Meredith Corporation Third Quarter of Fiscal 2004 Earnings Conference Call Transcript April 27, 2004

Jim Jacobson - Leader Bill Kerr (Bill) Kevin O’Brien (Kevin) Steve Lacy (Steve) Suku Radia (Suku) ______

Operator This is a recording of the Meredith Corporation Public Relations Conference Call with Mr. Jim Jacobson as the leader. The call is taking place on April 27th, 2004, at 10 o’clock A.M. Central Time. Thank you for holding. Parties will be on a listen-only mode until the question and answer segment of today’s conference. This call is being recorded. If you have any objections, you may disconnect. I’d like to introduce your first speaker, Mr. Jim Jacobson, Director of Investor Relations.

Leader Thank you, and good morning, everyone. I’m Jim Jacobson, Director of Investor Relations for Meredith Corporation. With me today are Bill Kerr, Chief Executive Officer, Kevin O’Brien, President of the Broadcasting Group, Steve Lacy, President of the Publishing Group, Suku Radia, Chief Financial Officer, and Steve Cappaert, Corporate Controller.

Before our presentation, I will take care of a few housekeeping items. First, this call is being webcast on our website, meredith.com. Our formal remarks will be furnished to the SEC as part of an 8K, and a transcript of the call will be posted to our website. Second, references to nine-month fiscal 2003 earnings and earnings per share are before the cumulative effect of a change in accounting principle related to SFAS No. 142. Third, we will refer to non-GAAP measures that, considered in conjunction with GAAP results, provide additional analytic tools to understand our core operations. Tables in our earnings release reconcile GAAP results to non-GAAP measures. You may access this information on our website.

And last, in today’s call we’ll include statements that are considered forward-looking within the meaning of federal securities laws. These statements are based on management’s current knowledge and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from the forward- looking statements. Factors that could adversely affect future results include, but are not limited to, changes in advertising and consumer demand, paper prices, postage rates, overall economic conditions, changes in legislation and government regulations affecting our industries and world, national and local events that could disrupt broadcast television. A more comprehensive description of the risk factors can be found in our earnings release issued today and in certain of our SEC filings. The

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 1 company undertakes no obligation to update any forward-looking statement. Now, Bill will begin the presentation.

Bill Thanks, Jim, and welcome to everyone. I’ll start today with an overview of our third quarter. Kevin and Steve will follow with updates on their respective business groups. Next, Suku will discuss our financial position along with our outlook for all of fiscal 2004. Then we’ll address your questions.

Clearly, we’ve produced an excellent quarter. Our net earnings rose 32%, and our earnings per share of $0.65 were $0.03 higher than the First Call Consensus estimate. Our operating profit margin improved to 20.2% from 17.2, total revenues grew 8%, and total advertising revenues increased 9%.

Our outstanding quarterly performance was a result of several factors. In Broadcasting we enjoyed great success in selling the Super Bowl and NCAA Basketball Tournaments on our CBS stations. We realized more political advertising revenues than in the comparable quarter of the prior year and of the previous presidential election year.

We grew revenues from our Cornerstone program and added our new station, WSHM in Springfield, Massachusetts. We continued to reduce film amortization expense. And most importantly, we converted our previous ratings and share gains into revenue and profit growth throughout our station group.

In Publishing, we continued to increase our advertising market share. We improved circulation contribution, we grew our custom publishing business, and we contained expenses.

Both of our business groups outperformed their peers and significantly improved their margins. In Broadcasting, our spot advertising revenues increased 21%, more than double the industry’s average gain. EBITDA margin improved 29.2% from 20.2%. According to PIB, our advertising pages grew in excess of the industry average. Publishing operating profit margin increased to 22.8% from 21.1%.

Our nine-month performance also was strong, despite the challenge of replacing $20.5 million in net political advertising revenue from the comparable period of fiscal 2003. Earnings per share grew 19%, operating profit margin increased to 16.1% from 15.6%, and total revenues and total advertising revenues increased 9%.

Let me remind you of our long-term financial objectives. Each of our businesses should improve its margin over the long term – Broadcasting to a 40% EBITDA margin by the end of fiscal 2006 and Publishing to a 20% operating profit margin in fiscal 2006. Over time, we expect to grow earnings per share in the low double digits in non-political years and in the mid-to-high teens in political years.

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 2 Our performance to date in fiscal 2004 is well ahead of these objectives. We are positioned to produce outstanding results in fiscal 2004. Suku will share our outlook after you’ve heard more about the performance of our business units. Kevin will now begin with Broadcasting.

Kevin Thanks, Bill. Broadcasting produced a truly outstanding quarter. Operating profit more than doubled, EBITDA increased 74%, and, as Bill stated, EBITDA margin increased to 29.2% from 20.2%, and revenues grew a very solid 20%.

We also posted excellent results for the nine months. Despite difficult political advertising comparisons, operating profit grew 7%, EBITDA rose 6%, EBITDA margin improved nearly 1 percentage point to 29.6%, revenues grew 3%, and non- political advertising revenues increased 14%.

Our strong quarterly performance was broad-based throughout our station group with revenue and profit growth in all of our markets. As Bill noted, these results reflect our ability to translate previous ratings and share gains into revenue and profit growth.

Now, let’s look at our top three markets – Atlanta, Phoenix and Portland. In the past two years we posted an average share gain of 70% for late news and 34% for sign-on to sign-off. During the third quarter, our stations in these markets collectively increased revenues 21% and more than doubled EBITDA.

Now, we remain focused on improving ratings and share at our stations. In the February book for the adult 25-54 demographic, we posted sign-on to sign-off share gains at 7 of our 11 stations.

Once more, let’s start with our three largest markets. Collectively, sign-on to sign-off share rose an average of 17%. At WGCL in Atlanta, late news share rose 29%. At KPHO in Phoenix late news is now No. 3 in the market, up from No. 4 a year ago. And at KPTV in Portland, our locally produced “Good Morning, Oregon” was number one in all demographics from 5 to 9 A.M. – solidly beat the Today’s Show, which is impressive for a FOX affiliate.

We also posted significant share gains in other markets. In Nashville, WSMV’s sign- on to sign-off share was up 13%, and late news rose 12%. In Kansas City, KCTV grew sign-on to sign-off share 8%, and from 6 to 7 A.M. we improved 38%. WNEM in Saginaw increased share in most day parts; importantly, sign-on to sign-off share rose 27%.

Now, we also enjoyed great success in selling the Super Bowl and NCAA Basketball Tournament on our CBS stations. In particular, our Hartford station benefited from the championships of the New England Patriots and the University of Connecticut. Groupwide we generated approximately $5 million of net revenues in the third quarter of fiscal ’04 from these sports events. This compares to revenues of a little more than

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 3 $2 million for the basketball tournament in the same period a year ago. The Super Bowl was not broadcast on our stations in ’03.

Thanks to an early start to the presidential campaign, quarterly net political advertising revenues rose to $1.7 million from $120,000 in the comparable quarter. The large majority came from our stations in Phoenix, Kansas City, Saginaw, Nashville and Las Vegas. With stations in the key swing states of Michigan, Arizona, Missouri, Oregon and Nevada, we are well positioned to capitalize on election spending.

Now, we have a great success story in Springfield. WSHM, our low-powered CBS affiliate in that market, is off to a terrific start. The station began broadcasting in January and was profitable in its very first quarter, as we utilized resources from our Hartford station. More impressive is the fact that WSHM, in its very first ratings book, posted a 7-share sign-on to sign-off. This is one of the best sign-ons I can ever remember, and I’m proud of Elden Hale and the WFSB staff for this magnificent launch.

Our strategy to grow nontraditional revenues continued to pay dividends in the third quarter. Our Cornerstone programs combined editorial content from our leading magazines with local advertising. Revenue from these programs increased nearly 60% in the quarter. In addition to Cornerstones, we have created other marketing initiatives focused on local events, sports teams and Internet activities. We believe the combination of Cornerstones and these additional programs will generate about $20 million in fiscal ’04.

Recently, we entered into an agreement to acquire an AM radio station in the Saginaw / Bay City, Michigan area. We will change the format to news talk and operate it from WNEM, our very strong CBS affiliate in the market. We will leverage our existing news talent and extend our highly rated news coverage to radio listeners. Also, we will be able to offer to advertisers both radio and television exposure.

Currently, our fourth quarter pacings are running up in the low teens, but, remember, pacings are volatile and change frequently.

Now, Steve will provide a detailed look at Publishing.

Steve Thank you very much, Kevin, and congratulations on a tremendous quarter.

Kevin Thank you.

Steve Publishing also had a strong quarter in the third quarter of this fiscal year. I’ll start with a quick review of our results; then I’ll discuss our magazines, our corporate solutions and retail activities. I’ll conclude with a review of our Integrated Marketing and our Book businesses.

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 4 In the third quarter, operating profit rose 13%, total revenues increased 4%, and total advertising revenues were up 3%. For the nine-month period, operating profit grew 17%, operating profit margin increased to 16.8% from 16.1%. Total revenues increased by 11%, and total ad revenues rose 14% during the nine-month period.

As Bill mentioned earlier, our magazine advertising revenues continued to outpace industry growth in our third quarter. According to PIB, we increased our share of overall magazine industry advertising revenues nearly 1 percentage point to 6.9% for the 12-month period ending with the March issues. Better Homes and Gardens, along with Ladies’ Home Journal, our two largest titles, maintained their commanding 44% combined share in the women’s service field. Country Home and Traditional Home each improved their share by 5 points.

Although the market remains competitive, these share improvements are the result of our preeminent position in the home and family market, our proven circulation model, which is trusted by the advertising community, and higher rate bases in certain of our mid-size titles.

In the third quarter, our two largest advertising categories for our magazines were food and beverage, along with home and building. Both grew ad revenues in the low double-digit range. We also experienced strong growth in automotive, retail and technology, categories where we’re focused on expanding our presence in the marketplace. We experienced weakness in pharmaceuticals and direct response due to the cyclical nature of product launches and offerings. These weaknesses had particular impact on Ladies’ Home Journal in the quarter. However, its nine-month ad performance was sound, with pages and revenues both up in the mid-single digit range.

Circulation contribution also increased in the quarter. Our circulation model is based on long-term, direct-to-publisher sources, captured primarily through direct mail and the Internet. Circulation revenues declined primarily due to industry weakness at newsstand and one fewer issue of Country Home related to timing.

Meredith Corporate Solutions provides advertisers with multi-platform marketing programs that offer more comprehensive services to our clients and establish higher- level relationships in client organizations, positioning us for additional business over time. We have a new project with JC Penney to help introduce its Home Collections by designer Chris Madden. Advertising will begin in the June issues of Better Homes and Gardens, Ladies’ Home Journal, Country Home, and Traditional Home magazines, along with our decorating Special Interest Publications. The program will also include a sweepstakes to build consumer interest in the new Chris Madden line.

We continue to develop innovative programs with leading retailers to increase advertising sales, help improve the demand at newsstand for our titles, and help these clients build relationships with retailers and the individual consumer. In the third quarter we teamed up with the Home Depot and 14 other sponsors to launch the

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 5 “Better Home, Better Living Contest.” This event is being promoted through editorial and advertising in Better Homes and Gardens and on bhg.com. There will also be in- store remodeling clinics at nearly 1,500 Home Depot stores across the country.

Now turning to our Integrated Marketing and Book business, both of these activities have delivered strong revenue and profit growth in our fiscal 2004. In the quarter, Integrated Marketing’s top programs included Direct TV, the monthly Programming Guide, and customer loyalty programs for Chrysler, Nestle and Publix.

We won new business this quarter with Hunter Douglas, the nation’s leading manufacturer of home window fashions. Using our industry-leading consumer database, we developed a sophisticated program to help Hunter Douglas retailers target potential customers at each dealer location. We created a 32-page catalog designed to inspire consumers and drive traffic to Hunter Douglas retail dealer locations across the country.

In our book activity, top sellers in the quarter were the 1-2-3 Series, sold primarily at the Home Depot, a special promotion of the 12th edition of the Better Homes and Gardens red plaid Cook Book, and two new Trading Spaces books, which were introduced.

Our pipeline of new books remains strong. We’re now publishing books based on Spider Man 2, the blockbuster movie being released this summer. With these books we’ve also expanded our distribution to Toys R Us. We’ll also publish a book based on American Chopper, a top-rated program on the Discovery Channel, two additional books based on Trading Spaces, and a series of children’s books based on Care Bears and Strawberry Shortcake characters.

With our July issues not yet finalized, total magazine advertising revenues are running up in the low single-digit range for our fourth quarter of fiscal 2004.

Now, Suku will give you an update on our financial highlights.

Suku Thank you, Steve. It’s a pleasure to elaborate on the financial impact of our outstanding third quarter. Net earnings increased 32%. Unallocated corporate expenses were up due to performance-related incentive accruals and startup expenses associated with a payroll outsourcing contract in the third quarter of fiscal 2004. Also, in the prior year third quarter, the company received some life insurance proceeds.

Our total debt was $305 million at March 31st, down from $330 million at December 31st, 2003. We remain conservatively leveraged. For purposes of debt compliance, our trailing 12-month debit-to-EBITDA ratio as defined in our debt covenants was at 1.4 compared to 2 a year earlier.

Net interest expense declined to $5.6 million from $6.4 million in the third quarter of fiscal 2003. Capital expenditures were $5.3 million, and we expect them to be in the

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 6 low $30 million range for all of fiscal 2004. Our effective tax rate remained at 38.7%, and we repurchased approximately 188,000 shares in the quarter, bringing the year-to- date total to 490,000 shares.

With that financial summary, let’s take a look forward. Fourth-quarter broadcast pacings, which are a snapshot in time and change frequently, are currently up in the low teens. And, as Steve said, with the July issues not finalized, Publishing advertising revenues currently are running up in the low single digits. At the present time we believe the current First Call Consensus estimate of $0.71 per share for the fourth quarter of fiscal 2004 is achievable. We will elaborate further at the Mid-Year Media Review in June.

And with that, I’ll turn it back to Bill for the final remarks.

Bill Thank you, Suku, and Steve and Kevin as well. In conclusion, I’ll simply tell you that both our businesses are in great shape, and their position to continue their momentum. And as I stated earlier, we’re looking forward to an outstanding fiscal 2004. With that, we’re ready to take your questions.

Operator If you would like to ask a question, press *1 on your phone. You will be announced prior to asking your question. To withdraw your question, press *2. Once again, if you would like to ask a question, press *1. The first question is from Edward Atorino. Your company name?

Ed Hi from Fulcrum Global Partners. Good afternoon. I’m rarely first. Two questions. On the corporate line, a little jump up there. Could you comment on the trend and what the sort of a run rate or fourth quarter might look like. And, second, could you talk about broadcast expenses going forward?

Bill Suku, do you want to handle first the question on the corporate expenses? I know you referenced that in your comments.

Suku Sure, yeah. Hi, Ed. Mostly, during the quarter a year ago we had some proceeds from a life insurance policy, or actually several life insurance policies. So just trying to do a comparison between the two, you know, that is obviously one of the differences, and as I mentioned, there were some startup expenses. But as you take a look forward to the run rate in that $7.5 million dollar range is probably a reasonable run rate.

Ed Thanks.

Bill And on the broadcasting expense outlook.

Suku On the broadcasting expense outlook, you know, because of the fact that we did have significant increase in revenues and again we had higher sales expenses, we have 19 more positions in the Broadcasting Group. And the film amortization will continue to be low, so I don’t expect that, you know, there is going to be a significant difference

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 7 in terms of broadcasting expense, given the fixed nature of the business, as I look out to the fourth quarter.

Ed Thanks very much.

Operator The next question comes from Karl Choi. Please state your company name.

Karl Merrill Lynch. A few questions. Number one, regarding circulation revenues, I understand that you manage the spread and not the revenues, but still the 7% decline was probably quite a bit higher than what I’d thought. And knowing that there were some one-time items in the quarter, what’s your expectation for the fourth quarter? If you could give us the change in paper prices for the quarter. And on the TV side, if you could talk about pacings by month. Thanks.

Bill Steve, do you want to handle the first question on the circ revenue outlook for the fourth quarter? You might… I don't know if you want to handle paper prices as well.

Steve Yeah. I’ll start with that one, because it’s the quickest answer. Paper prices, Karl, are up in the low single-digit range year over year in this time period. And, you know, there is always rumbling about price increases, but obviously that’s a function of how strong the demand is as we look out into the future.

As it relates to the overall circulation revenue, as I mentioned a couple minutes ago, the majority of that has to do with weakness at newsstand and also with the timing of the release of one issue, which changes that quarter over quarter. And, Suku, I don't know if you have that level of detail for Q4. I don’t have it right here in front of me, but if not, Karl, we can get back to you on that point.

Suku We don’t have that level of detail right now, Steve.

Steve Okay. Suku, will you get back to Karl on that?

Suku Yeah, absolutely.

Karl Okay, thank you.

Bill Karl, this is Bill. I would just add that the weakness of newsstand that the industry has experienced over the last really 13 or 14 months still continues, and that’s probably one of the more disappointing things we’re seeing in the marketplace.

Kevin Karl, as far as the pacings, you’re interested in the pacings on the fourth fiscal. We are running locally ahead of nationally, which is the usual trend. I would say we’re looking at mid-teens on the local side, mid-to-higher teens, and between 9 and 11% probably on the national side. We’re running around the mid-teens as an average, which we’re pleased with.

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 8 Suku Karl, this is Suku. I know you wanted that in aggregate for each month. It’s in the mid-teens in April, low double in May and low double in June, June being slightly ahead of May. And that all, of course, translates for the quarter into the mid-teens, as we stated earlier; and that, of course, includes political.

Karl Okay, great. Thank you.

Operator The next question is from Kevin Gruneich. Please state your company name.

Garrett Bear Stearns. Actually, it’s Garrett Bruttomesso on behalf of Kevin Gruneich. Is there any way you can just quantify, to the best of your efforts, the incremental revenue you think you got from Super Bowl and March Madness this year? Also, on the interest line, I’m curious, is there any mark to market changes there? And also if you could provide the new subs for the quarter via Internet and year to date?

Bill First question on the increment on the Super Bowl and the basketball.

Suku Yeah. On the Super Bowl, of course, we didn’t have the Super Bowl last year, so that was about two and a half million on the incremental revenues.

Bill And the basketball was $400,000 or $500,000.

Suku Right. Basketball was about $500,000 and then on the mark to market on the interest rates, the mark to market was favorable to the tune of $900,000, and the delta was a hundred thousand, since it was $800,000 favorable a year ago. And the last question was on the Internet subs?

Steve I’ve got that here, Suku. We had about 165,000 orders in the quarter, and we have generated about 560,000 year to date; and that compares with about 480,000 year to date in the prior fiscal.

Garrett Thanks. Just following up on the interest, can you just review your fixed to floating percent and… a little bit further?

Suku The swaps actually run out at the end of this quarter, and the debt that is remaining is all private-placement debt; and the private-placement debt, of course, is all fixed, and the interest rate on the two pieces that we have as we amortize the costs, it’s about, just slightly in excess of 6½%.

Garrett Okay. Those don’t come due ‘til early next year. Do we see bumped-up share repurchase in the near term?

Suku Basically, just coming back to the private placement, what we have is the first piece is due in March of ’05, of $75 million. Then we have $125 million in two tranches in

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 9 ’06, followed by $50 million in each of ’07 and ’08. So that gets you to the $300 million.

Garrett So in the new term then would we see bumped-up share repurchase?

Suku Well, yes. We will certainly continue with the share repurchase program, and as a reminder, we did get board authorization for 2 million shares in our January meeting, and we still have about 340,000 remaining under the old. So we have plenty of room.

Garrett Thanks, guys.

Operator The next question is from Douglas Arthur. Please state your company name.

Craig It’s actually Craig Huber at Morgan Stanley. A few things first.

Bill Morning, Craig.

Craig Good morning. A few things. Bill, could you comment, as you do from time to time, on postage as you look out over the next year and a half, timing and potential magnitude of any increases there? Also, would you be so good to give us the ad page changes for your top, say, six magazines in the prior quarter and also what the SIP changes were? Also, Steve, you started to go through your ad categories for magazines in the March quarter. Could you just kind of finish that off for auto and tech, just kind of quantify what the changes there were? Thanks.

Bill Sure. I think, in fact, I may ask Steve to deal with all three of the questions. Steve, you want to handle postage first?

Steve Craig, at this point in time, everything is fairly quiet on the postal front, pending the results of all the work that has been done related to the Commission and reform. I think the problem that I see, looking out probably a year or so from now, is that really not much has been done as it in fact relates to postal reform. We don’t anticipate any changes in postal rates as we look into our fiscal ’05, but I think there certainly is a concern as you would look out into the year beyond that. And I don't know, Bill, if you’d want to add anything to that.

Bill Yeah. I would simply add, Craig, my guesstimate at this point is, we’re probably looking at something in calendar ’06. And if I had to do a crystal ball on that today, my guess is that would be somewhere in double digits.

Steve And let me take the category questions that you had Craig, and Jim or Suku, I’d ask you to get back with the detail by individual title, which I don’t have right here at my fingertips. But we had a good, strong double-digit growth in our two big categories of food and beverage and home and building, similar double digit, low double-digit declines in the pharmaceutical area, which was the biggest challenge really in the quarter, and strong growth in significant percentage growth in auto, retail and

Meredith - 3Q 2004 Earnings Conference Call - 4/27/04 10 technology. But those are off, Craig, much lower bases. So really the only weakness of significance was in the pharmaceutical, but, you know, it’s our third-largest category, and most significant impact at the Journal.

Craig Okay, thank you.

Operator The next question is from Edward Atorino. Please state your company name.

Ed Okay, thanks. Could you comment on the amount of political money you’re seeing in the pacings, if you can isolate it out?

Bill Sure, Ed. Do you want Kevin to do that?

Ed Sure.

Kevin So far… It was a little stronger in the third fiscal than it is in the fourth fiscal, Ed. It’s sort of tapered off somewhat, but I would say that it’s probably going to be in the, it might add, put us up maybe possibly an additional 2%, maybe 1.8%. It’s very volatile right now. We’re getting a mixture of Kerry and Bush business, and then that backs off and we’re getting some issue, and then we’ll get some, soft money. So it’s a real mixed bag, but I don’t think it’s going to be as significant in the fourth fiscal as it was in the third.

Ed And how about auto advertising?

Kevin It’s hanging in there. The local advertising, auto advertising, is a lot stronger than the national and the group. The national advertising, auto advertising, has been a little softer than usual, but local is holding up pretty well; I’m fairly pleased with it.

Ed Thanks very much.

Operator Again, if you would like to ask a question, press *1. There are no further questions.

Bill All right. We’ll wrap it up then. I want to thank you for being involved in the call. And I’ll simply reiterate what I said earlier in my comments, that both of our businesses are in great shape, and they’re well positioned to continue their momentum, and we’re looking forward to an outstanding end of the year. And thanks again for being with us.

The information in the transcript is a textual representation of the Company’s conference call prepared by an external third party. While efforts are made to provide an accurate transcription, there may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. In no way does the Company or the external third party that prepares the transcript assume any responsibility for any investment or other decisions made based upon the information provided in this transcript. Users are advised to review the Company’s SEC filings and press releases.

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