<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               -----------------
                                   FORM 10-K
                                  ------------
 
[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
             OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
 
                                       OR
 
[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
            OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
 
                        COMMISSION FILE NUMBER: 1-11106
 
                        K-III COMMUNICATIONS CORPORATION
             (Exact name of registrant as specified in its charter)
                     (SEE TABLE OF ADDITIONAL REGISTRANTS)
 
<TABLE>
<S>                                             <C>
                   DELAWARE                                       13-3647573
         (State or other jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                      Identification No.)
 
     745 FIFTH AVENUE, NEW YORK, NEW YORK                           10151
   (Address of principal executive offices)                       (Zip Code)
</TABLE>
 
                                 (212) 745-0100
              (Registrant's telephone number, including area code)
 
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
<TABLE>
<CAPTION>
                                                                   NAME OF EACH EXCHANGE ON
                      TITLE OF EACH CLASS                              WHICH REGISTERED
---------------------------------------------------------------  -----------------------------
<S>                                                              <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE.........................  NEW YORK STOCK EXCHANGE
SENIOR EXCHANGEABLE PREFERRED STOCK, PAR VALUE $.01 PER
  SHARE........................................................  NEW YORK STOCK EXCHANGE
</TABLE>
 
                              -------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      NONE
                              -------------------
 
    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 
                                Yes__X__  No____
 
    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.                                  [X]
 
    The aggregate market value of the voting stock of K-III Communications
Corporation ("K-III") which is held by non-affiliates of K-III at March 17, 1997
was approximately $232 million.
 
    As of March 17, 1997, 129,150,691 shares of K-III's Common Stock were
outstanding.
 
    The following documents are incorporated into this Form 10-K by reference:
K-III's notice of annual meeting and proxy statement for its 1997 annual meeting
of shareholders into Part III hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                        TABLE OF ADDITIONAL REGISTRANTS
 
<TABLE>
<CAPTION>
                                                                STATE OR OTHER    PRIMARY STANDARD       I.R.S.
                        EXACT NAME OF                          JURISDICTION OF       INDUSTRIAL         EMPLOYER
                   REGISTRANT AS SPECIFIED                     INCORPORATION OR    CLASSIFICATION     IDENTIFICATION
                       IN ITS CHARTER                            ORGANIZATION        CODE NUMBER         NUMBER
              ---------------------------------                ----------------  -------------------  -------------
<S>                                                            <C>               <C>                  <C>
Argus Publishers Corporation.................................  California                  2721       95-2219151
American Heat Video Productions, Inc.........................  Missouri                    7389       43-1418177
ASTN, Inc....................................................  Delaware                    7389       75-2590386
A WEP Company................................................  California                  2721       95-4129732
Bacon's Information, Inc.....................................  Delaware                    7389       36-4011543
Bankers Consulting Company...................................  Missouri                    7389       43-1771756
Channel One Communications Corp..............................  Delaware                    4833       13-3783278
DRF Finance, Inc. ...........................................  Delaware                    2721       13-3616341
Daily Racing Form, Inc. .....................................  Delaware                    2721       13-3616342
Data Book, Inc...............................................  Georgia                     2741       58-1482678
The Electronics Source Book, Inc. ...........................  Delaware                    2741       36-0645610
Excellence in Training Corporation...........................  Delaware                    7389       75-2532442
Funk & Wagnalls Yearbook Corp. ..............................  Delaware                    2731       13-3603787
Gareth Stevens, Inc..........................................  Wisconsin                   2731       39-1462742
Haas Publishing Companies, Inc. .............................  Delaware                    2741       58-1858150
Intermodal Publishing Company, Ltd. .........................  New York                    2721       13-2633752
IDTN Leasing Corporation.....................................  Delaware                    7389       13-3414420
Industrial Training Systems Corporation......................  New Jersey                  7389       22-2070040
Intertec Market Reports, Inc. ...............................  Delaware                    2721       36-1534790
Intertec Presentations, Inc. ................................  Colorado                    2721       84-0840004
Intertec Publishing Corporation..............................  Delaware                    2721       48-1071277
K-III Directory Corporation..................................  Delaware                    2721       13-3555670
K-III Holdings Corporation III...............................  Delaware                    6719       13-3617238
K-III HPC, Inc. .............................................  Delaware                    6719       58-2105885
K-III KG Corp.--Massachussetts...............................  Massachussetts              8222       04-3218659
K-III Magazine Corporation...................................  Delaware                    2721       13-3616344
K-III Magazine Finance Corporation...........................  Delaware                    2721       13-3616343
K-III Prime Corporation......................................  Delaware                    6719       13-3631019
K-III Reference Corporation..................................  Delaware                    2731       13-3603781
The Katharine Gibbs Corporation--Melville....................  New York                    8222       11-3193464
The Katharine Gibbs Corporation--New York....................  New York                    8222       13-3751139
The Katharine Gibbs Schools, Inc. ...........................  Delaware                    6719       13-3755180
The Katharine Gibbs School of Montclair, Inc.................  New Jersey                  8222       22-3275485
The Katharine Gibbs School of Norwalk, Inc...................  Connecticut                 8222       06-1388463
The Katharine Gibbs School of Piscataway, Inc. ..............  New Jersey                  8222       22-3275484
The Katharine Gibbs School of Providence, Inc. ..............  Rhode Island                8222       05-0475713
Krames Communications Incorporated...........................  Delaware                    2731       94-3151780
Law Enforcement Television Network, Inc......................  Delaware                    7389       13-3935034
Law Enforcement Television Network, Inc......................  Texas                       7389       75-2257839
Lifetime Learning Systems, Inc. .............................  Delaware                    2741       13-3783276
Lockert Jackson & Associates, Inc............................  Washington                  7389       91-1395126
MH West, Inc. ...............................................  California                  2721       95-4190756
McMullen Argus Publishing, Inc. .............................  California                  2721       95-2663753
Musical America Publishing, Inc. ............................  Delaware                    2721       13-2782528
Nelson Information, Inc. ....................................  Delaware                    2741       13-3740812
Newbridge Communications, Inc. ..............................  Delaware                    5961       13-1932571
PJS Publications, Inc. ......................................  Delaware                    2721       52-1654079
Paramount Publishing, Inc. ..................................  California                  2741       33-0087025
R.E.R. Publishing Corporation................................  New York                    2721       13-3090623
Stagebill, Inc. .............................................  Delaware                    2721       36-2693071
Straight Down, Inc...........................................  California                  2721       95-3824415
Symbol of Excellence Publishers, Inc. .......................  Alabama                     2721       63-0845698
Tel-A-Train, Inc.............................................  Delaware                    7389       75-2532446
TI-IN Acquisition Corporation................................  Texas                       7389       75-2478738
Tunnell Publications, Inc. ..................................  Texas                       2721       74-0955120
Weekly Reader Corporation....................................  Delaware                    2721       13-3603780
</TABLE>
 
                                       ii
<PAGE>
<TABLE>
<CAPTION>
                                                                STATE OR OTHER    PRIMARY STANDARD       I.R.S.
                        EXACT NAME OF                          JURISDICTION OF       INDUSTRIAL         EMPLOYER
                   REGISTRANT AS SPECIFIED                     INCORPORATION OR    CLASSIFICATION     IDENTIFICATION
                       IN ITS CHARTER                            ORGANIZATION        CODE NUMBER         NUMBER
              ---------------------------------                ----------------  -------------------  -------------
Westcott Communications, Inc. ...............................  Texas                       7389       75-2110878
<S>                                                            <C>               <C>                  <C>
Westcott Communications Michigan, Inc........................  Michigan                    7389       38-2955660
Westcott ECI, Inc............................................  Texas                       7389       75-2475419
Western Empire Publications, Inc.............................  Delaware                    2721       95-3363328
</TABLE>
 
    The address, including zip code, and telephone number, including area code,
of each additional registrant's principal executive office is 745 Fifth Avenue,
New York, New York 10151 (212-745-0100).
 
    The financial statements of the guarantor subsidiaries are omitted because
K-III believes the separate financial statements would not be material to the
shareholders and potential investors. The total assets, revenues, income or
equity of non-guarantor subsidiaries, both individually and on a combined basis
are inconsequential in relation to the total assets, revenues, income or equity
of K-III. All of the equity securities of each of the additional registrants set
forth in the table above are owned, either directly or indirectly, by K-III, and
there has been no default during the preceding 36 calendar months with respect
to any indebtedness or material long-term leases of K-III or any of the
additional registrants.
 
                                      iii
<PAGE>
                        K-III COMMUNICATIONS CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                               DECEMBER 31, 1996
 
                           CROSS REFERENCE SHEET FOR
                            PARTS I, II, III AND IV
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<C>          <S>                                                                                             <C>
     PART I
    Item 1.
             Business......................................................................................           1
    Item 2.
             Properties....................................................................................           9
    Item 3.
             Legal Proceedings.............................................................................           9
    Item 4.
             Submission of Matters to a Vote of Security Holders...........................................           9
 
    PART II
    Item 5.
             Market for Registrant's Common Equity and Related Stockholder Matters.........................          10
    Item 6.
             Selected Financial Data.......................................................................          11
    Item 7.
             Management's Discussion and Analysis of Financial Condition and Results of Operations.........          13
    Item 8.
             Financial Statements and Supplementary Data...................................................          23
    Item 9.
             Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........          57
 
PART III-- Omitted, except Item 10 as to Executive Officers is included as part of Part I
            Item 1.........................................................................................          57
 
PART IV
   Item 14.
             Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................          57
</TABLE>
 
                                       iv
<PAGE>
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
    K-III COMMUNICATIONS CORPORATION (WHICH TOGETHER WITH ITS SUBSIDIARIES (AND
ITS PREDECESSORS) IS HEREIN REFERRED TO AS EITHER "K-III" OR THE "COMPANY"
UNLESS THE CONTEXT IMPLIES OTHERWISE) IS THE AUTHORITATIVE SOURCE FOR
SPECIALIZED INFORMATION TARGETED TO SPECIFIC HIGH GROWTH SEGMENTS IN THE
EDUCATION, BUSINESS AND SPECIAL INTEREST CONSUMER MARKETS. Most of K-III's
products are premier brands with leadership positions in the specialty niche
markets in which such products compete: education (E.G., CHANNEL ONE NEWS,
WEEKLY READER and WESTCOTT); information (E.G., APARTMENT GUIDE, WARD'S, THE
WORLD ALMANAC and BACON'S); and specialty media (E.G., SEVENTEEN, AMERICAN BABY,
SOAP OPERA DIGEST, TRUCKIN' and SEW NEWS). The specialty media segment has in
prior years been referred to as the media segment, but the Company believes the
term specialty media is more descriptive of the underlying business; the same
underlying business previously described as part of the media segment.
 
    The Company has achieved substantial growth through the development of its
franchises, combined with its operating expertise and a successful acquisition
strategy. From 1991 through 1996, net sales have grown at a compound annual rate
of 19% to $1,374 million. Operating income in 1996 was $86 million compared to a
net operating loss of $37 million in 1991 (after deductions for amortization and
depreciation of $191 million in 1996 and $142 million in 1991).
 
    THE COMPANY PLANS TO FOCUS ON THE AREAS OF ITS BUSINESS THAT HAVE THE
GREATEST POTENTIAL FOR STRONG ORGANIC GROWTH AND GROWTH THROUGH PRODUCT LINE
ACQUISITIONS. Those areas by segment are: education-- classroom learning and
workplace learning; information--consumer directories and business directories;
and specialty media--specialty consumer and technical and trade magazines. As
part of that strategy, K-III, intends to divest certain businesses that do not
fit within the Company's growth vehicles. See
"--Non-Core Businesses Being Sold."
 
EDUCATION
 
    THE COMPANY IS A LEADING PROVIDER OF SUPPLEMENTAL EDUCATIONAL MATERIALS AND
PROGRAMMING IN THE UNITED STATES, TARGETING BOTH CLASSROOM AND WORKPLACE
LEARNING. K-III's best-known brands in classroom learning include CHANNEL ONE
and WEEKLY READER, and in workplace learning, WESTCOTT. Classroom learning takes
advantage of the growth in spending on supplementary educational materials, up
44% from 1991 to 1995, and the projected increases in elementary and secondary
school enrollments over the next decade (in particular, high school enrollments
are expected to rise 17% between 1995 and 2005). Workplace learning focuses on
the $60 billion training market of which the outsourced segment is the fastest
growing portion, rising 49% between 1991 and 1996.
 
CLASSROOM LEARNING
 
    THE COMPANY OPERATES CHANNEL ONE, WEEKLY READER, FILMS FOR THE HUMANITIES
AND SCIENCES ("FILMS") AND NEWBRIDGE EDUCATIONAL PUBLISHING.
 
    CHANNEL ONE'S NEWS PROGRAM, CHANNEL ONE NEWS, IS THE ONLY DAILY NEWS PROGRAM
TARGETED TO SECONDARY SCHOOL STUDENTS. CHANNEL ONE NEWS broadcasts every school
day via satellite to over eight million students in approximately 12,000
secondary schools in the United States. Established in 1990, CHANNEL ONE
pioneered the delivery of world events and educational programming into
classrooms via satellite. Its award-winning daily news broadcast reaches more
students than any other electronically delivered educational product. CHANNEL
ONE NEWS has more teen viewers than the news programs of ABC, CBS, NBC and CNN
combined.
 
    SCHOOLS SIGN UP FOR CHANNEL ONE NEWS UNDER A THREE-YEAR CONTRACT PURSUANT TO
WHICH THEY AGREE TO SHOW CHANNEL ONE NEWS, IN ITS ENTIRETY, AT LEAST 90% OF ALL
SCHOOL DAYS. CHANNEL ONE provides to schools a turnkey system of video cassette
recorders and networked televisions. These products and services are provided to
<PAGE>
schools at no charge; sales are generated by two minutes of advertising shown
during the 12-minute daily newscast. All school contracts have come up for
renewal and approximately 99% have been renewed.
 
    CHANNEL ONE NEWS IS PRODUCED AT THE HACIENDA, CHANNEL ONE'S LOS ANGELES
STUDIO, USING STAFF ANCHORS AND CORRESPONDENTS WHO REPORT FROM U.S. AND
INTERNATIONAL LOCATIONS. CHANNEL ONE has a library of over 1,250 broadcasts
including approximately 175 single subject series, 45 of which have been
released as educational videos under the Hacienda
Productions-Registered Trademark- trademark.
 
    CHANNEL ONE NEWS HAS NO DIRECT COMPETITION IN THE SCHOOLS BUT DOES COMPETE
FOR ADVERTISING DOLLARS WITH OTHER MEDIA AIMED AT TEENAGERS. The Company's
primary competitive advantage is its total audience of over eight million
teenagers each school day. For 1996, approximately 65% of CHANNEL ONE'S
advertising net sales were from contracts having terms of three or more years.
The top five advertisers in 1996 by dollars were PepsiCo, M&M Mars, Nintendo,
Quaker Oats and Reebok, which together accounted for approximately 62% of
advertising net sales, and all of which are under contract through 1997 or 1998.
 
    IN ADDITION, CHANNEL ONE'S THE CLASSROOM CHANNEL OFFERS A RANGE OF
INSTRUCTIONAL PROGRAMMING TO ENHANCE THE SCHOOLS' CURRICULUM. THE CLASSROOM
CHANNEL offers an average of 90 minutes of daily programming at no charge to
schools.
 
    WEEKLY READER IS THE BEST-KNOWN AND HIGHEST-CIRCULATION STUDENT NEWSPAPER IN
THE UNITED STATES, WITH OVER 6.8 MILLION SUBSCRIPTIONS FOR ELEMENTARY SCHOOL
STUDENTS ALONE. WEEKLY READER and its related products are sold in approximately
70% of all elementary schools and 59% of all secondary schools, and for the
1995-1996 school year had a 57% share of the elementary school market and a 41%
share of the secondary school market.
 
    EIGHT SEPARATE EDITIONS OF WEEKLY READER, EACH CONSISTING OF 26 ISSUES PER
YEAR, ARE DISTRIBUTED TO ELEMENTARY SCHOOL STUDENTS. Each edition is written and
designed for a particular reading and comprehension level in order to bring
current world news to children at a level commensurate with their comprehension
abilities. A teacher's guide with background information, discussion topics and
follow-up questions is included with each edition. Other titles produced and
distributed by WEEKLY READER include READ, CURRENT EVENTS, CURRENT SCIENCE and
CURRENT HEALTH. Editorial materials for these publications are generated by in-
house writers and freelance authors. The Company's largest competitor in these
markets is Scholastic Corporation. WEEKLY READER generally competes on the basis
of editorial quality, content and price.
 
    FILMS IS THE EXCLUSIVE DISTRIBUTOR OF APPROXIMATELY 6,500 EDUCATIONAL VIDEOS
AS WELL AS VIDEODISCS, CD-ROMS AND RELATED PRODUCTS THAT ARE SOLD PRIMARILY BY
DIRECT MAIL TO TEACHERS, INSTRUCTORS AND LIBRARIANS SERVING GRADES K TO 12 AND
COLLEGE MARKETS. FILMS is the largest distributor of such products to colleges
and high schools and competes on the basis of quality and breadth of the subject
matter it markets.
 
    THROUGH NEWBRIDGE EDUCATIONAL PUBLISHING, THE COMPANY DEVELOPS AND MARKETS
SUPPLEMENTARY EDUCATIONAL PROGRAMS WHICH ARE MARKETED TO TEACHERS FOR USE IN
GRADES PRE-K TO 6. Many of these materials are sold under the "Macmillan" name.
Most of the programs are marketed on a continuity basis; at December 31, 1996,
there were approximately 132,000 subscribers to these continuity programs. The
Company is the largest provider of continuities sold for use in schools and
competes in this market primarily with Scholastic Corporation.
 
WORKPLACE LEARNING
 
    WESTCOTT COMMUNICATIONS, INC., ACQUIRED BY THE COMPANY IN JUNE 1996, IS A
LEADING PROVIDER OF HIGH QUALITY WORKPLACE EDUCATIONAL PROGRAMMING. WESTCOTT has
approximately 20,000 corporate and institutional subscribers and provides
workplace learning to approximately 2.5 million professionals in the healthcare,
automotive, financial services, government, public service and corporate fields.
The Company's production capabilities enable it to design, produce and deliver
content targeted to over 24 different disciplines, via satellite and video
cassette.
 
                                       2
<PAGE>
    THE COMPANY'S LEADING NETWORKS INCLUDE THE EXECUTIVE EDUCATION NETWORK
("EXEN") AND THE INTERACTIVE MEDICAL NETWORKS ("IMN"). EXEN delivers executive
education courses taught by professors from leading business schools including
Harvard University, the University of Texas and the University of Southern
California to corporate and professional clients nationwide. Participants in
EXEN interact on a real-time basis using one-way video, two-way audio and data
response keypads. IMN offers a variety of live programming, telecourses and
other video products, including graduate degree courses, in-service training and
accredited continuing education programming, designed to reach multiple target
audiences within the hospital setting. In addition, the Company's Interactive
Distance Training Network provides customized interactive programming for
corporate, professional and government clients, including Intel, EDS and Eli
Lilly.
 
    WESTCOTT DOES NOT HAVE ANY MULTI-INDUSTRY COMPETITORS IN THE WORKPLACE
LEARNING MARKET. The Company competes with a number of businesses and
governmental agencies that provide videotaped training material, consulting
services and instruction at seminars, trade shows and conventions, or certain
television programming.
 
    DURING 1996, THE EDUCATION SEGMENT ALSO INCLUDED KRAMES COMMUNICATIONS, THE
KATHARINE GIBBS SCHOOLS AND NEWBRIDGE BOOK CLUBS. See "--General" and
"--Non-Core Businesses Being Sold."
 
INFORMATION
 
    THE COMPANY PRODUCES OVER 140 HIGHLY TARGETED CONSUMER AND BUSINESS
DIRECTORIES, MOST OF WHICH HOLD DOMINANT POSITIONS IN THEIR NICHE MARKETS. The
Company's premier consumer directories include APARTMENT GUIDE, THE WORLD
ALMANAC and such specialty reference products as FACTS ON FILE NEWS SERVICE
which is used by public and institutional libraries. Its leading business
directories include BACON'S for public relations professionals and NELSON'S for
financial professionals.
 
    Consumer directories take advantage of the trend toward more targeted
advertising. From 1990 to 1995, organic advertising revenue growth at K-III's
consumer guides has more than tripled growth of newspaper classified
advertising, the medium with which they most directly compete. Business
directories capitalize on the growth in business spending on information which
has increased 8% on a compound annual basis, or 123% from $10.2 billion to $22.7
billion, between 1985 and 1995.
 
CONSUMER DIRECTORIES
 
    THE COMPANY PUBLISHES OVER 70 CONSUMER DIRECTORIES AND SPECIALIZED REFERENCE
PRODUCTS. These products are distributed nationally in retail outlets and are
sold to public and institutional libraries. The Company publishes and
distributes consumer guides in three categories: rental apartments, new homes
and computer shopping. The Company's leading reference products include THE
WORLD ALMANAC, FACTS ON FILE NEWS SERVICE and the GARETH STEVENS line of
juvenile reference works.
 
    THE COMPANY IS THE LEADING PUBLISHER OF RENTAL APARTMENT GUIDES IN THE
UNITED STATES WITH 58 LOCAL VERSIONS OF ITS APARTMENT GUIDE DIRECTORY PRODUCT,
EACH OF WHICH IS PUBLISHED NO LESS THAN MONTHLY AND PROVIDES INFORMATIONAL
LISTINGS ABOUT FEATURED APARTMENT COMMUNITIES. These listings are paid for by
apartment community managers, who need to fill vacant apartments, and who
represent 100% of the apartment guide net sales. In November 1996, the Company
acquired apartment guides in Boston and Hartford, providing a strong
Northeastern presence. The Company is the dominant information provider in
apartment guides. The Company's only competitor, FOR RENT, is present in 32 of
the Company's markets. In those markets, on average, the Company captured 51% of
total 1996 advertising pages, with FOR RENT capturing 41% of such advertising
pages.
 
    IN 1996, THE COMPANY ADDED NEW TYPES OF CONSUMER DIRECTORIES TO ITS
PORTFOLIO WITH THE ACQUISITION OF NEW HOMES AND COMPUTER SHOPPING GUIDES. In
1996, the Company acquired new homes guides in Philadelphia, New Jersey,
Raleigh-Durham and Chapel Hill, North Carolina and Atlanta. In November 1996,
the Company acquired MICROTIMES, distributed in Northern and Southern
California. MICROTIMES provides
 
                                       3
<PAGE>
consumers with information on computer products through paid listings, and also
contains informative articles reviewing products for both the business and home
computer shopper.
 
    THE COMPANY'S DISTRIBUTECH DIVISION IS THE NATION'S LARGEST DISTRIBUTOR OF
FREE PUBLICATIONS, INCLUDING ITS OWN CONSUMER DIRECTORIES AND OVER 600 OTHER
TITLES. In 1996, it managed distribution of free publications to over 15,500
grocery, convenience and drug stores in 60 U.S. cities, as well as universities,
military bases and major employers. The majority of these locations are operated
under exclusive distribution agreements. The Company's consumer directories
typically are displayed in free standing, multi-pocket racks. DistribuTech
generates substantial revenues by leasing additional distribution rack pockets
to other publications that it also distributes. DistribuTech competes on the
basis of price paid to the retail locations and service on the rack program.
 
    THE COMPANY HAS ESTABLISHED WEB SITES IN ALL THREE CONSUMER DIRECTORY
GROUPS. The Company's WWW.APTGUIDES.COM is the most comprehensive web site in
the multi-family dwelling industry, with over 12,000 communities included in its
on-line database.
 
    THE WORLD ALMANAC IS THE LEADING ALMANAC IN THE ENGLISH LANGUAGE RANKED BY
UNIT SALES AND DATA CONTENT WITH OVER 1.3 MILLION COPIES OF THE 1997 EDITION
SOLD AS OF DECEMBER 31, 1996. In 1996, the Company introduced THE WORLD ALMANAC
JOB FINDER'S GUIDE and published the second annual edition of THE WORLD ALMANAC
FOR KIDS, which sold over 300,000 copies. THE WORLD ALMANAC licenses its content
for use on four CD-ROM products and five on-line services. The Company's World
Almanac Education Division sells reference books to the school and library
market by catalog. Facts on File News Service, acquired in March 1996, publishes
subscription products that are sold to schools and libraries. The flagship
product, WORLD NEWS DIGEST, published weekly, is available in print, CD-ROM and
on-line formats, and has a subscriber base of approximately 7,000. GARETH
STEVENS, a publisher and distributor of juvenile reference works and a
distributor of multi-media products, was acquired by the Company in February
1997. GARETH STEVENS has a title list of approximately 700 titles and its market
focus is North America's primary and secondary school libraries and public
libraries. FUNK & WAGNALLS' NEW ENCYCLOPEDIA licenses its editorial content, for
electronic delivery, to Microsoft Corporation as the textual basis for
Microsoft's ENCARTA CD-ROM product and to The Learning Company for inclusion in
the INFOPEDIA CD-ROM as well as to three other on-line services and a classroom
computer instruction service. FUNK & WAGNALLS also sells a print verson of its
NEW ENCYCLOPEDIA. The Company experiences competition for its reference products
from other print and electronic products from a variety of publishers.
 
BUSINESS DIRECTORIES
 
    THE COMPANY PUBLISHES OVER 70 SPECIALIZED DIRECTORIES, AS WELL AS ANCILLARY
PRODUCTS DERIVED FROM ITS DATABASES. The Company's business directories target
the financial services, public relations, transportation, musical performance,
credit and collection, construction and global trade industries. The databases
are compiled by an in-house editorial staff, marketed directly to subscribers
and advertisers primarily by an in-house sales staff and distributed
predominantly on a paid subscription basis. The Company's Bacon's Information,
Inc. unit publishes MEDIASOURCE, a CD-ROM directory for public relations and
media professionals, as well as print directories including BACON'S
INTERNATIONAL MEDIA DIRECTORY and BACON'S BUSINESS MEDIA DIRECTORY. To
complement its public relations directories, the Company operates a periodicals
clipping service. NELSON'S is a premier brand name in the institutional
investment industry, providing specialized investment research and management
information through products such as INSTITUTIONAL MARKETPLACE FOR WINDOWS.
 
    THE COMPANY ALSO PUBLISHES NEWSLETTERS THAT PROVIDE IN-DEPTH INFORMATION ON
SELECTED MARKETS. WARD'S AUTOMOTIVE REPORTS is recognized as the authoritative
source for industry-wide statistics on automotive production and sales. This
newsletter competes on the basis of the nature and quality of its editorial
content. In addition, the Company publishes, in print and electronic formats,
used vehicle valuation information. Titles include MARKET REPORTS, MARINE BLUE
BOOK and AIRCRAFT BLUEBOOK. Other databases
 
                                       4
<PAGE>
include THE ELECTRONICS SOURCE BOOK, AC-U-KWIK, WATERWAY GUIDES and equipment
servicing information and manuals.
 
    MOST OF THE BUSINESS DIRECTORIES PUBLISHED BY THE COMPANY HAVE NO
COMPETITION, AND WHERE COMPETITION DOES EXIST, IN MOST CASES, THE COMPANY'S
PUBLICATION IS DOMINANT. Competition, where present, is on the basis of price
and quality of data. Management believes that the comprehensiveness and quality
of its data and the specialized focus of its publications have prevented others
from launching competing publications or competing effectively.
 
    DURING 1996, THE INFORMATION SEGMENT ALSO INCLUDED THE DAILY RACING FORM.
See "--General" and
"-- Non-Core Businesses Being Sold."
 
SPECIALTY MEDIA
 
    The specialty media segment consists of specialty consumer magazines and
technical and trade magazines. In 1996, 60% of its 63 specialty consumer
magazines and 56% of its 63 technical and trade magazines, were number one as
measured by advertising pages or circulation in their respective markets. Some
of the Company's specialty consumer magazines include SOAP OPERA DIGEST,
SEVENTEEN, NEW YORK, CHICAGO, TRUCKIN' and SEW NEWS, while leading technical and
trade publications include TELEPHONY, FLEET OWNER and THE ELECTRONICS SOURCE
BOOK. Advertising in specialty consumer magazines grew at a 9% compound annual
growth rate or 136% between 1985 and 1995, outpacing advertising growth in
general interest magazines, radio, broadcast television and newspapers.
 
SPECIALTY CONSUMER MAGAZINES
 
    THE COMPANY'S SPECIALTY CONSUMER MAGAZINES INCLUDE SOAP OPERA DIGEST, SOAP
OPERA WEEKLY, SEVENTEEN, AMERICAN BABY, OVER 20 AUTOMOTIVE MAGAZINES AND
NUMEROUS BRIDAL, SEWING, CRAFTS AND OTHER TITLES. The principal sources for
specialty consumer magazines' net sales are advertising and circulation. In the
year ended December 31, 1996, approximately 54% of the specialty consumer
magazines' net sales were from advertising, 41% were from circulation and 5%
were from other sources.
 
    SOAP OPERA DIGEST AND SOAP OPERA WEEKLY ARE THE LEADING PUBLICATIONS
COVERING SOAP OPERAS AIRED ON NETWORK TELEVISION. SOAP OPERA DIGEST, which
focuses on synopses of episodes, was in 1996 a bi-weekly publication with
average circulation of 1.4 million. In the spring of 1997, SOAP OPERA DIGEST
will become a weekly publication. SOAP OPERA WEEKLY, which reports primarily on
soap opera news, had average 1996 circulation of 500,000. Both publications are
distributed mainly at supermarket, convenience store and drugstore checkout
counters. They compete for circulation on the basis of editorial content and
quality against SOAP OPERA MAGAZINE and SOAP OPERA UPDATE, both of which have
substantially lower circulation. SOAP OPERA DIGEST On-Line, launched in February
1996, has become one of the most utilized magazine sites on America Online.
 
    SEVENTEEN IS THE LEADING YOUNG WOMEN'S MAGAZINE BASED ON BOTH CIRCULATION
AND ADVERTISING PAGES, WITH FASHION, BOYS, BEAUTY, TALENT AND LIFESTYLE
EDITORIAL TARGETED TO GIRLS AGED 12 TO 19. In 1996, SEVENTEEN had average
monthly circulation of 2.4 million, an increase of over 250,000 readers over the
prior year. Its principal competitor is YM. SEVENTEEN competes for circulation
based on the nature and quality of its editorial.
 
    AMERICAN BABY, A BABY CARE PUBLICATION DISTRIBUTED MONTHLY TO APPROXIMATELY
1.4 MILLION EXPECTANT AND NEW PARENTS IN 1996, CONTAINS ARTICLES ON ALL ASPECTS
OF PREGNANCY AND BABY CARE. AMERICAN BABY ranks first in baby product related
advertising pages. While the magazine competes with PARENTS, PARENTING and CHILD
for the larger childcare market, AMERICAN BABY'S principal competitor is BABY
TALK. AMERICAN BABY also offers several ancillary products including sampling
and couponing programs and a cable television show.
 
                                       5
<PAGE>
    THE COMPANY'S OTHER SPECIALTY CONSUMER MAGAZINES INCLUDE AUTOMOBILE, WHICH
CATERS TO THE HIGH-END AUTOMOTIVE MARKET, MODERN BRIDE, A GUIDE TO BRIDAL
FASHIONS, HOME FURNISHINGS AND HONEYMOONS, THE CITY MAGAZINES NEW YORK AND
CHICAGO, TRUCKIN', THE LEADING TRUCK CUSTOMIZATION PUBLICATION, SEW NEWS, THE
PREMIER SEWING TITLE AND DOG WORLD, THE LEADING PUBLICATION FOR DOG BREEDERS.
The Company's automotive titles are primarily newsstand driven, the sewing and
crafts titles are primarily sold by subscription, and the other titles have
significant sales both by subscription and on the newsstand. Subscriptions are
obtained using printed advertisements, direct mail, clearinghouses and
subscription cards in each magazine.
 
    READERS VALUE SPECIALTY CONSUMER MAGAZINES FOR THEIR EDITORIAL CONTENT AND
ALSO RELY ON THEM AS A CATALOG OF PRODUCTS IN THE RELEVANT TOPIC AREA. This
catalog aspect makes the specialty consumer magazines an important media buy for
advertisers. Advertising sales for the Company's specialty consumer magazines
are generated by a combination of in-house staff and outside advertising firms.
The magazines compete for advertising on the basis of circulation and the niche
markets they serve. Each of the Company's specialty consumer magazines faces
competition in its subject area from a variety of publishers, and competes for
readers on the basis of high quality, targeted editorial, which is provided by
in-house writers and freelance authors.
 
TECHNICAL AND TRADE MAGAZINES
 
    THE COMPANY PUBLISHES 63 TECHNICAL AND TRADE MAGAZINES THAT PROVIDE VITAL
INFORMATION TO PROFESSIONALS IN FIELDS SUCH AS TELECOMMUNICATIONS (TELEPHONY AND
CELLULAR BUSINESS), AGRICULTURE (SOYBEAN DIGEST), TRANSPORTATION (FLEET OWNER)
AND REAL ESTATE (NATIONAL REAL ESTATE INVESTOR). In 1996, 34 of these
publications ranked number one, and approximately 85% of these publications
ranked number one or two, in the fields they serve based on advertising pages.
These magazines are distributed primarily on a "controlled circulation" basis to
members of a targeted industry group and provide career and business-enhancing
technical and tutorial editorial content. Capitalizing on the centralized
circulation, fulfillment, production and other back office services, new titles
can be spun-off from existing titles or acquired and integrated.
 
    DURING 1996, APPROXIMATELY 83% OF THE NET SALES OF THE TECHNICAL AND TRADE
TITLES WERE GENERATED FROM ADVERTISING. Because each of the technical and trade
magazines is distributed almost exclusively to purchasing decision makers in a
targeted industry group, product and service providers are able to focus their
advertising. The advertising rates charged are based on the size of the
circulation within the target group as well as competitive factors. These
magazines compete for advertising on the basis of advertising rates,
circulation, reach, editorial content and readership commitment. Advertising
sales are made by in-house sales forces, supplemented by independent
representatives in selected regions and overseas. Classified advertising is sold
through telemarketing. Magazine editorial is provided by in-house writers and
freelance authors, well-known in their specific industry niches.
 
    In addition to its technical and trade magazines, the Company sponsors
seminars and trade shows, including LIGHTING DIMENSIONS INTERNATIONAL,
INTERNATIONAL WIRELESS COMMUNICATIONS EXPOSITION and THE SATELLITE EXPOSITIONS
CONFERENCE, serving the advertisers and readers of the corresponding
publications.
 
    DURING 1996, THE SPECIALTY MEDIA SEGMENT ALSO INCLUDED NEW WOMAN MAGAZINE.
See "--General" and "--Non-Core Businesses Being Sold."
 
NEW PRODUCTS AND NEW MEDIA
 
    IN 1996, THE COMPANY LAUNCHED OVER 70 NEW PRODUCTS IN PRINT, ELECTRONIC AND
MULTI-MEDIA FORMATS. The Company had over 40 web sites at year-end 1996, all of
which can be accessed directly as well as via WWW.KIII.COM. New web sites in
1996 included the apartment guides web site (WWW.APTGUIDES.COM), WEEKLY READER
web site (WWW.WEEKLYREADER.COM), FACTS ON FILE NEWS SERVICE web site
(WWW.FACTS.COM) and NELSON'S web site (WWW.NELNET.COM). The Company released a
dozen CD-ROM products in 1996, including the BACON'S MEDIASOURCE CD-ROM for
public relations and media professionals, the JUST CROSS STITCH PATTERN CD-ROM
and the SAIL MAGAZINE BUYERS GUIDE CD-ROM. The Company's television programs
include
 
                                       6
<PAGE>
CHANNEL ONE'S ONEZONE, which appears on public television stations nationwide,
the SOAP OPERA DIGEST AWARDS, which appear on network television, and AMERICAN
BABY'S THE HEALTHY KIDS SHOW, which appears on the Family Channel.
 
NON-CORE BUSINESSES BEING SOLD
 
    AS PART OF ITS STRATEGY TO FOCUS ON AREAS OF ITS BUSINESS THAT HAVE THE
GREATEST POTENTIAL FOR GROWTH, THE COMPANY INTENDS TO DIVEST CERTAIN BUSINESSES
THAT DO NOT FIT WITHIN ITS GROWTH VEHICLES.  Those businesses are: the DAILY
RACING FORM group, which includes a national daily newspaper covering
thoroughbred horseracing and PRO FOOTBALL WEEKLY; KRAMES COMMUNICATIONS, a
leading publisher of patient information sold to healthcare providers for
distribution to patients and other healthcare users; the KATHARINE GIBBS
SCHOOLS, a chain of seven business schools; NEWBRIDGE BOOK CLUBS, the largest
book club organization for professionals in the United States; and NEW WOMAN
magazine, a guide for personal relationships and careers.
 
PRODUCTION AND FULFILLMENT
 
    Virtually all of the Company's print products are printed and bound by
independent printers. The Company believes that outside printing services at
competitive prices are readily available. Electronic and video products
generally are created and mastered in-house; with the exception of WESTCOTT and
FILMS which produce video products in-house, all other production and
duplication of electronic and video products is performed by third party
vendors.
 
    The principal raw material used in the Company's products is paper. The
Company has paper supply contracts and, in almost all cases, supplies paper used
by its outside printers. The Company believes that even if at some point in the
future paper is in limited supply, the existing arrangements providing for the
supply of paper will be adequate. The Company was able to meet its paper
requirements during 1996. In 1996, approximately 37% and 22% of the Company's
paper purchases were supplied by Lindenmeyr Central and Bulkley Dunton,
respectively. The Company's relationship with these suppliers is good and is
expected to continue to be good for the foreseeable future.
 
    Many of the Company's products are packaged and delivered to the U.S. Postal
Service directly by the printer. Other products are sent from warehouses and
other facilities operated by the Company.
 
COMPANY ORGANIZATION
 
    K-III was incorporated on November 22, 1991 in the State of Delaware. The
principal executive office of the Company is located at 745 Fifth Avenue, New
York, New York 10151, telephone number (212) 745-0100.
 
                                       7
<PAGE>
EXECUTIVE OFFICERS
 
    The following table sets forth certain information regarding the executive
officers of K-III:
 
<TABLE>
<CAPTION>
     NAME                                                  AGE                           POSITION(S)
-----------------------------------------------------      ---      -----------------------------------------------------
<S>                                                    <C>          <C>
William F. Reilly....................................          58   Chairman of the Board and Chief Executive Officer and
                                                                      Director
Charles G. McCurdy...................................          41   President and Director
Beverly C. Chell.....................................          54   Vice Chairman, General Counsel, Secretary and
                                                                      Director
Harry A. McQuillen...................................          50   Executive Vice President
Jack L. Farnsworth...................................          51   Vice President
George Philips.......................................          66   Vice President
Curtis A. Thompson...................................          45   Vice President and Controller
Michaelanne C. Discepolo.............................          44   Vice President
Douglas B. Smith.....................................          36   Treasurer
</TABLE>
 
    Mr. Reilly is Chairman of the Board, Chief Executive Officer and a Director
of K-III and has served in such capacities since November 1991. Mr. Reilly is
also a director of FMC Corporation.
 
    Mr. McCurdy is President and a Director of K-III and has served in such
capacities since November 1991 and was Treasurer from 1991 to August 1993.
 
    Ms. Chell is Vice Chairman, General Counsel, Secretary and a Director of
K-III. Ms. Chell has served as Vice Chairman, General Counsel and Secretary
since November 1991 and as Director since March 1992.
 
    Mr. McQuillen has been Executive Vice President of K-III since December
1995, President of K-III Specialty Media Group since December 1992 and President
of K-III Magazines since November 1991. Prior thereto he was Vice President of
K-III from May 1992 through December 1995.
 
    Mr. Farnsworth has been Vice President of K-III since May 1992, President of
K-III Information Group since May 1992 and President of Westcott Communications,
Inc. since June 1996.
 
    Mr. Philips has been a Vice President of K-III since May 1992 and President
of K-III Reference Corporation since March 1992.
 
    Mr. Thompson is Vice President and Controller of K-III and has served in
such capacities since November 1991.
 
    Ms. Discepolo is a Vice President of K-III and has served in such capacity
since January 1993. She joined the Company in March 1991 as Director of Human
Resources.
 
    Mr. Smith is Treasurer of K-III and has served in such capacity since August
1993. Prior thereto he was at The Bank of New York starting in 1982 holding
various positions. He held the position of Senior Vice President prior to
joining K-III.
 
    Mr. Pedro Mata served as Vice President of K-III and President of K-III
Education Group from November 1995 through March, 1997. He was previously the
Senior Vice President of W.R. Grace & Co. and President and CEO of Grace Cocoa.
 
    The business address of Messrs. Reilly, McCurdy, Farnsworth, McQuillen,
Philips, Thompson, Smith and Mses. Chell and Discepolo is the address of the
principal executive offices of K-III.
 
EMPLOYEES
 
    As of January 2, 1997, the Company had approximately 7,200 full- and
part-time employees, of whom approximately 26 were union members. Management
considers its relations with its employees to be good.
 
                                       8
<PAGE>
ITEM 2. PROPERTIES
 
    The Company's principal leased properties used by the education segment are
located in California, Connecticut, Iowa, Massachusetts, New Jersey, New York,
Rhode Island, Tennessee and Texas; used by the information segment are in
Arizona, California, Georgia, Illinois, Maryland, New Jersey, New York, Ohio and
Wisconsin and used by the media segment are in Alabama, California, Colorado,
Georgia, Illinois, Kansas, Massachusetts, Michigan, Minnesota, Missouri, New
York and Tennessee. Property is owned by the Company and used in the education
segment in Connecticut, New Jersey and Tennessee, in the information segment in
New Jersey and Georgia and in the media segment in California, Illinois and
Missouri. The Company's only production facilities are small printing operations
for the DAILY RACING FORM and FILMS and video duplicating facilities for
WESTCOTT and FILMS. The Company's distribution properties and their capacity is
adequate to satisfy the Company's needs.
 
ITEM 3. LEGAL PROCEEDINGS
 
    There are no material pending legal proceedings and no material legal
proceedings including any that were terminated in the fourth quarter of 1996, to
which the Company is or was a party other than ordinary routine litigation
incidental to the business of the Company.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
    There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
 
                                       9
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
       STOCKHOLDER MATTERS.
 
    K-III Common Stock is listed on the New York Stock Exchange. As of March 17,
1997, there were 2,767 holders of K-III Common Stock. The Company has not and
has no present intention to pay dividends on its Common Stock. Trading commenced
November 1, 1995. The high and low sales prices for the period November 1, 1995
to December 31, 1995 were $12 5/8 to $10 1/2, respectively. High and low stock
prices for 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                                          SALES PRICE
                                                                      --------------------
QUARTER ENDED                                                           HIGH        LOW
--------------------------------------------------------------------  ---------  ---------
<S>                                                                   <C>        <C>
March 31............................................................  $  12 5/8  $  11 1/4
June 30.............................................................  $  12 7/8  $  10 5/8
September 30........................................................  $  12 5/8  $      10
December 31.........................................................  $  11 5/8  $   8 1/2
</TABLE>
 
                                       10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
    The selected consolidated financial data were derived from the consolidated
financial statements of the Company which are included elsewhere in this Annual
Report. The data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the related notes thereto included herein.
 
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                ------------------------------------------------------------------
                                                    1996          1995          1994         1993         1992
                                                ------------  ------------  ------------  -----------  -----------
                                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>           <C>           <C>           <C>          <C>
OPERATING DATA:
  Sales, net..................................  $  1,374,449  $  1,046,329  $    964,648  $   844,748  $   778,224
  Depreciation and amortization...............       190,702       192,276       136,866      143,267      171,581
  Other charges(1)............................       --             50,114        15,025        2,644           --
  Operating income (loss)(2)..................        85,901       (26,275)       10,203       (7,669)     (46,230)
  Interest expense............................       125,506       105,837        78,351       74,336       76,719
  Income tax benefit(3).......................        53,300        59,600        42,100           --          314
  Net income (loss)(2)(4).....................         8,044       (75,435)      (41,403)     (86,496)    (145,342)
  Preferred stock dividends...................        43,526        28,978        25,959       22,290       16,530
  Loss applicable to common shareholders......       (35,482)     (104,413)      (67,362)    (108,786)    (161,872)
  Loss per common and common equivalent
    share(5)..................................  $       (.27) $       (.91) $       (.65) $     (1.18) $     (1.77)
  Weighted average common and common
    equivalent shares outstanding(5)..........   130,007,632   115,077,498   103,642,668   92,392,189   91,317,610
OTHER DATA:
  EBITDA(6)...................................  $    276,603  $    216,115  $    162,094  $   138,242  $   125,351
  Capital expenditures........................        29,661        25,179        16,118       13,416       14,497
  Net cash provided by operating activities...       149,287        64,062        64,890       27,072       16,618
  Net cash used in investing activities.......      (721,709)     (318,712)     (442,126)     (95,669)     (79,725)
  Net cash provided by financing activities...  $    581,851  $    263,644  $    383,924  $    63,579  $    60,877
  Deficiency of earnings to fixed
    charges(7)(8).............................       (45,256)     (135,035)      (83,503)     (86,496)    (145,656)
  Deficiency of earnings to fixed charges and
    preferred stock dividends(7)(8)...........       (88,782)     (164,013)     (109,462)    (108,786)    (162,186)
 
<CAPTION>
 
                                                                         AT DECEMBER 31,
                                                ------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>          <C>
BALANCE SHEET DATA:
  Cash and cash equivalents...................  $     36,655  $     27,226  $     18,232  $    11,544  $    16,562
  Working capital (deficiency)(9).............       (44,705)      (56,560)        1,338        3,605        1,189
  Intangible assets, gross....................     2,649,805     1,996,564     1,656,590    1,343,482    1,276,123
  Less accumulated amortization...............       896,824       762,393       602,542      504,538      383,784
                                                ------------  ------------  ------------  -----------  -----------
  Intangible assets, net......................     1,752,981     1,234,171     1,054,048      838,944      892,339
  Total assets................................     2,552,215     1,881,416     1,589,692    1,166,502    1,197,896
  Long-term debt(10)..........................     1,565,686     1,134,916     1,034,689      661,297      704,802
  Exchangeable preferred stock................       442,729       231,606       216,229      202,453       97,171
  Common stock subject to redemption..........         5,957        28,022        16,552       25,287       16,746
  Shareholders' equity:
    Convertible Preferred Stock...............            --            --            --           --       78,797
    Common stock..............................         1,283         1,259         1,053          947          853
    Additional paid-in capital................       772,642       748,194       572,940      488,541      421,926
    Accumulated deficit.......................      (691,098)     (655,616)     (551,203)    (483,841)    (375,055)
    Cumulative foreign currency translation
      adjustments.............................        (1,270)       (1,275)       (1,324)      (1,220)        (222)
                                                ------------  ------------  ------------  -----------  -----------
        Total shareholders' equity............  $     81,557  $     92,562  $     21,466  $     4,427  $   126,299
                                                ------------  ------------  ------------  -----------  -----------
                                                ------------  ------------  ------------  -----------  -----------
</TABLE>
 
                                     (see Notes on the following page)
 
                                       11
<PAGE>
NOTES TO SELECTED FINANCIAL DATA
 
(1) Represents provision for restructuring and other costs in 1995, net
    provision for loss on the sales of businesses in 1995 and 1994 and provision
    for write-down of real estate no longer utilized in 1993.
 
(2) The adoption of a change in method of accounting for advertising costs (the
    "Accounting Change") resulted in an increase in operating income or decrease
    in operating loss and a decrease in net loss of approximately $2,000 ($.02
    per share), $11,800 ($.10 per share) and approximately $9,800 ($.09 per
    share) for the years ended December 31, 1996, 1995 and 1994, respectively.
 
(3) The income tax benefit in 1992 reflects the reversal of an overprovision for
    Canadian income taxes. At December 31, 1996, 1995 and 1994, management of
    the Company reviewed recent operating results for the years then ended and
    projected future operating results for the years through December 31, 2002
    and determined that a portion of the net deferred income tax assets at
    December 31, 1996, 1995 and 1994 would likely be realized. Accordingly, the
    Company recorded an income tax benefit of $53,300 in 1996, $59,600 in 1995
    and $42,100 in 1994. At December 31, 1996, the Company had net operating
    loss carryforwards for Federal and state income tax purposes ("NOLs") of
    approximately $713,000 which will be available to reduce future taxable
    income. In addition, management estimates that $757,000 of unamortized
    goodwill and other intangible assets will be available as deductions from
    any future taxable income.
 
(4) The write-off of unamortized deferred financing costs as a result of the
    refinancings in 1996, 1994 and 1992 decreased net income or increased net
    loss by $8,648, $11,874 and $19,814 for the years ended December 31, 1996,
    1994 and 1992, respectively. In 1995 and 1993, there were no write-offs of
    unamortized deferred financing costs.
 
(5) Loss per common and common equivalent share, as well as the weighted average
    common and common equivalent shares outstanding, were computed as described
    in Note 3 of the notes to the audited consolidated financial statements
    included elsewhere in this Annual Report.
 
(6) Earnings before interest, taxes, depreciation, amortization and provision
    for one-time charges ("EBITDA") is not intended to represent cash flow from
    operations and should not be considered as an alternative to net income
    (loss) as an indicator of the Company's operating performance or to cash
    flows as a measure of liquidity. The Company believes EBITDA is a standard
    measure commonly reported and widely used by analysts, investors and other
    interested parties in the media industry. Accordingly, this information has
    been disclosed herein to permit a more complete comparative analysis of the
    Company's operating performance relative to other companies in its industry.
 
(7) The deficiency of earnings to fixed charges consists of loss before income
    taxes plus fixed charges. Loss before income taxes includes (i) depreciation
    and amortization of prepublication costs, deferred financing costs, property
    and equipment, intangible assets and excess of purchase price over net
    assets acquired, (ii) interest expense, (iii) write-off of unamortized
    deferred financing costs, (iv) provision for write-down of real estate no
    longer utilized, (v) net provision for loss on sales of businesses, (vi)
    restructuring and other costs, and (vii) that portion of operating rental
    expense that represents interest. Prepublication costs include editorial,
    artwork, composition and printing plate costs incurred prior to publication
    date. Fixed charges consist of interest expense on long-term debt and other
    non-current obligations (including current maturities of long-term debt),
    amortization of deferred financing costs and that portion of operating
    rental expense that represents interest.
 
(8) The Company's earnings (defined as pretax income or loss from continuing
    operations) were inadequate to cover fixed charges and fixed charges plus
    preferred stock dividends by $45,256 and $88,782 for 1996, $135,035 and
    $164,013 for 1995, $83,503 and $109,462 for 1994, $86,496 and $108,786 for
    1993 and $145,646 and $162,186 for 1992. Such earnings have been reduced by
    non-cash charges for depreciation and amortization of property and
    equipment, prepublication costs, intangible assets, excess of purchase price
    over net assets acquired and deferred financial costs, write-offs of
    unamortized deferred financing costs, provision for write-down of real
    estate no longer utilized, net provision for loss on the sales of
    businesses, restructuring and other costs, non-cash interest expense on an
    acquisition obligation, distribution advance and other current liability,
    and non-cash preferred stock dividend requirements of approximately
    $218,125, $259,014, $187,111, $168,754 and $210,802 for the years ending
    December 31, 1996, 1995, 1994, 1993 and 1992, respectively. Adjusted to
    eliminate these non-cash charges, earnings would have exceeded fixed charges
    and fixed charges plus preferred stock dividends by approximately $156,287
    and $129,343 for 1996, $106,501 and $95,001 for 1995, $89,149 and $77,649
    for 1994, $71,468 and $59,968 for 1993 and $56,761 and $48,616 for 1992.
 
(9) Includes current maturities of long-term debt.
 
(10) Excludes current maturities of long-term debt.
 
                                       12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
INTRODUCTION
 
    The following discussion of the consolidated financial condition and related
results of operations of the Company should be read in conjunction with the
Company's historical consolidated financial statements and the related notes
thereto included elsewhere in this Annual Report.
 
SELECTED FINANCIAL DATA
 
    THE COMPANY ORGANIZES ITS BUSINESSES INTO THREE SEGMENTS: EDUCATION,
INFORMATION AND SPECIALTY MEDIA. The specialty media segment has in prior years
been referred to as the media segment, but the Company believes the term
specialty media is more descriptive of the underlying businesses; the same
underlying businesses previously described as part of the media segment.
Additional selected financial data for the Company organized on the foregoing
basis are presented below.
 
<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                            --------------------------------------
                                                                                1996          1995         1994
                                                                            ------------  ------------  ----------
<S>                                                                         <C>           <C>           <C>
Sales, net:
  Education...............................................................  $    376,217  $    330,414  $  430,134
  Information.............................................................       313,891       263,542     192,732
  Specialty Media.........................................................       684,341       452,373     341,782
                                                                            ------------  ------------  ----------
  Total...................................................................  $  1,374,449  $  1,046,329  $  964,648
                                                                            ------------  ------------  ----------
                                                                            ------------  ------------  ----------
Depreciation, amortization and other charges(1):
  Education...............................................................  $     63,252  $    106,492  $   46,426
  Information.............................................................        52,122        78,513      51,677
  Specialty Media.........................................................        74,549        56,682      53,156
  Corporate...............................................................           779           703         632
                                                                            ------------  ------------  ----------
  Total...................................................................  $    190,702  $    242,390  $  151,891
                                                                            ------------  ------------  ----------
                                                                            ------------  ------------  ----------
Operating income (loss):
  Education...............................................................  $     15,011  $    (32,024) $   10,590
  Information.............................................................        33,473        (8,683)     (2,307)
  Specialty Media.........................................................        59,693        32,169      15,877
  Corporate...............................................................       (22,276)      (17,737)    (13,957)
                                                                            ------------  ------------  ----------
  Total...................................................................        85,901       (26,275)     10,203
Other income (expense):
  Interest expense........................................................      (125,506)     (105,837)    (78,351)
  Amortization of deferred financing and organizational costs.............        (3,662)       (3,135)     (3,080)
  Write-off of unamortized deferred financing costs.......................        (8,648)           --     (11,874)
  Other, net..............................................................         6,659           212        (401)
                                                                            ------------  ------------  ----------
  Loss before income tax benefit..........................................       (45,256)     (135,035)    (83,503)
  Income tax benefit......................................................        53,300        59,600      42,100
                                                                            ------------  ------------  ----------
  Net income (loss).......................................................  $      8,044  $    (75,435) $  (41,403)
                                                                            ------------  ------------  ----------
                                                                            ------------  ------------  ----------
</TABLE>
 
------------------------
 
(1) Other charges includes net provision for loss on the sales of businesses and
    provision for restructuring and other costs in 1995 and 1994.
 
                                       13
<PAGE>
1996 COMPARED TO 1995
 
    CONSOLIDATED RESULTS:  CONSOLIDATED NET SALES INCREASED BY $328,120 OR 31.4%
TO $1,374,449 IN 1996 OVER 1995 DUE TO INTERNAL GROWTH IN ALL THREE SEGMENTS AS
WELL AS THE IMPACT OF ACQUISITIONS. Specifically, the acquisitions of Cahners
Consumer Magazines ("Cahners"), Westcott Communications, Inc. and the trade
magazines of Argus Inc. ("Argus") added $199,144 to net sales growth.
 
    CONSOLIDATED OPERATING INCOME WAS $85,901 IN 1996 COMPARED TO AN OPERATING
LOSS OF $26,275 IN 1995. This improvement was driven by the increase in sales,
the impact of recent acquisitions and the effect of several one-time,
principally non-cash charges totalling $68,072 in the second quarter of 1995.
The increase occurred despite an 8.4% increase in the Company's average purchase
price for paper in 1996 and the effect of the required adoption of a new method
of accounting for advertising costs (the "Accounting Change"), which K-III
adopted on July 1, 1994. The Accounting Change had a $8,343 net positive impact
on operating income in the first six months of 1995 versus 1996, predominantly
within the education segment. In periods subsequent to June 30, 1996, the
comparative effects of the adoption of the Accounting Change are not material.
The increase in corporate expenses resulted predominantly from growth in
corporate service requirements.
 
    INTEREST EXPENSE INCREASED BY $19,669 OR 18.6% IN 1996 OVER 1995 PRIMARILY
DUE TO THE INCREASED LEVEL OF BORROWINGS ASSOCIATED WITH ACQUISITIONS. During
1996, non-cash charges of $8,648 were recorded to write-off unamortized deferred
financing costs related to previous bank financings.
 
    THE COMPANY REPORTED AN INCOME TAX BENEFIT OF $53,300 IN 1996 COMPARED TO
$59,600 IN 1995 ASSOCIATED WITH THE PARTIAL RECOGNITION OF NOLS AND OTHER
DEFERRED INCOME TAX ASSETS. At the end of each year, the Company reviews its
recent operating results and projected future operating results and for 1996
determined that there should be sufficient future taxable income and that a
portion of the net deferred income tax assets would likely be realized. Such
future taxable income is determined principally from management's projection of
future operating results in conjunction with scheduled reductions in intangible
asset amortization expense. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced. Such reductions in
taxable income could occur as the result of many external factors including but
not limited to increased paper and postage costs and rates of interests. The
Company reported consolidated net income of $8,044 in 1996 versus a consolidated
net loss of $75,435 in 1995.
 
    EDUCATION:  THE EDUCATION SEGMENT'S NET SALES INCREASED BY $45,803 OR 13.9%
IN 1996 OVER 1995. Increases at Weekly Reader Corporation ("Weekly Reader"),
Films and Krames Communications Incorporated ("Krames") and the addition of
Westcott, which contributed $52,288 to the increase in net sales, offset
declines at Newbridge Communications, Inc. ("Newbridge"). At Newbridge, the book
club business remained soft, but performance indicators improved from year ago
levels. The education segment's operating profit increased to $15,011 in 1996 as
compared to an operating loss of $32,024 in 1995. This improvement is primarily
due to the one-time charges in the second quarter of 1995 for a provision for
loss associated with the sale of Newfield Publications, Inc. ("Newfield") and a
restructuring charge at Newbridge. Offsetting those charges, the Accounting
Change had a $8,541 net positive impact on operating profit in the first six
months of 1995 versus 1996.
 
    INFORMATION:  THE INFORMATION SEGMENT'S NET SALES INCREASED BY $50,349 OR
19.1% IN 1996 OVER 1995 PRIMARILY BECAUSE OF DOUBLE-DIGIT ORGANIC GROWTH AT THE
APARTMENT GUIDES AS WELL AS THE IMPACT OF RECENT ACQUISITIONS WHICH CONTRIBUTED
$17,600 TO THE INCREASE IN NET SALES. The information segment's operating profit
increased to $33,473 in 1996 as compared to an operating loss of $8,683 in 1995
due to the increase in sales and a decrease in amortization expense. Goodwill
and intangible asset amortization expense decreased by $24,277 in 1996 over 1995
primarily as a result of an adjustment to the carrying values of goodwill and
other intangible assets totalling $17,958 in the second quarter of 1995.
 
    SPECIALTY MEDIA:  The specialty media segment's net sales increased by
$231,968 or 51.3% in 1996 over 1995 due to growth of existing properties as well
as the impact of the Cahners and Argus acquisitions.
 
                                       14
<PAGE>
The increases at the existing properties were primarily due to double-digit
organic revenue growth at the specialty consumer magazines led by SEVENTEEN,
SOAP OPERA DIGEST, TRUCKIN' and CRAFTS. The full year effect of Argus, acquired
in December 1995, and Cahners, acquired in January 1996, contributed $51,459 and
$95,397 respectively to the 1996 sales growth. Operating profit increased by
$27,524 or 85.6% in 1996 over 1995. The increase was the result of an increase
in net sales partially offset by a 14.1% increase in average paper prices for
magazine operations in 1996 over 1995.
 
1995 COMPARED TO 1994
 
    CONSOLIDATED RESULTS:  EXCLUDING THE RESULTS OF DIVESTED OPERATIONS,
CONSOLIDATED NET SALES INCREASED BY $249,420 OR 31.3% TO $1,046,329 IN 1995 OVER
1994. This increase resulted from growth from existing operations, product
additions and acquisitions of businesses in all three segments. In 1995, the
Company divested Newfield in the education segment and PREMIERE magazine in the
specialty media segment. The Company's statement of consolidated operations
included the results of these businesses in 1994 but not in 1995. Consequently,
reported net sales including divested businesses increased only 8.5% from 1994
to 1995.
 
    IN THE SECOND QUARTER OF 1995, THE COMPANY RECORDED SEVERAL ONE-TIME,
PRINCIPALLY NON-CASH, CHARGES TOTALLING $68,072. These included a net aggregate
provision for loss on the sales of Newfield and PREMIERE of $35,447;
restructuring and other charges of $14,667 related to a corporate restructuring
at Newbridge and the completion of manufacturing outsourcing at Daily Racing
Form, and adjustments to the carrying values of K-III Reference Corporation
("K-III Reference"), goodwill and other intangible assets totalling $17,958.
 
    PARTIALLY OFFSETTING THESE ONE-TIME CHARGES WAS THE IMPACT OF THE ACCOUNTING
CHANGE, WHICH K-III ADOPTED ON JULY 1, 1994. The Accounting Change increased
operating income by approximately $2,000 more in 1995 than 1994. Including the
one-time charges and the effect of the Accounting Change, the consolidated
operating loss was $26,275 in 1995 as compared to consolidated operating profit
of $10,203 in 1994. The increase in the corporate expenses resulted
predominantly from growth in corporate service requirements.
 
    INTEREST EXPENSE INCREASED BY $27,486 OR 35.1% IN 1995 OVER 1994 PRIMARILY
DUE TO THE INCREASED LEVEL OF BORROWINGS ASSOCIATED WITH ACQUISITIONS AS WELL AS
HIGHER SHORT-TERM INTEREST RATES. As a result of the refinancing during the
second quarter of 1994, a charge of $11,874 was recorded representing the
write-off of unamortized deferred financing costs related to the previous bank
financing.
 
    THE COMPANY RECORDED AN INCOME TAX BENEFIT OF $59,600 IN 1995 COMPARED TO
$42,100 IN 1994, ASSOCIATED WITH THE PARTIAL RECOGNITION OF NOLS AND OTHER NET
DEFERRED INCOME TAX ASSETS. The consolidated net loss increased by $34,032 in
1995 over 1994 mainly due to the one-time charges.
 
    EDUCATION:  EXCLUDING THE RESULTS OF NEWFIELD, THE EDUCATION SEGMENT'S NET
SALES INCREASED 17.5% OVER 1994, REFLECTING GROWTH FROM PRODUCT ADDITIONS AND
ACQUISITIONS OF BUSINESSES, PRIMARILY CHANNEL ONE COMMUNICATIONS CORPORATION
("CHANNEL ONE") WHICH ADDED $52,370 TO THE NET SALES GROWTH IN 1995. Reported
results, however, included Newfield's sales only in 1994, thus leading to a
reported decline in the education segment's net sales of 23.2%. The Accounting
Change favorably impacted the education segment's earnings by approximately
$4,000 more in 1995 than in 1994; however, it was offset by an increase in
goodwill, intangible and other asset amortization expenses of $15,469 and an
increase in certain one-time charges of $37,377. The education segment reported
an operating loss of $32,024 in 1995 compared to an operating profit of $10,590
in 1994.
 
    INFORMATION:  THE INFORMATION SEGMENT'S NET SALES INCREASED BY $70,810 OR
36.7% IN 1995 OVER 1994 PRIMARILY AS A RESULT OF PRODUCT ADDITIONS AT BUSINESS
DIRECTORIES, THE FULL YEAR EFFECT OF THE ACQUISITION OF HAAS PUBLISHING
COMPANIES, INC. ("HAAS") AND THE SUBSEQUENT ADDITION OF NEW MARKETS FOR ITS
APARTMENT GUIDES. Product additions at K-III Directory Corporation included the
INTERNATIONAL TRADE GUIDE, the U.S. CUSTOM HOUSE GUIDE and the OFFICIAL EXPORT
GUIDE, all acquired in late 1994, as well as the Machinery Information Division
directories acquired in mid-1994. These product additions contributed
approximately $7,000 to the 1995 net sales growth. The Haas acquisition in
mid-1994 resulted in approximately $27,900 of
 
                                       15
<PAGE>
the 1995 net sales growth. Additional markets added to the Haas apartment guides
in 1995 included Washington, D.C., Baltimore, MD and Detroit, MI, which
contributed approximately $8,800 to the 1995 net sales growth. The addition of
the BACON'S media relations industry directories, clipping services and mailing
services in mid-1995 added approximately $27,900 to the 1995 net sales growth.
Goodwill and intangible asset amortization expense increased by $21,889 in 1995
over 1994 principally as a result of the adjustments to goodwill and intangible
asset values at K-III Reference. This was the primary cause for an increase in
the information segment's operating loss of $6,376 in 1995 over 1994.
 
    SPECIALTY MEDIA:  THE SPECIALTY MEDIA SEGMENT'S SALES INCREASED BY $110,591
OR 32.4% IN 1995 OVER 1994 DUE TO A 32.0% INCREASE IN ADVERTISING REVENUE AND A
31.4% INCREASE IN SUBSCRIPTION REVENUE INCLUDING THE EFFECT OF THE ACQUISITIONS
OF PJS PUBLICATIONS, INC., THE MACLEAN HUNTER DIVISION OF ROGERS COMMUNICATIONS,
INC. AND MCMULLEN & YEE PUBLISHING, INC. WHICH CONTRIBUTED $40,665, $29,386 AND
$21,357, RESPECTIVELY, TO THE INCREASE IN NET SALES, OFFSET BY THE ELIMINATION
OF THE REVENUES OF PREMIERE. Excluding the effects of acquisitions and
divestitures, technical and trade magazine advertising pages and rates rose 3.7%
and 5.0%, respectively, and specialty consumer magazine advertising pages and
rates rose 3.2% and 3.3%, respectively, in 1995 over 1994. Despite an average
24% increase in paper costs in addition to the Accounting Change impact which
was $2,000 less favorable in 1995 than in 1994 the specialty media segment's
operating profit increased by $16,292 in 1995 over 1994.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    The following table sets forth certain information regarding the Company's
EBITDA and other net cash flow items:
 
<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                             -------------------------------------
                                                                                1996         1995         1994
                                                                             -----------  -----------  -----------
<S>                                                                          <C>          <C>          <C>
EBITDA(1):
  Education................................................................  $    78,263  $    74,468  $    57,016
  Information..............................................................       85,595       69,830       49,370
  Specialty Media..........................................................      134,242       88,851       69,033
  Corporate................................................................      (21,497)     (17,034)     (13,325)
                                                                             -----------  -----------  -----------
  Total....................................................................  $   276,603  $   216,115  $   162,094
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
Net cash provided by (used in) operating activities:
  Education................................................................  $    84,541  $    35,963  $    43,314
  Information..............................................................       70,022       73,019       39,167
  Specialty Media..........................................................      124,719       66,601       62,902
  Corporate................................................................     (129,995)    (111,521)     (80,493)
                                                                             -----------  -----------  -----------
  Total....................................................................  $   149,287  $    64,062  $    64,890
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
Net cash provided by (used in) investing activities:
  Education................................................................  $  (439,907) $     6,075  $  (291,501)
  Information..............................................................      (66,521)     (83,632)    (130,110)
  Specialty Media..........................................................     (213,546)    (238,731)     (20,181)
  Corporate................................................................       (1,735)      (2,424)        (334)
                                                                             -----------  -----------  -----------
  Total....................................................................  $  (721,709) $  (318,712) $  (442,126)
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
Net cash provided by (used in) financing activities:
  Education................................................................  $    (3,205) $      (727) $    (2,795)
  Information..............................................................       (5,633)      (2,590)         375
  Specialty Media..........................................................      (10,372)      (5,332)      (8,081)
  Corporate................................................................      601,061      272,293      394,425
                                                                             -----------  -----------  -----------
  Total....................................................................  $   581,851  $   263,644  $   383,924
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
</TABLE>
 
                                       16
<PAGE>
<TABLE>
<CAPTION>
                                                                                   YEARS ENDED DECEMBER 31,
                                                                             -------------------------------------
                                                                                1996         1995         1994
                                                                             -----------  -----------  -----------
<S>                                                                          <C>          <C>          <C>
Excess (Deficiency) of Earnings to Fixed Charges(2):
  Education................................................................  $    11,200  $   (33,615) $     6,194
  Information..............................................................       27,903      (13,449)     (10,766)
  Specialty Media..........................................................       57,627       26,001        3,622
  Corporate................................................................     (141,986)    (113,972)     (82,553)
                                                                             -----------  -----------  -----------
  Total....................................................................  $   (45,256) $  (135,035) $   (83,503)
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
Excess (Deficiency) of Earnings to Fixed Charges and Cash Preferred Stock
  Dividends(2):
  Education................................................................  $    11,200  $   (33,615) $     6,194
  Information..............................................................       27,903      (13,449)     (10,766)
  Specialty Media..........................................................       57,627       26,001        3,622
  Corporate................................................................     (185,512)    (142,950)    (108,512)
                                                                             -----------  -----------  -----------
  Total....................................................................  $   (88,782) $  (164,013) $  (109,462)
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
</TABLE>
 
------------------------
 
(1) Earnings before interest, taxes, depreciation, amortization and provision
    for one-time charges ("EBITDA") is not intended to represent cash flow from
    operations and should not be considered as an alternative to net income
    (loss) as an indicator of the Company's operating performance or to cash
    flows as a measure of liquidity. The Company believes EBITDA is a standard
    measure commonly reported and widely used by analysts, investors and other
    interested parties in the media industry. Accordingly, this information has
    been disclosed herein to permit a more complete comparative analysis of the
    Company's operating performance relative to other companies in its industry.
 
(2) The deficiency of earnings to fixed charges consists of loss before income
    taxes plus fixed charges. Loss before income taxes includes (i) depreciation
    or amortization of prepublication costs, deferred financing costs, property
    and equipment, intangible assets and excess of purchase price over net
    assets acquired, (ii) interest expense, (iii) write-off of unamortized
    deferred financing costs, (iv) net provision for loss on sales of
    businesses, (v) restructuring and other costs, and (vi) that portion of
    operating rental expense that represents interest. Prepublication costs
    include editorial, artwork, composition and printing plate costs incurred
    prior to publication date. Fixed charges consist of interest expense on
    long-term debt and other non-current obligations (including current
    maturities of long-term debt), amortization of deferred financing costs and
    that portion of operating rental expense that represents interest.
 
    CONSOLIDATED WORKING CAPITAL (DEFICIENCY) INCLUDING CURRENT MATURITIES OF
LONG-TERM DEBT WAS $(44,705) AT DECEMBER 31, 1996 COMPARED TO $(56,560) AT
DECEMBER 31, 1995. Consolidated working capital (deficiency) reflects certain
industry working capital practices and accounting principles, including the
expensing of editorial and product development costs when incurred and the
recording of unearned subscription income as a current liability. Advertising
costs are expensed when the promotional activities occur except for certain
direct-response advertising costs which are capitalized and amortized over the
estimated period of future benefit.
 
1996 COMPARED TO 1995
 
    CONSOLIDATED EBITDA INCREASED BY $60,488 OR 28% IN THE YEAR ENDED DECEMBER
31, 1996 OVER 1995 MAINLY AS A RESULT OF GROWTH FROM EXISTING OPERATIONS, NEW
PRODUCT ADDITIONS AND ACQUISITIONS OF BUSINESSES. The net cash provided by
operating activities during the year ended December 31, 1996, after interest
payments of $112,657, was $149,287, an increase of $85,225 over 1995 resulting
mainly from EBITDA growth. Capital expenditures, net of gross proceeds from
sales of assets, were $28,790 during 1996 as compared to $23,414 for 1995. These
expenditures included data processing equipment, televisions, videocassette
recorders, satellite dishes, furniture and leasehold improvements and were
financed with net
 
                                       17
<PAGE>
cash provided from operations. Payments of $700,990 (including certain
immaterial purchase price adjustments relating to previous acquisitions) were
made during the year ended December 31, 1996 for the acquisitions described in
Note 4 to the Company's consolidated financial statements. Net cash used in
investing activities increased as a result of increased acquisition activities,
substantially all of which were financed with borrowings under the then existing
credit agreements and funds from operations.
 
    THE COMPANY'S EARNINGS (DEFINED AS PRETAX INCOME OR LOSS FROM CONTINUING
OPERATIONS) WERE INADEQUATE TO COVER FIXED CHARGES AND FIXED CHARGES PLUS
PREFERRED STOCK DIVIDENDS BY $45,256 AND $88,782 AND $135,035 AND $164,013 FOR
1996 AND 1995, RESPECTIVELY. Such earnings have been reduced by non-cash charges
(including depreciation, amortization and non-cash dividends) of approximately
$218,125 and $259,014 for the years ended December 31, 1996 and 1995,
respectively. Adjusted to eliminate these non-cash charges, earnings would have
exceeded fixed charges and fixed charges plus cash preferred stock dividends by
approximately $156,287 and $129,343 and $106,501 and $95,001 for the years ended
December 31, 1996 and 1995, respectively.
 
1995 COMPARED TO 1994
 
    CONSOLIDATED EBITDA INCREASED BY $54,021 OR 33.3% IN THE YEAR ENDED DECEMBER
31, 1995 OVER 1994 MAINLY AS A RESULT OF GROWTH FROM EXISTING OPERATIONS, NEW
PRODUCT ADDITIONS, ACQUISITIONS OF BUSINESSES AND THE ACCOUNTING CHANGE, WHICH
K-III ADOPTED ON JULY 1, 1994. The net cash provided by operating activities
during the year ended December 31, 1995, after interest payments of $102,040,
was $64,062. Net cash provided by operating activities declined by $828 during
the year ended December 31, 1995 from 1994 due primarily to the EBITDA growth
offset by higher acquisition related interest payments and growth in inventories
and prepaid expenses. Capital expenditures, net of gross proceeds from sales of
assets, were $23,414 during 1995 as compared to $14,184 for 1994. These
expenditures included data processing equipment, televisions, videocassette
recorders, satellite dishes, furniture and leasehold improvements and were
financed with net cash provided by operations. Payments of $353,954 (including
certain immaterial purchase price adjustments relating to previous acquisitions)
were made during the year ended December 31, 1995 for the acquisitions described
in Note 4 to the Company's consolidated financial statements. Net cash used in
investing activities decreased as a result of the proceeds from the sale of
Newfield and PREMIERE and the lower cost of the acquisitions in 1995 as compared
to the acquisitions in 1994, all of which were financed with borrowings under
existing credit facilities.
 
NET OPERATING LOSS CARRYFORWARDS
 
    AT DECEMBER 31, 1996, THE COMPANY HAD NOLS OF APPROXIMATELY $713,000 WHICH
WILL BE AVAILABLE TO REDUCE FUTURE TAXABLE INCOME. In addition, management
estimates that approximately $757,000 of unamortized goodwill and other
intangible assets will be available as deductions from any future taxable
income.
 
FINANCING ARRANGEMENTS
 
    ON JANUARY 24, 1996, THE COMPANY COMPLETED A PRIVATE OFFERING OF 2,000,000
SHARES OF $10 SERIES C EXCHANGEABLE PREFERRED STOCK ("SERIES C PREFERRED STOCK")
AT $100 PER SHARE. Annual dividends of $10 per share on the Series C Preferred
Stock were cumulative and payable quarterly, in cash, commencing May 1, 1996. On
August 21, 1996, the Company exchanged the Series C Preferred Stock for
2,000,000 shares of $10 Series D Exchangeable Preferred Stock ("Series D
Preferred Stock"). Dividend payment terms of the Series D Preferred Stock are
the same as the Series C Preferred Stock. The Series D Preferred Stock has been
registered under the Securities Act of 1933. On and after February 1, 2001, the
Series D Preferred Stock may be redeemed in whole or in part, at the option of
the Company, at specified redemption prices plus accrued and unpaid dividends.
The Company is required to redeem the Series D Preferred Stock on February 1,
2008 at a redemption price equal to the liquidation preference of $100 per
share, plus accrued and unpaid dividends. The Series D Preferred Stock is
exchangeable in whole, but not in part, at the option
 
                                       18
<PAGE>
of the Company, on any scheduled dividend payment date into 10% Class D
Subordinated Exchange Debentures due 2008 ("Class D Subordinated Debentures")
provided that no shares of the Senior Preferred Stock are outstanding on the
date of exchange. Net proceeds from the Series C Preferred Stock offering of
approximately $193,000 were primarily used to pay down revolving credit
borrowings.
 
    ON JANUARY 24, 1996, K-III COMPLETED A PRIVATE OFFERING OF $300,000 OF
8 1/2% SENIOR NOTES DUE 2006 ("PRIVATE 8 1/2% NOTES"). The Private 8 1/2% Notes
were issued at 99.578% of the aggregate principal amount thereof with related
issuance costs of approximately $7,000. On August 21, 1996, the Company
exchanged its Private 8 1/2% Notes for a new series of $300,000 of 8 1/2% Senior
Notes due 2006 ("8 1/2% Notes"). The 8 1/2% Notes have been registered under the
Securities Act of 1933. The 8 1/2% Notes mature on February 1, 2006 and have no
sinking fund. Interest on the 8 1/2% Notes is payable semi-annually in February
and August at the annual rate of 8 1/2%. The 8 1/2% Notes may not be redeemed
prior to February 1, 2001 other than in connection with a change of control.
Beginning in 2001 and thereafter, the 8 1/2% Notes are redeemable in whole or in
part, at the option of the Company, at prices declining ratably from 104.25% to
100% in 2003 plus accrued and unpaid interest. Net proceeds from the Private
8 1/2% Notes offering of approximately $293,000 were primarily used to pay down
revolving credit borrowings. The 8 1/2% Notes are fully and unconditionally
guaranteed jointly and severally on a senior basis by each of the domestic
restricted subsidiaries.
 
    IN THE FOURTH QUARTER OF 1996, THE COMPANY ENTERED INTO SIX, ONE-YEAR
INTEREST RATE SWAP AGREEMENTS WITH AN AGGREGATE NOTIONAL AMOUNT OF $600,000.
Under these new swap agreements, the Company receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and pays a fixed
rate of interest, each quarter, for the term of the agreements. As of December
31, 1996, the weighted average variable rate and weighted average fixed rate
were 5.5% and 5.8%, respectively.
 
    AT DECEMBER 31, 1996, A $250,000 TERM LOAN ("TERM LOAN"), $628,000 OF
TRANCHE A REVOLVING LOAN COMMITMENT ("TRANCHE A REVOLVING LOAN COMMITMENT"),
$6,992 OF CANADIAN DOLLAR LOANS AND $4,850 OF LETTERS OF CREDIT WERE OUTSTANDING
UNDER CREDIT FACILITIES WITH THE CHASE MANHATTAN BANK, THE BANK OF NEW YORK,
BANKERS TRUST COMPANY AND THE BANK OF NOVA SCOTIA AS AGENTS (THE "NEW CREDIT
FACILITIES"). Also, at December 31, 1996, K-III had outstanding $233,250 of
10 5/8% Senior Notes due 2002 (the "10 5/8% Senior Notes"), $100,000 of 10 1/4%
Senior Notes due 2004 (the "10 1/4% Senior Notes"), $300,000 of 8 1/2% Notes,
4,000,000 shares of $2.875 Senior Exchangeable Preferred Stock (the "Senior
Preferred Stock"), 1,531,526 shares of $11.625 Series B Exchangeable Preferred
Stock (the "Series B Preferred Stock") and 2,000,000 shares of Series D
Preferred Stock. The Senior Preferred Stock is exchangeable, at K-III's option,
for the 11 1/2% Subordinated Debentures, the Series B Preferred Stock is
exchangeable, at K-III's option, for the 11 5/8% Class B Subordinated Exchange
Debentures and the Series D Preferred Stock is exchangeable, at K-III's option,
for Class D Subordinated Debentures. Before May 1, 1998, dividends or interest,
as the case may be, on the Series B Preferred Stock or the 11 5/8% Class B
Subordinated Exchange Debentures may be paid in cash or by issuing additional
shares of the Series B Preferred Stock or additional 11 5/8% Class B
Subordinated Exchange Debentures, as the case may be. On or after May 1, 1998,
such dividends or interest must be paid in cash.
 
    THE ABOVE INDEBTEDNESS, AMONG OTHER THINGS, LIMITS THE ABILITY OF THE
COMPANY TO CHANGE THE NATURE OF ITS BUSINESSES, INCUR INDEBTEDNESS, CREATE
LIENS, SELL ASSETS, ENGAGE IN MERGERS, CONSOLIDATIONS OR TRANSACTIONS WITH
AFFILIATES, MAKE INVESTMENTS IN OR LOANS TO CERTAIN SUBSIDIARIES, ISSUE
GUARANTEES AND MAKE CERTAIN RESTRICTED PAYMENTS. The Company is restricted from
declaring or making dividend payments on its common and preferred stock. Under
the Company's most restrictive debt covenants, the Company must maintain a
minimum interest coverage ratio of 1.8 to 1 and a minimum fixed charge coverage
ratio of 1.05 to 1 and its maximum allowable leverage ratio is 6.0 to 1. The
Company believes it is in compliance with the financial and operating covenants
of its principal financing arrangements.
 
                                       19
<PAGE>
    The mandatory reductions of the Tranche A Revolving Loan Commitment and the
Term Loan under the New Credit Facilities are $75,000 in 1999, $200,000 per year
in 2000 through 2003 with a final reduction or paydown of $125,000 in 2004.
 
    THE 10 1/4% SENIOR NOTES MATURE IN JUNE 2004 AND THE 8 1/2% NOTES MATURE IN
FEBRUARY 2006. The per annum principal and interest payments relating to an
acquisition obligation are scheduled to be $6,000, $14,333, $21,167, $19,167 and
$8,833 to be made in semi-annual installments in 1997 through 2001,
respectively. The Company's aggregate lease obligations for 1997, 1998 and 1999
are expected to be approximately $35,000, $32,000 and $28,000, respectively. The
Company believes its liquidity, capital resources and cash flow are sufficient
to fund planned capital expenditures, working capital requirements, interest and
principal payments on its debt, the payment of preferred stock dividends and
other anticipated expenditures for the foreseeable future.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
    IN FEBRUARY 1997, THE FINANCIAL ACCOUNTING STANDARDS BOARD ISSUED STATEMENT
OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NO. 128, "EARNINGS PER SHARE" WHICH
BECOMES EFFECTIVE FOR THE COMPANY'S 1997 CONSOLIDATED FINANCIAL STATEMENTS
BEGINNING IN THE FOURTH QUARTER OF 1997. SFAS No. 128 will eliminate the
disclosure of primary earnings per share which includes the dilutive effect of
stock options, warrants and other convertible securities ("Common Stock
Equivalents") and instead requires reporting of "basic" earnings per share,
which will exclude Common Stock Equivalents. Additionally, SFAS No. 128 changes
the methodology for fully diluted earnings per share. In the opinion of the
Company's management, it is not anticipated that the adoption of this new
accounting standard will have a material effect on the reported earnings per
share of the Company.
 
RECENT DEVELOPMENTS
 
    THROUGH MARCH 12, 1997, THE COMPANY COMPLETED THREE PRODUCT-LINE
ACQUISITIONS CONSISTING OF SPECIALTY CONSUMER MAGAZINES AND SPECIALIZED
REFERENCE PRODUCTS. The aggregate purchase price was approximately $56,000.
 
    ON MARCH 11, 1997 THE COMPANY ANNOUNCED ITS INTENTION TO MAKE PUBLIC
OFFERINGS OF APPROXIMATELY 12.5 MILLION SHARES OF ITS COMMON STOCK, PAR VALUE
$.01 PER SHARE (THE "OFFERINGS"). The net proceeds of the Offerings will be used
to redeem the Company's outstanding Senior Preferred Stock and repay debt.
 
    AS A PART OF ITS STRATEGY TO FOCUS ON AREAS OF ITS BUSINESS THAT HAVE THE
GREATEST POTENTIAL FOR GROWTH, THE COMPANY INTENDS TO DIVEST CERTAIN BUSINESSES
THAT DO NOT FIT WITHIN ITS GROWTH VEHICLES. Those businesses are: the DAILY
RACING FORM group, which includes a national daily newspaper covering
thoroughbred horseracing and PRO FOOTBALL WEEKLY; KRAMES COMMUNICATIONS, a
leading publisher of patient information sold to healthcare providers for
distribution to patients and other healthcare users; the KATHARINE GIBBS
SCHOOLS, a chain of seven business schools; NEWBRIDGE BOOK CLUBS, the largest
book club organization for professionals in the United States; and NEW WOMAN
magazine, a guide for personal relationships and careers. The proceeds from
these sales will be used to repay indebtedness. These businesses represented
approximately 19% of 1996 net sales of the Company. The unaudited combined
operating results for the year ended December 31, 1996 and total assets at
December 31, 1996 of these business units are approximately as follows:
 
<TABLE>
<S>                                                                 <C>
Sales, net........................................................  $ 255,000
Operating income (loss)...........................................     (3,950)
Depreciation and amortization ....................................     27,800
Total assets(1)...................................................    304,700
</TABLE>
 
------------------------
 
(1) At December 31, 1996, KATHARINE GIBBS SCHOOLS is reflected as an asset held
    for sale in the accompanying consolidated balance sheet.
 
                                       20
<PAGE>
    IN JANUARY 1997, THE COMPANY PURCHASED, IN AGGREGATE, $20,850 PRINCIPAL
AMOUNT OF 10 5/8% SENIOR NOTES AT A WEIGHTED AVERAGE PRICE OF 105%, PLUS ACCRUED
AND UNPAID INTEREST, FROM VARIOUS BROKERS ON THE OPEN MARKET (THE "REPURCHASE").
In March 1997, the Company called for redemption all of its outstanding 10 5/8%
Senior Notes. On May 1, 1997, the Company will redeem $212,400 principal amount
of 10 5/8% Senior Notes, at a redemption price of 104% of the outstanding
principal amount thereof, plus accrued and unpaid interest to the date of
redemption. The Repurchase was in addition to the purchases of $16,750 principal
amount of 10 5/8% Senior Notes during November and December of 1996 which are
reflected in the Company's consolidated balance sheet at December 31, 1996.
 
IMPACT OF INFLATION
 
    THE IMPACT OF INFLATION WAS IMMATERIAL DURING 1996 WITH THE EXCEPTION OF
PAPER PRICES. PAPER PRICES BEGAN TO RISE AROUND MID-YEAR 1994 AND CONTINUED TO
RISE MORE DRAMATICALLY IN 1995 AND EARLY 1996. Overall, the Company's average
purchase price for paper increased approximately 8.4% during 1996 compared to
1995. In 1996, paper costs represented approximately 10% of the Company's total
operating costs and expenses. Due to recent softening in certain segments of the
paper market, paper price increases of the magnitude experienced in 1995 and
1996 seem unlikely in the foreseeable future. Postage for product distribution
and direct mail solicitations is also a significant expense of the Company. The
Company uses the U.S. Postal Service for distribution of many of its products
and marketing materials. Postage costs increase periodically and can be expected
to increase in the future. In the past, the effects of inflation on operating
expenses have substantially been offset by K-III's ability to increase selling
prices. No assurances can be given that the Company can pass such cost increases
through to its customers. In addition, to pricing actions, the Company is
continuing to examine all aspects of the manufacturing and purchasing processes
to identify ways to offset some of these price increases.
 
FORWARD LOOKING INFORMATION
 
    This report contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition. These
statements are based upon a number of assumptions and estimates which are
inherently subject to uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions may not materialize and
unanticipated events will occur which can affect the Company's results.
 
                                       21
<PAGE>
                 (This page has been left blank intentionally.)
 
                                       22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
                   TABLE OF CONTENTS TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                                      <C>
K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
  Report of Independent Auditors--Deloitte & Touche LLP................................         24
  Statements of Consolidated Operations for the Years Ended December 31, 1996, 1995 and
    1994...............................................................................         25
  Consolidated Balance Sheets as of December 31, 1996 and 1995.........................         26
  Statements of Consolidated Cash Flows for the Years Ended December 31, 1996, 1995 and
    1994...............................................................................         27
  Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and
    1994...............................................................................         28
  Notes to Consolidated Financial Statements for the Years Ended December 31, 1996,
    1995 and 1994......................................................................         30
</TABLE>
 
                                       23
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS
 
To the Shareholders and Board of Directors of
K-III Communications Corporation
New York, New York:
 
    We have audited the accompanying consolidated balance sheets of K-III
Communications Corporation and subsidiaries as of December 31, 1996 and 1995,
and the related statements of consolidated operations, shareholders' equity and
consolidated cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiaries at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
 
    As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for advertising costs to conform with Statement
of Position 93-7--"Reporting on Advertising Costs" of the American Institute of
Certified Public Accountants in 1994.
 
DELOITTE & TOUCHE LLP
New York, New York
January 29, 1997
(March 19, 1997 as to Note 26)
 
                                       24
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                     STATEMENTS OF CONSOLIDATED OPERATIONS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                YEARS ENDED DECEMBER 31,
                                                                      ---------------------------------------------
                                                             NOTES         1996            1995           1994
                                                                      --------------  --------------  -------------
<S>                                                        <C>        <C>             <C>             <C>
Sales, net:
  Education..............................................             $      376,217  $      330,414  $     430,134
  Information............................................                    313,891         263,542        192,732
  Specialty Media........................................                    684,341         452,373        341,782
                                                                      --------------  --------------  -------------
Total sales, net.........................................                  1,374,449       1,046,329        964,648
 
Operating costs and expenses:
  Cost of goods sold.....................................                    337,065         251,347        206,390
  Marketing and selling..................................                    249,301         177,167        197,379
  Distribution, circulation and fulfillment..............                    230,533         188,147        180,962
  Editorial..............................................                    104,484          73,703         64,235
  Other general expenses.................................                    154,966         122,816        140,263
  Corporate administrative expenses......................                     21,497          17,034         13,325
  Depreciation and amortization of prepublication costs,
    property and equipment...............................     11              38,233          25,761         16,190
  Provision for loss on the sales of businesses, net.....      6                  --          35,447         15,025
  Restructuring and other costs..........................      7                  --          14,667             --
  Amortization of intangible assets, excess of purchase
    price over net assets acquired and other.............    8, 12           152,469         166,515        120,676
                                                                      --------------  --------------  -------------
 
Operating income (loss)..................................                     85,901         (26,275)        10,203
Other income (expense):
  Interest expense.......................................                   (125,506)       (105,837)       (78,351)
  Amortization of deferred financing and organizational
    costs................................................     13              (3,662)         (3,135)        (3,080)
  Write-off of unamortized deferred financing costs......                     (8,648)             --        (11,874)
  Other, net.............................................      6               6,659             212           (401)
                                                                      --------------  --------------  -------------
Loss before income tax benefit...........................                    (45,256)       (135,035)       (83,503)
Income tax benefit.......................................     16              53,300          59,600         42,100
                                                                      --------------  --------------  -------------
Net income (loss)........................................                      8,044         (75,435)       (41,403)
 
Preferred stock dividends:
  Non-cash...............................................                    (16,582)        (17,478)       (14,459)
  Cash...................................................                    (26,944)        (11,500)       (11,500)
                                                                      --------------  --------------  -------------
Loss applicable to common shareholders...................             $      (35,482) $     (104,413) $     (67,362)
                                                                      --------------  --------------  -------------
                                                                      --------------  --------------  -------------
Loss per common and common equivalent share..............      3      $         (.27) $         (.91) $        (.65)
                                                                      --------------  --------------  -------------
                                                                      --------------  --------------  -------------
Weighted average common and common equivalent shares
  outstanding............................................      3         130,007,632     115,077,498    103,642,668
                                                                      --------------  --------------  -------------
                                                                      --------------  --------------  -------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       25
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                       --------------------------
                                                                             NOTES         1996          1995
                                                                                       ------------  ------------
<S>                                                                       <C>          <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.............................................               $     36,655  $     27,226
  Accounts receivable, net..............................................       9            233,603       173,771
  Inventories, net......................................................      10             52,743        70,844
  Net assets held for sale..............................................       5             18,684         5,253
  Prepaid expenses and other............................................                     34,834        26,732
                                                                                       ------------  ------------
      Total current assets..............................................                    376,519       303,826
Property and equipment, net.............................................      11            122,823       112,013
Other intangible assets, net............................................      12            781,316       699,617
Excess of purchase price over net assets acquired, net..................      12            971,665       534,554
Deferred income tax asset, net..........................................      16            176,200       113,800
Other non-current assets................................................      13            123,692       117,606
                                                                                       ------------  ------------
                                                                                       $  2,552,215  $  1,881,416
                                                                                       ------------  ------------
                                                                                       ------------  ------------
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................................               $    107,258  $     90,414
  Accrued interest payable..............................................                     22,150         9,326
  Accrued expenses and other............................................      14            140,959       125,967
  Deferred revenues.....................................................                    144,857       128,679
  Current maturities of long-term debt..................................      15              6,000         6,000
                                                                                       ------------  ------------
      Total current liabilities.........................................                    421,224       360,386
                                                                                       ------------  ------------
Long-term debt..........................................................    15, 26        1,565,686     1,134,916
                                                                                       ------------  ------------
Other non-current liabilities...........................................                     35,062        33,924
                                                                                       ------------  ------------
Commitments and contingencies                                                 22
Exchangeable preferred stock (aggregated liquidation and redemption
  values of $453,153 and $236,571 at December 31, 1996 and 1995,
  respectively).........................................................      17            442,729       231,606
                                                                                       ------------  ------------
Common stock subject to redemption ($.01 par value, 643,310 shares and
  2,406,513 shares outstanding at December 31, 1996 and 1995,
  respectively).........................................................      18              5,957        28,022
                                                                                       ------------  ------------
Shareholders' equity:
  Common stock ($.01 par value, 250,000,000 shares authorized;
    128,349,045 shares and 125,921,221 shares outstanding at December
    31, 1996 and 1995, respectively)....................................      18              1,283         1,259
  Additional paid-in capital............................................      18            772,642       748,194
  Accumulated deficit...................................................      19           (691,098)     (655,616)
  Cumulative foreign currency translation adjustments...................                     (1,270)       (1,275)
                                                                                       ------------  ------------
      Total shareholders' equity........................................                     81,557        92,562
                                                                                       ------------  ------------
                                                                                       $  2,552,215  $  1,881,416
                                                                                       ------------  ------------
                                                                                       ------------  ------------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       26
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                     STATEMENTS OF CONSOLIDATED CASH FLOWS
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                     YEARS ENDED DECEMBER 31,
                                                                                 --------------------------------
<S>                                                                              <C>         <C>        <C>
                                                                                    1996       1995       1994
                                                                                 ----------  ---------  ---------
 
<CAPTION>
<S>                                                                              <C>         <C>        <C>
OPERATING ACTIVITIES:
  Net income (loss)............................................................  $    8,044  $ (75,435) $ (41,403)
  Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
    Depreciation, amortization and other.......................................     194,364    195,411    139,946
    Provision for loss on the sales of businesses, net.........................          --     35,447     15,025
    Accretion of discount on acquisition obligation, distribution advance and
      other....................................................................       6,398      8,147      9,617
    Write-off of deferred financing costs......................................       8,648         --     11,874
    Income tax benefit.........................................................     (53,300)   (59,600)   (42,100)
    Other, net.................................................................      (6,213)      (122)       177
  Changes in operating assets and liabilities:
  (Increase) decrease in:
    Accounts receivable, net...................................................     (24,692)    (2,525)    (2,510)
    Inventories, net...........................................................      24,531    (23,630)     1,329
    Prepaid expenses and other.................................................        (598)   (13,127)   (14,367)
  Increase (decrease) in:
    Accounts payable...........................................................       5,807      6,742      5,971
    Accrued interest payable...................................................      12,824      1,131        877
    Accrued expenses and other.................................................     (12,674)   (26,857)   (13,492)
    Deferred revenues..........................................................     (11,201)    16,971     (4,984)
    Other non-current liabilities..............................................      (2,651)     1,509     (1,070)
                                                                                 ----------  ---------  ---------
    Net cash provided by operating activities..................................     149,287     64,062     64,890
                                                                                 ----------  ---------  ---------
INVESTING ACTIVITIES:
  Additions to property, equipment and other...................................     (29,661)   (25,179)   (16,118)
  Proceeds from sales of businesses............................................       8,071     58,656         --
  Proceeds from sales of property, equipment and other.........................         871      1,765      1,934
  Payments for businesses acquired.............................................    (700,990)  (353,954)  (427,942)
                                                                                 ----------  ---------  ---------
    Net cash used in investing activities......................................    (721,709)  (318,712)  (442,126)
                                                                                 ----------  ---------  ---------
FINANCING ACTIVITIES:
  Borrowings under credit agreements...........................................   1,683,787    622,459    766,329
  Repayments of borrowings under credit agreements.............................  (1,384,800)  (522,500)  (678,800)
  Proceeds from issuance of 8 1/2% Senior Notes, net of discount...............     298,734         --         --
  Payments of acquisition obligation...........................................      (6,000)    (6,000)    (6,000)
  Payments of floating rate indebtedness.......................................    (150,000)        --         --
  Proceeds from issuance of common stock, net of redemptions...................       3,498    187,520     76,360
  Proceeds from issuance of 10 1/4% Senior Notes...............................          --         --    100,000
  Borrowings under BONY Term Loan..............................................          --         --    150,000
  Proceeds from issuance of Old Preferred Stock................................          --     50,000     75,050
  Proceeds from issuance of Series C (exchanged into Series D) Preferred Stock,
    net of issuance costs......................................................     193,451         --         --
  Redemption of Old Preferred Stock............................................          --    (52,691)   (76,324)
  Purchases of 10 5/8% Senior Notes............................................     (16,750)        --         --
  Dividends paid to preferred shareholders.....................................     (26,944)   (11,500)   (11,500)
  Deferred financing costs paid................................................     (13,132)    (3,204)   (10,842)
  Other........................................................................           7       (440)      (349)
                                                                                 ----------  ---------  ---------
    Net cash provided by financing activities..................................     581,851    263,644    383,924
                                                                                 ----------  ---------  ---------
Increase in cash and cash equivalents..........................................       9,429      8,994      6,688
Cash and cash equivalents, beginning of period.................................      27,226     18,232     11,544
                                                                                 ----------  ---------  ---------
Cash and cash equivalents, end of period.......................................  $   36,655  $  27,226  $  18,232
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
SUPPLEMENTAL INFORMATION:
  Businesses acquired:
    Fair value of assets acquired..............................................  $  779,192  $ 429,810  $ 517,412
    Liabilities assumed........................................................      78,202     75,856     89,470
                                                                                 ----------  ---------  ---------
    Cash paid for businesses acquired..........................................  $  700,990  $ 353,954  $ 427,942
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
  Interest paid................................................................  $  112,657  $ 102,040  $  71,395
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
  Non-cash investing and financing activities:
    Asset acquired under a capital lease obligation............................  $       --  $  11,738  $      --
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
    Preferred stock dividends in kind..........................................  $   16,582  $  17,478  $  14,459
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
    Accretion in carrying value of preferred stock.............................  $    1,090  $     590  $     590
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
    Accretion (reduction) in carrying value of common stock subject to
      redemption...............................................................  $     (885) $   9,927  $      --
                                                                                 ----------  ---------  ---------
                                                                                 ----------  ---------  ---------
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       27
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
<S>                                                                                             <C>
Balance at January 1, 1994..................................................................
Issuances of common stock, net of issuance costs............................................
Expiration of redemption feature on common stock subject to redemption......................
$11.625 Series B Exchangeable Preferred Stock-dividends in kind.............................
$2.875 Senior Exchangeable Preferred Stock--cash dividends..................................
Old Preferred Stock--dividends in kind......................................................
Accretion of differences between carrying value and redemption value of:
    $2.875 Senior Exchangeable Preferred Stock..............................................
    $11.625 Series B Exchangeable Preferred Stock...........................................
Cumulative foreign currency translation adjustments.........................................
Net loss....................................................................................
 
Balance at December 31, 1994................................................................
Issuances of common stock, net of issuance costs............................................
Expiration of redemption feature on common stock subject to redemption......................
$11.625 Series B Exchangeable Preferred Stock--dividends in kind............................
$2.875 Senior Exchangeable Preferred Stock--cash dividends..................................
Old Preferred Stock--dividends in kind......................................................
Accretion of differences between carrying value and redemption value of:
    $2.875 Senior Exchangeable Preferred Stock..............................................
    $11.625 Series B Exchangeable Preferred Stock...........................................
    Common stock subject to redemption......................................................
Cumulative foreign currency translation adjustments.........................................
Net loss....................................................................................
 
Balance at December 31, 1995................................................................
Issuances of common stock, net of issuance costs............................................
Expiration of redemption feature on common stock subject to redemption......................
$11.625 Series B Exchangeable Preferred Stock--dividends in kind............................
$2.875 Senior Exchangeable Preferred Stock--cash dividends..................................
$10.00 Series D Exchangeable Preferred Stock--cash dividends................................
 
Reduction (accretion) of differences between carrying value and redemption value of:
    $2.875 Senior Exchangeable Preferred Stock..............................................
    $11.625 Series B Exchangeable Preferred Stock...........................................
    $10.00 Series D Exchangeable Preferred Stock............................................
    Common stock subject to redemption......................................................
Cumulative foreign currency translation adjustments.........................................
Net income..................................................................................
 
Balance at December 31, 1996................................................................
</TABLE>
 
                See notes to consolidated financial statements.
 
                                       28
<PAGE>
 
<TABLE>
<CAPTION>
                                                    CUMULATIVE
                                                      FOREIGN
      COMMON STOCK        ADDITIONAL                 CURRENCY
------------------------   PAID-IN    ACCUMULATED   TRANSLATION
   SHARES       AMOUNT     CAPITAL      DEFICIT     ADJUSTMENTS     TOTAL
-------------  ---------  ----------  ------------  -----------  -----------
               <C>        <C>         <C>           <C>          <C>
   94,705,557  $     947  $  488,541   $ (483,841)   $  (1,220)  $     4,427
    9,381,250         94      74,956                                  75,050
    1,251,002         12      10,033                                  10,045
                                          (13,185)                   (13,185)
                                          (11,500)                   (11,500)
                                           (1,274)                    (1,274)

                                (273)                                   (273)
                                (317)                                   (317)
                                                          (104)         (104)
                                          (41,403)                   (41,403)
-------------  ---------  ----------  ------------  -----------  -----------
  105,337,809      1,053     572,940     (551,203)      (1,324)       21,466
   20,435,782        204     184,964                                 185,168
      147,630          2         807                                     809
                                          (14,787)                   (14,787)
                                          (11,500)                   (11,500)
                                           (2,691)                    (2,691)

                                (273)                                   (273)
                                (317)                                   (317)
                              (9,927)                                 (9,927)
                                                            49            49
                                          (75,435)                   (75,435)
-------------  ---------  ----------  ------------  -----------  -----------
  125,921,221      1,259     748,194     (655,616)      (1,275)       92,562
      681,890          7       3,440                                   3,447
    1,745,934         17      21,213                                  21,230
                                          (16,582)                   (16,582)
                                          (11,500)                   (11,500)
                                          (15,444)                   (15,444)

 
                                (273)                                   (273)
                                (317)                                   (317)
                                (500)                                   (500)
                                 885                                     885
                                                             5             5
                                            8,044                      8,044
-------------  ---------  ----------  ------------  -----------  -----------
  128,349,045  $   1,283  $  772,642   $ (691,098)   $  (1,270)  $    81,557
-------------  ---------  ----------  ------------  -----------  -----------
-------------  ---------  ----------  ------------  -----------  -----------
</TABLE>
 
                                       29
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
1. DESCRIPTION OF BUSINESS
 
    K-III COMMUNICATIONS CORPORATION (WHICH TOGETHER WITH ITS SUBSIDIARIES IS
HEREIN REFERRED TO AS EITHER "K-III" OR THE "COMPANY" UNLESS THE CONTEXT IMPLIES
OTHERWISE) IS THE AUTHORITATIVE SOURCE FOR SPECIALIZED INFORMATION TO TARGETED
MARKETS. The Company's three business segments are education, information and
specialty media. The specialty media segment has in prior years been referred to
as the media segment, but the Company believes that the use of specialty media
is more descriptive of the underlying businesses. The education segment includes
Channel One, Westcott, Weekly Reader, Newbridge, Krames and Katharine Gibbs
Schools. This segment specializes in providing educational materials to the
classroom and workplace learning markets. The information segment includes K-III
Reference, K-III Directory, Haas, Bacon's, a portion of Intertec, Nelson and
Daily Racing Form. The information segment produces consumer and business
directories in a variety of formats for decision makers in business,
professional and special interest consumer markets. The information is compiled
and sold through reference works, newspapers, CD-ROMs, almanacs and directories.
The specialty media segment includes K-III Magazines, PJS, McMullen Argus and
the majority of Intertec. The specialty media segment is concentrated primarily
on specialty consumer magazines, and technical and trade magazines.
 
2. CHANGE IN METHOD OF ACCOUNTING FOR ADVERTISING COSTS
 
    Effective July 1, 1994, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-7, "Reporting on
Advertising Costs" (the "SOP").
 
    Under the Company's previous accounting policy, general advertising costs
were expensed as incurred; promotional and subscription acquisition costs were
capitalized prior to the launching of a direct marketing or subscription
acquisition campaign and then expensed when the promotional materials were
mailed or displayed. In compliance with the new SOP, the Company now expenses
advertising costs the first time the advertising takes place, except for
direct-response advertising qualifying for capitalization under the SOP which is
capitalized and amortized over its expected period of future benefit. Direct-
response advertising consists of product promotional mailings, catalogues,
telemarketing and subscription promotions. The capitalized costs of advertising
are amortized using a ratio of current period revenues to total current and
estimated future period revenues. The amortization periods range from 6 months
to 2 years subsequent to the promotional event. Amortization of direct-response
advertising costs is included in marketing and circulation expenses on the
accompanying statements of consolidated operations. The adoption of this new
accounting method resulted in a decrease in the net loss of approximately $2,000
($.02 per share), $11,800 ($.10 per share) and $9,800 ($.09 per share) for the
years ended December 31, 1996, 1995 and 1994, respectively. At December 31,
1996, 1995 and 1994, $28,452, $25,408 and $16,895 of advertising costs,
respectively, were reported as net assets and included in other non-current
assets on the accompanying consolidated balance sheets. Advertising expense was
approximately $100,687, $88,176 and $100,357, during the years ended December
31, 1996, 1995 and 1994, respectively.
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    BASIS OF PRESENTATION.  The consolidated financial statements include the
accounts of K-III and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts of
assets, liabilities, revenues and expenses reported in the consolidated
financial statements.
 
                                       30
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    Significant accounting estimates used include estimates for sales returns
and allowances and estimates for the realization of deferred tax assets.
Management has exercised reasonableness in deriving these estimates. However,
actual results may differ.
 
    Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the presentation used in the current
period.
 
    Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes the accounting for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The adoption of this new accounting standard did not have a
material effect on the results of operations of the Company.
 
    Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This Statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
The Company has elected to continue to account for its employee stock
compensation plans under APB No. 25. Pro forma disclosures of net income (loss)
and loss per common and common equivalent share, as if the fair value based
method of accounting defined in SFAS No. 123 had been applied, are presented in
Note 18.
 
    In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" which becomes effective for the Company's 1997
consolidated financial statements beginning in the fourth quarter of 1997. SFAS
No. 128 will eliminate the disclosure of primary earnings per share which
includes the dilutive effect of stock options, warrants and other convertible
securities ("Common Stock Equivalents") and instead requires reporting of
"basic" earnings per share, which will exclude Common Stock Equivalents.
Additionally, SFAS No. 128 changes the methodology for fully diluted earnings
per share. In the opinion of the Company's management, it is not anticipated
that the adoption of this new accounting standard will have a material effect on
the reported earnings per share of the Company.
 
    CASH AND CASH EQUIVALENTS.  Management considers all highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents.
 
    INVENTORIES.  Inventories, including paper, purchased manuscripts,
photographs and art, are valued at the lower of cost or market principally on a
first-in, first-out ("FIFO") basis and include the value of inventory for which
a provision for estimated sales returns has been made.
 
    PROPERTY AND EQUIPMENT.  Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of property and
equipment, and the amortization of leasehold improvements are provided at rates
based on the estimated useful lives or lease terms, if shorter, using primarily
the straight-line method. Improvements are capitalized while maintenance and
repairs are expensed as incurred.
 
    EDITORIAL AND PRODUCT DEVELOPMENT COSTS.  Editorial costs and product
development costs are generally expensed as incurred. Product development costs
include the cost of artwork, graphics, prepress, plates and photography for new
products.
 
                                       31
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ADVERTISING AND SUBSCRIPTION ACQUISITION COSTS.  Advertising and
subscription acquisition costs are expensed the first time the advertising takes
place, except for direct-response advertising, the primary purpose of which is
to elicit sales from customers who can be shown to have responded specifically
to the advertising and that results in probable future economic benefits. These
direct-response advertising costs are reported as assets and amortized over the
estimated period of future benefit. Prior to July 1, 1994, direct-response
advertising costs were capitalized prior to launching a direct marketing or
subscription acquisition campaign and were expensed when the promotional
materials were mailed (see Note 2).
 
    DEFERRED FINANCING COSTS.  Deferred financing costs are being amortized by
the straight-line method over the terms of the related indebtedness.
 
    DEFERRED WIRING AND INSTALLATION COSTS.  Wiring and installation costs
incurred by Channel One and Westcott have been capitalized and are being
amortized by the straight-line method over 15 and five years, respectively, the
related estimated useful life.
 
    $2.875 SENIOR EXCHANGEABLE PREFERRED STOCK ("SENIOR PREFERRED STOCK"),
$11.625 SERIES B EXCHANGEABLE PREFERRED STOCK ("SERIES B PREFERRED STOCK") and
the $10.00 SERIES D EXCHANGEABLE PREFERRED STOCK ("SERIES D PREFERRED
STOCK").  The Senior Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock are stated at fair value on the date of issuance less issuance
costs. The difference between their carrying values and their redemption values
is being amortized (using the interest method) by periodic charges to additional
paid-in capital.
 
    COMMON STOCK SUBJECT TO REDEMPTION.  The common stock subject to redemption
is stated at redemption value which at December 31, 1996 and 1995, is equal to
quoted market value. The difference between the carrying value of such stock and
its redemption value is recorded by periodic charges to additional paid-in
capital.
 
    COMPUTER SOFTWARE.  Computer software costs are expensed as incurred.
 
    INTEREST RATE SWAP AGREEMENTS.  The Company's interest rate swap agreements
are designated and effective as modifications to existing debt obligations to
reduce the impact of changes in the interest rates on its floating rate
borrowings and, accordingly, are accounted for using the settlement method of
accounting. The differentials to be paid or received under the interest rate
swap agreements are accrued as interest rates change and are recognized as
adjustments to interest expense. The Company considers swap terms including the
reference rate, payment and maturity dates and the notional amount in
determining if an interest rate swap agreement is effective at modifying an
existing debt obligation. If the criteria for designation are no longer met or
the underlying instrument matures or is extinguished, the Company will account
for outstanding swap agreements at fair market value and any resulting gain or
loss will be recognized as other income or expense. Any gains or losses upon
early termination of the agreements will be deferred and amortized over the
shorter of the remaining life of the hedged existing debt obligation or the
original life of the interest rate swap agreement.
 
    PURCHASE ACCOUNTING.  With respect to the acquisitions, the total purchase
price has been allocated to the tangible and intangible assets and liabilities
based on their respective fair values.
 
    EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED AND INTANGIBLE
ASSETS.  Intangible assets are being amortized using both accelerated and
straight-line methods over periods ranging from 1/4 of 1 year to 40 years. The
excess of purchase price over net assets acquired is being amortized on a
straight-line basis over 40 years. The recoverability of the carrying values of
the excess of the purchase price over the net assets
 
                                       32
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
acquired and intangible assets is evaluated quarterly to determine if an
impairment in value has occurred. An impairment in value will be considered to
have occurred when it is determined that the undiscounted future operating cash
flows generated by the acquired businesses are not sufficient to recover the
carrying values of such intangible assets. If it has been determined that an
impairment in value has occurred, the excess of the purchase price over the net
assets acquired and intangible assets would be written down to an amount which
will be equivalent to the present value of the future operating cash flows to be
generated by the acquired businesses.
 
    REVENUE RECOGNITION.  Advertising revenues for all consumer magazines are
recognized as income at the on-sale date, net of provisions for estimated
rebates, adjustments and discounts. Other advertising revenues are generally
recognized based on the publications' cover dates. Newsstand sales are
recognized as income at the on-sale date for all publications, net of provisions
for estimated returns. Subscriptions are recorded as deferred revenue when
received and recognized as income over the term of the subscription. Westcott
subscription and broadcast fees for satellite and videotape network services are
recognized in the month services are rendered. Sales of books and other items
are recognized as revenue principally upon shipment, net of an allowance for
returns which is provided based on sales. Distribution costs charged to
customers are recognized as revenue when the related product is shipped. Tuition
is recorded as deferred revenue when received and recognized ratably as income
over the length of the school term. Channel One advertising revenue, net of
commissions, is recognized as advertisements are aired on the program. Certain
advertisers are guaranteed a minimum number of viewers per advertisement shown;
the revenue recognized is based on the actual viewers delivered not to exceed
the original contract value.
 
    FOREIGN CURRENCY.  Gains and losses on foreign currency transactions, which
are not significant, have been included in other, net. The effects of
translation of foreign currency financial statements into U.S. dollars are
included in the cumulative foreign currency translation adjustments account in
shareholders' equity.
 
    LOSS PER COMMON AND COMMON EQUIVALENT SHARE.  Loss per common and common
equivalent share for the years ended December 31, 1996, 1995 and 1994 was
computed using the weighted average number of common and common equivalent
shares outstanding during each year. The weighted average number of common and
common equivalent shares outstanding during 1995 (for the quarters prior to the
initial filing of the registration statement) and 1994, includes incremental
shares for the common stock issued and non-qualified options granted to purchase
common stock which were issued within one year prior to the initial filing of
the registration statement for an initial public offering at a purchase price
below $10.00 per share; and during the fourth quarters of 1996, 1995 and 1994,
the weighted average of common and common equivalent shares includes incremental
shares for non-qualified stock options granted to purchase common stock
(collectively, the "Incremental Shares"). Such Incremental Shares were
determined utilizing the treasury stock method. Loss per common share assuming
full dilution is not presented because such calculation is antidilutive.
 
4. ACQUISITIONS
 
    The Company acquired certain net assets or stock of:
 
    1994--Channel One, which produces and distributes a daily advertising
supported television news show for secondary school students and associated
video programming; a publisher of directories of residential apartments
available to rent; a producer and distributor of privately sponsored
supplemental
 
                                       33
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
4. ACQUISITIONS (CONTINUED)
educational materials; and Katharine Gibbs Schools, a network of seven
post-secondary career schools. In addition to the aforementioned, the Company
completed several other smaller acquisitions during 1994.
 
    1995--a publisher of 13 specialty consumer magazine titles serving the
sewing, crafts, woodworking and shooting sports areas; a publisher of 11 trade
magazines in the mining, printing and packaging industries, a specialty consumer
magazine, 15 truck and automobile price guides and three marketing and sales
oriented magazines; an information provider for the public relations industry; a
publisher of 21 specialty consumer magazines serving the automobile, truck,
motorcycle and watercraft areas; a publisher of specialty consumer magazines
serving the automotive area; and a publisher of trade magazines and directories
and an operator of trade shows. In addition to the aforementioned, the Company
completed several other smaller acquisitions during 1995.
 
    1996--Cahners Consumer Magazines, a publisher of specialty consumer
magazines including AMERICAN BABY, MODERN BRIDE, SAIL and POWER & MOTORYACHT,
along with 20 related properties and Westcott which utilizes various multi-media
technologies to provide workplace training, news, and information to
professionals and students in the corporate and professional, automotive,
banking, government and public service, education, health care, and interactive
distance training markets. In addition to the aforementioned, the Company
completed several other smaller acquisitions during 1996.
 
    The acquisitions have been accounted for by the purchase method. The
preliminary purchase cost allocations for the above-mentioned acquisitions are
subject to adjustment when additional information concerning asset and liability
valuations are obtained. The final asset and liability fair values may differ
from those set forth in the accompanying consolidated balance sheet at December
31, 1996; however, the changes are not expected to have a material effect on the
consolidated financial position of the Company. The consolidated financial
statements include the operating results of these acquisitions subsequent to
their respective dates of acquisition. The foregoing acquisitions, except for
Channel One, Cahners and Westcott, if they had occurred on January 1 of the year
prior to acquisition, would not have had a material impact on the results of
operations.
 
    The following unaudited pro forma information presents the results of
operations of the Company as if the acquisitions of Channel One, Cahners and
Westcott had taken place on January 1, 1994:
 
<TABLE>
<CAPTION>
                                                                        YEARS ENDED DECEMBER 31,
                                                                ----------------------------------------
<S>                                                             <C>           <C>           <C>
                                                                    1996          1995          1994
                                                                ------------  ------------  ------------
Sales, net....................................................  $  1,413,930  $  1,238,254  $  1,194,673
Operating income (loss).......................................        82,100       (12,563)       14,861
Net income (loss).............................................        (8,239)     (106,012)      (84,688)
Loss applicable to common shareholders........................       (51,765)     (134,990)     (110,647)
Loss per common and common equivalent share...................         (0.40)        (1.17)        (1.07)
</TABLE>
 
5. NET ASSETS HELD FOR SALE
 
    In 1995, the Company decided to sell, as of the acquisition date, certain
technical and trade magazines which were originally acquired as part of a larger
acquisition (see Note 6). During September 1996, the Company decided to divest
Katharine Gibbs and expects to complete the sale in 1997. The net assets of
these operations were recorded at net realizable value and have been classified
as a current asset in net assets held for sale on the accompanying consolidated
balance sheets.
 
                                       34
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
6. DIVESTITURES
 
    In June 1995, the Company sold certain newly acquired technical and trade
magazines and PREMIERE and on July 28, 1995, the Company sold Newfield. In
connection with these sales, the Company has received aggregate cash proceeds of
$58,656 and has recorded amounts due from buyer of approximately $5,000 on the
accompanying consolidated balance sheets at December 31, 1996 and 1995. In
connection with these sales, the Company recorded net aggregate provisions for
loss on the sales of businesses of $35,447 for the year ended December 31, 1995
and $15,025 for the year ended December 31, 1994.
 
    During the second quarter of 1996, the Company completed the sale of certain
technical and trade magazines. The differences between the proceeds received and
the carrying values of the assets held for sale were treated as adjustments to
the excess of purchase price over net assets acquired related to the retained
businesses. In addition, during the second quarter of 1996, the Company sold a
monthly tabloid targeted to electronic design engineers for consideration of a
motion picture and television production magazine and cash proceeds. During the
fourth quarter of 1996, the Company completed the sale of the Kits and Leaflets
Division of PJS and certain specialty consumer magazines. In connection with
these sales, the Company received aggregate cash proceeds of approximately
$8,100 and recorded a net gain on sale of businesses of approximately $5,800.
 
7. RESTRUCTURING AND OTHER COSTS
 
    In the second quarter of 1995, the Company recorded charges of $14,667
related to a corporate restructuring effort at Newbridge, its professional book
club business, and the completion of a manufacturing outsourcing effort at Daily
Racing Form. Included in the restructuring charge of $7,272 are employee
separation costs of $1,287, litigation matters of $3,349, a write-down of
inventory and other assets of $2,086 related to the exit of a product line at
Newbridge and costs associated with the termination of a real estate lease which
is no longer needed in the operations of Daily Racing Form of $550. Included in
the other costs of $7,395 are costs incurred and associated with the correction
of customer and accounting systems and write-down of certain assets. During 1994
and early 1995, the Company experienced certain operational problems at
Newbridge relating to periodic mailings which described its then current product
offerings. These operational problems resulted in higher than normal levels of
bad debts and returns. In addition, Newbridge implemented a new customer
information processing system which inadvertently suppressed a number of
customer and product offering mailings resulting in lower than anticipated
demand for certain products and a corresponding increase in obsolete inventory.
Subsequently, the operational and new system problems were corrected. Based on
information which was then available, appropriate provisions for inventory
obsolescence of approximately $500 and for bad debts of approximately $2,500
were recorded in the first quarter of 1995. Expenses associated with the outside
consultants and systems corrections of approximately $1,400 were recorded in the
second quarter of 1995. Additional obsolescence provisions of approximately
$2,000 and bad debt provisions of approximately $1,000 were identified and
recorded in the second quarter of 1995. Approximately $4,100 of the
restructuring and other charges were paid in cash in 1995 and at December 31,
1995, approximately $2,600 of these charges is included in accrued liabilities.
Approximately $1,200 of the restructuring and other charges were paid in cash in
1996 and at December 31, 1996, $1,400 of these charges is included in accrued
liabilities, which is expected to be paid in 1997.
 
8. ADJUSTMENTS TO THE CARRYING VALUES OF LONG-LIVED ASSETS
 
    In accordance with its accounting policy, during 1995, the Company recorded
aggregate write-downs of $17,958 and $5,786 to the carrying values of the
identifiable intangible assets and goodwill of K-III
 
                                       35
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
8. ADJUSTMENTS TO THE CARRYING VALUES OF LONG-LIVED ASSETS (CONTINUED)
Reference and a product line of Newbridge, respectively. These adjustments are
included in amortization of intangible assets, excess of purchase price over net
assets acquired and other on the accompanying statement of consolidated
operations for the year ended December 31, 1995 and affect the operating results
of the information and education segments.
 
9. ACCOUNTS RECEIVABLE, NET
 
    Accounts receivable consist of the following:
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                        ----------------------
<S>                                                                     <C>         <C>
                                                                           1996        1995
                                                                        ----------  ----------
Accounts receivable...................................................  $  273,119  $  211,150
Less: Allowance for doubtful accounts.................................      15,418      14,364
     Allowance for returns and rebates................................      24,098      23,015
                                                                        ----------  ----------
                                                                        $  233,603  $  173,771
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
10. INVENTORIES, NET
 
    Inventories consist of the following:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                          --------------------
<S>                                                                       <C>        <C>
                                                                            1996       1995
                                                                          ---------  ---------
Finished goods..........................................................  $  41,497  $  49,026
Work in process.........................................................      2,111        969
Raw materials...........................................................     17,838     27,978
                                                                          ---------  ---------
                                                                             61,446     77,973
Less: allowance for obsolescence........................................      8,703      7,129
                                                                          ---------  ---------
                                                                          $  52,743  $  70,844
                                                                          ---------  ---------
                                                                          ---------  ---------
</TABLE>
 
                                       36
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
11. PROPERTY AND EQUIPMENT, NET
 
    Property and equipment, including that held under capital leases, consist of
the following:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                        RANGE OF LIVES   ----------------------
                                                            (YEARS)         1996        1995
                                                        ---------------  ----------  ----------
<S>                                                     <C>              <C>         <C>
Land..................................................        --         $    2,022  $    2,043
Buildings and improvements............................          1-40         24,219      19,296
Furniture and fixtures................................          4-10         26,027      19,387
Machinery and equipment...............................           2-9         94,091      65,187
School equipment......................................            10         55,860      54,625
Other.................................................           3-7          2,401       1,232
                                                                         ----------  ----------
                                                                            204,620     161,770
Less: accumulated depreciation and amortization.......                       81,797      49,757
                                                                         ----------  ----------
                                                                         $  122,823  $  112,013
                                                                         ----------  ----------
                                                                         ----------  ----------
</TABLE>
 
    Included in machinery and equipment above is an asset which was acquired
under a capital lease in the amount of $11,738 with accumulated amortization of
$1,739 and $434 at December 31, 1996 and 1995, respectively (see Note 22).
 
12. INTANGIBLE ASSETS AND EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, NET
 
    Other intangible assets consist of the following:
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                    RANGE OF LIVES   --------------------------
                                                        (YEARS)          1996          1995
                                                    ---------------  ------------  ------------
<S>                                                 <C>              <C>           <C>
Trademarks........................................            40     $    448,490  $    416,524
Membership, subscriber and customer lists.........          2-20          504,951       435,960
Non-compete agreements............................          1-10          227,312       217,101
Trademark license agreements......................          2-15           17,500        17,500
Copyrights........................................         12-20           47,849        47,849
Video library.....................................           1-7           14,837        14,835
Databases.........................................          4-12          121,377       128,468
Advertiser lists..................................        .25-15          133,850        80,577
Distribution agreements...........................           1-7           15,336        15,336
Other.............................................        1.5-15           63,875        20,971
                                                                     ------------  ------------
                                                                        1,595,377     1,395,121
Less: accumulated amortization....................                        814,061       695,504
                                                                     ------------  ------------
                                                                     $    781,316  $    699,617
                                                                     ------------  ------------
                                                                     ------------  ------------
</TABLE>
 
    The excess of the purchase price over the fair value of the net assets
acquired is net of accumulated amortization of $82,763 and $66,889,
respectively, at December 31, 1996 and 1995.
 
                                       37
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
13. OTHER NON-CURRENT ASSETS
 
    Other non-current assets consist of the following:
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                        ----------------------
<S>                                                                     <C>         <C>
                                                                           1996        1995
                                                                        ----------  ----------
 
<CAPTION>
<S>                                                                     <C>         <C>
Deferred financing costs, net.........................................  $   22,814  $   19,711
Deferred wiring and installation costs, net...........................      58,086      62,937
Direct-response advertising costs, net (see Note 2)...................      28,452      25,408
Prepublication and programming costs, net.............................       6,506       3,821
Other.................................................................       7,834       5,729
                                                                        ----------  ----------
                                                                        $  123,692  $  117,606
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
    The deferred financing costs are net of accumulated amortization of $9,794
and $8,139 at December 31, 1996 and 1995, respectively. The deferred wiring and
installation costs are net of accumulated amortization of $12,850 and $7,163 at
December 31, 1996 and 1995, respectively. Direct-response advertising costs are
net of accumulated amortization of $70,661 and $29,569 at December 31, 1996 and
1995, respectively. Prepublication and programming costs are net of accumulated
amortization of $4,852 and $4,121 at December 31, 1996 and 1995, respectively.
 
14. ACCRUED EXPENSES AND OTHER
 
    Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                        ----------------------
<S>                                                                     <C>         <C>
                                                                           1996        1995
                                                                        ----------  ----------
 
<CAPTION>
<S>                                                                     <C>         <C>
Payroll, commissions and related employee benefits....................  $   40,553  $   43,482
Systems costs.........................................................       2,991       5,661
Rent and lease liabilities............................................      13,502      10,027
Retail display costs and allowances...................................       8,263      10,723
Promotion costs.......................................................       2,663       2,032
Royalties.............................................................       8,362       8,067
Circulation costs.....................................................       5,420       3,382
Professional fees.....................................................       4,408       2,566
Taxes.................................................................      17,162       6,778
Customer advances.....................................................       2,482       3,031
Other.................................................................      35,153      30,218
                                                                        ----------  ----------
                                                                        $  140,959  $  125,967
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>
 
                                       38
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
15. LONG-TERM DEBT
 
    Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                    --------------------------
<S>                                                                 <C>           <C>
                                                                        1996          1995
                                                                    ------------  ------------
 
<CAPTION>
<S>                                                                 <C>           <C>
Borrowings under Revolving Credit Agreement.......................  $         --  $    435,988
Borrowings under New Credit Facilities............................       884,992            --
BONY Term Loan....................................................            --       150,000
Chase Term Loan...................................................            --       150,000
10 5/8% Senior Notes due 2002.....................................       233,250       250,000
10 1/4% Senior Notes due 2004.....................................       100,000       100,000
 8 1/2% Senior Notes due 2006.....................................       298,811            --
                                                                    ------------  ------------
                                                                       1,517,053     1,085,988
Acquisition obligation payable....................................        54,633        54,928
                                                                    ------------  ------------
                                                                       1,571,686     1,140,916
Less: current maturities of long-term debt........................         6,000         6,000
                                                                    ------------  ------------
                                                                    $  1,565,686  $  1,134,916
                                                                    ------------  ------------
                                                                    ------------  ------------
</TABLE>
 
    On May 31, 1996, the Company replaced its existing credit facilities under
the Revolving Credit Agreement, BONY Term Loan and the Chase Term Loan through
which the Company could borrow $970,000 in the aggregate with new credit
facilities with The Chase Manhattan Bank, the Bank of New York, Bankers Trust
Company and the Bank of Nova Scotia as agents (the "New Credit Facilities").
Under the New Credit Facilities, the Company has commitments of $1,250,000 and
can borrow up to $1,500,000 in the aggregate. The Company used approximately
$910,000 of the proceeds from the New Credit Facilities to repay borrowings
under the previously existing credit facilities and to pay certain related fees
and expenses.
 
    The New Credit Facilities are comprised of a $750,000 Tranche A Revolving
Loan Commitment ("Tranche A Loan Commitment"), a $250,000 Term Loan ("Term
Loan") and an additional $250,000 Revolving Loan Commitment, ("Revolver/Term
Loan"). In addition, the Company has the right to solicit commitments of up to
$250,000 under the Tranche B Revolving Loan Facility ("Tranche B Facility"). The
Tranche A Loan Commitment may be utilized through the incurrence of Tranche A
revolving credit loans, swingline loans which may not exceed $40,000 in total,
Canadian dollar loans which may not exceed the Canadian dollar equivalent of
$40,000 in total or the issuance of letters of credit which may not exceed
$40,000. The Revolver/Term Loan may be utilized through the incurrence of
revolving credit loans. If the Company establishes commitments under the Tranche
B Facility, the Tranche B Facility may be utilized through the incurrence of
Tranche B revolving credit loans. The proceeds of the New Credit Facilities may
be used for general corporate and working capital purposes as well as to finance
certain future acquisitions.
 
    The commitments under the Tranche A Loan Commitment and the Tranche B
Facility are subject to mandatory reductions semi-annually on June 30 and
December 31 with the first reduction on June 30, 1999
 
                                       39
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
15. LONG-TERM DEBT (CONTINUED)
and the final reduction on June 30, 2004. The mandatory reductions for the
Tranche A Loan Commitment are as follows:
 
<TABLE>
<CAPTION>
                                                                                  YEARS ENDING
                                                                                  DECEMBER 31,
                                                                                  ------------
<S>                                                                               <C>
1999............................................................................   $   75,000
2000............................................................................      150,000
2001............................................................................      150,000
2002............................................................................      150,000
2003............................................................................      150,000
2004............................................................................       75,000
                                                                                  ------------
                                                                                   $  750,000
                                                                                  ------------
                                                                                  ------------
</TABLE>
 
    The mandatory reductions for the Tranche B Facility are based on defined
percentages of the total Tranche B Facility. To the extent that the total
revolving credit loans outstanding exceed the reduced commitment amount, these
loans must be paid down to equal or less than the reduced commitment amount.
However, if the total revolving credit loans outstanding do not exceed the
reduced commitment amount, then there is no requirement to pay down any of the
revolving credit loans.
 
    The principal amount of the Term Loan will be repaid semi-annually on June
30 and December 31 each year, with an initial payment of $25,000 on June 30,
2000, installments of $25,000 on each payment date thereafter through December
31, 2003 and a final payment of $50,000 on June 30, 2004.
 
    As of December 31, 1996, the borrowings under the New Credit Facilities
consist of the $634,992 under the Tranche A Loan Commitment and $250,000 under
the Term Loan.
 
    If the Company incurs indebtedness under the Revolver/Term Loan, the
revolving loans outstanding will automatically convert to term loans on May 23,
1997 and will mature on June 30, 2004. If the Company exercises that right, then
the term loans will be repaid according to the same installment schedule as
stated for the Term Loan above. If the Company does not incur indebtedness prior
to May 23, 1997, the Revolver/ Term Loan will expire.
 
    The amounts borrowed (other than swingline loans) pursuant to the New Credit
Facilities bear interest at the following rates per annum, at the Company's
option: (i) the higher of (a) the Federal Funds Effective Rate as published by
the Federal Reserve Bank of New York plus 0.5% and (b) the prime commercial
lending rate announced by the Agent from time to time (the "Base Rate"); plus,
in each case, an applicable margin of up to 1/8 of 1% as specified in the New
Credit Facilities or (ii) the Eurodollar Rate plus an applicable margin ranging
from 1/2 of 1% to 1 1/2% as specified in the New Credit Facilities. All
swingline loans bear interest at the Base Rate plus the applicable margin of up
to 1/8 of 1% as specified in the New Credit Facilities. During 1996, the
weighted average interest rate on the Revolving Credit Agreement, BONY Term
Loan, Chase Term Loan and New Credit Facilities were 7.04%, 7.50%, 6.94% and
7.07%. During 1995, the weighted average interest rates on the Revolving Credit
Agreement, BONY Term Loan and Chase Term Loan, were 7.28%, 7.94% and 7.48%,
respectively. Interest rates on the borrowings under the New Credit Facilities
outstanding at December 31, 1996 ranged from 7.00% to 7.13%. The interest rate
on the borrowings under the Revolving Credit Agreement outstanding at December
31, 1995 ranged from 6.75% to 7.44%. The interest rate on the BONY Term Loan
outstanding
 
                                       40
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
15. LONG-TERM DEBT (CONTINUED)
at December 31, 1995 was 7.81% and the interest rate on the Chase Term Loan
outstanding at December 31, 1995 was 7.63%
 
    The Company has agreed to pay commitment fees equal to 3/8 of 1% per annum
on the daily average unused commitment of Tranche A Loan Commitment and Tranche
B Facility, certain fees with respect to the issuance of letters of credit and
an annual administration fee. The Company has agreed to pay a commitment fee of
1/8 of 1% per annum on the daily average unused commitment of the $250,000
revolving credit under the Revolver/Term Loan.
 
    10 5/8% SENIOR NOTES.  Interest on the 10 5/8% Senior Notes is payable
semi-annually at the annual rate of 10 5/8%. The 10 5/8% Senior Notes mature on
May 1, 2002. The 10 5/8% Senior Notes may not be redeemed prior to May 1, 1997
other than in connection with a change of control; however, a sinking fund
payment on May 1, 2001 is required to retire 50% of the 10 5/8% Senior Notes
prior to maturity. On May 1, 1997 and thereafter, the 10 5/8% Senior Notes are
redeemable at prices ranging from 104% with annual reductions to 100% in 2000
plus accrued and unpaid interest. During November and December 1996, the Company
purchased $16,750 of the 10 5/8% Senior Notes at a premium of 105.4% plus
accrued interest from various brokers on the open market (see Note 26).
 
    10 1/4% SENIOR NOTES.  The annual interest rate of 10 1/4% is payable
semi-annually in June and December. The 10 1/4% Senior Notes mature on June 1,
2004, with no sinking fund. The 10 1/4% Senior Notes are redeemable on or after
June 1, 1999; however, 35% of the aggregate principal amount of the 10 1/4%
Senior Notes may be redeemed at a price of 109 1/4% plus accrued and unpaid
interest on or prior to June 1, 1997 with net proceeds of a public equity
offering. In addition, upon a change of control, the Company may redeem the
10 1/4% Senior Notes. Beginning in 1999 and thereafter, the 10 1/4% Senior Notes
are redeemable at prices ranging from 104.95% with annual reductions to 100% in
2002 plus accrued and unpaid interest.
 
    8 1/2% SENIOR NOTES.  On January 24, 1996, the Company completed a private
offering of $300,000 of 8 1/2% Senior Notes. The 8 1/2% Senior Notes were issued
at 99.578% with related issuance costs of approximately $7,000. On August 21,
1996, the Company exchanged its 8 1/2% Senior Notes ("Old Notes") for a new
series of $300,000 8 1/2% Senior Notes due 2006 ("New Notes"). The New Notes
have been registered under the Securities Act of 1933. The New Notes mature on
February 1, 2006, with no sinking fund. Interest on the New Notes is payable
semi-annually in February and August at the annual rate of 8 1/2%. The New Notes
may not be redeemed prior to February 1, 2001 other than in connection with a
change of control. Beginning in 2001 and thereafter, the New Notes are
redeemable in whole or in part, at the option of the Company, at prices ranging
from 104.25% with annual reductions to 100% in 2003 plus accrued and unpaid
interest. Net proceeds from the Old Notes of approximately $293,000 were
primarily used to pay down borrowings under the Revolving Credit Agreement.
 
    The 10 5/8% Senior Notes, 10 1/4% Senior Notes and 8 1/2% Senior Notes
(together referred to as the "Senior Notes"), and the New Credit Facilities, all
rank senior in right of payment to all subordinated indebtedness of K-III
Communications Corporation (a holding company).
 
    The above indebtedness, among other things, limits the ability of the
Company to change the nature of its businesses, incur indebtedness, create
liens, sell assets, engage in mergers, consolidations or transactions with
affiliates, make investments in or loans to certain subsidiaries, make
guarantees and certain restricted payments. The Company is restricted from
declaring or making dividend payments on its common and preferred stock. Under
the Company's most restrictive debt covenants, the Company must
 
                                       41
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
15. LONG-TERM DEBT (CONTINUED)
maintain a minimum interest coverage ratio of 1.8 to 1 and a minimum fixed
charge coverage ratio of 1.05 to 1. The Company's maximum allowable leverage
ratio is 6.0 to 1. The Company believes it is in compliance with the financial
and operating covenants of its principal financing arrangements. Borrowings
under the above indebtedness are guaranteed by each of the domestic wholly-owned
subsidiaries of the Company. Such guarantees are full, unconditional and joint
and several. The separate financial statements of the domestic subsidiaries are
not presented because the Company believes the separate financial statements
would not be material to the shareholders and potential investors. The Company's
foreign subsidiaries are not guarantors of the above indebtedness. The total
assets, revenues, income or equity of such foreign subsidiaries, both
individually and on a combined basis, are inconsequential in relation to the
total assets, revenues, income or equity of the Company.
 
    ACQUISITION OBLIGATION.  In connection with the acquisition of certain of
the Company's specialty consumer magazine operations and Daily Racing Form, an
obligation was recorded equivalent to the present value of the principal and
interest payments of the notes payable in the amount of $54,633 at December 31,
1996 and $54,928 at December 31, 1995. The interest rate used in calculating the
present value was 13%, which represents management's estimate of the prevailing
market rate of interest for such obligation at the time of the acquisition.
Principal and interest amounts aggregating $69,500 will be repaid from June 1997
through June 2001.
 
    INTEREST RATE SWAP AGREEMENTS.  In May 1995, the Company entered into two,
three-year interest rate swap agreements with an aggregate notional amount of
$200,000. Under these swap agreements, the Company receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and pays a fixed
rate of interest which increases each year during the terms of the respective
agreements. The weighted average variable rate and weighted average fixed rate
were 5.5% and 6.2%, respectively, in 1996 and 6.0% and 6.05%, respectively, in
1995. Also, in May 1995, the Company entered into a three-year interest rate cap
agreement. As a result of this transaction, the Company currently has the right
to receive payments based on a notional principal amount of $100,000 to the
extent that three-month LIBOR exceeds 7.75% in year one, 8.75% in year two and
9.75% in year three of the agreement. Any interest differential to be received
will be recognized as an adjustment to interest expense. The interest rate cap
fee is recognized as an adjustment to interest expense over the life of the
interest rate cap agreement.
 
    In the fourth quarter of 1996, the Company entered into six, one-year
interest rate swap agreements with an aggregate notional amount of $600,000.
Under these new swap agreements, the Company receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and pays a fixed
rate of interest, each quarter, for the term of the agreements. As of December
31, 1996, the weighted average variable rate and weighted average fixed rate
were 5.5% and 5.8%, respectively.
 
    The net interest differential, charged to interest expense in 1996, 1995 and
1994 was $1,943, $539 and $4,258, respectively. The Company is exposed to credit
risk in the event of nonperformance by counterparties to its interest rate swap
and cap agreements. Credit risk is limited by entering into such agreements with
primary dealers only; therefore, the Company does not anticipate that
nonperformance by counterparties will occur. Notwithstanding this, the Company's
treasury department monitors counterparty credit ratings at least quarterly
through reviewing independent credit agency reports. Both current and potential
exposure are evaluated, as necessary, by obtaining replacement cost information
from alternative dealers. Potential loss to the Company from credit risk on
these agreements is limited to amounts receivable, if any.
 
                                       42
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
16. INCOME TAXES
 
    At December 31, 1996, the Company had aggregate net operating loss
carryforwards for Federal and state income tax purposes ("NOLs") of
approximately $713,000 which will be available to reduce future taxable income.
The utilization of such NOLs is subject to certain limitations under Federal
income tax laws. In certain instances, such NOLs may only be used to reduce
future taxable income of the respective company which generated the NOL. The
NOLs are scheduled to expire in the following years:
 
<TABLE>
<S>                                                                 <C>
2003..............................................................  $  24,900
2004..............................................................     60,300
2005..............................................................    121,800
2006..............................................................     93,400
2007..............................................................     82,700
2008..............................................................     83,700
2009..............................................................     68,900
2010..............................................................    156,100
2011..............................................................     21,200
                                                                    ---------
                                                                    $ 713,000
                                                                    ---------
                                                                    ---------
</TABLE>
 
    Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The tax effects of significant items comprising
the Company's net deferred income tax assets are as follows:
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31, 1996
                                                                                 ---------------------------------
<S>                                                                              <C>         <C>        <C>
                                                                                  FEDERAL      STATE      TOTAL
                                                                                 ----------  ---------  ----------
 
<CAPTION>
<S>                                                                              <C>         <C>        <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory.............................  $    3,550  $   1,041  $    4,591
Difference between book and tax basis of accrued expenses and other............      18,583      5,444      24,027
Reserves not currently deductible..............................................       2,277        667       2,944
Difference between book and tax basis of other intangible assets...............      31,043      9,094      40,137
Operating loss carryforwards...................................................     192,267     56,326     248,593
                                                                                 ----------  ---------  ----------
Total..........................................................................     247,720     72,572     320,292
                                                                                 ----------  ---------  ----------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible assets...............      32,612      9,554      42,166
Difference between book and tax basis of property and equipment................      11,382      3,335      14,717
Other..........................................................................       9,757      2,858      12,615
                                                                                 ----------  ---------  ----------
Total..........................................................................      53,751     15,747      69,498
                                                                                 ----------  ---------  ----------
Net deferred income tax assets.................................................     193,969     56,825     250,794
Less: Valuation allowances.....................................................      57,692     16,902      74,594
                                                                                 ----------  ---------  ----------
Net............................................................................  $  136,277  $  39,923  $  176,200
                                                                                 ----------  ---------  ----------
                                                                                 ----------  ---------  ----------
</TABLE>
 
                                       43
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
16. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
                                                                                         DECEMBER 31, 1995
                                                                                 ---------------------------------
<S>                                                                              <C>         <C>        <C>
                                                                                  FEDERAL      STATE      TOTAL
                                                                                 ----------  ---------  ----------
 
<CAPTION>
<S>                                                                              <C>         <C>        <C>
DEFERRED INCOME TAX ASSETS:
Difference between book and tax basis of inventory.............................  $    4,878  $   1,429  $    6,307
Difference between book and tax basis of accrued expenses and other............      19,991      5,856      25,847
Reserves not currently deductible..............................................      12,872      3,771      16,643
Difference between book and tax basis of other intangible assets...............      18,875      5,530      24,405
Operating loss carryforwards...................................................     168,310     49,309     217,619
                                                                                 ----------  ---------  ----------
Total..........................................................................     224,926     65,895     290,821
                                                                                 ----------  ---------  ----------
DEFERRED INCOME TAX LIABILITIES:
Difference between book and tax basis of other intangible assets...............      24,515      7,182      31,697
Difference between book and tax basis of property and equipment................         964        283       1,247
Other..........................................................................       7,783      2,280      10,063
                                                                                 ----------  ---------  ----------
Total..........................................................................      33,262      9,745      43,007
                                                                                 ----------  ---------  ----------
Net deferred income tax assets.................................................     191,664     56,150     247,814
Less: Valuation allowances.....................................................     103,649     30,365     134,014
                                                                                 ----------  ---------  ----------
Net............................................................................  $   88,015  $  25,785  $  113,800
                                                                                 ----------  ---------  ----------
                                                                                 ----------  ---------  ----------
</TABLE>
 
    At December 31, 1996, 1995 and 1994, management of the Company reviewed
recent operating results and projected future operating results. At the end of
each of the respective years, management determined that a portion of the net
deferred income tax assets would likely be realized. Accordingly, in 1996, the
Company reduced the valuation allowances by $62,400 and recorded an income tax
benefit of $53,300 ($41,200 and $12,100 related to Federal and state income tax
benefits, respectively) and a reduction of the excess of purchase price over net
assets acquired of $9,100; in 1995, the Company reduced the valuation allowances
by $67,700 and recorded an income tax benefit of $59,600 ($46,100 and $13,500
related to Federal and state income tax benefits, respectively) and a reduction
of the excess of purchase price over net assets acquired of $8,100; and in 1994,
the Company reduced the valuation allowances by $46,100 and recorded an income
tax benefit of $42,100 ($32,600 and $9,500 related to Federal and state income
tax benefits, respectively) and a reduction of the excess of purchase price over
net assets acquired of $4,000. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced. During
1996, 1995 and 1994, after the reduction in the valuation allowances discussed
above, there were net decreases in the valuation allowances of approximately
$59,420, $1,404 and $13,800 respectively.
 
    A portion of the valuation allowances in the amount of approximately $30,200
at December 31, 1996 relates to net deferred tax assets which were recorded in
accounting for the acquisitions of various entities. The recognition of such
amount in future years will be allocated to reduce the excess of the purchase
price over the net assets acquired and other non-current intangible assets.
 
                                       44
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
17. EXCHANGEABLE PREFERRED STOCK
 
    Exchangeable Preferred Stock consists of the following:
 
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                               1996        1995
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
$2.875 Senior Exchangeable Preferred Stock................................................  $   98,266  $   97,992
$11.625 Series B Exchangeable Preferred Stock.............................................     150,513     133,614
$10.000 Series D Exchangeable Preferred Stock.............................................     193,950      --
                                                                                            ----------  ----------
                                                                                            $  442,729  $  231,606
                                                                                            ----------  ----------
                                                                                            ----------  ----------
</TABLE>
 
    $2.875 SENIOR EXCHANGEABLE PREFERRED STOCK
 
    The Company authorized 4,000,000 shares of $.01 par value Senior Preferred
Stock, all of which was issued and outstanding at December 31, 1996 and 1995.
The liquidation and redemption value at December 31, 1996 and 1995 was $100,000.
Annual dividends of $2.875 per share on the Senior Preferred Stock are
cumulative and payable quarterly. Cash dividends of $11,500 have been paid
during each of the years 1996, 1995 and 1994. The Senior Preferred Stock may be
redeemed at the option of the Company, in whole or in part, at any time on or
after May 1, 1997 at redemption prices set at 105.8% in 1997 with annual
reductions to 100% in 2002 plus accrued and unpaid dividends to the date of
redemption. The Company is required to redeem 50% of the Senior Preferred Stock
on each of May 1, 2003 and May 1, 2004 at the liquidation preference of $25 per
share plus accrued and unpaid dividends. Upon any voluntary or involuntary
liquidation, the Senior Preferred Stock has a liquidation preference of $25 per
share plus accrued and unpaid dividends. The Senior Preferred Stock is
exchangeable, in whole but not in part, at the option of the Company, on any
scheduled dividend payment date for 11 1/2% Subordinated Debentures due 2004.
The Senior Preferred Stock is recorded on the accompanying consolidated balance
sheets at the aggregate redemption value (net of issuance costs) of $98,266 and
$97,992 at December 31, 1996 and 1995, respectively.
 
    $11.625 SERIES B EXCHANGEABLE PREFERRED STOCK
 
    The Company authorized 2,000,000 shares of $.01 par value Series B Preferred
Stock, 1,531,526 shares and 1,365,707 shares of which were issued and
outstanding at December 31, 1996 and 1995, respectively. The liquidation and
redemption value at December 31, 1996 and 1995 was $153,153 and $136,571,
respectively. Annual dividends of $11.625 per share on the Series B Preferred
Stock are cumulative and payable quarterly in cash or by issuing additional
shares of the Series B Preferred Stock. On and after May 1, 1998, dividends must
be paid in cash. On or after February 1, 1998, the Series B Preferred Stock may
be redeemed in whole or in part, at the option of the Company, at specified
redemption prices plus accrued and unpaid dividends. The Company is required to
redeem the Series B Preferred Stock on May 1, 2005 at a redemption price equal
to the liquidation preference of $100 per share, plus accrued and unpaid
dividends. The Series B Preferred Stock is exchangeable at the option of the
Company on or after an initial public offering of the Company's common stock for
its 11 5/8% Class B Subordinated Exchange Debentures due 2005 provided no shares
of the Senior Preferred Stock are then outstanding. Such debentures are
subordinate to all existing and future liabilities and obligations of the
Company and its subsidiaries. The Series B Preferred Stock is recorded on the
accompanying consolidated balance sheets at the aggregate redemption value (net
of issuance costs) of $150,513 and $133,614 at December 31, 1996 and 1995,
respectively.
 
                                       45
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
17. EXCHANGEABLE PREFERRED STOCK (CONTINUED)
    $10.00 SERIES D EXCHANGEABLE PREFERRED STOCK
 
    On January 24, 1996, the Company completed a private offering of 2,000,000
shares of $.01 par value, $10 Series C Exchangeable Preferred Stock ("Series C
Preferred Stock") at $100 per share. Annual dividends of $10 per share on the
Series C Preferred Stock were cumulative and payable quarterly, in cash,
commencing May 1, 1996. On August 21, 1996, the Company exchanged the Series C
Preferred Stock for 2,000,000 shares of $.01 par value, Series D Preferred
Stock. Dividend payment terms of the Series D Preferred Stock are the same as
the terms of the Series C Preferred Stock. The Series D Preferred Stock has been
registered under the Securities Act of 1933. The liquidation and redemption
value at December 31, 1996 was $200,000. On and after February 1, 2001, the
Series D Preferred Stock may be redeemed in whole or in part, at the option of
the Company, at specified redemption prices plus accrued and unpaid dividends.
The Company is required to redeem the Series D Preferred Stock on February 1,
2008 at a redemption price equal to the liquidation preference of $100 per
share, plus accrued and unpaid dividends. The Series D Preferred Stock is
exchangeable in whole but not in part, at the option of the Company, on any
scheduled dividend payment date into 10% Class D Subordinated Exchange
Debentures due 2008 provided that no shares of the Senior Preferred Stock are
outstanding on the date of exchange. Net proceeds from the Series C Preferred
Stock offering of approximately $193,000 were primarily used to pay down
borrowings under the Revolving Credit Agreement. The Series D Preferred Stock is
recorded on the accompanying consolidated balance sheets at the aggregate
redemption value (net of issuance costs) of $193,950 at December 31, 1996.
 
18. COMMON STOCK
 
    In October 1995, the Company increased the authorized number of shares of
common stock by 50,000,000 shares to 250,000,000 shares. During November 1995,
the Company completed a public offering of 17,250,000 shares of common stock at
a price of $10.00 per share. Proceeds from this initial public offering, net of
commissions and other related expenses of approximately $9,500, were
approximately $163,000. The Company used the net proceeds from this initial
public offering to repay borrowings outstanding under its Revolving Credit
Agreement, which could be reborrowed for general corporate purposes including
acquisitions (see Note 15).
 
    STOCK PURCHASE AND OPTION PLAN.  The K-III Stock Purchase and Option Plan
(the "Plan") authorizes sales of shares of common stock and grants of incentive
awards in the forms of, among other things, stock options to key employees and
other persons with a unique relationship with the Company. The stock options are
granted with exercise prices at quoted market value at time of issuance. For the
purpose of determining fair value prior to November 1995, it was recognized that
the Company's common stock was not readily saleable to third parties at that
time, and therefore, was valued at a discount to a publicly-traded common stock.
The common stock issued and redeemed is included in the table of the activity of
the common stock subject to redemption.
 
    COMMON STOCK SUBJECT TO REDEMPTION.  Under the following circumstances,
employees have the right to resell their shares of common stock to the Company:
termination of employment in connection with the sale of the business for which
they work, death, disability or retirement after age 65. The resale feature
expires five years after the effective purchase date of the common stock. Since
inception of the Company,
 
                                       46
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
18. COMMON STOCK (CONTINUED)
none of the employees has exercised such resale feature as a result of such
sale, death, disability or retirement and the likelihood of significant resales
is considered by management to be remote.
 
    The following summarizes the activity of the common stock subject to
redemption:
 
<TABLE>
<CAPTION>
                                                                                            SHARES       AMOUNT
                                                                                          -----------  ----------
<S>                                                                                       <C>          <C>
Balance at January 1, 1994..............................................................    3,185,946  $   25,488
Acquisitions of common stock held by management.........................................      (27,436)       (169)
Issuances of common stock...............................................................      244,672       1,943
Expiration of redemption feature........................................................   (1,251,002)    (10,045)
                                                                                          -----------  ----------
Balance at December 31, 1994............................................................    2,152,180      17,217
Acquisitions of common stock held by management.........................................      (57,031)       (430)
Issuances of common stock...............................................................      458,994       3,274
Expiration of redemption feature........................................................     (147,630)       (809)
Accretion in carrying value.............................................................           --       9,927
                                                                                          -----------  ----------
Balance at December 31, 1995............................................................    2,406,513      29,179
Acquisitions of common stock held by management.........................................      (17,269)       (148)
Expiration of redemption feature........................................................   (1,745,934)    (21,230)
Reduction in carrying value.............................................................           --        (885)
                                                                                          -----------  ----------
Balance at December 31, 1996............................................................      643,310  $    6,916
                                                                                          -----------  ----------
                                                                                          -----------  ----------
</TABLE>
 
    The redemption values of the common stock subject to redemption of $6,916
and $29,179 at December 31, 1996 and 1995, respectively, were based on a
repurchase price of $10.750 per share and $12.125 per share which are the quoted
market values at December 31, 1996 and 1995, respectively. Common stock subject
to redemption is recorded on the accompanying consolidated balance sheets net of
the amounts of notes receivable from employees (related to common stock
issuances) outstanding of $959 and $1,157 at December 31, 1996 and 1995,
respectively.
 
    ACCOUNTING FOR EMPLOYEE STOCK BASED COMPENSATION  The K-III Stock Purchase
and Option Plan has authorized the grant of options to management personnel for
up to 25,000,000 shares of the Company's common stock. The options are
exercisable at the rate of 20% per year over a five-year period commencing on
the effective date of the grant; however, some optionees have received credit
for periods of employment with the Company and its predecessors and subsidiaries
prior to the date the options were granted. All options granted pursuant to the
Plan will expire no later than ten years from the date the option was granted.
 
                                       47
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
18. COMMON STOCK (CONTINUED)
    A summary of the status of the Company's fixed stock option plan as of
December 31, 1996, 1995 and 1994, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
                                    1996                                   1995                             1994
                    -------------------------------------  -------------------------------------  ------------------------
<S>                 <C>        <C>            <C>          <C>        <C>            <C>          <C>        <C>
                                               WEIGHTED                               WEIGHTED
                                                 AVG.                                   AVG.
                                 EXERCISE      EXERCISE                 EXERCISE      EXERCISE                 EXERCISE
                     OPTIONS       PRICE         PRICE      OPTIONS       PRICE         PRICE      OPTIONS       PRICE
                    ---------  -------------  -----------  ---------  -------------  -----------  ---------  -------------
 
Outstanding--
  beginning of
  year............  12,326,087  $5.00-$8.00    $    5.98   9,610,447   $5.00-$8.00    $    5.31   8,865,297   $5.00-$7.00
  Granted.........  1,830,400  1$0.00-$11.94   $   11.12   3,139,325   $      8.00    $    8.00     850,000   $      8.00
  Exercised.......   (681,890)  $5.00-$8.00    $    5.36    (193,401)  $5.00-$8.00    $    5.19     (13,872)  $      5.00
  Forfeited.......   (263,385)  $5.00-$8.00    $    7.69    (230,284)  $5.00-$8.00    $    6.28     (90,978)  $5.00-$8.00
                    ---------                              ---------                              ---------
Outstanding--end
  of the year.....  13,211,212  $5.00-$11.94   $    6.69   12,326,087  $5.00-$8.00    $    5.98   9,610,447   $5.00-$8.00
                    ---------                              ---------                              ---------
                    ---------                              ---------                              ---------
Exercisable at end
  of the year.....  8,707,528   $5.00-$8.00    $    5.38   7,269,817   $5.00-$8.00    $    5.18   5,701,789   $5.00-$7.00
                    ---------                              ---------                              ---------
                    ---------                              ---------                              ---------
 
<CAPTION>
<S>                 <C>
                     WEIGHTED
                       AVG.
                     EXERCISE
                       PRICE
                    -----------
Outstanding--
  beginning of
  year............   $    5.05
  Granted.........   $    8.00
  Exercised.......   $    5.00
  Forfeited.......   $    5.26
Outstanding--end
  of the year.....   $    5.31
Exercisable at end
  of the year.....   $    5.02
</TABLE>
 
    The weighted-average fair value per option for options granted in 1996 and
1995 was $4.13 and $3.06, respectively.
 
    The following table summarizes information about stock options outstanding
at December 31, 1996:
 
<TABLE>
<CAPTION>
                   NUMBER            WEIGHTED             WEIGHTED
   RANGE OF      OUTSTANDING     AVERAGE REMAINING         AVERAGE
EXERCISE PRICES  AT 12/31/96     CONTRACTUAL LIFE      EXERCISE PRICE
---------------  -----------  -----------------------  ---------------
 
<S>              <C>          <C>                      <C>
    $5.00-$5.44   7,638,282                  5            $    5.00
          $7.00     155,400                  6            $    7.00
          $8.00   3,588,730                  8            $    8.00
  $10.00-$11.94   1,828,800                  9            $   11.13
                 -----------
                 13,211,212                  6            $    6.69
                 -----------
                 -----------
</TABLE>
 
    SFAS No. 123 provides for a fair-value based method of accounting for
employee options and measures compensation expense using an option valuation
model that takes into account, as of the grant date, the exercise price and
expected life of the option, the current price of the underlying stock and its
expected volatility, expected dividends on the stock, and the risk-free interest
rate for the expected term of the option. The Company has elected to continue
accounting for employee stock-based compensation under APB No. 25 and related
interpretations. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
 
    Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123. The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model for options granted in 1996 and 1995. The
following weighted-average assumptions were used for 1996 and 1995,
respectively: risk-free interest rates of 6.36% and 6.34%, dividend yields of
0.0% and 0.0%, volatility factors of the expected market price of the Company's
 
                                       48
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
18. COMMON STOCK (CONTINUED)
common stock of 20.83% and 22.59%; and a weighted-average expected life of the
option of 6 years. The estimated fair value of options granted during 1996 and
1995 was $7,560 and $9,592, respectively.
 
    The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The Company's
pro forma information is as follows:
 
<TABLE>
<CAPTION>
                                                                                                 1996       1995
                                                                                               ---------  ---------
 
<S>                                                                                            <C>        <C>
Pro forma net income (loss)..................................................................  $   5,738  $ (76,388)
Pro forma loss applicable to common shareholders.............................................  $ (37,788) $(105,366)
Pro forma loss per common and common equivalent share........................................  $    (.29) $    (.92)
</TABLE>
 
    The Company had reserved 20,837,921 shares of common stock for future
issuances in connection with the plan at December 31, 1996.
 
19. ACCUMULATED DEFICIT
 
    The accumulated deficit of $691,098 at December 31, 1996 includes non-cash
expenses related to the accumulated amortization of intangible assets, the
excess of the purchase price over the net assets acquired and deferred financing
costs, the write-offs of the unamortized balance of deferred financing costs
(associated with all previous financings), the restructuring and other costs and
the net provision on sales of businesses in the aggregate amount of
approximately $924,900 which is net of the non-cash income tax benefits
aggregating $155,000 through December 31, 1996.
 
                                       49
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    The carrying amounts and the estimated fair values of the Company's
financial instruments for which it is practicable to estimate fair value are as
follows:
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                   ----------------------------------------------
<S>                                                                <C>         <C>         <C>         <C>
                                                                            1996                    1995
                                                                   ----------------------  ----------------------
 
<CAPTION>
                                                                    CARRYING                CARRYING
                                                                     VALUE     FAIR VALUE    VALUE     FAIR VALUE
                                                                   ----------  ----------  ----------  ----------
<S>                                                                <C>         <C>         <C>         <C>
10 5/8% Senior Notes.............................................  $  233,250  $  260,950  $  250,000  $  267,950
10 1/4% Senior Notes.............................................     100,000     105,400     100,000     107,720
8 1/2% Senior Notes..............................................     298,811     291,750      --          --
Acquisition Obligation...........................................      54,633      55,339      54,928      52,604
Senior Preferred Stock...........................................      98,266     107,500      97,992     109,000
Series B Preferred Stock.........................................     150,513     154,684     133,614     135,888
Series D Preferred Stock.........................................     193,950     196,000      --          --
Interest Rate Swap Agreements....................................         982       3,531         449       5,057
Purchased Interest Rate Cap Agreement............................        (159)         (2)       (274)         (2)
</TABLE>
 
    The bracketed amounts above represent assets.
 
    The fair values of the senior notes and preferred stocks were determined
based on the quoted market prices and the fair value of the acquisition
obligation was estimated using discounted cash flow analysis, based on current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of the interest rate swap agreements was determined using discounted
cash flow models.
 
    For instruments including cash and cash equivalents, accounts receivable and
accounts payable, the carrying amount approximates fair value because of the
short maturity of these instruments. The fair value of floating-rate long-term
debt approximates carrying value because these instruments re-price frequently
at current market prices.
 
21. RETIREMENT PLANS
 
    Substantially all of the Company's employees are eligible to participate in
defined contribution plans. The expense recognized for all of these plans was
$5,432 in 1996, $5,245 in 1995 and $3,693 in 1994.
 
    In addition, the employees at K-III Magazines and the non-union employees at
Daily Racing Form are eligible to participate in the K-III Pension Plan
("Pension Plan") which is a non-contributory defined benefit pension plan. The
benefits to be paid under the Pension Plan are based on years of service and
compensation amounts for the highest consecutive five years of service in the
most current ten years. The Pension Plan is funded by means of contributions by
the Company to the plan's trust. The pension funding policy is consistent with
the funding requirements of U.S. Federal and other governmental laws and
regulations. Plan assets consist primarily of fixed income, equity and other
short-term investments. The
 
                                       50
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
21. RETIREMENT PLANS (CONTINUED)
components of the net periodic pension cost of the Pension Plan for the years
ended December 31, 1996, 1995 and 1994 are summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                         1996       1995       1994
                                                                                       ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
Service cost.........................................................................  $   1,203  $     755  $     761
Interest cost........................................................................        769        581        491
Actual investment (gain) or loss on plan assets......................................       (610)      (812)        20
Net amortization and deferral........................................................        462        774         16
                                                                                       ---------  ---------  ---------
Net periodic pension cost............................................................  $   1,824  $   1,298  $   1,288
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>
 
    The following is a reconciliation of the funded status of the Pension Plan:
 
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                           --------------------
                                                                             1996       1995
                                                                           ---------  ---------
<S>                                                                        <C>        <C>
Actuarial present value of benefit obligation:
  Vested.................................................................  $  (6,342) $  (3,700)
  Non-vested.............................................................       (617)      (400)
                                                                           ---------  ---------
Accumulated benefit obligation...........................................     (6,959)    (4,100)
Additional liability based on projected compensation levels..............     (5,118)    (4,841)
                                                                           ---------  ---------
Projected benefit obligation.............................................    (12,077)    (8,941)
Plan assets at fair value................................................      5,473      4,273
                                                                           ---------  ---------
Projected benefit obligation in excess of plan assets....................     (6,604)    (4,668)
Unrecognized net loss (gain).............................................        172     (1,011)
Obligation recorded at acquisition date..................................      2,861      3,135
                                                                           ---------  ---------
Accrued pension cost.....................................................  $  (3,571) $  (2,544)
                                                                           ---------  ---------
                                                                           ---------  ---------
</TABLE>
 
    The obligation recorded at the acquisition date of K-III Magazines and Daily
Racing Form is the excess of the projected benefit obligation over the plan
assets at the date of acquisition which is included in other non-current
liabilities. The weighted average discount rate and the weighted average rate of
compensation increases used in determining the actuarial present value of the
projected benefit obligation were 7.5% and 4.0% for 1996 and 1995, respectively.
The weighted average expected long-term rate of return on plan assets was 8.5%
for 1996 and 1995.
 
                                       51
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
22. COMMITMENTS AND CONTINGENCIES
 
    COMMITMENTS. Total rent expense under operating leases was $31,561, $24,409
and $23,996 for the years ended December 31, 1996, 1995 and 1994, respectively.
Certain leases are subject to escalation clauses and certain leases contain
renewal options. Minimum rental commitments under noncancellable operating
leases are approximately as follows:
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDING DECEMBER 31,
                                                                     -------------------------
<S>                                                                  <C>
1997...............................................................        $  33,040
1998...............................................................           29,762
1999...............................................................           25,565
2000...............................................................           23,546
2001...............................................................           18,510
Thereafter.........................................................           52,340
                                                                              ----------
                                                                           $  182,763
                                                                              ----------
                                                                              ----------
</TABLE>
 
    Future minimum lease payments under a capital lease (see Note 11) are
approximately as follows:
 
<TABLE>
<CAPTION>
                                                                     YEARS ENDING DECEMBER 31,
                                                                     -------------------------
<S>                                                                  <C>
1997...............................................................         $     1,980
1998...............................................................               1,980
1999...............................................................               1,980
2000...............................................................               1,980
2001...............................................................               1,980
Thereafter.........................................................               5,275
                                                                               --------
                                                                                 15,175
Less: amount representing interest.................................               4,593
                                                                               --------
Present value of net minimum lease payments........................              10,582
Less: current portion..............................................                 969
                                                                               --------
Long-term obligations (included in other non-current
  liabilities).....................................................         $     9,613
                                                                               --------
                                                                               --------
</TABLE>
 
    CONTINGENCIES.  The Company is involved in ordinary and routine litigation
incidental to its business. In the opinion of management, there is no pending
legal proceeding that would have a material adverse affect on the consolidated
financial statements of the Company.
 
    At December 31, 1996, the Company had letters of credit outstanding of
approximately $4,850.
 
23. RELATED PARTY TRANSACTIONS
 
    During each of the years ended December 31, 1996, 1995 and 1994, the Company
paid $1,000 in administrative and other fees to Kohlberg Kravis Roberts & Co.
("KKR"), an affiliated party, and an aggregate of $180, in directors' fees to
certain partners of KKR. In addition, in connection with the Channel One
acquisition, the Company paid $2,500 in investment advisory fees to KKR. On
September 30, 1994, in order to finance the Channel One acquisition, the Company
issued 1,501 shares of Series C
 
                                       52
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
23. RELATED PARTY TRANSACTIONS (CONTINUED)
Preferred Stock ("Old Preferred Stock") at $50,000 per share and 9,381,250
shares of common stock at $8.00 per share, which was the fair value at such
date, to partnerships affiliated with KKR. Gross proceeds of $150,100 were
received from these issuances. Dividends were payable at the higher of 11 3/4%
and the interest rates associated with United States Treasury bills and notes
plus applicable margins. The Old Preferred Stock was redeemed on November 21,
1994 for $76,324 which represented a redemption price of $50,000 per share plus
the accumulated and unpaid dividends of $1,274.
 
    On March 1, 1995, 3,125,000 shares of common stock were issued to a
partnership affiliated with KKR at $8.00 per share which was the fair value per
share at such date. On March 1, 1995, pursuant to the related certificate of
designations, 2,500 shares of Old Preferred Stock were authorized for issuance
and 1,000 shares were issued to partnerships affiliated with KKR at $50,000 per
share, which was the liquidation value per share at such date. The proceeds from
both issuances were used to pay down the borrowings under the Revolving Credit
Agreement. On August 3, 1995, the Company redeemed all 1,054 shares then
outstanding (which included dividends accrued through redemption date) of the
Old Preferred Stock at $50,000 per share for a total of $52,691. This
transaction was financed with borrowings under the Revolving Credit Agreement
(see Note 15).
 
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                      FIRST         SECOND          THIRD         FOURTH
                                                     QUARTER        QUARTER        QUARTER        QUARTER         TOTAL
                                                  -------------  -------------  -------------  -------------  -------------
<S>                                               <C>            <C>            <C>            <C>            <C>
 
FOR THE YEAR ENDED DECEMBER 31, 1996:
Sales, net......................................       $314,953       $335,680       $344,418       $379,398     $1,374,449
Operating income................................          6,985         23,280         18,519         37,117         85,901
Net income (loss)...............................        (20,740)       (14,638)       (11,895)        55,317          8,044
Income (loss) applicable to common
  shareholders..................................        (27,584)       (27,041)       (23,973)        43,116        (35,482)
Earnings (loss) per common and common equivalent
  share.........................................          $(.21)         $(.21)         $(.19)          $.32          $(.27)
Weighted average common and common equivalent
  shares outstanding............................    128,502,847    128,787,528    128,874,002    133,866,152    130,007,632
 
FOR THE YEAR ENDED DECEMBER 31, 1995:
Sales, net......................................       $238,664       $257,228       $265,604       $284,833     $1,046,329
Operating income (loss).........................          4,663        (50,491)        13,130          6,423        (26,275)
Net income (loss)...............................        (20,701)       (78,929)       (14,635)        38,830        (75,435)
Income (loss) applicable to common
  shareholders..................................        (27,115)       (87,009)       (22,386)        32,097       (104,413)
Earnings (loss) per common and common equivalent
  share.........................................          $(.25)         $(.78)         $(.20)          $.25          $(.91)
Weighted average common and common equivalent
  shares outstanding............................    109,622,179    111,371,697    110,909,810    128,406,304    115,077,498
</TABLE>
 
                                       53
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
24. UNAUDITED QUARTERLY FINANCIAL INFORMATION (CONTINUED)
    As a result of previous bank refinancings, the Company wrote off $7,572 of
unamortized deferred financings costs in the second quarter of 1996 and $1,076
of unamortized deferred financing costs in the fourth quarter of 1996. In
addition, in the fourth quarter of 1996, the Company recognized income tax
benefits of $53,300. In the fourth quarter of 1996, the Company recorded certain
catch-up adjustments to the amortization of identifiable intangible assets and
goodwill due to the receipt of independent appraisal reports for intangible
assets.
 
    The change in method of accounting for advertising costs resulted in a
decrease to operating loss or increase to operating income and a decrease to net
loss of approximately $16,000, $1,000 and $300 in the first, second and third
quarters of 1995, respectively. This accounting change decreased operating
income and net income by approximately $5,500 in the fourth quarter of 1995.
During the second quarter of 1995, the Company recorded a provision for loss on
the sales of businesses in the amount of $35,447, an aggregate write-down of
$17,958 of the carrying values of the identifiable intangible assets and
goodwill of K-III Reference and restructuring and other costs in the amount of
$14,667. In addition, in the fourth quarter of 1995, the Company recognized
income tax benefits of $59,600 and recorded a provision to write-off $5,786 of
goodwill related to a product line of Newbridge. In the fourth quarter of 1995,
the Company recorded certain catch-up adjustments to the amortization of
identifiable intangible assets and goodwill due to the receipt of independent
appraisal reports for intangible assets. For all quarters presented prior to the
initial filing of the registration statement for the November 1995 initial
public offering, the weighted average number of common stock shares outstanding
include Incremental Shares as described in Note 3.
 
                                       54
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
25. BUSINESS SEGMENT INFORMATION
 
    The Company's operations have been classified into three business segments:
education, information and specialty media (see Note 1). Summarized financial
information by business segment as of December 31, 1996, 1995 and 1994 and for
each of the years then ended is set forth below:
 
<TABLE>
<CAPTION>
                                                          1996          1995          1994
                                                      ------------  ------------  ------------
<S>                                                   <C>           <C>           <C>
SALES, NET:
  Education.........................................  $    376,217  $    330,414  $    430,134
  Information.......................................       313,891       263,542       192,732
  Specialty Media...................................       684,341       452,373       341,782
                                                      ------------  ------------  ------------
  Total.............................................  $  1,374,449  $  1,046,329  $    964,648
                                                      ------------  ------------  ------------
                                                      ------------  ------------  ------------
OPERATING INCOME (LOSS):
  Education.........................................  $     15,011  $    (32,024) $     10,590
  Information.......................................        33,473        (8,683)       (2,307)
  Specialty Media...................................        59,693        32,169        15,877
  Corporate.........................................       (22,276)      (17,737)      (13,957)
                                                      ------------  ------------  ------------
  Total.............................................  $     85,901  $    (26,275) $     10,203
                                                      ------------  ------------  ------------
                                                      ------------  ------------  ------------
TOTAL ASSETS:
  Education.........................................  $    939,947  $    547,587  $    613,897
  Information.......................................       531,771       499,418       462,861
  Specialty Media...................................       908,374       723,711       464,626
  Corporate.........................................       172,123       110,700        48,308
                                                      ------------  ------------  ------------
  Total.............................................  $  2,552,215  $  1,881,416  $  1,589,692
                                                      ------------  ------------  ------------
                                                      ------------  ------------  ------------
DEPRECIATION, AMORTIZATION AND OTHER (1):
  Education.........................................  $     64,228  $    107,284  $     47,258
  Information.......................................        53,091        79,435        52,497
  Specialty Media...................................        76,281        58,100        54,571
  Corporate.........................................           764           706           645
                                                      ------------  ------------  ------------
  Total.............................................  $    194,364  $    245,525  $    154,971
                                                      ------------  ------------  ------------
                                                      ------------  ------------  ------------
CAPITAL EXPENDITURES:
  Education.........................................  $     14,471  $     10,896  $      8,768
  Information.......................................         4,343         6,119         4,133
  Specialty Media...................................         9,107         5,737         2,839
  Corporate.........................................         1,740         2,427           378
                                                      ------------  ------------  ------------
  Total.............................................  $     29,661  $     25,179  $     16,118
                                                      ------------  ------------  ------------
                                                      ------------  ------------  ------------
</TABLE>
 
------------------------
(1) Other includes net provision for loss on the sales of businesses, provision
    for restructuring and other costs and amortization of deferred financing and
    organizational costs.
 
    There were no significant intersegment sales or transfers during 1996, 1995
and 1994. Operating income (loss) by business segment excludes interest income
and interest expense. Corporate assets consist primarily of cash, receivables,
property and equipment and the net deferred income tax asset. Depreciation,
amortization and other does not include the write-off of unamortized deferred
financing costs of $8,648 in 1996 and $11,874 in 1994 but it does include the
net provision for loss on sale of a business of $15,025 in 1994, the net
provision for loss on sales of businesses of $35,447 in 1995 and provision for
restructuring and other costs of $14,667 in 1995.
 
                                       55
<PAGE>
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
25. BUSINESS SEGMENT INFORMATION (CONTINUED)
    The adoption of a change in method of accounting for advertising costs
resulted in an increase in operating income in 1994 for the education and
specialty media segments of approximately $6,500 ($.06 per share) and $3,300
($.03 per share), respectively. This change in method of accounting for
advertising costs resulted in a decrease in operating loss in 1995 for the
education and information segments of approximately $10,500 ($.09 per share) and
$200, respectively, and an increase in operating income in 1995 for the
specialty media segment of approximately $1,100 ($.01 per share) (see Note 2).
In 1996, the change in method of accounting for advertising costs was immaterial
for the education and information segments and resulted in an increase in
operating income of approximately $1,700 ($.01 per share) for the specialty
media segment.
 
26. SUBSEQUENT EVENTS
 
    Through March 12, 1997, the Company completed three product-line
acquisitions consisting of specialty consumer magazines and specialized
reference products. The aggregate purchase price was approximately $56,000.
 
    On March 11, 1997, the Company announced its intention to make public
offerings of approximately 12.5 million shares of its common stock, par value
$.01 per share (the "Offerings"). The net proceeds of the Offerings will be used
to redeem the Company's outstanding Senior Preferred Stock and repay debt.
 
    As part of its strategy to focus on areas of its business that have the
greatest potential for growth, the Company intends to divest certain businesses
that do not fit within its growth vehicles. Those businesses are: the DAILY
RACING FORM group, which includes a national daily newspaper covering
thoroughbred horseracing and PRO FOOTBALL WEEKLY; KRAMES COMMUNICATIONS, a
leading publisher of patient information sold to healthcare providers for
distribution to patients and other healthcare users; the KATHARINE GIBBS
SCHOOLS, a chain of seven business schools; NEWBRIDGE BOOK CLUBS, the largest
book club organization for professionals in the United States; and NEW WOMAN
magazine, a guide for personal relationships and careers. The proceeds of these
sales will be used to repay indebtedness. These businesses represented
approximately 19% of 1996 net sales of the Company. The unaudited combined
operating results for the years ended December 31, 1996, 1995 and 1994 and total
assets and liabilities at December 31, 1996 of these business units are
approximately as follows:
 
<TABLE>
<CAPTION>
                                                              1996        1995        1994
                                                           ----------  ----------  ----------
<S>                                                        <C>         <C>         <C>
Sales, net...............................................  $  255,000  $  259,400  $  263,000
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
Operating income (loss)..................................  $   (3,950) $   (5,330) $   (1,110)
                                                           ----------  ----------  ----------
                                                           ----------  ----------  ----------
Total assets (1).........................................  $  304,700
                                                           ----------
                                                           ----------
Total liabilities........................................  $   73,100
                                                           ----------
                                                           ----------
</TABLE>
 
------------------------
(1) At December 31, 1996, KATHARINE GIBBS SCHOOLS is reflected as an asset held
    for sale in the accompanying consolidated balance sheet.
 
    IN JANUARY 1997, THE COMPANY PURCHASED, IN AGGREGATE, $20,850 OF THE 10 5/8%
SENIOR NOTES AT A WEIGHTED AVERAGE PRICE OF 105%, PLUS ACCRUED AND UNPAID
INTEREST, FROM VARIOUS BROKERS ON THE OPEN MARKET. In March 1997, the Company
called for redemption all of its outstanding 10 5/8% Senior Notes. On May 1,
1997, the Company will redeem $212,400 principal amount of 10 5/8% Senior Notes,
at a redemption price of 104% of the outstanding principal amount thereof, plus
accrued and unpaid interest to the date of redemption.
 
                                       56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
 
    None
 
                                    PART III
 
    Items 10, 11, 12 and 13 are omitted, except for information as to Executive
Officers set forth in Part I, Item 1.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
       FORM 8-K
 
(a) Documents filed as part of this report:
 
    1. Index to Financial Statements
     See Table of Contents to Financial Statements included in Part II, Item 8
of this report.
 
    2. Index to Financial Statement Schedules
 
<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
       SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
       K-III Communications Corporation and Subsidiaries
         For the Year Ended December 31, 1996..............................................................         S-1
         For the Year Ended December 31, 1995..............................................................         S-2
         For the Year Ended December 31, 1994..............................................................         S-3
       Independent Auditors' Report on Schedules--Deloitte & Touche LLP....................................         S-4
</TABLE>
 
    All schedules, except those set forth above, have been omitted since the
information required to be submitted has been included in the Consolidated
Financial Statements or Notes thereto or has been omitted as not applicable or
not required.
 
      (b)--Reports on Form 8-K
 
<TABLE>
<S>        <C>          <C>
                        --The Company has not filed any reports on Form 8-K during the fourth
                          quarter of 1996.
</TABLE>
 
      (c)--Exhibits
 
<TABLE>
<S>        <C>          <C>
                  3.1   --Certificate of Incorporation of K-III. (7)
                  3.2   --Certificate of Designations of the Senior Preferred Stock. (2)
                  3.3   --Certificate of Designations of the Series B Preferred Stock. (3)
                  3.4   --Certificate of Designations of the Series C Preferred Stock. (9)
                  3.5   --Amended and Restated By-laws of K-III. (7)
                  3.6   --Certificate of Incorporation of K-III Prime Corporation. (2)
                  3.7   --By-laws of K-III Prime Corporation. (2)
                  3.8   --Certificate of Incorporation of Intertec Publishing Corporation. (2)
                  3.9   --Amended and Restated By-laws of Intertec Publishing Corporation. (2)
                  3.10  --Certificate of Incorporation of Newbridge Communications, Inc. (2)
                  3.11  --By-laws of Newbridge Communications, Inc. (2)
                  3.12  --Certificate of Incorporation of K-III Directory Corporation (1)
</TABLE>
 
                                       57
<PAGE>
<TABLE>
<S>        <C>          <C>
                  3.13  --By-laws of K-III Directory Corporation (1)
                  3.14  --Certificate of Incorporation of R.E.R. Publishing Corporation. (2)
                  3.15  --Amended and Restated By-laws of R.E.R. Publishing Corporation. (2)
                  3.16  --Certificate of Incorporation of Intermodal Publishing Company, Ltd. (2)
                  3.17  --Amended and Restated By-laws of Intermodal Publishing Company, Ltd. (2)
                  3.18  --Certificate of Incorporation of Weekly Reader Corporation. (2)
                  3.19  --By-laws of Weekly Reader Corporation. (2)
                  3.20  --Certificate of Incorporation of K-III Reference Corporation. (9)
                  3.21  --By-laws of K-III Reference Corporation. (2)
                  3.22  --Certificate of Amendment to Certificate of Incorporation of Funk &
                          Wagnalls Corporation (changing name to K-III Reference Corporation)(*)
                  3.23  --Certificate of Incorporation of Funk & Wagnalls Yearbook Corp. (2)
                  3.24  --By-laws of Funk & Wagnalls Yearbook Corp. (2)
                  3.25  --Certificate of Incorporation of Krames Communications Incorporated. (2)
                  3.26  --By-laws of Krames Communications Incorporated. (2)
                  3.27  --Certificate of Incorporation of Daily Racing Form, Inc. (2)
                  3.28  --By-laws of Daily Racing Form, Inc. (2)
                  3.29  --Certificate of Incorporation of DRF Finance, Inc. (2)
                  3.30  --By-laws of DRF Finance, Inc. (2)
                  3.31  --Certificate of Incorporation of K-III Magazine Corporation. (2)
                  3.32  --By-laws of K-III Magazine Corporation. (2)
                  3.33  --Certificate of Incorporation of K-III Magazine Finance Corporation. (2)
                  3.34  --By-laws of K-III Magazine Finance Corporation. (2)
                  3.35  --Certificate of Incorporation of Musical America Publishing, Inc. (1)
                  3.36  --By-laws of Musical America Publishing, Inc. (1)
                  3.37  --Certificate of Incorporation of K-III Holdings Corporation III. (2)
                  3.38  --By-laws of K-III Holdings Corporation III. (2)
                  3.39  --Certificate of Incorporation of Paramount Publishing Inc. (5)
                  3.40  --By-laws of Paramount Publishing, Inc. (5)
                  3.41  --Certificate of Incorporation of Nelson Information, Inc. (5)
                  3.42  --Certificate of Amendment to Certificate of Incorporation of Nelson
                          Publications, Inc. (changing name to Nelson Information, Inc.)(*)
                  3.43  --By-laws of Nelson Information, Inc. (5)
                  3.44  --Certificate of Incorporation of The Katharine Gibbs Schools, Inc. (8)
                  3.45  --By-laws of The Katharine Gibbs Schools, Inc. (5)
                  3.46  --Certificate of Incorporation of The Katharine Gibbs School of Norwalk,
                          Inc. (9)
                  3.47  --By-laws of The Katharine Gibbs School of Norwalk, Inc. (5)
                  3.48  --Certificate of Incorporation of K-III KG Corporation-Massachusetts (5)
                  3.49  --By-laws of K-III KG Corporation-Massachusetts (5)
                  3.50  --Certificate of Incorporation of The Katharine Gibbs School of Montclair,
                          Inc. (9)
                  3.51  --By-laws of The Katharine Gibbs School of Montclair, Inc. (5)
                  3.52  --Certificate of Incorporation of The Katharine Gibbs of Piscataway, Inc.
                          (9)
                  3.53  --By-laws of The Katharine Gibbs of Piscataway, Inc. (5)
                  3.54  --Certificate of Incorporation of The Katharine Gibbs Corporation-Melville
                          (5)
                  3.55  --By-laws of The Katharine Gibbs Corporation-Melville (5)
                  3.56  --Certificate of Incorporation of The Katharine Gibbs Corporation-New York
                          (5)
</TABLE>
 
                                       58
<PAGE>
<TABLE>
<S>        <C>          <C>
                  3.57  --By-laws of The Katharine Gibbs Corporation-New York (5)
                  3.58  --Certificate of Incorporation of The Katharine Gibbs School of Providence,
                          Inc. (8)
                  3.59  --By-laws of The Katharine Gibbs School of Providence, Inc. (5)
                  3.60  --Certificate of Incorporation of K-III HPC, Inc. (5)
                  3.61  --By-laws of K-III HPC, Inc. (5)
                  3.62  --Certificate of Incorporation of Haas Publishing Companies, Inc. (5)
                  3.63  --By-laws of Haas Publishing Companies, Inc. (5)
                  3.64  --Certificate of Incorporation of Stagebill, Inc. (8)
                  3.65  --By-laws of Stagebill, Inc. (8)
                  3.66  --Certificate of Incorporation of Lifetime Learning Systems, Inc. (8)
                  3.67  --By-laws of Lifetime Learning Systems, Inc. (8)
                  3.68  --Certificate of Incorporation of Channel One Communications Corporation.
                          (8)
                  3.69  --By-laws of Channel One Communications Corporation. (8)
                  3.70  --Certificate of Incorporation of Bacon's Information, Inc. (9)
                  3.71  --By-laws of Bacon's Information, Inc. (9)
                  3.72  --Certificate of Incorporation of Intertec Market Reports, Inc. (9)
                  3.73  --By-laws of Intertec Market Reports, Inc. (8)
                  3.74  --Certificate of Incorporation of Intertec Presentations, Inc. (9)
                  3.75  --By-laws of Intertec Presentations, Inc. (8)
                  3.76  --Certificate of Incorporation of MH West, Inc. (8)
                  3.77  --By-laws of MH West, Inc. (8)
                  3.78  --Certificate of Incorporation of Argus Publishers Corporation (9)
                  3.79  --By-laws of Argus Publishers Corporation (9)
                  3.80  --Certificate of Incorporation of Law Enforcement Television Network, Inc.
                          (Del) (*)
                  3.81  --By-laws of Law Enforcement Television Network, Inc. (Del) (*)
                  3.82  --Certificate of Incorporation of PJS Publications, Inc. (8)
                  3.83  --By-laws of PJS Publications, Inc. (8)
                  3.84  --Certificate of Incorporation of Symbol of Excellence Publishers, Inc. (8)
                  3.85  --By-laws of Symbol of Excellence Publishers, Inc. (8)
                  3.86  --Certificate of Incorporation of American Heat Video Productions, Inc. (*)
                  3.87  --By-laws of American Heat Video Productions, Inc. (*)
                  3.88  --Certificate of Incorporation of ASTN, Inc. (*)
                  3.89  --By-laws of ASTN, Inc. (*)
                  3.90  --Certificate of Incorporation of A WEP Company (*)
                  3.91  --By-laws of A WEP Company (*)
                  3.92  --Certificate of Incorporation of Bankers Consulting Company (*)
                  3.93  --By-laws of Bankers Consulting Company (*)
                  3.94  --Certificate of Incorporation of Data Book, Inc. (*)
                  3.95  --By-laws of Data Book, Inc. (*)
                  3.96  --Certificate of Incorporation of Excellence in Training Corporation (*)
                  3.97  --By-laws of Excellence in Training Corporation (*)
                  3.98  --Certificate of Incorporation of Gareth Stevens, Inc. (*)
                  3.99  --By-laws of Gareth Stevens, Inc. (*)
                 3.100  --Certificate of Incorporation of IDTN Leasing Corporation (*)
                 3.101  --By-laws of IDTN Leasing Corporation (*)
</TABLE>
 
                                       59
<PAGE>
<TABLE>
<S>        <C>          <C>
                 3.102  --Certificate of Incorporation of Industrial Training Systems Corporation
                          (*)
                 3.103  --By-laws of Industrial Training Systems Corporation (*)
                 3.104  --Certificate of Incorporation of Law Enforcement Television Network, Inc.
                          (TX) (*)
                 3.105  --By-laws of Law Enforcement Television Network, Inc. (TX) (*)
                 3.106  --Certificate of Incorporation of Lockert Jackson & Associates, Inc. (*)
                 3.107  --By-laws of Lockert Jackson & Associates, Inc. (*)
                 3.108  --Certificate of Incorporation of Straight Down, Inc. (*)
                 3.109  --Agreement of shareholders of Straight Down, Inc. (*)
                 3.110  --Certificate of Incorporation of Tel-A-Train, Inc. (*)
                 3.111  --By-laws of Tel-A-Train, Inc. (*)
                 3.112  --Certificate of Incorporation of TI-IN Acquisition Corporation (*)
                 3.113  --By-laws of TI-IN Acquisition Corporation (*)
                 3.114  --Certificate of Incorporation of Westcott Communications, Inc. (*)
                 3.115  --By-laws of Westcott Communications, Inc. (*)
                 3.116  --Certificate of Incorporation of Westcott Communications Michigan, Inc. (*)
                 3.117  --By-laws of Westcott Communications Michigan, Inc. (*)
                 3.118  --Certificate of Incorporation of Westcott ECI, Inc. (*)
                 3.119  --By-laws of Westcott ECI, Inc. (*)
                 3.120  --Certificate of Incorporation of Western Empire Publications, Inc. (*)
                 3.121  --By-laws of Western Empire Publications, Inc. (*)
                 3.122  --Certificate of Incorporation of McMullen Argus Publishing, Inc. (*)
                 3.123  --By-laws of McMullen Argus Publishing, Inc. (*)
                 3.124  --Certificate of Incorporation of The Electronics Source Book, Inc. (*)
                 3.125  --By-laws of The Electronics Source Book, Inc. (*)
                 3.126  --Certificate of Incorporation of Tunnell Publications, Inc. (*)
                 3.127  --By-laws of Tunnell Publications, Inc. (*)
                 3.128  --Certificate of Amendment of the Certificate of Incorporation of K-III KG
                          Corporation--New York I (changing name to The Katharine Gibbs
                          Corporation-- Melville)(*)
                 3.129  --Certificate of Amendment of the Certificate of Incorporation of K-III KG
                          Corporation--New York II (changing name to The Katharine Gibbs
                          Corporation-- New York)(*)
                  4.1   --10 5/8% Senior Note Indenture (including form of note and form of
                          guarantee). (1)
                  4.2   --Form of 11 1/2% Subordinated Debenture Indenture,
                          (including form of debenture). (1)
                  4.3   --Form of Class B Subordinated Debenture Indenture
                          (including form of debenture). (2)
                  4.4   --10 1/4% Senior Note Indenture (including form of note and form of
                          guarantee). (8)
                  4.5   --8 1/2% Senior Note Indenture (including forms of note and guarantee). (9)
                  4.6   --Form of Class D Subordinated Debenture Indenture. (11)
                 10.1   --Non-Competition Agreement, dated as of June 17, 1991, between News America
                          Holdings Incorporated, K-III Holdings Corporation III, K-III Magazines and
                          Daily Racing Form. (2)
                 10.2   --Agreement and Plan of Merger, dated as of April 22, 1996, by and among the
                          Company, K-III Prime Corporation, Acquiror Sub and Wettcott. (10)
</TABLE>
 
                                       60
<PAGE>
<TABLE>
<S>        <C>          <C>
                 10.3   --$250,000 Credit Facility with The Chase Manhattan Bank, The Bank of New
                          York, Bankers Trust Company and The Bank of Nova Scotia, as agents
                          (including forms of Guaranty and Contribution Agreements). (*)
                 10.4   --$1,250,000 Credit Facility with The Chase Manhattan Bank, The Bank of New
                          York, Bankers Trust Company and the Bank of Nova Scotia,
                          as agents (including forms of Guaranty and Contribution Agreements).(*)
                +10.5   --Form of Amended and Restated K-III 1992 Stock Purchase and Option Plan.
                          (7)
                +10.6   --Amendment No. 1 to the 1992 Stock Purchase and Option Plan Amended and
                          Restated as of March 5, 1997. (*)
                +10.7   --Form of Common Stock Purchase Agreement between K-III and senior
                          management. (2)
                +10.8   --Form of Common Stock Purchase Agreement between K-III and various
                          purchasers. (2)
                +10.9   --Form of Non-Qualified Stock Option Agreement between K-III and various
                          employees. (2)
                 10.10  --Form of Common Stock Purchase Agreement between K-III and senior
                          management. (2)
                 10.11  --Form of Common Stock Purchase Agreement between K-III and various
                          purchasers. (2)
                +10.12  --Form of Non-Qualified Stock Option Agreement between K-III and various
                          employees. (2)
                 10.13  --Amended Registration Rights Agreement dated as of May 13, 1992 among
                          K-III, MA Associates, L.P., FP Associates, L.P., Magazine Associates,
                          L.P., Publishing Associates, L.P. and KKR Partners II, L.P. with respect
                          to common stock of K-III. (1)
                 10.14  --Registration Rights Agreement dated as of September 30, 1994 among K-III,
                          Channel One Associates, L.P. and KKR Partners II, L.P. with respect to
                          common stock of K-III. (8)
                 10.15  --Registration Rights Agreement dated as of March 1, 1995 among K-III and
                          Channel One Associates, L.P. with respect to common stock of K-III. (8)
                +10.16  --Free Cash Flow Long-Term Plan. (1)
                +10.17  --Executive Incentive Compensation Plan. (8)
                +10.18  --Thrift and Retirement Plans. (1)
                +10.19  --Pension Plan. (1)
                +10.20  --1995 Restoration Plan. (8)
                +10.21  --Form of K-III Communications Short Term Senior Executive
                          Non-Discretionary Plan. (7)
                +10.22  --Form of K-III Communications Short Term Senior Executive Performance Plan.
                          (7)
                +10.23  --Form of K-III Communications Corporation Directors' Deferred Compensation
                          Plan. (*)
                +10.24  --Agreement, dated as of December 24, 1996, between K-III Communications
                          Corporation and Harry A. McQuillen (*)
                +10.25  --Agreement, dated as of December 24, 1996, between K-III Communications
                          Corporation and Jack L. Farnsworth (*)
                 11     --Statement Regarding Computation of Per Share Earnings (*)
                 12     --Statement Regarding Computation of Earnings to Fixed Charges(*)
                 21     --Subsidiaries of K-III. (*)
                 27     --Financial Data Schedule. (*)
</TABLE>
 
                                       61
<PAGE>
------------------------
 
(1) Incorporated by reference to K-III Communications Corporation's Annual
    Report on Form 10-K for the year ended December 31, 1992. File No. 1-11106.
 
(2) Incorporated by reference to K-III Communications Corporation's Registration
    Statement on Form S-1, File No. 33-46116.
 
(3) Incorporated by reference to K-III Communications Corporation's Registration
    Statement on Form S-1, File No. 33-60786.
 
(4) Incorporated by reference to K-III Communications Corporation's Annual
    Report on Form 10-K for the year ended December 31, 1993. File No. 1-11106.
 
(5) Incorporated by reference to K-III Communications Corporation's Registration
    Statement on Form S-1, File No. 33-77520.
 
(6) Incorporated by reference to K-III Communications Corporation's Current
    Report on Form 8-K dated September 30, 1994.
 
(7) Incorporated by reference to K-III Communications Corporation's Registration
    Statement on Form S-1, File No. 33-96516.
 
(8) Incorporated by reference to K-III Communications Corporation Annual Report
    on Form 10-K for the year ended December 31, 1994, File No. 1-11106.
 
(9) Incorporated by reference to K-III Communications Corporation's Form 10-K
    for the year ended December 31, 1995, File No. 1-11106.
 
(10) Incorporated by reference to K-III Communications Corporation's Form 10-Q
    for the quarter ended March 31, 1996.
 
(11) Incorporated by reference to K-III Communications Corporation's
    Registration Statement on Form S-4, File No. 333-3691.
 
(*) Filed herewith.
 
 + Executive contract or compensation plan or arrangement.
 
                                       62
<PAGE>
SUPPLEMENTAL INFORMATION
 
    The foregoing information is being provided to comply with the annual report
requirements of the New York Stock Exchange.
 
The Company's Board of Directors is:
 
<TABLE>
<CAPTION>
William F. Reilly                     Chairman of the Board and Chief
                                      Executive Officer, K-III Communications
                                      Corporation
 
<S>                                   <C>
Beverly C. Chell                      Vice Chairman, General Counsel and
                                      Secretary, K-III Communications
                                      Corporation
 
Meyer Feldberg                        Professor and Dean, Columbia University
                                      Graduate School of Business
 
Perry Golkin                          General Partner, KKR Associates; member
                                      of the limited liability company which
                                      serves as the general partner of KKR
 
Henry R. Kravis                       Founding Partner, Kohlberg Kravis
                                      Roberts & Co., L.P.; managing member of
                                      the Executive Committee of the limited
                                      liability company which serves as the
                                      general partner of KKR
 
Charles G. McCurdy                    President, K-III Communications
                                      Corporation
 
George R. Roberts                     Founding Partner, Kohlberg Kravis
                                      Roberts & Co., L.P.; managing member of
                                      the Executive Committee of the limited
                                      liability company which serves as the
                                      general partner of KKR
 
Michael T. Tokarz                     General Partner, KKR Associates; member
                                      of the limited liability company which
                                      serves as the general partner of KKR
</TABLE>
 
    Messrs. Reilly, Golkin, Kravis and Tokarz are members of the Executive
Committee. Mr. Feldberg is the sole member of the Audit Committee. Messrs.
Golkin, Kravis and Tokarz are members of the Compensation Committee.
 
    The Company's Registrar and Transfer Agent for the Common Stock is the Bank
of New York.
 
                                       63
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on March 28, 1997.
 
                                             K-III COMMUNICATIONS CORPORATION
 
                                          By        /s/ BEVERLY C. CHELL
                                             ...................................
                                                     (Beverly C. Chell)
                                                VICE CHAIRMAN AND SECRETARY
 
    Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
in the capacities indicated on March 28, 1997.
 
<TABLE>
<CAPTION>
                    SIGNATURES                                                  TITLE
---------------------------------------------------  ------------------------------------------------------------
 
<S>                                                  <C>
        /s/ WILLIAM F. REILLY                        Chairman, Chief Executive Officer and Director (Principal
 ...................................................    Executive Officer)
                (William F. Reilly)
 
       /s/ CHARLES G. MCCURDY                        President and Director (Principal Financial Officer)
 ...................................................
               (Charles G. McCurdy)
 
        /s/ BEVERLY C. CHELL                         Vice Chairman, Secretary and Director
 ...................................................
                (Beverly C. Chell)
 
                                                     Director
 ...................................................
                 (Meyer Feldberg)
 
          /s/ PERRY GOLKIN                           Director
 ...................................................
                  (Perry Golkin)
 
                                                     Director
 ...................................................
                  (Henry Kravis)
 
                                                     Director
 ...................................................
                (George R. Roberts)
 
        /s/ MICHAEL T. TOKARZ                        Director
 ...................................................
                (Michael T. Tokarz)
 
       /s/ CURTIS A. THOMPSON                        Vice President and Controller (Principal Accounting Officer)
 ...................................................
               (Curtis A. Thompson)
</TABLE>
 
                                       64
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Annual Report on Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on March 28, 1997.
 
ARGUS PUBLISHERS, CORPORATION
                                                  THE KATHARINE GIBBS SCHOOL OF
PISCATAWAY, INC.
AMERICAN HEAT VIDEO PRODUCTIONS,
INC.
                                                  THE KATHARINE GIBBS SCHOOL OF
PROVIDENCE, INC.
ASTN, INC.
                                                  KRAMES COMMUNICATIONS
INCORPORATED
A WEP COMPANY
                                                  LAW ENFORCEMENT TELEVISION
NETWORK, INC.
BACON'S INFORMATION, INC.
                                                  LAW ENFORCEMENT TELEVISION
NETWORK, INC.
BANKERS CONSULTING COMPANY
                                                  LIFETIME LEARNING SYSTEMS,
INC.
CHANNEL ONE COMMUNICATIONS
CORP.
                                                  LOCKERT JACKSON & ASSOCIATES,
INC.
DRF FINANCE, INC.
                                                  MH WEST, INC.
DAILY RACING FORM, INC.
                                                  MCMULLEN ARGUS PUBLISHING,
INC.
DATA BOOK, INC.
                                                  MUSICAL AMERICA PUBLISHING,
INC.
THE ELECTRONICS SOURCE BOOK,
INC.
                                                  NELSON INFORMATION, INC.
EXCELLENCE IN TRAINING
CORPORATION
                                                  NEWBRIDGE COMMUNICATIONS, INC.
FUNK & WAGNALLS YEARBOOK CORP.
                                                  PJS PUBLICATIONS, INC.
GARETH STEVENS, INC.
                                                  PARAMOUNT PUBLISHING, INC.
HAAS PUBLISHING COMPANIES,
INC.
                                                  R.E.R. PUBLISHING CORPORATION
INTERMODAL PUBLISHING COMPANY,
LTD.
                                                  STAGEBILL, INC.
IDTN LEASING CORPORATION
                                                  STRAIGHT DOWN, INC.
INDUSTRIAL TRAINING SYSTEMS
CORPORATION
                                                  SYMBOL OF EXCELLENCE
PUBLISHERS, INC.
INTERTEC MARKET REPORTS, INC.
                                                  TEL-A-TRAIN, INC.
INTERTEC PRESENTATIONS, INC.
                                                  TI-IN ACQUISITION CORPORATION
INTERTEC PUBLISHING
CORPORATION
                                                  TUNNELL PUBLICATIONS, INC.
K-III DIRECTORY CORPORATION
                                                  WEEKLY READER CORPORATION
K-III HOLDINGS CORPORATION III
                                                  WESTCOTT COMMUNICATIONS, INC.
K-III HPC, INC.
                                                  WESTCOTT COMMUNICATIONS
MICHIGAN, INC.
K-III KG CORP.--MASSACHUSETTS
                                                  WESTCOTT ECI, INC.
K-III MAGAZINE CORPORATION
                                                  WESTERN EMPIRE PUBLICATIONS,
INC.
K-III MAGAZINE FINANCE CORPORATION
K-III PRIME CORPORATION
<TABLE>
<S>        <C>

K-III REFERENCE CORPORATION

THE KATHARINE GIBBS CORPORATION--MELVILLE
THE KATHARINE GIBBS CORPORATION--NEW YORK
THE KATHARINE GIBBS SCHOOLS, INC.
THE KATHARINE GIBBS SCHOOL OF MONTCLAIR, INC.
THE KATHARINE GIBBS SCHOOL OF NORWALK, INC.


              /s/ BEVERLY C. CHELL
              -------------------------------
                   (Beverly C. Chell)
              VICE CHAIRMAN AND SECRETARY

</TABLE>
 
    Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons
in the capacities indicated on March 28, 1997.
 
<TABLE>
<CAPTION>
SIGNATURES                 TITLE
---------  --------------------------------------
 
        /s/ WILLIAM F. REILLY                        Chairman and Director (Principal Executive Officer)
 ...................................................
                (William F. Reilly)
<S>        <C>                                     <C>
 
       /s/ CHARLES G. MCCURDY                        Vice Chairman, Chief Financial Officer and Director (Principal Financial
 ...................................................    Officer)
               (Charles G. McCurdy)
 
        /s/ BEVERLY C. CHELL                         Vice Chairman, Secretary and Director
 ...................................................
                (Beverly C. Chell)
 
       /s/ CURTIS A. THOMPSON                        Vice President (Principal Accounting Officer)
 ...................................................
               (Curtis A. Thompson)
</TABLE>
 
                                       65
<PAGE>
                                                                     SCHEDULE II
 
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1996
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                     BALANCE AT    CHARGED TO     CHARGED TO                BALANCE AT
                                                    BEGINNING OF   COSTS AND        OTHER                     END OF
     DESCRIPTION                                       PERIOD       EXPENSES       ACCOUNTS    DEDUCTIONS     PERIOD
--------------------------------------------------  ------------   ----------     ----------   ----------   ----------
<S>                                                 <C>            <C>          <C>            <C>          <C>
Accounts receivable
  Allowance for doubtful
    accounts......................................    $ 14,364      $ 21,438       $    62(1)   $(21,069)(3)  $  15,418
                                                                                   $   970(2)
                                                                                   $  (347)(4)
  Allowance for sales returns and
    rebates.......................................    $ 23,015      $ 79,819       $    --      $(78,736)(3)  $  24,098
Inventory
  Allowance for obsolescence......................    $  7,129      $  4,423       $   279(2)   $ (3,128)(3)  $   8,703
Accumulated amortization
  Goodwill........................................    $ 66,889      $ 23,576       $  (640)(4)  $ (7,062)(3)  $  82,763
 
  Other intangibles...............................    $695,504      $122,140       $(2,932)(4)  $   (651)(3)  $ 814,061
 
  Deferred financing costs........................    $  8,139      $  3,662         --         $ (2,007)(3)  $   9,794
 
  Deferred wiring and
    installation costs............................    $  7,163      $  6,753         --         $ (1,066)(3)  $  12,850
 
  Prepublication and programming costs............    $  4,121      $  2,847         --         $ (2,116)(3)  $   4,852
 
  Direct-response advertising costs...............    $ 29,569      $ 41,481         --         $   (389)(3)  $  70,661
</TABLE>
 
------------------------
Notes:
 
(1) Increases in related valuation account result from acquisitions.
 
(2) Increases in related valuation account result from the recovery of amounts
    previously written off.
 
(3) Deductions from related valuation account result from write-offs and actual
    returns.
 
(4) Deductions from related valuation account result from reclassifications and
    write-offs related to net assets held for sale.
 
                                      S-1
<PAGE>
                                                                     SCHEDULE II
 
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1995
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                     BALANCE AT    CHARGED TO     CHARGED TO                  BALANCE AT
                                                    BEGINNING OF   COSTS AND        OTHER                       END OF
     DESCRIPTION                                       PERIOD       EXPENSES       ACCOUNTS     DEDUCTIONS      PERIOD
--------------------------------------------------  ------------   ----------     ----------   ------------   ----------
<S>                                                 <C>            <C>          <C>            <C>            <C>
Accounts receivable
  Allowance for doubtful
    accounts......................................    $ 13,482      $ 19,276        $1,195(1)   $(20,526)(3)   $  14,364
                                                                                    $  937(2)
  Allowance for sales returns and
    rebates.......................................    $ 23,543      $ 80,859        $  663(2)   $(82,072)(3)   $  23,015
                                                                                    $   22(2)
Inventory
  Allowance for obsolescence......................    $  5,138      $  2,662        $  622(1)   $ (1,463)(3)   $   7,129
                                                                                    $  170(2)
 
Accumulated amortization
  Goodwill........................................    $ 29,312      $ 37,572        $    5(2)     --           $  66,889
 
  Other intangibles...............................    $573,230      $122,609         --         $   (335)(3)   $ 695,504
 
  Deferred financing costs........................    $  5,004      $  3,135         --           --           $   8,139
 
  Deferred wiring and
    installation costs............................    $  1,413      $  6,334         --         $   (584)(3)   $   7,163
 
  Prepublication and programming costs............    $  6,732      $  1,954         --         $ (4,565)(3)   $   4,121
 
  Direct-response advertising costs...............    $  3,126      $ 28,774         --         $ (2,331)(3)   $  29,569
</TABLE>
 
------------------------
Notes:
 
(1) Increases in related valuation account result from acquisitions.
 
(2) Increases in related valuation account result from the recovery of amounts
    previously written off.
 
(3) Deductions from related valuation account result from write-offs and actual
    returns.
 
                                      S-2
<PAGE>
                                                                     SCHEDULE II
 
               K-III COMMUNICATIONS CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
                      FOR THE YEAR ENDED DECEMBER 31, 1994
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                     BALANCE AT    CHARGED TO     CHARGED TO                   BALANCE AT
                                                    BEGINNING OF   COSTS AND        OTHER                        END OF
     DESCRIPTION                                       PERIOD       EXPENSES       ACCOUNTS    DEDUCTIONS        PERIOD
--------------------------------------------------  ------------   ----------     ----------   -----------   --------------
<S>                                                 <C>            <C>          <C>            <C>           <C>
Accounts receivable
  Allowance for doubtful
    accounts......................................    $ 28,137      $ 46,686        $1,686(2)  $   (45,537)(3)  $      13,482
                                                                                    $1,736(1)  $   (19,226)(4)
  Allowance for sales returns
    and rebates...................................    $ 30,421      $142,268        $   35(2)  $  (143,644)(3)  $      23,543
                                                                                    $  495(1)  $    (6,032)(4)
Inventory
  Allowance for obsolescence......................    $  8,320      $  4,519        $  207(2)  $    (4,708)(3)  $       5,138
                                                                                    $  327(1)  $    (3,527)(4)
 
Accumulated amortization
  Goodwill........................................    $ 20,942      $  9,419         --        $    (1,049)(4)  $      29,312
 
  Other intangibles...............................    $483,596      $109,752         --        $   (20,118)(4)  $     573,230
 
  Deferred financing costs........................    $  5,990      $  3,080         --        $    (4,066)(3)  $       5,004
 
  Deferred wiring and
    installation costs............................      --          $  1,505         --        $       (92)(3)  $       1,413
 
  Prepublication and programming costs............    $  4,675      $  2,099         --        $       (42)(3)  $       6,732
  Direct-response advertising
    costs.........................................      --          $  5,251         --        $    (2,125)(4)  $       3,126
</TABLE>
 
------------------------
Notes:
 
(1) Increases in related valuation account result from acquisitions.
 
(2) Increases in related valuation account result from the recovery of amounts
    previously written off.
 
(3) Deductions from related valuation account result from write-offs and actual
    returns.
 
(4) Deductions from related valuation account result from reclassifications and
    write-offs related to net assets held for sale.
 
                                      S-3
<PAGE>
                   INDEPENDENT AUDITORS' REPORT ON SCHEDULES
 
To the Shareholders and Board of Directors of
K-III Communications Corporation
New York, New York:
 
    We have audited the consolidated balance sheets of K-III Communications
Corporation and subsidiaries as of December 31, 1996 and 1995, and the related
statements of consolidated operations, consolidated cash flows and shareholders'
equity for each of the three years in the period ended December 31, 1996, and
have issued our report thereon dated January 29, 1997 (March 19, 1997 as to Note
26); such report is included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules of K-III Communications Corporation
and subsidiaries, listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
 
New York, New York
January 29, 1997
(March 19, 1997 as to Note 26)
 
                                      S-4