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

The condensed consolidated financial statements as of December 31, 2005, and for the three and six months ended December 31, 2005 and 2004, are unaudited but, in management's opinion, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of interim periods. Certain prior-year amounts have been reclassified to conform with current-year presentation. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

The interim period consolidated financial statements, including the related notes, are condensed and presented in accordance with accounting principles generally accepted in the United States of America (GAAP). These interim period condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements, which are included in Meredith's Annual Report on Form 10-K for the year ended June 30, 2005, filed with the United States Securities and Exchange Commission.

As disclosed in Meredith's 2005 Annual Report on Form 10-K, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R) effective October 1, 2004. As a result, in the second quarter of fiscal 2005, the Company recorded the cumulative effect of a change in accounting principle of $1.5 million ($0.9 million after tax), or $0.02 per share, to reduce compensation expense recognized in previous periods.

On July 1, 2005, Meredith acquired Parents (including its related special interest publications, Baby and Expecting), Family Circle, Fitness, Child and Ser Padres magazines from Gruner + Jahr Printing & Publishing Co. (Gruner + Jahr) for $350 million in cash. Meredith's results of operations include the new publications beginning July 1, 2005. The cash purchase price, including transaction costs, was $353.7 million. The allocation of the purchase price to assets acquired and liabilities assumed is preliminary pending finalization of management's restructuring plan pertaining to the acquired business. Management's purchase price allocation resulted in goodwill of $234.1 million, identifiable intangible assets of $113.0 million, tangible assets of $4.7 million, net working capital of $46.1 million and assumed liabilities of $44.2 million. The identifiable intangible assets include trade names of $76.3 million, subscriber relationships of $15.9 million, advertiser relationships of $18.4 million and other miscellaneous intangibles of $2.4 million. The tangible and intangible assets have been valued based on an independent third-party valuation. Goodwill and trade names will not be subject to amortization. Other intangible assets will be amortized over their estimated useful lives, which range from 3 to 7 years.

The transaction was financed primarily through a new $300 million private placement of fixed-rate senior notes with a weighted average interest rate of 4.56 percent. The remaining $50 million was financed under our existing credit facilities. The new private placement debt will mature in staggered terms over the next two to five years.

Pro forma results of Meredith's operations for the six-month period ended December 31, 2004, are based on unaudited carve-out financial statements prepared by Gruner + Jahr. Since Gruner + Jahr did not publicly report on a quarterly basis, there can be no assurances that these carve-out financial statements include all adjustments required to properly state results for the six-month period. On a pro forma basis as if the acquisition had occurred on July 1, 2004, Meredith would have had revenue of $739.9 million, net earnings of $49.7 million, basic earnings per share of $0.99 and diluted earnings per share of $0.96, for the six-month period ended December 31, 2004. This pro forma financial information should not be considered indicative of the actual results that would have been achieved had the acquisition been completed on the date indicated and does not purport to indicate results of operations as of any future date or any future period.

The acquisition helps implement Meredith's previously articulated corporate strategies of broadening its magazine portfolio, attracting younger women readers to Meredith magazines and capturing the potential in the Hispanic market. As a result of the acquisition, Meredith has the largest female reach in the magazine industry. Including the new publications, Meredith now has a circulation of nearly 30 million, making Meredith the second largest consumer magazine publisher in the United States, according to data gathered from the Audit Bureau of Circulations and BPA Worldwide.

Major components of inventories are summarized below. Of total inventory values shown, approximately 23 percent are under the LIFO method at December 31, 2005, and 33 percent at June 30, 2005.

Intangible assets and goodwill consisted of the following:

Amortization expense for intangible assets was $7.0 million for the six months ended December 31, 2005. Annual amortization expense for intangible assets is expected to be as follows:  $14.0 million in fiscal 2006, $14.0 million in fiscal 2007, $13.9 million in fiscal 2008, $8.6 million in fiscal 2009, $7.8 million in fiscal 2010 and $7.7 million in fiscal 2011.

The changes in the carrying amounts of goodwill during the first six months of fiscal 2006 and 2005 are as follows:

Long-term debt consists of the following:

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 December 31, 2005, $224.8 million of accounts receivable, net of reserves, was outstanding under the agreement. Meredith Funding Corporation in turn sells receivable interests to an asset-backed commercial paper conduit administered by a major national bank. In consideration of the sale, Meredith receives cash and a subordinated note, bearing interest at the prime rate 7.25 percent at December 31, 2005, 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 until April 9, 2007, the facility termination date.

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

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 1,381,000 options in 2005 (with a weighted average exercise price of $49.72) and 2,055,000 options in 2004 (with a weighted average exercise price of $47.86). For the six months ended December 31, antidilutive options excluded from the above calculations totaled 1,254,000 options in 2005 (with a weighted average exercise price of $49.76) and 1,911,000 options in 2004 (with a weighted average exercise price of $47.60).

In the six months ended December 31, 2005 and 2004, options were exercised to purchase 442,000 shares and 432,000 shares, respectively.

Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. Comprehensive income includes net earnings as well as items of other comprehensive income. Total comprehensive income for the three months ended December 31, 2005 and 2004, was $29.2 million and $27.8 million, respectively. Total comprehensive income for the six months ended December 31, 2005 and 2004, was $55.6 million and $51.8 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 14 network-affiliated television stations and one AM radio station. There are no material intersegment transactions. There have been no changes in the basis of segmentation since June 30, 2005.

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 for segment reporting, disclosed below, is revenues less operating costs excluding 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 expenses. 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. In accordance with SFAS 131, Disclosures about Segments of an Enterprise and Related Information, EBITDA is not presented below.

Meredith Corporation (Meredith or the Company) is one of America's leading media and marketing companies. We are one of the leading magazine publishers serving women and a broadcaster with television stations in top markets such as Atlanta and Phoenix. Each month we reach more than 80 million American consumers through our magazines, books, custom publications, web sites and television stations.

Meredith operates in two business segments. Publishing consists of magazine and book publishing, Integrated Marketing, Interactive Media, database-related activities, brand licensing and other related operations. Broadcasting consists of 14 network-affiliated television stations and one radio station. Both segments operate primarily in the United States and compete against similar media and other types of media on both a local and national basis. Publishing accounted for 80 percent of the Company's revenues in the first six months of fiscal 2006 while broadcasting revenues totaled 20 percent.

PUBLISHING
Advertising revenues made up 50 percent of publishing's revenues in the first six months of fiscal 2006. These revenues are generated from the sale of advertising space in the Company's magazines and on web sites to clients interested in promoting their brands, products and services to consumers. Circulation revenues accounted for 30 percent of publishing's fiscal 2006 first six months revenues. Circulation revenues result from the sale of magazines to consumers through subscriptions and by single copy sales on newsstands, primarily at major retailers and grocery/drug stores. The remaining 20 percent of publishing revenues came from a variety of activities that included the sale of books and integrated marketing services as well as brand licensing, product sales and other related activities. Publishing's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.

BROADCASTING
Broadcasting derives almost all of its revenues-98 percent in the first six months of fiscal 2006-from the sale of advertising. The remainder comes from television rebroadcast rights fees, network compensation, television production services and other services. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place in odd-numbered fiscal years) than at other times. Broadcasting's major expense categories are employee compensation and programming costs.

• On July 1, 2005, Meredith completed its acquisition of Parents, (including its related special interest publications, Baby and Expecting), Family Circle, Fitness, Child and Ser Padres (collectively referred to as the G+J Consumer Titles) from Gruner + Jahr Printing and Publishing Co.

• Revenues increased 33 percent from the prior-year first six months reflecting strong advertising revenue growth for the existing magazines, growth in online advertising revenues and increased broadcasting non-political revenues as well as increased revenues from the G+J Consumer Titles, which offset the cyclical decline in political advertising at the television stations.

• On a comparable basis, excluding the G+J Consumer Titles, publishing revenues and operating profit increased 9 percent and 16 percent, respectively, as compared with the same six-month period in the prior year. Broadcasting revenues and operating profit decreased 4 percent and 16 percent, respectively, as compared to the first six months of the prior year.

• Diluted earnings per share increased 12 percent to $1.10 from prior-year first half earnings of $0.98 (before the cumulative effect of a change in accounting principle). The increase primarily reflected the improved performance of the ongoing publishing segment. In addition, for the six months ended December 31, 2005, the G+J Consumer Titles were modestly accretive.

• We spent $26.5 million to repurchase shares of our common stock in the first half of fiscal 2006.

USE OF NON-GAAP FINANCIAL MEASURES
Our analysis of broadcasting segment results includes references to earnings before interest, taxes, depreciation and amortization (EBITDA). EBITDA and EBITDA margin are non-GAAP measures. We use EBITDA along with operating profit and other GAAP measures to evaluate the financial performance of our broadcasting segment. EBITDA is a common alternative measure of performance in the broadcasting industry and is used by investors and financial analysts, but its calculation may vary among companies. Broadcasting segment EBITDA is not used as a measure of liquidity, nor is it necessarily indicative of funds available for our discretionary use.

We believe the non-GAAP measures used in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contribute to an understanding of our financial performance. We believe the non-GAAP financial measures provide an additional analytic tool to understand our results from core operations and to reveal underlying trends. These measures should not, however, be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

The following sections provide an analysis of the results of operations for the publishing and broadcasting segments followed by an analysis of the consolidated results of operations for the quarter and the six months ended December 31, 2005, compared with the respective prior-year periods. This commentary should be read in conjunction with the interim condensed consolidated financial statements presented elsewhere in this report and with the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

PUBLISHING
Publishing operating results were as follows: