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Meredith Corporation Reports Record Earnings in 2005

Press release from the issuing company

DES MOINES, Iowa, July 27 -- Meredith Corporation today reported record earnings for fiscal 2005. The Company's earnings grew 23 percent to $128.1 million and earnings per share increased 25 percent to $2.50 before the $0.02 cumulative benefit of a change in accounting principle related to option expensing. Total revenues and total advertising revenues grew 5 percent. Fourth quarter net earnings rose 12 percent to $42.2 million and earnings per share increased 15 percent to $0.83. Total revenues increased 8 percent and total advertising revenues grew 4 percent. "Fiscal 2005 was an outstanding year for Meredith," said William T. Kerr, Chairman and CEO. "We produced the best earnings in our 103-year history, and on July 1, 2005 we completed the most significant Publishing transaction as well. The acquisition of Parents, Child, Fitness, Family Circle and Ser Padres magazines broadens our magazine portfolio to reach younger women and furthers our strategy to serve the Hispanic market. Additionally, we extended our marketing services capabilities and increased audience share at our television stations. These actions enhance our ability to sustain strong earnings growth in fiscal 2006 and beyond." Operating Highlights Publishing For fiscal 2005, Publishing operating profit increased 10 percent to $174.3 million and operating profit margin improved from 18.1 percent to 19.2 percent. This performance reflects profit growth in magazines, books, integrated marketing and interactive media. Total revenues grew 4 percent and advertising revenues rose 2 percent. Publishing expenses increased 3 percent, including a 5 percent increase in paper costs. The Company increased its circulation contribution in fiscal 2005. Meredith continued to invest in its long-term direct-to-publisher circulation model by increasing its direct mail volume considerably in fiscal 2005. Meredith Integrated Marketing posted strong results in fiscal 2005, reflecting growth from new and existing clients. Meredith Books produced record operating profit, reflecting its expansion into the children's market and growth in traditional categories such as gardening, cooking, do-it-yourself and home design. In the fourth quarter, Publishing revenues grew 10 percent. Operating profit rose 9 percent, primarily due to strong profit growth in books, partially offset by higher paper costs. Meredith also made strategic investments in the quarter in circulation initiatives and the September 2005 launch of Siempre Mujer-its Spanish-language women's lifestyle magazine. Publishing advertising strengthened in the fourth quarter. Advertising revenues grew 8 percent as most of the Company's magazines and its interactive media operations posted strong gains. Meredith experienced strength in the food, cosmetics, travel and automotive categories, partially offset by declines in the home and household supply categories. Broadcasting For fiscal 2005, Broadcasting operating profit increased 25 percent to $86.7 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) grew 20 percent and EBITDA margin improved from 31.8 percent to 35.2 percent. Total revenues increased 8 percent to $312.5 million in fiscal 2005, reflecting $18.8 million in net political advertising revenues compared with $6.1 million in fiscal 2004. Meredith also benefited from strength in local advertising and revenues from its new WB affiliate in Chattanooga and its joint sales agreement with the WB affiliate in Kansas City. Non-political advertising revenues grew 4 percent. In the fourth quarter, operating profit and EBITDA declined 6 and 4 percent, respectively. Total revenues were flat, reflecting a $3.4 million decrease in net political advertising revenues from the prior year and a decline in national advertising, offset by strength in local advertising and revenues from the stations in Chattanooga and Kansas City. Non-political advertising revenues grew 4 percent. Meredith continued its late news share improvement for certain key markets in the May ratings book for the important adult 25-54 demographic group. The Company's stations in its two largest markets-Atlanta and Phoenix-increased audience share 40 and 29 percent, respectively. In Kansas City, Meredith grew audience share 42 percent. The Company posted strong audience share for most of its morning newscasts in the May book. In Portland and Hartford, Meredith's stations captured approximately one-third of the television audience. In Nashville, Kansas City and Saginaw, the Company's stations garnered approximately one-fourth of the viewers. OTHER FINANCIAL INFORMATION The Company generated $170.9 million in cash flow from operations in fiscal 2005. During the year, Meredith repurchased $97.5 million of its stock, reduced debt $50 million, invested $35.4 million to enter a joint sales agreement with the WB affiliate in Kansas City and to acquire the WB affiliate in Chattanooga, and paid $25.8 million in dividends. The Company repurchased approximately 1.96 million shares in fiscal 2005 compared with approximately 750,000 shares in the prior-year. Capital expenditures were $23.8 million in fiscal 2005. Net interest expense decreased from $22.5 million in fiscal 2004 to $19 million in fiscal 2005. All earnings per share figures in the text of this release are diluted. Both basic and diluted earnings per share can be found in the attached statements of earnings. SUBSEQUENT EVENT On July 1, 2005, Meredith closed its acquisition of Parents, Child, Fitness, Family Circle and Ser Padres magazines for $350 million in cash. The Company completed a new $300 million private placement of senior notes and financed the balance under existing credit facilities. OUTLOOK For fiscal 2006, Meredith expects earnings per share will approximate $2.80, representing 12 percent growth from the $2.50 it earned in fiscal 2005. The Company believes earnings per share will grow in the 8 to 10 percent range in the first half of fiscal 2006 and in the mid-teens in the second half of the year. This outlook is consistent with the guidance the Company provided at the Mid-Year Media Review, as well as its previously stated long-term financial objective for a non-political year. For the full year, in Publishing, Meredith expects solid growth in advertising revenue and circulation contribution, modest accretion from its newly acquired magazines, and growth from its book and integrated marketing operations-partially offset by a mid-to-high teen increase in paper prices and a mid-single digit increase in postage rates. In Broadcasting, the Company anticipates its results will reflect the absence of political advertising, continued weakness in national advertising and strength in local advertising. For the first quarter of fiscal 2006, the Company expects earnings per share will approximate $0.50 compared with $0.46 in the first quarter of fiscal 2005. On a comparable basis, excluding the newly acquired magazines, Publishing advertising revenues are anticipated to grow in the low-to-mid single digits. Total Publishing advertising revenues are expected to increase significantly primarily due to the addition of the new titles. Broadcast pacings, which are a snapshot in time and change frequently, are currently up slightly, reflecting the absence of political advertising and continued weakness in national advertising, offset by strength in local advertising.