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, websites, and television stations.

Meredith operates two business segments. The national media group, which was formerly the publishing group, consists of magazine and book publishing, integrated marketing, interactive media, database-related activities, brand licensing, and other related operations. The local media group, which was formerly the broadcasting group, consists of 12 network-affiliated television stations, one radio station, related interactive media operations, and video related operations. Both segments operate primarily in the United States (U. S.) and compete against similar media and other types of media. The national media group accounted for 82 percent of the Company's $332.4 million in revenues in the first three months of fiscal 2010 while local media group revenues represented 18 percent.

NATIONAL MEDIA GROUP

Advertising revenues made up 50 percent of national media group's first quarter revenues. These revenues were generated from the sale of advertising space in the Company's magazines and on websites to clients interested in promoting their brands, products, and services to consumers. Circulation revenues accounted for 26 percent of national media group's first quarter 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 24 percent of national media group's revenues came from a variety of activities that included the sale of integrated marketing products and services and books as well as brand licensing, and other related activities. National media group's major expense categories are production and delivery of publications and promotional mailings and employee compensation costs.

LOCAL MEDIA GROUP

The local media group derives almost all of its revenues-90 percent in the first three months of fiscal 2010-from the sale of advertising, both on the air and on our stations' websites. The remainder comes from television retransmission fees, television production services and products, and other services. Political advertising revenues are cyclical in that they are significantly greater during biennial election campaigns (which take place primarily in odd-numbered fiscal years) than at other times. Local media group's major expense categories are employee compensation and programming costs.

FIRST QUARTER FISCAL 2010 FINANCIAL OVERVIEW

º National media group revenues continued to be affected by the nationwide slowdown in the demand for advertising. As a result, national media group revenues decreased 8 percent. However, primarily as a result of the Company's ongoing initiative to reduce operating costs, national media group operating profit increased 14 percent.

º Local media group revenues were affected by both the nationwide slowdown in the demand for advertising and the cyclical decline in political advertising at the television stations. As a result, local media group revenues and operating profit decreased 14 percent and 78 percent, respectively.

º In July, Meredith invested in The Hyperfactory, an international mobile marketing company.

º Diluted earnings per share declined 2 percent to $0.40 from prior-year first quarter earnings of $0.41.

º We generated $29.0 million in operating cash flow.

In the third quarter of fiscal 2009, the Company discontinued the operations of Country Home magazine. The revenues and expenses, along with associated taxes, were reclassified from continuing operations into a single line item amount on the Condensed Consolidated Statements of Earnings titled loss from discontinued operations, net of taxes. Unless stated otherwise, as in the section titled Discontinued Operations, all of the information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations relates to continuing operations.

USE OF NON-GAAP FINANCIAL MEASURES

These consolidated financial statements, including the related notes, are presented in accordance with accounting principles generally accepted in the United States of America (GAAP). Our analysis of local media group results includes references to earnings from continuing operations 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 local media group. EBITDA is a common measure of performance in the broadcasting industry and is used by investors and financial analysts, but its calculation may vary among companies. Local media group EBITDA is not used as a measure of liquidity, nor is it necessarily indicative of funds available for our discretionary use.

We believe these 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 GAAP.

                             RESULTS OF OPERATIONS



Three Months Ended September 30,                  2009              2008          Change
(In thousands except per share data)
Total revenues                                $   332,415       $   364,070           (9 )%
Operating expenses                               (300,833 )        (325,919 )         (8 )%
Income from operations                        $    31,582       $    38,151          (17 )%
Earnings from continuing operations           $    18,341       $    19,068           (4 )%
Diluted earnings per share from continuing
operations                                    $      0.40       $      0.42           (5 )%
Diluted earnings per share                           0.40              0.41           (2 )%

The following sections provide an analysis of the results of operations for the national media group and local media group and an analysis of the consolidated results of operations for the three months ended September 30, 2009, compared with the prior-year period. 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, 2009.

NATIONAL MEDIA GROUP



National media group operating results were as follows:



       Three Months Ended September 30,     2009            2008          Change
       (In thousands)
       Advertising revenue              $  137,202      $  144,307            (5 )%
       Circulation revenue                  69,879          71,413            (2 )%
       Other revenue                        64,523          77,947           (17 )%
       Total revenues                      271,604         293,667            (8 )%
       Operating expenses                 (233,011 )      (259,777 )         (10 )%
       Operating profit                 $   38,593      $   33,890            14  %
       Operating profit margin                14.2  %         11.5  %

Revenues

Total magazine advertising pages and magazine advertising revenues were both down 5 percent in the quarter. While advertising revenues at the majority of our titles were down double-digits on a percentage basis, ad revenues at our women's service titles increased by 5 percent in the current quarter. Among our core advertising categories, food and beverage, non-prescription drugs, and household supplies showed strength while demand was weaker for the home, direct response, and prescription drug categories. Online advertising revenues in our interactive media operations declined 6 percent due to the slowdown in demand.

Magazine circulation revenues decreased 2 percent, reflecting a decline of 1 percent in subscription revenues and a decline of 5 percent in newsstand revenues. While circulation revenues were down, circulation contribution increased 14 percent. The decrease in subscription revenues was primarily due to a decrease in Fitness subscription revenues, which had one fewer issue as compared to the prior-year quarter. This decrease was partially offset by an increase in Better Homes & Gardens subscription revenues. The decrease in newsstand revenues was primarily the result of fewer special interest media titles published and soft retail sales partially offset by an increase in Family Circle newsstand revenues.

Other revenues within the national media group declined 17% in the first quarter of fiscal 2010 compared to the prior-year period as reductions in Meredith Integrated Marketing and book revenues were partially offset by higher revenues in brand licensing. Meredith Integrated Marketing was impacted by recession-related cutbacks in existing programs, primarily related to the automotive and retail sectors, as well as fewer new programs launched compared to the prior-year period. Book revenues declined due to the previously announced change in the business model. In the prior-year first-quarter, Meredith published books under the Better Homes and Gardens trademark and other licensed trademarks. Effective March 1, 2009, John Wiley & Sons, Inc. (Wiley) acquired the exclusive global rights to publish and distribute books based on Meredith's consumer-leading brands. Wiley pays Meredith royalties based on net sales subject to a guaranteed minimum. Brand licensing benefited primarily from the expansion of Meredith's relationship with Wal-Mart, including a tripling of Better Homes and Gardens-branded SKUs to 1,500 from the prior-year period.

Operating Expenses

National media group operating costs decreased 10 percent. Integrated marketing production expenses decreased due to the decline in integrated marketing revenues. Book manufacturing costs decreased due to the changes made in the book business model. Circulation expenses, employee compensation costs, LIFO reserve expense, performance-based incentive accruals, other delivery costs, and travel and entertainment expenses declined in the quarter. Magazine paper costs decreased as a 9 percent reduction in average paper prices more than offset an increase in paper consumption. These cost reductions were partially offset by higher pension expenses and increased processing and postage costs.

National media group operating profit increased 14 percent. Increases in operating profit in our magazine and brand licensing operations more than offset lower operating profits in our integrated marketing and interactive media operations. Our book business showed an increase in operating profits due to the change in their business model. Magazine circulation contribution was up 14 percent in the current quarter.

LOCAL MEDIA GROUP



Local media group operating results were as follows:



       Three Months Ended September 30,      2009           2008          Change
       (In thousands)
       Non-political advertising revenues $  53,671      $  61,648           (13 )%
       Political advertising revenues           943          5,871           (84 )%
       Other revenues                         6,197          2,884           115  %
       Total revenues                        60,811         70,403           (14 )%
       Operating expenses                   (58,411 )      (59,707 )          (2 )%
       Operating profit                   $   2,400      $  10,696           (78 )%
       Operating profit margin                  3.9  %        15.2  %

Revenues

Local media group total revenues declined 14 percent. Non-political advertising revenues decreased 13%. As compared to the prior year, local non-political advertising declined 14 percent while national non-political advertising decreased 11 percent. Automotive-related advertising accounted for approximately half of the decline during the first quarter of fiscal 2010. Net political advertising revenues totaled $0.9 million in the current year compared with $5.9 million in the prior-year quarter. Fluctuations in political advertising revenues at our stations and throughout the broadcasting industry generally follow the biennial cycle of election campaigns. Political advertising may displace a certain amount of non-political advertising; therefore, the revenues may not be entirely incremental. Online advertising declined 19 percent as compared to the prior-year period. Other revenue, which is primarily retransmission fees, more than doubled. The increase is primarily due to new transmission agreements Meredith has with the major cable operators in our markets.

Operating Expenses

Local media group operating expenses decreased 2 percent in the first quarter of fiscal 2010 primarily due to a reduction to expenses from a gain on the Sprint Nextel Corporation equipment exchange. This gain represents the difference between the fair value of the digital equipment we received and the book value of the analog equipment we exchanged. In addition, we experienced lower employee compensation costs, film amortization, bad debt expense, advertising and promotion, and travel and entertainment expenses which were partially offset by higher pension costs, legal expenses, performance-based incentive accruals, and studio production expenses.

Meredith continued to implement its plan to reduce expenses and improve efficiency by centralizing certain functions - including master control, traffic, and research - across its television stations. The benefits from these activities are expected to be realized starting in the second half of fiscal 2010.

Operating Profit

Local media group operating profit declined 78 percent compared with the prior-year period. The decline primarily reflected weakened economic conditions and their effect on non-political advertising revenues and lower political revenues due to the cyclical nature of political advertising.

Meredith's local media group EBITDA is defined as local media group operating profit plus depreciation and amortization expense. EBITDA is not a GAAP financial measure and should not be considered in isolation or as a substitute for GAAP financial measures. See the discussion of management's rationale for the use of EBITDA in the preceding Executive Overview section. Local media group EBITDA and EBITDA margin were as follows:

              Three Months Ended September 30,    2009          2008
              (In thousands)
              Revenues                         $ 60,811      $ 70,403
              Operating profit                 $  2,400      $ 10,696
              Depreciation and amortization       6,122         6,069
              EBITDA                           $  8,522      $ 16,765
              EBITDA margin                        14.0  %       23.8  %

UNALLOCATED CORPORATE EXPENSES

Unallocated corporate expenses are general corporate overhead expenses not attributable to the operating groups. These expenses were as follows:

Unallocated corporate expenses increased 46 percent as increases in performance-based incentive accruals, share-based compensation, pension expense, and Meredith Foundation charitable contributions more than offset decreases in legal expenses and employee compensation costs. The increase in share-based compensation is due to certain employees being retirement eligible and thus their share-based compensation expense is being fully expensed during the current quarter. In the prior year, this expense was spread over the fiscal year.

CONSOLIDATED



Consolidated Operating Expenses

Consolidated operating expenses were as follows:



      Three Months Ended September 30,           2009          2008         Change
      (In thousands)
      Production, distribution, and editorial $ 151,093     $ 170,111          (11 )%
      Selling, general, and administrative      139,637       144,952           (4 )%
      Depreciation and amortization              10,103        10,856           (7 )%
      Operating expenses                      $ 300,833     $ 325,919           (8 )%

First quarter production, distribution, and editorial costs decreased 11 percent. Declines in integrated marketing production expenses, book manufacturing costs, other delivery expenses, and LIFO reserve expense more than offset increases in national media group processing and postage and local media group studio production expenses.

First quarter selling, general, and administrative expenses decreased 4 percent primarily due to declines in employee compensation costs, advertising and promotion expense, circulation expense, bad debt expense, and travel and entertainment. Partially offsetting these declines were increases in pension costs, performance-based incentive accruals, and Meredith Foundation charitable contributions.

Income from Operations

Income from operations decreased 17 percent in the first quarter of fiscal 2010 primarily due to weakened economic conditions and their effect on advertising revenues, lower political revenues due to the cyclical nature of political advertising, and weaker operating profits in our integrated marketing businesses partially offset by reduced operating expenses.

Net Interest Expense

Net interest expense declined to $5.0 million in the fiscal 2010 first quarter compared with $5.3 million in the comparable prior-year quarter. Average long-term debt outstanding was approximately $368 million in the first quarter of fiscal 2010 and $470 million in the prior-year quarter. The Company's approximate weighted average interest rate was 5.6 percent in the first quarter of fiscal 2010 and 4.5 percent in the first quarter of fiscal 2009.

Income Taxes

Our effective tax rate was 30.9 percent in the first quarter of fiscal 2010 as compared to 41.9 percent in the prior-year first quarter. Fiscal 2010 first quarter results included a benefit of $3.0 million reflecting a favorable adjustment made to deferred income tax liabilities as a result of state and local legislation enacted during the quarter. While the effective rate is expected to fluctuate quarter to quarter, on a full year basis the Company estimates its fiscal 2010 annual effective tax rate will be approximately 40.4 percent, excluding the impact of the deferred income tax liability adjustment.

Earnings from Continuing Operations and Earnings per Share from Continuing Operations

Earnings from continuing operations were $18.3 million ($0.40 per diluted share), a decrease of 4 percent from fiscal 2009 first quarter earnings from continuing operations of $19.1 million ($0.42 per diluted share). The decline primarily reflected weakened economic conditions and their effect on advertising revenues, lower political revenues due to the cyclical nature of political advertising, and weaker operating profits in our integrated marketing businesses partially offset by reduced operating expenses and an income tax benefit recorded in the first quarter of fiscal 2010.

Discontinued Operations

For fiscal 2009, the loss from discontinued operations represents the operating results, net of taxes, of Country Home magazine. The revenues and expenses of Country Home magazine, along with associated taxes, were removed from continuing operations and reclassified into a single line item on the Condensed Consolidated Statement of Earnings titled loss from discontinued operations, net of taxes as follows:

              Three Months Ended September 30,                 2008
              (In thousands except per share data)
              Revenues                                     $  6,368
              Costs and expenses                             (7,074 )
              Loss before income taxes                         (706 )
              Income taxes                                      275
              Loss from discontinued operations            $   (431 )
              Loss per share from discontinued operations:
              Basic                                        $  (0.01 )
              Diluted                                         (0.01 )

Net earnings were $18.3 million ($0.40 per diluted share) in the quarter ended September 30, 2009, down 2 percent from $18.6 million ($0.41 per diluted share) in the comparable prior-year quarter. The decline primarily reflected weakened economic conditions and their effect on advertising revenues and lower political revenues due to the cyclical nature of political advertising, partially offset by reduced operating expenses and an income tax benefit recorded in the first quarter of fiscal 2010.

                        LIQUIDITY AND CAPITAL RESOURCES



     Three Months Ended September 30,             2009          2008         Change
     (In thousands)
     Net earnings                              $  18,341     $  18,637           (2 )%
     Cash flows from operations                $  29,043     $  44,549          (35 )%
     Cash flows used in investing                (13,225 )      (9,698 )         36  %
     Cash flows used in financing                (29,469 )     (43,825 )        (33 )%
     Net decrease in cash and cash equivalents $ (13,651 )   $  (8,974 )         52  %

OVERVIEW

Meredith's primary source of liquidity is cash generated by operating activities. Debt financing is typically used for significant acquisitions. We expect cash on hand, internally generated cash flow, and available credit from financing agreements will provide adequate funds for operating and recurring cash needs (e.g., working capital, capital expenditures, debt repayments, and cash dividends) into the foreseeable future. As of September 30, 2009, we have up to $40 million remaining available under our revolving credit facility and up to $125 million available under our asset-backed commercial paper facility (depending on levels of accounts receivable). While there are no guarantees that we will be able to replace current credit agreements when they expire, we expect to be able to do so.

SOURCES AND USES OF CASH

Cash and cash equivalents decreased $13.7 million in the first three months of fiscal 2010; they decreased $9.0 million in the comparable period of fiscal 2009. In both periods, net cash provided by operating activities was used for capital investments, debt repayments, and dividends. In the prior year, cash was also used for common stock repurchases.

Operating Activities

The largest single component of operating cash inflows is cash received from advertising customers. Other sources of operating cash inflows include cash received from magazine circulation sales and other revenue transactions such as integrated marketing, licensing, and book sales. Operating cash outflows include payments to vendors and employees and interest, pension, and income tax payments. Our most significant vendor payments are for production and delivery of publications and promotional mailings, broadcasting programming rights, employee compensation costs and benefits, and other services and supplies.

Cash provided by operating activities totaled $29.0 million in the first three months of fiscal 2010 compared with $44.5 million in the first three months of fiscal 2009. The decrease in cash provided by operating activities was due primarily to an increase in accounts receivable due to higher revenues in August and September of the current period.

Investing Activities

Investing cash inflows generally include proceeds from the sale of assets or a business. Investing cash outflows generally include payments for the acquisition of new businesses; investments; and additions to property, plant, and equipment.

Net cash used by investing activities increased to $13.2 million in the first three months of fiscal 2010 from $9.7 million in the prior-year period. The increase primarily reflected more cash used for investments in businesses.

Financing cash inflows generally include borrowings under debt agreements and proceeds from the exercise of common stock options issued under share-based compensation plans. Financing cash outflows generally include the repayment of long-term debt, repurchases of Company stock, and the payment of dividends.

Net cash used by financing activities totaled $29.5 million in the three months ended September 30, 2009, compared with $43.8 million for the three months ended September 30, 2008. The decrease in cash used for financing activities is primarily due to $15.8 million being used to purchase common stock in the first quarter of fiscal 2009 compared to only $18 thousand being used to purchase common stock in the current fiscal quarter.

Long-term Debt

At September 30, 2009, long-term debt outstanding totaled $360 million ($250 million in fixed-rate unsecured senior notes and $110 million outstanding under a revolving credit facility). Of the senior notes, $75 million is due in the next 12 months. We expect to repay these senior notes with cash from operations and credit available under existing credit agreements. The weighted average effective interest rate for the fixed-rate notes was 5.42 percent. The interest rate on the asset-backed commercial paper facility changes monthly and is based on the average commercial paper cost to the lender plus a fixed spread. As of September 30, 2009, the asset-backed commercial paper facility had a capacity of up to $125 million and renews annually (most recently renewed March 31, 2009) until April 2, 2011, the facility termination date. On October 27, 2009, the asset-backed commercial paper facility was amended to reduce the capacity to $100 million.

The interest rate on the revolving credit facility is variable based on LIBOR and Meredith's debt to trailing 12 month EBITDA ratio. The weighted average effective interest rate for the revolving credit facility was 4.69 percent at . . .