contracts that no longer met the qualifications for hedge accounting. Those swap contracts were deemed to be ineffective and dedesignated as hedge contracts. Therefore, all changes in the fair market value of those contracts are recorded in interest expense. Changes in the fair market value of the dedesignated swaps resulted in a $1.0 million reduction of interest expense in the quarter ended December 31, 2003 compared with a $0.5 million reduction in interest expense in the quarter ended December 31, 2002. Changes in the fair market value of the dedesignated swaps resulted in a $2.2 million reduction and a $0.8 million increase in interest expense for six months ended December 31, 2003 and 2002, respectively.

Meredith sponsors defined healthcare and life insurance plans that provide benefits to eligible retirees. On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). Meredith's plan does not provide prescription drug benefits for Medicare-eligible retirees. Therefore, the Act will have no impact on the Company's accumulated postretirement benefit obligation or net postretirement benefit costs.

Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income includes net earnings as well as foreign currency translation adjustments and changes in the fair market value of interest rate swap contracts. Total comprehensive income for the three-month periods ended December 31, 2003 and 2002, was $20.6 million and $19.5 million, respectively. Total comprehensive income (loss) for the six-month periods ended December 31, 2003 and 2002, was $40.7 million and $(50.2) million, respectively.

Meredith Corporation is a diversified media company primarily focused on the home and family marketplace. Based on products and services, the Company has established two reportable segments: publishing and broadcasting. The publishing segment includes magazine and book publishing, integrated marketing, interactive media, database-related activities, brand licensing, and other related operations. The broadcasting segment includes the operations of 11 network-affiliated television stations. There are no material intersegment transactions. There have been no changes in the basis of segmentation since June 30, 2003.

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 earnings before interest, taxes, depreciation and amortization (EBITDA). Operating profit, disclosed below, is revenues less operating costs excluding any nonrecurring charges, nonoperating expense, interest income and expense, and unallocated corporate expenses. Segment operating costs include allocations of certain centrally incurred costs such as employee benefits, occupancy, information systems, accounting services, internal legal staff and human resources administration expense. These costs are allocated based on actual usage or other appropriate methods, primarily number of employees. Unallocated corporate expenses are corporate overhead expenses not attributable to the operating groups. Segment EBITDA also excludes any nonrecurring charges, nonoperating expense, and unallocated corporate expenses. In accorda nce with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, EBITDA is not presented below.

The following discussion presents the key factors that have affected the Company's business in the second quarter and first six months of fiscal 2004 and fiscal 2003. This commentary should be read in conjunction with the consolidated financial statements presented elsewhere in this report and with the Company's Form 10-K for the fiscal year ended June 30, 2003.

Sections of this report-and management's public commentary from time to time-may contain certain forward-looking statements that are subject to risks and uncertainties. The words expect, anticipate, believe, likely, will, and similar terms generally identify forward-looking statements. These statements are based on management's current knowledge and estimates of factors affecting the Company's operations. Readers are cautioned not to place undue reliance on such forward-looking information; actual results may differ materially from those currently anticipated.

Factors that could adversely affect future results include but are not limited to downturns in national and/or local economies; a softening of the domestic advertising market; world, national or local events that could disrupt broadcast television; increased consolidation among major advertisers or other events depressing the level of advertising spending; the unexpected loss of one or more major clients; changes in consumer reading, purchase, and/or television viewing patterns; unanticipated increases in paper, postage, printing, or syndicated programming costs; changes in television network affiliation agreements; technological developments affecting products or methods of distribution; changes in legislation or government regulations affecting the Company's industries; unexpected changes in interest rates; and any acquisitions and/or dispositions. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

ACQUISITION

Meredith adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, effective July 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized to earnings, but be reviewed at least annually for impairment. The provisions of SFAS No. 142 that pertain to the impairment of goodwill and intangible assets not being amortized have superceded the impairment related provisions in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Under SFAS No. 121, the impairment review was based generally on future undiscounted cash flows. Under SFAS No. 142, the impairment review must be based on a fair-value approach. The estimated fair values of these assets are determined by developing discounted future cash flow analyses. SFAS No. 142 required an initial review of goodwill and intangible assets with indefinite lives as of the beginning of the fiscal year of adoption and another review later in the same fiscal year. The Company's initial review resulted in transitional impairment losses of $139.9 million ($85.7 million after tax), or $1.68 per diluted share. The impairment losses reflected the write-down of Federal Communication Commission (FCC) television licenses/network affiliation agreements ($33.7 million) and goodwill at certain television stations ($106.2 million). The majority of the impaired assets related to the acquisition of television station WGCL-TV in Atlanta in March 1999. The charge was recorded net of tax as the cumulative effect of a change in accounting principle in the first quarter of fiscal 2003. The subsequent annual review for impairment was performed as of May 31, 2003. No further adjustments were required as a result of that review.

Financial measures included in this Management's Discussion and Analysis of Financial Condition and Results of Operations that are not in accordance with generally accepted accounting principles (GAAP) are referred to as non-GAAP financial measures. While management believes these measures contribute to an understanding of the Company's financial performance, they should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Management uses and presents non-GAAP financial measures, along with GAAP results, to evaluate and communicate the performance of the Company and its segments. Management believes the non-GAAP financial measures provide an additional analytic tool to understand the Company's results from core operations and underlying trends. Each section of Management's Discussion and Analysis of Financial Condition and Results of Operations reporting non-GAAP financial measures includes reconciliations to the most directly comparable GAAP financial measures.

Meredith's primary use of non-GAAP financial measures relates to earnings before interest, taxes, depreciation, and amortization (EBITDA) which excludes nonoperating income (expense) and nonrecurring charges. Meredith's management uses EBITDA along with operating profit and other GAAP measures to evaluate the financial performance of the Company's broadcasting segment. EBITDA is a common alternative measure of performance in the broadcasting industry and is used by investors and financial analysts. The calculation of EBITDA may vary between companies. Management does not use broadcasting segment EBITDA as a measure of liquidity nor is EBITDA necessarily indicative of funds available for management's discretionary use.

Operating costs and expenses
Operating costs and expenses increased 13 percent in the quarter and 11 percent in the six-month period. Exclusive of the impact of the American Baby Group acquisition, the increases were 10 percent in the quarter and 7 percent in the six-month period. Comparable production, distribution, and editorial costs increased because of higher volumes of magazine advertising pages, integrated marketing projects and books sold. Partially offsetting these cost increases was lower broadcasting program rights amortization expense. This decline reflects management's efforts to improve program rights purchasing methods while maintaining quality programming. Comparable selling, general, and administrative expenses increased because of investments in publishing selling, marketing and research activities and higher publishing performance-based incentive accruals. Partially offsetting these cost increases were lower magazine subscription acquisition costs resulting from a shift to more profitable direct-to-publish er subscriber sources.

Nonoperating expense
Nonoperating expenses in the prior-year quarter and six-month period consisted of a charge of $1.6 million for the write-off of an investment in a start-up technology company and a gain of $1.3 million related to the final settlement with News Corporation and Fox Television Stations, Inc., of the June 2002 exchange of two Florida stations for KPTV in Portland, OR.

Interest
Net interest expense was $5.7 million in the second quarter compared with $6.5 million in the second quarter of fiscal 2003. Net interest expense was $11.5 million in the six months ended December 31, 2003, compared to $14.8 million in the comparable prior-year period. The declines reflected lower average debt outstanding in the current periods and favorable changes in the fair market value adjustments on interest rate swap contracts. The fair market value adjustments resulted in reductions of interest expense of $1.0 million in the current quarter versus $0.5 million in the prior-year second quarter. In the six-month periods, the fair market value adjustments resulted in a reduction of interest expense of $2.2 million in the current fiscal year compared to an increase in interest expense of $0.8 million in the prior fiscal year.

Income Taxes
The Company's effective tax rate for the quarter and six months just ended and for the same periods in the previous fiscal year was 38.7 percent.

Earnings and earnings per share
Fiscal 2004 second quarter net earnings were $20.2 million (39 cents per diluted share) compared with net earnings of $19.3 million (38 cents per diluted share) in the prior-year second quarter. Net earnings were $40.0 million (78 cents per diluted share) in the six months ended December 31, 2003 compared with earnings before the cumulative effect of a change in accounting principle of $35.8 million (70 cents per diluted share) in the prior-year period. The earnings improvements reflected the strong performance of the publishing business, including the addition of the American Baby Group, and lower interest expense. These improvements were partially offset by lower broadcasting earnings due to the cyclical decrease in political advertising revenues.

In the first quarter of the prior fiscal year, Meredith recorded an after-tax charge of $85.7 million ($1.68 per diluted share) for the cumulative effect of a change in accounting principle. The charge related to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, effective July 1, 2002. Including that charge the Company recorded a net loss of $50.0 million (98 cents per diluted share) in the first six months of the prior fiscal year.

Revenues
Publishing revenues increased 21 percent in the second quarter and 16 percent in the first half of fiscal 2004 compared with the respective prior-year periods. Excluding the impact of the American Baby Group acquisition, publishing revenues increased 15 percent in the quarter and 9 percent in the six-month period. To enhance comparability, the following discussion excludes revenues from the American Baby Group.

Comparable magazine advertising revenues increased 19 percent in the quarter and 11 percent in the first half of fiscal 2004. The growth was primarily a result of an increase in the number of advertising pages sold. All magazines reported higher advertising pages and revenues in the current periods. The growth in advertising pages was partially offset by lower average revenues per page at some titles reflecting the competitive advertising marketplace and management's efforts to increase market share. Combined advertising pages at the Company's two largest circulation titles, Better Homes and Gardens and Ladies' Home Journal, increased in the mid-teens on a percentage basis in the quarter and were up in the low-double digits for the first half of fiscal 2004. Advertising page growth was stronger at the mid-sized group of titles, which includes Country Home, Traditional Home, Midwest Living and MORE magazines. Country Home benefited from one additional issue in the quarter due to a shift in the timing of issues. Advertising categories showing strength in the quarter included home and building, packaged goods, direct response and travel. An increase in online advertising also contributed to the growth in advertising revenues in both periods.

Comparable magazine circulation revenues declined 2 percent in the second quarter and 3 percent in the six-month period versus the comparable prior-year periods. The declines reflected lower newsstand sales due to industrywide weakness at the newsstand and fewer issues of Special Interest Publications on sale in the first half of fiscal 2004. Lower average subscription revenues per copy at several titles, due to an increase in the term of direct mail offers, also contributed to the decline. Partially offsetting these declines were increased revenues from one additional issue of Country Home magazine on sale in the quarter.

Comparable other publishing revenues increased 33 percent from the prior-year second quarter and were up 25 percent in the six-month period reflecting strong new business growth in integrated marketing and increased book sales. Integrated marketing is the Company's custom publishing operation. One of the new projects in the current year is publication of the monthly programming guide for DIRECTV satellite television. Book revenues continued their strong growth led by sales of books based on the Monster Garage and Trading Spaces television series and home improvement titles for The Home Depot. The 12^th edition of the Better Homes and Gardens New Cook Book, which was released a year ago, continued its strong performance.

Operating costs
Publishing costs increased 20 percent in the quarter and 15 percent in the six-month period. Excluding costs of the American Baby Group, the increases were in the mid-teens in the quarter and approximately 10 percent in the first half of fiscal 2004. The increases in comparable costs reflected volume-related increases in magazine paper and postage costs, book royalties and integrated marketing and book production costs. In addition, average paper prices increased approximately 3 percent in both the quarter and six-month period. Also contributing to the cost increases were higher employee compensation, selling, marketing and research costs. Partially offsetting these cost increases were lower magazine subscription costs resulting from a shift to more profitable direct-to-publisher subscriber sources.

Operating profit
Publishing operating profit increased 31 percent in the second quarter and 20 percent in the first half of fiscal 2004. Major factors in the improvement were the addition of the American Baby Group in December 2002, higher advertising revenues and growth in book and integrated marketing sales and operating profits.