**UNITED STATES**SECURITIES AND EXCHANGE COMMISSION

**Washington,D.C. 20549**

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**FORM 10-Q**

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**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**Forthe quarterly period ended: September 30, 2005**

**Commissionfile number: 1-11106**

**PRIMEDIA Inc.**

(Exact name of registrantas specified in its charter)

| **Delaware**                     | **13-3647573**       |
|----------------------------------|----------------------|
| (State or other  jurisdiction of | (I.R.S. Employer     |
| incorporation or  organization)  | Identification  No.) |

 

**745 Fifth Avenue, NewYork, New York**

(Address of principalexecutive offices)

**10151**

(Zip Code)

Registrant’s telephonenumber, including area code   **(212)745-0100**

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months, and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  x   No  o

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes  x   No  o

Numberof shares of common stock, par value $.01 per share, of PRIMEDIA Inc.outstanding as of October 31, 2005: 262,503,865

 

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**PRIMEDIA Inc.**

***INDEX***

|                                          | ** ** | ** **                                                                                                                | **PAGE** |
|------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|----------|
| **Part I. Financial  Information:** |       |
|                                     | Item 1.    | Financial Statements                                                                                                      |     |
|                                     |       | Condensed Consolidated  Balance Sheets (Unaudited) as of September 30, 2005 and  December 31, 2004              | 2        |
|                                     |       | Condensed Statements of  Consolidated Operations (Unaudited) for the three months ended  September 30, 2005 and 2004 | 3        |
|                                     |       | Condensed Statements of  Consolidated Operations (Unaudited) for the nine months ended  September 30, 2005 and 2004  | 4        |
|                                     |       | Condensed Statements of  Consolidated Cash Flows (Unaudited) for the nine months ended September 30,  2005 and 2004  | 5        |
|                                     |       | Notes to Condensed  Consolidated Financial Statements (Unaudited)                                                         | 6        |
|                                     | Item  2.   | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                               | 28       |
|                                     | Item  3.   | Quantitative and Qualitative  Disclosures about Market Risk                                                               | 56       |
|                                     | Item  4.   | Controls and Procedures                                                                                                   | 56       |
| **Part II. Other Information:**     |       |
|                                     | Item 6.    | Exhibits                                                                                                                  | 57       |
|                                     |       | Signatures                                                                                                                | 58       |

 

1

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED CONSOLIDATEDBALANCE SHEETS (UNAUDITED)(dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                                                                                                                                     | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                     | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                     |       |                   |       |                  |       |   |   |
| Current assets:                                                                                                                                                                                                                                |       |                   |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                                     |       |                   | $          | 454,744               |       |   | $ | 13,000 |   |
| Accounts receivable, net                                                                                                                                                                                                                       |       |                   | 142,802    |                  |       | 179,005 |   |
| Inventories                                                                                                                                                                                                                                    |       |                   | 17,157     |                  |       | 22,696 |   |
| Prepaid expenses and  other                                                                                                                                                                                                                    |       |                   | 27,810     |                  |       | 29,423 |   |
| Assets held for sale                                                                                                                                                                                                                           |       |                   | —     |                  |       | 40,274 |   |
| Total current assets                                                                                                                                                                                                                           |       |                   | 642,513    |                  |       | 284,398 |   |
| Property and equipment (net  of accumulated depreciation and amortization of $221,727 in 2005 and $274,830  in 2004)                                                                                                                           |       |                   | 62,938     |                  |       | 79,806 |   |
| Other intangible assets,  net                                                                                                                                                                                                                  |       |                   | 212,015    |                  |       | 242,884 |   |
| Goodwill                                                                                                                                                                                                                                       |       |                   | 789,074    |                  |       | 902,579 |   |
| Other non-current assets                                                                                                                                                                                                                       |       |                   | 38,648     |                  |       | 49,381 |   |
| Total Assets                                                                                                                                                                                                                                   |       |                   | $          | 1,745,188             |       |   | $ | 1,559,048 |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                                              |       |                   |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                                                                                           |       |                   |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                                                                               |       |                   | $          | 50,053                |       |   | $ | 84,732 |   |
| Accrued expenses and  other                                                                                                                                                                                                                    |       |                   | 149,641    |                  |       | 143,112 |   |
| Deferred revenues                                                                                                                                                                                                                              |       |                   | 136,130    |                  |       | 157,314 |   |
| Current maturities of  long-term debt                                                                                                                                                                                                          |       |                   | 153,788    |                  |       | 24,919 |   |
| Shares subject to  mandatory redemption                                                                                                                                                                                                        |       |                   | 211,739    |                  |       | — |   |
| Liabilities of  businesses held for sale                                                                                                                                                                                                       |       |                   | —     |                  |       | 26,980 |   |
| Total current  liabilities                                                                                                                                                                                                                     |       |                   | 701,351    |                  |       | 437,057 |   |
| Long-term debt                                                                                                                                                                                                                                 |       |                   | 1,443,824  |                  |       | 1,635,964 |   |
| Shares subject to  mandatory redemption                                                                                                                                                                                                        |       |                   | —     |                  |       | 474,559 |   |
| Deferred revenues                                                                                                                                                                                                                              |       |                   | 14,878     |                  |       | 17,093 |   |
| Deferred income taxes                                                                                                                                                                                                                          |       |                   | 83,555     |                  |       | 75,172 |   |
| Other non-current  liabilities                                                                                                                                                                                                                 |       |                   | 59,823     |                  |       | 64,023 |   |
| Total Liabilities                                                                                                                                                                                                                              |       |                   | 2,303,431  |                  |       | 2,703,868 |   |
| Shareholders’ deficiency:                                                                                                                                                                                                                 |       |                   |       |                  |       |   |   |
| Common stock ($.01 par  value, 350,000,000 shares authorized at September 30, 2005 and  December 31, 2004 and 271,582,607 shares and 270,893,102 shares issued  at September 30, 2005 and December 31, 2004, respectively) |       |                   | 2,716      |                  |       | 2,709 |   |
| Additional paid-in  capital (including warrants of $31,690 at September 30, 2005 and  December 31, 2004)                                                                                                                             |       |                   | 2,362,902  |                  |       | 2,354,778 |   |
| Accumulated deficit                                                                                                                                                                                                                            |       |                   | (2,847,984 | )                     |       | (3,426,263 | ) |
| Accumulated other  comprehensive loss                                                                                                                                                                                                          |       |                   | —     |                  |       | (167 | ) |
| Common stock in  treasury, at cost (8,442,409 shares at September 30, 2005 and  December 31, 2004)                                                                                                                                   |       |                   | (75,877    | )                     |       | (75,877 | ) |
| Total Shareholders’  Deficiency                                                                                                                                                                                                           |       |                   | (558,243   | )                     |       | (1,144,820 | ) |
| Total Liabilities and Shareholders’ Deficiency                                                                                                                                                                                            |       |                   | $          | 1,745,188             |       |   | $ | 1,559,048 |   |

 

See notes to condensed consolidated financial statements (unaudited).

2

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENTS OFCONSOLIDATED OPERATIONS (UNAUDITED)(dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                            | ** ** | **September 30,**           | ** ** |
| ** **                                                                                                                            | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Revenues, net:                                                                                                                        |       |                             |       |   |   |
| Advertising                                                                                                                           |       | $                                | 164,671    |   | $ | 164,942 |   |
| Circulation                                                                                                                           |       | 62,066                           |       | 65,478 |   |
| Other                                                                                                                                 |       | 43,171                           |       | 35,858 |   |
| Total revenues, net                                                                                                                   |       | 269,908                          |       | 266,278 |   |
| Operating costs  and expenses:                                                                                                        |       |                             |       |   |   |
| Cost of goods sold                                                                                                                    |       | 63,513                           |       | 59,519 |   |
| Marketing and selling                                                                                                                 |       | 50,996                           |       | 52,355 |   |
| Distribution, circulation and fulfillment                                                                                             |       | 51,038                           |       | 46,437 |   |
| Editorial                                                                                                                             |       | 21,447                           |       | 20,037 |   |
| Other general expenses                                                                                                                |       | 31,681                           |       | 28,961 |   |
| Corporate administrative expenses (including  non-cash compensation of $4,070 and $1,344 in 2005 and 2004, respectively)         |       | 10,362                           |       | 8,800 |   |
| Depreciation of property and equipment                                                                                                |       | 7,402                            |       | 7,246 |   |
| Amortization of intangible assets and other                                                                                           |       | 2,688                            |       | 3,215 |   |
| Provision for severance, closures and restructuring  related costs                                                                    |       | 256                              |       | 1,988 |   |
| Gain on sale of businesses and other, net                                                                                             |       | (80                              | )          | (293 | ) |
| Operating income                                                                                                                      |       | 30,605                           |       | 38,013 |   |
| Other income  (expense):                                                                                                              |       |                             |       |   |   |
| Interest expense                                                                                                                      |       | (32,511                          | )          | (32,322 | ) |
| Interest on shares subject to mandatory redemption                                                                                    |       | (4,566                           | )          | (10,945 | ) |
| Amortization of deferred financing costs                                                                                              |       | (1,042                           | )          | (1,334 | ) |
| Other income (expense), net                                                                                                           |       | (2,907                           | )          | 685 |   |
| Loss from continuing operations before income tax  expense                                                                            |       | (10,421                          | )          | (5,903 | ) |
| Provision for income  taxes                                                                                                           |       | (4,346                           | )          | (4,326 | ) |
| Loss from continuing operations                                                                                                       |       | (14,767                          | )          | (10,229 | ) |
| Discontinued operations (including gain on sale of  businesses, net of $219,037 and $999 in 2005 and 2004, net of tax,  respectively) |       | 222,521                          |       | 18,969 |   |
| Net income                                                                                                                            |       | 207,754                          |       | 8,740 |   |
| Preferred stock dividends                                                                                                             |       | —                           |       | (2,551 | ) |
| Income applicable  to common shareholders                                                                                             |       | $                                | 207,754    |   | $ | 6,189 |   |
| Basic and diluted  income (loss) per common share:                                                                                    |       |                             |       |   |   |
| Continuing operations                                                                                                                 |       | $                                | (0.06      | ) | $ | (0.05 | ) |
| Discontinued operations                                                                                                               |       | 0.85                             |       | 0.07 |   |
| Income applicable to common shareholders                                                                                              |       | $                                | 0.79       |   | $ | 0.02 |   |
| Basic and diluted  common shares outstanding                                                                                          |       | 263,122,384                      |       | 260,446,328 |   |

 

See notes to condensed consolidated financial statements (unaudited).

3

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENTS OFCONSOLIDATED OPERATIONS (UNAUDITED)(dollars in thousands, except share and per share amounts)**

| ** **                                                                                                                                         | ** ** | **Nine Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                                                                                         | ** ** | **2005**                        | ** ** | **2004** | ** ** |
| Revenues, net:                                                                                                                                     |       |                            |       |   |   |
| Advertising                                                                                                                                        |       | $                               | 492,260    |   | $ | 484,320 |   |
| Circulation                                                                                                                                        |       | 183,005                         |       | 192,816 |   |
| Other                                                                                                                                              |       | 123,078                         |       | 105,409 |   |
| Total revenues, net                                                                                                                                |       | 798,343                         |       | 782,545 |   |
| Operating costs and expenses:                                                                                                                      |       |                            |       |   |   |
| Cost of goods sold                                                                                                                                 |       | 176,830                         |       | 169,285 |   |
| Marketing and selling                                                                                                                              |       | 153,539                         |       | 151,040 |   |
| Distribution, circulation  and fulfillment                                                                                                         |       | 150,781                         |       | 142,865 |   |
| Editorial                                                                                                                                          |       | 62,293                          |       | 57,986 |   |
| Other general expenses                                                                                                                             |       | 97,439                          |       | 91,450 |   |
| Corporate administrative  expenses (including non-cash compensation of $6,474 and $4,830 in 2005  and 2004, respectively)                     |       | 26,405                          |       | 26,923 |   |
| Depreciation of property  and equipment                                                                                                            |       | 21,239                          |       | 21,069 |   |
| Amortization of  intangible assets and other                                                                                                       |       | 7,416                           |       | 9,973 |   |
| Severance related to  separated senior executives                                                                                                  |       | —                          |       | 658 |   |
| Provision for severance,  closures and restructuring related costs                                                                                 |       | 1,556                           |       | 7,622 |   |
| Provision for unclaimed  property                                                                                                                  |       | —                          |       | 3,862 |   |
| Gain on sale of  businesses and other, net                                                                                                         |       | (80                             | )          | (256 | ) |
| Operating income                                                                                                                                   |       | 100,925                         |       | 100,068 |   |
| Other income (expense):                                                                                                                            |       |                            |       |   |   |
| Provision for impairment  of investments                                                                                                           |       | —                          |       | (804 | ) |
| Interest expense                                                                                                                                   |       | (98,482                         | )          | (90,402 | ) |
| Interest on shares  subject to mandatory redemption                                                                                                |       | (21,920                         | )          | (32,835 | ) |
| Amortization of deferred  financing costs                                                                                                          |       | (3,560                          | )          | (3,653 | ) |
| Other income (expense),  net                                                                                                                       |       | (7,088                          | )          | 826 |   |
| Loss from continuing  operations before income tax expense                                                                                         |       | (30,125                         | )          | (26,800 | ) |
| Provision for income  taxes                                                                                                                        |       | (10,496                         | )          | (12,916 | ) |
| Loss from continuing  operations                                                                                                                   |       | (40,621                         | )          | (39,716 | ) |
| Discontinued operations  (including gain on sale of businesses, net of $601,499 and $43,286  in 2005 and 2004, net of tax, respectively) |       | 618,900                         |       | 61,681 |   |
| Net income                                                                                                                                         |       | 578,279                         |       | 21,965 |   |
| Preferred stock dividends                                                                                                                          |       | —                          |       | (13,505 | ) |
| Income applicable to  common shareholders                                                                                                          |       | $                               | 578,279    |   | $ | 8,460 |   |
| Basic and diluted income (loss) per common share:                                                                                                  |       |                            |       |   |   |
| Continuing operations                                                                                                                              |       | $                               | (0.15      | ) | $ | (0.21 | ) |
| Discontinued operations                                                                                                                            |       | 2.35                            |       | 0.24 |   |
| Income applicable to  common shareholders                                                                                                          |       | $                               | 2.20       |   | $ | 0.03 |   |
| Basic and diluted common  shares outstanding                                                                                                       |       | 262,919,067                     |       | 260,232,692 |   |

 

See notes to condensed consolidated financial statements (unaudited).

4

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENTS OFCONSOLIDATED CASH FLOWS (UNAUDITED)(dollars in thousands)**

| ** **                                                                        | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| **Operating activities:**                                                         |       |                                                |       |   |   |
| Net income                                                                        |       | $                                                   | 578,279    |   | $ | 21,965 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities |       | (536,705                                            | )          | 11,333 |   |
| Changes in operating assets and liabilities                                       |       | (36,936                                             | )          | 3,034 |   |
| Net cash provided by operating activities                                         |       | 4,638                                               |       | 36,332 |   |
| **Investing  activities:**                                                        |       |                                                |       |   |   |
| Additions to property, equipment and other, net                                   |       | (21,681                                             | )          | (23,500 | ) |
| Proceeds from sales of businesses and other                                       |       | 816,502                                             |       | 70,277 |   |
| Payments for businesses acquired, net of cash  acquired                           |       | (27,830                                             | )          | (1,358 | ) |
| Proceeds from sale of other investments                                           |       | —                                              |       | 17,399 |   |
| Net cash provided by investing activities                                         |       | 766,991                                             |       | 62,818 |   |
| **Financing  activities:**                                                        |       |                                                |       |   |   |
| Borrowings under credit agreements                                                |       | 979,709                                             |       | 386,700 |   |
| Repayments of borrowings under credit agreements                                  |       | (960,616                                            | )          | (461,700 | ) |
| Payments for repurchase of senior notes                                           |       | (81,017                                             | )          | — |   |
| Proceeds from issuance of senior notes                                            |       | —                                              |       | 175,000 |   |
| Proceeds from issuances of common stock, net                                      |       | 1,657                                               |       | 1,028 |   |
| Redemption of Series D and F Exchangeable  Preferred Stock                   |       | (264,494                                            | )          | — |   |
| Redemption of Series J Convertible Preferred  Stock                          |       | —                                              |       | (178,038 | ) |
| Deferred financing costs paid                                                     |       | (832                                                | )          | (5,686 | ) |
| Capital lease obligations                                                         |       | (4,141                                              | )          | (4,920 | ) |
| Other                                                                             |       | (151                                                | )          | (186 | ) |
| Net cash used in financing activities                                             |       | (329,885                                            | )          | (87,802 | ) |
| Increase in cash and cash equivalents                                             |       | 441,744                                             |       | 11,348 |   |
| Cash and cash  equivalents, beginning of period                                   |       | 13,000                                              |       | 8,685 |   |
| Cash and cash  equivalents, end of period                                         |       | $                                                   | 454,744    |   | $ | 20,033 |   |
| **Supplemental  information:**                                                    |       |                                                |       |   |   |
| Cash interest paid, including interest on capital  and restructured leases        |       | $                                                   | 82,997     |   | $ | 69,287 |   |
| Cash interest paid on shares subject to mandatory  redemption                     |       | $                                                   | 26,457     |   | $ | 32,835 |   |
| Cash taxes paid, net of refunds received                                          |       | $                                                   | 4,280      |   | $ | 171 |   |
| Cash paid for severence, closures and restructuring  related costs                |       | $                                                   | 7,869      |   | $ | 11,721 |   |
| Non-cash  activities:                                                             |       |                                                |       |   |   |
| Payments of dividends-in-kind on Series J  Convertible Preferred Stock       |       | $                                                   | —     |   | $ | 13,152 |   |

 

See notes to condensed consolidated financial statements (unaudited).

5

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**PRIMEDIA Inc.NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)(dollars in thousands, except share and per share amounts)**

**1.   Summaryof Significant Accounting Policies**

***Basis of Presentation***

PRIMEDIA Inc., togetherwith its subsidiaries, is herein referred to as either “PRIMEDIA” or the “Company.”In the opinion of the Company’s management, the condensed consolidatedfinancial statements present fairly the consolidated financial position of theCompany as of September 30, 2005 and December 31, 2004; theconsolidated results of operations of the Company for the three and nine monthperiods ended September 30, 2005 and 2004, and consolidated cash flows ofthe Company for the nine months ended September 30, 2005 and 2004, theadjustments (consisting of normal recurring accruals) considered necessary fora fair presentation have been included. The condensed consolidated balancesheet as of December 31, 2004 has been derived from the Company’s auditedconsolidated balance sheet included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2004. All intercompany accounts andtransactions have been eliminated in consolidation. These statements should beread in conjunction with the Company’s annual consolidated financial statementsand related notes for the year ended December 31, 2004, which are includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2004. The operating results for the three and nine months ended September 30,2005 are not necessarily indicative of the results that may be expected for afull year. Certain amounts in the prior periods’ condensed consolidatedfinancial statements and related notes have been reclassified to conform to thepresentation as of and for the three and nine month periods ended September 30,2005.

***Stock-Based Compensation***

The Company has a stock-based employeecompensation plan. Effective January 1, 2003, the Company adoptedStatement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation”, as amended by SFAS 148, “Accounting forStock-Based Compensation—Transition and Disclosure”, using theprospective method. Upon adoption, the Company began expensing the fair valueof stock-based compensation for all grants, modifications and settlementsmade on or after January 1, 2003. As a result of the adoption of SFAS 123,the Company recorded a non-cash compensation charge of $3,331 and $604,relating to stock options and the PRIMEDIA Employee Stock Purchase Plan, forthe three months ended September 30, 2005 and 2004, respectively, and$4,483 and $1,972 for the nine months ended September 30, 2005 and 2004,respectively.

6

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Thefollowing table illustrates the effect on net income applicable to commonshareholders and basic and diluted income per common share as if the Companyhad applied the fair value recognition provisions of SFAS 123 to allstock-based employee compensation grants for all periods presented:

| ** **                                                                                                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                  | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Reported net  income applicable to common shareholders                                                                      |       | $                                                    | 207,754    |                                                | $          | 6,189 |   | $ | 578,279 |   | $ | 8,460 |   |
| Add: Stock-based employee compensation expense included in  reported net income applicable to common shareholders |       | 3,331                                                |       | 604                                                 |       | 4,483 |   | 2,147 |   |
| Deduct: Total stock-based employee compensation expense  determined under fair value based method for all awards       |       | (4,437                                               | )          | (3,015                                              | )          | (7,908 | ) | (9,453 | ) |
| Pro forma net  income applicable to common shareholders                                                                     |       | $                                                    | 206,648    |                                                | $          | 3,778 |   | $574,854 |   | $ | 1,154 |   |
| Per Common Share:                                                                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Reported basic  and diluted income                                                                                          |       | $                                                    | 0.79       |                                                | $          | 0.02 |   | $ | 2.20 |   | $ | 0.03 |   |
| Pro forma basic and  diluted income                                                                                         |       | $                                                    | 0.79       |                                                | $          | 0.01 |   | $ | 2.19 |   | $ | 0.00 |   |

 

Pro forma information regarding net income andearnings per share is required by SFAS 123, and has been determined as ifthe Company had accounted for its employee stock options granted on or before December 31,2002 under the fair value method of SFAS 123. The fair value of theseoptions was estimated at the date of grant using the Black-Scholespricing model. For the three months ended September 30, 2005 and 2004,respectively, the following weighted-average assumptions were used: risk-freeinterest rates of 4.08% and 2.97%; dividend yield of 0.0%; volatility factorsof the expected market price of the Company’s common stock of 67.00% and 82.00%,and a weighted-average expected life of the options of three years. Forthe nine months ended September 30, 2005 and 2004, respectively, thefollowing weighted-average assumptions were used: risk-free interestrates of 3.77% and 2.85%; dividend yield of 0.00%; volatility factors of theexpected market price of the Company’s common stock of 72.00% and 84.00%, and aweighted-average expected life of the options of three years. Theestimated fair value of options granted during the three months ended September 30,2005 and 2004 was $39 and $88, respectively, and $776 and $406 during the ninemonths ended September 30, 2005 and 2004, respectively.

The Black-Scholes pricing model was developed for usein estimating the fair value of traded options which have no vestingrestrictions and are fully transferable. In addition, option valuation modelsrequire the input of highly subjective assumptions including the expected stockprice volatility. Because the Company’s employee stock options havecharacteristics significantly different from those of traded options, andbecause changes in the subjective input assumptions can materially affect thefair value estimate, in management’s opinion, the existing models do notnecessarily provide a reliable single measure of the fair value of its employeestock options.

In December 2004, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised2004) (“SFAS 123(R)”). Upon the effective date, SFAS 123(R) replaces FASBStatement No. 123, Accounting for Stock-Based Compensation, andsupersedes Accounting Principles Board (“APB”) Opinion No. 25, Accountingfor Stock Issued to Employees. See the Recent Accounting Pronouncements sectionbelow for further discussion.

7

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***Recent Accounting Pronouncements***

*SFAS 151, “InventoryCosts”*

In November 2004, theFASB issued SFAS 151, which is an amendment of Accounting Research Bulletin (“ARB”)43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facilityexpense, freight, handling costs, and wasted materials (spoilage) should berecognized as current-period charges and requires the allocation of fixedproduction overheads to inventory based on the normal capacity of theproduction facilities. This SFAS is effective for inventory costs incurred forannual periods beginning after June 15, 2005. The Company does notanticipate any material impact on its consolidated financial statements uponthe adoption of this standard.

*SFAS 123 (revised2004), “Share-Based Payment”*

In December 2004, theFASB issued SFAS 123(R), which replaces SFAS 123 and supersedes APB 25. TheFASB has concluded that companies may adopt the new standard in one of twoways: the modified prospective transition method or the modified retrospectivetransition method. The modified prospective transition method requiresrecognition of compensation expense from the beginning of the fiscal period inwhich the recognition provisions are first applied as if the fair-value-basedaccounting method had been used to account for all employee awards granted,modified, or settled after the effective date and to any awards that were notfully vested as of the effective date. The modified retrospective methodrequires recognition of compensation expense for periods presented prior to theadoption of the fair value based accounting method for share-basedpayment; that is, an entity would recognize employee compensation cost forprior periods presented in the amounts reported in the pro forma disclosuresprovided in accordance with SFAS 123. The Company is planning to adopt SFAS 123(R) usingthe modified prospective method effective January 1, 2006, which willresult in an increase in non-cash compensation expense.

*SFAS 153, “Exchangesof Nonmonetary Assets, an amendment of APB Opinion No. 29”*

In December 2004, theFASB issued SFAS 153, which amends APB 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance. SFAS 153 is effective for nonmonetary asset exchangesoccurring in fiscal periods beginning after June 15, 2005. The Companydoes not anticipate any material impact on its consolidated financial statementsupon the adoption of this standard.

*SFAS 154, “Accounting Changes and Error Corrections, areplacement of APB Opinion No. 20 and FASB Statement No. 3”*

In May 2005, the FASBissued SFAS 154 which replaces APB 20 and SFAS 3. This statement providesguidance on the accounting for and reporting of accounting changes and errorcorrections. It establishes, unless impracticable, retrospective application asthe required method for reporting a change in accounting principle in theabsence of explicit transition requirements specific to the newly adoptedaccounting principle. This statement also provides guidance for determiningwhether retrospective application of a change in accounting principle isimpracticable and for reporting a change when retrospective application isimpracticable. SFAS 154 is effective for accounting changes and correction oferrors made in fiscal years beginning after December 15, 2005. The Companydoes not anticipate any material impact on its consolidated financialstatements upon the adoption of this standard.

8

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*EITF No. 05-6, “Determining theAmortization Period for Leasehold Improvements Purchased after Lease Inceptionor Acquired in a Business Combination”*

In June 2005, theEITF reached a consensus on EITF No. 05-6, which was modified in September 2005.EITF 05-6 provides guidance on whether a lease term should be reevaluatedat the time of a purchase business combination and whether the amortizationperiod for acquired leasehold improvements should be reevaluated by theacquiring entity in a business combination. EITF 05-6 is effective forleasehold improvements that are purchased or acquired in reporting periodsbeginning after June 29, 2005. The adoption of this standard did not havea material impact on the Company’s consolidated financial statements.

**2.   Divestitures**

The Company has classified the results of certaindivested entities as discontinued operations in accordance with SFAS 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”.

In January 2004, the Company completed the saleof *New York* magazine, part of theEnthusiast Media segment, the results of which have been classified asdiscontinued operations for all periods presented. Proceeds from the sale of$55,000, subject to standard post-closing adjustments, were used to paydown the Company’s borrowings under its bank credit facilities with JPMorganChase Bank, Bank of America, N.A., The Bank of New York and The Bank of NovaScotia, as agents (the “bank credit facilities”). The Company recorded a gainon the sale of *New York*magazineof approximately $38,000 in discontinued operations for the nine months ended September 30,2004. Additionally, the Company finalized a working capital settlement with thepurchaser of *Seventeen* and itscompanion teen properties, resulting in a payment to the purchaser of $3,379 inJanuary 2004.

In February 2004, the Company completed the saleof Kagan World Media, part of the Business Information segment, the results ofwhich have been classified as discontinued operations for all periods presented.Proceeds from the sale were approximately $2,200, subject to standardpost-closing adjustments.

In April 2004, the Company sold About WebServices, the Web hosting business of About Inc., the results of which havebeen classified as discontinued operations for all periods presented. Proceedsfrom the sale were approximately $12,200, subject to standard post-closingadjustments.

In August 2004, Folio and Circulation Managementwere contributed to a venture with a third party, under which the Company doesnot have significant continuing involvement in the operations and the Company’sshare of associated cash flows is not significant. Additionally, AmericanDemographics was sold in November 2004. The operating results of theseproperties have been reclassified as discontinued operations for all periodspresented.

In September 2004, the Company announced that itwas exploring the sale of its Workplace Learning division, excludingInteractive Medical Network (“IMN”). Workplace Learning was part of theEducation segment (formerly known as the Education and Training segment) whichwas renamed to reflect the classification of Workplace Learning as adiscontinued operation. On March 31, 2005, the Company completed the saleof Bankers Training & Consulting Company, the financial servicesdivision of Workplace Learning. Proceeds from the sale were approximately$21,300, subject to standard post-closing adjustments and the Company recordeda net gain of approximately $18,700 in discontinued operations in 2005. On April 1,2005, the Company sold the remaining net assets of Workplace Learning for theassumption of liabilities, resulting in a loss in carrying value of $15,100. Theoperating results of Workplace Learning, excluding IMN, have been reclassifiedas discontinued operations for all periods presented.

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In December 2004, the Company discontinued theoperations of six magazines in the Enthusiast Media segment. Their operatingresults have been classified as discontinued operations for all periodspresented.

On March 18, 2005, the Company completed the saleof About.com, part of the Enthusiast Media segment, the results of which havebeen classified as discontinued operations for all periods presented. Grossproceeds from the sale of approximately $410,000 were used to reduce theCompany’s borrowings under its revolving bank credit facility and for generalcorporate purposes. The Company recorded a net gain on the sale of About.com of$379,078 included in discontinued operations in 2005.

On September 30, 2005, the Company sold itsBusiness Information Segment, excluding Ward’s Automotive Group (“Ward’s”)which has been transferred to the Enthusiast Media Segment, for $385,000,resulting in a net gain of approximately $218,998. The operating results of theBusiness Information segment, excluding Ward’s, have been classified asdiscontinued operations for all periods presented. The operations of Ward’shave been included in the Enthusiast Media segment.

In the third quarter of 2005, the Company discontinuedthe operations of two magazines in the Enthusiast Media segment. Theiroperating results have been classified as discontinued operations for allperiods presented.

Totalrevenues, net, and income before provision for income taxes included indiscontinued operations for the three and nine months ended September 30,2005 and 2004 on the accompanying condensed statements of consolidatedoperations are as follows:

| ** **                                                                            | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Total revenues,  net                                                                  |       | $                                                    | 47,718     |                                                | $          | 67,861 |   | $ | 180,980 |   | $ | 255,672 |   |
| Income before  provision for income taxes (including gain on sale of businesses, net) |       | $                                                    | 219,947    |                                                | $          | 18,973 |   | $616,827 |   | $ | 62,013 |   |
|                                                                                       |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

**3.   Accounts Receivable, Net**

Accountsreceivable, net, consisted of the following:

| ** **                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Accounts  receivable               |       |                   | $          | 154,547               |       |   |   | $ | 192,126 |   |   |
| Allowance for  doubtful accounts   |       |                   | (8,787     | )                     |       |   | (10,526 | ) |   |
| Allowance for  returns and rebates |       |                   | (2,958     | )                     |       |   | (2,595 | ) |   |
|                               |       |                   | $          | 142,802               |       |   |   | $ | 179,005 |   |   |

 

**4.   Inventories**

Inventoriesconsisted of the following:

| ** **      | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|------------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Raw materials   |       |                   | $          | 11,192                |       |   |   | $ | 15,097 |   |   |
| Work in process |       |                   | 129        |                  |       |   | 98 |   |   |
| Finished goods  |       |                   | 5,836      |                  |       |   | 7,501 |   |   |
|            |       |                   | $          | 17,157                |       |   |   | $ | 22,696 |   |   |

 

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**5.   Goodwill,Other Intangible Assets and Other**

In accordance with the adoption of SFAS 142, “Goodwilland Other Intangible Assets”, the Company assesses goodwill and indefinitelived intangible assets for impairment at least once a year. The Company has establishedOctober 31 as the annual impairment test date. In addition to the annualimpairment test, an assessment is also required whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. For the nine months ended September 30, 2005 and 2004, therewere no events or changes in circumstances requiring the Company to perform animpairment test related to goodwill, intangible assets or other finite livedassets, and accordingly, there were no impairments recorded.

Historically, the Company did not need a valuationallowance for the portion of the tax effect of net operating losses equal tothe amount of deferred tax liabilities related to tax-deductible goodwill andtrademark amortization expected to occur during the carryforward period of thenet operating losses based on the timing of the reversal of these taxabletemporary differences. With the adoption of SFAS 142, the Company nolonger amortizes the book basis in the indefinite-lived intangibles, butcontinues to amortize these intangibles for tax purposes. For the three monthsended September 30, 2005 and 2004, income tax expense primarily consistedof deferred income taxes of $4,283 and $4,251, respectively, and for the ninemonths ended September 30, 2005 and 2004, $10,274 and $12,723,respectively. The Company expects that it will record a total of approximately$4,000 to increase deferred tax liabilities during the remaining three monthsof 2005.

In April 2005,the Consumer Guides segment acquired the assets of a collection of new homeguides for $15,800 in cash and $619 in assumed liabilities. This acquisitionmade *New Home Guide* the largest publisher ofnew home advertising guides in the industry. The purchase price and itsallocation is subject to routine post-closing adjustments. The Companyallocated the purchase price of the acquisition to the following asset classes:

| **Asset Class**    | ** ** | ** ** | ** ** | **Amortization Period** | ** ** | **Amount Allocated** | ** ** |
|-------------------------|------------|------------|------------|------------------------------|------------|---------------------------|------------|
| Goodwill                |       |       | —     |                         |       |                      | $          | 9,007 |   |   |
| Non-Compete  Agreements |       |       | 5  years   |                         |       |                      | 382        |   |   |
| Advertiser Lists        |       |       | 10  years  |                         |       |                      | 5,791      |   |   |
| Other                   |       |       | —     |                         |       |                      | 1,239      |   |   |
| Total                   |       |       |       |                         |       |                      | $          | 16,419 |   |   |

 

In addition, the Company acquired the net assets ofcertain other smaller consumer guides and enthusiast media related businessesfor $9,934 in cash during the first nine months of 2005. The results ofoperations of all of these acquisitions did not have a material impact on theCompany’s results of operations for the three and nine months of September 30,2005.

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Changesin the carrying amount of goodwill for the nine months ended September 30,2005, by operating segment, are as follows:

| ** **                                                  | ** ** | **Enthusiast  Media** | ** ** | **Consumer  Guides** | ** ** | **Business  Information** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|---------------------------|------------|-----------|------------|
| Balance as of  January 1, 2005                         |       |                  | $          | 688,911              |       |                      | $          | 96,001    |       |   | $ | 117,667 |   |   | $ | 902,579 |   |
| Inter-segment transfers(1)                                  |       |                  | 3,805      |                 |       | —                    |       |      | (3,805     | ) |   | — |   |
| Goodwill acquired  related to the acquisition of businesses |       |                  | 380        |                 |       | 15,407                    |       |      | 38         |   |   | 15,825 |   |
| Goodwill related  to the sale of businesses                 |       |                  | (15,430    | )                    |       | —                    |       |      | (113,900   | ) |   | (129,330 | ) |
| Balance as of  September 30, 2005                      |       |                  | $          | 677,666              |       |                      | $          | 111,408   |       |   | $ | — |   |   | $ | 789,074 |   |

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(1)          Represents goodwillallocated to the Ward’s business which was transferred to the Enthusiast Mediasegment.

Intangibleassets subject to amortization in accordance with SFAS 142 consist of thefollowing:

| ** **                                      | ** ** | ** **               | ** ** | **September 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                      | ** ** | **Range  of Lives** | ** ** | **Gross  Carrying  Amount**      | ** ** | **Accumulated  Amortization**   | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Trademarks                                      |       |                     | —     |                             |       | $                               | —     |   |   | $ | — |   |   | $ | — |   | $ | 20,449 |   |   | $ | 20,449 |   |   | $ | — |   |
| Membership,  subscriber and customer lists |       |                     | 2-20       |                             |       | 184,683                         |       |   | 171,144 |   |   | 13,539 |   | 290,917 |   |   | 268,021 |   |   | 22,896 |   |
| Non-compete  agreements                         |       |                     | 1-10       |                             |       | 91,086                          |       |   | 90,305 |   |   | 781 |   | 136,226 |   |   | 135,042 |   |   | 1,184 |   |
| Trademark license  agreements                   |       |                     | 2-15       |                             |       | 328                             |       |   | 290 |   |   | 38 |   | 2,984 |   |   | 2,917 |   |   | 67 |   |
| Copyrights                                      |       |                     | 3-20       |                             |       | 3,325                           |       |   | 3,070 |   |   | 255 |   | 17,940 |   |   | 17,344 |   |   | 596 |   |
| Databases                                       |       |                     | 2-12       |                             |       | 814                             |       |   | 752 |   |   | 62 |   | 9,334 |   |   | 9,000 |   |   | 334 |   |
| Advertiser lists                                |       |                     | 5-20       |                             |       | 94,106                          |       |   | 78,914 |   |   | 15,192 |   | 135,978 |   |   | 126,687 |   |   | 9,291 |   |
| Distribution  agreements                        |       |                     | —     |                             |       | 10,410                          |       |   | 10,410 |   |   | — |   | 10,410 |   |   | 10,410 |   |   | — |   |
| Other                                           |       |                     | 1-5        |                             |       | 917                             |       |   | 506 |   |   | 411 |   | 9,804 |   |   | 9,804 |   |   | — |   |
|                                            |       |                     |       |                             |       | $                               | 385,669    |   |   | $355,391 |   |   | $30,278 |   | $ | 634,042 |   |   | $ | 599,674 |   |   | $ | 34,368 |   |
|                                                 |            |                          |            |                                  |            |                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Intangible assets notsubject to amortization had a carrying value of $181,737 and $208,516 at September 30,2005 and December 31, 2004, respectively, and consisted primarily oftrademarks. Amortization expense for other intangible assets still subject toamortization was $2,323 and $2,861 for the three months ended September 30,2005 and 2004, respectively, and $6,356 and $9,080 for the nine months ended September 30,2005 and 2004, respectively. Amortization of deferred wiring costs of $365 and$354 for the three months ended September 30, 2005 and 2004, respectively,and $1,060 and $893 for the nine months ended September 30, 2005 and 2004,respectively, have also been included in amortization of intangible assets andother on the accompanying condensed statements of consolidated operations. At September 30,2005, estimated future amortization expenses of other intangible assets stillsubject to amortization, excluding deferred wiring costs, are as follows:approximately $2,000 for the remaining three months of 2005 and approximately$7,000, $6,000, $5,000 and $4,000 for 2006, 2007, 2008 and 2009, respectively.

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**6.   Accrued Expenses and Other**

Accruedexpenses and other current liabilities consisted of the following:

| ** **                                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                  | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Payroll,  commissions and related employee benefits         |       |                   | $          | 32,344                |       |   |   | $ | 41,143 |   |   |
| Rent and lease  liabilities                                 |       |                   | 5,579      |                  |       |   | 7,781 |   |   |
| Retail display  costs and allowances                        |       |                   | 11,575     |                  |       |   | 14,620 |   |   |
| Royalties                                                   |       |                   | 1,996      |                  |       |   | 2,273 |   |   |
| Circulation costs                                           |       |                   | 7,008      |                  |       |   | 6,531 |   |   |
| Professional fees                                           |       |                   | 4,505      |                  |       |   | 4,288 |   |   |
| Taxes                                                       |       |                   | 19,637     |                  |       |   | 12,843 |   |   |
| Deferred purchase  price                                    |       |                   | 2,250      |                  |       |   | 565 |   |   |
| Interest payable                                            |       |                   | 33,310     |                  |       |   | 17,549 |   |   |
| Interest payable  on shares subject to mandatory redemption |       |                   | 4,567      |                  |       |   | 10,947 |   |   |
| Other                                                       |       |                   | 26,870     |                  |       |   | 24,572 |   |   |
|                                                        |       |                   | $          | 149,641               |       |   |   | $ | 143,112 |   |   |

 

**7.   Long-term Debt**

Long-termdebt consisted of the following:

| ** **                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| Borrowings under  bank credit facilities    |       |                   | $          | 500,000               |       |   |   | $ | 480,406 |   |   |
| 75¤8% Senior Notes Due 2008            |       |                   | 145,847    |                  |       |   | 225,581 |   |   |
| 87¤8% Senior Notes Due 2011            |       |                   | 470,852    |                  |       |   | 470,390 |   |   |
| 8% Senior Notes  Due 2013                   |       |                   | 300,000    |                  |       |   | 300,000 |   |   |
| Senior Floating  Rate Notes Due 2010        |       |                   | 175,000    |                  |       |   | 175,000 |   |   |
|                                        |       |                   | 1,591,699  |                  |       |   | 1,651,377 |   |   |
| Obligation under  capital leases and other  |       |                   | 5,913      |                  |       |   | 9,506 |   |   |
|                                        |       |                   | 1,597,612  |                  |       |   | 1,660,883 |   |   |
| Less: Current  maturities of long-term debt |       |                   | 153,788    |                  |       |   | 24,919 |   |   |
|                                        |       |                   | $          | 1,443,824             |       |   |   | $ | 1,635,964 |   |   |

 

Upon redemption of the Series D and Series FExchangeable Preferred Stock on May 11, 2005 (see Note 8), the Companyrepaid its outstanding term loan A and term loan B in aggregate principalamounts of $5,000 and $35,000, respectively, and permanently reduced its totalrevolving loan commitments in an aggregate amount of $30,000. In addition, on May 11,2005 the Company redeemed $80,000 aggregate principal amount of its 75¤8%Senior Notes Due 2008. The 75¤8%Senior Notes were redeemed at 101.271% of the principal amount plus accruedinterest. As a result, the Company recorded a loss of $1,940 in the otherincome (expense), net line on the accompanying condensed statements ofconsolidated operations for the nine months ended September 30, 2005,related to the premium paid on the redemption as well as the write-off ofunamortized deferred financing costs and bond discount.

The Company applied the net proceeds from the sale ofits Business Information segment, and a portion of the new term loan B toprepay $47,143 of outstanding term loan A commitments, $216,777 of term loan Bcommitments and $99,000 of term loan C commitments, with the remainder used totemporarily pay down all outstanding advances under the revolving creditfacility. In addition, the Companypermanently reduced its total revolving loan commitments in an aggregateprincipal amount of $79,084. The company recorded a loss of $3,201 in the otherincome (expense), net line on the accompanying condensed 

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statementsof consolidated operations for the three and nine months ended September 30,2005 related to the write-off of unamortized deferred financing costs.

On September 30, 2005, the Company entered into anew $500,000 term loan B credit facility with a maturity date of September 30,2013. The new term loan B bears interest at the base rate plus 1.25% or LIBORplus 2.25% per year. The purpose of this borrowing was to provide the abilityto redeem the Company’s Series H Convertible Preferred Stock and all ofits outstanding 75¤8%Senior Notes due 2008.

On September 30, 2005, the Company called forredemption of all of its outstanding 75¤8% Senior Notesdue 2008. The redemption date was October 31, 2005. The notes are includedin current maturities of long-term debt on the condensed consolidated balancesheet as of September 30, 2005.

Under the most restrictive covenants as defined in thebank credit facilities agreement, as amended on September 30, 2005, theCompany must maintain a minimum interest coverage ratio, as defined, of 1.75 to1 and a minimum fixed charge coverage ratio, as defined, of 1.05 to 1. Themaximum allowable debt leverage ratio, as defined in the bank creditfacilities, is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007.The Company is in compliance with all of the financial and operating covenantsof its financing arrangements.

The Senior Floating RateNotes bear interest equal to three-month LIBOR plus 5.375% per year.

**8.   SharesSubject to Mandatory Redemption (the Company’s Series D ExchangeablePreferred Stock, Series F Exchangeable Preferred Stock and Series HExchangeable Preferred Stock)**

Sharessubject to mandatory redemption consist of the following:

| ** **                                                                                                                                                                                           | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **2005**               | ** ** | **2004**              | ** ** |
| $8.625  Series H Exchangeable Preferred Stock ($.01 par value, 2,500,000 shares  authorized and 2,117,391 shares issued and outstanding at September 30,  2005 and December 31, 2004) |       |                   | $          | 211,739               |       |   |   | $ | 211,739 |   |   |
| $10.00  Series D Exchangeable Preferred Stock ($.01 par value, 2,000,000 shares  authorized and 1,674,867 shares issued and outstanding at December 31,  2004)                             |       |                   | —     |                  |       |   | 167,487 |   |   |
| $9.20  Series F Exchangeable Preferred Stock ($.01 par value, 1,250,000 shares  authorized and 953,328 shares issued and outstanding at December 31,  2004)                                |       |                   | —     |                  |       |   | 95,333 |   |   |
|                                                                                                                                                                                                 |       |                   | $          | 211,739               |       |   |   | $ | 474,559 |   |   |

 

On May 11, 2005, the Company redeemed all of itsoutstanding shares of $10.00 Series D Exchangeable Preferred Stock (withan aggregate liquidation preference of $167,487) and all of its outstandingshares of $9.20 Series F Exchangeable Preferred Stock (with an aggregateliquidation preference of $95,333). The Series D Exchangeable PreferredStock was called at 101% of the liquidation preference thereof plus accrued butunpaid dividends and, the Series F Exchangeable Preferred Stock was calledat par plus accrued but unpaid dividends.

In the second quarter of 2005, the Company recorded aloss of $4,349 in the other income (expense), net line on the accompanyingcondensed statements of consolidated operations in connection with thesepreferred stock redemptions. This charge represents the write-offs ofunamortized deferred financing costs and the premiums paid on the redemption ofthe Series D preferred shares.

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On September 30, 2005, the Company called for theredemption of all of its outstanding shares of $8.625 Series HExchangeable Preferred Stock (with an aggregate liquidation preference of$211,739). The Preferred Stock was called at 101.4% of the liquidationpreference thereof plus accrued but unpaid dividends. The redemption wascompleted on October 31, 2005. The outstanding shares are classified as currentliabilities on the condensed consolidated balance sheet as ofSeptember 30, 2005.

**9.   CommonStock and Related Options**

Thefollowing table summarizes information about stock options outstanding andexercisable at September 30, 2005:

| **Range of  Exercise Prices** | ** ** | ** ** | ** ** | **Number  Outstanding at  9/30/05** | ** ** | **Number  Exercisable at  9/30/05** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise Price  for Outstanding  Options** | ** ** | **Weighted  Average  Exercise Price  of Exercisable  Options** | ** ** |
|-----------------------------------------|------------|------------|------------|------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| $  0.08  - $  1.96  |       |       | 492,836    |                                     |       |                                     | 367,616    |                                                |       |                                                                      | 6          |                                                                     |       |   | $ | 1.85 |   |   |   | $ | 1.85 |   |   |
| $  2.02  - $  2.98  |       |       | 1,392,681  |                                     |       |                                     | 532,366    |                                                |       |                                                                      | 4          |                                                                     |       |   | 2.78 |   |   |   | 2.70 |   |   |
| $  3.09  - $  3.80  |       |       | 2,263,625  |                                     |       |                                     | 544,344    |                                                |       |                                                                      | 6          |                                                                     |       |   | 3.15 |   |   |   | 3.10 |   |   |
| $  4.00  - $  5.00  |       |       | 7,287,375  |                                     |       |                                     | 6,109,125  |                                                |       |                                                                      | 5          |                                                                     |       |   | 4.71 |   |   |   | 4.74 |   |   |
| $  6.00  - $  9.83  |       |       | 3,313,969  |                                     |       |                                     | 2,404,188  |                                                |       |                                                                      | 6          |                                                                     |       |   | 6.53 |   |   |   | 6.71 |   |   |
| $10.13 - $19.81                         |       |       | 7,303,204  |                                     |       |                                     | 7,303,204  |                                                |       |                                                                      | 4          |                                                                     |       |   | 13.20 |   |   |   | 13.20 |   |   |
| $20.93 - $35.38                         |       |       | 50,095     |                                     |       |                                     | 49,803     |                                                |       |                                                                      | 5          |                                                                     |       |   | 25.81 |   |   |   | 25.84 |   |   |
| Total                                   |       |       | 22,103,785 |                                     |       |                                     | 17,310,646 |                                                |       |                                                                      | 5          |                                                                     |       |   | $ | 7.49 |   |   |   | $ | 8.47 |   |   |

 

In the second quarter of2005, the company granted four board members an aggregated total of 200,000options to purchase shares of the company’s common stock. The exercise price ofthese stock options is $3.77. These options vest ratably over a three-yearperiod following the date of grant.

**10.   Non-CashCompensation**

| ** **                                                                                                                            | ** ** | **Three Months Ended  September 30,**     | ** ** | **Nine Months Ended  September 30,**      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** | **    2005    ** | ** ** | **    2004    ** | ** ** |
| Restricted  stock(1)                                                                                                                  |       |                                                     | $          | 739                                                      |       |   |   | $ | 740 |   |   |   | $ | 1,991 |   |   |   | $ | 2,683 |   |   |
| Stock Based  Compensation (SFAS 123)(2)                                                                                               |       |                                                     | 3,331      |                                                     |       |   | 604 |   |   |   | 4,483 |   |   |   | 1,972 |   |   |
| Amortization of  the intrinsic value of unvested “in-the-money” options issued in  connection with the About acquisition(3) |       |                                                     | —     |                                                     |       |   | — |   |   |   | — |   |   |   | 175 |   |   |
| Total                                                                                                                                 |       |                                                     | $          | 4,070                                                    |       |   |   | $ | 1,344 |   |   |   | $ | 6,474 |   |   |   | $ | 4,830 |   |   |

----

(1)          The Company recognized$739 and $740 for the three months ended September 30, 2005 and 2004,respectively, and $1,991 and $2,683 for the nine months ended September 30,2005 and 2004, respectively, of non-cash compensation charges related to theCompany’s grants of shares of restricted common stock to certain executivesduring 2003, 2004 and 2005, as well as grants of shares of restricted commonstock to certain employees in 2003 and 2004 in exchange for their options inthe Company’s Internet subsidiaries. These grants are being expensed ratablyover their related vesting periods.

(2)          In accordance with SFAS123, the Company recorded a non-cash compensation charge of $3,331 and $604 forthe three months ended September 30, 2005 and 2004, respectively, and$4,483 and $1,972 for the nine months ended September 30, 2005 and 2004,respectively, relating to stock options and the PRIMEDIA Employee StockPurchase Plan.

15

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(3)          In connection with theacquisition of About in 2001, the Company recorded a charge of $175 related tothe amortization of the intrinsic value of unvested “in the money” options forthe nine months ended September 30, 2004. As of March 31, 2004 theseoptions were fully vested.

**11.   SeniorExecutives Severance and Provision for Severance, Closures and RestructuringRelated Costs**

*Senior ExecutivesSeverance*

During the nine monthsended September 30, 2004, the Company finalized and recorded $658 ofseverance related to the separation of the former Interim Chief ExecutiveOfficer and President and the former Chief Executive Officer.

*Provision forSeverance, Closures and Restructuring Related Costs*

Through the third quarter of 2005, the Companycontinued cost reduction initiatives previously announced to streamlineoperations, reduce layers of management and consolidate real estate.

Detailsof the initiatives implemented and the payments made in furtherance of theseplans during the nine months ended September 30, 2005 and 2004 are presentedin the following tables:

| ** **                                        | ** ** | **Liability as of  January 1,  2005** | ** ** | **Net Provision   for the Nine  Months Ended  September 30,  2005** | ** ** | **Payments  during the Nine   Months Ended  September 30,  2005** | ** ** | **Liability as of  September 30,  2005** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Severance and  closures:                          |       |                                                 |       |                                                                                              |       |                                                                                       |       |                                                    |       |   |   |   |   |   |   |   |   |
| Employee-related  termination costs               |       |                                                 | $          | 1,501                                                                                             |       |                                                                                       |       | $                                                       | 1,489      |   |   |   | $ | (2,387 | ) |   |   | $ | 603 |   |   |
| Termination of  leases related to office closures |       |                                                 | 34,450     |                                                                                              |       |                                                                                       | 67         |                                                    |       |   | (4,262 | ) |   |   | 30,255 |   |   |
| Total severance and  closures                     |       |                                                 | $          | 35,951                                                                                            | (1)        |                                                                                       |       | $                                                       | 1,556      | (2) |   |   | $ | (6,649 | ) |   |   | $ | 30,858 |   |   |

 

| ** **                                        | ** ** | **Liability as of  January 1,  2004** | ** ** | **Net Provision   for the Nine  Months Ended  September 30,  2004** | ** ** | **Payments  during the Nine  Months Ended  September 30,  2004** | ** ** | **Liability as of  September 30,  2004** | ** ** |
|---------------------------------------------------|------------|------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Severance and  closures:                          |       |                                                 |       |                                                                                              |       |                                                                                 |       |                                                    |       |   |   |   |   |   |   |   |   |
| Employee-related  termination costs               |       |                                                 | $          | 4,433                                                                                             |       |                                                                                 |       | $                                                       | 1,373      |   |   |   | $ | (3,614 | ) |   |   | $ | 2,192 |   |   |
| Termination of  leases related to office closures |       |                                                 | 35,230     |                                                                                              |       |                                                                                 | 6,249      |                                                    |       |   | (5,478 | ) |   |   | 36,001 |   |   |
| Total severance and  closures.                    |       |                                                 | $          | 39,663                                                                                            | (1)        |                                                                                 |       | $                                                       | 7,622      | (2) |   |   | $ | (9,092 | ) |   |   | $ | 38,193 |   |   |

----

(1)          Reduced for liabilitiesrelating to discontinued operations totaling $1,875 and $4,140 at January 1,2005 and 2004, respectively.

(2)          Adjusted to exclude netprovisions related to discontinued operations totaling $26 and $1,584 for thenine months ended September 30, 2005 and 2004, respectively.

The remaining liability related to real estate lease commitments for space that theCompany no longer occupies, is expected to be paid through 2015. Toreduce the lease related costs, the Company has aggressively pursued subleasesof its available office space. These leases have been recorded at their netpresent value amounts and are net of sublease income amounts. The Companyevaluates the appropriateness of its reserves on a quarterly basis.

As a result of the implementation of these plans, theCompany has closed and consolidated 23 office locations and has notified atotal of 2,077 individuals that they would be terminated under these plans. Asof September 30, 2005, 2,076 of these individuals have been terminated.

16

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Liabilities of $4,477 and $7,501 representing thecurrent portion of the provision for severance, closures and restructuringrelated costs are included in accrued expenses and other on the condensedconsolidated balance sheets as of September 30, 2005 and December 31,2004, respectively. Liabilities of $26,381 and $28,450 representing thenon-current portion of the provision for severance, closures and restructuringrelated costs are included in other non-current liabilities on the condensedconsolidated balance sheets as of September 30, 2005 and December 31,2004, respectively.

For purposes of the Company’sbank credit facility and Senior Note agreements, the provision for severance,closures and restructuring related costs is excluded from the Company’scalculation of consolidated EBITDA.

**12.   Provisionfor Unclaimed Property**

Based on an initial assessment at the end of 2003, theCompany believed that certain business units may have had unclaimed propertythat should have been remitted to one or more states under their respectiveescheatment requirements. The property in question related primarily to unusedadvertising credits and outstanding accounts payable checks. The Company hiredan outside consultant to assist in estimating the potential risk. It waspremature to estimate the extent of the financial risk at the end of 2003, butthe Company believed that the risk would not have a material impact on itsresults of operations or financial position. Upon completion of the initialphase of this assessment, the Company recorded an estimated provision forunclaimed property of $3,862, relating to continuing operations, plus $1,638relating to operations subsequently classified as discontinued operations inthe nine months ended September 30, 2004. The calculation of thisprovision represents the recording of a correction of an error for unclaimedproperty transactions which occurred during the years 1991 to 2003; however,the amount of the provision, applicable to any year within this period, is notmaterial to the results of operations for each of the respective years, nor isthe total provision in relation to the estimated results of operations for 2004considered material.

The Company has enteredthe next phase of the assessment whereby the consultant is assisting innegotiating settlements under voluntary disclosure agreements with the relevantstates, the most significant of which was settled in October 2005, with noadditional provision required.

**13.   Comprehensive Income**

Comprehensiveincome for the three and nine months ended September 30, 2005 and 2004 arepresented in the following table:

| ** **                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income                               |       | $207,754                                             |       | $                                                   | 8,740      |   | $ | 578,279 |   | $ | 21,965 |   |
| Other comprehensive  income (loss):      |       |                                                 |       |                                                |       |   |   |   |   |
| Foreign currency translation adjustments |       | —                                               |       | 13                                                  |       | — |   | (3 | ) |
| Total comprehensive  income              |       | $                                                    | 207,754    |                                                | $          | 8,753 |   | $ | 578,279 |   | $ | 21,962 |   |
|                                          |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

**14.   Income per Common Share**

Income per common share for the three and nine monthsended September 30, 2005 and 2004 has been determined based on net incomeapplicable to common shareholders, divided by the weighted average number ofcommon shares outstanding for all periods presented.

The securities that couldpotentially dilute basic earnings per share in the future consist ofapproximately 9,870,000 warrants at September 30, 2005 and 2004, and22,103,785 and 26,390,565 stock 

17

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optionsat September 30, 2005 and 2004, respectively. These securities were notincluded in the computation of diluted income per share because the effect oftheir inclusion would be antidilutive.

**15.   Contingencies**

The Company is involved inordinary and routine litigation incidental to its business. In the opinion ofmanagement, there is no pending legal proceeding that would have a materialadverse effect on the condensed consolidated financial statements of theCompany.

**16.   Business Segment Information**

The Company’s products compete primarily in the UnitedStates, in three principal segments: Enthusiast Media, Consumer Guides andEducation. PRIMEDIA believes that this structure better aligns its businessesto provide a clearer sense of its strategic focus and operating performance.

The Enthusiast Media segment produces and distributescontent through magazines and via the Internet to consumers in various nicheand enthusiast markets. It includes the Company’s consumer magazine brands,their related Web sites, events, licensing and merchandising.

The Consumer Guides segment is the nation’s largestpublisher and distributor of free publications, including Apartment Guide, NewHome Guide and Auto Guide.

The Education segment consists of the businesses thatprovide content for schools, universities, government and other publicinstitutions as well as training. It includes Channel One, Films Media Groupand IMN, a continuing education business for medical professionals.

The following information includes certainintersegment transactions and is, therefore, not necessarily indicative of theresults had the operations existed as stand-alone businesses.Intersegment transactions represent intercompany advertising and otherservices, which are billed at what management believes are prevailing marketrates. These intersegment transactions, which represent transactions betweenoperating units in different business segments, are eliminated inconsolidation.

18

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Information regarding theoperations of the Company by business segment is set forth below basedprimarily on the nature of the targeted audience. Corporate represents itemsnot allocated to other business segments. PRIMEDIA evaluates performance basedon several factors, of which the primary financial measure is segment earningsbefore interest, taxes, depreciation, amortization and other charges (income) (“SegmentEBITDA”). Other charges (income) include severance related to separated seniorexecutives, non-cash compensation, provision for severance, closures andrestructuring related costs, provision for unclaimed property and (gain) losson sale of businesses and other, net.

| ** **                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                               | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues, net:                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                         |       | $                                                    | 177,668    |                                                | $          | 181,452 |   | $ | 513,917 |   | $ | 521,841 |   |
| Consumer Guides                                                          |       | 81,310                                               |       | 71,738                                              |       | 236,428 |   | 214,209 |   |
| Education                                                                |       | 10,996                                               |       | 13,198                                              |       | 48,232 |   | 46,953 |   |
| Intersegment Eliminations                                                |       | (66                                                  | )          | (110                                                | )          | (234 | ) | (458 | ) |
| Total                                                                    |       | $                                                    | 269,908    |                                                | $          | 266,278 |   | $ | 798,343 |   | $ | 782,545 |   |
| Segment EBITDA(1):                                                       |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                         |       | $                                                    | 36,149     |                                                | $          | 40,012 |   | $ | 101,284 |   | $ | 108,808 |   |
| Consumer Guides                                                          |       | 17,791                                               |       | 19,747                                              |       | 53,947 |   | 59,901 |   |
| Education                                                                |       | (2,697                                               | )          | (778                                                | )          | 2,265 |   | 1,332 |   |
| Corporate Overhead                                                       |       | (6,302                                               | )          | (7,468                                              | )          | (19,966 | ) | (22,215 | ) |
| Total                                                                    |       | $                                                    | 44,941     |                                                | $          | 51,513 |   | $ | 137,530 |   | $ | 147,826 |   |
| Depreciation, amortization and other charges(2):                         |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                         |       | $                                                    | 4,503      |                                                | $          | 4,581 |   | $ | 14,451 |   | $ | 20,275 |   |
| Consumer Guides                                                          |       | 3,136                                                |       | 2,729                                               |       | 8,390 |   | 8,480 |   |
| Education                                                                |       | 2,141                                                |       | 2,260                                               |       | 6,108 |   | 7,243 |   |
| Corporate                                                                |       | 4,556                                                |       | 3,930                                               |       | 7,656 |   | 11,760 |   |
| Total                                                                    |       | $                                                    | 14,336     |                                                | $          | 13,500 |   | $ | 36,605 |   | $ | 47,758 |   |
| Operating income (loss):                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                         |       | $                                                    | 31,646     |                                                | $          | 35,431 |   | $ | 86,833 |   | $ | 88,533 |   |
| Consumer Guides                                                          |       | 14,655                                               |       | 17,018                                              |       | 45,557 |   | 51,421 |   |
| Education                                                                |       | (4,838                                               | )          | (3,038                                              | )          | (3,843 | ) | (5,911 | ) |
| Corporate                                                                |       | (10,858                                              | )          | (11,398                                             | )          | (27,622 | ) | (33,975 | ) |
| Total                                                                    |       | 30,605                                               |       | 38,013                                              |       | 100,925 |   | 100,068 |   |
| Other income (expense):                                                  |       |                                                 |       |                                                |       |   |   |   |   |
| Provision for impairment  of investments                                 |       | —                                               |       | —                                              |       | — |   | (804 | ) |
| Interest expense                                                         |       | (32,511                                              | )          | (32,322                                             | )          | (98,482 | ) | (90,402 | ) |
| Interest on shares  subject to mandatory redemption                      |       | (4,566                                               | )          | (10,945                                             | )          | (21,920 | ) | (32,835 | ) |
| Amortization of deferred  financing costs                                |       | (1,042                                               | )          | (1,334                                              | )          | (3,560 | ) | (3,653 | ) |
| Other income (expense),  net                                             |       | (2,907                                               | )          | 685                                                 |       | (7,088 | ) | 826 |   |
| Loss from continuing  operations before provision for income taxes  |       | (10,421                                              | )          | (5,903                                              | )          | (30,125 | ) | (26,800 | ) |
| Provision for income  taxes                                              |       | (4,346                                               | )          | (4,326                                              | )          | (10,496 | ) | (12,916 | ) |
| Loss from continuing  operations                                         |       | (14,767                                              | )          | (10,229                                             | )          | (40,621 | ) | (39,716 | ) |
| Discontinued  operations(3)                                              |       | 222,521                                              |       | 18,969                                              |       | 618,900 |   | 61,681 |   |
| Net income                                                               |       | $                                                    | 207,754    |                                                | $          | 8,740 |   | $578,279 |   | $ | 21,965 |   |

----

(1)           Segment EBITDA represents the segments’ earnings beforeinterest, taxes, depreciation, amortization and other charges (income) (seeNote 2 below). Segment EBITDA is not intended to represent cash flows fromoperating activities and should not be considered as an alternative to netincome or loss (as determined in conformity with generally accepted accountingprinciples in the United States of America), as an indicator of the Company’soperating performance or to cash flows as a measure of liquidity. SegmentEBITDA is presented herein because the Company’s chief operating decision makerevaluates and measures each business unit’s performance based on its SegmentEBITDA results. PRIMEDIA believes that Segment EBITDA is the most accurateindicator of its segments’ results, because it focuses on revenue and operatingcost items driven by each operating managers’ 

19

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performance, and excludesitems largely outside of the operating managers’ control. Segment EBITDA maynot be available for the Company’s discretionary use as there are requirementsto redeem shares subject to mandatory redemption and repay debt, among otherpayments. Segment EBITDA as presented may not be comparable to similarly titledmeasures reported by other companies since not all companies necessarilycalculate Segment EBITDA in an identical manner, and therefore, is notnecessarily an accurate measure of comparison between companies.

(2)           Other charges (income) include severance related toseparated senior executives, non-cash compensation, provision for severance,closures and restructuring related costs, provision for unclaimed property andgain on sale of business and other, net.

(3)           Discontinued operations include a gain onsale of businesses, net of $219,037 and $999 for the three months ended September 30,2005 and 2004, respectively, and $601,499 and $43,286 for the nine months endedSeptember 30, 2005 and 2004, respectively.

**17.   FinancialInformation for Guarantors of the Company’s Debt**

The information that follows presents condensedconsolidating financial information as of September 30, 2005 and December 31,2004 and for the nine months ended September 30, 2005 and 2004 for a)PRIMEDIA Inc. (as the Issuer), b) the guarantor subsidiaries, which are withlimited exceptions, the restricted subsidiaries, represent the core PRIMEDIAbusinesses and exclude investment and other development properties included inthe unrestricted category, c) the non-guarantor subsidiaries (primarilyrepresenting Internet assets and businesses, new launches and other propertiesunder evaluation for turnaround or shutdown and foreign subsidiaries), whichare with limited exceptions, the unrestricted subsidiaries, d) eliminationentries and e) the Company on a consolidated basis. During the nine monthsended September 30, 2005, there have been no reclassifications betweenrestricted and unrestricted subsidiaries.

The condensed consolidating financial informationincludes certain allocations of revenues, expenses, assets and liabilitiesbased on management’s best estimates which are not necessarily indicative ofthe financial position, results of operations and cash flows that theseentities would have achieved on a stand-alone basis and should be read inconjunction with the consolidated financial statements of the Company. Theintercompany balances in the accompanying condensed consolidating financialstatements include cash management activities, management fees, crosspromotional activities and other intercompany charges between Corporate and thebusiness units and among the business units. The non-guarantor subsidiaries resultsof operations include: Internet operations, foreign operations, certaindistribution operations, certain start-up magazine businesses, revenues andrelated expenses derived from the licensing of certain products of guarantorsubsidiaries and expenses associated with the cross promotion by the guarantorsubsidiaries of the activities of the non-guarantor subsidiaries. Thetransactions described above are billed, by the Company, at what the Companybelieves are prevailing market rates. All intercompany related activities areeliminated in consolidation.

20

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED CONSOLIDATINGBALANCE SHEET(UNAUDITED)September 30, 2005(dollars in thousands)**

| ** **                                                | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                                |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                           |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                 |       |                   | $          | 451,184          |       |              |       | $                | 3,513      |                   |       |   | $ | 47 |   |   |   | $ | — |   |   |   | $ | 454,744 |   |   |
| Accounts receivable, net                                  |       |                   | —     |             |       |              | 136,017    |             |       |                   | 6,785      |   |   |   | — |   |   |   | 142,802 |   |   |
| Intercompany receivables                                  |       |                   | —     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | — |   |   |
| Inventories                                               |       |                   | —     |             |       |              | 16,575     |             |       |                   | 582        |   |   |   | — |   |   |   | 17,157 |   |   |
| Prepaid expenses and other                                |       |                   | 3,710      |             |       |              | 16,186     |             |       |                   | 7,914      |   |   |   | — |   |   |   | 27,810 |   |   |
| Total current assets                                      |       |                   | 454,894    |             |       |              | 172,291    |             |       |                   | 15,328     |   |   |   | — |   |   |   | 642,513 |   |   |
| Property and equipment, net                               |       |                   | 3,775      |             |       |              | 48,687     |             |       |                   | 10,476     |   |   |   | — |   |   |   | 62,938 |   |   |
| Investment in and advances to subsidiaries                |       |                   | 328,985    |             |       |              | —     |             |       |                   | —     |   |   |   | (328,985 | ) |   |   | — |   |   |
| Other intangible assets, net                              |       |                   | —     |             |       |              | 202,166    |             |       |                   | 9,849      |   |   |   | — |   |   |   | 212,015 |   |   |
| Goodwill                                                  |       |                   | —     |             |       |              | 756,625    |             |       |                   | 32,449     |   |   |   | — |   |   |   | 789,074 |   |   |
| Other non-current assets                                  |       |                   | 6,257      |             |       |              | 31,298     |             |       |                   | 1,093      |   |   |   | — |   |   |   | 38,648 |   |   |
| Total Assets                                              |       |                   | $          | 793,911          |       |              |       | $                | 1,211,067  |                   |       |   | $ | 69,195 |   |   |   | $ | (328,985 | ) |   |   | $ | 1,745,188 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                      |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                          |       |                   | $          | 1,451            |       |              |       | $                | 47,229     |                   |       |   | $ | 1,373 |   |   |   | $ | — |   |   |   | $ | 50,053 |   |   |
| Intercompany payables                                     |       |                   | (663,098   | )                |       |              | (674,851   | )                |       |                   | 1,337,949  |   |   |   | — |   |   |   | — |   |   |
| Accrued expenses and other                                |       |                   | 74,991     |             |       |              | 68,666     |             |       |                   | 5,984      |   |   |   | — |   |   |   | 149,641 |   |   |
| Deferred revenues                                         |       |                   | 1,738      |             |       |              | 128,970    |             |       |                   | 5,422      |   |   |   | — |   |   |   | 136,130 |   |   |
| Current maturities of long-term debt                 |       |                   | 151,676    |             |       |              | 2,096      |             |       |                   | 16         |   |   |   | — |   |   |   | 153,788 |   |   |
| Shares subject to mandatory redemption                    |       |                   | 211,739    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 211,739 |   |   |
| Total current liabilities                                 |       |                   | (221,503   | )                |       |              | (427,890   | )                |       |                   | 1,350,744  |   |   |   | — |   |   |   | 701,351 |   |   |
| Long-term debt                                            |       |                   | 1,440,990  |             |       |              | 2,749      |             |       |                   | 85         |   |   |   | — |   |   |   | 1,443,824 |   |   |
| Intercompany notes payable                                |       |                   | —     |             |       |              | 2,568,599  |             |       |                   | —     |   |   |   | (2,568,599 | ) |   |   | — |   |   |
| Deferred revenues                                         |       |                   | 14,875     |             |       |              | 3          |             |       |                   | —     |   |   |   | — |   |   |   | 14,878 |   |   |
| Deferred income taxes                                     |       |                   | 83,555     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 83,555 |   |   |
| Other non-current liabilities                             |       |                   | 34,237     |             |       |              | 24,898     |             |       |                   | 688        |   |   |   | — |   |   |   | 59,823 |   |   |
| Total Liabilities                                         |       |                   | 1,352,154  |             |       |              | 2,168,359  |             |       |                   | 1,351,517  |   |   |   | (2,568,599 | ) |   |   | 2,303,431 |   |   |
| Shareholders’ Deficiency:                            |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                              |       |                   | 2,716      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,716 |   |   |
| Additional paid-in capital                                |       |                   | 2,362,902  |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,362,902 |   |   |
| Accumulated deficit                                       |       |                   | (2,847,984 | )                |       |              | (957,292   | )                |       |                   | (1,282,322 | ) |   |   | 2,239,614 |   |   |   | (2,847,984 | ) |   |
| Common stock in treasury, at cost                         |       |                   | (75,877    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (75,877 | ) |   |
| Total shareholders’ deficiency                       |       |                   | (558,243   | )                |       |              | (957,292   | )                |       |                   | (1,282,322 | ) |   |   | 2,239,614 |   |   |   | (558,243 | ) |   |
| Total Liabilities  and Shareholders’ Deficiency |       |                   | $          | 793,911          |       |              |       | $                | 1,211,067  |                   |       |   | $ | 69,195 |   |   |   | $ | (328,985 | ) |   |   | $ | 1,745,188 |   |   |

 

21

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS(UNAUDITED)For the Nine Months Ended September 30, 2005(dollars in thousands)**

| ** **                                                               | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                               | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                               | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                            |       |                   | $          | —           |       |              |       | $                | 696,542    |                   |       |   | $ | 114,374 |   |   |   | $ | (12,573 | ) |   |   | $ | 798,343 |   |   |
| Operating costs and  expenses:                                           |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold                                                       |       |                   | —     |             |       |              | 169,916    |             |       |                   | 6,914      |   |   |   | — |   |   |   | 176,830 |   |   |
| Marketing and selling                                                    |       |                   | —     |             |       |              | 139,210    |             |       |                   | 14,329     |   |   |   | — |   |   |   | 153,539 |   |   |
| Distribution, circulation and fulfillment                                |       |                   | —     |             |       |              | 99,503     |             |       |                   | 51,278     |   |   |   | — |   |   |   | 150,781 |   |   |
| Editorial                                                                |       |                   | —     |             |       |              | 55,971     |             |       |                   | 6,322      |   |   |   | — |   |   |   | 62,293 |   |   |
| Other general expenses                                                   |       |                   | 36         |             |       |              | 49,004     |             |       |                   | 60,972     |   |   |   | (12,573 | ) |   |   | 97,439 |   |   |
| Corporate administrative  expenses                                       |       |                   | 22,262     |             |       |              | 135        |             |       |                   | 4,008      |   |   |   | — |   |   |   | 26,405 |   |   |
| Depreciation of property and equipment                                   |       |                   | 1,986      |             |       |              | 14,294     |             |       |                   | 4,959      |   |   |   | — |   |   |   | 21,239 |   |   |
| Amortization of intangible assets and other                         |       |                   | —     |             |       |              | 7,192      |             |       |                   | 224        |   |   |   | — |   |   |   | 7,416 |   |   |
| Provision for severance, closures and restructuring  related costs  |       |                   | (669       | )                |       |              | 2,126      |             |       |                   | 99         |   |   |   | — |   |   |   | 1,556 |   |   |
| Gain on sale of businesses and other, net                                |       |                   | —     |             |       |              | (80        | )                |       |                   | —     |   |   |   | — |   |   |   | (80 | ) |   |
| Operating income (loss)                                                  |       |                   | (23,615    | )                |       |              | 159,271    |             |       |                   | (34,731    | ) |   |   | — |   |   |   | 100,925 |   |   |
| Other income (expense):                                                  |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                         |       |                   | (97,245    | )                |       |              | (1,185     | )                |       |                   | (52        | ) |   |   | — |   |   |   | (98,482 | ) |   |
| Interest on shares subject to mandatory redemption                       |       |                   | (21,920    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (21,920 | ) |   |
| Amortization of deferred financing costs                                 |       |                   | (669       | )                |       |              | (2,675     | )                |       |                   | (216       | ) |   |   | — |   |   |   | (3,560 | ) |   |
| Equity in losses of subsidiaries                                         |       |                   | 621,757    |             |       |              | —     |             |       |                   | —     |   |   |   | (621,757 | ) |   |   | — |   |   |
| Intercompany management fees and interest                                |       |                   | 111,424    |             |       |              | (103,582   | )                |       |                   | (7,842     | ) |   |   | — |   |   |   | — |   |   |
| Other expense, net                                                       |       |                   | (3,607     | )                |       |              | (3,413     | )                |       |                   | (68        | ) |   |   | — |   |   |   | (7,088 | ) |   |
| Income (loss) from continuing operations before  income taxes            |       |                   | 586,125    |             |       |              | 48,416     |             |       |                   | (42,909    | ) |   |   | (621,757 | ) |   |   | (30,125 | ) |   |
| Provision for  income taxes                                              |       |                   | (10,275    | )                |       |              | (213       | )                |       |                   | (8         | ) |   |   | — |   |   |   | (10,496 | ) |   |
| Income (loss) from continuing operations                                 |       |                   | 575,850    |             |       |              | 48,203     |             |       |                   | (42,917    | ) |   |   | (621,757 | ) |   |   | (40,621 | ) |   |
| Discontinued operations                                                  |       |                   | 2,429      |             |       |              | 616,011    |             |       |                   | 460        |   |   |   | — |   |   |   | 618,900 |   |   |
| Net income (loss)                                                        |       |                   | $          | 578,279          |       |              |       | $                | 664,214    |                   |       |   | $ | (42,457 | ) |   |   | $ | (621,757 | ) |   |   | $ | 578,279 |   |   |

 

22

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Nine Months Ended September 30, 2005(dollars in thousands)**

| ** **                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                         | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                         | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                  |       |                   | $          | 578,279          |       |              |       | $                | 664,214    |                   |       |   | $ | (42,457 | ) |   |   | $ | (621,757 | ) |   |   | $ | 578,279 |   |   |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities |       |                   | (709,600   | )                |       |              | (459,096   | )                |       |                   | 10,234     |   |   |   | 621,757 |   |   |   | (536,705 | ) |   |
| Changes in operating assets and liabilities                                                        |       |                   | (5,915     | )                |       |              | (25,368    | )                |       |                   | (5,653     | ) |   |   | — |   |   |   | (36,936 | ) |   |
| Net cash provided by (used in) operating activities                                                |       |                   | (137,236   | )                |       |              | 179,750    |             |       |                   | (37,876    | ) |   |   | — |   |   |   | 4,638 |   |   |
| **Investing  activities:**                                                                         |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, equipment and other,  net                                                   |       |                   | (145       | )                |       |              | (15,901    | )                |       |                   | (5,635     | ) |   |   | — |   |   |   | (21,681 | ) |   |
| Proceeds from sales of businesses and other                                                        |       |                   | —     |             |       |              | 795,098    |             |       |                   | 21,404     |   |   |   | — |   |   |   | 816,502 |   |   |
| Payments for businesses acquired, net of cash  acquired                                            |       |                   | —     |             |       |              | (24,027    | )                |       |                   | (3,803     | ) |   |   | — |   |   |   | (27,830 | ) |   |
| Net cash provided by (used in) investing  activities                                               |       |                   | (145       | )                |       |              | 755,170    |             |       |                   | 11,966     |   |   |   | — |   |   |   | 766,991 |   |   |
| **Financing  activities:**                                                                         |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                              |       |                   | 911,543    |             |       |              | (937,654   | )                |       |                   | 26,111     |   |   |   | — |   |   |   | — |   |   |
| Borrowings under credit agreements                                                                 |       |                   | 979,709    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 979,709 |   |   |
| Repayments of borrowings under credit agreements                                                   |       |                   | (960,616   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (960,616 | ) |   |
| Payments for repurchase of Senior Notes                                                            |       |                   | (81,017    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (81,017 | ) |   |
| Proceeds from issuances of common  stock, net                                                      |       |                   | 1,657      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 1,657 |   |   |
| Redemption of Series D and F Exchangeable Preferred  Stock                                         |       |                   | (264,494   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (264,494 | ) |   |
| Deferred financing costs paid                                                                      |       |                   | (549       | )                |       |              | (266       | )                |       |                   | (17        | ) |   |   | — |   |   |   | (832 | ) |   |
| Capital lease obligations                                                                          |       |                   | (1,163     | )                |       |              | (2,816     | )                |       |                   | (162       | ) |   |   | — |   |   |   | (4,141 | ) |   |
| Other                                                                                              |       |                   | —     |             |       |              | (151       | )                |       |                   | —     |   |   |   | — |   |   |   | (151 | ) |   |
| Net cash provided by (used in)  financing activities                                               |       |                   | 585,070    |             |       |              | (940,887   | )                |       |                   | 25,932     |   |   |   | — |   |   |   | (329,885 | ) |   |
| Increase (decrease) in cash and  cash equivalents                                                  |       |                   | 447,689    |             |       |              | (5,967     | )                |       |                   | 22         |   |   |   | — |   |   |   | 441,744 |   |   |
| Cash and cash equivalents,  beginning of period                                                    |       |                   | 3,495      |             |       |              | 9,480      |             |       |                   | 25         |   |   |   | — |   |   |   | 13,000 |   |   |
| Cash and cash  equivalents, end of period                                                          |       |                   | $          | 451,184          |       |              |       | $                | 3,513      |                   |       |   | $ | 47 |   |   |   | $ | — |   |   |   | $ | 454,744 |   |   |

 

23

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**PRIMEDIA INC. ANDSUBSIDIARIESCONSOLIDATING BALANCE SHEETDecember 31, 2004(dollars in thousands)**

| ** **                                           | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                           | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                           |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                      |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |       |                   | $          | 3,495            |       |              |       | $                | 9,480      |                   |       |   | $ | 25 |   |   |   | $ | — |   |   |   | $ | 13,000 |   |   |
| Accounts receivable, net                             |       |                   | —     |             |       |              | 171,143    |             |       |                   | 7,862      |   |   |   | — |   |   |   | 179,005 |   |   |
| Inventories                                          |       |                   | —     |             |       |              | 22,553     |             |       |                   | 143        |   |   |   | — |   |   |   | 22,696 |   |   |
| Prepaid expenses and other                           |       |                   | 4,851      |             |       |              | 20,535     |             |       |                   | 4,037      |   |   |   | — |   |   |   | 29,423 |   |   |
| Assets held for sale                                 |       |                   | —     |             |       |              | —     |             |       |                   | 40,274     |   |   |   | — |   |   |   | 40,274 |   |   |
| Total current assets                                 |       |                   | 8,346      |             |       |              | 223,711    |             |       |                   | 52,341     |   |   |   | — |   |   |   | 284,398 |   |   |
| Property and equipment, net                          |       |                   | 5,613      |             |       |              | 64,731     |             |       |                   | 9,462      |   |   |   | — |   |   |   | 79,806 |   |   |
| Investment in and advances to  subsidiaries          |       |                   | 713,005    |             |       |              | —     |             |       |                   | —     |   |   |   | (713,005 | ) |   |   | — |   |   |
| Other intangible assets, net                         |       |                   | —     |             |       |              | 242,389    |             |       |                   | 495        |   |   |   | — |   |   |   | 242,884 |   |   |
| Goodwill                                             |       |                   | —     |             |       |              | 886,534    |             |       |                   | 16,045     |   |   |   | — |   |   |   | 902,579 |   |   |
| Other non-current assets                             |       |                   | 9,322      |             |       |              | 36,138     |             |       |                   | 3,921      |   |   |   | — |   |   |   | 49,381 |   |   |
| Total Assets                                         |       |                   | $          | 736,286          |       |              |       | $                | 1,453,503  |                   |       |   | $ | 82,264 |   |   |   | $ | (713,005 | ) |   |   | $ | 1,559,048 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                 |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                     |       |                   | $          | 13,036           |       |              |       | $                | 68,708     |                   |       |   | $ | 2,988 |   |   |   | $ | — |   |   |   | $ | 84,732 |   |   |
| Intercompany payables                                |       |                   | (441,488   | )                |       |              | (554,146   | )                |       |                   | 995,634    |   |   |   | — |   |   |   | — |   |   |
| Accrued expenses and other                           |       |                   | 56,726     |             |       |              | 83,128     |             |       |                   | 3,258      |   |   |   | — |   |   |   | 143,112 |   |   |
| Deferred revenues                                    |       |                   | 1,738      |             |       |              | 147,397    |             |       |                   | 8,179      |   |   |   | — |   |   |   | 157,314 |   |   |
| Current maturities of long-term debt                 |       |                   | 22,221     |             |       |              | 2,648      |             |       |                   | 50         |   |   |   | — |   |   |   | 24,919 |   |   |
| Liabilities of businesses held for sale              |       |                   | —     |             |       |              | —     |             |       |                   | 26,980     |   |   |   | — |   |   |   | 26,980 |   |   |
| Total current liabilities                            |       |                   | (347,767   | )                |       |              | (252,265   | )                |       |                   | 1,037,089  |   |   |   | — |   |   |   | 437,057 |   |   |
| Long-term debt                                       |       |                   | 1,631,786  |             |       |              | 4,178      |             |       |                   | —     |   |   |   | — |   |   |   | 1,635,964 |   |   |
| Shares subject to mandatory redemption               |       |                   | 474,559    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 474,559 |   |   |
| Intercompany notes payable                           |       |                   | —     |             |       |              | 2,486,489  |             |       |                   | 401,955    |   |   |   | (2,888,444 | ) |   |   | — |   |   |
| Deferred revenues                                    |       |                   | 16,150     |             |       |              | 943        |             |       |                   | —     |   |   |   | — |   |   |   | 17,093 |   |   |
| Deferred income taxes                                |       |                   | 75,172     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 75,172 |   |   |
| Other non-current liabilities                        |       |                   | 31,206     |             |       |              | 32,570     |             |       |                   | 247        |   |   |   | — |   |   |   | 64,023 |   |   |
| Total Liabilities                                    |       |                   | 1,881,106  |             |       |              | 2,271,915  |             |       |                   | 1,439,291  |   |   |   | (2,888,444 | ) |   |   | 2,703,868 |   |   |
| Shareholders’ Deficiency:                       |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                         |       |                   | 2,709      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,709 |   |   |
| Additional paid-in capital                           |       |                   | 2,354,778  |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,354,778 |   |   |
| Accumulated deficit                                  |       |                   | (3,426,263 | )                |       |              | (818,406   | )                |       |                   | (1,356,866 | ) |   |   | 2,175,272 |   |   |   | (3,426,263 | ) |   |
| Accumulated other comprehensive loss                 |       |                   | (167       | )                |       |              | (6         | )                |       |                   | (161       | ) |   |   | 167 |   |   |   | (167 | ) |   |
| Common stock in treasury, at cost                    |       |                   | (75,877    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (75,877 | ) |   |
| Total shareholders’ deficiency                  |       |                   | (1,144,820 | )                |       |              | (818,412   | )                |       |                   | (1,357,027 | ) |   |   | 2,175,439 |   |   |   | (1,144,820 | ) |   |
| Total Liabilities  and Shareholders’ Deficiency |       |                   | $          | 736,286          |       |              |       | $                | 1,453,503  |                   |       |   | $ | 82,264 |   |   |   | $ | (713,005 | ) |   |   | $ | 1,559,048 |   |   |

 

24

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OFCONSOLIDATING OPERATIONS(UNAUDITED)For the Nine Months Ended September 30, 2004(dollars in thousands)**

| ** **                                                              | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                              | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                              | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                           |       |                   | $          | —           |       |              |       | $                | 739,930    |                   |       |   | $ | 68,114 |   |   |   | $ | (25,499 | ) |   |   | $ | 782,545 |   |   |
| Operating costs and  expenses:                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold                                                      |       |                   | —     |             |       |              | 164,228    |             |       |                   | 5,057      |   |   |   | — |   |   |   | 169,285 |   |   |
| Marketing and selling                                                   |       |                   | —     |             |       |              | 135,244    |             |       |                   | 15,796     |   |   |   | — |   |   |   | 151,040 |   |   |
| Distribution, circulation and fulfillment                               |       |                   | —     |             |       |              | 107,058    |             |       |                   | 35,807     |   |   |   | — |   |   |   | 142,865 |   |   |
| Editorial                                                               |       |                   | —     |             |       |              | 53,506     |             |       |                   | 4,480      |   |   |   | — |   |   |   | 57,986 |   |   |
| Other general expenses                                                  |       |                   | 123        |             |       |              | 86,202     |             |       |                   | 30,624     |   |   |   | (25,499 | ) |   |   | 91,450 |   |   |
| Corporate administrative expenses                                       |       |                   | 22,372     |             |       |              | —     |             |       |                   | 4,551      |   |   |   | — |   |   |   | 26,923 |   |   |
| Depreciation of property and equipment                                  |       |                   | 2,187      |             |       |              | 14,488     |             |       |                   | 4,394      |   |   |   | — |   |   |   | 21,069 |   |   |
| Amortization of intangible assets and other                        |       |                   | —     |             |       |              | 9,759      |             |       |                   | 214        |   |   |   | — |   |   |   | 9,973 |   |   |
| Severance related to separated senior executives                   |       |                   | 658        |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 658 |   |   |
| Provision for severance, closures and restructuring  related costs |       |                   | 3,981      |             |       |              | 3,461      |             |       |                   | 180        |   |   |   | — |   |   |   | 7,622 |   |   |
| Provision for unclaimed property                                        |       |                   | 56         |             |       |              | 3,806      |             |       |                   | —     |   |   |   |   |   |   |   | 3,862 |   |   |
| Loss (gain) on sales of businesses and other,  net                 |       |                   | 47         |             |       |              | 2,045      |             |       |                   | (2,348     | ) |   |   | — |   |   |   | (256 | ) |   |
| Operating income (loss)                                                 |       |                   | (29,424    | )                |       |              | 160,133    |             |       |                   | (30,641    | ) |   |   | — |   |   |   | 100,068 |   |   |
| Other income (expense):                                                 |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Provision for impairment of investments                                 |       |                   | (804       | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (804 | ) |   |
| Interest expense                                                        |       |                   | (87,708    | )                |       |              | (2,567     | )                |       |                   | (127       | ) |   |   | — |   |   |   | (90,402 | ) |   |
| Interest on shares subject to mandatory redemption                      |       |                   | (32,835    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (32,835 | ) |   |
| Amortization of deferred financing costs                                |       |                   | (1,007     | )                |       |              | (2,595     | )                |       |                   | (51        | ) |   |   |   |   |   |   | (3,653 | ) |   |
| Equity in income of subsidiaries                                        |       |                   | 78,929     |             |       |              | —     |             |       |                   | —     |   |   |   | (78,929 | ) |   |   | — |   |   |
| Intercompany management fees and interest                          |       |                   | 105,428    |             |       |              | (103,148   | )                |       |                   | (2,280     | ) |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                             |       |                   | 781        |             |       |              | 123        |             |       |                   | (78        | ) |   |   | — |   |   |   | 826 |   |   |
| Income (loss) from continuing operations before  income taxes           |       |                   | 33,360     |             |       |              | 51,946     |             |       |                   | (33,177    | ) |   |   | (78,929 | ) |   |   | (26,800 | ) |   |
| Benefit (Provision) for Income taxes                                    |       |                   | (12,922    | )                |       |              | 26         |             |       |                   | (20        | ) |   |   | — |   |   |   | (12,916 | ) |   |
| Income (loss) from continuing operations                                |       |                   | 20,438     |             |       |              | 51,972     |             |       |                   | (33,197    | ) |   |   | (78,929 | ) |   |   | (39,716 | ) |   |
| Discontinued operations                                                 |       |                   | —     |             |       |              | 69,647     |             |       |                   | (7,966     | ) |   |   | — |   |   |   | 61,681 |   |   |
| Net income (loss)                                                       |       |                   | $          | 20,438           |       |              |       | $                | 121,619    |                   |       |   | $ | (41,163 | ) |   |   | $ | (78,929 | ) |   |   | $ | 21,965 |   |   |

 

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OFCONSOLIDATING CASH FLOWS (UNAUDITED)For the Nine Months Ended September 30, 2004(dollars in thousands)**

| ** **                                                                                                   | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                                   | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                                   | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                                    |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                            |       |                   | $          | 20,438           |       |              |       | $                | 121,619    |                   |       |   | $ | (41,163 | ) |   |   | $ | (78,929 | ) |   |   | $ | 21,965 |   |   |
| Adjustments to reconcile net income (loss) to  net cash provided by (used in) operating activities |       |                   | (160,456   | )                |       |              | 90,284     |             |       |                   | 2,576      |   |   |   | 78,929 |   |   |   | 11,333 |   |   |
| Changes in operating assets and  liabilities                                                                 |       |                   | 2,449      |             |       |              | 12,213     |             |       |                   | (11,628    | ) |   |   | — |   |   |   | 3,034 |   |   |
| Net cash provided by (used in) operating activities                                                          |       |                   | (137,569   | )                |       |              | 224,116    |             |       |                   | (50,215    | ) |   |   | — |   |   |   | 36,332 |   |   |
| **Investing  activities:**                                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, equipment and other, net                                                              |       |                   | (869       | )                |       |              | (18,775    | )                |       |                   | (3,856     | ) |   |   | — |   |   |   | (23,500 | ) |   |
| Proceeds from sale of businesses and other                                                              |       |                   | —     |             |       |              | 68,163     |             |       |                   | 2,114      |   |   |   | — |   |   |   | 70,277 |   |   |
| Payments for businesses acquired, net of cash  acquired                                                 |       |                   | —     |             |       |              | (1,358     | )                |       |                   | —     |   |   |   | — |   |   |   | (1,358 | ) |   |
| Proceeds from sale of (payments for) other  investments                                                      |       |                   | (10        | )                |       |              | 17,409     |             |       |                   | —     |   |   |   | — |   |   |   | 17,399 |   |   |
| Net cash provided by (used in) investing activities                                                          |       |                   | (879       | )                |       |              | 65,439     |             |       |                   | (1,742     | ) |   |   | — |   |   |   | 62,818 |   |   |
| **Financing  activities:**                                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                                        |       |                   | 224,307    |             |       |              | (275,814   | )                |       |                   | 51,507     |   |   |   | — |   |   |   | — |   |   |
| Borrowings under credit agreements                                                                           |       |                   | 386,700    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 386,700 |   |   |
| Repayments of borrowings under credit agreements                                                        |       |                   | (461,700   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (461,700 | ) |   |
| Proceeds from issuance of Senior  Notes                                                                      |       |                   | 175,000    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 175,000 |   |   |
| Proceeds from issuances of common stock, net                                                            |       |                   | 1,028      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 1,028 |   |   |
| Redemption of Series J Convertible Preferred Stock                                                      |       |                   | (178,038   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (178,038 | ) |   |
| Deferred financing costs paid                                                                                |       |                   | 3          |             |       |              | (5,689     | )                |       |                   | —     |   |   |   | — |   |   |   | (5,686 | ) |   |
| Capital lease obligations                                                                                    |       |                   | (1,347     | )                |       |              | (3,373     | )                |       |                   | (200       | ) |   |   | — |   |   |   | (4,920 | ) |   |
| Other                                                                                                        |       |                   | —     |             |       |              | (186       | )                |       |                   | —     |   |   |   | — |   |   |   | (186 | ) |   |
| Net cash provided by (used in) financing activities                                                          |       |                   | 145,953    |             |       |              | (285,062   | )                |       |                   | 51,307     |   |   |   | — |   |   |   | (87,802 | ) |   |
| Increase (decrease) in cash and cash equivalents                                                             |       |                   | 7,505      |             |       |              | 4,493      |             |       |                   | (650       | ) |   |   | — |   |   |   | 11,348 |   |   |
| Cash and cash equivalents, beginning of period                                                               |       |                   | 345        |             |       |              | 7,668      |             |       |                   | 672        |   |   |   | — |   |   |   | 8,685 |   |   |
| Cash and cash  equivalents, end of period                                                                    |       |                   | $          | 7,850            |       |              |       | $                | 12,161     |                   |       |   | $ | 22 |   |   |   | $ | — |   |   |   | $ | 20,033 |   |   |

 

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**18.**   Subsequent Events

On October 24, 2005, the Company announced thatits Board of Directors authorized management to explore the separation of itsbusinesses via a tax-free spin-off into two separate publicly-traded companiesas a means to unlock value for shareholders. The plan being contemplated wouldseparate the Consumer Guides Segment from the Enthusiast Media and EducationSegments. Under the plans currently being evaluated, the two entities would beindependent and have separate management teams. The transaction is anticipatedto take the form of a tax free dividend of shares in the spun-off company thatwould be distributed pro-rata to all PRIMEDIA shareholders. The Company intendsto announce further details regarding this possible separation later this year.In connection with this announcement, PRIMEDIA announced certain managementchanges. Dean Nelson, Chairman of PRIMEDIA, has assumed the role of Presidentand Chief Executive Officer of PRIMEDIA, replacing former Chief ExecutiveOfficer Kelly Conlin, who decided to leave the Company as it pursues itsexploration of the separation.

On October 11, 2005, Primedia acquiredEquine.com, the world’s largest online marketplace for equine enthusiasts. Theacquisition adds a fast-growing and profitable online marketplace to complementEnthusiast Media’s existing portfolio of equine-based properties, and enablesthe Company to extend Equine.com’s proprietary technology and unique marketingtools and know-how to its other industry categories such as marine and outdoor.

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**Item 2.**                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(dollars in thousands, except share and per share amounts)

**Introduction**

PRIMEDIA Inc., together with its subsidiaries, isherein referred to as either “PRIMEDIA” or the “Company.”

The following discussionand analysis summarizes the financial condition and operating performance ofthe Company and its business segments and should be read in conjunction withthe unaudited condensed consolidated financial statements and notes thereto.

**Executive Summary**

*Our Business*

The Company’s revenues are generated from advertising(print and online), circulation (subscriptions and single copy sales) and othersources (events, third party distribution, television, list rental, brandlicensing and merchandising). PRIMEDIA’s operating expenses include cost ofgoods sold (principally paper and printing); marketing and selling;distribution, circulation and fulfillment; editorial; and other general andcorporate administrative expenses (collectively referred to as “operatingexpenses”).

The Company has threereportable segments which best enable it to execute key investment and organicgrowth initiatives. Those segments are Enthusiast Media, Consumer Guides andEducation.

*Background*

Historically, PRIMEDIA was a broad based mediaenterprise built primarily from a series of acquisitions and comprised ofnumerous disparate assets. During the past few years, the Company has beenopportunistically divesting selective properties in order to better focus onits core businesses and reduce debt and shares subject to mandatory redemption.The Company is positioning itself as a highly focused targeted media companywhich is investing in its businesses to drive growth.

Additionally, over the past few years, to counter theeffects of the weakness in the overall advertising environment, the Companyaggressively attacked its cost structure. The Company also realigned andreorganized its management structure to better reflect its emphasis ondelivering exceptional products and brands to the marketplace to achieveorganic growth. These initiatives resulted in charges for severance, closuresand restructuring related costs to integrate Company operations and consolidatemany back office functions and facilities, resulting in a significant reductionin the number of employees and office space, creating operational and financialefficiencies.

Overall, these actionshave strengthened the balance sheet and improved liquidity.

*Business Trends*

The media industry continues to be adversely affectedby an overall soft advertising environment, particularly print, which hasrecovered more slowly than anticipated, declining single copy sales of consumermagazines and budgetary constraints in the education markets. Low interestrates have facilitated apartment dwellers becoming homeowners and highapartment vacancy rates have pressured the advertising budgets of propertymanagers. Additionally, recent high levels of condominium conversions haveeliminated existing and potential customers from our markets.

The Company continues tocapitalize on trends impacting markets where it has a large presence, includingthe general trend of marketers seeking to better target their advertising, thegrowth of free publications, strong growth in online advertising and theincreasing popularity of avocations and leisure 

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activities.Additionally, the Company continues to take many actions to lower costs andimprove profitability, including consolidating, selling or shutting downcertain properties.

*Company Strategy*

The Company’s strategy is to focus on its coretargeted media businesses and grow by leveraging and expanding its market-leadingbrands. Since the beginning of 2004, the Company has made organic growth itstop priority.

The Company is focusedon the need to accelerate and improve the execution of its strategy:

·       *Accelerating the Company’s online presence*

·       *Improving product quality, both print and online*

·       *Building innovative, high impact marketing programs*

At the same time, management is focused on managingcosts, particularly when underlying markets are soft. This cost control effortis not inconsistent with the Company’s strategy, as it will concentrate onexpenses that do not directly touch consumers and advertisers.

*Summary ofConsolidated Results for the nine months ended September 30, 2005*

In 2005, revenues were $798,343,up $15,798 from $782,545 in 2004. The revenue gain of 2.0% was driven by doubledigit gains in Consumer Guides as well as improved results in Education, offsetby Enthusiast Media revenues, which were down 1.5% primarily due to declines inthe segment’s Consumer Automotive advertising, Performance Automotivecirculation (specifically newsstand), and revenue and circulation declines inthe International Automotive category. In 2005, operating expenses were $697,418,up 2.2% compared to 2004. In 2005, operating income was $100,925, improved from$100,068 in 2004 primarily due to lower expenses for amortization,restructuring and unclaimed property, offset by lower segment EBITDA. Netincome was $578,279 in 2005 compared to $21,965 in 2004, due to gains on salesof businesses of $601,499 and $43,286 for the nine months ended September 30,2005 and 2004, respectively.

*Forward-LookingInformation*

This report contains certainforward-looking statements concerning the Company’s operations, economicperformance and financial condition. These statements are based upon a numberof assumptions and estimates, which are inherently subject to uncertainties andcontingencies, many of which are beyond the control of the Company, and reflectanticipated business decisions, which are subject to change. Some of theassumptions may prove to be incorrect and unanticipated events will occur whichcould affect the Company’s results.

*Why We Use the TermSegment EBITDA*

Segment EBITDA represents the segment’s earningsbefore interest, taxes, depreciation, amortization and other charges (income) (“SegmentEBITDA”). Other charges (income) include severance related to separated seniorexecutives, non-cash compensation, provision for severance, closures andrestructuring related costs, provision for unclaimed property and (gain) losson sale of businesses and other, net. PRIMEDIA believes that Segment EBITDA isthe most accurate indicator of its segments’ results, because it focuses onrevenue and operating cost items driven by each operating managers’performance, and excludes items largely outside of the operating managers’control. Internally, the Company’s chief operating decision maker, who is theChairman, President and CEO, and the executive team measure performanceprimarily based on Segment EBITDA.

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Segment EBITDA is notintended to represent cash flows from operating activities and should not beconsidered as an alternative to net income or loss, as determined in conformitywith accounting principles generally accepted in the United States of America,as an indicator of the Company’s operating performance or to cash flows as ameasure of liquidity. Segment EBITDA may not be available for the Company’sdiscretionary use as there are requirements to redeem shares subject tomandatory redemption and repay debt, among other payments. Segment EBITDA aspresented may not be comparable to similarly titled measures reported by othercompanies since not all companies necessarily calculate Segment EBITDA in anidentical manner, and therefore, is not necessarily an accurate measure ofcomparison between companies. For more information, see the reconciliation ofSegment EBITDA to operating income (loss) for the Company’s three segments intheir respective segment discussions below.

*Why We Use the TermFree Cash Flow*

Free Cash Flow is defined as net cash provided by(used in) operating activities adjusted for additions to property, equipmentand other, net and capital lease obligations (“Free Cash Flow”).

The Company believes that the use of Free Cash Flowenables the Company’s chief operating decision maker, who is the Chairman,President and CEO, and the executive team to make decisions based on theCompany’s cash resources. Free Cash Flow is also considered to be an indicatorof the Company’s liquidity, including its ability to reduce debt and sharessubject to mandatory redemption and make strategic investments.

Free Cash Flow is notintended to represent cash flows from operating activities as determined inconformity with accounting principles generally accepted in the United Statesof America. Free Cash Flow as presented may not be comparable to similarlytitled measures reported by other companies since not all companies necessarilycalculate Free Cash Flow in an identical manner, and therefore, is notnecessarily an accurate measure of comparison between companies. For moreinformation, see reconciliation of Free Cash Flow to Cash provided by (used in)operating activities in the Free Cash Flow section.

*IntersegmentTransactions*

The information presentedbelow includes certain intersegment transactions and is, therefore, notnecessarily indicative of the results had the operations existed as stand-alonebusinesses. Intersegment transactions represent intercompany advertising andother services which are billed at what management believes are prevailingmarket rates. These intersegment transactions, which represent transactions betweenoperating units in different business segments, are eliminated inconsolidation.

*Reclassificationsdue to Discontinued Operations*

In accordance with Statement of Financial AccountingStandards (“SFAS”) 144, “Accounting for the Disposal of Long-Lived Assets”,the Company’s results reflect the reclassification in 2004 to discontinuedoperations of About Web Services, the *Folio,Circulation Management*and *AmericanDemographics*properties, Workplace Learning, excluding InteractiveMedical Network (“IMN”), and six magazines in the Enthusiast Media segment,which were shut down and discontinued in the fourth quarter of 2004. About.com,which was sold in March 2005, was classified as discontinued operationsfor all periods presented.

On March 31, 2005, the Company completed the saleof Bankers Training & Consulting Company, the financial servicesdivision of Workplace Learning. On April 1, 2005, the Company sold theremaining net assets of Workplace Learning for the assumption of liabilities.

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During the third quarter of 2005, the Companydiscontinued the operations of two magazines in the Enthusiast Media segment.The operating results of the two discontinued magazines have been classified asdiscontinued operations for all periods presented.

On September 30, 2005, the Company completed thesale of its Business Information segment with the exception of the Ward’sAutomotive Group (“Ward’s”) which has been transferred to the Enthusiast Mediasegment. The operating results of the Business Information segment, excludingWard’s, have been classified as discontinued operations for all periodspresented.

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***Segment Data***

Thefollowing table presents the results of the Company’s three operating segmentsand Corporate for the three and nine months ended September 30, 2005 and 2004:

| ** **                                                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                             | ** ** | **2004**                                            | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues, net:                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                        |       | $                                                    | 177,668    |                                                | $          | 181,452 |   | $ | 513,917 |   | $ | 521,841 |   |
| Consumer Guides                                                         |       | 81,310                                               |       | 71,738                                              |       | 236,428 |   | 214,209 |   |
| Education                                                               |       | 10,996                                               |       | 13,198                                              |       | 48,232 |   | 46,953 |   |
| Intersegment  Eliminations                                              |       | (66                                                  | )          | (110                                                | )          | (234 | ) | (458 | ) |
| Total                                                                   |       | $                                                    | 269,908    |                                                | $          | 266,278 |   | $ | 798,343 |   | $ | 782,545 |   |
| Segment EBITDA(1):                                                      |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                        |       | $                                                    | 36,149     |                                                | $          | 40,012 |   | $ | 101,284 |   | $ | 108,808 |   |
| Consumer Guides                                                         |       | 17,791                                               |       | 19,747                                              |       | 53,947 |   | 59,901 |   |
| Education                                                               |       | (2,697                                               | )          | (778                                                | )          | 2,265 |   | 1,332 |   |
| Corporate Overhead                                                      |       | (6,302                                               | )          | (7,468                                              | )          | (19,966 | ) | (22,215 | ) |
| Total                                                                   |       | $                                                    | 44,941     |                                                | $          | 51,513 |   | $ | 137,530 |   | $ | 147,826 |   |
| Depreciation, amortization and other charges(2):                        |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                        |       | $                                                    | 4,503      |                                                | $          | 4,581 |   | $ | 14,451 |   | $ | 20,275 |   |
| Consumer Guides                                                         |       | 3,136                                                |       | 2,729                                               |       | 8,390 |   | 8,480 |   |
| Education                                                               |       | 2,141                                                |       | 2,260                                               |       | 6,108 |   | 7,243 |   |
| Corporate                                                               |       | 4,556                                                |       | 3,930                                               |       | 7,656 |   | 11,760 |   |
| Total                                                                   |       | $                                                    | 14,336     |                                                | $          | 13,500 |   | $ | 36,605 |   | $ | 47,758 |   |
| Operating income (loss):                                                |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                        |       | $                                                    | 31,646     |                                                | $          | 35,431 |   | $ | 86,833 |   | $ | 88,533 |   |
| Consumer Guides                                                         |       | 14,655                                               |       | 17,018                                              |       | 45,557 |   | 51,421 |   |
| Education                                                               |       | (4,838                                               | )          | (3,038                                              | )          | (3,843 | ) | (5,911 | ) |
| Corporate                                                               |       | (10,858                                              | )          | (11,398                                             | )          | (27,622 | ) | (33,975 | ) |
| Total                                                                   |       | 30,605                                               |       | 38,013                                              |       | 100,925 |   | 100,068 |   |
| Other income (expense):                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Provision for impairment  of investments                                |       | —                                               |       | —                                              |       | — |   | (804 | ) |
| Interest expense                                                        |       | (32,511                                              | )          | (32,322                                             | )          | (98,482 | ) | (90,402 | ) |
| Interest on shares  subject to mandatory redemption                     |       | (4,566                                               | )          | (10,945                                             | )          | (21,920 | ) | (32,835 | ) |
| Amortization of deferred  financing costs                               |       | (1,042                                               | )          | (1,334                                              | )          | (3,560 | ) | (3,653 | ) |
| Other income (expense),  net                                            |       | (2,907                                               | )          | 685                                                 |       | (7,088 | ) | 826 |   |
| Loss from continuing  operations before provision for income taxes |       | (10,421                                              | )          | (5,903                                              | )          | (30,125 | ) | (26,800 | ) |
| Provision for income  taxes                                             |       | (4,346                                               | )          | (4,326                                              | )          | (10,496 | ) | (12,916 | ) |
| Loss from continuing  operations                                        |       | (14,767                                              | )          | (10,229                                             | )          | (40,621 | ) | (39,716 | ) |
| Discontinued  operations(3)                                             |       | 222,521                                              |       | 18,969                                              |       | 618,900 |   | 61,681 |   |
| Net income                                                              |       | $                                                    | 207,754    |                                                | $          | 8,740 |   | $ | 578,279 |   | $ | 21,965 |   |

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(1)          Segment EBITDArepresents the segments’ earnings before interest, taxes, depreciation,amortization and other charges (income) (see Note 2 below). Segment EBITDAis not intended to represent cash flows from operating activities and shouldnot be considered as an alternative to net income or loss (as determined inconformity with generally accepted accounting principles in the United Statesof 

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America), as an indicatorof the Company’s operating performance or to cash flows as a measure ofliquidity. Segment EBITDA is presented herein because the Company’s chiefoperating decision maker evaluates and measures each business unit’sperformance based on its Segment EBITDA results. PRIMEDIA believes that SegmentEBITDA is the most accurate indicator of its segments’ results, because itfocuses on revenue and operating cost items driven by each operating managers’performance, and excludes items largely outside of the operating managers’control. Segment EBITDA may not be available for the Company’s discretionaryuse as there are requirements to redeem shares subject to mandatory redemptionand repay debt, among other payments. Segment EBITDA as presented may not becomparable to similarly titled measures reported by other companies since notall companies necessarily calculate Segment EBITDA in an identical manner, andtherefore, is not necessarily an accurate measure of comparison betweencompanies. See reconciliation of Segment EBITDA to operating income (loss) forthe three and nine months ended September 30, 2005 and 2004 for each ofthe Company’s segments in their respective segment discussions below.

(2)          Other charges (income)includes severance related to separated senior executives, non-cash compensation,provision for severance, closures and restructuring related costs, provisionfor unclaimed property and (gain) loss on sale of businesses and other, net.

(3)          Discontinuedoperations include a gain on sale of businesses, net of $219,037 and $999 forthe three months ended September 30, 2005 and 2004, respectively, and $601,499and $43,286 for the nine months ended September 30, 2005 and 2004,respectively.

***Results of Operations***

***Three Months Ended September 30, 2005 Compared toThree Months Ended September 30, 2004:***

**Consolidated Results:**

*Revenues, Net*

Consolidatedrevenues were $269,908 in 2005 compared to $266,278 in 2004:

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2005**                                             | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                 |       |        |       |   |   |   |   |
| Advertising    |       | $                                                    | 164,671    |        | $          | 164,942 |   |   | (0.2 | ) |   |
| Circulation    |       | 62,066                                               |       | 65,478      |       |   | (5.2 | ) |   |
| Other          |       | 43,171                                               |       | 35,858      |       |   | 20.4 |   |   |
| Total          |       | $                                                    | 269,908    |        | $          | 266,278 |   |   | 1.4 |   |   |

 

Advertising revenuesdecreased by $271 in the third quarter of 2005 compared to 2004 due**to decreases of $5,074 and $2,680 at theEnthusiast Media and Education segments, respectively, offset by an increase of$7,483 at the Consumer Guides segment. Circulation revenues, which aregenerated entirely by the Enthusiast Media segment, decreased $3,412 in 2005due to continued weakness in single copy sales. Other revenues increased $7,313in 2005 compared to 2004 due to increases at each of the Company’s segmentswith Enthusiast Media, Consumer Guides and Education increasing $4,730, $2,089and $495, respectively. Revenue trends within each segment are further detailedin the segment discussions below.

*Operating Income*

Operating income was$30,605 in 2005 compared to $38,013 in 2004. The decrease in operating incomein 2005 primarily resulted from increased operating expenses due to significantinvestments made 

33

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in newpublications and in increased distribution capacity at Consumer Guides, as wellas increased paper prices.

*Net Income*

The Company had net income in 2005 of $207,754compared to $8,740 in 2004. The increase in net income was primarily due to thenet gain of $218,998 from the sale of the Business Information segment.

Interest expense was flat at $32,511 in 2005 versus$32,322 in 2004. The Company’s lower average debt levels were offset by higherinterest rates.

SFAS 144 requires sales or disposals oflong-lived assets that meet certain criteria to be classified on the statementof consolidated operations as discontinued operations and to reclassify priorperiods accordingly. During 2004, the Company sold *New York* magazine, Kagan World Media, *American Demographics* and About WebServices. In August 2004, *Folio*and*Circulation Management*werecontributed to a venture with a third party and during the fourth quarter of2004 the Company shut down six magazines in the Enthusiast Media segment.

In March 2005, the Company completed the sale ofAbout.com and the Bankers Training & Consulting Company, the financialservices division of Workplace Learning. During the second quarter of 2005, theCompany completed the sale of the remaining net assets of Workplace Learningfor the assumption of liabilities.

In addition, during the second quarter of 2005, theCompany decided to pursue the sale of its Business Information segment with theexception of Ward’s which has been transferred to the Enthusiast Media segment.On September 30, 2005, the Company completed the sale of its BusinessInformation segment.

During the third quarter of 2005, the Companydiscontinued the operations of two magazines in the Enthusiast Media segment.

In accordance withSFAS 144, the financial results of these operations have been reclassifiedinto discontinued operations on the condensed statements of consolidatedoperations for all periods presented. For the three months ended September 30,2005 and 2004, discontinued operations include a net gain on sale of businessesof $219,037 and $999, respectively.

**Segment Results:**

**EnthusiastMedia Segment (Includes categories such as Consumer Automotive, PerformanceAutomotive, International Automotive, Outdoors, Action Sports)**

*Revenues, Net*

EnthusiastMedia revenues were $177,668 or 65.8% and $181,452 or 68.1 % of the Company’sconsolidated revenues for 2005 and 2004, respectively. Enthusiast Mediarevenues decreased $3,784 or 2.1% in 2005 compared to 2004 as follows:

| ** **            | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                             | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                 |       |        |       |   |   |   |   |
| Advertising           |       | $                                                    | 93,494     |        | $          | 98,568 |   |   | (5.2 | ) |   |
| Circulation           |       | 62,066                                               |       | 65,478      |       |   | (5.2 | ) |   |
| Other                 |       | 22,042                                               |       | 17,312      |       |   | 27.3 |   |   |
| Intersegment revenues |       | 66                                                   |       | 94          |       |   |   |   |   |
| Total                 |       | $                                                    | 177,668    |        | $          | 181,452 |   |   | (2.1 | ) |   |

 

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The decline in Enthusiast Media revenue was largelythe result of softness in the segment’s Consumer Automotive advertising,Performance Automotive circulation (specifically newsstand), and advertisingand circulation declines in the International Automotive category. Thesedeclines were partially offset by strong results in certain of the segment’snon-automotive categories, which continue to benefit from the implementation ofthe segment’s growth strategies. Total net revenue growth of Enthusiast Media’snon-automotive categories was 3.4% for the third quarter 2005. 

Consumer Automotive:   During the quarter, theCompany experienced unexpected levels of advertising revenue decline in itsConsumer Automotive category, which includes *Motor Trend*and *Automobile*. This category derives significantadvertising from automotive manufacturers supporting their latest models. Basedon the Company’s Order to Cash (OTC) billing system for Consumer Automotive,Original Equipment Manufacturer advertising represented approximatlely 60% ofthe decline in print advertising revenue for the quarter and 38% year to date.

The challenges of some of the major automotive manufacturers,particularly U.S. manufacturers, including changes in their advertisingagencies, their product launch plans, and the extension of their employeediscount pricing programs to the public, led to a large reduction inadvertising dollars during the quarter. Print advertising revenue in thiscategory, after growing high single digit in the second quarter, was down highsingle digit in the third quarter.

Based on OTC, automotive print advertising revenueacross all Enthusiast Media titles (both automotive and non-automotive) in thethird quarter was down 9.9%, primarily attributable to the decline in spendingby automotive manufacturers. Automotive manufacturer print advertising as apercentage of total Enthusiast Media print advertising revenue was 7.2% in thethird quarter, compared to 9.9% in the second quarter and 8.3% in thecomparable quarter last year.

Performance Automotive:   Enthusiast Media’sPerformance Automotive category consists of more than 40 titles, including *Hot Rod*, *Truckin, Motorcyclist*and *Muscle Mustang*. This categoryexperienced declines in newsstand sales during the third quarter. Partiallyoffsetting the newsstand declines was growth in other revenue such as eventsand licensing. Recent research among auto enthusiasts, both subscribers andnewsstand buyers, shows that underlying interest in and spending on autoaftermarket products are steady, as are subscription renewal rates, indicatinga fundamentally solid market.

International Automotive:   The InternationalAutomotive category includes *Super Street*and *Sport Compact Car*. Advertising andcirculation revenue in this category declined as the market continues to sufferfrom the absence of any new ‘tuner’ platforms and a consolidation of aftermarketsuppliers. The departure from the market of several competitors and thestabilization of the advertising base are expected to create more favorablecomparisons next year.

Despite the declines in the segment’s three automotivecategories, all contributed positive Segment EBITDA.

Other revenue, which is largely comprised of events,licensing and merchandising, continued its significant growth as the Companycontinues to leverage its brands in non-print areas.

The Company is committedto the following strategy for the Enthusiast Media segment:

*Accelerating the Company’s online presence*

This presence would help buyers and sellers executetransactions across all Company sectors. The Company is underrepresented in thetransactional market today. The Company will also create a tighter linkagebetween the publications and its online sites. This will increase consumerinterest in both the Company’s publications and online sites, which willfurther enhance the value generated for the Company’s advertisers.

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*Improving productquality, both print and online*

Management has alreadybegun the process of redesigning several of its key titles and has achievedpositive results. The Company is now focused on accelerating the pace ofredesigns and developing a faster, more comprehensive consumer feedback processthat allows the Company to adjust more rapidly to changes in the endemicmarkets.

*Buildinginnovative, high impact marketing programs that leverage the Company’s positionas the targeted media category leader*

The Company has initiated successful programs thatextend PRIMEDIA print titles across non-traditional platforms such as online,wireless and events, and often has had success in creating synergies among the Company’sportfolio of products and brands. Automobile manufacturers and non-endemicbrand advertisers have responded positively to these programs.

At the same time, theCompany is focused on managing costs, particularly when its underlying marketsare soft. The cost control effort is not inconsistent with the Company’sstrategy as it will concentrate on expenses that do not directly touchconsumers and advertisers.

*Segment EBITDA*

Enthusiast Media Segment EBITDA decreased 9.7% to$36,149 in 2005 from $40,012 in 2004. This decrease is primarily due to lowerrevenue and increased paper costs. As a result, Segment EBITDA margin decreasedto 20.3% in 2005 from 22.0% in 2004. 

Belowis a reconciliation of Enthusiast Media Segment EBITDA to operating income forthe three months ended September 30, 2005 and 2004: 

| ** **                                                         | ** ** | **Three Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Segment EBITDA                                                     |       | $                                                    | 36,149     |   | $ | 40,012 |   |
| Depreciation of property and equipment                             |       | 3,750                                                |       | 3,572 |   |
| Amortization of intangible assets and other                        |       | 497                                                  |       | 1,091 |   |
| Provision for severance, closures and restructuring  related costs |       | 256                                                  |       | 221 |   |
| Gain on sale of businesses and other, net                          |       | —                                               |       | (303 | ) |
| Operating income                                                   |       | $                                                    | 31,646     |   | $ | 35,431 |   |

 

*Operating Income*

Operating income was $31,646in 2005 compared to $35,431 in 2004, a decrease of $3,785 or 10.7%. Thisdecrease was primarily driven by a decrease in revenue. 

*DiscontinuedOperations*

In accordance with SFAS 144, the operatingresults of *About.com*, About Web Services, the six magazinesshut down in 2004, the two magazines shut down in 2005 and *New York*magazine have been reclassifiedto discontinued operations on the condensed statements of consolidatedoperations for all periods presented. 

Enthusiast Media revenuesexclude revenues from discontinued operations of $1,179 and $11,335 for thethree months ended September 30, 2005 and 2004, respectively. EnthusiastMedia segment operating income excludes operating income (loss) fromdiscontinued operations of $(138) and $2,693 for the three months ended September 30,2005 and 2004, respectively. For the three months ended September 30, 2005and 2004, operating income includes a net gain on sale of businesses of $171and $270, respectively.

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**ConsumerGuides Segment (includes *Apartment Guide,New Home Guide*and *Auto Guide*publicationsand their related Web sites, and the DistribuTech distribution business)**

*Revenues, Net*

ConsumerGuides revenues were $81,310 or 30.1% and $71,738 or 26.9% of the Company’sconsolidated revenues for 2005 and 2004, respectively. Consumer Guides revenuesincreased $9,572 or 13.3% in 2005 compared to 2004 as follows:

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2005**                                             | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                 |       |        |       |   |   |   |   |
| Advertising    |       | $                                                    | 67,028     |        | $          | 59,545 |   |   | 12.6 |   |   |
| Other          |       | 14,282                                               |       | 12,193      |       |   | 17.1 |   |   |
| Total          |       | $                                                    | 81,310     |        | $          | 71,738 |   |   | 13.3 |   |   |

 

In the third quarter, Consumer Guides revenueexperienced double-digit growth that was driven by continued strong performanceof the Company’s New Home Guide, Auto Guide, and DistribuTech, the Company’swholly-owned distribution arm.  All ofPRIMEDIA’s Consumer Guides continue to benefit from the Company’s market-leadingdistribution business, DistribuTech. DistribuTech’s dominance in high-valuelocations and added distribution drove high-teens growth in other revenueduring the quarter. At September 30, 2005, the rack utilization rate is approximately80% compared to 76% at September 30, 2004.

On October 18, 2005,PRIMEDIA’s Consumer Guides Group named David Crawford President and ChiefOperating Officer. He continues to oversee New Home Guides and DistribuTech,which have seen significant growth under his leadership. He now also oversees *Apartment Guide*, the segment’s largest division. ArleneMayfield, previously vice president of *New Home Guide*with a proven track record there, will take over as President of *Apartment Guide*.

*Apartment Guide*

*Apartment Guide,*theSegment’s largest division, continues its market leadership in the mostdifficult market conditions in the business’ thirty-year history. *Apartment Guide* remains stable despite unprecedented levelsof condominium conversions that eliminate existing and potential customers from*Apartment Guide* markets. *ApartmentGuide.com* grew unique users 3.4% in the quarter,and continues to be the most recognized on-line brand in the apartment rentalindustry. 

*New Home Guide*

*New Home Guide,***with 25 publications, is now the largest publisher of NewHome Advertising guides in the industry and is uniquely positioned to providelarge home builders with national reach. *New Home Guide*grew revenue 18.8% from the prior quarter and over 83% from the third quarterof 2004. Existing publications contributed 40% year over year growth. Thedivision’s national web site *www.newhomeguide.com*,also enjoyed strong growth providing a 49% increase in web leads to itscustomers in the quarter vs. the prior year and is a leader in the online new homesmarket, with the largest network of new home sites on the Internet.

*Auto Guide*

*Consumer Guides’***newest division, *Auto Guide,*continuedits strong growth and expansion across the nation in the third quarter with neweditions in South Florida in August and Inland Empire, California**in September. These launches grew the division to thirteenpublications in California, Florida, Georgia, New 

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Englandand North Carolina, with aggregate revenues showing month over month growth.Also in the third quarter, *Auto Guide*complimented its growing national presence of successful print publicationswith the launch of a national web site *www.Autoguide.com*.

*Segment EBITDA*

Consumer Guides Segment EBITDA decreased $1,956 or9.9% in 2005 to $17,791, from $19,747 in 2004. The decrease is due to thesignificant investments made in new publications (New Home Guides and AutoGuides) and expanded distribution across the country as well as increased paperprices. Increased expenses are consistent with the estimated $15 to$20 million of investments (of which approximately $14,000 has beenincurred to date) to be made in 2005 associated with new publication launches,distribution expansion and distribution renewals. Expenses also grew due tohigher paper prices, the marginal costs associated with organic growth in thecore businesses and operating expenses from acquisitions completed in 2005. Asa result, Segment EBITDA margin decreased to 21.9% in 2005 compared to 27.5% in2004. 

Belowis a reconciliation of Consumer Guides Segment EBITDA to operating income forthe three months ended September 30, 2005 and 2004: 

| ** **                                                   | ** ** | **Three Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                   | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Segment EBITDA                                               |       | $                                                    | 17,791     |   | $ | 19,747 |   |
| Depreciation of property and equipment                       |       | 2,130                                                |       | 1,972 |   |
| Amortization of intangible assets and other                  |       | 951                                                  |       | 767 |   |
| Non-cash compensation and non-recurring charges              |       | 135                                                  |       | — |   |
| Provision for severance, closures and restructuring  related |       | —                                               |       | (10 | ) |
| Gain on sale of businesses and other, net                    |       | (80                                                  | )          | — |   |
| Operating income                                             |       | $                                                    | 14,655     |   | $ | 17,018 |   |

 

*Operating Income*

Operating income decreased$2,363 or 13.9% in 2005. This decrease was driven by the decline in SegmentEBITDA. 

**EducationSegment (includes Channel One, Films Media Group and Interactive MedicalNetwork (“IMN”))**

*Revenues, Net*

Educationrevenues were $10,996 or 4.1% and $13,199 or 5.0% of the Company’s consolidatedrevenues for 2005 and 2004, respectively. Education revenues decreased $2,203or 16.7% in 2005 compared to 2004 as follows: 

| ** **            | ** ** | **Three Months Ended September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|----------------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                                 | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                     |       |        |       |   |   |   |   |
| Advertising           |       | $                                                        | 4,149      |        | $          | 6,829 |   |   | (39.2 | ) |   |
| Other                 |       | 6,847                                                    |       | 6,353       |       |   | 7.8 |   |   |
| Intersegment revenues |       | —                                                   |       | 17          |       |   |   |   |   |
| Total                 |       | $                                                        | 10,996     |        | $          | 13,199 |   |   | (16.7 | ) |   |

 

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Education advertising revenues, which are generatedentirely by Channel One, decreased $2,680 in the third quarter of 2005 ascompared to the third quarter of 2004. Channel One’s reduced advertisingrevenues reflect certain U.S. Government agencies not renewing or reducingtheir advertising campaigns, partially offset by increased telecommunicationsector advertising. Channel One advertising revenue has traditionally been lowin the third quarter since the network is not on the air during the summer.Government agency advertising spending was down 76% in the third quarter.

Continued growth in otherrevenue reflects the turnarounds of Films Media Group and IMN, under theleadership of new management teams that were put in place in 2004. Films MediaGroup delivered its fifth consecutive quarter of revenue growth, with revenueup 4.7%, as a result of continued growth in its core video business and greatlyexpanded web presence.

*Segment EBITDA*

Education Segment EBITDA decreased $1,919 to $(2,697)for the three months ended September 30, 2005 primarily due to decreasedrevenue. Segment EBITDA margin decreased in 2005 to (24.5)% compared to (5.9)%in 2004. 

Belowis a reconciliation of Education Segment EBITDA to operating loss for the threemonths ended September 30, 2005 and 2004:

| ** **                                                         | ** ** | **Three Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Segment EBITDA                                                     |       | $                                                    | (2,697     | ) | $ | (778 | ) |
| Depreciation of property and equipment                             |       | 901                                                  |       | 878 |   |
| Amortization of intangible assets and other                        |       | 1,240                                                |       | 1,357 |   |
| Provision for severance, closures and restructuring  related costs |       | —                                               |       | 25 |   |
| Operating loss                                                     |       | $                                                    | (4,838     | ) | $ | (3,038 | ) |

 

*Operating Loss*

Education segment operatingloss for the three months ended September 30, 2005 was $4,838 compared to$3,038 in 2004. This increased loss was primarily due to the decrease in EBITDAresulting from lower revenues.

*DiscontinuedOperations*

In March 2005, the Company completed the sale ofBankers Training & Consulting Company, the financial services divisionof Workplace Learning. In addition, on April 1, 2005, the Company sold theremaining portion of Workplace Learning. 

Education segment revenuesexclude revenues from discontinued operations of $9,013 for the three monthsended September 30, 2004. Education segment operating results exclude theoperating income (loss) from discontinued operations of $132 and $(3,580) forthe three months ended September 30, 2005 and 2004, respectively. 

**Corporate:**

*Corporate Overhead*

Corporate overheaddecreased to $6,302 in 2005 from $7,468 in 2004 primarily due to lowerprofessional fees. Corporate overhead excludes non-cash compensation expense of$4,070 and $1,344 for the three months ended September 30, 2005 and 2004,respectively.

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*Operating Loss*

Corporate operating lossdecreased $540 in 2005 to $10,858 from $11,398 in 2004 principally driven bydecreases in the provision for severance, closures and restructuring relatedcosts, offset by an increase in non-cash compensation expense. 

**BusinessInformation Segment Discontinued Operations**

During the second quarter of 2005, the Company decidedto pursue the sale of its Business Information segment with the exception ofWard’s which has been transferred to the Enthusiast Media segment. During thesecond quarter 2005, the Company classified the operating results of theBusiness Information segment, excluding Ward’s, as discontinued operations forall periods presented in accordance withSFAS 144. See Recent Developments section.

PRIMEDIA revenues exclude revenues from BusinessInformation discontinued operations of $46,539 and $47,513 for the three monthsended September 30, 2005 and 2004, respectively. PRIMEDIA operatingresults exclude the operating income from the Business Information segment of $221,358and $3,406 for the three months ended September 30, 2005 and 2004,respectively. For the three months ended September 30, 2005, the operatingincome includes a gain on the sale of the Business Information segment of 218,998.

In accordance withSFAS 144, the results of Kagan World Media, *Folio, Circulation Management*and *American Demographic*,which were part of the Business Information segment*,* had previously been reclassified to discontinuedoperations in 2004. Business Information segment revenues above excluderevenues from these discontinued operations of $989 for the three months ended September 30,2004. Business Information segment operating results above exclude the operatingincome (loss) from these discontinued operations of $(238) and $505 for thethree months ended September 30, 2005 and 2004, respectively, including again on sale of businesses of $729 for the three months ended September 30,2004.

***Results of Operations***

***NineMonths Ended September 30, 2005 Compared to Nine Months Ended September 30,2004:***

**Consolidated Results:**

*Revenues, Net*

Consolidatedrevenues were $798,343 in 2005 compared to $782,545 in 2004: 

| ** **     | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2005**                                            | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                |       |        |       |   |   |   |   |
| Advertising    |       | $                                                   | 492,260    |        | $          | 484,320 |   |   | 1.6 |   |   |
| Circulation    |       | 183,005                                             |       | 192,816     |       |   | (5.1 | ) |   |
| Other          |       | 123,078                                             |       | 105,409     |       |   | 16.8 |   |   |
| Total          |       | $                                                   | 798,343    |        | $          | 782,545 |   |   | 2.0 |   |   |

 

Advertising revenuesincreased by $7,940 in 2005 compared to 2004 primarily due**to an increase of $15,817 at the ConsumerGuides segment, partially offset by a decline of $5,502 at the Enthusiast Mediasegment. Circulation revenues, which are generated entirely by the EnthusiastMedia segment, decreased $9,811 in 2005 due to continued weakness in singlecopy sales. Other revenues increased $17,669 in 2005 compared to 2004 due toincreases at each of the Company’s segments with Enthusiast Media, ConsumerGuides and Education increasing $7,469, $6,402 and $3,798, respectively*.*Revenue trends within each segment arefurther detailed in the segment discussions below.

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*Operating Income*

Operating income was$100,925 in 2005 compared to $100,068 in 2004. The improvement in operatingincome in 2005 was primarily due to increased revenues, lower amortizationexpense, reduced restructuring related expenses and a provision for unclaimedproperty recorded in 2004. These improvements were offset by higher operatingexpense primarily due to investments made in new publications and in increaseddistribution capacity at Consumer Guides, and higher paper prices.

*Net Income*

The Company had net income in 2005 of $578,279compared to $21,965 in 2004. The increase in net income was primarily due tothe gain on the sales of *About.com* ofapproximately $379,078 and the Business Information segment of approximately $218,998recorded in discontinued operations in 2005. The Company recorded a gain on thesale of *New York* magazine of approximately$38,000 in discontinued operations during the first quarter of 2004.

Interest expense increased $8,080 or 8.9% in 2005 to$98,482 from $90,402 in 2004. The increase in interest expense is due to higherdebt levels as a result of the redemption of the Series J Preferred Stockand shares subject to mandatory redemption, combined with higher interest rates.

SFAS 144 requires sales or disposals oflong-lived assets that meet certain criteria to be classified on the statementof consolidated operations as discontinued operations and to reclassify priorperiods accordingly. During 2004, the Company sold *New York* magazine, Kagan World Media, *American Demographics* and About WebServices. In August 2004, *Folio*and*Circulation Management*werecontributed to a venture with a third party and during the fourth quarter of2004 the Company shut down six magazines in the Enthusiast Media segment.

In the first quarter of 2005, the Company completedthe sale of *About.com* and the Bankers Training &Consulting Company, the financial services division of Workplace Learning. On April 1,2005, the Company completed the sale of the remaining net assets of WorkplaceLearning for the assumption of liabilities.

In addition, during the second quarter of 2005, theCompany decided to pursue the sale of its Business Information segment with theexception of Ward’s which has been transferred to the Enthusiast Media segment.On September 30, 2005 the Company completed the sale of its BusinessInformation segment.

During the third quarter of 2005, the Companydiscontinued the operations of two magazines in the Enthusiast Media segment. Theoperating results of the two discontinued magazines have been classified asdiscontinued operations for all periods presented.

In accordance with SFAS 144, the financialresults of these operations have been reclassified into discontinued operationson the condensed statements of consolidated operations for all periodspresented. For the nine months ended September 30, 2005 and 2004,discontinued operations include a net gain on sale of businesses of $601,499and $43,286, respectively.

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**Segment Results:**

**EnthusiastMedia Segment (includes categories such as Consumer Automotive, PerformanceAutomotive, International Automotive, Outdoors, Action Sports)**

*Revenues, Net*

EnthusiastMedia revenues were $513,917 or 64.4% and $521,841 or 66.7% of the Company’sconsolidated revenues for 2005 and 2004, respectively. Enthusiast Mediarevenues decreased $7,924 or (1.5)% in 2005 compared to 2004 as follows:

| ** **            | ** ** | **Nine Months Ended   September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                                  | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                      |       |        |       |   |   |   |   |
| Advertising           |       | $                                                         | 273,846    |        | $          | 279,348 |   |   | (2.0 | ) |   |
| Circulation           |       | 183,005                                                   |       | 192,816     |       |   | (5.1 | ) |   |
| Other                 |       | 56,855                                                    |       | 49,386      |       |   | 15.1 |   |   |
| Intersegment revenues |       | 211                                                       |       | 291         |       |   |   |   |   |
| Total                 |       | $                                                         | 513,917    |        | $          | 521,841 |   |   | (1.5 | ) |   |

 

The decline in Enthusiast Media revenue was largelythe result of declines in the segment’s Consumer Automotive advertising,Performance Automotive circulation (specifically newsstand), and advertisingand circulation declines in the International Automotive category, partiallyoffset by higher Performance Automotive advertising. These declines werepartially offset by strong results in certain of the segment’s non-automotivecategories, which continue to benefit from the implementation of the segment’sgrowth strategies.

Other revenue, which islargely comprised of events, licensing and merchandising, continued itssignificant growth as the Company leverages its brands in non-print areas.

*Segment EBITDA*

Enthusiast Media Segment EBITDAdecreased 6.9% to $101,284 in 2005 from $108,808 in 2004. This declineis primarily due to lower revenue and the impact of previously announced paperprice increases, partially offset by lower operating expenses. As a result, Segment EBITDA margin decreased to19.7% in 2005 from 20.9% in 2004.

Belowis a reconciliation of Enthusiast Media Segment EBITDA to operating income forthe nine months ended September 30, 2005 and 2004:

| ** **                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Segment EBITDA                                                     |       | $                                                   | 101,284    |   | $ | 108,808 |   |
| Depreciation of property and equipment                             |       | 10,735                                              |       | 10,216 |   |
| Amortization of intangible assets and other                        |       | 1,492                                               |       | 3,655 |   |
| Provision for severance, closures and restructuring  related costs |       | 2,224                                               |       | 3,536 |   |
| Provision for unclaimed property                                   |       | —                                              |       | 3,171 |   |
| Gain on sale of businesses and other, net                          |       | —                                              |       | (303 | ) |
| Operating income                                                   |       | $                                                   | 86,833     |   | $ | 88,533 |   |

 

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*Operating Income*

Operating income was$86,833 in 2005 compared to $88,533 in 2004, a decrease of $1,700. Thisdecrease was principally driven by the decline in revenue offset by decreasesin amortization and the provision for severance, closures and restructuringrelated costs, as well as the absence of a provision for unclaimed property in2005.

*DiscontinuedOperations*

In accordance with SFAS 144, the operatingresults of *About.com*, About Web Services, the sixshut down magazines and *New York*magazinehave been reclassified to discontinued operations on the condensed statementsof consolidated operations for all periods presented.

During the third quarter of 2005, the Companydiscontinued the operations of two magazines in the Enthusiast Media segment. Theoperating results of the two discontinued magazines have been classified asdiscontinued operations for all periods presented.

Enthusiast Media revenuesexclude revenues from discontinued operations of $12,505 and $36,878 for thenine months ended September 30, 2005 and 2004, respectively. EnthusiastMedia segment operating income excludes operating income from discontinuedoperations of $380,553 and $45,167 for the nine months ended September 30,2005 and 2004, respectively. For the nine months ended September 30, 2005and 2004, operating income for the Enthusiast Media segment includes a net gainon sale of businesses of $379,078 and $41,764, respectively.

**ConsumerGuides Segment (includes *Apartment Guide,New Home Guide*and *Auto Guide*publicationsand their related Web sites, and the DistribuTech distribution business)**

*Revenues, Net*

ConsumerGuides revenues were $236,428 or 29.6% and $214,209 or 27.4% of the Company’sconsolidated revenues for 2005 and 2004, respectively. Consumer Guides revenuesincreased $22,219 or 10.4% in 2005 compared to 2004 as follows:

| ** **     | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2005**                                            | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                |       |        |       |   |   |   |   |
| Advertising    |       | $                                                   | 194,746    |        | $          | 178,929 |   |   | 8.8 |   |   |
| Other          |       | 41,682                                              |       | 35,280      |       |   | 18.1 |   |   |
| Total          |       | $                                                   | 236,428    |        | $          | 214,209 |   |   | 10.4 |   |   |

 

Consumer Guidesadvertising revenue grew by $15,817 or 8.8% in 2005 versus 2004, drivenprimarily by *New Home Guide*, *Auto Guide* and online advertising programs.

*Apartment Guide*

*Apartment Guide*continuedits market leadership despite continued softness in the apartment rental marketand unprecedented levels of conversions of rental properties to condominiumsthat eliminate existing and potential customers from *ApartmentGuide* markets. The Company attributes *Apartment Guide’s* success in an adverse market to itsunmatched distribution in high-value locations and its ability to prove toadvertisers that their combined print and online advertisements are deliveringsuperior results at low costs. *ApartmentGuide.com*grew unique users 9.5% in 2005, and continues to be the most recognized online brandin the apartment rental industry.

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*New Home Guide*

*NewHome Guide’s*advertising revenue from existingpublications continued to grow in 2005, reflecting increased penetration in theCompany’s print markets and improved marketing and sales programs. *New Home Guide’s* newly redesigned nationalwebsite, *NewHomeGuide.com*, was combined with theAmerican Home Guides websites, acquired in February 2005, to create one ofthe most powerful online advertising channels in the new home market.

On May 3, 2005, theCompany announced its launch of a new home guide in Washington, D.C., creatingsynergies with its nearby Baltimore guide by providing significantly increasedoptions for the D.C.—Baltimore region’s new home buyers, homebuilders, andadvertisers. On May 4, 2005, the Company announced its acquisition of NHUPublishing LLC, adding the Atlanta, Jacksonville, Nashville, Puget Sound, andPortland, Oregon markets to the segment’s new home guides portfolio, andaugmenting the Company’s existing New Home Guide in Charlotte, North Carolina.The Company expects that by upgrading and optimizing NHU’s operations to thestandards of Consumer Guides’ proven model and by leveraging the power of theCompany’s DistribuTech distribution business, the Company will make significantimprovements in NHU’s results. This launch and acquisition brings the Company’stotal number of new home guides to 25.

*Auto Guide*

In the first quarter of 2005,*Auto Guide* was launched in the ‘Triangle’,North Carolina market. There were acquisitions of the *Atlanta Cars Magazine* in the firstquarter, five automotive editions in New England during the second quarter aswell as second quarter launches in Orlando, Orange County and San Diego, AutoGuide. *Auto Guide* launched new editions inSouth Florida in August and Inland Empire, California in September. Alsoin the third quarter, *Auto Guide*complimented its growing national presence of successful print publicationswith the launch of a national website, *www.autoguide.com*.

The Company is confidentthat a third product line has been successfully added to the Consumer GuidesSegment. Given that the market for used cars is significantly larger than theapartment rental market, the Company is optimistic about the long term growthopportunities of scaling the *Auto Guide*productline.

*DistribuTech*

Consumer Guides otherrevenue increased $6,402 or 18.1%. In the first quarter, the Company’sDistribuTech business expanded into several new retail distribution programsand significantly expanded its retail distribution network with new storeprograms in Portland, Oregon, Seattle, New England, and across the Southeast. Inaddition during the second quarter, DistribuTech expanded into new retaildistribution programs including QFC in the Northwest and increased penetrationin current programs. At September 30, 2005, the rack utilization rate is approximately80% compared to 76% at September 30, 2004.

*Segment EBITDA*

Consumer Guides Segment EBITDA decreased $5,954 or 9.9%in 2005 to $53,947. The decrease is due to increased operating expenses whichare primarily the result of investments made to launch new publications (*New Home*and *Auto Guide*); higher distribution costs, including morewidespread distribution; and increased paper prices. As a result, SegmentEBITDA margin decreased to 22.8% in 2005 compared to 28.0% in 2004.

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Belowis a reconciliation of Consumer Guides Segment EBITDA to operating income forthe nine months ended September 30, 2005 and 2004:

| ** **                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Segment EBITDA                                                     |       | $                                                   | 53,947     |   | $ | 59,901 |   |
| Depreciation of property and equipment                             |       | 6,095                                               |       | 6,031 |   |
| Amortization of intangible assets and other                        |       | 2,240                                               |       | 2,414 |   |
| Non-cash compensation                                              |       | 135                                                 |       | — |   |
| Provision for severance, closures and restructuring  related costs |       | —                                              |       | 28 |   |
| Provision for unclaimed property                                   |       | —                                              |       | 7 |   |
| (Gain) loss on sale of businesses and other, net                   |       | (80                                                 | )          | — |   |
| Operating income                                                   |       | $                                                   | 45,557     |   | $ | 51,421 |   |

 

*Operating Income*

Operating income decreased$5,864 or 11.4% in 2005. This decrease is primarily driven by the decline inSegment EBITDA.

*DiscontinuedOperations*

In accordance with SFAS 144, the results of *RealEstate.com* have been reclassified to discontinuedoperations on the condensed statements of consolidated operations for the ninemonths ended September 30, 2004.

Consumer Guides revenuesexclude revenues from discontinued operations of $458 for the nine months endedSeptember 30, 2004. Consumer Guides segment operating income excludesoperating losses from discontinued operations of $252 for the nine months endedSeptember 30, 2004, including a loss on sale of business of $519 due topost closing adjustments related to the sale of *RealEstate.com*.

**EducationSegment (includes Channel One, Films Media Group and Interactive MedicalNetwork (“IMN”))**

*Revenues, Net*

Educationrevenues were $48,232 or 6.1% and $46,953 or 6.0% of the Company’s consolidatedrevenues for 2005 and 2004, respectively. Education revenues increased $1,279or 2.7% in 2005 compared to 2004 as follows:

| ** **            | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2005**                                            | ** ** | **2004**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                |       |        |       |   |   |   |   |
| Advertising           |       | $                                                   | 23,668     |        | $          | 26,043 |   |   | (9.1 | ) |   |
| Other                 |       | 24,541                                              |       | 20,743      |       |   | 18.3 |   |   |
| Intersegment revenues |       | 23                                                  |       | 167         |       |   |   |   |   |
| Total                 |       | $                                                   | 48,232     |        | $          | 46,953 |   |   | 2.7 |   |   |

 

Education advertising revenues, which are generatedentirely by Channel One, decreased $2,375 in 2005 as compared to 2004. Thedecrease was due to certain U.S. Government agencies and other existingadvertisers not renewing or reducing their advertising campaigns, partiallyoffset by increased telecommunication and health and beauty advertisers.Government agency advertising spending was down 31% year to date. All otheradvertising revenue has increased 4% year to date.

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Judy Harris joined Channel One as CEO and President inApril, 2005. Her primary objective is to broaden Channel One’s revenue basebeyond traditional advertising to include corporate and foundation sponsorshipsof public affairs topics that are relevant to teens. On April 12, 2005,Channel One won a Peabody Award for news coverage, its second. The GeorgeFoster Peabody Awards recognize distinguished achievement and meritoriouspublic service, and are widely considered the most prestigious awards inelectronic media.

Growth in other revenuereflects turnarounds at IMN and Films Media Group. Having implemented a host ofoperational improvements, Films Media Group delivered its fifth consecutivequarter of revenue growth after thirteen quarters of declines, with revenue up9.2% in 2005. IMN has more than doubled 2004 revenues in 2005.

*Segment EBITDA*

Education Segment EBITDA increased $933 to $2,265 forthe nine months ended September 30, 2005 due to the improved revenue asdiscussed above. Segment EBITDA margin increased in 2005 to 5.7% compared to2.8% in 2004.

Belowis a reconciliation of Education Segment EBITDA to operating loss for the ninemonths ended September 30, 2005 and 2004:

| ** **                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Segment  EBITDA                                                    |       | $                                                   | 2,265      |   | $ | 1,332 |   |
| Depreciation of property  and equipment                            |       | 2,424                                               |       | 2,634 |   |
| Amortization of intangible  assets and other                       |       | 3,684                                               |       | 3,904 |   |
| Provision for severance,  closures and restructuring related costs |       | —                                              |       | 77 |   |
| Provision for unclaimed  property                                  |       | —                                              |       | 628 |   |
| Operating loss                                                     |       | $( 3,843                                       | )          | $ | (5,911 | ) |
|                                                                    |            |                                                     |            |  |  |  |  |

 

*Operating Loss*

Education segmentoperating loss for the nine months ended September 30, 2005 was $3,843compared to $5,911 in 2004. The improvement is primarily due to the increase inSegment EBITDA and the absence of a provision for unclaimed property in 2005.

*DiscontinuedOperations*

In March 2005, the Company completed the sale ofBankers Training & Consulting Company, the financial services divisionof Workplace Learning. In addition, on April 1, 2005, the Company sold theremaining portion of Workplace Learning.

Education segment revenuesexclude revenues from discontinued operations of $9,367 and $27,345 for thenine months ended September 30, 2005 and 2004, respectively. Educationsegment operating results exclude the operating income (loss) from discontinuedoperations of $3,655 and ($9,810) for the nine months ended September 30,2005 and 2004, respectively, including a gain on sale of businesses of $3,425in 2005.

**Corporate:**

*Corporate Overhead*

Corporate overheaddecreased $2,249, to $19,966 in 2005 from $22,215 in 2004, primarily due to reducedcompensation expense resulting from headcount reduction and lower professionalfees. Corporate 

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overheadexcludes non-cash compensation expense of $6,474 and $4,830 for the nine monthsended September 30, 2005 and 2004, respectively.

*Operating Loss*

Corporate operating lossdecreased $6,353, to $27,622 in 2005 from $33,975, in 2004 principally drivenby the reduction in corporate overhead and decreases in the provision forseverance, closures and restructuring related costs, offset by an increase innon-cash compensation expense.

**BusinessInformation Segment Discontinued Operations**

During the second quarter of 2005, the Company decidedto pursue the sale of its Business Information segment with the exception ofWard’s which has been transferred to the Enthusiast Media segment. During thesecond quarter 2005, the Company classified the operating results of theBusiness Information segment, excluding Ward’s, as discontinued operations forall periods presented in accordance withSFAS 144.

PRIMEDIA revenues exclude revenues from BusinessInformation discontinued operations of $159,108 and $160,991 for the ninemonths ended September 30, 2005 and 2004, respectively. PRIMEDIA operatingresults exclude the operating income from Business Information discontinued operationsof $234,844 and $11,710 for the nine months ended September 30, 2005 and2004, respectively. The Company recorded again on sale of business of $218,998 and $2,041 for the nine monthsended September 30, 2005 and 2004, respectively.

In accordance withSFAS 144, the results of Kagan World Media, *Folio, Circulation Management*and *American Demographic* had previously been reclassified todiscontinued operations in 2004. Business Information segment revenues aboveexclude revenues from these discontinued operations of $4,959 for the ninemonths ended September 30, 2004. Business Information segment operatingresults above exclude the operating income (loss) from these discontinuedoperations of $(241) and $634 for the nine months ended September 30, 2005and 2004, respectively. For the nine months ended September 30, 2005 and2004, these discontinued operations included a net gain (loss) on sale ofbusinesses of ($2) and $2,055, respectively.

***Recent Developments***

On October 24, 2005the Company announced that its Board of Directors authorized management toexplore the separation of its businesses via a tax-free spin-off into twoseparate publicly-traded companies as a means to unlock value for shareholders.The plan being contemplated would separate the Consumer Guides Segment from theEnthusiast Media and Education Segments. Under the plans currently beingevaluated, the two entities would be independent and have separate managementteams. The transaction is anticipated to take the form of a tax free dividendof shares in the spun-off company that would be distributed pro-rata to allPRIMEDIA shareholders. The Company intends to announce further detailsregarding this possible separation later this year. In connection with thisannouncement, PRIMEDIA announced certain management changes. Dean Nelson,Chairman of PRIMEDIA, has assumed the role of President and Chief ExecutiveOfficer of PRIMEDIA, replacing former Chief Executive Officer Kelly Conlin, whodecided to leave the Company as it pursues its exploration of the separation.

***Liquidity,Capital and Other Resources***

As of September 30, 2005, the Company had cashand unused credit facilities of $711,220, as further detailed below under “FinancingArrangements”, compared to $330,761 as of December 31, 2004. Excluding theredemption of the $8.625 Series H preferred stock and the 75¤8% senior noteson October 31, 2005, the Company had approximately $345,000 of cash andavailable unused credit lines at September 30, 

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2005. The Company’s assetsales and investment in organic growth have facilitated its strategy to becomea more efficient and better focused company while strengthening its balancesheet and improving liquidity.

The Company believes itsliquidity, capital resources and cash flow from operations are sufficient tofund planned capital expenditures, working capital requirements, interest andprincipal payments on its debt and shares subject to mandatory redemption andother anticipated expenditures for the remainder of 2005. The Company has nosignificant required debt repayments until 2010, after giving effect to theredemptions on October 31, 2005.

*Working Capital*

Consolidated workingcapital, which includes current maturities of long-term debt, was a deficit of $58,838at September 30, 2005 compared to a working capital deficiency of $152,659at December 31, 2004. The primary driver of the improvement in workingcapital compared to December 31, 2004 is the investment of proceeds fromthe sale of businesses during the nine months ended September 30, 2005,partially offset by the reclassification of the Series H preferred stockand 75¤8% seniornotes to current liabilities due to their redemption on October 31, 2005.

*Cash Flow—2005Compared to 2004*

Net cash provided by operating activities decreased$31,694, to $4,638 in 2005, from $36,332 in 2004. This change is primarily dueto timing of payments of accounts payable.

Net cash provided by investing activities increased$704,173 to $766,991 from $62,818 for the nine months ended September 30,2005 and 2004, respectively. Proceeds from the sale of businesses were $816,502in 2005 compared to $70,277 in 2004. The primary drivers of the 2005 businesssale proceeds were the sale of About.com during the first quarter of 2005 for$410,000, and the sale of the Business Information segment in the third quarterof 2005, for $385,000. Cash paid for acquired businesses increased to $27,830in 2005 from $1,358 in 2004, primarily due to the Consumer Guides segmentacquisition of the assets of NHU Publishing LLC, a collection of new homeguides, during the second quarter 2005. Net capital expenditures decreasedslightly to $21,681 in 2005, compared to $23,500 in 2004. The Company expectscapital spending in 2005 to remain consistent with 2004, however the sale ofthe Business Information segment reduced the expected 2005 amount.

Net cash used in financing activities was $329,885 in2005 compared to $87,802 in 2004. This increase was predominantly due to theCompany’s redemption of its Series D and F Exchangeable Preferred Stock and thepayment on senior notes during 2005, as well as the absence of proceeds fromthe issuance of floating rate notes in 2004.

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*Free Cash Flow*

Thefollowing table presents the Company’s Free Cash Flow for the three and ninemonths ended September 30, 2005 and 2004, respectively:

| ** **                                                                 | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                 | ** ** | **   2005   **         | ** ** | **   2004   **        | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| Net cash provided  by operating activities                                 |       | $                                                    | 30,756     |                                                | $          | 53,291 |   | $ | 4,638 |   | $ | 36,332 |   |
| Additions to property, equipment and other, net                            |       | (8,176                                               | )          | (9,926                                              | )          | (21,681 | ) | (23,500 | ) |
| Capital lease obligations                                                  |       | (1,444                                               | )          | (642                                                | )          | (4,141 | ) | (4,920 | ) |
| Free Cash Flow                                                             |       | $                                                    | 21,136     |                                                | $          | 42,723 |   | $ | (21,184 | ) | $ | 7,912 |   |
| Supplemental  information:                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Cash interest paid, including interest on capital  and restructured leases |       | $                                                    | 14,257     |                                                | $          | 10,441 |   | $ | 82,997 |   | $ | 69,287 |   |
| Cash interest paid on shares subject to mandatory  redemption              |       | $                                                    | 2,722      |                                                | $          | 6,380 |   | $ | 26,457 |   | $ | 32,835 |   |
| Cash taxes paid, net of refunds received                                   |       | $                                                    | 4,048      |                                                | $          | 69 |   | $ | 4,280 |   | $ | 171 |   |
| Cash paid for  severance, closures and restructuring related costs         |       | $                                                    | 1,883      |                                                | $          | 3,946 |   | $ | 7,869 |   | $ | 11,721 |   |

 

The Company’s historicalpattern is to have negative free cash flow in the first half of the year andpositive free cash flow in the second half. Free cash flow for the nine monthsended September 30, 2005 was $(21,184) versus $7,912 in the comparableperiod last year, primarily due to timing of payments of accounts payable.

***Financing Arrangements***

On April 11, 2005, the Company called forredemption of all of its outstanding shares of $10.00 Series DExchangeable Preferred Stock (with an aggregate liquidation preference of$167,487), all of its outstanding shares of $9.20 Series F ExchangeablePreferred Stock (with an aggregate liquidation preference of $95,333) and$80,000 aggregate principal amount of its 75¤8% Senior NotesDue 2008. The redemption date in each case was May 11, 2005.

The Series D Exchangeable Preferred Stock wereredeemed at 101% of the liquidation preference thereof plus accrued but unpaiddividends, the Series F Exchangeable Preferred Stock were redeemed at parplus accrued but unpaid dividends and the 75¤8% Senior Noteswere redeemed at 101.271% of the principal amount plus accrued interest. As of September 30,2005, the Company had the remaining $146,115 aggregate principal amount of the 75¤8%Senior Notes outstanding.

In connection with the redemption of the Series Dand Series F Exchangeable Preferred Stock, the Company obtained thewritten consent of its bank lenders and repaid its outstanding term loans A andterm loans B in aggregate principal amounts of $5,000 and $35,000,respectively, and permanently reduced its total revolving loan commitments inan aggregate amount of $30,000.

In the second quarter of 2005, the Company recorded aloss of $6,289 in the other income (expense), net line on the accompanyingcondensed statements of consolidated operations in connection with theseredemptions. This charge represents the write-off of unamortized deferredfinancing costs and the premiums paid on the Company’s call for redemption forall of the outstanding shares of its $10.00 

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Series D PreferredStock and its $9.20 Series F Preferred Stock and for $80,000 of its 75¤8%Senior Notes due 2008.

On September 30, 2005 theCompany called for the redemption of all of its outstanding shares of $8.625 Series HExchangeable Preferred Stock (with an aggregate liquidation preference of$211,739). The Preferred Stock was called at 101.4% of the liquidationpreference therof plus accrued but unpaid dividends. The redemption date wasOctober 31, 2005.

*Bank CreditFacilities*

On April 29, 2004, the Company amended its creditfacilities agreement with various financial institutions with JPMorgan ChaseBank, Bank of America, N.A., The Bank of New York, and The Bank of Nova Scotia,as agents (the “bank credit facilities”). The debt under the bank creditfacilities agreement, including term loan C, and as otherwise permitted underthe bank credit facilities agreement and the indebtedness relating to the 75¤8%Senior Notes, 8 7¤8% Senior Notes, 8% Senior Notes and SeniorFloating Rate Notes of the Company (together referred to as “Senior Notes”) issecured by a pledge of the stock of PRIMEDIA Companies Inc., an intermediateholding company, owned directly by the Company, which owns directly orindirectly all shares of PRIMEDIA subsidiaries that guarantee such debt.

On May 14, 2004, the Company issued $175,000principal amount of Senior Floating Rate Notes Due 2010, and entered into a new$100,000 term loan C credit facility with a maturity date of December 31,2009. The Senior Floating Rate Notes bear interest equal to three-monthLIBOR plus 5.375% per year and the term loan C at LIBOR plus 4.375% per year.The Company applied the combined net proceeds from the Senior Floating RateNotes offering and the term loan C credit facility to prepay $30,000 ofoutstanding term loan A commitments and $120,000 of term loan B commitments,with the remainder used to temporarily pay down all outstanding advances underthe revolving credit facility. The purpose of these borrowings was to redeemthe Company’s Series J Convertible Preferred Stock, which was completed onJuly 7, 2004.

On September 30, 2005, the Company amended itsRevolver and closed a new $500,000 Term Loan B credit facility, and called forredemption of all of its outstanding shares of $8.625 Series H PreferredStock, with an aggregate liquidation preference of $211,739 and all of itsoutstanding 75¤8%Senior Notes due 2008 in an aggregate principal amount of approximately$146,115. The redemption date for both the preferred stock and the senior noteswas October 31, 2005. The preferred stock and senior notes are bothclassified as current liabilities at September 30, 2005.

Proceedsfrom sales of businesses and other investments, when received, were used toreduce revolving credit borrowings under the bank credit facilities agreementand the remaining proceeds were temporarily invested in cash and cashequivalents. Amounts under the bank credit facilities may be reborrowed andused for general corporate and working capital purposes as well as to financecertain future acquisitions. The bank credit facilities consisted of thefollowing as of September 30, 2005:

| ** **                     | ** ** | **Revolver** | ** ** | **Term A** | ** ** | **Term B** | ** ** | **Term C** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|-----------|------------|
| Bank Credit  Facilities.       |       | $            | 276,795    |            |       | $               | —     |            |       | $         | 500,000    |   | $ | — |   | $ | 776,795 |   |
| Borrowings  Outstanding.       |       | —       |       |            | —     |            |       | (500,000        | )          | —    |       | (500,000 | ) |
| Letters of Credit  Outstanding |       | (20,319      | )          |            | —     |            |       | —          |       | —    |       | (20,319 | ) |
| Unused Bank Commitments        |       | $            | 256,476    |            |       | $               | —     |            |       | $         | —     |   | $ | — |   | $ | 256,476 |   |

 

The new term loan B bears interest at the base rateplus 1.25% or LIBOR plus 2.25% per year. At September 30, 2005 and December 31,2004, the weighted average variable interest rate on all outstanding borrowingsunder the bank credit facilities was 6.4% and 5.0%, respectively.

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Under the bank credit facilities, the Company hasagreed to pay commitment fees at a per annum rate of either 0.375% or 0.5%,depending on its debt to EBITDA ratio, as defined in the bank credit facilitiesagreement, on the daily average aggregate unutilized commitment under therevolving loan commitment. For the nine months ended September 30, 2005,the Company’s commitment fees were paid at a weighted average rate of 0.5%. TheCompany also has agreed to pay certain fees with respect to the issuance ofletters of credit and an annual administration fee. From time to time, theCompany may pay amendment fees under its bank credit facilities.

The commitments under the revolving loan portion ofthe bank credit facilities were reduced to $276,795 and are subject tomandatory reductions semi-annually on September 30 and December 31with the final reduction on September 30, 2008. The aggregate mandatoryreductions of the revolving loan commitments under the bank credit facilities,as amended on September 30, 2005, are $39,542 in 2007 and a final reductionof $237,252 in 2008. To the extent that the total revolving credit loansoutstanding exceed the reduced commitment amount, these loans must be paid downto an amount equal to or less than the reduced commitment amount. However, ifthe total revolving credit loans outstanding do not exceed the reducedcommitment amount, then there is no requirement to pay down any of therevolving credit loans. Remaining term loan payments under the bank creditfacility are $5,000 per annum for 2006 through 2012, and $465,000 in 2013.

The bank credit facilities agreement, among otherthings, limits the Company’s ability to change the nature of its businesses,incur indebtedness, create liens, sell assets, issue stock, engage in mergers,consolidations or transactions with affiliates, make investments in or loans tocertain subsidiaries, issue guarantees and make certain restricted paymentsincluding dividend payments on or repurchases of the Company’s common stock inexcess of $75,000 in any given year.

The bank credit facilitiesand Senior Notes agreements of the Company contain certain customary events ofdefault which generally give the banks or the noteholders, as applicable, theright to accelerate payments of outstanding debt. Under the bank creditfacilities agreement, these events include:

·       failureto maintain required covenant ratios, as described below;

·       failureto make a payment of principal, interest or fees within five days of its duedate;

·       default,beyond any applicable grace period, on any aggregate indebtedness of PRIMEDIAexceeding $20,000;

·       occurrenceof certain insolvency proceedings with respect to PRIMEDIA or any of itsmaterial subsidiaries;

·       entryof one judgment or decree involving a liability of $15,000 or more (or morethan one involving an aggregate liability of $25,000 or more); and

·       occurrenceof certain events constituting a change of control of the Company.

The events of defaultcontained in PRIMEDIA’s Senior Notes are similar to, but generally lessrestrictive than, those contained in the Company’s bank credit facilities.

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*ContractualObligations*

Thereare no required significant debt repayments until 2010. The following arecertain contractual obligations of the Company as of September 30, 2005:

| ** **                                                                            | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**                                                      | ** ** | ** ** | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After  5 years** | ** ** |
| Long-term  debt obligations (net of unamortized discount)                             |       | $          | 1,591,699  |                                      | $          | 150,847 |   | $ | 10,000 |   | $ | 10,000 |   | $ | 1,420,852 |   |
| Interest on long-term  debt obligations(1)                                            |       | 683,870    |       | 128,900                                   |       | 235,607 |   | 229,988 |   | 89,375 |   |
| Shares subject to  mandatory redemption (Exchangeable Preferred Stock)                |       | 211,739    |       | 211,739                                   |       | — |   | — |   | — |   |
| Interest on  shares subject to mandatory redemption (Exchangeable Preferred Stock)(1) |       | 4,566      |       | 4,566                                     |       | — |   | — |   | — |   |
| Capital lease  obligations                                                            |       | 5,913      |       | 2,941                                     |       | 1,714 |   | 927 |   | 331 |   |
| Interest on  capital lease obligations                                                |       | 740        |       | 337                                       |       | 292 |   | 102 |   | 9 |   |
| Operating lease  obligations(2)                                                       |       | 220,584    |       | 43,902                                    |       | 71,842 |   | 38,752 |   | 66,088 |   |
| Total Contractual  Obligations                                                        |       | $          | 2,719,111  |                                      | $          | 543,232 |   | $ | 319,455 |   | $ | 279,769 |   | $ | 1,576,655 |   |
|                                                                                       |            |            |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Interest payments arebased on the Company’s projected interest rates and estimated principal amountsoutstanding for the periods presented.

(2)          Future rentalcommitments for the above operating leases have not been reduced by minimumnoncancelable sublease rentals aggregating $74,056 as of September 30,2005.

The Company had no borrowings outstanding at September 30,2005 under the revolving loan portion of the bank credit facility. The revolvingloan portion of the bank credit facility expires in 2008, and the termloan B expires in 2013.

The Company has othercommitments in the form of letters of credit of $20,319 aggregate face valuewhich expire on or before September 30, 2006.

*Off Balance SheetArrangements*

The Company has novariable interest (otherwise known as “special purpose”) entities or offbalance sheet debt, other than as related to operating leases in the ordinarycourse of business as disclosed above.

*Covenant Compliance*

As defined in the amended bank credit facilitiesagreement, the maximum allowable debt leverage ratio was amended to 6.25 to 1 anddecreases to 6.00 to 1 on October 7, 2007. The amendment to the bank creditfacilities also set the minimum interest coverage ratio, as defined in the bankcredit facilities, at 1.75 to 1 through maturity. The minimum fixed chargecoverage ratio, as defined, remains unchanged at 1.05 to 1 through maturity.The Company is in compliance with all of the financial and operating covenantsof its financing arrangements.

The Company is herewithproviding detailed information and disclosure as to the methodology used indetermining compliance with the leverage ratio in the bank credit facilityagreement. Under its bank credit facility and Senior Note agreements, theCompany is allowed to designate certain businesses as unrestricted subsidiariesto the extent that the value of those businesses does not exceed the permittedamounts, as defined in these agreements. The Company has designated certain ofits businesses as unrestricted (the “Unrestricted Group”), which primarilyrepresent Internet businesses, trademark and 

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contentlicensing and service companies, new launches (including traditionalstart-ups), other properties under evaluation for turnaround or shutdown andforeign subsidiaries. Except for those specifically designated by the Companyas unrestricted, all businesses of the Company are restricted (the “RestrictedGroup”). Indebtedness under the bank credit facility and Senior Note agreementsis guaranteed by each of the Company’s domestic subsidiaries in the RestrictedGroup in accordance with the provisions and limitations of the Company’s bankcredit facility and Senior Note agreements. The guarantees are full,unconditional and joint and several. The Unrestricted Group does not guaranteethe bank credit facility or Senior Notes. For purposes of determiningcompliance with certain financial covenants under the Company’s bank creditfacility, the Unrestricted Group’s results (positive or negative) are notreflected in the Consolidated EBITDA of the Restricted Group which, as definedin the bank credit facility agreement, excludes losses of the UnrestrictedGroup, non-cash charges and restructuring charges and is adjusted primarily forthe trailing four quarters results of acquisitions and divestitures andestimated savings for acquired businesses.

The following represents a reconciliation of EBITDA ofthe Restricted Group for purposes of the leverage ratio as defined in the bankcredit facilities agreement to operating income for the three and twelve monthsended September 30, 2005:

| ** **                                                                | ** ** | **For the Three  Months Ended  September 30, 2005** | ** ** | **For the Twelve  Months Ended  September 30, 2005** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| EBITDA of the  Restricted Group.                                          |       |                                                                         | $          | 58,598                                                                        |       |   |   | $ | 278,974 |   |   |
| EBITDA loss of  the Unrestricted Group                                    |       |                                                                         | (13,229    | )                                                                             |       |   | (41,431 | ) |   |
| Divestiture and  other adjustments                                        |       |                                                                         | (428       | )                                                                             |       |   | (38,590 | ) |   |
| Depreciation of  property and equipment                                   |       |                                                                         | (7,402     | )                                                                             |       |   | (29,331 | ) |   |
| Amortization of  intangible assets and other                              |       |                                                                         | (2,688     | )                                                                             |       |   | (16,658 | ) |   |
| Non-cash  compensation                                                    |       |                                                                         | (4,070     | )                                                                             |       |   | (7,741 | ) |   |
| Provision for  severance, closures and restructuring related costs.  |       |                                                                         | (256       | )                                                                             |       |   | (2,371 | ) |   |
| Gain on the sales  of businesses and other, net.                          |       |                                                                         | 80         |                                                                          |       |   | 499 |   |   |
| Operating income                                                          |       |                                                                         | $          | 30,605                                                                        |       |   |   | $ | 143,351 |   |   |

 

The EBITDA loss of the Unrestricted Group, as defined inthe bank credit facilities agreement, is comprised of the following categories:

| ** **                                      | ** ** | **For the Three  Months Ended  September 30, 2005** | ** ** | **For the Twelve  Months Ended  September 30, 2005** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Internet  properties                            |       |                                                                         | $          | 2,661                                                                         |       |   |   | $ | 10,737 |   |   |
| Traditional  turnaround and start-up properties |       |                                                                         | 9,259      |                                                                          |       |   | 25,329 |   |   |
| Related overhead  and other charges             |       |                                                                         | 1,309      |                                                                          |       |   | 5,365 |   |   |
|                                            |       |                                                                         | $          | 13,229                                                                        |       |   |   | $ | 41,431 |   |   |

 

The Company has establishedintercompany arrangements that reflect transactions, such as leasing,licensing, sales and related services and cross-promotion, between Companybusinesses in the Restricted Group and the Unrestricted Group which managementbelieves are on an arms’ length basis and as permitted by the bank creditfacilities and Senior Note agreements. These intercompany arrangements affordstrategic benefits across the Company’s properties and, in particular, enablethe Unrestricted Group to utilize established brands and content, promote brandawareness and increase traffic and revenue to the properties of theUnrestricted Group. For company-wide consolidated financial reporting, theseintercompany transactions are eliminated in consolidation.

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Thecalculation of the Company’s leverage ratio, as required under the bank creditfacilities agreement for covenant purposes, is defined as the Company’sconsolidated debt divided by the EBITDA of the Restricted Group. AtSeptember 30, 2005, this leverage ratio was approximately 5.0 to 1.0.

*Other Arrangements*

During 2002, the Company’s Boardof Directors authorized the exchange of up to $165,000 of the Company’sExchangeable Preferred Stock for common stock. As of September 30, 2005,the Company has exchanged $75,441 liquidation value of Series DExchangeable Preferred Stock, Series F Exchangeable Preferred Stock and Series HExchangeable Preferred Stock (carrying value of $73,874) for 14,360,306 sharesof common stock of the Company.

Inaddition, the Company’s Board of Directors authorized the exchange by theCompany of up to $50,000 of Exchangeable Preferred Stock for common stock andthe subsequent repurchase of the common stock issued in connection with theexchange transactions. As of September 30, 2005, the Company has exchanged$25,000 liquidation value of Series D Exchangeable Preferred Stock, Series FExchangeable Preferred Stock and Series H Exchangeable Preferred Stock(carrying value of $24,597) for 8,733,842 shares of common stock of the Companyand subsequently repurchased all of the common stock issued in connection withsuch exchanges.

*Contingencies*

TheCompany is involved in ordinary and routine litigation incidental to itsbusiness. In the opinion of management, there is no pending legal proceedingthat would have a material adverse affect on the condensed consolidatedfinancial statements of the Company.

***Critical Accounting Policies and Estimates***

During the first ninemonths of 2005, there were no significant changes related to the Company’s criticalaccounting policies and estimates as disclosed in the Company’s annual reporton Form 10-K for the year ended December 31, 2004.

***Recent Accounting Pronouncements***

*SFAS 151, “InventoryCosts”*

In November 2004, theFASB issued SFAS 151, which is an amendment of Accounting Research Bulletin (“ARB”)43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facilityexpense, freight, handling costs, and wasted materials (spoilage) should berecognized as current-period charges and requires the allocation of fixedproduction overheads to inventory based on the normal capacity of theproduction facilities. This SFAS is effective for inventory costs incurred forannual periods beginning after June 15, 2005. The Company does notanticipate any material impact on its consolidated financial statements uponthe adoption of this standard.

*SFAS 123 (revised2004), “Share-Based Payment”*

In December 2004, theFASB issued SFAS 123(R), which replaces SFAS 123 and supersedes APB 25. TheFASB has concluded that companies may adopt the new standard in one of twoways: the modified prospective transition method or the modified retrospectivetransition method. The modified prospective transition method requiresrecognition of compensation expense from the beginning of the fiscal period inwhich the recognition provisions are first applied as if the fair-value-basedaccounting method had been used to account for all employee awards granted,modified, or settled after the effective date and to any awards that were notfully vested as of the effective date. The modified retrospective methodrequires 

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recognitionof compensation expense for periods presented prior to the adoption of the fairvalue based accounting method for share-based payment; that is, an entitywould recognize employee compensation cost for prior periods presented in theamounts reported in the pro forma disclosures provided in accordance with SFAS123. The Company is planning to adopt SFAS 123(R) using the modifiedprospective method effective January 1, 2006, which will result in anincrease in non-cash compensation expense.

*SFAS 153, “Exchangesof Nonmonetary Assets, an amendment of APB Opinion No. 29”*

In December 2004, theFASB issued SFAS 153, which amends APB 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance. SFAS 153 is effective for nonmonetary asset exchangesoccurring in fiscal periods beginning after June 15, 2005. The Companydoes not anticipate any material impact on its consolidated financialstatements upon the adoption of this standard.

*SFAS 154, “AccountingChanges and Error Corrections, a replacement of APB Opinion No. 20 andFASB Statement No. 3”*

In May 2005, the FASBissued SFAS 154 which replaces APB 20 and SFAS 3. This statement providesguidance on the accounting for and reporting of accounting changes and errorcorrections. It establishes, unless impracticable, retrospective application asthe required method for reporting a change in accounting principle in theabsence of explicit transition requirements specific to the newly adoptedaccounting principle. This statement also provides guidance for determiningwhether retrospective application of a change in accounting principle isimpracticable and for reporting a change when retrospective application isimpracticable. SFAS 154 is effective for accounting changes and correction oferrors made in fiscal years beginning after December 15, 2005. The Companydoes not anticipate any material impact on its consolidated financialstatements upon the adoption of this standard.

*EITF No. 05-6,“Determining the Amortization Period for Leasehold Improvements Purchased afterLease Inception or Acquired in a Business Combination”*

In June 2005, theEITF reached a consensus on EITF No. 05-6, which was modified in September 2005.EITF 05-6 provides guidance on whether a lease term should be reevaluatedat the time of a purchase business combination and whether the amortizationperiod for acquired leasehold improvements should be reevaluated by theacquiring entity in a business combination. EITF 05-6 is effective forleasehold improvements that are purchased or acquired in reporting periodsbeginning after June 29, 2005. The adoption of this standard did not havea material impact on the Company’s consolidated financial statements.

***Impact of Inflation and Other Costs***

In 2004, the entire printmedia industry saw a rise in the cost of paper with additional increasesoccurring in the first nine months of 2005 and expected thereafter, in 2005. Inthe first nine months of 2005, paper costs were approximately 7% of the Company’stotal operating costs and expenses. The Company’s paper expense increasedapproximately 5% during the first nine months of 2005 as compared to the sameperiod in 2004. The Company attributes the increase in paper expenses topreviously announced paper price increases in 2005, partially offset by adecrease in the volume of paper used as a result of the smaller folio sizes ofmagazines and fewer newsstand draw copies. Postage for product distribution anddirect mail solicitations is a significant expense of the Company. The Companyuses the U.S. Postal Service for distribution of many of its products andmarketing materials. There were no increases in postage rates in 2004 or thefirst nine months of 2005, however postal rates are expected to increase in 2006.The impact of inflation was immaterial during 2004 and through the first ninemonths of 

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2005. Inthe past, the effects of inflation on operating expenses including postageincreases have substantially been offset by PRIMEDIA’s ability to increaseselling prices. No assurances can be given that the Company can pass such costincreases through to its customers in the future. In addition to pricingactions, the Company is continuing to examine all aspects of the manufacturingand purchasing processes to identify ways to offset some of these priceincreases.

***Seasonality***

The Company’s operationsare seasonal in nature. Operating results have historically been stronger inthe second half of the year with generally strongest results generated in thefourth quarter of the year. The seasonality of the Company’s business reflects (i) therelationship between advertising purchases and the retail and school cycles and(ii) subscription promotions and the holiday season. This seasonalitycauses, and will likely continue to cause, a variation in the Company’squarterly operating results. Such variations have an effect on the timing ofthe Company’s cash flows and the reported quarterly results.

**Item 3.**                        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the first ninemonths of 2005, there were no significant changes related to the Company’smarket risk exposure.

**Item 4.**                        CONTROLSAND PROCEDURES

***Disclosure Controls and Procedures***

The Company’s management,with the participation of the Company’s Chief Executive Officer, ChiefFinancial Officer and Chief Accounting Officer, has evaluated the effectivenessof the Company’s disclosure controls and procedures as of the end of the periodcovered by this report. Based on such evaluation, the Company’s Chief ExecutiveOfficer, Chief Financial Officer and Chief Accounting Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective in recording, processing, summarizing and reporting,on a timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Securities Exchange Act of 1934, asamended.

***Changes in Internal Control Over Financial Reporting***

During the three month period ended September 30,2005, there have not been any changes in the Company’s internal control overfinancial reporting that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

During the first nine months of 2005, the Company hastaken corrective action with regard to certain significant deficiencies andcontrol deficiencies. During the second and third quarters of 2005, the Companyperformed procedures regarding certain of the remediations to determine thatthe remediated controls are operating effectively. The Company plans tocomplete such procedures on the remaining remediated controls in the fourthquarter of 2005.

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**PART II. OTHER INFORMATION**

**Item 6.**                        EXHIBITS

(a)           Exhibits
| 10.1 | Credit Agreement dated as of June 20, 2001 and  amended and restated as of September 30, 2005, among PRIMEDIA Inc., the  Lenders thereunder, Bank of America, N.A., as Syndication Agent, The Bank of  New York, The Bank of Nova Scotia and Citibank, N.A., as Co-Documentation  Agents, and JP Morgan Chase Bank, N.A. as Administrative Agent.(1) |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 | Certification by Dean B.  Nelson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                                                                        |
| 31.2 | Certification by Matthew  A. Flynn Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                                                                      |
| 31.3 | Certification by Robert  J. Sforzo Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                                                                      |
| 32.1 | Certification by Dean B.  Nelson Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                        |
| 32.2 | Certification by Matthew  A. Flynn Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                      |
| 32.3 | Certification by Robert  J. Sforzo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*)                                                                                                                                                                                                      |

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(*)          Filed herewith.

(1)          Incorporated byreference to PRIMEDIA Inc.’s Current Report on Form 8-K, filed October 4,2005

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|        |                   |   | PRIMEDIA  INC.                                                                                          |
|--------|------------------------|--------|---------------------------------------------------------------------------------------------------------|
|   |                   |   | (Registrant)                                                                                            |
| Date:  | November 9,  2005 |   |  /s/ DEAN B. NELSON                                                                                |
|   |                   |   | (Signature)                                                                                             |
|   |                   |   | * Chairman, President and Chief Executive  Officer*                                                |
|   |                   |   | *(Principal  Executive Officer)*                                                                        |
| Date:  | November 9,  2005 |   |  /s/ MATTHEW A. FLYNN                                                                              |
|   |                   |   | (Signature)                                                                                             |
|   |                   |   | * Senior Vice President and Chief Financial  Officer*                                              |
|   |                   |   | *(Principal  Financial Officer)*                                                                        |
| Date:  | November 9,  2005 |   |  /s/ ROBERT J. SFORZO                                                                              |
|   |                   |   | (Signature)                                                                                             |
|   |                   |   | * Senior  Vice President, Chief Accounting Officer and Controller (Principal Accounting  Officer)* |

 

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