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.

Meredith accounts for awards of stock-based employee compensation under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Compensation costs are reflected in net earnings for restricted stock plans; however, no stock-based compensation cost is reflected in net earnings for the employee stock purchase plan or for stock options granted as all options had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:

The following table presents the calculations of earnings per share:

For the three months ended March 31, there were no antidilutive options excluded from the above calculations in 2004 and 446,000 options excluded in 2003 (with a weighted average exercise price of $42.40). For the nine months ended March 31, antidilutive options excluded from the above calculations totaled 70,500 options in 2004 (with a weighted average exercise price of $49.79) and 410,000 options in 2003 (with a weighted average exercise price of $42.21).

In the nine months ended March 31, 2004 and 2003, options were exercised to purchase 526,000 shares and 674,000 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. Intangible assets with indefinite lives include Federal Communication Commission (FCC) broadcast licenses and television network affiliation agreements. While legal and/or contractual provisions indicate a finite period for each of these assets, both are renewable without substantial cost or material modifications as evidenced by Meredith's experience since entering the television broadcasting business in 1948. In addition, Meredith expects the television broadcasting business and the television network/affiliate system to continue into the foreseeable future and, therefore, the related cash flows are expected to continue indefinitely.

SFAS No. 142 also establishes requirements for the periodic impairment review of goodwill and intangible assets with indefinite lives. Goodwill and intangible assets with indefinite lives are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Reviews are based on a fair-value approach as described in SFAS No. 142. The estimated fair values 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. 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 Federal Communication Commission (FCC) television licenses/network affiliation agreements ($33.7 million) and goodwill ($106.2 million) at certain television stations. 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 next annual review for impairment will be performed as of May 31, 200 4.

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 nine months 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 27.5 percent are under the LIFO method at March 31, 2004 and 30 percent at June 30, 2003.

Intangible assets and goodwill consisted of the following:

Amortization expense for intangible assets was $0.5 million for the nine months ended March 31, 2004. 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 nine months of fiscal 2004 and 2003 are as follows:

In connection with the asset-backed commercial paper facility, Meredith entered into a revolving agreement to sell all of its rights, title and interest in the majority of its accounts receivable related to advertising, book and miscellaneous revenues to Meredith Funding Corporation, a special purpose entity established to purchase accounts receivable from Meredith. At March 31, 2004, $163.8 million of accounts receivable, net of reserves, were outstanding under the agreement. Meredith Funding Corporation in turn sells receivable interests to an asset-backed commercial paper conduit administered by Bank One, N.A. In consideration of the sale, Meredith receives cash and a subordinated note, bearing interest at the prime rate (4.00 percent at March 31, 2004), from Meredith Funding Corporation. The agreement is structured as a true sale under which the creditors of Meredith Funding Corporation will be entitled to be satisfied out of the assets of Meredith Funding Corporation prior to any value being returned to Meredith or its creditors. The accounts of Meredith Funding Corporation are fully consolidated in Meredith's Condensed Consolidated Financial Statements. The asset-backed commercial paper facility renews annually in April. Meredith has the ability and the intent to renew the facility each year and has renewed it each year since its inception and, therefore, the principal is reflected as due on April 9, 2007, the facility termination date.

At March 31, 2004, 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 1.1 percent) on $116.2 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 $1.2 million at March 31, 2004. 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 $0.9 million reduction of interest expense in the quarter ended March 31, 2004 compared with a $0.8 million reduction in interest expense in the quarter ended March 31, 2003. Changes in the fair market value of the dedesignated swaps resulted in a $3.1 million reduction in interest expense for nine months ended March 31, 2004. In the comparable prior-year period, the net effect of the changes in the fair market value of the dedesignated swaps was immaterial.

The following tables present the components of net periodic benefit costs:

Meredith contributed $9.0 million to its pension plans in March 2004 consistent with the expected contributions previously disclosed in its financial statements for the year ended June 30, 2003. No further contributions are expected in fiscal 2004.

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 March 31, 2004 and 2003, was $34.0 million and $25.8 million, respectively. Total comprehensive income (loss) for the nine-month periods ended March 31, 2004 and 2003, was $74.7 million and $(24.4) 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 12 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 third quarter and first nine 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 were 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 yea r 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. 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 reflected the write-down of Federal Communication Commission (FCC) television licenses/network affiliation agreements ($33.7 million) and goodwill ($106.2 million) at certain television stations. 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 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 fina ncial 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.

Revenues
Third quarter revenues increased 8 percent while revenues for the first nine months of the fiscal year increased 9 percent compared with the respective prior-year periods. The increases in both periods reflected higher advertising revenues in both the publishing and broadcasting businesses as well as increased sales in custom publishing. These increases were partially offset by lower magazine circulation revenues in both periods. Additionally, the increase in revenues for the nine-month period included the effect of the December 2002 acquisition of the American Baby Group and higher book sales. Exclusive of the impact of the American Baby Group acquisition, revenues increased 7 percent in the nine-month period.

Operating costs and expenses
Operating costs and expenses increased 4 percent in the third quarter compared with the prior-year third quarter. Third quarter production, distribution and editorial costs increased 9 percent primarily because of a volume-related increase in custom publishing manufacturing costs and higher magazine editorial and art costs. These increases were partially offset by lower broadcasting program rights amortization expense. This decline reflects management's efforts to improve program rights purchasing methods while maintaining quality programming. Third quarter selling, general and administrative expenses were nearly flat as lower magazine subscription acquisition costs offset increased broadcasting selling expenses reflecting more aggressive sales and research efforts and higher unallocated corporate costs. The decline in magazine subscription acquisition costs resulted from a shift to more profitable direct-to-publisher subscriber sources. Third quarter depreciation and amortization costs decreased 21 perc ent reflecting approximately $2.0 million in prior-year amortization for short-lived intangible assets resulting from the American Baby Group acquisition.

Operating costs and expenses increased 9 percent in the nine-month period. Exclusive of the impact of the American Baby Group acquisition, the increase was 7 percent. Comparable production, distribution, and editorial costs increased because of higher volumes of magazine advertising pages, custom publishing projects and books sold. Partially offsetting these cost increases was lower broadcasting program rights amortization expense. Comparable selling, general, and administrative expenses increased because of investments in publishing and broadcasting selling, marketing and research activities, higher publishing performance-based incentive accruals and higher unallocated corporate costs. Partially offsetting these cost increases were lower magazine subscription acquisition costs. Comparable depreciation and amortization expense increased slightly in the period.

Nonoperating expense
Nonoperating expenses in the first nine months of the prior year 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 $5.6 million in the third quarter compared with $6.4 million in the third quarter of fiscal 2003. Net interest expense was $17.1 million in the nine months ended March 31, 2004, compared to $21.2 million in the comparable prior-year period. The declines reflected lower average debt outstanding in the current periods and, in the nine-month period, 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 $0.9 million in the current quarter versus $0.8 million in the prior-year third quarter. In the current nine-month period, the fair market value adjustments resulted in a reduction of interest expense of $3.1 million. In the prior-year period, the net effect of the fair market value adjustments was immaterial.

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

Earnings and earnings per share
Fiscal 2004 third quarter net earnings were $33.6 million (65 cents per diluted share) compared with net earnings of $25.5 million (50 cents per diluted share) in the prior-year third quarter. Net earnings were $73.6 million ($1.43 per diluted share) in the nine months ended March 31, 2004 compared with earnings before the cumulative effect of a change in accounting principle of $61.3 million ($1.20 per diluted share) in the prior-year period. The earnings improvements reflected increased operating profits from both the publishing and broadcasting businesses as well as lower interest expense.

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 $24.5 million (48 cents per diluted share) in the first nine months of the prior fiscal year.