Page One - Front Cover

How can I avoid traps?

How do I create a website?

How can I take the kids to Paris?

How should I invest my money?

THE HOW-TO INFORMATION

PEOPLE TRUST

IDG Books Worldwide, Inc.

1999 Annual Report

Page Two

We

Know

How-to!

Page 2-A Gatefold

How-to Markets.

Whip up some dessert, transplant some daisies, roll over an IRA-we've got all
the ingredients for making life sweeter.

Generation "Why Not" lives in the moment; our test-prep materials
answer the call of the wired.

We show over-55s-the fastest-growing segment of first-time computer users-how
to storm the Net.

Programmers and IT managers know our certification study guides and visual
tutorials deliver proven results.

Page 2-B Gatefold

How-to Brands.

More than 75 million copies in print in 15 categories with topics from sex to
soccer to the SAT. Need we say more?

This trusted brand now reaches anyone who wants shortcuts to learning about
personal finance, insurance, debt, AOL, and more.

Travelers of every taste and budget find direction from more than 250
guidebooks and a lively e-commerce channel, frommers.com.

Page Three

4000 Titles

idgbooks.com

100 Million in Print

dummies.com

Dominant Brands

cliffsnotes.com

One Trusted Source

frommers.com

Page 3-A Gatefold

How-to Content.

We reach a healthy share of the consumer market with household

names like Betty Crocker's®, Weight Watchers®,Howell Book
HouseTM and Webster's New WorldTM.

First published in 1992, PCs For Dummies® is now in its 7th edition and
still a bestseller.

Our tech titles click!

From programming to Photoshop, LINUX to UNIX, we have how-to's for every
learning style.

Page 3-B Gatefold

How-to Delivery.

At your service 24/7: online book sales, travel reservations, and
downloadable study guides.

Our high-impact

merchandising aids take the new CliffsNotesTM business and technology
titles far beyond the classroom.

New joint ventures in Australia, Singapore, and Canada optimized our
distribution and publishing programs far beyond the United States.

Page 4

(GRAPH DATA FOR THE FOLLOWING ITEMS):

Net Revenue

$ in millions

Net Income

$ in millions

EBITDA1

$ in millions

Financial Highlights

(in thousands except per share data)

`Years ended September 30,   1995      1996      1997      1998      1999
                          --------- --------- --------- --------- ---------
Net revenue .............  $72,523   $97,847  $120,688  $141,525  $179,776
Net income ..............   $6,366    $6,488    $7,035   $10,183   $12,737
EBITDA(1)................  $11,270   $12,351   $13,586   $20,677   $28,268
Earnings per share.......    $0.57     $0.58     $0.63     $0.87     $0.86
Pro forma earnings per
 share(2)................    $0.46     $0.47     $0.51     $0.73     $ --`

1. "EBITDA" is defined as income before provision for income taxes,
interest expense, depreciation, and amortization. EBITDA is not intended to
represent cash flows from operations and should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or to cash flows as a measure of liquidity. (2) The pro forma earnings per share
amounts show the pro forma dilutive effect of the number of shares which would
be required to be sold to repay the note payable issued to IDG, the Parent
company, as a pre-offering dividend.



Page 5

To Our Stockholders, Customers, and Employees:

It gives me great pride to report that in fiscal year 1999, our first year as
a publicly owned company, the management team and employees of IDG Books
Worldwide (IDGB) achieved record net revenue of $179.8 million, an increase of
27 percent over fiscal year 1998. This stellar performance closes nine
consecutive years of record profitability. From our bestselling books to our
trusted Web services, we transform "I can't" to "I can" for
millions of lifelong learners.

In fiscal year 1999, we shipped a record 33 million books from the United
States. Our active book titles soared from more than 700 to over 4,000. Our For
Dummies® series, IDGB's flagship brand, reached 75 million books in print,
plus translations in more than 30 languages. Our longstanding commitment to
quality continues to be recognized in influential bestseller lists. IDGB
technology titles claimed nearly 50 percent of Publishers Weekly's
computer bestseller list throughout the year. Personal Finance For
Dummies® and Investing For Dummies®, which together have more
than 1.6 million copies in print, regularly appeared on both The Wall Street
Journal and Business Week bestseller lists. Other bestsellers
received popular acclaim, among them Organize Yourself!, How to Cook
Everything, The Runners World Training Diary, and The Unofficial
Guide® to Walt Disney World, one of the top-selling travel books in the
United States. And we demonstrated impressive global reach: IDGB titles were
available in 36 languages and in more than 90 countries.

Last year saw significant
growth in four key areas: brand and content acquisition, strategic partnerships,
international expansion, and a company-wide transformation to an Internet-
enabled, continuous learning enterprise. I am pleased to report that IDGB
achieved impressive results in each of these initiatives.

In December 1998, we acquired CliffsNotesTM. The leading brand in
study guide publishing, CliffsNoteshas a fiercely loyal student
following, with 95 percent of users saying they would buy and use CliffsNotesagain. Less than 10 months after the acquisition, we introduced a new
CliffsNotes lifestyle series beginning with 16 business and technology
book titles that extended the brand's reach to lifelong learners. We also
launched CliffsNote-A-DayTM, a free e-newsletter service at
cliffsnotes.comTM, which also offers electronic downloads of the
CliffsNotes printed products directly to students.

In August 1999, we completed our $83 million acquisition of the Macmillan
General Reference Group of Pearson Publishing, which added to our brand
portfolio a list of well-recognized consumer publishing brands. They include
Frommer's® travel guides, Betty Crocker's® cook books,
Howell Book HouseTM pet books, Weight Watchers® lifestyle
and cook books, Webster's New WorldTM dictionaries, Burpee®
Basics,  and the Unofficial Guides®, as well as frommers.com, one
of the most popular travel sites on the Web.



Strategic partnerships with leading IT companies and licensing arrangements
continue to be important growth areas. During fiscal year 1999 we entered into
official, cooperative publishing agreements with AOL®, NetscapeTM, and
Hewlett-Packard. In addition, our record $3.7 million domestic and foreign
licensing revenue, including revenue from an elec-

Page 6

tronic license of our CliffsNotes literary guides to netLibrary,
offered new ways to leverage our bestselling brands and content.

We stepped up the pace of our globalization, investing in publishing and
distribution joint ventures overseas. They include 51 percent ownership of IDGB
Australia and 49 percent ownership of CDG Books Canada, both of which we formed
with long-time publishing and distribution partners. We also acquired 25 percent
ownership of TransQuest Publishers, a company we formed in Singapore.
Investments in key English-language markets will continue to be platforms for
new growth.

We continue to build direct, continuous relationships with our customers by
supporting their print learning experiences with targeted online products and
services. Dummies.comTM, cliffsnotes.com, and frommers.com are the anchors
of our Internet strategy. To enhance our online offerings, we are scaling our
popular knowledge base to develop the next generation of continuous learning
tools and e-services, and took steps last year to establish direct, anytime-
anywhere communication with our customers through organic growth or in
partnership with innovative technology companies.

For example, we began implementing P3 (Parallel Publishing Process), our
innovative pre-production system, which delivers award-winning content for both
print and online publishing and distribution. We also created an IDGB eBook
library to offer our consumers our most popular technology titles in a
searchable, Open eBook format. In addition, we formed a strategic relationship
with Ask Jeeves to adopt its technology to power the Dummies Answer Network at
the dummies.com website. This online application will answer technology
questions typed in the consumer's own words with content from the popular For
Dummies technology knowledge base.

We have a rich, successful tradition of anticipating and meeting the lifelong
learning needs of millions of customers around the world. Our unique brand focus
saves our customers time, minimizes risk, and helps to build confidence when
they want to learn how to do almost anything. Our 650-plus employees are united
around a common culture built nearly 10 years ago that emphasizes quick,
decisive action in fulfilling our customers' trust. Whether they need to write a
term paper or solve a computer problem, whether they are seeking personal
enrichment or the smart way to invest their money, whether they want to acquire
new skills or learn the best way to travel, we have the best how-to information
to meet those needs.

IDGB enters the 21st century with a powerful portfolio of Internet-enabled,
branded information products. We firmly believe our mission has never been more
relevant and our customer franchises have never been stronger. We thank you for
your support as we continue to empower the knowledge economy.

John J. Kilcullen

Chairman of the Board of Directors

and Chief Executive Officer

Page 7

"Our bestselling books and trusted Web services transform `I can't' to
`I can' for millions of learners"

IDGB Officers, from left to right: John Ball, EVP, Operations and
Administration, and Secretary; Donna Vieraitis, VP, Human Resources; John
Kilcullen, Chairman and CEO; Brenda McLaughlin, SVP, Internet Operations; Marc
Mikulich, VP, Strategic Brand Management.

Page 8

How do I tell a sonata from a scherzo?

How should I prune my rose bushes?

How can I stay fit?

How do I buy gifts online?

HOW CAN I MAKE LEARNING FUN AND EASY?

Page 9



For Dummies®

How to make learning fun and easy: with a trusted friend who helps you
conquer frustration. Since 1991, IDGB's For Dummies series has been
making publishing history through this irreverent, empowering strategy. More
than 75 million copies, more than 450 titles, 15-plus categories, and more than
30 languages later, we keep finding exciting new ways to expand the For
Dummies brand promise. Online, customers can search our dummies.comTM
website for new titles, to download software, to link to authors' home pages, or
to subscribe to the monthly Dummies Dispatch e-newsletter. Through the 12 e-
newsletters at

dummiesdaily.com, they can join 900,000 subscribers and receive e-mailed
tips. In 1999, the yellow-and-black books got a cover-art facelift; now it's
easier than ever for customers to tell the difference between Art For
Dummies® and Investing For Dummies® - and it's more likely
they'll buy both. Music CDs, audio books, calendars, Miniature
EditionsTM For Dummies®, For Dummies® Quick Reference
books, and board games deliver the For Dummies experience in multiple
formats. No technology or lifestyle subject proved too challenging for our
For Dummies team, who broke new ground in categories such as foreign
languages, health, and other popular self-help categories. For Dummies
anticipated hot consumer technology trends with book/CD-ROM packages that guide
users step by step through such mission-critical topics as LINUX, iMacs, eBay,
and online genealogy. By early 2000, we'll introduce the next generation of
For Dummies online services: powered by Ask Jeeves, the new Dummies
Answer Network will let customers submit natural-language how-to questions and
get fast answers online.

dummies.com

Page 10

CliffsNotesTM

How to revitalize a respected knowledge brand: by expanding its audience and
reinventing its mission. Since 1958, CliffsNotes has been helping students
prepare for exams, write papers, and appreciate the classics. The brand was a
unique household name, trusted by generations of time-pressed students as a
shortcut to academic success. When IDGB acquired CliffsNotes in 1998, we saw an
opportunity to retain loyal customers after their student days were finished-to
provide them with "the shortcut to successTM" for the rest of
their lives. And so in Fall 1999 we introduced 16 new CliffsNotes lifestyle
titles, covering business and technology topics as timely and diverse as
creating a Web page, managing money, and understanding health insurance. The new
series, competitively priced at $8.99 each, is targeted to a broad audience and
sold through new distribution channels that include prominent placement in major
mass-market retailers. In addition, we continued to expand the original
CliffsNotes study guides, adding new Shakespeare compilations and contemporary
titles. And we enhanced the entire CliffsNotes brand with a new website,
cliffsnotes.comTM, which invites consumers to register for free daily e-
mail newsletters, visit topical resource areas, access links and tools, and
purchase books for immediate download or for shipping from the IDGB warehouse.
Our goal: to continue to make it easy for a student pulling an all-nighter to
write a paper about Romeo and Juliet, or to help a young couple set up a
computer on a Sunday afternoon. Whether stores are open or closed, CliffsNotes
promises to be the one knowledge brand about which consumers of all ages can
say, "CliffsNotes saved my butt!"

cliffsnotes.com

Page 11

How do I invest in mutual funds?

How do I download a study guide?

How will I pass the exam?

How can I tame the shrew?

HOW CAN I FIND A SHORTCUT TO SUCCESS?

Page 12

How should I groom my dog?

How can I put on coats?

How can I bake like a pro?

How can I travel on $60 a day?

HOW CAN I LEARN ALMOST ANYTHING?

Page 13

Newly Acquired Brands

How to leverage market share: by acquiring a portfolio of some of North
America's best-known publishing names. In August, we completed an $83 million
purchase of the Macmillan General Reference Group (MGR), acquiring
Frommer's® travel guides, Betty Crocker's® cookbooks, Howell Book
HouseTM  pet books, the Unofficial Guides®, Burpee® Basics, and
many bestselling individual titles, including Marc Bittman's How to Cook
Everything and Ken Schultz's Fishing Encyclopedia-more than 3,000 titles in all.
The acquisition gave IDGB immediate entrée into several new markets,
including cookware retailers, pet superstores, and travel outlets. And it added
a proven e-commerce channel through frommers.com, a respected travel website
that speaks to consumers in Arthur Frommer's signature style and provides how-
to, contextual content, and e-commerce links for airfare, lodging, and guidebook
purchases. In addition, Frommer's travel guides sell more than 3 million units
annually, and include more than 250 guides for every type of traveler, such as
Europe from $60 a Day, and the #1 seller The Unofficial Guide to Walt Disney
World. We believe the combination of these venerable-and in some cases
underexposed-print and online brands will benefit greatly from our worldwide
distribution capabilities, proven brand-building skills, and ability to
"scale" content into print, electronic, and online formats
simultaneously. We are excited about building on these brands' equity and
developing them into 21st-century powerhouses through aggressive new product
development, focused line extensions, and innovative, continuous delivery
methods.

frommers.com

Page 14

Computer Know-how NowTM

How to capture demand for today's technologies: by anticipating and
responding quickly to key trends, and by partnering with industry giants to
create branded learning tools with a competitive edge. We made history by
demystifying technology with our For Dummies® line, including Windows®
For Dummies®, our bestselling computer book ever with more than 7 million
copies in print. In addition, our official publishing partnerships offer our
customers critically acclaimed content backed by the best names in the industry.
The most recent of these alliances, announced in May 1999, is an exclusive joint
publishing agreement to create AOL PressTM, a new line of America
Online®-authorized books. We're excited about the opportunity to provide
AOL's more than 20 million members with specialized publications to help them
get the most out of AOL. IDGB continues to publish our own AOL titles in several
branded series, including America Online® For Dummies® and America
Online® Bible, offering proven bestsellers for a wide range of learning
styles. In 1999, we also began producing books and book/CD-ROM packages with
Netscape, and developed cooperative publishing partnerships with leading
technology companies such as eBay, Red Hat Linux,  and Computer Associates, and
an branded series with Hewlett-Packard. Anticipating the next important trends
in the Internet economy, we began in mid-1999 to develop Open eBook versions of
our most popular technology titles. Finally, when Microsoft® Windows®
2000 is released, we'll be ready-with a full range of bestselling knowledge
products for every learning style and level.

idgbooks.com

Page 15

How do I get technical support?

How can I learn XML?

How can we set up an intranet?

How can I get certified?

HOW CAN WE LEAD THE CURVE?

Page 16

Our How-to Portfolio

Flagship

For Dummies®

CliffsNotesTM

Frommer's®

Reference

Arco® Test Preparation

Betty Crocker's®

Burpee® Basics

Howell Book HouseTM

The Unofficial Guides®

Webster's New WorldTM

Weight Watcher's®

Technology

Ace It!TM

Administrator's Handbooks

AOL PressTM

Bibles

Certification Study Systems

Developer's Guides

Hewlett-Packard Press

In Plain English

M&T PressTM

Master Reference

Master VisuallyTM

Netscape PressTM

Novell PressTM

One Step at a TimeTM

Secrets®

Simplified®

Studio Secrets®

Teach Yourself®

Teach Yourself VisuallyTM

Internet

idgbooks.com

dummies.com

cliffsnotes.com

frommers.com

Selected Financial Data

The following selected financial data should be read in conjunction with
the IDG Books Worldwide, Inc. Consolidated Financial Statements, including the
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

`Year Ended September 30, (1)
                               -------------------------------------------------
                                 1999      1998      1997      1996      1995
                               --------- --------- --------- --------- ---------
                                      (in thousands except per share data)

Consolidated Statements
 of Income Data:
Net revenue .................. $179,776  $141,525  $120,688   $97,847   $72,523
Operating income .............   23,059    17,260    11,923    10,996    10,888
Net income ...................   12,737    10,183     7,035     6,488     6,366
Net income per share (2)
    Basic ....................    $0.88     $0.88     $0.63     $0.58     $0.57
    Diluted ..................    $0.86     $0.87     $0.63     $0.58     $0.57
Weighted average common
 shares outstanding (2)
    Basic ....................   14,395    11,633    11,100    11,100    11,100
    Diluted ..................   14,823    11,701    11,100    11,100    11,100
Pro forma basic and diluted
 net income per share(3) .....    $  --     $0.73     $0.51     $  --     $  --
Pro forma weighted average
common shares outstanding (3)
    Basic ....................       --    13,941    13,873        --        --
    Diluted ..................       --    14,009    13,873        --        --

Consolidated Balance Sheet
 and Other Data:
Cash and equivalents .........   $2,084   $15,466       $74       $83       $44
Working capital ..............   37,347    32,207    18,708    18,778    13,662
Total assets .................  211,521    88,254    57,163    43,636    39,101
Long-term debt................   82,000        --        --        --        --
Stockholders' equity .........   61,945    46,590    26,443    23,991    16,889
Cash flows provided (used)
 by operating activities......   10,336    12,813     7,820     1,855    (1,858)
Cash flows used by
 investing activities......... (105,728)   (7,385)   (3,246)   (2,430)   (1,250)
Cash flows provided (used)
 by financing activities......   82,010     9,964    (4,583)      614     3,066
EBITDA (4) ...................   28,268    20,677    13,586    12,351    11,270`

-----------

> 















Forward-Looking Statements

The following Management's Discussion
and Analysis of Financial Condition and Results of Operations contains forward-
looking statements that involve risks and uncertainties that could cause actual
results to differ materially from those reflected in such forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-
looking statements, which reflect management's opinion only as of the date
hereof. The Company undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements. Potential risks and
uncertainties include, among others, those set forth under "Overview" and
"Factors Affecting Future Operating Results" included in this Management's
Discussion and Analysis. The following discussion also should be read in
conjunction with the Financial Statements and related Notes included in this
Annual Report.

Management's Discussion and Analysis of Financial
Condition and Results of Operations

Overview

IDG Books Worldwide, Inc. is a
leading global knowledge company featuring a diverse portfolio of technology,
consumer, and general how-to book brands, computer-based learning tools, Web
sites and Internet e-services. The Company publishes and markets under well-
known brand names, including

In August 1999, the Company purchased
Macmillan General Reference USA Inc. (the "Reference Brands") from
Pearson Education, Inc. for $83.0 million. The acquisition includes over 3,000
active titles and such leading brands as Frommer's



In December 1998, the Company purchased Cliffs Notes, Inc., a
publisher of popular literary study guides. Cliffs Notes currently comprises
approximately 300 titles, including its original Cliffs Notes® literary
guides plus Cliffs Quick Review® for high school and college courses, Test
Preparation guides, Advanced Placement study aids, and Test Preparation
software. At the end of September 1999, the Company completed its launch of the
new CliffsNotesTMseries extending this well known brand into the
lifestyle and technology markets.

Sales of technology-related books
account for a majority of the Company's net revenue. Sales of books devoted to
the use of software products sold by Microsoft, including its Windows operating
system, accounted for approximately one-third of the Company's net revenue for
the year ended September 30, 1999 and approximately one-half for the year ended
September 30, 1998. The Company does not expect the percentage of net revenue
from the sale of books related to Microsoft software products to continue to be
as significant.

The Company's customers consist
principally of national retail chain booksellers, wholesale distributors, office
superstores, membership clubs, and computer/electronic superstores located
primarily in the United States and Canada. Over the last several years, there
has been significant consolidation in the distribution channels for books,
including retail outlets, although alternative distribution channels have
emerged. As a result, the Company expects that this trend will lead to increased
concentration within each distribution channel. During the year ended September
30, 1999, the Company's top three customers accounted for approximately 38% of
the Company's net revenue as compared to 39% in 1998, and the Company's top ten
customers accounted for approximately 68% of the Company's net revenue in 1999
as compared to 64% in 1998.



The Company's fiscal year ends on the last Saturday in
September. Fiscal years 1999, 1998, and 1997 ended on September 25, 1999,
September 26, 1998, and September 27, 1997, respectively, and consisted of 52
weeks. For convenience, fiscal year-ends are denoted as September 30.



Results of Operations



The following table summarizes the results of operations
as a percentage of net revenue for the periods shown:

`Years Ended September 30,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Consolidated Statement
 of Income Data:
Net Revenue:
Branded Franchise Group.........................     65.9%      63.1%      68.1%
IDGB Technology Publishing Group ...............     34.1       36.9       31.9
                                                ---------- ---------- ----------
Total net revenue...............................    100.0%     100.0%     100.0%
                                                ========== ========== ==========

Cost of sales...................................     51.5       52.3       52.3
Selling, general and administrative expenses....     32.8       33.2       36.5
Depreciation and amortization...................      2.9        2.4        1.3
                                                ---------- ---------- ----------
Income before provision for income taxes........     12.8       12.1        9.9
Interest expense (income), net .................      0.6       (0.1)        --
                                                ---------- ---------- ----------
Income before provision for income taxes........     12.2       12.2        9.9
                                                ---------- ---------- ----------
Net income......................................      7.1%       7.2%       5.8%
                                                ========== ========== ==========`



Year Ended September 30, 1999 Compared to Year Ended
September 30, 1998



Net Revenue.  Net revenue increased $38.3 million, or
27.0%, to $179.8 million for the fiscal year ended September 30, 1999 from
$141.5 million for the fiscal year ended September 30, 1998. This increase was
primarily the result of an increase in net revenues of $29.3 million, or 32.8%,
for the Company's Branded Franchise Group, which includes the For
Dummies®, CliffsNotesTM, and acquired Reference
Brands, and $9.0 million, or 17.2%, for the IDGB Technology Publishing Group. Of
the increase in the Branded Franchise Group, $11.8 million was from the recently
acquired Reference Brands. Of the Company's net revenue for the fiscal year
ended September 30, 1999, $56.8 million was attributable to sales of titles
(including new editions) first published during that period, as compared to
$56.7 million for titles (including new editions) first published during the
same period for 1998.



Cost of Sales.  Cost of sales increased $18.6 million,
or 25.2%, to $92.6 million for the fiscal year 1999 from $74.0 million for the
fiscal year 1998.  Cost of sales as a percentage of net revenue was 51.5% for
1999 and 52.3% for 1998. Product costs, including paper, printing, and binding
expenses, royalty expense and inventory obsolescence expense increased as a
percentage of net revenue to 33.0% for the fiscal year 1999 from 32.2% for the
fiscal year 1998 as a result of a small change in product mix. Product
development costs, which are relatively fixed, decreased as a percentage of net
revenue to 10.7% for the fiscal year 1999 from 12.1% for the fiscal year 1998,
reflecting a commensurate increase in titles for 1999 and 1998.  Fulfillment and
distribution expense decreased as a percentage of net revenue to 7.8% for the
fiscal year 1999 from 8.0% for the fiscal year 1998 as a result of efficiencies
achieved in the Company's distribution facilities.



Selling, General, and Administrative Expenses.
Selling, general, and administrative expenses increased $11.9 million, or 25.3%,
to $58.9 million for the fiscal year 1999 from $47.0 million for the fiscal year
1998.  Approximately 70.5% or $8.4 million of this increase was attributable to
increased selling and marketing expenses, including increases as a result of the
implementation of a new retail marketing incentive



program and expenses for other marketing programs where costs
increase as net revenues increase. A significant portion of the increase was
also attributable to a $3.5 million increase in general and administrative
expenses. Selling, general and administrative expenses as a percentage of net
revenue decreased to 32.8% for the fiscal year 1999 from 33.2% for the prior
year. The Company's sales and marketing costs as a percentage of net revenue
increased to 19.9% for the fiscal year 1999 from 19.3% for the fiscal year
1998.



Depreciation and Amortization. The increase of $1.8
million was due to a larger depreciable asset base and the amortization of
intangible assets.



Operating Income. Operating income increased $6.0
million, or 34.7%, to $23.1 million for the fiscal year 1999 from $17.1 million
for the fiscal year 1998. Operating income increased as a percentage of net
revenue to 12.8% for the fiscal year 1999 from 12.1% for the same period the
prior year due to an increase in sales, and decreases in cost of sales and
selling, general and administrative expense as percentages of net revenue, as
described above.



Income Before Provision for Income Taxes. Income
before provision for income taxes increased $4.7 million, or 27.5%, to $22.0
million for the fiscal year 1999 from $17.3 million for the fiscal year 1998.
Income before provision for income taxes remained consistent as a percentage of
net revenue at 12.2% for both the 1999 and 1998 fiscal years due to an increase
in sales, offset by similar net increases in costs of goods sold and selling,
general, and administrative expenses, which were due primarily to the
production, distribution, and marketing of titles acquired during the year. In
addition, interest expense for 1999 on borrowings used to fund the acquisition
of the Reference Brands reduced income before provision for income taxes.



Net Income.  Net income of $12.7 million for the
fiscal year 1999 increased $2.5 million, or 25.1%, from net income of $10.2
million for the fiscal year 1998.  This increase was primarily the result of a
greater increase in sales, than the increase in costs of sales and selling,
general, and administrative expenses, as described above.



Year Ended September 30, 1998 Compared to Year Ended
September 30, 1997



Net Revenue.  Net revenue increased $20.8 million, or
17.3%, to $141.5 million for the fiscal year ended September 30, 1998 from
$120.7 million for the fiscal year ended September 30, 1997.  This increase was
primarily the result of an increase in net revenues of $7.6 million, or 9.3%,
for the Company's Branded Franchise Group which includes the For DummiesÒ brand and $13.2 million, or 33.8%, for the IDGB Technology Publishing
Group.  Of the Company's net revenue for the fiscal year ended September 30,
1998, $56.7 million was attributable to sales of titles (including new editions)
first published during that period, as compared to $55.0 million for titles
(including new editions) first published during the same period for 1997.



Cost of Sales.  Cost of sales increased $10.9 million,
or 17.3%, to $74.0 million for the fiscal year 1998 from $63.1 million for the
fiscal year 1997.  Cost of sales as a percentage of net revenue was 52.3% for
1998 and 1997. Product costs, including paper, printing and binding expenses,
royalty expense and inventory obsolescence expense increased as a percentage of
net revenue to 32.2% for the fiscal year 1998 from 31.6% for the fiscal year
1997 as a result of a small change in product mix. Product development costs
increased as a percentage of net revenue to 12.1% for the fiscal year 1998 from
11.3% for the fiscal year 1997, reflecting the Company's planned increase in
title output for 1998.  Fulfillment and distribution expense decreased as a
percentage of net revenue to 8.0% for the fiscal year 1998 from 9.3% for the
fiscal year 1997 as a result of efficiencies achieved in the Company's
distribution facilities.



Selling, General, and Administrative Expenses.
Selling, general, and administrative expenses increased $3.0 million, or 6.8%,
to $47.0 million for the fiscal year 1998 from $44.0 million for the fiscal year
1997.  Approximately 86.7% or $2.6 million of this increase was attributable to
increased



selling and marketing expenses including increases as a
result of the implementation of a new retail marketing incentive program and
expenses for other marketing programs where costs increase as net revenues
increase. Selling, general, and administrative expenses decreased as a
percentage of net revenue to 33.2% for the fiscal year 1998 from 36.5% for the
fiscal year 1997. General and administrative expenses remained comparable from
1998 to 1997. The Company's selling and marketing costs as a percentage of net
revenue decreased to 19.3% for the fiscal year 1998 from 20.5% for the fiscal
year 1997.



Depreciation and Amortization. The increase of $1.8
million was due to a larger depreciable asset base and the amortization of
intangible assets.



Operating Income. Operating income increased $5.2
million, or 43.6%, to $17.1 million for the fiscal year 1998 from $11.9 million
for the fiscal year 1997. Operating income increased as a percentage of net
revenue to 12.1% for the fiscal year 1998 from 9.9% for the same period the
prior year due to an increase in sales in addition to a decrease selling,
general, and administrative expense as a percentage of net revenue, as described
above.



Income before provision for income taxes. Income
before provision for income taxes increased $5.4 million, or 44.8%, to $17.3
million for the fiscal year 1998 from $11.9 million for the fiscal year 1997.
Income before provision for income taxes increased as a percentage of net
revenue to 12.2% for the fiscal year 1998 from 9.9% for the same period the
prior year due to an increase in sales, and a decrease in selling, general, and
administrative expense as a percentage of net revenue, as described above.



Net Income.  Net income of $10.2 million for the
fiscal year 1998 increased $3.2 million, or 44.7%, from net income of $7.0
million for the fiscal year 1997.  This increase was primarily the result of an
increase in sales, and a decrease in selling, general, and administrative
expense as a percentage of net revenue, as described above.



Financial Condition, Liquidity, and Capital Resources



Prior to July 1998, the financing requirements of the
Company were funded through intercompany advances from IDG, its parent, while
excess cash generated by the Company was remitted to the parent. Accordingly,
the Company maintained minimal cash balances. In addition, balances owed to or
due from the parent were non-interest bearing and periodic settlements of the
net amounts were not made. As of June 22, 1998, the parent suspended the cash
sweep process allowing cash receipts and cash generated by the Company to be
retained by the Company. During the Company's fiscal fourth quarter ended
September 30, 1998, the advances due from parent account balance was
received.



As of September 30, 1999, the Company's working capital
increased $5.1 million to $37.3 million from $32.2 million at September 30,
1998. The increase in working capital at September 30, 1999 was the result of a
net decrease in cash of $13.4 million due to the acquisition of Cliffs Notes,
Inc., offset by an $18.8 million increase in net accounts receivable, a $20.7
million increase in net inventory, and a $4.8 million increase in other current
assets and deferred tax assets. Additionally, there was a $22.0 million increase
in accrued liabilities, and a $3.8 million increase in accounts payable. These
changes in working capital can be attributed to the acquisition of the Reference
Brands and Cliffs Notes, Inc. as well as growth in the core Company
business.



The Company's net cash used for investing activities for the
year ended September 30, 1999 was $105.7 million. In August 1999 the Company
acquired the Reference Brands from Pearson Education, Inc. for $83.0 million. In
December 1998, the Company acquired Cliffs Notes, Inc. which included $17.1
million in payments to Cliffs' shareholders, and retirement of stockholder
notes, and bank debt. Capital expenditures for fiscal year 1999 were $3.8
million compared to $3.9 million for fiscal year 1998.



On July 30, 1999, the Company entered into a $110.0 million
credit agreement with a group of banks. On August 2, 1999, the Company borrowed
$87.0 million under the new agreement, including $83.0 million used to fund the
acquisition of the Reference Brands and $4.0 million for working capital needs.
The Company's prior $20.0 million working capital facility was terminated in
conjunction with the closing of the new credit agreement.



The Company's net cash provided by financing activities was
$82.0 million for the year ended September 30, 1999 as a result of borrowing on
the Company's new credit agreement and $10.0 million for the year ended
September 30, 1998, which included $44.0 million from the initial public
offering and $4.3 million as a result of increases in the net amount of
intercompany advances from the parent offset by a $38.4 million payment to the
parent.



The Company had $2.0 million in cash
invested in short-term financial instruments as of September 30, 1999. The
Company believes that its remaining borrowing capacity, together with any cash
generated from operations and any funds available under any future credit
facilities, will be sufficient to meet the liquidity requirements of the Company
for the foreseeable future. The Company's future capital requirements will
depend on many factors, including, but not limited to, the levels at which the
Company maintains inventory, the market acceptance of the Company's products,
the levels of promotional activities and advertising required to launch the
Company's products, and any future acquisitions. To the extent that the
available cash, together with existing resources and future earnings, are
insufficient to fund the Company's future activities, the Company may need to
raise additional funds through public or private financing. No assurance can be
given that any such additional funding will be available or that, if available,
can be obtained on terms favorable to the Company.



Recently Issued Accounting
Pronouncements



See Note 2 of Notes to Consolidated
Financial Statements, for a discussion of the impact of new accounting
pronouncements.



Factors Affecting Future Operating Results



Dependence on Microsoft Products and
Competition with Microsoft Press.



In addition to relying on the sales of
books devoted to Microsoft products, the Company competes with Microsoft's
publishing division, Microsoft Press, for readers of computer-related books,
including books covering Microsoft products. Microsoft Press has substantially
greater financial resources than the Company and, because it is owned by
Microsoft, may have better access to planned and new Microsoft products. As a
result, Microsoft Press may have a competitive advantage over the Company in
providing books devoted to the use of software products sold by Microsoft.



Dependence on For DummiesÒ
 Publications.



Risks of New Product
Introductions



The Company records as an expense the
costs related to the development of new publications and products, other than
author advances, as products are introduced. As a result, the Company's
profitability from quarter to quarter and from year to year may be adversely
affected by the number and timing of new publications and product launches in
any period and the level of acceptance gained by such publications and products.



Risks Associated with Fluctuations in Paper Costs.
Paper is the principal raw material used in the Company's business. The
Company generally purchases paper from merchants representing the paper mills.
The Company does not have long-term paper supply contracts with these paper
merchants. The arrangements with merchants are negotiated each year and provide
for quarterly price adjustments. Paper prices have been volatile over the past
several years and are affected by many factors, including demand, mill capacity,
pulp supply, energy costs, and general economic conditions. Consequently, the
Company's cost of paper, relative to our net revenue, can vary from period to
period. In the past, paper has also been difficult to obtain due to industry-
wide shortages. Significant paper price increases, sustained over a period of
time, could adversely affect the Company's future financial condition or
operating results.



Fluctuations in Quarterly Results and Cyclicality of
Revenue.  The Company's operating expenses, which include product
development costs and selling, general, and administrative expenses, are
relatively fixed in the short term and are based on our long term revenue
expectations. If the Company sells fewer books or otherwise has lower revenue
than expected, the Company may not be able to quickly reduce its spending.  Any
shortfall in the Company's revenue would have a direct impact on its results of
operations, and fluctuations in quarterly results could affect the market price
of its common stock in a manner unrelated to the Company's long-term operating
performance. The Company typically sells more books during the first and second
quarters of its September fiscal year because of increased sales during the
Christmas season. In addition, the Company typically sells more books in
quarters in which software manufacturers release new or updated versions of
popular software products. Because a substantial portion of the Company's
selling, general, and administrative expenses are incurred evenly throughout the
year, the Company generally experiences relatively lower net profit during
quarters not impacted by increases in net revenue due to seasonal or other
factors discussed above.



In addition, the Company typically publishes books relating
to new trends and technologies. Accordingly, if general economic conditions
worsen, people may defer spending on these new trends and technologies, which
could reduce the number of books sold.



Risks Associated with Product Distribution Channels; Risk
of Product Returns.  The Company sells its books primarily to large retail
chains, large wholesalers, warehouse clubs, office superstores, and computer and
electronics superstores. In fiscal year 1999, the Company's three largest
customers, Barnes & Noble, Inc., Borders, Inc., and Ingram Book Company
accounted for approximately 15%, 13%, and 10% of net revenue, respectively. The
Company's future financial results depend in large part on its relationships
with its customers. Any disruption in relationships with its customers could
adversely affect financial performance.



The Company's sales policy generally permits book customers
to return any unsold or damaged books for full credit. The Company records as
revenue all books sold to its customers in a particular quarter and, at the same
time, records a provision for estimated returns. During fiscal year 1999, the
Company recorded a provision for returns of approximately 22% of its gross
sales. If, during any period, customers return more books than previously
estimated, the Company's financial results in that period would be adversely
affected.



Competition.  The Company faces competition directly
from other book publishers and indirectly from non-print media.  Competition in
book publishing stems mainly from editorial quality, timely introduction of new
titles, product positioning, pricing, and brand name recognition. In addition to
the Company, Pearson Education, Inc., Microsoft Press, and McGraw-Hill all have
a strong market presence in the United States and internationally in technology
publishing.  The principal competitors for the Company's business and self-help
titles include Random House, Simon & Schuster, and HarperCollins.  Each of
these competitors has substantially greater financial resources than the
Company.



Non-print media, such as the Internet and CD-ROMs, may also
present substantial competition. If computer users increase their reliance on
instruction and other information disseminated on-line, the Company's business
could be adversely affected.





Control by IDG (Parent); Potential Conflicts of Interests;
Benefits to IDG.  The parent owns all of the shares of the Class B common
stock, each share of which is entitled to ten votes per share on most
stockholder actions, and has approximately 77% of the combined voting power of
both classes of common stock as of September 30, 1999. The remaining holders of
the shares of Class A common stock are entitled to one vote per share and have
approximately 23% of the combined voting power. The parent has two
representatives on the Company's Board of Directors and has enough votes to
elect all members of the Board of Directors. As a result of its stock ownership,
the parent is in a position, without the approval of the Company's public
stockholders, to amend the Company's charter or approve a merger, sale of
assets, or other major corporate transaction; defeat any non-negotiated takeover
attempt that might otherwise benefit the public stockholders; determine the
amount and timing of dividends paid to itself and to the Company's public
stockholders; and otherwise control the Company's management and operations and
the outcome of all matters submitted for a stockholder vote that could conflict
with the interests of its public stockholders.



Dependence on Key Personnel. The Company relies, and
will continue to rely, on its senior executive officers and other key management
personnel. Recently, the Company's President, Steven Berkowitz, resigned. The
Company is searching for a successor and the Company's CEO, John Kilcullen, and
its Executive Vice President of Operations, John Ball, will assume Mr.
Berkowitz's responsibilities on an interim basis. The Company believes that its
operations will not be significantly impacted by this resignation. If any
additional senior executives or key management leave the Company, the
relationships that these people have with the Company's authors, customers,
manufacturers, or investors could be lost, and the Company would need to find
people who could develop new relationships. In addition, the Company expects
that it will need to hire additional employees, including key management
positions for Internet business development. The competition for employees at
all levels of the book publishing and Internet industries is intense and is
increasing. In our Northern California operations, in particular, the Company
has experienced increased turnover of employees and is experiencing difficulty
in attracting new employees. If the Company does not succeed in attracting new
employees or retaining and motivating current employees, the Company's business
could suffer significantly.



Transition to New Distribution Service. The Company
outsources distribution and fulfillment functions to retail and wholesale
customers through two vendors. The contracts with these vendors expire in
December 1999. One of these vendors accounted for approximately 60% of our
distribution and order fulfillment costs in each of fiscal years 1999, 1998, and
1997. As of September 1999, the Company has commenced operation in a new single
source facility in Virginia, and started the transition process from the other
distribution facilities to this one. In addition, beginning in January 2000, the
Company will begin transitioning the distribution and fulfillment operations of
the acquired Reference Brands to its new facility. Any difficulties in
transitioning to the new distribution vendor could adversely impact day-to-day
operating performance and future financial results.



Risks Associated with Acquisitions. As part of the
Company's growth strategy, it may buy or make significant investments in,
complementary companies, publications or products. The Company has completed the
acquisition of Cliffs Notes, Inc. and recently completed the acquisition of the
Reference Brands. These acquisitions, as well as any future acquisition, will be
accompanied by the risks commonly encountered in making acquisitions of
products, companies, and technologies.



For example, it could have difficulty
assimilating the personnel and operations of the acquired company.  This could
cause a disruption of its ongoing business, distraction of management and other
resources, and difficulty in maintaining uniform standards, controls, and
procedures. There can be no assurance that the Company would succeed in
overcoming these risks or any other problems encountered in connection with any
acquisitions it may make. In addition, the Company may be required to incur
additional debt or issue equity to pay for any future acquisitions



Year 2000 Compliance



Many currently installed computer systems
and software products are coded to accept only two-digit entries in the date
code field. Beginning in 2000, these date code fields will need to accept four-
digit entries in order to distinguish 21st century



dates from 20th century dates.  As a result, the
computer systems and/or software used by many companies will need to be upgraded
to comply with "Year 2000" requirements by the end of 1999.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance issues.



The Company has completed the review of
its computer systems to determine the extent and impact of Year 2000 issues. The
Company uses a number of computer software programs and operating systems,
including applications for its internal electronic communications network and
for various administrative and billing functions.  Many of the Company's systems
are new and were designed to accommodate the Year 2000 issue when originally
installed.  The Company has completed testing of its systems for compliance, and
believes it has implemented the necessary changes.  The Company believes it has
completed corrective measures to its mission-critical systems.  The Company has
assessed the scope of its risks related to problems its computer systems may
have related to the Year 2000 issue and believes such risks are not material.
This conclusion is partly based on statements provided by the manufacturers of
hardware and software used by the Company.  The Company is not in a position to
confirm or deny the claims of the manufacturers' products in use.  The estimated
costs to modify or replace these applications were included in the Company's
cost for its new computer systems and infrastructure upgrades, and accordingly,
are not considered to be incremental costs.  The Company currently does not have
a contingency plan in the event that the remedial efforts it has completed fail
to make its systems Year 2000 compliant. There can be no assurances that the
Company will not experience adverse consequences as a result of the Year 2000
issue.



The Company is continuing to communicate
with its customers, suppliers, and business partners in an effort to assess how
they intend to resolve their Year 2000 issues.  The Company, at this time, is
not able to form an opinion as to whether its customers or suppliers will be
able to resolve their Year 2000 issues in a satisfactory and timely manner, or
on the magnitude of the adverse impact it would have on the Company's operations
if they fail to do so.  No assurance can be given that all of these third party
systems will be Year 2000 compliant.  Any failure of the Company's customers,
suppliers, or business partners to satisfactorily address their Year 2000
problems could have a material adverse effect on the Company's business,
financial condition, and results of operations.



Financial Market Risks



The Company is exposed to certain levels of market risks,
including changes in foreign currency exchange rates and interest rates. Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as foreign currency exchange and interest rates. The Company does
not enter into derivatives or other financial instruments for trading or
speculative purposes. The Company enters into foreign currency forward contracts
to manage and reduce the impact of changes in foreign currency exchange rates.
In January 1999, the Company initiated hedging activities to mitigate the impact
of changes in foreign exchange rates on its foreign subsidiaries accounts
receivable and intercompany balances.. The Company is using foreign currency
forward exchange contracts as a vehicle for hedging these balances. A foreign
currency forward exchange contract obligates the Company to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates and to make or receive an equivalent U.S. dollar
payment equal to the value of such exchange. For these contracts that are
designated and effective as hedges, realized and unrealized gains and losses
resulting from changes in the spot exchange rate (including those from open,
matured and terminated contracts) are included in other income and net discounts
or premiums (the difference between the spot exchange rate and the forward
exchange rate at inception of the contract) are also accreted or amortized to
other income, over the life of each contract, using the straight-line method.
These gains and losses offset the gains and losses on the accounts receivable
and intercompany balances, which are also included in other income. The related
amounts due to or from counterparties are included in other assets or other
liabilities. In general, these foreign currency forward exchange contracts
mature in three months or less. The estimated fair value of the contracts are
immaterial due to their short-term nature.



At September 30, 1999, substantially all the Company's cash
equivalents were invested in overnight repurchase agreements. If market rates
were to increase immediately by 10% from levels at September 30, 1999, the fair
value of this investment portfolio would decline by an immaterial amount. The
Company also receives certain payments from foreign distributors and licensees
(principally in Canada and Europe) which are calculated based on foreign
currency exchanges rates. The Company believes that a hypothetical 10%
appreciation from September 30, 1999 in the U.S. dollar relative to such
currencies would not have a material effect on net income or cash flows.

---

Financial Statements and Notes to Financial Statements

---

**IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEETS
                     (in thousands, except share amounts)**

`ASSETS
                                                                September 30,
                                                             -------------------
                                                               1999      1998
Current Assets:
     Cash....................................................  $2,084   $15,466
     Accounts receivable - net...............................  46,294    27,477
     Inventory - net.........................................  31,024    10,367
     Receivable from parent..................................      --     1,514
     Other current assets....................................   4,092       903
     Deferred tax assets.....................................  21,334    18,144
                                                             --------- ---------
             Total current assets............................ 104,828    73,871
Royalty advances - net.......................................  12,110     5,195
Property and equipment - net.................................   6,032     5,605
Intangible assets - net .....................................  85,271     3,583
Other assets ................................................   3,280        --
                                                             --------- ---------
             TOTAL...........................................$211,521   $88,254
                                                             ========= =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable........................................  $9,666    $5,885
     Accrued liabilities.....................................  57,815    35,779
                                                             --------- ---------
             Total current liabilities.......................  67,481    41,664

Long-term debt...............................................  82,000        --
                                                             --------- ---------
             Total liabilities............................... 149,481    41,664

Minority interest............................................      95        --

Commitments and contingencies (see note 14)


Stockholders' Equity:
     Preferred stock, $.001 par value; authorized:
        5,000,000 shares; issued and outstanding: 0 shares...      --        --
     Common stock, $.001 par value; authorized:  25,000,000
        Class A shares and 400,000 Class B shares; issued
        and outstanding:
        14,278,825 and 14,080,000 Class A, and 200,000 and
        200,000 Class B shares in 1999 and 1988,
        respectively.........................................      14        14
     Additional paid-in-capital..............................  46,637    44,029
     Retained earnings.......................................  15,284     2,547
     Accumulated other comprehensive income..................      10        --
                                                             --------- ---------
             Total stockholders' equity......................  61,945    46,590
                                                             --------- ---------
             TOTAL...........................................$211,521   $88,254
                                                             ========= =========`

See notes to consolidated financial statements

---

**IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF INCOME
                     (in thousands, except per share amounts)**

`Years Ended September 30,
                                                --------------------------------
                                                   1999       1998       1997
                                                ---------- ---------- ----------
Revenue:
     Net sales.................................  $172,181   $136,650   $116,488
     Licensing revenues and other..............     7,595      4,875      4,200
                                                ---------- ---------- ----------
       Net revenue.............................   179,776    141,525    120,688
                                                ---------- ---------- ----------

Operating costs and expenses:
     Cost of sales.............................    92,589     73,952     63,064
     Selling, general and administrative.......    58,919     47,037     44,038
     Depreciation and amortization.............     5,209      3,415      1,663
                                                ---------- ---------- ----------
           Total operating costs and expenses..   156,717    124,404    108,765
                                                ---------- ---------- ----------
Operating income...............................    23,059     17,121     11,923
Interest expense (income), net ................     1,050       (139)        --
                                                ---------- ---------- ----------
Income before provision for income taxes.......    22,009     17,260     11,923
Provision for income taxes.....................     9,272      7,077      4,888
                                                ---------- ---------- ----------
Net income.....................................   $12,737    $10,183     $7,035
                                                ========== ========== ==========
Net Income per Share:
     Basic.....................................     $0.88      $0.88      $0.63
                                                ========== ========== ==========
     Diluted...................................     $0.86      $0.87      $0.63
                                                ========== ========== ==========
Pro Forma Net Income per Share (Note 2):
     Basic and Diluted.........................     $  --      $0.73      $0.51
                                                ========== ========== ==========
Shares Used in per Share Calculations:
     Basic net income..........................    14,395     11,633     11,100
                                                ========== ========== ==========
     Diluted net income........................    14,823     11,701     11,100
                                                ========== ========== ==========
Shares Used in Pro Forma per Share
  Calculations (Note 2):
     Pro forma basic net income................        --     13,941     13,873
                                                ========== ========== ==========
     Pro forma diluted net income..............        --     14,009     13,873
                                                ========== ========== ==========`

See notes to consolidated financial statements

---

**IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                              (in thousands)**

`Accumulated
                                                                      other     Advances
                               Common Stock    Additional           Comprehen-     Due
                             -----------------  Paid-in  Retained      sive     To (From)
                              Shares   Amount   Capital  Earnings     Income     Parent     Total
                             -------- -------- --------- --------- ------------ --------- ---------
Balance, September 30, 1996.  11,100      $11     $  --   $23,729      $   --       $251   $23,991
   Net income...............     --       --         --     7,035          --         --     7,035
   Changes in advances due
    to (from) parent........     --       --         --       --           --     (4,583)   (4,583)
                             -------- -------- --------- --------- ------------ --------- ---------
Balance, September 30, 1997.  11,100       11        --    30,764          --     (4,332)   26,443
   Net income...............     --       --         --    10,183          --         --    10,183
   Proceeds from sale of
     common stock, net of
     offering costs.........   3,180        3    44,029       --           --         --    44,032
   Dividend to parent.......     --       --         --   (38,400)         --         --   (38,400)
   Changes in advances due
    to (from) parent........     --       --         --       --           --      4,332     4,332
                             -------- -------- --------- --------- ------------ --------- ---------
Balance, September 30, 1998.  14,280       14    44,029     2,547          --         --    46,590
   Net income...............     --       --         --    12,737          --         --    12,737
   Translation adjustment...     --       --         --       --            10        --        10
                                                                                          ---------
   Comprehensive income.....     --       --         --       --           --         --    12,747
                                                                                          ---------
   Issuance of stock
     under ESOP.............      98      --      1,513       --           --         --     1,513
   Proceeds from ESPP
     purchases..............      71      --        743       --           --         --       743
   Proceeds from option
     exercises..............      30      --        352       --           --         --       352
                             -------- -------- --------- --------- ------------ --------- ---------
Balance, September 30, 1999.  14,479      $14   $46,637   $15,284          $10      $ --   $61,945
                             ======== ======== ========= ========= ============ ========= =========`

See notes to consolidated financial statements

---

**IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)**

`Years Ended September 30,
                                                  -----------------------------
                                                    1999      1998      1997
                                                  --------- --------- ---------
Cash Flows from Operating Activities:
  Net income...................................... $12,737   $10,183    $7,035
  Adjustments to reconcile net income to net cash
    provided by operating activities:
     Depreciation and amortization...............    5,209     3,415     1,663
     Deferred income taxes.......................   (1,346)   (3,284)   (4,000)
     Changes in operating assets and liabilities:
        Accounts receivable....................... (18,597)   (1,866)   (5,646)
        Receivable from parent....................   1,514    (1,514)       --
        Inventory.................................  (4,700)   (1,940)   (1,808)
        Royalty advances..........................  (2,774)   (1,717)     (939)
        Other current assets......................  (1,779)     (897)      440
        Accounts payable..........................   3,369     1,381       475
        Accrued liabilities.......................  16,703     9,052    10,600
                                                  --------- --------- ---------
          Net cash provided by operating
            activities............................  10,336    12,813     7,820
                                                  --------- --------- ---------
Cash Flows from Investing Activities:
  Capital expenditures............................  (3,754)   (3,946)   (3,246)
  Other investments...............................  (1,856)       --        --
  Acquisitions, net of cash acquired..............(100,118)   (3,439)       --
                                                  --------- --------- ---------
          Net cash used by investing activities...(105,728)   (7,385)   (3,246)
                                                  --------- --------- ---------
Cash Flows from Financing Activities:
  Proceeds from initial public offering...........      --    44,032        --
  Payment of note to parent.......................      --   (38,400)       --
  Payment of Cliffs Notes, Inc. line of credit....    (342)       --        --
  Proceeds from exercises of stock options........     352        --        --
  Net proceeds from credit facility...............  82,000        --        --
  Advances due to (from) parent -- net change.....      --     4,332    (4,583)
                                                  --------- --------- ---------
          Net cash provided (used) by financing
            activities............................  82,010     9,964    (4,583)
                                                  --------- --------- ---------
Increase (decrease) in cash and equivalents....... (13,382)   15,392        (9)
Cash and equivalents, beginning of year...........  15,466        74        83
                                                  --------- --------- ---------
Cash and equivalents, end of year.................  $2,084   $15,466       $74
                                                  ========= ========= =========

Supplemental cash flow information:

  Cash paid for taxes.............................  $9,969   $11,027    $8,739
                                                  ========= ========= =========

  Cash paid for interest..........................    $367     $  --     $  --
                                                  ========= ========= =========


Non-cash investing and financing activities:
   Acquisitions (Note 3):
       Tangible assets............................ $23,747    $1,400
       Intangible assets..........................  82,899     4,000
       Less cash paid.............................(100,118)   (3,439)
                                                  --------- ---------
       Liabilities assumed........................  $6,528    $1,961
                                                  ========= =========

   Common stock issued to ESOP....................  $1,513
                                                  =========

   Payroll withheld to fund ESPP purchase.........    $743
                                                  =========`

See notes to consolidated financial statements

---

**IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

1.   Basis of Presentation

Organization and Description of Business

IDG Books Worldwide, Inc., a Massachusetts company, ("the
Company"), was founded in 1990 as a wholly-owned subsidiary (through
intermediate companies) of International Data Group, Inc. ("parent"). On March
24, 1998, the Company was reincorporated in Delaware.  On July 31, 1998, the
Company consummated its initial public offering (the "Offering") of 3,180,000
shares of Class A common stock at an offering price of $15.50 per share. After
deducting expenses, the net proceeds to the Company from the Offering were
$44,032,000. The Company used $38,400,000 of the net proceeds of the Offering to
repay indebtedness owed to the parent.



The Company is a leading global knowledge company featuring a
diverse portfolio of technology, consumer, and general how-to book brands,
computer-based learning tools, Web sites and Internet e-services. The Company
publishes and markets under well-known brand names, including For Dummies®, 3-D Visual®, Bible, CliffsNotesTM, Frommer's®, Betty
Crocker's®, Weight Watchers® and Webster's New
WorldTM.



Basis of Presentation and Transactions with Parent

Prior to January 1, 1998, the Company depended on the
Parent for corporate administrative functions, as well as for strategic
marketing and brand-building, financing, cash management, tax and payroll
administration, property/casualty insurance, employee benefits administration,
and certain other services. The fees for these services have been charged to the
Company, and reflected in the accompanying financial statements, through a
parent corporate services fee based on a percentage of budgeted net sales, plus
a fixed charge consistent with the method that the parent charges its other
controlled subsidiaries. Effective January 1998, the Company assumed
responsibility for certain corporate administrative functions, as well as for
the Company's strategic marketing and brand-building, the costs for which had
constituted a significant portion of the parent corporate services fee.
Accordingly, effective January 1998, the parent corporate services fee decreased
to approximately $150,000 per quarter.  In the opinion of management, the parent
corporate services fees included in the accompanying financial statements
reflect a reasonable amount for the services received; however, such amounts
were not established on an arm's-length basis and may not be the same as would
have been incurred had the Company operated independent of its Parent.
Nevertheless, management does not believe the Company would have incurred
materially different operating expenses as an independent company. The parent
corporate services fee was $0.5 million in Fiscal 1999, $1.5 million in fiscal
1998, and $3.7 million in fiscal 1997.



Principles of Consolidation

The consolidated financial statements include the
accounts of IDG Books Worldwide, Inc. and its majority controlled subsidiaries
(collectively referred to as the Company). All significant intercompany accounts
and transactions have been eliminated.



Reclassifications

Certain amounts in prior years' financial statements and
related notes have been reclassified to conform to the fiscal year 1999
presentation.



2.  Significant Accounting Policies



Fiscal Year

The Company's fiscal year ends on the last Saturday of
each September. Fiscal years 1999, 1998, and 1997 ended on September 25, 1999,
September 26, 1998, and September 27, 1997, respectively, and consisted of 52
weeks. For convenience, fiscal year-ends are denoted in the accompanying
financial statements as September 30.



Revenue Recognition

Sales are recorded upon shipment of products, net of
provisions for estimated returns and allowances, which are estimated based on
historical experience by type of book. For the years ended September 30, 1999,
1998, and 1997, the provision for returns and allowances represented
approximately 22%, 22%, and 21% of gross sales for the respective period. The
accompanying income statements do not reflect any material adjustments for
actual returns and allowances as compared to amounts estimated in prior periods.
Revenue from the licensing of titles, editorial content, and design are
recognized when received.



Concentrations of Credit Risk

Financial instruments which potentially expose the
Company to concentrations of credit risk consist primarily of accounts
receivable. The Company's customers consist principally of retail chain
booksellers, wholesale distributors, office superstores, membership clubs, and
computer/electronic superstores located primarily in the United States and
Canada. Certain customers account for over 10% of sales (Note 12). The Company
performs ongoing credit evaluations of its customers and maintains allowances
for estimated probable credit losses.



Use of Estimates

The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. The primary estimates underlying the Company's financial
statements include allowances for sales returns, doubtful accounts, inventory
obsolescence, reserves for royalty advances, and recoverability of deferred tax
assets. Actual results could differ from those estimates.



Cash and Equivalents

The Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.



Inventory

Inventory is stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.



Royalty Advances

Royalty advances are recorded as cash is advanced to
authors and are expensed as earned by authors or reserved when future recovery
appears doubtful. Royalty advances are reported net of reserves of $4,062,000
and $3,262,000 at September 30, 1999 and 1998, respectively.



Property and Equipment

Property and equipment are stated at cost. Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets ranging from three to five years. Leasehold improvements are
amortized over the shorter of the lease term or the remaining useful life of the
related assets. The Company capitalizes internal-use software in accordance with
AICPA Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.Such costs are amortized
over a useful life of five years.



Intangible Assets

Intangible assets represent trademarked brand names,
goodwill, publishing rights and other intangible assets. Amortization is
provided on a straight-line method over the estimated useful lives of these
assets not exceeding forty years.



Long-Lived Assets

Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For purposes of evaluating the recoverability of long-
lived assets, the Company evaluates the carrying value of its long-lived assets
on an ongoing basis and recognizes an impairment when the estimated future
undiscounted cash flows from operations are less than the carrying value of the
related assets.





Income Taxes

The Company's taxable income has been included in the
parent's consolidated tax returns for 1997 and through July 31, 1998. Subsequent
to July 31, 1998, the Company is required to file its own federal returns and
most state returns.  The Company may still be required, or may find it
advantageous, to file consolidated state returns and other returns in certain
states where combined or unitary tax returns are available. The accompanying
financial statements for 1997 include taxes paid which approximate the current
income tax provision, as if the Company were a separate taxpayer.  The Company
accounts for deferred income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, which requires that deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences between the financial statement carrying amount and the tax bases of
assets and liabilities. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts, more likely than not, to be realized.



Net Income Per Share

Basic net income per share excludes dilution and is
computed using the weighted average number of common shares outstanding for the
period. Diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (stock options)
were exercised or converted into common stock. For the years ended September 30,
1999 and 1998, respectively, approximately 428,000 and 68,000  shares,
reflecting the dilutive effects of outstanding stock options, were included in
computing diluted net income per share.  See Note 11 for discussion of stock
options.



Unaudited Pro Forma Earnings Per Share

Unaudited pro forma basic net income per share amounts
were calculated using common shares outstanding plus the number of shares
(2,773,000), whose proceeds were used to repay a $38.4 million note payable
(issued as a pre-offering dividend) at the $15.50 initial public offering price,
reduced by per share offering costs. The pro forma diluted net income per share
amounts also reflect the dilutive effect of outstanding stock options.



Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosure of the estimated fair value of
financial instruments. The carrying values of cash, accounts receivable,
accounts payable, and long-term debt approximates their estimated fair
values.



Foreign Currencies

The Company's foreign subsidiaries use their local
currency as their functional currency. The assets and liabilities of the
subsidiaries are translated at exchange rates in effect at the balance sheet
date and income and expense accounts are translated at average exchange rates
during the year. Translation adjustments are reported as a separate component of
shareholders' equity.



In fiscal year 1999, the Company entered into forward
foreign exchange contracts to reduce exposure to foreign currency exchange risk
related to accounts receivable and intercompany transactions, which are
denominated in foreign currencies. The net gains and losses from the foreign
forward exchange contracts are included in net income. As of September 30, 1999,
the Company had forward foreign contracts to sell $3.3 million of Canadian
dollars and $1.2 million of Singapore dollars. Forward foreign contracts
generally have maturities of one to three months.



Comprehensive Income

In the first quarter of fiscal year1999, the Company
adopted the disclosure requirements of SFAS No. 130, Reporting Comprehensive
Income, which requires that a Company report, by major components and as a
single total, the change in its net assets during the period from non-owner
sources. In fiscal years 1998 and 1997, comprehensive income equaled net
income.



Stock-Based Compensation

The Company accounts for stock-based compensation using
the intrinsic value method in accordance with the provisions of APB Opinion No.
25, Accounting for Stock Issued to Employees, as allowed by SFAS No. 123,
Accounting for Stock-Based Compensation.





New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, Accounting for Derivative Instruments and HedgingActivities. SFAS No. 133 requires that an entity recognize all derivatives
as either assets or liabilities on the Balance Sheet and measure these
instruments at fair value. The Company is required to adopt SFAS No. 133 in
fiscal year 2001. Management has not determined the impact that this standard
will have on its financial position, results of operations, or cash flows.

3.  Acquisitions

Reference Brands

In August 1999, the Company acquired a portfolio of book
and online brands from the Macmillan General Reference Group (the Reference
Brands) of Pearson Education for $83.0 million, plus $0.5 million in transaction
costs. The acquisition was accounted for as a purchase business combination and,
accordingly, the acquisition cost has been allocated to the fair value of the
assets acquired and liabilities assumed. Of the acquisition cost, $67.2 million
was allocated, on a preliminary basis, to intangible assets, including branded
trademarks ($51.0 million), goodwill ($11.2 million), and publishing rights
($5.0 million). Branded trademarks and goodwill are amortized on a straight-line
basis  over 40 years.



Assumed liabilities include $2.0 million
for the costs of a restructuring plan involving various settlements and contract
terminations ($1.2 million) and estimated severance and relocation of personnel
($0.8 million). As of September 30, 1999, $0.2 million of costs had been
incurred relating to severance.



The purchase price allocation is
preliminary and subject to revision upon receipt of final information concerning
valuation of intangible assets, working capital received at closing, and the
actual costs of the restructuring plan.



In November and December 1999, the
Company sold the J.K. LasserTM and Chek-chart brands, respectively,
which were purchased in the above-mentioned acquisition, to unaffiliated
companies. The $12.3 million consideration received will be reported as a
reduction to branded trademarks in the first quarter of fiscal 2000, with no
gain or loss resulting from the sale.



Cliffs Notes

In December 1998, the Company purchased Cliffs Notes,
Inc., a privately held publisher of popular study guides. The acquisition price
included approximately $17.1 million in payments to Cliffs' shareholders,
retirement of shareholder notes and bank debt, plus $0.5 million in transaction
costs. The acquisition was accounted for as a purchase business combination and,
accordingly, the acquisition cost has been allocated to the fair value of the
assets acquired and liabilities assumed. Assumed liabilities included $1.8
million for the cost of a restructuring plan to relocate certain employees of
Cliffs Notes, Inc. and terminate certain facility leases and other business
contracts. Of the acquisition cost, $15.4 million was allocated, on a
preliminary basis, to goodwill, with a forty year estimated useful life.



In the fourth quarter of fiscal year
1999, the Company reclassified $15.0 million of the purchase price from goodwill
to branded trademarks which will continue to be amortized on a straight-line
basis over 40 years. In addition, the Company reduced the purchase cost by $0.4
million to reflect a favorable budget variance in the cost of the restructuring
plan. The remaining item to be finalized is the working capital adjustment,
which is expected to be resolved with the seller during the first quarter of
fiscal year 2000.



The operating results of the Reference
Brands and Cliffs Notes, Inc. businesses have been included in the accompanying
consolidated financial statements from the respective dates of acquisition. The
unaudited pro forma results below assume the acquisitions occurred at the
beginning of fiscal 1998 (in thousands, except per share amounts).

`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Revenue ...............................     $238,453   $222,134
Net income.............................        8,456      3,848
Diluted net income per share...........        $0.57      $0.33`

The pro forma adjustments are based upon
available information and assumptions that management believes are reasonable.
This unaudited pro forma information is not necessarily indicative of the
results that the Company would have achieved if the Reference Brands and Cliffs
Notes, Inc. acquisitions had taken place on October 1, 1997.



Also in December 1998,
the Company made a $1.8 million investment to acquire a 49% interest in a
Canadian publisher, CDG Books Canada, Inc., a newly formed company with
Macmillan Canada (a division of Canada Publishing Company). The Company's
investment is accounted for using the equity method. The Company's equity in
operating results for the fiscal year 1999 was insignificant.



4.   Accounts Receivable

Accounts receivable consisted of the following (in thousands):

`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Accounts receivable....................      $83,300    $53,922
Allowance for doubtful accounts........       (5,010)    (4,555)
Allowance for sales returns............      (31,996)   (21,890)
                                           ---------- ----------
       Accounts receivable -- net......      $46,294    $27,477
                                           ========== ==========`

5.  Inventories

Inventories consisted of the following (in thousands):

`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Books (finished goods).................      $40,167    $22,185
Paper..................................        5,364      2,560
                                           ---------- ----------
        Total inventory................       45,531     24,745
Reserve for obsolescence...............      (14,507)   (14,378)
                                           ---------- ----------
        Inventory -- net...............      $31,024    $10,367
                                           ========== ==========`

6. Property and Equipment

Property and equipment consisted of the following (in thousands):

`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Computers and equipment................       $8,854     $6,762
Furniture and fixtures.................        1,272      1,343
Leasehold improvements.................        2,572      2,368
Internal-use software..................        3,858      1,824
                                           ---------- ----------
        Total..........................       16,556     12,297
Less accumulated depreciation
  and amortization.....................      (10,524)    (6,692)
                                           ---------- ----------
        Property and equipment - net...       $6,032     $5,605
                                           ========== ==========`

7. Intangible Assets

Intangible assets consisted of the following (in thousands):

`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Branded trademarks.....................      $70,000     $4,000
Goodwill...............................       11,199         --
Publishing rights......................        5,000         --
Other intangibles......................          700         --
                                           ---------- ----------
        Total..........................       86,899      4,000
Less accumulated amortization..........       (1,628)      (417)
                                           ---------- ----------
        Intangible assets -- net.......      $85,271     $3,583
                                           ========== ==========`

8. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):



`September 30,
                                           ---------------------
                                              1999       1998
                                           ---------- ----------
Accrued royalties.......................     $16,276    $11,545
Accrued promotions......................      14,068      9,923
Accrued compensation and benefits.......       8,689      9,315
Accrued inventory and fulfillment.......       8,086         --
Other accrued liabilities...............       8,259      4,996
Accrued acquisition restructuring costs.       2,437         --
                                           ---------- ----------
        Accrued liabilities.............     $57,815    $35,779
                                           ========== ==========`

9.  Long-Term Debt



The majority of the Company's debt is funded under a new
$110.0 million syndicated revolving credit facility dated July 1999. The
facility includes a $70.0 million term loan commitment and a $40.0 million
revolving commitment.  The term loan facility requires quarterly principal
payments beginning December 2000 and continuing through July 2005 (credit
facility maturity date). The revolving commitment does not require payment until
the credit facility maturity date. The Company's syndicated borrowings under the
agreement at September 30, 1999 totaled $82.0 million, which included $70.0
million of the term loan commitment and $12.0 million of the revolving
commitment.



Interest on the Company's borrowings is payable at a margin
of between 0.875% and 1.625% over US dollar London Interbank Offered Rate
("LIBOR") and 0% to 0.375% over US Prime Rate, depending on the nature
of the borrowing and the financial condition of the Company.



Borrowings are secured by all material tangible and
intangible domestic assets now owned or hereafter acquired, and are governed by
certain financial covenants based on the results and financial position of the
Company. As of September 30, 1999, the Company was in compliance with all such
covenants.



Scheduled maturities of the credit facility as of September 30, 1999 are as
follows: fiscal 2000: $ 0 ; fiscal 2001: $8 million; fiscal 2002: $12 million;
fiscal 2003: $14 million; fiscal 2004: $16 million; and, fiscal 2005: $32
million.

The $20.0 million line of credit available to the Company at September 30,
1998, was paid in full and terminated, in conjunction with the commencement of
the revolving credit facility.

10.  Income Taxes

The provision for federal, state, and foreign taxes consisted of the
following for the years ended

September 30 (in thousands):

`1999       1998       1997
                                           ---------- ---------- ----------
Current:
  Federal .............................       $8,537     $8,150     $7,200
  State ...............................        1,873      2,003      1,539
  Foreign .............................          208        208        149
                                           ---------- ---------- ----------
Total current .........................       10,618     10,361      8,888
                                           ---------- ---------- ----------
Deferred:
  Federal .............................         (915)    (2,508)    (3,227)
  State ...............................         (281)      (776)      (773)
  Foreign .............................         (150)        --         --
                                           ---------- ---------- ----------
Total deferred ........................       (1,346)    (3,284)    (4,000)
                                           ---------- ---------- ----------
        Total .........................       $9,272     $7,077     $4,888
                                           ========== ========== ==========`

Federal and state income tax expense was allocated to the Company by the
parent through the advances due to (from) parent account for 1997 and through
July 1998. During the remainder of 1998 and all of 1999, these tax expenses were
recorded by the Company through its accrued liabilities account.

Deferred tax assets consisted of the following at September 30 (in
thousands):

`1999       1998
                                           ---------- ----------
Reserve for returns .....................    $11,177     $8,134
Reserve for obsolescence.................      4,116      5,628
Loss accruals............................      3,294      2,802
Uniform capitalization...................      1,223        855
Other....................................      1,374        725
Foreign .................................        150         --
                                           ---------- ----------
Deferred tax assets......................    $21,334    $18,144
                                           ========== ==========`

The differences between the effective income tax rate and the statutory
federal tax rate were as follows for the years ended September 30:

`1999       1998       1997
                                           ---------- ---------- ----------
Statutory federal tax rate ..............       35.0%      35.0%      35.0%
State taxes, net of federal tax benefit .        4.4%       4.6%       4.2%
Other ...................................        2.7%       1.4%       1.8%
                                           ---------- ---------- ----------
Effective tax rate ......................       42.1%      41.0%      41.0%
                                           ========== ========== ==========`

11.  Stockholders' Equity



Common Stock

The Company is authorized to issue 25,400,000 shares of
$.001 par value common stock, consisting of 25,000,000 shares of Class A common
stock and 400,000 shares of Class B common stock.



Each outstanding share of Class A common
stock is entitled to one vote and each outstanding share of Class B common stock
is entitled to ten votes. Holders of Class A common stock and Class B common
stock are entitled to receive dividends at the same rate and in such amounts as
the Board of Directors may from time to time determine. Class A common stock is
not convertible. Class B common stock is convertible at any time into Class A
common stock on a share-for-share basis and will automatically convert upon the
transfer by the holder thereof. The parent owns all Class B shares and has
approximately 77% of the combined voting power of both classes of common stock
as of September 30, 1999.



Stock Option Plan

In 1998, the Company's Board of Directors approved the 1998
Stock Option Plan (the"Plan") under which 2,850,000 shares of common
stock are reserved for issuance to employees, consultants, and directors. Under
the plan, both incentive and nonstatutory stock options may be granted to
purchase common stock at not less than the fair market value of the common stock
at the date of grant. Options generally vest over four years and expire ten
years after date of grant. During 1999, the Company granted options to purchase
714,800 shares of Class A common stock at exercise prices between $9.125 and
$22.000 per share. As of September 30, 1999, options to purchase 1,939,675
shares of Class A common stock at a weighted average exercise price of $12.98
were outstanding and options to purchase 880,731 shares were available for
future grants.

`Weighted
                                                            Average
                                                           Exercise
                                                Shares       Price
                                              ----------- -----------
Balance, September 30, 1997................            0       $0.00
        Granted (weighted average
          fair value of $9.27).............    1,550,400       12.00
        Exercised..........................            0        0.00
        Cancelled..........................      (72,600)      11.88
                                              -----------
Balance, September 30, 1998................    1,477,800       12.00
        Granted (weighted average
          fair value of $12.48)............      714,800       14.79
        Exercised..........................      (29,594)      11.88
        Cancelled..........................     (223,331)      12.40
                                              -----------
Balance, September 30, 1999................    1,939,675      $12.98
                                              =========== ===========`

Additional information regarding options
as of September 30, 1999 is as follows:

`Options Outstanding         Options Exercisable
                    --------------------------------- ---------------------
                                 Weighted
                                  Average
                                 Remaining  Weighted              Weighted
                                Contractual  Average               Average
    Range of          Number       Life     Exercise    Number    Exercise
   Exercise Prices  Outstanding (in years)    Price   Exercisable   Price
------------------- ----------- ----------- --------- ----------- ---------
 $9.125 to  $15.00   1,594,275         6.9    $12.20     416,457    $11.87
 $15.01 to  $22.00     345,400         8.7     16.58      31,323     15.95
                    -----------                       -----------
                     1,939,675                $12.98     447,780    $12.15
                    ===========                       ===========`

At September 30, 1998, 6,667 options were
exercisable at a weighted average exercise price of $15.50.



Employee Stock Ownership Plan

Prior to May 6, 1998, the Company's employees participated in
the parent's unleveraged ESOP ("ESOP-P"). As of May 6, 1998, the Company adopted
a new ESOP ("Books ESOP"). In connection therewith, the accounts of the Company
employees, and the shares of common stock of the parent attributable to such
accounts, were transferred from ESOP-P to Books ESOP. Such parent common shares
received by Books ESOP were tendered on May 21, 1998 to the parent in exchange
for 394,251 shares of Company Class B common stock, based on an exchange ratio
determined by an independent valuation firm of the relative fair value of one
Company Class B common share to one parent common share. The shares of Class B
common stock owned by Books ESOP were transferred to an affiliate of the parent
in exchange for 394,251 shares of Class A common stock in connection with the
Company's initial public offering. Effective May 6, 1998, employees of the
Company participate in the Books ESOP and no longer participate in ESOP-P.



In December 1998, the Company made its first contribution to
the Books ESOP, as per the authorization of the Board of Directors, in a
purchase and issuance of 98,552 shares of Class A common stock. The total cost
of this purchase to the Company was approximately $1,513,000.



On February 1, 1999, the Company adopted the IDG Books
Worldwide, Inc. 401(k), Profit Sharing, and Employee Stock Ownership Plan (the
"KSOP"). The KSOP allows eligible employees to contribute up to 8% of
their compensation into the 401(k), subject to annual limits. The Company
matches a portion of the employee's 401(k) contributions and may, at its
discretion, make additional profit sharing or employee stock ownership
contributions based upon earnings. Company contributions to the Plan were
approximately $1.8 million for fiscal year 1999.



Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan
("ESPP") for all eligible employees to purchase shares of common stock
at 85% of the lower of the fair market value on the first day of the overlapping
24-month offering period or the last day of the six-month purchase period.
Employees may authorize the Company to withhold up to 10% of their compensation
during any six-month purchase period, subject to certain limitations. The ESPP
is authorized to issue up to 400,000 shares. During fiscal year 1999, 70,679
shares were issued under the plan at a price of $10.52 per share. During fiscal
year 1998, no shares were issued under the Plan.



Stock Based Compensation

As permitted under Statement of Financial Accounting
Standards Board No. 123, Accounting for Stock-Based Compensation(SFAS
No. 123), and as discussed in Note 2, the Company uses the intrinsic
value method specified by APB Opinion No. 25 to calculate compensation expense
associated with issuing stock options. Accordingly, the Company has not
recognized any compensation expense with respect to such awards, since the
exercise price of the stock options awarded has been equal to the fair market
value of the underlying security at the date of grant.



SFAS No. 123 requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method as
prescribed by SFAS 123. Under SFAS No. 123, the fair value of the stock-based
awards to employees is calculated through the use of the minimum value method
for all periods prior to the initial public offering, and subsequently through
the use of options pricing models. The Company's stock option calculations were
made using the Black-Scholes option pricing model with the following weighted
average assumptions:

`1999       1998
                                              ---------- ----------

  Dividend yield..............................        0%         0%
  Volatility..................................       85%        50%
  Risk-free interest rate.....................     5.94%      5.82%
  Expected life (in years from date of grant).        7          5`

The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values of the stock-based awards had been amortized to expense over the
vesting period of the awards, net income would have been $10,992,000 ($0.74 per
share) and $9,417,000 ($0.80 per share) for the years ended September 30, 1999
and 1998, respectively. However, because options vest over several years, the
pro forma adjustments for the years ended September 30, 1999 and 1998 are not
indicative of future period pro forma adjustments, assuming grants are made in
those years, when the calculation will apply to all applicable stock
options.



12.  Segment, Geographic, and Major Customer Information



The Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in fiscal year 1999.  SFAS No.
131 establishes standards for reporting information about operating segments and
related disclosures about geographic information and major customers.

The Company has two general publishing groups:  Branded Franchise and IDGB
Technology Publishing.  The two segments share the same infrastructure and
personnel, and are not managed as separate operating divisions.  Management
evaluates the performance of these segments at the revenue and gross profit
level; the Company's reporting systems do not track or allocate operating
expenses or fixed assets by segment.

The Branded Franchise Group includes brands targeted at the general consumer,
including For Dummies®and CliffsNotesTM and the
recently acquired Reference Brands (Note 3). The IDGB Technology Publishing
Group consists of brands targeted for computer users, from beginning through
advanced level users, including information technology professionals and
software developers.  Net revenue by segment is as follows (in thousands):

`1999       1998       1997
                                              ---------- ---------- ----------

Revenue

Branded Franchise Group....................... $118,521    $89,255    $82,189
IDGB Technology Publishing Group..............   61,255     52,270     38,449
                                              ---------- ---------- ----------
    Total..................................... $179,776   $141,525   $120,638
                                              ========== ========== ==========`



The gross profit for the Branded Franchise Group and IDGB Technology
Publishing Group, respectively, was $57.9 million and $29.3 million in fiscal
year 1999; $43.0 million and $24.6 million in fiscal year 1998; and $39.5
million and $18.1 million in fiscal year 1997.

Net revenue to unaffiliated customers by geographic
region (based on the ordering location of the customer) were as follows for the
years ended September 30 (in thousands):

`1999       1998       1997
                                              ---------- ---------- ----------

  United States............................... $156,684   $121,015   $104,566
  Canada......................................    9,376      7,409      5,813
  Europe......................................    7,838      7,026      5,191
  Other.......................................    4,323      4,800      4,418
                                              ---------- ---------- ----------
    Total..................................... $178,221   $140,250   $119,988
                                              ========== ========== ==========`

At September 30, 1999, substantially all of the
Company's long-lived assets were located in the United States, and approximately
$200,000 of property and equipment long-lived assets were located outside of the
United States. At September 30, 1998, all of the Company's long-lived assets
were located in the United States.



Net sales to individual customers
representing greater than 10% of the Company's net sales were as follows for the
years ended September 30 (in thousands):

`1999       1998       1997
                                              ---------- ---------- ----------

  Company A...................................  $24,704    $19,306    $14,942
  Company B...................................   21,269     17,644     17,805
  Company C...................................   17,582     16,970     12,204`

13.  Related Party Transactions



Net revenue from affiliated customers
amounted to approximately $1.6 million, $1.3 million, and $0.7 million in fiscal
years 1999, 1998, and 1997, respectively. Operating expenses allocated from the
parent for 1997 and for the first 10 months of



1998 consist of: (1) parent corporate services fee (Note 1);
(2) parent ESOP expenses, which are based on the applicable ESOP contribution
rate applied to salaries; and (3) income tax provisions (note 10), which are
calculated as though the Company were a separate taxpayer. Neither party paid
interest on intercompany balances, and, accordingly, no such interest income or
expense has been recorded in the accompanying financial statements.



A summary of activity in the advances due to (from) parent
for fiscal years 1998 and 1997 is as follows (in thousands):

`1999       1998
                                                         ---------- ----------
  Balance at beginning of period.......................    ($4,332)      $251
  Parent corporate services fee........................        971      3,669
  Expense related to parent ESOP.......................         --      1,811
  Total current federal and state income tax provision.     11,027      8,739
  Cash collections less trade disbursements,
    transferred to parent..............................     (6,777)   (20,719)
  Employee benefits....................................      2,092      1,980
  Other, primarily transactions with affiliates, net...     (2,981)       (63)
                                                         ---------- ----------
  Balance at end of period.............................       $ --    ($4,332)
                                                         ========== ==========`

Effective October 1, 1997, no further contributions were made
to the parent's ESOP with respect to Company employees. For the years ended
September 30, 1999 and 1998, the Company accrued $1.8 million and $1.7 million,
respectively, for contributions to be made to the Books ESOP. In December 1998,
the Company contributed 98,552 shares of Class A Common Stock to the plan.



Subsequent to the initial public offering in July 1998, the
advances due to (from) parent account included the parent corporate services
fee, ESOP expense, federal and state income tax provisions, employee benefits,
and other transactions with affiliates and was paid by the parent based on the
outstanding balance at that time. As of September 30, 1999 and 1998, these
expenses were accounted for in the accrued liabilities account.



14.  Commitments and Contingencies



Leases

The Company leases equipment and facilities under
operating leases which expire at various dates through October 2009. Total
rental expense for operating leases amounted to approximately $3,785,000,
$3,154,000, and $2,212,000 in 1999, 1998, and 1997, respectively. At September
30, 1999, the aggregate minimum rental commitments under noncancelable operating
leases in excess of one year were as follows (in thousands):

`Years ending September 30,
---------------------------------------------
       2000.......................................          $7,680
       2001.......................................           7,201
       2002.......................................           7,115
       2003.......................................           5,176
       2004.......................................           4,265
       Thereafter.................................          21,087
                                                         ----------
          Total...................................         $52,524
                                                         ==========`

The Company is subject to various legal actions and claims which have arisen
in the ordinary course of business. In the opinion of management and counsel,
the ultimate resolution of such legal proceedings and claims will not have a
material effect on the financial position or results of operations of the
Company.



15.  Quarterly Information (Unaudited)

The summarized quarterly financial data presented
below for the Company's fiscal years ended September 30, 1999, 1998, and 1997
reflect all adjustments which, in the opinion of management, are of a normal and
recurring nature necessary to present fairly the results of operations for the
periods presented (in thousands, except per share amounts).

`Fourth     Third      Second     First
                          Quarter    Quarter    Quarter    Quarter
                         ---------- ---------- ---------- ----------
      1999
Net revenue............    $56,303    $41,482    $44,686    $37,305
Net income.............      2,375      2,631      4,551      3,180
Net income per share:
  Basic................       0.16       0.18       0.32       0.22
  Diluted..............       0.16       0.17       0.31       0.22

      1998
Net revenue............    $35,317    $34,292    $38,945    $32,971
Net income.............      1,371      1,942      4,335      2,535
Net income per share:
  Basic and diluted....       0.10       0.17       0.38       0.23
Pro forma net
 income per share:
  Basic and diluted....       0.10       0.14       0.31       0.18

      1997
Net revenue............    $32,014    $26,210    $35,788    $26,676
Net income.............        882      1,166      3,451      1,536
Net income per share:
  Basic and diluted....       0.08       0.11       0.31       0.14
Pro forma net
 income per share:
  Basic and diluted....       0.06       0.08       0.25       0.11`

---



INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders

IDG Books Worldwide, Inc.:

We have audited the accompanying
consolidated balance sheets of IDG Books Worldwide, Inc. and subsidiaries as of
September 30, 1999 and 1998 and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three fiscal years in the
period ended September 30, 1999. 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 IDG Books Worldwide, Inc. and subsidiaries as of September 30, 1999
and 1998, and the results of their operations and their cash flows for each of
the three fiscal years in the period ended September 30, 1999 in conformity with
generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
San Jose, California
November 15, 1999 (December 9, 1999, as to paragraph 4 of Note 3)

---

Inside Back Cover

Board of Directors

John J. Kilcullen

Chairman of the Board of Directors and Chief Executive Officer

IDG Books Worldwide, Inc.

Patrick J. McGovern

Founder and Chairman of the Board

International Data Group, Inc.

Kelly P. Conlin

President and Chief Executive Officer

International Data Group, Inc.

Julius A. Hoeft

Former Chairman and Chief Executive Officer, Bantam Doubleday Dell Publishing
Group, Inc.

Random House, Inc.

Axel J. Leblois

Chief Executive Officer

ExecuTrain Corporation

Executive Officers

John J. Kilcullen

Chairman of the Board of Directors and Chief Executive Officer

John P. Ball

Executive Vice President

Operations and Administration

and Secretary

Stuart Crumbaugh

Director, Securities Exchange Commission Reporting and Chief Accounting
Officer

Other Key Officers

Roland Elgey

Senior Vice President

Sales and Marketing

Brenda L. McLaughlin

Senior Vice President

Internet Operations

Richard Swadley

Senior Vice President

Technology Publishing Group

Marc Mikulich

Vice President

Strategic Brand Management

Donna Vieraitis

Vice President

Human Resources

Michael Violano

Vice President

International and Subsidiary Rights

Executive Offices

IDG Books Worldwide, Inc.

919 E. Hillsdale Blvd., Suite 400

Foster City, CA 94404

USA

650-653-7000

ir@idgbooks.com

Independent Auditors

Deloitte & Touche LLP

60 South Market Street, Suite 800

San Jose, CA 95113-2303

USA

Transfer Agent & Registrar

EquiServe

Canton, MA 02021-9187

Shareholder Inquiries:

781-575-3400

Trading Information

IDG Books Worldwide, Inc. has been traded on the NASDAQ National Market under
the symbol "IDGB" since July 28,1998.



Common Stock Market Price

1998

In Dollars			High		Low	High		Low

Quarter 1	$17.00	$6.75	-	-

Quarter 2	$19.63	$11.75	-	-

Quarter 3	$24.94	$17.13	-	-

Quarter 4	$20.50	$14.75	$16.42	$10.38

Annual Meeting

The Fiscal Year 1999 Annual Meeting of Stockholders will be held on February
15, 2000. A notice of the meeting, together with the proxy statement and a form
of proxy, were mailed to stockholders with this annual report.

Stock Exchange Listing

IDG Books Worldwide Common Stock is traded on the NASDAQ National Market
under the symbol IDGB.

Investor Inquiries and Form 10-K

A copy of the Company's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended September 30, 1999, is available without
charge upon request. Please direct shareholder inquiries to:

Investor Relations Department

IDG Books Worldwide, Inc.

919 E. Hillsdale Blvd. Suite 400

Foster City, CA 94404

USA

650-653-7000

ir@idgbooks.com



Internet Addresses

idgbooks.com

dummies.com

cliffnotes.com

frommers.com

© 1999 IDG Books Worldwide. Frommer's is a registered trademark of
Arthur Frommer, used under license by IDG Books Worldwide, Inc. Burpee is a
registered trademark of W. Atlee Burpee Company, used under license by IDG Books
Worldwide, Inc. Weight Watchers is a registered trademark of Weight Watchers
International, Inc., used under license by IDG Books Worldwide, Inc. Betty
Crocker's is a registered trademark of General Mills, Inc., used under license
by IDG Books Worldwide, Inc. The IDG Books Worldwide logo is a trademark under
exclusive license to IDG Books Worldwide, Inc., from International Data Group,
Inc. For Dummies, Dummies Man, CliffsNotes, Secrets, Teach Yourself, Studio
Secrets, Ace It, Simplified, One Step at a Time, M&T Press, 3-D Visual,
Teach Yourself VISUALLY, Master VISUALLY, Arco, Howell Book House, Unofficial
Guide, Webster's New World, and all related marks, logos, characters, design,
and trade dress are trademarks or registered trademarks of IDG Books Worldwide,
Inc. All other trademarks are the property of their respective owners. ALL
RIGHTS RESERVED.

Design: Landkamer Partners, San Francisco    Copywriting: Wordworking,
Oakland

Outside back cover

IDG Books Worldwide, Inc.

NASDAQ: IDGB

idgbooks.com

dummies.com

cliffsnotes.com

frommers.com

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