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, 2006, and for the three and six months ended December 31, 2006 and 2005, 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. The results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year.

These 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 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, 2006, filed with the United States Securities and Exchange Commission (SEC).

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS No. 157 will become effective for the Company at the beginning of fiscal 2009. Meredith is currently evaluating the impact, if any, that SFAS No. 157 will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS No. 158). SFAS No. 158 requires employers that sponsor defined benefit postretirement plans to recognize the overfunded or underfunded status of defined benefit postretirement plans, including pension plans, in their balance sheets and to recognize changes in funded status through comprehensive income in the year in which the changes occur. This requirement of SFAS No. 158 is effective for Meredith's current fiscal year ending June 30, 2007. SFAS No. 158 also requires that employers measure plan assets and obligations as of the date of their year-end financial statements. This requirement is effective for Meredith's fiscal year ending June 30, 2009. Meredith is currently evaluating the impact that SFAS No. 158 will have on its consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. It establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company's financial statements and the related financial statement disclosures. SAB 108 is effective for Meredith's current fiscal year ending June 30, 2007. Management does not believe adoption of SAB 108 will have a material impact on the Company's consolidated financial statements.

Major components of inventories are summarized below. Of net inventory values shown, approximately 36 percent are under the LIFO method at December 31, 2006, and 38 percent at June 30, 2006.

Intangible assets consist of the following:

Amortization expense was $6.8 million for the six months ended December 31, 2006. Annual amortization expense for intangible assets is expected to be as follows:  $13.6 million in fiscal 2007, $13.5 million in fiscal 2008, $8.0 million in fiscal 2009, $7.8 million in fiscal 2010, and $7.7 million in fiscal 2011.

Changes in the carrying amounts of goodwill during the first six months of fiscal 2007 and 2006 are as follows:

In August 2006, Meredith entered into an asset purchase agreement for the sale of KFXO, our low-power FOX affiliate serving the Bend, OR market. The sale of this station is not expected to have a material effect on the Company's financial condition or results of operations. In addition, the resulting gain is not expected to be material. Management expects this sale to close in calendar year 2007 once the Company obtains regulatory approval.

In November 2006, the Company acquired ReadyMade, a multimedia brand targeting adults in their 20s and 30s. The ReadyMade brand includes a do-it-yourself lifestyle magazine, a web site, a branded book, branded products such as project plans and kits, and custom marketing operations. This acquisition was not material to the Company. The purchase price allocation is preliminary.

Included in additions to goodwill is $5.1 million of contingent consideration accrued in connection with the April 2006 acquisition of O'Grady Meyers, Inc. (OGM). The contingent consideration is calculated annually through calendar 2009 based on a multiple of OGM's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) minus prior purchase price payments, subject to a cap. Any such contingent consideration will be recorded as additional goodwill.

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, 2006, $235.1 million of outstanding accounts receivable net of reserves was subject to 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, 8.25 percent at December 31, 2006, 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 2, 2011, the facility termination date.

On December 4, 2006, the Company entered into two interest rate swap agreements to hedge variable interest rate risk on $100 million of the Company's variable interest rate revolving credit facility. The swaps became effective as of December 29, 2006, and expire December 31, 2009. Under the swaps the Company will, on a quarterly basis, pay fixed rates of interest (average 4.69 percent) and receive variable rates of interest based on the three-month LIBOR rate (average of 5.36 percent at December 31, 2006) on $100 million notional amount of indebtedness. The swaps are designated as cash flow hedges. The Company evaluates the effectiveness of the hedging relationships on an ongoing basis by recalculating changes in fair value of the derivatives and related hedged items independently (the long-haul method). Unrealized gains or losses on cash flow hedges are recorded in comprehensive income to the extent the cash flow hedges are effective. No material ineffectiveness existed at December 31, 2006. The fair value of the interest rate swap agreements is the estimated amount that the Company would pay or receive to terminate the swap agreements. At December 31, 2006, the swaps had a fair value to the Company of $0.9 million. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to the swap agreements. Management does not expect any counterparties to fail to meet their obligations given the strong creditworthiness of the counterparties to the agreements.

The following table presents the components of net periodic benefit cost:

Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company's comprehensive income includes changes in the fair value of interest rate swap agreements in addition to net earnings. Total comprehensive income for the three months ended December 31, 2006 and 2005, was $35.5 million and $29.2 million, respectively. Total comprehensive income for the six months ended December 31, 2006 and 2005, was $66.0 million and $55.6 million, respectively.

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 578,000 in 2006 (with a weighted average exercise price of $47.47) and 1,381,000 in 2005 (with a weighted average exercise price of $49.72). For the six months ended December 31, antidilutive options excluded from the above calculations totaled 784,000 in 2006 (with a weighted average exercise price of $48.50) and 1,254,000 in 2005 (with a weighted average exercise price of $49.76).

In the six months ended December 31, 2006 and 2005, options were exercised to purchase 407,000 shares and 442,000 shares, respectively.

Meredith is a diversified media company focused primarily on the home and family marketplace. On the basis of 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 consists primarily of the operations of network-affiliated television stations. There are no material intersegment transactions. There have been no changes in the basis of segmentation since June 30, 2006.

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 EBITDA. Operating profit for segment reporting (disclosed below) is revenues less operating costs excluding 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. These costs are allocated based on number of employees, actual usage, or other appropriate methods. Unallocated corporate expenses are corporate overhead expenses not attributable to the operating groups. In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, EBITDA is not presented below.

The following table presents financial information by segment:

In December 2006, Meredith agreed to acquire Genex, an interactive marketing services firm that specializes in online customer relationship marketing, and New Media Strategies, an interactive word-of-mouth and viral marketing company. The New Media Strategies acquisition closed in mid-January and the Genex acquisition is expected to close by the end of January 2007.  These acquisitions are not expected to be material to the Company.

Meredith Corporation (Meredith or the Company) is one of the nation's leading media and marketing companies, one of the leading magazine publishers serving women, and a broadcaster with television stations in top markets such as Atlanta, Phoenix, and Portland. Each month we reach more than 85 million American consumers through our magazines, books, custom publications, web sites, and television stations.

Meredith operates 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 77 percent of the Company's $801.8 million in revenues in the first six months of fiscal 2007 while broadcasting revenues accounted for 23 percent.

Advertising revenues made up 51 percent of publishing's fiscal 2007 first six months revenues. These revenues were generated from the sale of advertising space in the Company's magazines and on its web sites to clients interested in promoting their brands, products, and services to consumers. Circulation revenues accounted for 27 percent of publishing's fiscal 2007 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 22 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 and other related activities. Publishing's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.

Broadcasting derives almost all of its revenues--99 percent in the first six months of fiscal 2007--from the sale of advertising. The remainder comes from television retransmission fees, 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.

• Revenues increased 3 percent from the prior-year first six months. Record political advertising revenues at our television stations countered declines in publishing's magazine advertising and circulation revenues.

• Broadcasting revenues and operating profit increased 20 percent and 49 percent, respectively, as compared with the same six-month period in the prior year.

• Publishing revenues declined 1 percent as compared to the first six months of the prior year while operating profits decreased 4 percent for this same period. In the second quarter of fiscal 2007, the publishing segment recorded pre-tax bad debt expense of $3.0 million, or $0.04 per diluted share, associated with the December 29, 2006, bankruptcy filing by book distributor Advanced Marketing Services (AMS).

• In November 2006, Meredith acquired ReadyMade, a multimedia brand targeting adults in their 20s and 30s. The ReadyMade brand includes a do-it-yourself lifestyle magazine, a web site, a branded book, branded products such as project plans and kits, and custom marketing operations.

• Diluted earnings per share for the second quarter increased 24 percent to $0.72 from prior-year second quarter earnings of $0.58.

• We spent $32.2 million to repurchase approximately 650,000 shares of our common stock in the six-month period.

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 measure of performance in the broadcasting industry and is used by investors and financial analysts; however, 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 contribute to an understanding of our financial performance and 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 accounting principles generally accepted in the United States of America (GAAP).

The following sections provide an analysis of the results of operations for the publishing and broadcasting segments and an analysis of the consolidated results of operations for the quarter and six months ended December 31, 2006, compared with the 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 year ended June 30, 2006.

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 from Gruner + Jahr Printing and Publishing Co. These titles are collectively referred to as the G+J Consumer Titles.

PUBLISHING
Publishing operating results were as follows:

Revenues
Increases in other publishing revenues of 15 and 9 percent for the second quarter and first six months of fiscal 2007, respectively, were more than offset by 3 percent and 1 percent declines in advertising revenues and 8 percent and 9 percent declines in circulation revenues for the second quarter and first six months of fiscal 2007, respectively.

Magazine advertising revenues decreased 4 percent in the second quarter and 2 percent in the first six months of fiscal 2007. Total advertising pages were down slightly for the second quarter and were up slightly for the first six months of fiscal 2007. Strong gains in special interest publications were more than offset by weakness in our parenthood titles (Parents, American Baby, and Child). In addition, combined ad pages for our women's service titles (Better Homes and Gardens, Ladies' Home Journal, and Family Circle) were flat to up in the low-single digits on a percentage basis for both the second quarter and the first six months of fiscal 2007 while combined advertising revenues were up in the low-single digits for both the second quarter and the six-month period. Although combined ad pages and combined ad revenues were down for our Hispanic titles (Siempre Mujer and Ser Padres) in the second quarter, both increased for the six-month period primarily due to there being three issues of Siempre Mujer in the first six months of fiscal 2007 as compared with two issues in the first six months of fiscal 2006. Similarly, Fitness ad pages and revenues decreased due to there being one less issue in each of the first and the second quarter of fiscal 2007 as compared to the prior-year periods due to changes in its publishing schedule. Among core advertising categories, pharmaceutical, direct response, and non direct-to-consumer showed strength while demand was weaker for the cosmetics, home, and media and entertainment categories. While a small percentage of total publishing advertising revenues, online advertising revenues in our interactive media operations increased over 30 percent in the second quarter and 40 percent in the first six months of fiscal 2007 due to continued increased market demand.

Magazine circulation revenues decreased 8 percent in the second quarter and 9 percent in the first six months of fiscal 2007, reflecting declines in both subscription and newsstand revenues. Similar to the first quarter, a decrease in subscription revenues was anticipated due to a series of previously announced strategic initiatives taken to improve long-term subscription contribution including the Company selling fewer subscriptions to Family Circle and Child due to the reductions in their rate bases and the Company's ongoing initiative to move the G+J Consumer Titles to our direct-to-publisher circulation model. The decrease in newsstand revenues is primarily due to the lowering of the newsstand price of Family Circle and to one less issue of Fitness in each of the first and the second quarter as compared to the prior year quarters due to the changing of Fitness's on-sale dates.

Other publishing revenues increased 15 percent from the prior-year second quarter and were up 9 percent in the six-month period primarily reflecting growth in our integrated marketing operations, and increased revenues from the sale of books and from other magazine revenue sources such as magazine custom projects and royalty revenues. For the three and six months ended December 31, 2006, integrated marketing revenues increased more than 40 percent and 15 percent, respectively. The timing of the delivery of custom publishing programs for several clients positively impacted integrated marketing revenues as did ongoing relationships with Nestlé and the Charming Shoppes. Book revenues grew in the low to mid-single digits on a percentage basis in both the second quarter and first half of fiscal 2007. The increase in book revenues was mainly due to the timing of the book release schedule compared with the prior year. Top selling books included Better Homes and Gardens New Cook Book and Denzel Washington's A Hand to Guide Me -- a book about the importance of everyday mentorship.

Operating Expenses
Second quarter publishing operating costs increased 1 percent from the fiscal 2006 quarter. In the six months ended December 31, 2006, publishing operating costs decreased 1 percent from the comparable prior-year period. In the second quarter of fiscal 2007, Publishing recorded pre-tax bad debt expense of $3.0 million associated with the AMS bankruptcy filing. For the second quarter and the first six months of fiscal 2007, declines in  production, distribution, and editorial expense, travel expenses, and research expenses more than offset higher employee compensation costs and increased bad debt, book royalty, and legal expenses. Also, advertising and promotional costs were lower for the first six months of fiscal 2007. Paper and postage costs are components of production, distribution, and editorial expense. While postage costs increased primarily due to increased postage rates effective January 2006 and paper prices were flat during the quarter and six-month period, production, distribution, and editorial expenses declined due to volume-related decreases. These decreases were primarily due to the lowering of the rate bases and the production of one less issue of Fitness in each quarter of fiscal 2007 as discussed above. Employee compensation costs were up due to higher staff levels primarily due to open positions in the prior-year first and second quarters, growth in sales and marketing personnel, and higher sales incentive accruals partially offset by a decrease in share-based compensation expense. The increase in book royalty expense was primarily due to higher royalty payments associated with a larger number of licensed books.

Operating Profit
Publishing operating profit declined 11 percent in the quarter and 4 percent in the six-month period compared with the respective prior year periods. Continued weakness in our parenthood titles, lower book operating profits, and the $3 million charge related to the AMS bankruptcy more than offset strong profit growth in our integrated marketing and interactive media operations.

BROADCASTING
Broadcasting operating results were as follows: