**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: June 30, 2006**

**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.) |

 

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

(Address of principalexecutive offices)

**10151**

(Zip Code)

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months, and (2) has been subject to such filing requirements for the past90 days.   Yes   x    No    o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer (as defined in Rule 12b-2of the Exchange Act).

| Large accelerated filer o | Accelerated filer  x | Non-accelerated  filer o |
|---------------------------|----------------------|--------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).Yes  o    No  x

Number of shares of commonstock, par value $.01 per share, of PRIMEDIA Inc. outstanding as of July 31,2006: 264,125,126

 

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**PRIMEDIA Inc.**

**INDEX**

| **Part I. Financial Information:** | ** ** | ** ** |
|-----------------------------------------|------------|------------|
|                                    |       | Item 1.    |   | Financial Statements |   |   |
|                                    |       |       |   | Condensed Consolidated Balance Sheets (Unaudited)  as of June 30, 2006  and December 31, 2005 |   | 2 |
|                                    |       |       |   | Condensed Statements of Consolidated Operations  (Unaudited) for the three months ended June 30, 2006 and 2005 |   | 3 |
|                                    |       |       |   | Condensed Statements of Consolidated Operations  (Unaudited) for the six months ended June 30, 2006 and 2005 |   | 4 |
|                                    |       |       |   | Condensed Statements of Consolidated Cash Flows  (Unaudited) for the six months ended June 30, 2006 and 2005 |   | 5 |
|                                    |       |       |   | Notes to Condensed Consolidated Financial Statements  (Unaudited) |   | 6 |
|                                    |       | Item 2.    |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   | 27 |
|                                    |       | Item 3.    |   | Quantitative and Qualitative Disclosures about Market  Risk |   | 51 |
|                                    |       | Item 4.    |   | Controls and Procedures |   | 51 |
| **Part II. Other  Information:**   | ** ** | ** ** |
|                                    |       | Item 4.    |   | Submission of Matters to a Vote of Security Holders |   | 52 |
|                                    |       | Item 6.    |   | Exhibits |   | 52 |
|                                    |       |       |   | Signatures |   | 53 |

 

 

1

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets (Unaudited)(in thousands, except share and per share amounts)**

| ** **                                                                                                                                                                                                                 | ** ** | **June, 30** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                 |       |              |       |                  |       |   |   |
| Current assets:                                                                                                                                                                                                            |       |              |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                  |       | $                 | 4,233      |                  |       | $ | 7,255 |   |   |
| Accounts receivable, net                                                                                                                                                                                                   |       | 127,003           |       |                  | 134,773    |   |   |
| Inventories                                                                                                                                                                                                                |       | 16,795            |       |                  | 21,212     |   |   |
| Prepaid expenses and other                                                                                                                                                                                                 |       | 44,854            |       |                  | 29,722     |   |   |
| Assets held for sale                                                                                                                                                                                                       |       | 89,565            |       |                  | 109,129    |   |   |
| Total current assets                                                                                                                                                                                                       |       | 282,450           |       |                  | 302,091    |   |   |
| Property and equipment (net of accumulated  depreciation and amortization of $235,057 in 2006 and $226,600 in 2005)                                                                                                        |       | 53,843            |       |                  | 56,868     |   |   |
| Intangible assets, net                                                                                                                                                                                                     |       | 226,489           |       |                  | 231,404    |   |   |
| Goodwill                                                                                                                                                                                                                   |       | 780,817           |       |                  | 763,177    |   |   |
| Other non-current assets                                                                                                                                                                                                   |       | 31,586            |       |                  | 35,928     |   |   |
| Total Assets                                                                                                                                                                                                               |       | $                 | 1,375,185  |                  |       | $ | 1,389,468 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                         |       |              |       |                  |       |   |   |
| Current liabilities:                                                                                                                                                                                                       |       |              |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                                                           |       | $                 | 56,112     |                  |       | $ | 52,984 |   |   |
| Accrued expenses and other                                                                                                                                                                                                 |       | 113,759           |       |                  | 122,319    |   |   |
| Deferred revenues                                                                                                                                                                                                          |       | 112,183           |       |                  | 107,940    |   |   |
| Current maturities of long-term debt                                                                                                                                                                                       |       | 3,866             |       |                  | 7,677      |   |   |
| Liabilities of businesses held for sale                                                                                                                                                                                    |       | 21,491            |       |                  | 33,203     |   |   |
| Total current liabilities                                                                                                                                                                                                  |       | 307,411           |       |                  | 324,123    |   |   |
| Long-term debt                                                                                                                                                                                                             |       | 1,455,951         |       |                  | 1,456,770  |   |   |
| Deferred revenues                                                                                                                                                                                                          |       | 13,600            |       |                  | 14,447     |   |   |
| Deferred income taxes                                                                                                                                                                                                      |       | 88,991            |       |                  | 87,655     |   |   |
| Other non-current liabilities                                                                                                                                                                                              |       | 72,664            |       |                  | 78,202     |   |   |
| Total Liabilities                                                                                                                                                                                                          |       | 1,938,617         |       |                  | 1,961,197  |   |   |
| Commitments and  contingencies (Note 12)                                                                                                                                                                                   |       |              |       |                  |       |   |   |
| Shareholders’  deficiency:                                                                                                                                                                                            |       |              |       |                  |       |   |   |
| Common stock ($.01 par value, 350,000,000 shares  authorized at June 30, 2006 and December 31, 2005; 272,384,069 and  272,158,878 shares issued at June 30, 2006 and December 31, 2005,  respectively) |       | 2,724             |       |                  | 2,722      |   |   |
| Additional paid-in  capital (including warrants of $31,690                                                                                                                                                                 |       |              |       |                  |       |   |   |
| at June 30, 2006 and December 31, 2005)                                                                                                                                                                          |       | 2,365,519         |       |                  | 2,363,071  |   |   |
| Accumulated deficit                                                                                                                                                                                                        |       | (2,855,798        | )          |                  | (2,861,645 | ) |   |
| Common stock in treasury,  at cost (8,442,409                                                                                                                                                                              |       |              |       |                  |       |   |   |
| shares at June 30, 2006 and December 31,  2005)                                                                                                                                                                  |       | (75,877           | )          |                  | (75,877    | ) |   |
| Total Shareholders’ Deficiency                                                                                                                                                                                        |       | (563,432          | )          |                  | (571,729   | ) |   |
| Total Liabilities  and Shareholders’ Deficiency                                                                                                                                                                       |       | $                 | 1,375,185  |                  |       | $ | 1,389,468 |   |   |

 

See notes tocondensed consolidated financial statements (unaudited).

2

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**

| ** **                                                                                                                               | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                               | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Revenues, net:                                                                                                                           |       |                                                |       |   |   |
| Advertising                                                                                                                              |       | $                                                   | 161,795    |   | $ | 167,468 |   |
| Circulation                                                                                                                              |       | 50,328                                              |       | 51,237 |   |
| Other                                                                                                                                    |       | 41,344                                              |       | 36,897 |   |
| Total revenues, net                                                                                                                      |       | 253,467                                             |       | 255,602 |   |
| Operating costs and expenses:                                                                                                            |       |                                                |       |   |   |
| Cost of goods sold  (exclusive of depreciation of property and equipment)                                                                |       | 59,551                                              |       | 56,454 |   |
| Marketing and selling                                                                                                                    |       | 46,603                                              |       | 46,939 |   |
| Distribution,  circulation and fulfillment                                                                                               |       | 48,842                                              |       | 47,140 |   |
| Editorial                                                                                                                                |       | 17,299                                              |       | 17,531 |   |
| Other general expenses                                                                                                                   |       | 30,898                                              |       | 31,419 |   |
| Corporate administrative  expenses (including non-cash compensation of $1,619 and $1,203 in 2006 and  2005, respectively)                |       | 9,129                                               |       | 8,326 |   |
| Depreciation of property  and equipment                                                                                                  |       | 7,674                                               |       | 6,845 |   |
| Amortization of  intangible assets and other                                                                                             |       | 3,070                                               |       | 2,363 |   |
| Provision for severance,  closures and restructuring related costs                                                                       |       | 1,541                                               |       | 267 |   |
| Loss on sale of  businesses, net                                                                                                         |       | 28                                                  |       | — |   |
| Operating income                                                                                                                         |       | 28,832                                              |       | 38,318 |   |
| Other income (expense):                                                                                                                  |       |                                                |       |   |   |
| Interest expense                                                                                                                         |       | (21,457                                             | )          | (32,705 | ) |
| Interest on shares  subject to mandatory redemption                                                                                      |       | —                                              |       | (6,409 | ) |
| Amortization of deferred  financing costs                                                                                                |       | (657                                                | )          | (1,184 | ) |
| Other income (expense),  net                                                                                                             |       | 164                                                 |       | (4,840 | ) |
| Income (loss) from  continuing operations before provision for income taxes                                                              |       | 6,882                                               |       | (6,820 | ) |
| Provision for income  taxes                                                                                                              |       | (3,277                                              | )          | (2,104 | ) |
| Income (loss) from  continuing operations                                                                                                |       | 3,605                                               |       | (8,924 | ) |
| Discontinued operations,  net of tax (including loss on sale of businesses, net of tax, of $40 and $716  in 2006 and 2005, respectively) |       | (5,720                                              | )          | 13,935 |   |
| Net income (loss)                                                                                                                        |       | $                                                   | (2,115     | ) | $ | 5,011 |   |
| Basic income (loss) per common share:                                                                                                    |       |                                                |       |   |   |
| Continuing operations                                                                                                                    |       | $                                                   | 0.01       |   | $ | (0.03 | ) |
| Discontinued operations                                                                                                                  |       | (0.02                                               | )          | 0.05 |   |
| Net income (loss)                                                                                                                        |       | $                                                   | (0.01      | ) | $ | 0.02 |   |
| Diluted income (loss) per common share:                                                                                                  |       |                                                |       |   |   |
| Continuing operations                                                                                                                    |       | $                                                   | 0.01       |   | $ | (0.03 | ) |
| Discontinued operations                                                                                                                  |       | (0.02                                               | )          | 0.05 |   |
| Net income (loss)                                                                                                                        |       | $                                                   | (0.01      | ) | $ | 0.02 |   |
| Basic common shares  outstanding (weighted average)                                                                                      |       | 263,941,660                                         |       | 262,973,160 |   |
| Diluted common shares outstanding (weighted average)                                                                                     |       | 264,803,298                                         |       | 262,973,160 |   |

 

See notes to condensed consolidated financial statements (unaudited).

3

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**

| ** **                                                                                                                                       | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| Revenues, net:                                                                                                                                   |       |                                              |       |   |   |
| Advertising                                                                                                                                      |       | $                                                 | 315,926    |   | $ | 318,345 |   |
| Circulation                                                                                                                                      |       | 99,333                                            |       | 100,605 |   |
| Other                                                                                                                                            |       | 85,130                                            |       | 71,091 |   |
| Total revenues, net                                                                                                                              |       | 500,389                                           |       | 490,041 |   |
| Operating costs  and expenses:                                                                                                                   |       |                                              |       |   |   |
| Cost of goods sold (exclusive of depreciation of  property and equipment)                                                                        |       | 117,415                                           |       | 104,468 |   |
| Marketing and selling                                                                                                                            |       | 96,550                                            |       | 96,235 |   |
| Distribution, circulation and fulfillment                                                                                                        |       | 97,897                                            |       | 93,500 |   |
| Editorial                                                                                                                                        |       | 34,679                                            |       | 34,560 |   |
| Other general expenses                                                                                                                           |       | 64,397                                            |       | 63,523 |   |
| Corporate administrative expenses (including  non-cash compensation of $2,537 and $2,404 in 2006 and 2005, respectively)                         |       | 16,474                                            |       | 16,043 |   |
| Depreciation of property and equipment                                                                                                           |       | 14,613                                            |       | 13,131 |   |
| Amortization of intangible assets and other                                                                                                      |       | 6,099                                             |       | 4,654 |   |
| Provision for severance, closures and restructuring  related costs                                                                               |       | 1,916                                             |       | 1,300 |   |
| Loss on sale of businesses, net                                                                                                                  |       | 28                                                |       | — |   |
| Operating income                                                                                                                                 |       | 50,321                                            |       | 62,627 |   |
| Other income  (expense):                                                                                                                         |       |                                              |       |   |   |
| Interest expense                                                                                                                                 |       | (52,281                                           | )          | (65,826 | ) |
| Interest on shares subject to mandatory redemption                                                                                               |       | —                                            |       | (17,354 | ) |
| Amortization of deferred financing costs                                                                                                         |       | (1,316                                            | )          | (2,518 | ) |
| Other income (expense), net                                                                                                                      |       | 315                                               |       | (4,178 | ) |
| Loss from continuing operations before provision for  income taxes                                                                               |       | (2,961                                            | )          | (27,249 | ) |
| Provision for  income taxes                                                                                                                      |       | (2,128                                            | )          | (5,751 | ) |
| Loss from continuing operations                                                                                                                  |       | (5,089                                            | )          | (33,000 | ) |
| Discontinued operations, net of tax (including gain  on sale of businesses, net of tax, of $13,668 and $382,462 in 2006 and 2005,  respectively) |       | 10,914                                            |       | 403,524 |   |
| Cumulative effect  of change in accounting principle (from the adoption of Statement of  Financial Accoutning Standards No. 123 (R))        |       | 22                                                |       | — |   |
| Net income                                                                                                                                       |       | $                                                 | 5,847      |   | $ | 370,524 |   |
| Basic and diluted  income (loss) per common share:                                                                                               |       |                                              |       |   |   |
| Continuing operations                                                                                                                            |       | $                                                 | (0.02      | ) | $ | (0.13 | ) |
| Discontinued operations                                                                                                                          |       | 0.04                                              |       | 1.54 |   |
| Net income                                                                                                                                       |       | $                                                 | 0.02       |   | $ | 1.41 |   |
| Basic and diluted  common shares outstanding (weighted average)                                                                                  |       | 263,857,382                                       |       | 262,817,408 |   |

 

See notes to condensed consolidated financial statements (unaudited).

4

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Cash Flows (Unaudited)(in thousands)**

| ** **                                                                 | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| **Operating activities**:                                                  |       |                                              |       |   |   |
| Net income                                                                 |       | $                                                 | 5,847      |   | $ | 370,524 |   |
| Cumulative effect of change in accounting principle                        |       | (22                                               | )          | — |   |
| Adjustments to reconcile net income to net cash  provided by               |       | 928                                               |       | (341,072 | ) |
| operating  activities                                                      |       |                                              |       |   |   |
| Changes in operating assets and liabilities                                |       | 3,621                                             |       | (55,570 | ) |
| Net cash provided by (used in) operating activities                        |       | 10,374                                            |       | (26,118 | ) |
| **Investing  activities:**                                                 |       |                                              |       |   |   |
| Additions to property, equipment and other                                 |       | (10,767                                           | )          | (13,505 | ) |
| Proceeds from sales of businesses                                          |       | 17,000                                            |       | 431,306 |   |
| Payments for businesses acquired, net of cash  acquired                    |       | (15,813                                           | )          | (26,961 | ) |
| Net cash (used in) provided by investing activities                        |       | (9,580                                            | )          | 390,840 |   |
| **Financing  activities:**                                                 |       |                                              |       |   |   |
| Borrowings under credit agreements                                         |       | 202,500                                           |       | 196,150 |   |
| Repayments of borrowings under credit agreements                           |       | (142,500                                          | )          | (219,136 | ) |
| Payments for repurchases of senior notes                                   |       | (62,094                                           | )          | (81,017 | ) |
| Proceeds from issuances of common stock                                    |       | 265                                               |       | 1,320 |   |
| Redemption of Series D and F Exchangeable  Preferred Stock            |       | —                                            |       | (264,494 | ) |
| Deferred financing costs paid                                              |       | —                                            |       | (62 | ) |
| Capital lease payments                                                     |       | (1,879                                            | )          | (2,697 | ) |
| Other                                                                      |       | (108                                              | )          | (101 | ) |
| Net cash used in financing activities                                      |       | (3,816                                            | )          | (370,037 | ) |
| Decrease in cash and cash equivalents                                      |       | (3,022                                            | )          | (5,315 | ) |
| Cash and cash  equivalents, beginning of period                            |       | 7,255                                             |       | 13,000 |   |
| Cash and cash  equivalents, end of period                                  |       | $                                                 | 4,233      |   | $ | 7,685 |   |
| **Supplemental  information:**                                             |       |                                              |       |   |   |
| Cash interest paid, including interest on capital  and restructured leases |       | $                                                 | 64,718     |   | $ | 68,740 |   |
| Cash interest paid on shares subject to mandatory  redemption              |       | $                                                 | —     |   | $ | 23,735 |   |
| Cash taxes paid, net of refunds received                                   |       | $                                                 | 4,740      |   | $ | 232 |   |
| Cash paid for severence, closures and restructuring  related costs         |       | $                                                 | 2,715      |   | $ | 5,986 |   |
| Businesses  acquired:                                                      |       |                                              |       |   |   |
| Fair value of assets acquired                                              |       | $                                                 | 15,544     |   | $ | 27,151 |   |
| (Liabilities assumed) net of deferred purchase price  payments             |       | 269                                               |       | (190 | ) |
| Payments for  businesses acquired, net of cash acquired                    | ** ** | $                                                 | 15,813     | ** ** | $ | 26,961 | ** ** |

 

See notes tocondensed consolidated financial statements (unaudited).

5

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**PRIMEDIA INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Unaudited)(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”unless the context implies otherwise. In the opinion of the Company’smanagement, the condensed consolidated financial statements present fairly theconsolidated financial position of the Company as of June 30, 2006 and December 31,2005 the results of consolidated operations of the Company for the three andsix months ended June 30, 2006 and 2005 and consolidated cash flows of theCompany for the six months ended June 30, 2006 and 2005. The adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included. The condensed consolidated balance sheet as ofDecember 31, 2005 has been derived from the Company’s audited consolidatedbalance sheet included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2005. 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, 2005, which are includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2005. The operating results for the three and six months ended June 30,2006 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 due todiscontinued operations to conform to the presentation as of and for the threeand six months ended June 30, 2006.

***Stock-Based Compensation***

The Company has a stockbased employee compensation plan which is described in Note 9. Prior to January1, 2006, the Company accounted for stock based compensation using the FinancialAccounting Standards Board’s Statement of Financial Accounting Standards(“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFASNo. 148, “Accounting for Stock Based Compensation Transition and Disclosure”,under the prospective method. Upon adoption, the Company began expensing thefair value of stock based compensation for all grants, modifications orsettlements made on or after January 1, 2003. Effective January 1, 2006, the Companyadopted the provisions of, and account for stock-based compensation inaccordance with SFAS No. 123—revised 2004 (“SFAS No. 123(R)”), “Share-BasedPayment”, which replaced SFAS No. 123 and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees.” Under the fair value recognitionprovisions of this statement, stock-based compensation cost is measured at thegrant date based on the fair value of the award and is recognized as expense ona straight-line basis over the requisite service period, which is the vestingperiod. The Company elected the modified prospective method, under which priorperiods are not revised for comparative purposes. The modified prospectivetransition method requires recognition of compensation expense from the beginningof the fiscal period in which the recognition provisions are first applied asif the fair-value-based accounting method had been used to account for allemployees awards granted, modified, or settled after the effective date and toany awards that were not fully vested as of the effective date. The adoption ofSFAS No. 123(R) did not have a material impact on the Company’s consolidatedfinancial position, results of operations and cash flows.

6

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**Recent AccountingPronouncements**

In July of 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, effective for fiscal years beginning after December 15,2006. This Interpretation clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withFASB Statement No. 109, *Accounting for IncomeTaxes.*This interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. This Interpretationalso requires entities to make further disclosures about uncertainties in theirincome tax position, and to include a rollforward of the tax benefits takenthat do not qualify for financial statement recognition. The Company is in theprocess of assessing the impact of this Interpretation on its financialstatements.

**2.**   Divestitures

The Company has classified the results of certaindivested entities as discontinued operations in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”.

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 the period up to the date ofsale. Gross proceeds from the sale of approximately $410,600 were used toreduce the Company’s borrowings under its revolving bank credit facilities andfor general corporate purposes. The Company recorded a net gain on the sale ofAbout.com of $378,906 included in discontinued operations for the six monthsended June 30, 2005.

On March 31, 2005, the Company completed the saleof Bankers Training & Consulting Company, the financial servicesdivision of Workplace Learning in the Education segment. On April 1, 2005,the Company sold the remaining net assets of Workplace Learning for theassumption of liabilities. The Company recorded a net gain/(loss) of $(740) and$3,558 included in discontinued operations for the three and six months ended June 30,2005, respectively. The operating results of Workplace Learning have beenclassified as discontinued operations for the period up to the date of sale.

On September 30, 2005, the Company sold itsBusiness Information Segment for approximately $385,000, and during the fourthquarter of 2005, the Company sold Ward’s Automotive Group (“Ward’s”). Theoperating results of the Business Information segment, including Ward’s, havebeen classified as discontinued operations for the periods up to the date ofsale. Additionally, during 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 theperiod up to the date the two magazines were discontinued. The net proceedsfrom these sales are subject to routine post-closing adjustments.

During the fourth quarter of 2005, the Company decidedto pursue the sales of its Crafts and History groups, part of the EnthusiastMedia segment, and discontinue the operations of its Software on Demanddivision, part of the Education segment. The operating results of theseoperations have been classified as discontinued operations for all periodspresented.

In February of 2006, the Company completed thesale of the History group for $17,000, resulting in a net gain of approximately$13,700. The sale of this group reflects the Company’s increased focus ongrowing its properties that reach the valuable 18-34 male demographic.The net proceeds from this sale are subject to routine post-closingadjustments.

In the first quarter 2006, the Company decided toactively pursue the sale of its Films Media Group (“FMG”) included in theEducation Segment. The operations of FMG were classified as discontinuedoperations for all periods presented. Subsequently, the Company activelysolicited, but ultimately did not receive any reasonable offers to purchase FMG.The Company concluded that the offers did not reflect 

7

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FMG’s financial potentialand as a result, decided to hold and continue to operate FMG. In addition, theCompany hired new management to operate FMG. Consequently, in the secondquarter of 2006, the operations of FMG have been reclassified to continuingoperations for all periods presented and are included in the Education Segmentresults.

Totalrevenues, net, and income before provision for income taxes included indiscontinued operations on the accompanying condensed statements ofconsolidated operations are as follows:

| ** **                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total revenues,  net                             |       | $                                               | 15,787     |                                          | $          | 83,994 |   | $ | 29,884 |   | $ | 171,656 |   |
| Income (loss) before  provision for income taxes |       | $                                               | (3,747     | )                                             | $          | 14,939 |   | $ | (2,417 | ) | $ | 21,614 |   |

 

Income (loss) before provisionfor income taxes above excludes losses on sale of businesses, net of tax, of$40 and $716 for the three months ended June 30, 2006 and 2005,respectively. Income (loss) before provision for income taxes above excludesgains on sale of businesses, net of tax, of $13,668 and $382,462 for the sixmonths ended June 30, 2006 and 2005, respectively.

*Held for Sale*

Theassets and liabilities of businesses which the Company has initiated plans tosell, but had not sold, as of June 30, 2006 and December 31, 2005,have been reclassified to held for sale on the accompanying condensedconsolidated balance sheets. As of June 30, 2006, this represents theassets and liabilities of the Crafts group. As of December 31, 2005, thisrepresents the assets and liabilities of the Crafts and History groups.

| ** **                              | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                              |       |                    |       |                        |       |   |   |
| Accounts receivable, net                |       | $                       | 8,363      |                        |       | $ | 12,994 |   |   |
| Inventories                             |       | 1,236                   |       |                        | 1,273      |   |   |
| Prepaid expenses and  other             |       | 1,706                   |       |                        | 883        |   |   |
| Property and equipment,  net            |       | 365                     |       |                        | 1,617      |   |   |
| Intangible assets                       |       | 2,532                   |       |                        | 5,148      |   |   |
| Goodwill                                |       | 74,291                  |       |                        | 87,214     |   |   |
| Other non-current assets                |       | 1,072                   |       |                        | —     |   |   |
| Assets held for sale                    |       | $                       | 89,565     |                        |       | $ | 109,129 |   |   |
| **LIABILITIES**                         |       |                    |       |                        |       |   |   |
| Accounts payable                        |       | $                       | 4,194      |                        |       | $ | 3,929 |   |   |
| Accrued expenses and  other             |       | 1,149                   |       |                        | 1,085      |   |   |
| Deferred  revenues—current         |       | 16,131                  |       |                        | 28,189     |   |   |
| Other non-current  liabilities          |       | 17                      |       |                        | —     |   |   |
| Liabilities of businesses held for sale |       | $                       | 21,491     |                        |       | $ | 33,203 |   |   |

 

**3.**   Acquisitions

*Automotive.com—ForwardAgreement*

On November 15, 2005, the Company purchasedAutomotive.com, Inc. (“Automotive.com”). PRIMEDIA and the minorityshareholders entered into a forward agreement through which PRIMEDIA willpurchase the remaining 20% of Automotive.com’s stock within a short period oftime after the 2008 audit date, or if the forward agreement is extended, the2009 audit date (early 2010). The settlement price 

8

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of the forward agreementis based on a measure of Automotive.com’s earnings in the fiscal year prior tosettlement.

For accounting purposes, the forward agreement wasbifurcated into the components relating to the Chief Executive Officer (“CEO”)of Automotive.com and the other minority shareholders. The estimated fair valueof the deferred purchase price is measured quarter-to-quarter as a charge orcredit to interest expense, except for the estimated amount payable toAutomotive.com’s CEO, which is shown as non-cash compensation included inEnthusiast Media Segment EBITDA.

The component relating to the CEO was measured atintrinsic value for the one and one half months remaining in 2005 following thetransaction date. On January 1, 2006, PRIMEDIA adopted the provisions ofSFAS No. 123(R) (see Note 9), which requires that the portion of theforward agreement relating to the CEO be recorded as a liability and measuredat fair value. The initial recognition of the liability, as of January 1,2006, totaling $330, was recorded as a portion of the cumulative effect of anaccounting change (due to the adoption of SFAS No. 123(R)). Theliability measured on June 30, 2006 was $811 resulting in a reduction ofcompensation expense of $138 for the three months ended June 30, 2006, andan increase of compensation expense of $481 for the six months ended June 30,2006.

The component of theforward agreement relating to the other minority shareholders was recorded as aliability at fair value as of the transaction date and an adjustment to thepurchase price. On June 30, 2006, fair value of this liability was $11,639,resulting in a reduction to interest expense of $11,059 and $12,041 for thethree and six months ended June 30, 2006, respectively.

*RentClicks*

In January 2006, theConsumer Guides segment acquired the assets of *RentClicks*for approximately $12,700 in cash and a potential earnout consideration. Theamount of the earnout consideration will be charged to goodwill when and if itis earned and is based on a measure of *RentClicks’*earnings for 2006. The Company is in the process of finalizing the purchaseprice allocation.

**4.**   AccountsReceivable, Net

Accountsreceivable, net, consisted of the following:

| ** **                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Accounts  receivable               |       | $                 | 137,542    |                  |       | $ | 146,289 |   |   |
| Allowance for  doubtful accounts   |       | (7,662            | )          |                  | (8,256     | ) |   |
| Allowance for  returns and rebates |       | (2,877            | )          |                  | (3,260     | ) |   |
|                               |       | $                 | 127,003    |                  |       | $ | 134,773 |   |   |

 

**5.**   Inventories

Inventoriesconsisted of the following:

| ** **      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Raw materials   |       | $                 | 12,016     |                  |       | $ | 17,895 |   |   |
| Work in process |       | 47                |       |                  | 125        |   |   |
| Finished goods  |       | 4,732             |       |                  | 3,192      |   |   |
|            |       | $                 | 16,795     |                  |       | $ | 21,212 |   |   |

 

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

In accordance with SFAS No. 142, “Goodwill andOther Intangible Assets”, the Company assesses goodwill and indefinite livedintangible assets for impairment at least once a year. The Company hasestablished October 31 as its annual impairment test date. In addition tothe annual impairment test, an assessment is also required whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. For the six months ended June 30, 2006 and 2005, 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.

With the adoption of SFAS No. 142, theCompany no longer amortizes the book basis in the indefinite-livedintangibles, but continues to amortize these intangibles for tax purposes. Forthe three months ended June 30, 2006 and 2005, provision for income taxes primarilyconsisted of deferred income taxes of $3,905 and $2,019, respectively, and forthe six months ended June 30, 2006 and 2005, $6,674 and $5,597,respectively. The Company expects that it will record a total of approximately$7,800, to increase deferred tax liabilities during the remainder of 2006.

Changesin the carrying amount of goodwill for the six months ended June 30, 2006,by operating segment, are as follows:

| ** **                                                  | ** ** | **Enthusiast  Media** | ** ** | **Consumer  Guides** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|-----------|------------|
| Balance as of  January 1, 2006                         |       |                  | $          | 650,510              |       |      | $          | 112,667 |   | $ | 763,177 |   |
| Purchase price  adjustments for valuation reports           |       |                  | 11         |                 |       | 651       |       | 662 |   |
| Adjustment to  goodwill allocated to assets held for sale   |       |                  | 5,477      |                 |       | —    |       | 5,477 |   |
| Goodwill acquired  related to the acquisition of businesses |       |                  | —     |                 |       | 13,624    |       | 13,624 |   |
| Goodwill written  off related to the sale of businesses     |       |                  | (2,123     | )                    |       | —    |       | (2,123 | ) |
| Balance as of  June 30, 2006                           |       |                  | $          | 653,875              |       |      | $          | 126,942 |   | $ | 780,817 |   |

 

Intangibleassets subject to amortization in accordance with SFAS No. 142 consist ofthe following:

| ** **                                 | ** ** | ** **               | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **Range  of Lives** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization**   | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Membership,  subscriber and customer lists |       |                     | 2-20       |                        |       | $                               | 194,366    |   |   | $ | 168,143 |   |   | $ | 26,223 |   | $ | 194,926 |   |   | $ | 166,553 |   |   | $ | 28,373 |   |
| Advertiser lists                           |       |                     | 4-20       |                        |       | 95,234                          |       |   | 79,026 |   |   | 16,208 |   | 96,065 |   |   | 79,418 |   |   | 16,647 |   |
| Other                                      |       |                     | 1-20       |                        |       | 92,421                          |       |   | 82,798 |   |   | 9,623 |   | 109,894 |   |   | 97,945 |   |   | 11,949 |   |
|                                       |       |                     |       |                        |       | $                               | 382,021    |   |   | $ | 329,967 |   |   | $ | 52,054 |   | $ | 400,885 |   |   | $ | 343,916 |   |   | $ | 56,969 |   |

 

Intangible assets notsubject to amortization had a carrying value of $174,435 (excluding intangibleassets classified as assets held for sale) at June 30, 2006 and December 31,2005, and consisted primarily of trademarks. Amortization expense for otherintangible assets still subject to amortization was $2,906 and $2,013 for thethree months ended June 30, 2006 and 2005, respectively, and $5,775 and$3,959 for the six months ended June 30, 2006 and 2005, respectively.Amortization of deferred wiring costs of $164 and $350 for the three monthsended June 30, 2006 and 2005, respectively, and $324 and $695 for the sixmonths ended June 30, 2006 and 2005, respectively, is also included inamortization of intangible assets and other on the accompanying condensedstatements of consolidated operations. At June 30, 2006, estimated futureamortization expenses of other intangible assets still subject to amortization,excluding deferred wiring costs, are as follows: approximately $6,000 for theremainder of 2006 and approximately $10,000, $7,000, $5,000 and $5,000 for2007, 2008, 2009 and 2010, respectively.

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**7.**   AccruedExpenses and Other

Accruedexpenses and other current liabilities consisted of the following:

| ** **                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Payroll, commissions and  related employee benefits |       | $                 | 22,944     |                  |       | $ | 30,333 |   |   |
| Rent and lease  liabilities                         |       | 6,661             |       |                  | 5,643      |   |   |
| Retail display costs and  allowances                |       | 9,324             |       |                  | 11,450     |   |   |
| Royalties                                           |       | 1,981             |       |                  | 2,337      |   |   |
| Circulation costs                                   |       | 3,891             |       |                  | 5,399      |   |   |
| Professional fees                                   |       | 3,145             |       |                  | 2,943      |   |   |
| Taxes                                               |       | 17,956            |       |                  | 19,475     |   |   |
| Deferred purchase price                             |       | 2,690             |       |                  | 2,724      |   |   |
| Interest payable                                    |       | 13,010            |       |                  | 13,794     |   |   |
| Other                                               |       | 32,157            |       |                  | 28,221     |   |   |
|                                                |       | $                 | 113,759    |                  |       | $ | 122,319 |   |   |

 

**8.**   Long-termDebt

Long-termdebt consisted of the following:

| ** **                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Borrowings under bank  credit facilities    |       | $                 | 573,000    |                  |       | $ | 513,000 |   |   |
| 87¤8%  Senior Notes Due 2011           |       | 408,262           |       |                  | 471,013    |   |   |
| 8% Senior Notes Due 2013                    |       | 300,000           |       |                  | 300,000    |   |   |
| Senior Floating Rate  Notes Due 2010        |       | 175,000           |       |                  | 175,000    |   |   |
|                                        |       | 1,456,262         |       |                  | 1,459,013  |   |   |
| Obligation under capital  leases            |       | 3,555             |       |                  | 5,434      |   |   |
|                                        |       | 1,459,817         |       |                  | 1,464,447  |   |   |
| Less: Current maturities  of long-term debt |       | 3,866             |       |                  | 7,677      |   |   |
|                                        |       | $                 | 1,455,951  |                  |       | $ | 1,456,770 |   |   |

 

In the first quarter of2006, the Company redeemed $7,025 principal amount of its 87¤8%Senior Notes due May 15, 2011 in three different transactions for $6,832plus $200 of accrued interest.  In thesecond quarter of 2006, the Company redeemed $56,615 principal amount of its 87¤8%Senior Notes due May 15, 2011 in six different transactions for $55,262plus $400 of accrued interest. As a result of these transactions, the Companyrecorded a gain of $282 and $336 net of the write-off of unamortized deferredfinancing costs and bond discount for the three and six months ended June 30,2006, respectively. This gain is included in the other income (expense), netline on the accompanying condensed statements of consoldiated operations.

Under the most restrictivecovenants as defined in the bank credit facilities agreement, as amended on September 30,2005, the Company must maintain a minimum interest coverage ratio, as defined,of 1.75 to 1 and a minimum fixed charge coverage ratio, as defined, of 1.05 to1. The maximum 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 the three-month LIBOR plus 5.375% per year. Theinterest rate of the Senior Floating Rate Notes was 10.545% at June 30,2006.

**9.**   Share-BasedCompensation Plans

*Accounting Prior to Adoption of SFAS No. 123(R)*

Prior to January 1,2006, the Company accounted for stock based compensation using SFAS No. 123under the prospective method. Upon adoption on January 1, 2003, theCompany began expensing the fair 

11

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value ofstock-based compensation for all grants, modifications or settlementsmade on or after January 1, 2003. The company adopted SFAS No. 123(R) onJanuary 1, 2006.

The PRIMEDIA Inc. 1992Stock Purchase and Option Plan, as amended (the “Stock Option Plan”),authorizes sales of shares of common stock and grants of incentive awards inthe form of, among other things, stock options to key employees and otherpersons with a unique relationship with the Company. The Stock Option Plan hasauthorized grants of up to 45,000,000 shares of the Company’s common stock oroptions to management personnel.

Stock options aregenerally granted with exercise prices at or above quoted market value at timeof issuance. Most of the options are exercisable at the rate of 20%-33%per year commencing on the effective date of the grant. Options grantedpursuant to the Stock Option Plan will expire no later than ten years from thedate the option was granted. The grant date fair value is calculated using theBlack-Scholes pricing model.

*Summary of Impact of SFAS No. 123(R)*

Under the fair valuerecognition provisions of SFAS No. 123(R), stock-based compensation costis measured at the grant date based on the fair value of the award and isrecognized as expense on a straight-line basis over the requisite serviceperiod, which is the vesting period. The Company elected the modifiedprospective method, under which prior periods are not revised for comparativepurposes. The modified prospective transition method requires recognition ofcompensation expense from the beginning of the fiscal period in which therecognition provisions are first applied as if the fair-value-based accountingmethod had been used to account for all employees awards granted, modified, orsettled after the effective date and to any awards that were not fully vestedas of the effective date.

Upon adoption of SFASNo. 123(R), the Company recorded an increase in net income of $352 as aportion of the cumulative effect of change in accounting principle due to SFASNo. 123(R)’s requirement to apply an estimated forfeiture rate to unvestedawards (previously the Company recognized forfeitures when occurred) and areduction to net income of $330 as a portion of the cumulative effect of changein accounting principle as described in Note 3. The adoption of SFAS No. 123(R) did not have a material impacton the Company’s consolidated financial position, results of operations andcash flows.

*Pro Forma Disclosure for the Three and Six MonthsEnded June 30, 2005*

Proforma information regarding net income and earnings per share is required bySFAS No. 123(R), and has been determined as if the Company hadaccounted for its employee stock options granted on or before December 31,2002 under the fair value method. The fair value of these options was estimatedat the date of grant using the Black-Scholes pricing model withassumptions noted in the Stock Options section below.

| ** **                                                                                                        | ** ** | **Three Months**       | ** ** | **Six Months**         | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                        | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** |
| ** **                                                                                                        | ** ** | **June 30, 2005** | ** ** | **June 30, 2005** | ** ** |
| Reported net income                                                                                               |       |                        | $          | 5,011                       |       |   |   | $ | 370,524 |   |   |
| Add: stock-based  employee compensation expense included in reported net income                                   |       |                        | 586        |                        |       |   | 1,152 |   |   |
| Deduct: total  stock-based employee compensation expense determined under fair value based  method for all awards |       |                        | (1,701     | )                           |       |   | (3,471 | ) |   |
| Pro forma net income                                                                                              |       |                        | $          | 3,896                       |       |   |   | $ | 368,205 |   |   |
| Per common share:                                                                                                 |       |                        |       |                        |       |   |   |   |   |
| Reported basic and  diluted income                                                                                |       |                        | $          | 0.02                        |       |   |   | $ | 1.41 |   |   |
| Pro forma basic and diluted income                                                                                |       |                        | $          | 0.01                        |       |   |   | $ | 1.40 |   |   |

 

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*Fair ValueCalculations by Award*

***StockOptions***

Thefair value of each option award was estimated at the date of grant using theBlack-Scholes pricing model that uses the assumptions noted in thefollowing table. Because the Black-Scholes pricing model incorporates ranges ofassumptions for inputs, those ranges are disclosed. Expected volatilities arebased on historical volatilities of the Company’s stock. The Company useshistorical data to estimate option exercises and employee terminations withinthe valuation model. The expected term of options granted is derived from thehistorical exercise behavior of employees and represents the period of timethat options granted are expected to be outstanding. The risk-free rate for theexpected term of the option is based on the U.S. Treasury yield curve in effectat the time of grant.

| ** **                   | ** ** | **Six Months Ended** | ** ** |
|------------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **June 30,**              | ** ** |
| ** **                   | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| Expected  volatility         |       | 63.63                          | %          | 72.31%–75.3 | 0% |
| Weighted-average  volatility |       | 63.63                          | %          | 72.39 | % |
| Expected  dividends          |       | —                         |       | — |   |
| Expected term (in  years)    |       | 3                              |       | 3 |   |
| Risk-free rate               |       | 4.95                           | %          | 3.63%–3.9 | 6% |

 

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. The Company’s employee stock options have characteristicssignificantly different from those of traded options, and changes in thesubjective input assumptions can materially affect the fair value estimate ofits employee stock options.

Asummary of the company’s stock options award activity as of June 30, 2006and changes during the six months ended June 30, 2006 is presented below:

| ** **                           | ** ** | ** **  | ** ** | ** **                                                              | ** ** | **Weighted Average** | ** ** |
|--------------------------------------|------------|-------------|------------|-------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                           | ** ** | ** **  | ** ** | **Weighted Average**                                               | ** ** | **remaining**             | ** ** |
| ** **                           | ** ** | **Options** | ** ** | **    Exercise Price    ** | ** ** | **Contractual Term** | ** ** |
| Outstanding at  January 1, 2006 |       | 20,712,058  |       |                                                                    | $          | 7.65                      |       |   |   |   |   |   |   |
| Granted                              |       | 4,000       |       |                                                                    | 1.89       |                      |       |   |   |   |   |   |
| Exercised                            |       | (19,000     | )          |                                                                    | 1.85       |                      |       |   |   |   |   |   |
| Expired                              |       | (265,949    | )          |                                                                    | 3.24       |                      |       |   |   |   |   |   |
| Forfeited                            |       | (127,332    | )          |                                                                    | 6.07       |                      |       |   |   |   |   |   |
| Outstanding at  June 30, 2006   |       | 20,303,777  |       |                                                                    | 7.70       |                      |       |   | 4 |   |   |   |
| Exercisable at  June 30, 2006   |       | 18,775,165  |       |                                                                    | 7.93       |                      |       |   | 4 |   |   |   |
|                                      |            |             |            |                                                                         |            |                           |            |  |  |  |  |  |  |  |  |

 

The weighted-average fair value per option foroptions granted during the six months ended June 30, 2006 was $0.87. Cashreceived from the exercise of stock options during the six months ended June 30,2006 was $35. No options were settled in cash during the three and six monthsended June 30, 2006.

The Company’s policy forattributing the value of graded vested share-based compensation awards is on astraight-line basis over the requisite service period for the entire award. Asof June 30, 2006, there was $760 of total unrecognized compensation costrelated to unvested stock options. The cost is expected to be recognized over aweighted average period of less than 1 year.

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*Nonvested shares*

The weighted average fair value of nonvested sharesgranted in the six months ended June 30, 2005 was $3.48.

Asummary of the Company’s nonvested shares award activity as of June 30,2006 and changes during the six months ended June 30, 2006 is presentedbelow:

| ** **                                | ** ** | ** **         | ** ** | **Weighted Average** | ** ** |
|-------------------------------------------|------------|--------------------|------------|---------------------------|------------|
| ** **                                | ** ** | **Number of** | ** ** | **Grant-Date**            | ** ** |
| ** **                                | ** ** | **Shares**         | ** ** | **Fair Value**       | ** ** |
| Nonvested Shares  at January 1, 2006 |       |               | 804,500    |                      |       |   | $ | 2.95 |   |   |
| Vested                                    |       |               | (43,963    | )                         |       |   | $ | 2.97 |   |   |
| Forfeited                                 |       |               | (3,333     | )                         |       |   | $ | 2.90 |   |   |
| Nonvested Shares at  June 30, 2006   |       |               | 757,204    |                      |       |   | $ | 2.95 |   |   |

 

As of June 30, 2006, there were $1,322 of totalunrecognized compensation cost related to nonvested shares. The cost isexpected to be recognized over a weighted average period of 1 year.

The total fair value of shares vested during the sixmonths ended June 30, 2006 was $131.

The Company had reservedapproximately 9,791,921 shares of the Company’s common stock for future grantsin connection with the Stock Option Plan at June 30, 2006.

*Employee StockPurchase Plan (“ESPP”)*

Effective January 1, 2006, the ESPP was amendedto provide that the purchase price of shares through the ESPP is 95% of theclosing stock price on the last day of the offering period. Due to theamendment, the ESPP became non-compensatory and thus no charges were recordedfor the three and six months ended June 30, 2006. ESPP non-cashcompensation for the three and six months ended June 30, 2005 did not havea material impact on the Company’s statements of consolidated operations. In January 2006,the Company issued 170,054 shares purchased under the ESPP during the offeringperiod of the six months ended December 31, 2005.

The Company had reservedapproximately 2,564,000 shares of the Company’s common stock for future grantsin connection with the ESPP at June 30, 2006.

*Non-Cash Compensation*

| ** **                                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                        | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                        | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Nonvested  shares(1)                                              |       |                             | $          | 345                            |       |   |   | $ | 617 |   |   | $ | 737 |   | $ | 1,252 |   |
| Share Based  Compensation (SFAS 123(R) and SFAS 123)(2) |       |                             | 1,274      |                           |       |   | 586 |   |   | 1,800 |   | 1,152 |   |
| Total                                                             |       |                             | $          | 1,619                          |       |   |   | $ | 1,203 |   |   | $ | 2,537 |   | $ | 2,404 |   |

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(1)          The Company recognizednon-cash compensation charges related to the Company’s grants of nonvestedshares to certain executives during 2003, 2004 and 2005. These grants are beingexpensed ratably over their related vesting periods.

(2)          In accordance with SFAS No. 123Rin 2006 and SFAS No. 123 in 2005, the Company recorded a non-cashcompensation charge relating to stock options in both 2006 and 2005 and thePRIMEDIA ESPP in 2005.

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**10.**   Provisionfor Severance, Closures and Restructuring Related Costs

In 2006, the Company began new cost reductioninitiatives to streamline operations, reduce layers of management and consolidatereal estate.

Detailsof the new initiatives implemented and the payments made related to both thenew and previously implemented plans during the six months ended June 30,2006 and 2005 are presented in the following tables: 

| ** **                                         | ** ** | ** **                    | ** ** | **Net Provision**    | ** ** | **Payments**                 | ** ** | ** **                    | ** ** |
|----------------------------------------------------|------------|-------------------------------|------------|---------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **                                         | ** ** | ** **                    | ** ** | **for the Six** | ** ** | **during the Six** | ** ** | ** **                    | ** ** |
| ** **                                         | ** ** | **Liability as of** | ** ** | **Months Ended**     | ** ** | **Months Ended**        | ** ** | **Liability as of** | ** ** |
| ** **                                         | ** ** | **January 1,**           | ** ** | **June 30,**         | ** ** | **June 30,**            | ** ** | **June 30,**             | ** ** |
| ** **                                         | ** ** | **2006**                      | ** ** | **2006**                  | ** ** | **2006**                     | ** ** | **2006**                      | ** ** |
| Severance and  closures:                           |       |                          |       |                      |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Employee-related  termination costs                |       |                          | $          | 245                       |       |                         |       | $                             | 1,577      |   |   |   | $ | (771 | ) |   |   | $ | 1,051 |   |   |
| Termination of  leases related to office  closures |       |                          | 29,228     |                      |       |                         | 339        |                          |       |   | (1,944 | ) |   |   | 27,623 |   |   |
| Total severance and  closures                      |       |                          | $          | 29,473                    |       |                         |       | $                             | 1,916      |   |   |   | $ | (2,715 | ) |   |   | $ | 28,674 |   |   |

 

| ** **                                        | ** ** | ** **                    | ** ** | **Net Provision**    | ** ** | **Payments**                 | ** ** | ** **                    | ** ** |
|---------------------------------------------------|------------|-------------------------------|------------|---------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **                                        | ** ** | ** **                    | ** ** | **for the Six** | ** ** | **during the Six** | ** ** | ** **                    | ** ** |
| ** **                                        | ** ** | **Liability as of** | ** ** | **Months Ended**     | ** ** | **Months Ended**        | ** ** | **Liability as of** | ** ** |
| ** **                                        | ** ** | **January 1,**           | ** ** | **June 30,**         | ** ** | **June 30,**            | ** ** | **June 30,**             | ** ** |
| ** **                                        | ** ** | **2005**                      | ** ** | **2005**                  | ** ** | **2005**                     | ** ** | **2005**                      | ** ** |
| Severance and  closures:                          |       |                          |       |                      |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Employee-related  termination costs               |       |                          | $          | 1,501                     |       |                         |       | $                             | 1,381      |   |   |   | $ | (2,052 | ) |   |   | $ | 830 |   |   |
| Termination of  leases related to office closures |       |                          | 34,450     |                      |       |                         | (81        | )                             |       |   | (2,985 | ) |   |   | 31,384 |   |   |
| Total severance and  closures                     |       |                          | $          | 35,951                    | (1)        |                         |       | $                             | 1,300      | (2) |   |   | $ | (5,037 | ) |   |   | $ | 32,214 |   |   |

----

(1)Reduced for liabilities relatingto discontinued operations totaling $1,874 at January 1, 2005.

(2)Adjusted to exclude netprovisions related to discontinued operations totaling $7 for the six monthsended June 30, 2005.

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 this new plan,the Company has closed 3 office location and has terminated a total of 67individuals.

Liabilities of $4,992 and $3,972 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 June 30, 2006 and December 31,2005, respectively. Liabilities of $23,682 and $25,501 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 June 30, 2006 and December 31,2005, respectively.

15

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For purposes of theCompany’s bank credit facility and Senior Note agreements, the provision forseverance, closures and restructuring related costs is excluded from theCompany’s calculation of consolidated EBITDA.

**11.**   Income(Loss) per Common Share

Basicand diluted income (loss) per share have been computed as follows:

| ** **                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                             | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Basic income (loss) per share computation:**         |       |                             |       |                           |       |   |   |   |   |
| Net income (loss)                                      |       | $                                | (2,115     | )                              | $          | 5,011 |   | $ | 5,847 |   | $ | 370,524 |   |
| Weighted average number  of common shares outstanding  |       | 263,941,660                      |       | 262,973,160                    |       | 263,857,382 |   | 262,817,408 |   |
| Basic income (loss) per  share                         |       | $                                | (0.01      | )                              | $          | 0.02 |   | $ | 0.02 |   | $ | 1.41 |   |
| **Diluted income (loss) per share computation:**       |       |                             |       |                           |       |   |   |   |   |
| Net income (loss)                                      |       | $                                | (2,115     | )                              | $          | 5,011 |   | $ | 5,847 |   | $ | 370,524 |   |
| Weighted average number  of common shares outstanding  |       | 263,941,660                      |       | 262,973,160                    |       | 263,857,382 |   | 262,817,408 |   |
| Incremental shares for  assumed exercise of securities |       | 104,434                          |       | —                         |       | — |   | — |   |
| Unvested restricted  stock                             |       | 757,204                          |       | —                         |       | — |   | — |   |
| Total shares                                           |       | 264,803,298                      |       | 262,973,160                    |       | 263,857,382 |   | 262,817,408 |   |
| Diluted income (loss)  per share                       |       | $                                | (0.01      | )                              | $          | 0.02 |   | $ | 0.02 |   | $ | 1.41 |   |

 

Stock options and warrantswith exercise prices that exceeded the fair market value of the Company’scommon stock had an antidilutive effect and, therefore, were excluded from thecomputation of diluted earnings per shares. The securities that couldpotentially dilute basic earnings per share in the future consist ofapproximately 9,870,000 warrants and 20,303,777 stock options at June 30,2006.

**12.**   Commitmentsand Contingencies

The Company is involved in ordinary and routinelitigation incidental to its business. In the opinion of management, there isno pending legal proceeding that would have a material adverse effect on thecondensed consolidated financial statements of the Company.

In 2005, the Company sold the remaining net assets ofWorkplace Learning for the assumption of liabilities, however, the Companyretained a secondary liability regarding the Carrolton, TX building lease and alease for satellite time. At the time of the sale the Company received a thirdparty guarantee of up to $10,000 against those lease obligations to reimbursethe Company for lease payments made.

In 2006, the Company madecertain lease payments on behalf of Workplace Learning pursuant to itssecondary liability. During the second quarter of 2006, the Company determinedthat it was probable that the Company would be responsible for the leasepayments. As a result, as of June 30, 2006, the Company recorded areceivable of $10,000 included in prepaid expenses and other current assets forthe amount due from the third party guarantor, and a total liability of $15,584for the fair value of the future lease payments, net of estimated subleaseincome, on the accompanying condensed consolidated balance sheet. 

16

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Duringthe second quarter of 2006, the Company recorded a related provision indiscontinued operations of $5,584 and a charge to discontinued operations of$1,643 for the net lease payments made by the Company prior to June 30,2006.

**13.**   BusinessSegment Information

The Company’s products compete primarily in the UnitedStates, in three principal segments: Enthusiast Media, Consumer Guides andEducation. PRIMEDIA believes that this structure aligns its businesses toprovide 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 connects buyers and sellers through the Company’s consumermagazine brands, Internet, events, television, radio, licensing andmerchandising.

The Consumer Guides segment is the nation’s largestpublisher and distributor of free publications, including *ApartmentGuide*, *New Home Guide* and*Auto Guide* and operates related Internet sites.

The Education segment consists of Channel One, aproprietary network to secondary schools, Films Media Group and PRIMEDIAHealthcare, a continuing medical education business.

The following information includes certain intersegmenttransactions and is, therefore, not necessarily indicative of the results hadthe operations existed as stand-alone businesses. Intersegmenttransactions represent intercompany advertising and other services, which arebilled at what management believes are prevailing market rates. Theseintersegment transactions, which represent transactions between operating unitsin different business segments, are eliminated in consolidation.

Information regarding the operations of the Company indifferent business segments is set forth below based primarily on the nature ofthe targeted audience. Corporate represents items not allocated to otherbusiness segments. PRIMEDIA evaluates performance based on several factors, ofwhich the primary financial measure is segment earnings before interest, taxes,depreciation, amortization and other charges (income) (“Segment EBITDA”). Other charges (income) include non-cashcompensation, provision for severance, closures and restructuring related costsand loss on sale of businesses and other, net.

17

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| ** **                                                                                   | ** ** | **Three Months Ended June 30,**                                          | ** ** | **Six Months Ended June 30,**                                            | ** ** |
|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **       2006       ** | ** ** | **       2005       ** | ** ** | **       2006       ** | ** ** | **       2005       ** | ** ** |
| Revenues, net:                                                                               |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                             |       |                                                                                         | $          | 157,706                                                                                      |       |   |   | $ | 157,849 |   |   |   | $ | 307,834 |   |   |   | $ | 297,854 |   |   |
| Consumer Guides                                                                              |       |                                                                                         | 81,283     |                                                                                         |       |   | 79,471 |   |   |   | 162,685 |   |   |   | 155,119 |   |   |
| Education                                                                                    |       |                                                                                         | 14,516     |                                                                                         |       |   | 18,352 |   |   |   | 29,985 |   |   |   | 37,235 |   |   |
| Intersegment Eliminations                                                                    |       |                                                                                         | (38        | )                                                                                            |       |   | (70 | ) |   |   | (115 | ) |   |   | (167 | ) |   |
| Total                                                                                        |       |                                                                                         | $          | 253,467                                                                                      |       |   |   | $ | 255,602 |   |   |   | $ | 500,389 |   |   |   | $ | 490,041 |   |   |
| Segment EBITDA: (1)                                                                          |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                             |       |                                                                                         | $          | 32,635                                                                                       |       |   |   | $ | 35,115 |   |   |   | $ | 53,682 |   |   |   | $ | 55,917 |   |   |
| Consumer Guides                                                                              |       |                                                                                         | 18,175     |                                                                                         |       |   | 17,912 |   |   |   | 35,910 |   |   |   | 36,155 |   |   |
| Education                                                                                    |       |                                                                                         | (522       | )                                                                                            |       |   | 3,105 |   |   |   | (111 | ) |   |   | 5,708 |   |   |
| Corporate Overhead                                                                           |       |                                                                                         | (7,524     | )                                                                                            |       |   | (7,136 | ) |   |   | (13,967 | ) |   |   | (13,664 | ) |   |
| Total Segment EBITDA                                                                         |       |                                                                                         | $          | 42,764                                                                                       |       |   |   | $ | 48,996 |   |   |   | $ | 75,514 |   |   |   | $ | 84,116 |   |   |
| Depreciation,  amortization and other charges:(2)                                            |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                             |       |                                                                                         | $          | 5,991                                                                                        |       |   |   | $ | 4,696 |   |   |   | $ | 11,914 |   |   |   | $ | 9,231 |   |   |
| Consumer Guides                                                                              |       |                                                                                         | 3,965      |                                                                                         |       |   | 2,707 |   |   |   | 7,093 |   |   |   | 5,254 |   |   |
| Education                                                                                    |       |                                                                                         | 2,047      |                                                                                         |       |   | 1,958 |   |   |   | 3,002 |   |   |   | 3,904 |   |   |
| Corporate overhead                                                                           |       |                                                                                         | 1,929      |                                                                                         |       |   | 1,317 |   |   |   | 3,184 |   |   |   | 3,100 |   |   |
|                                                                                         |       |                                                                                         | $          | 13,932                                                                                       |       |   |   | $ | 10,678 |   |   |   | $ | 25,193 |   |   |   | $ | 21,489 |   |   |
| Operating income (loss):                                                                     |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                             |       |                                                                                         | $          | 26,644                                                                                       |       |   |   | $ | 30,419 |   |   |   | $ | 41,768 |   |   |   | $ | 46,686 |   |   |
| Consumer Guides                                                                              |       |                                                                                         | 14,210     |                                                                                         |       |   | 15,205 |   |   |   | 28,817 |   |   |   | 30,901 |   |   |
| Education                                                                                    |       |                                                                                         | (2,569     | )                                                                                            |       |   | 1,147 |   |   |   | (3,113 | ) |   |   | 1,804 |   |   |
| Corporate                                                                                    |       |                                                                                         | (9,453     | )                                                                                            |       |   | (8,453 | ) |   |   | (17,151 | ) |   |   | (16,764 | ) |   |
| Total                                                                                        |       |                                                                                         | $          | 28,832                                                                                       |       |   |   | $ | 38,318 |   |   |   | $ | 50,321 |   |   |   | $ | 62,627 |   |   |
| Other income (expense):                                                                      |       |                                                                                         |       |                                                                                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense (3)                                                                         |       |                                                                                         | (21,457    | )                                                                                            |       |   | (32,705 | ) |   |   | (52,281 | ) |   |   | (65,826 | ) |   |
| Interest on shares subject to mandatory redemption  (4)                                      |       |                                                                                         | —     |                                                                                         |       |   | (6,409 | ) |   |   | — |   |   |   | (17,354 | ) |   |
| Amortization of deferred financing costs                                                     |       |                                                                                         | (657       | )                                                                                            |       |   | (1,184 | ) |   |   | (1,316 | ) |   |   | (2,518 | ) |   |
| Other income (expense), net                                                                  |       |                                                                                         | 164        |                                                                                         |       |   | (4,840 | ) |   |   | 315 |   |   |   | (4,178 | ) |   |
| Income (loss)  from continuing operations before provision for income taxes                  |       |                                                                                         | 6,882      |                                                                                         |       |   | (6,820 | ) |   |   | (2,961 | ) |   |   | (27,249 | ) |   |
| Provision for  income taxes                                                                  |       |                                                                                         | (3,277     | )                                                                                            |       |   | (2,104 | ) |   |   | (2,128 | ) |   |   | (5,751 | ) |   |
| Discontinued  operations (5)                                                                 |       |                                                                                         | (5,720     | )                                                                                            |       |   | 13,935 |   |   |   | 10,914 |   |   |   | 403,524 |   |   |
| Cumulative effect  of change in accounting principle (from the adoption of SFAS 123(R)) |       |                                                                                         | —     |                                                                                         |       |   | — |   |   |   | 22 |   |   |   | — |   |   |
| Net income (loss)                                                                            |       |                                                                                         | $          | (2,115                                                                                       | )          |   |   | $ | 5,011 |   |   |   | $ | 5,847 |   |   |   | $ | 370,524 |   |   |

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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 be and should not be considered as an alternative to netincome or loss (as determined in conformity with generally accepted accountingprinciples), as an indicator of the Company’s operating performance. 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 an accurate indicatorof its segments’ results, because it focuses on 

18

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revenue and operating costitems driven by each operating managers’ performance, and excludes itemslargely outside of the operating managers’ control. Segment EBITDA as presentedmay not be comparable to similarly titled measures reported by other companiessince not all companies necessarily calculate Segment EBITDA in an identicalmanner, and therefore, is not necessarily an accurate measure of comparison betweencompanies.

(2)          Other charges includenon-cash compensation, provision for severance, closures and restructuringrelated costs and loss on sale of businesses and other, net.

(3)          Interest expense for thethree and six months ended June 30, 2006 was reduced by $11,059 and$12,041, respectively, due to the quarterly fair value measurement of the deferredpurchase price liability arising from the forward agreement related to theAutomotive.com acquisition. (See Note 3).

(4)          During 2005, the Companyredeemed all of its outstanding shares subject to mandatory redemption(liquidation preference of approximately $475,000).

(5)          Discontinuedoperations include a gain/(loss) on sale of businesses, net of $(40) and $(716)for the three months ended June 30, 2006 and 2005, respectively, and$13,668 and $382,462 for the six months ended June 30, 2006 and 2005,respectively .

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

The information that follows presents condensedconsolidating financial information as of June 30, 2006 and December 31,2005 and for the six months ended June 30, 2006 and 2005 for a) PRIMEDIAInc. (as the Issuer), b) the guarantor subsidiaries, which are with limitedexceptions, the restricted subsidiaries, represent the core PRIMEDIA businessesand exclude investment and other development properties included in theunrestricted category, c) the non-guarantor subsidiaries (primarilyrepresenting Internet assets and businesses, new launches and other propertiesunder evaluation for turnaround or shutdown), which are with limitedexceptions, the unrestricted subsidiaries, d) elimination entries and e) theCompany on a consolidated basis.

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 subsidiariesresults of operations include: Internet operations, certain distributionoperations, certain start-up magazine businesses, revenues and related expensesderived from the licensing of certain products of guarantor subsidiaries andexpenses associated with the cross promotion by the guarantor subsidiaries ofthe activities of the non-guarantor subsidiaries. The transactions describedabove are billed, by the Company, at what the Company believes are prevailingmarket rates. All intercompany related activities are eliminated inconsolidation.

The Company is herewith providing detailed informationand disclosure as to the methodology used in determining compliance with theleverage ratio in the credit facilities agreement and Senior Note agreements.Under its bank credit facilities and Senior Note agreements, the Company isallowed to designate certain businesses as unrestricted subsidiaries to theextent 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 content licensing and servicecompanies, new launches (including traditional start-ups), other propertiesunder evaluation for turnaround or shutdown and foreign subsidiaries. Except 

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for those specificallydesignated by the Company as unrestricted, all businesses of the Company arerestricted (the “Restricted Group”). Indebtedness under the bank creditfacilities and Senior Note agreements is guaranteed by each of the Company’s100%-owned domestic subsidiaries in the Restricted Group in accordance with theprovisions and limitations of the Company’s bank credit facilities and SeniorNote agreements. The guarantees are full, unconditional and joint and several.The Unrestricted Group does not guarantee the bank credit facilities or SeniorNotes. Although Automotive.com is included in the Restricted Group under thebank credit facilities agreement it does not guarantee the debt. For purposesof determining compliance with certain financial covenants under the Company’sbank credit facilities, the Unrestricted Group’s results (positive ornegative), are not reflected in the Consolidated EBITDA of the Restricted Groupwhich, as defined in the bank credit facilities agreement, excludes losses ofthe Unrestricted Group, non-cash charges and restructuring charges and isadjusted primarily for the trailing four quarters results of acquisitions anddivestitures and estimated savings for acquired business.

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET(UNAUDITED)June 30, 2006(dollars in thousands)**

| ** **                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **Primedia Inc.** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                         | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                         | ** ** | **Primedia Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                         |       |                   |       |             |       |              |       |             |       |                   |       |   |   |
| Current assets:                                    |       |                   |       |             |       |              |       |             |       |                   |       |   |   |
| Cash and cash equivalents                          |       | $                      | 117        |             | $          | 3,868             |       |             | $          | 248                    |       |   | $ | — |   | $ | 4,233 |   |
| Accounts receivable, net                           |       | —                 |       | 108,274          |       |              | 18,729     |             |       | —                 |       | 127,003 |   |
| Inventories                                        |       | —                 |       | 13,824           |       |              | 2,971      |             |       | —                 |       | 16,795 |   |
| Prepaid expenses and other                         |       | 16,934                 |       | 17,058           |       |              | 10,862     |             |       | —                 |       | 44,854 |   |
| Assets held for sale                               |       | —                 |       | 89,565           |       |              | —     |             |       | —                 |       | 89,565 |   |
| Total current assets                               |       | 17,051                 |       | 232,589          |       |              | 32,810     |             |       | —                 |       | 282,450 |   |
| Property and equipment, net                        |       | 2,524                  |       | 40,800           |       |              | 10,519     |             |       | —                 |       | 53,843 |   |
| Investment in and  advances to subsidiaries        |       | 1,321,866              |       | —           |       |              | —     |             |       | (1,321,866             | )          | — |   |
| Intangible  assets, net                            |       | —                 |       | 186,428          |       |              | 40,061     |             |       | —                 |       | 226,489 |   |
| Goodwill                                           |       | —                 |       | 664,617          |       |              | 116,200    |             |       | —                 |       | 780,817 |   |
| Other non-current  assets                          |       | 4,570                  |       | 25,248           |       |              | 1,768      |             |       | —                 |       | 31,586 |   |
|                                               |       | $                      | 1,346,011  |             | $          | 1,149,682         |       |             | $          | 201,358                |       |   | $ | (1,321,866 | ) | $ | 1,375,185 |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY** |       |                   |       |             |       |              |       |             |       |                   |       |   |   |
| Current liabilities:                               |       |                   |       |             |       |              |       |             |       |                   |       |   |   |
| Accounts payable                                   |       | $                      | 7,717      |             | $          | 44,815            |       |             | $          | 3,580                  |       |   | $ | — |   | $ | 56,112 |   |
| Intercompany payables                              |       | 257,871                |       | (892,993         | )          |              | 635,122    |             |       | —                 |       | — |   |
| Accrued expenses and other                         |       | 44,576                 |       | 62,558           |       |              | 6,625      |             |       | —                 |       | 113,759 |   |
| Deferred revenues                                  |       | 1,738                  |       | 102,836          |       |              | 7,609      |             |       | —                 |       | 112,183 |   |
| Current maturities of long-term debt               |       | 2,557                  |       | 1,286            |       |              | 23         |             |       | —                 |       | 3,866 |   |
| Liabilities of businesses held for sale            |       | —                 |       | 21,491           |       |              | —     |             |       | —                 |       | 21,491 |   |
| Total current liabilities                          |       | 314,459                |       | (660,007         | )          |              | 652,959    |             |       | —                 |       | 307,411 |   |
| Long-term debt                                     |       | 1,453,896              |       | 1,950            |       |              | 105        |             |       | —                 |       | 1,455,951 |   |
| Intercompany  notes payable                        |       | —                 |       | 2,235,142        |       |              | —     |             |       | (2,235,142             | )          | — |   |
| Deferred revenues                                  |       | 13,600                 |       | —           |       |              | —     |             |       | —                 |       | 13,600 |   |
| Deferred income  taxes                             |       | 88,991                 |       | —           |       |              | —     |             |       | —                 |       | 88,991 |   |
| Other non-current  liabilities                     |       | 38,497                 |       | 18,952           |       |              | 15,215     |             |       | —                 |       | 72,664 |   |
| Total liabilities                                  |       | 1,909,443              |       | 1,596,037        |       |              | 668,279    |             |       | (2,235,142             | )          | 1,938,617 |   |
| Shareholders’  deficiency:                    |       |                   |       |             |       |              |       |             |       |                   |       |   |   |
| Common stock                                       |       | 2,724                  |       | —           |       |              | —     |             |       | —                 |       | 2,724 |   |
| Additional paid-in capital                         |       | 2,365,519              |       | —           |       |              | —     |             |       | —                 |       | 2,365,519 |   |
| Accumulated deficit                                |       | (2,855,798             | )          | (446,355         | )          |              | (466,921   | )                |       | 913,276                |       | (2,855,798 | ) |
| Common stock in treasury, at cost                  |       | (75,877                | )          | —           |       |              | —     |             |       | —                 |       | (75,877 | ) |
| Total shareholders’ deficiency                |       | (563,432               | )          | (446,355         | )          |              | (466,921   | )                |       | 913,276                |       | (563,432 | ) |
|                                               |       | $                      | 1,346,011  |             | $          | 1,149,682         |       |             | $          | 201,358                |       |   | $ | (1,321,866 | ) | $ | 1,375,185 |   |

 

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Six Months Ended June 30, 2006(dollars in thousands)**

| ** **                                                                  | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **Primedia Inc.** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                  | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                  | ** ** | **Primedia Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                               |       |                   | $          | —           |       |              |       | $                | 399,418    |                   |       |   | $ | 104,953 |   |   |   | $ | (3,982 | ) |   |   | $ | 500,389 |   |   |
| Operating costs and expenses:                                               |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold  (exclusive of depreciation of property and equipment)   |       |                   | —     |             |       |              | 99,314     |             |       |                   | 18,101     |   |   |   | — |   |   |   | 117,415 |   |   |
| Marketing and selling                                                       |       |                   | —     |             |       |              | 81,543     |             |       |                   | 15,007     |   |   |   | — |   |   |   | 96,550 |   |   |
| Distribution,  circulation and fulfillment                                  |       |                   | —     |             |       |              | 62,054     |             |       |                   | 35,843     |   |   |   | — |   |   |   | 97,897 |   |   |
| Editorial                                                                   |       |                   | —     |             |       |              | 29,294     |             |       |                   | 5,385      |   |   |   | — |   |   |   | 34,679 |   |   |
| Other general expenses                                                      |       |                   | 29         |             |       |              | 20,808     |             |       |                   | 47,542     |   |   |   | (3,982 | ) |   |   | 64,397 |   |   |
| Corporate administrative  expenses (including non-cash compensation)        |       |                   | 13,366     |             |       |              | 48         |             |       |                   | 3,060      |   |   |   | — |   |   |   | 16,474 |   |   |
| Depreciation of property  and equipment                                     |       |                   | 689        |             |       |              | 9,710      |             |       |                   | 4,214      |   |   |   | — |   |   |   | 14,613 |   |   |
| Amortization of  intangible assets and other                                |       |                   | —     |             |       |              | 3,047      |             |       |                   | 3,052      |   |   |   | — |   |   |   | 6,099 |   |   |
| Provision for severance,  closures and restructuring related costs          |       |                   | 7          |             |       |              | 1,869      |             |       |                   | 40         |   |   |   | — |   |   |   | 1,916 |   |   |
| Loss on sale of  businesses and other, net                                  |       |                   | —     |             |       |              | 28         |             |       |                   | —     |   |   |   | — |   |   |   | 28 |   |   |
| Operating income (loss)                                                     |       |                   | (14,091    | )                |       |              | 91,703     |             |       |                   | (27,291    | ) |   |   | — |   |   |   | 50,321 |   |   |
| Other income (expense):                                                     |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                            |       |                   | (63,608    | )                |       |              | (665       | )                |       |                   | 11,992     |   |   |   | — |   |   |   | (52,281 | ) |   |
| Amortization of deferred  financing costs                                   |       |                   | —     |             |       |              | (1,257     | )                |       |                   | (59        | ) |   |   | — |   |   |   | (1,316 | ) |   |
| Intercompany management  fees and interest                                  |       |                   | 74,414     |             |       |              | (71,460    | )                |       |                   | (2,954     | ) |   |   | — |   |   |   | — |   |   |
| Other income (expense),  net                                                |       |                   | 1,567      |             |       |              | (1,095     | )                |       |                   | (157       | ) |   |   | — |   |   |   | 315 |   |   |
| Income (loss) from  continuing operations before provision for income taxes |       |                   | (1,718     | )                |       |              | 17,226     |             |       |                   | (18,469    | ) |   |   | — |   |   |   | (2,961 | ) |   |
| Provision for income  taxes                                                 |       |                   | (1,559     | )                |       |              | (420       | )                |       |                   | (149       | ) |   |   | — |   |   |   | (2,128 | ) |   |
| Equity in earnings of  subsidiaries                                         |       |                   | 16,188     |             |       |              | —     |             |       |                   | —     |   |   |   | (16,188 | ) |   |   | — |   |   |
| Income (loss) from  continuing operations                                   |       |                   | 12,911     |             |       |              | 16,806     |             |       |                   | (18,618    | ) |   |   | (16,188 | ) |   |   | (5,089 | ) |   |
| Discontinued operations,  net of tax                                        |       |                   | (7,416     | )                |       |              | 18,345     |             |       |                   | (15        | ) |   |   | — |   |   |   | 10,914 |   |   |
| Cumulative effect of  change in accounting principle                        |       |                   | 352        |             |       |              | —     |             |       |                   | (330       | ) |   |   | — |   |   |   | 22 |   |   |
| Net income (loss)                                                           |       |                   | $          | 5,847            |       |              |       | $                | 35,151     |                   |       |   | $ | (18,963 | ) |   |   | $ | (16,188 | ) |   |   | $ | 5,847 |   |   |

 

22

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS (UNAUDITED)For the Six Months Ended June 30, 2006(dollars in thousands)**

| ** **                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **Primedia Inc.** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                         | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                         | ** ** | **Primedia Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                  |       |                   | $          | 5,847            |       |              |       | $                | 35,151     |                   |       |   | $ | (18,963 | ) |   |   | $ | (16,188 | ) |   |   | $ | 5,847 |   |   |
| Cumulative effect of  change in accounting principle                                               |       |                   | (352       | )                |       |              | —     |             |       |                   | 330        |   |   |   | — |   |   |   | (22 | ) |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities |       |                   | (86,586    | )                |       |              | 73,036     |             |       |                   | (1,710     | ) |   |   | 16,188 |   |   |   | 928 |   |   |
| Changes in operating  assets and liabilities                                                       |       |                   | (3,699     | )                |       |              | 18,750     |             |       |                   | (11,430    | ) |   |   | — |   |   |   | 3,621 |   |   |
| Net cash (used in) provided  by operating activities                                               |       |                   | (84,790    | )                |       |              | 126,937    |             |       |                   | (31,773    | ) |   |   | — |   |   |   | 10,374 |   |   |
| **Investing activities:**                                                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property,  equipment and other, net                                                   |       |                   | (124       | )                |       |              | (7,283     | )                |       |                   | (3,360     | ) |   |   | — |   |   |   | (10,767 | ) |   |
| Proceeds from sales of  businesses and other                                                       |       |                   | —     |             |       |              | 17,342     |             |       |                   | (342       | ) |   |   | — |   |   |   | 17,000 |   |   |
| Payments for businesses  acquired, net of cash acquired                                            |       |                   | (140       | )                |       |              | (5,962     | )                |       |                   | (9,711     | ) |   |   | — |   |   |   | (15,813 | ) |   |
| Net cash (used in) provided  by investing activities                                               |       |                   | (264       | )                |       |              | 4,097      |             |       |                   | (13,413    | ) |   |   | — |   |   |   | (9,580 | ) |   |
| **Financing activities:**                                                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                              |       |                   | 87,465     |             |       |              | (130,019   | )                |       |                   | 42,554     |   |   |   | — |   |   |   | — |   |   |
| Borrowings under credit  agreements                                                                |       |                   | 202,500    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 202,500 |   |   |
| Repayments of borrowings  under credit agreements                                                  |       |                   | (142,500   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (142,500 | ) |   |
| Payments for repurchases  of senior notes                                                          |       |                   | (62,094    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (62,094 | ) |   |
| Proceeds from issuances  of common stock                                                           |       |                   | 265        |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 265 |   |   |
| Capital lease payments                                                                             |       |                   | (786       | )                |       |              | (1,221     | )                |       |                   | 128        |   |   |   | — |   |   |   | (1,879 | ) |   |
| Other                                                                                              |       |                   | —     |             |       |              | (108       | )                |       |                   | —     |   |   |   | — |   |   |   | (108 | ) |   |
| Net cash provided by  (used in) financing activities                                               |       |                   | 84,850     |             |       |              | (131,348   | )                |       |                   | 42,682     |   |   |   | — |   |   |   | (3,816 | ) |   |
| Decrease in cash and  cash equivalents                                                             |       |                   | (204       | )                |       |              | (314       | )                |       |                   | (2,504     | ) |   |   | — |   |   |   | (3,022 | ) |   |
| Cash and cash  equivalents, beginning of period                                                    |       |                   | 321        |             |       |              | 4,182      |             |       |                   | 2,752      |   |   |   | — |   |   |   | 7,255 |   |   |
| Cash and cash equivalents, end of period                                                           |       |                   | $          | 117              |       |              |       | $                | 3,868      |                   |       |   | $ | 248 |   |   |   | $ | — |   |   |   | $ | 4,233 |   |   |

 

23

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET(UNAUDITED)December 31, 2005(dollars in thousands)**

| ** **                                        | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                        | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                        | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                        |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |
| Current assets:                                   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |
| Cash and cash  equivalents                        |       |                   | $          | 321              |       |              | $          | 4,182            |       |                   | $          | 2,752 |   |   | $ | — |   |   | $ | 7,255 |   |   |
| Accounts receivable, net                          |       |                   | —     |             |       | 117,528           |       |             | 17,245     |                   |       | — |   |   | 134,773 |   |   |
| Inventories                                       |       |                   | —     |             |       | 19,601            |       |             | 1,611      |                   |       | — |   |   | 21,212 |   |   |
| Prepaid expenses and  other                       |       |                   | 8,622      |             |       | 17,668            |       |             | 3,432      |                   |       | — |   |   | 29,722 |   |   |
| Assets held for sale                              |       |                   | —     |             |       | 109,129           |       |             | —     |                   |       | — |   |   | 109,129 |   |   |
| Total current assets                              |       |                   | 8,943      |             |       | 268,108           |       |             | 25,040     |                   |       | — |   |   | 302,091 |   |   |
| Property and equipment,  net                      |       |                   | 3,090      |             |       | 42,215            |       |             | 11,563     |                   |       | — |   |   | 56,868 |   |   |
| Investment in and  advances to subsidiaries       |       |                   | 471,538    |             |       | —            |       |             | —     |                   |       | (471,538 | ) |   | — |   |   |
| Intangible assets, net                            |       |                   | —     |             |       | 186,554           |       |             | 44,850     |                   |       | — |   |   | 231,404 |   |   |
| Goodwill                                          |       |                   | —     |             |       | 648,185           |       |             | 114,992    |                   |       | — |   |   | 763,177 |   |   |
| Other non-current assets                          |       |                   | 4,727      |             |       | 28,990            |       |             | 2,211      |                   |       | — |   |   | 35,928 |   |   |
|                                              |       |                   | $          | 488,298          |       |              | $          | 1,174,052        |       |                   | $          | 198,656 |   |   | $ | (471,538 | ) |   | $ | 1,389,468 |   |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIENCY** |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |
| Current liabilities:                              |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |
| Accounts payable                                  |       |                   | $          | 8,140            |       |              | $          | 37,949           |       |                   | $          | 6,895 |   |   | $ | — |   |   | $ | 52,984 |   |   |
| Intercompany payables                             |       |                   | (588,458   | )                |       | (867,988          | )          |             | 1,456,446  |                   |       | — |   |   | — |   |   |
| Accrued expenses and  other                       |       |                   | 46,975     |             |       | 67,395            |       |             | 7,949      |                   |       | — |   |   | 122,319 |   |   |
| Deferred revenues                                 |       |                   | 1,738      |             |       | 94,335            |       |             | 11,867     |                   |       | — |   |   | 107,940 |   |   |
| Current maturities of  long-term debt             |       |                   | 5,816      |             |       | 1,827             |       |             | 34         |                   |       | — |   |   | 7,677 |   |   |
| Liabilities of  businesses held for sale          |       |                   | —     |             |       | 33,203            |       |             | —     |                   |       | — |   |   | 33,203 |   |   |
| Total current  liabilities                        |       |                   | (525,789   | )                |       | (633,279          | )          |             | 1,483,191  |                   |       | — |   |   | 324,123 |   |   |
| Long-term debt                                    |       |                   | 1,454,174  |             |       | 2,457             |       |             | 139        |                   |       | — |   |   | 1,456,770 |   |   |
| Intercompany notes  payable                       |       |                   | —     |             |       | 2,226,286         |       |             | —     |                   |       | (2,226,286 | ) |   | — |   |   |
| Deferred revenues                                 |       |                   | 14,447     |             |       | —            |       |             | —     |                   |       | — |   |   | 14,447 |   |   |
| Deferred income taxes                             |       |                   | 87,655     |             |       | —            |       |             | —     |                   |       | — |   |   | 87,655 |   |   |
| Other non-current  liabilities                    |       |                   | 29,540     |             |       | 22,069            |       |             | 26,593     |                   |       | — |   |   | 78,202 |   |   |
| Total Liabilities                                 |       |                   | 1,060,027  |             |       | 1,617,533         |       |             | 1,509,923  |                   |       | (2,226,286 | ) |   | 1,961,197 |   |   |
| Shareholders’ deficiency:                    |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |
| Common stock                                      |       |                   | 2,722      |             |       | —            |       |             | —     |                   |       | — |   |   | 2,722 |   |   |
| Additional paid-in  capital                       |       |                   | 2,363,071  |             |       | —            |       |             | —     |                   |       | — |   |   | 2,363,071 |   |   |
| Accumulated deficit                               |       |                   | (2,861,645 | )                |       | (443,481          | )          |             | (1,311,267 | )                      |       | 1,754,748 |   |   | (2,861,645 | ) |   |
| Common stock in  treasury, at cost                |       |                   | (75,877    | )                |       | —            |       |             | —     |                   |       | — |   |   | (75,877 | ) |   |
| Total shareholders’  deficiency              |       |                   | (571,729   | )                |       | (443,481          | )          |             | (1,311,267 | )                      |       | 1,754,748 |   |   | (571,729 | ) |   |
|                                              |       |                   | $          | 488,298          |       |              | $          | 1,174,052        |       |                   | $          | 198,656 |   |   | $ | (471,538 | ) |   | $ | 1,389,468 |   |   |

 

24

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Six Months Ended June 30, 2005(dollars in thousands)**

| ** **                                                                  | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **Primedia Inc.** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                  | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                  | ** ** | **Primedia Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net:                                                              |       |                   | $          | —           |       |              |       | $                | 424,512    |                   |       |   | $ | 79,550 |   |   |   | $ | (14,021 | ) |   |   | $ | 490,041 |   |   |
| Operating costs and  expenses:                                              |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation of  property and equipment)   |       |                   | —     |             |       |              | 98,674     |             |       |                   | 5,794      |   |   |   | — |   |   |   | 104,468 |   |   |
| Marketing and selling                                                       |       |                   | —     |             |       |              | 86,485     |             |       |                   | 9,750      |   |   |   | — |   |   |   | 96,235 |   |   |
| Distribution, circulation and fulfillment                                   |       |                   | —     |             |       |              | 60,125     |             |       |                   | 33,375     |   |   |   | — |   |   |   | 93,500 |   |   |
| Editorial                                                                   |       |                   | —     |             |       |              | 31,624     |             |       |                   | 2,936      |   |   |   | — |   |   |   | 34,560 |   |   |
| Other general expenses                                                      |       |                   | 25         |             |       |              | 36,259     |             |       |                   | 41,260     |   |   |   | (14,021 | ) |   |   | 63,523 |   |   |
| Corporate administrative expenses (including non-cash  compensation)        |       |                   | 13,343     |             |       |              | —     |             |       |                   | 2,700      |   |   |   | — |   |   |   | 16,043 |   |   |
| Depreciation of property and equipment                                      |       |                   | 1,365      |             |       |              | 10,363     |             |       |                   | 1,403      |   |   |   | — |   |   |   | 13,131 |   |   |
| Amortization of intangible assets and other                                 |       |                   | —     |             |       |              | 2,753      |             |       |                   | 1,901      |   |   |   | — |   |   |   | 4,654 |   |   |
| Provision for severance, closures and restructuring  related costs          |       |                   | (669       | )                |       |              | 1,878      |             |       |                   | 91         |   |   |   | — |   |   |   | 1,300 |   |   |
| Operating income (loss)                                                     |       |                   | (14,064    | )                |       |              | 96,351     |             |       |                   | (19,660    | ) |   |   | — |   |   |   | 62,627 |   |   |
| Other income (expense):                                                     |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                            |       |                   | (65,154    | )                |       |              | (636       | )                |       |                   | (36        | ) |   |   | — |   |   |   | (65,826 | ) |   |
| Interest on shares subject to mandatory redemption                          |       |                   | (17,354    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (17,354 | ) |   |
| Amortization of deferred financing costs                                    |       |                   | (566       | )                |       |              | (1,754     | )                |       |                   | (198       | ) |   |   | — |   |   |   | (2,518 | ) |   |
| Intercompany management fees and interest                                   |       |                   | 76,147     |             |       |              | (69,006    | )                |       |                   | (7,141     | ) |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                                 |       |                   | (3,586     | )                |       |              | (593       | )                |       |                   | 1          |   |   |   | — |   |   |   | (4,178 | ) |   |
| Income (loss) from continuing operations before provision  for income taxes |       |                   | (24,577    | )                |       |              | 24,362     |             |       |                   | (27,034    | ) |   |   | — |   |   |   | (27,249 | ) |   |
| Provision for  income taxes                                                 |       |                   | (5,597     | )                |       |              | (149       | )                |       |                   | (5         | ) |   |   | — |   |   |   | (5,751 | ) |   |
| Equity in  earnings of subsidiaries                                         |       |                   | 401,465    |             |       |              | —     |             |       |                   | —     |   |   |   | (401,465 | ) |   |   | — |   |   |
| Income (loss) from continuing operations                                    |       |                   | 371,291    |             |       |              | 24,213     |             |       |                   | (27,039    | ) |   |   | (401,465 | ) |   |   | (33,000 | ) |   |
| Discontinued  operations, net of tax                                        |       |                   | (767       | )                |       |              | 403,389    |             |       |                   | 902        |   |   |   | — |   |   |   | 403,524 |   |   |
| Net income (loss)                                                           |       |                   | $          | 370,524          |       |              |       | $                | 427,602    |                   |       |   | $ | (26,137 | ) |   |   | $ | (401,465 | ) |   |   | $ | 370,524 |   |   |

 

25

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS (UNAUDITED)For the Six Months Ended June 30, 2005(dollars in thousands)**

| ** **                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                         | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                         | ** ** | **Primedia Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                          |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                  |       |                   | $          | 370,524          |       |              |       | $                | 427,602    |                   |       |   | $ | (26,137 | ) |   |   | $ | (401,465 | ) |   |   | $ | 370,524 |   |   |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities |       |                   | (461,380   | )                |       |              | (288,491   | )                |       |                   | 7,334      |   |   |   | 401,465 |   |   |   | (341,072 | ) |   |
| Changes in operating  assets and liabilities                                                       |       |                   | (23,385    | )                |       |              | (15,557    | )                |       |                   | (16,628    | ) |   |   | — |   |   |   | (55,570 | ) |   |
| Net cash provided by  (used in) operating activities                                               |       |                   | (114,241   | )                |       |              | 123,554    |             |       |                   | (35,431    | ) |   |   | — |   |   |   | (26,118 | ) |   |
| **Investing  activities:**                                                                         |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property,  equipment and other, net                                                   |       |                   | (127       | )                |       |              | (9,763     | )                |       |                   | (3,615     | ) |   |   | — |   |   |   | (13,505 | ) |   |
| Proceeds from sales of  businesses and other                                                       |       |                   | —     |             |       |              | 410,000    |             |       |                   | 21,306     |   |   |   | — |   |   |   | 431,306 |   |   |
| Payments for businesses  acquired, net of cash acquired                                            |       |                   | —     |             |       |              | (1,541     | )                |       |                   | (25,420    | ) |   |   | — |   |   |   | (26,961 | ) |   |
| Net cash (used in) provided  by investing activities                                               |       |                   | (127       | )                |       |              | 398,696    |             |       |                   | (7,729     | ) |   |   | — |   |   |   | 390,840 |   |   |
| **Financing  activities:**                                                                         |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                              |       |                   | 480,017    |             |       |              | (523,926   | )                |       |                   | 43,909     |   |   |   | — |   |   |   |   |   |   |
| Borrowings under credit  agreements                                                                |       |                   | 196,150    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 196,150 |   |   |
| Repayments of borrowings  under credit agreements                                                  |       |                   | (219,136   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (219,136 | ) |   |
| Payments for repurchases  of senior notes                                                          |       |                   | (81,017    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (81,017 | ) |   |
| Proceeds from issuances  of common stock, net                                                      |       |                   | 1,320      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 1,320 |   |   |
| Redemption of  Series D and F Exchangeable Preferred Stock                                    |       |                   | (264,494   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (264,494 | ) |   |
| Deferred financing costs  paid                                                                     |       |                   | —     |             |       |              | (50        | )                |       |                   | (12        | ) |   |   | — |   |   |   | (62 | ) |   |
| Capital lease payments                                                                             |       |                   | (964       | )                |       |              | (1,574     | )                |       |                   | (159       | ) |   |   | — |   |   |   | (2,697 | ) |   |
| Other                                                                                              |       |                   | —     |             |       |              | (101       | )                |       |                   | —     |   |   |   | — |   |   |   | (101 | ) |   |
| Net cash provided by  (used in) financing activities                                               |       |                   | 111,876    |             |       |              | (525,651   | )                |       |                   | 43,738     |   |   |   | — |   |   |   | (370,037 | ) |   |
| (Decrease) increase in  cash and cash equivalents                                                  |       |                   | (2,492     | )                |       |              | (3,401     | )                |       |                   | 578        |   |   |   | — |   |   |   | (5,315 | ) |   |
| Cash and cash  equivalents, beginning of period                                                    |       |                   | 3,495      |             |       |              | 9,480      |             |       |                   | 25         |   |   |   | — |   |   |   | 13,000 |   |   |
| Cash and cash equivalents, end of period                                                           |       |                   | $          | 1,003            |       |              |       | $                | 6,079      |                   |       |   | $ | 603 |   |   |   | $ | — |   |   |   | $ | 7,685 |   |   |

 

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**Item2.**                        MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS (dollars in thousands, except share and per share amounts)

**Introduction**

PRIMEDIA Inc., togetherwith its subsidiaries, is herein 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 aregenerated from advertising (print and online), circulation (subscriptions andnewsstand sales) and other sources including online lead generation, events,third party distribution, television, radio, list rental, brand licensing andmerchandising. PRIMEDIA’s Operating expenses, for Segment EBITDA purposes,include cost of goods sold (paper and printing), exclusive of depreciation ofproperty and equipment; marketing and selling; distribution, circulation andfulfillment; editorial; and other general and corporate administrative expenses(collectively referred to as “Operating expenses”). See *Why We Usethe Term Segment EBITDA*.

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 wasa broad based media enterprise built primarily from a series of acquisitionsand comprised of numerous disparate assets. Since 2000, the Company has beenopportunistically divesting selective properties in order to better focus onits core businesses and to reduce debt and shares subject to mandatoryredemption while focusing on investing in organic growth and primarily makingonly small acquisitions which accelerate organic growth, particularly relatedto the Internet. The Company has been positioning itself as a highly focusedtargeted media company which is investing in its businesses to drive growth.

Additionally, to counterthe effects 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 have resulted in charges for severance,closures and restructuring related costs to integrate Company operations andconsolidate many back office functions and facilities, resulting in asignificant reduction in the number of employees and office space, creatingoperational and financial efficiencies.

Overall, these actionshave made the Company a more efficient organization with a strengthened balancesheet and improved liquidity.

*Business Trends*

The Company is currentlyfacing difficult market conditions, specifically in magazine advertising andcirculation. Additionally, recent high levels of condominium conversionscoupled with lower mortgage rates are spurring housing purchases and limitingexisting and potential customers for Apartment Guide markets while some marketsaffected by Hurricane Katrina and other natural disasters experienced decreasedvacancy rates and lower advertising spending.

*Company Strategy*

The Company’s strategy isto focus on its core targeted media businesses and grow by expanding theInternet and leveraging and expanding its market-leading brands. In 2006,the Company continues to make 

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organicgrowth its top priority. PRIMEDIA believes that it is well positioned tocapitalize on the shift away from mass advertising to targeted media.

TheCompany continues to implement its organic growth strategy through variousactions, including:

·       improvingproduct quality and circulation performance,

·       expandingthe Internet, particularily in developing new transactional marketplaces,

·       leveragingits dominance in the highly targeted male 18-34 advertising market,

·       expandingits well-known brands through extensions including events, television, radio,licensing and merchandising.

At the same time, theCompany continues to focus on cost reductions which will be utilized to fundvarious elements of its growth strategies.

The Company’s businesssegments are highlighted in the segment discussions below and in the Results ofOperations section.

*Company Explores Separation of its Businesses*

In late 2005, the Companyannounced that its Board of Directors authorized management, along withadvisors Goldman Sachs and Lehman Brothers, and counsel Simpson Thacher &Bartlett, to explore the separation of its businesses via a tax-free spin-offinto two separate publicly-traded companies. The plan being contemplated wouldspin-off PRIMEDIA’s Consumer Guides Segment. In furtherance of the explorationof the potential spin-off, the Board of Directors approved the filing of aruling request with the Internal Revenue Service and a Form 10 with theSecurities and Exchange Commission. The IRS ruling request has been filed andit is anticipated that the Form 10 will be filed during the third quarter.Although the Board has taken these additional steps, there has been no finaldecision on whether to complete the spin-off and there can be no assurancesthat a spin-off will occur.

*Summary of Consolidated Results for the six monthsended June 30, 2006*

For the six months ended June 30,2006, revenues were $500,389, up 2.1% as compared to $490,041 in 2005. Revenuesincreased in the Company’s Enthusiast Media and Consumer Guides segments, by3.4% and 4.9%, respectively, while revenues decreased in the Education segmentby 19.5%. In 2006, Operating Expenses were $424,875, up 4.7% compared to 2005.In 2006, operating income was $50,321 from $62,627 in 2005. Net income was$5,847 in 2006 compared to $370,524 in 2005, the decrease primarily due to thegain on sale of About, Inc. of $378,906 in the first quarter of 2005.

*Forward-Looking Information*

This report containscertain forward-looking statements concerning the Company’s operations,economic performance and financial condition. These statements are based upon anumber of assumptions and estimates, which are inherently subject touncertainties and contingencies, many of which are beyond the control of theCompany, and reflect anticipated business decisions, which are subject tochange. Some of the assumptions may prove to be incorrect and unanticipatedevents will occur which could affect the Company’s results.

*Why We Use the Term Segment EBITDA*

Segment EBITDA representseach segment’s earnings before interest, taxes, depreciation, amortization andother charges (income) (“Segment EBITDA”). Other charges (income) include non-cashcompensation, provision for severance, closures and restructuring related costsand (gain)/loss on sale of businesses and other, net. PRIMEDIA believesthat Segment EBITDA is an accurate indicator of its segments’ results, becauseit focuses on revenue and operating cost items driven by operating managers’performance, and excludes items largely outside of operating managers’ control.Internally, the Company’s chief operating decision maker, its Chairman,President and CEO, and the executive team measure performance primarily basedon Segment EBITDA.

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Segment EBITDA is not intendedto be and should not be considered as an alternative to net income or loss, asdetermined in conformity with accounting principles generally accepted in theUnited States of America, as an indicator of the Company’s operatingperformance. Segment EBITDA as presented may not be comparable to similarlytitled measures reported by other companies since not all companies necessarilycalculate Segment EBITDA in an identical manner, and therefore, it is notnecessarily an accurate measure of comparison between companies. Seereconciliation of Segment EBITDA to net income for the Company’s three segmentsin their respective segment discussions below.

*Why We Use the Term Free Cash Flow*

Free Cash Flow is definedas net cash provided by operating activities adjusted for additions toproperty, equipment and other, net and capital lease obligations (“Free CashFlow”).

The Company believes thatthe use of Free Cash Flow enables the Company’s chief operating decision maker,its Chairman, President and CEO, and the executive team to make decisions basedon the Company’s cash resources. Free Cash Flow also is considered to be anindicator of the Company’s liquidity, including its ability to reduce debt andmake 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 not necessarilyan accurate measure of comparison between companies.

*Intersegment Transactions*

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 transactionsbetween operating units in different business segments, are eliminated inconsolidation.

*Discontinued Operations*

During the first quarterof 2005, the Company completed the sales of About.com and the Bankers TrainingDivision of Workplace Learning. On April 1, 2005, the Company sold theremaining net assets of Workplace Learning for the assumption of liabilities.Also during 2005, the Company sold its Business Information Segment, includingWard’s Automotive Group (“Ward’s”), discontinued the operations of twomagazines in the Enthusiast Media segment, discontinued the operations of itsSoftware on Demand division within the Education segment, and decided to pursuethe sales of its Crafts and History groups within the Enthusiast Media segment.

During the first quarterof 2006, the Company completed the sale of the History group.

Financial results forthese divestitures and planned divestitures are reported in discontinuedoperations on the statements of consolidated operations for all periodspresented.

In the first quarter 2006,the Company decided to actively pursue the sale of its Films Media Group(“FMG’’)  included in the EducationSegment. The operations of FMG were classified as discontinued operations forall periods presented. Subsequently, the Company actively solicited, butultimately did not receive any reasonable offers to purchase FMG. The Companyconcluded that the offers did not reflect FMG’s financial potential and as aresult, decided to hold and continue to operate FMG. In addition, the Companyhired new management to operate FMG. Consequently, in the second quarter of2006, the operations of FMG have been reclassified to continuing operations forall periods presented and are included in the Education Segment results.

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*Segment Data*

The following tablepresents the results of the Company’s three operating segments and Corporate:

| ** **                                                                              | ** ** | **Three Months Ended June 30,**                              | ** ** | **Six Months Ended June 30,**                                | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **      2006      ** | ** ** | **      2005      ** | ** ** | **      2006      ** | ** ** | **      2005      ** | ** ** |
| Revenues, net:                                                                          |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                        |       |                                                                             | $          | 157,706                                                                          |       |   |   | $ | 157,849 |   |   |   | $ | 307,834 |   |   |   | $ | 297,854 |   |   |
| Consumer Guides                                                                         |       |                                                                             | 81,283     |                                                                             |       |   | 79,471 |   |   |   | 162,685 |   |   |   | 155,119 |   |   |
| Education                                                                               |       |                                                                             | 14,516     |                                                                             |       |   | 18,352 |   |   |   | 29,985 |   |   |   | 37,235 |   |   |
| Intersegment Eliminations                                                               |       |                                                                             | (38        | )                                                                                |       |   | (70 | ) |   |   | (115 | ) |   |   | (167 | ) |   |
| Total                                                                                   |       |                                                                             | $          | 253,467                                                                          |       |   |   | $ | 255,602 |   |   |   | $ | 500,389 |   |   |   | $ | 490,041 |   |   |
| Segment EBITDA:  (1)                                                                    |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                        |       |                                                                             | $          | 32,635                                                                           |       |   |   | $ | 35,115 |   |   |   | $ | 53,682 |   |   |   | $ | 55,917 |   |   |
| Consumer Guides                                                                         |       |                                                                             | 18,175     |                                                                             |       |   | 17,912 |   |   |   | 35,910 |   |   |   | 36,155 |   |   |
| Education                                                                               |       |                                                                             | (522       | )                                                                                |       |   | 3,105 |   |   |   | (111 | ) |   |   | 5,708 |   |   |
| Corporate Overhead                                                                      |       |                                                                             | (7,524     | )                                                                                |       |   | (7,136 | ) |   |   | (13,967 | ) |   |   | (13,664 | ) |   |
| Total Segment EBITDA                                                                    |       |                                                                             | $          | 42,764                                                                           |       |   |   | $ | 48,996 |   |   |   | $ | 75,514 |   |   |   | $ | 84,116 |   |   |
| Depreciation,  amortization and other charges: (2)                                      |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                        |       |                                                                             | $          | 5,991                                                                            |       |   |   | $ | 4,696 |   |   |   | $ | 11,914 |   |   |   | $ | 9,231 |   |   |
| Consumer Guides                                                                         |       |                                                                             | 3,965      |                                                                             |       |   | 2,707 |   |   |   | 7,093 |   |   |   | 5,254 |   |   |
| Education                                                                               |       |                                                                             | 2,047      |                                                                             |       |   | 1,958 |   |   |   | 3,002 |   |   |   | 3,904 |   |   |
| Corporate overhead                                                                      |       |                                                                             | 1,929      |                                                                             |       |   | 1,317 |   |   |   | 3,184 |   |   |   | 3,100 |   |   |
|                                                                                    |       |                                                                             | $          | 13,932                                                                           |       |   |   | $ | 10,678 |   |   |   | $ | 25,193 |   |   |   | $ | 21,489 |   |   |
| Operating income  (loss):                                                               |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Enthusiast Media                                                                        |       |                                                                             | $          | 26,644                                                                           |       |   |   | $ | 30,419 |   |   |   | $ | 41,768 |   |   |   | $ | 46,686 |   |   |
| Consumer Guides                                                                         |       |                                                                             | 14,210     |                                                                             |       |   | 15,205 |   |   |   | 28,817 |   |   |   | 30,901 |   |   |
| Education                                                                               |       |                                                                             | (2,569     | )                                                                                |       |   | 1,147 |   |   |   | (3,113 | ) |   |   | 1,804 |   |   |
| Corporate                                                                               |       |                                                                             | (9,453     | )                                                                                |       |   | (8,453 | ) |   |   | (17,151 | ) |   |   | (16,764 | ) |   |
| Total                                                                                   |       |                                                                             | $          | 28,832                                                                           |       |   |   | $ | 38,318 |   |   |   | $ | 50,321 |   |   |   | $ | 62,627 |   |   |
| Other income  (expense):                                                                |       |                                                                             |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense (3)                                                                    |       |                                                                             | (21,457    | )                                                                                |       |   | (32,705 | ) |   |   | (52,281 | ) |   |   | (65,826 | ) |   |
| Interest on shares subject to mandatory redemption  (4)                                 |       |                                                                             | —     |                                                                             |       |   | (6,409 | ) |   |   | — |   |   |   | (17,354 | ) |   |
| Amortization of deferred financing costs                                                |       |                                                                             | (657       | )                                                                                |       |   | (1,184 | ) |   |   | (1,316 | ) |   |   | (2,518 | ) |   |
| Other income (expense), net                                                             |       |                                                                             | 164        |                                                                             |       |   | (4,840 | ) |   |   | 315 |   |   |   | (4,178 | ) |   |
| Income (loss)  from continuing operations before provision for income taxes             |       |                                                                             | 6,882      |                                                                             |       |   | (6,820 | ) |   |   | (2,961 | ) |   |   | (27,249 | ) |   |
| Provision for  income taxes                                                             |       |                                                                             | (3,277     | )                                                                                |       |   | (2,104 | ) |   |   | (2,128 | ) |   |   | (5,751 | ) |   |
| Discontinued  operations (5)                                                            |       |                                                                             | (5,720     | )                                                                                |       |   | 13,935 |   |   |   | 10,914 |   |   |   | 403,524 |   |   |
| Cumulative effect of change in accounting principle (from the adoption  of SFAS 123(R)) |       |                                                                             | —     |                                                                             |       |   | — |   |   |   | 22 |   |   |   | — |   |   |
| Net income (loss)                                                                       |       |                                                                             | $          | (2,115                                                                           | )          |   |   | $ | 5,011 |   |   |   | $ | 5,847 |   |   |   | $ | 370,524 |   |   |

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(1)          SegmentEBITDA represents the segments’ earnings before interest, taxes, depreciation,amortization and other charges (income) (see Note 2 below).

(2)          Othercharges include non-cash compensation, provision for severance, closures andrestructuring related costs and loss on sale of businesses and other, net.

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(3)          Interestexpense for the three and six months ended June 30, 2006 was reduced by$11,059 and $12,041, respectively, due to the quarterly fair value measurementof the deferred purchase price liability arising from the forward agreementrelated to the Automotive.com acquisition.

(4)          During2005, the Company redeemed all of its outstanding shares subject to mandatoryredemption (liquidation preference of approximately $475,000).

(5)          Discontinuedoperations include gain/(loss) on sale of businesses, net of $(40) and $(716)for the three months ended June 30, 2006 and 2005, respectively, and$13,668 and $382,462 for the six months ended June 30, 2006 and 2005,respectively .

**Results ofOperations**

***Three Months Ended June 30, 2006 Compared toThree Months Ended June 30, 2005***

**ConsolidatedResults:**

*Revenues, Net*

Consolidatedrevenues were $253,467 in the three months ended June 30, 2006 compared to$255,602 in the same period of 2005:

| ** **     | ** ** | **Three Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                        | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                            |       |        |       |   |   |   |   |
| Advertising    |       | $                                               | 161,795    |        | $          | 167,468 |   |   | (3.4 | )% |   |
| Circulation    |       | 50,328                                          |       | 51,237      |       |   | (1.8 | )% |   |
| Other          |       | 41,344                                          |       | 36,897      |       |   | 12.1 | % |   |
| Total          |       | $                                               | 253,467    |        | $          | 255,602 |   |   | (0.8 | )% |   |

 

Advertising revenuesdecreased by $5,673 in the second quarter of 2006 compared to 2005 due**to decreases of $4,102 and $3,460 in theEnthusiast Media and Education segments, respectively, partially offset by anincrease of $1,889 in the Consumer Guides segment. Circulation revenues, whichare generated entirely by the Enthusiast Media segment, decreased $909 in 2006due to continued weakness in single copy sales. Other revenues, includingdistribution and non-print revenues, increased $4,447 in 2006 compared to 2005,primarily due to an increase in the Enthusiast Media segment of $4,900. Revenuetrends within each segment are further detailed in the segment discussionsbelow.

*Operating Income*

Operating income was$28,832 in 2006 compared to $38,318 in 2005. The decrease in operating incomein 2006 primarily resulted from increased operating expenses due to significantinvestments made in new publications and in increased distribution capacity atConsumer Guides, as well as increased paper and postage expenses.

*Net Income (Loss)*

The Company had net income (loss) of $(2,115) in thethree months ended June 30, 2006 compared to $5,011 in 2005.

Interest expense decreased to $21,457 in 2006 from$32,705 in 2005. The reduction in interest expense of $11,059 is due to thedecrease in the quarterly fair value measurement of the deferred purchase priceliability arising from the forward agreement related to the Automotive.comacquisition. Excluding this 

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reduction, the Company’sinterest expense in 2006 was flat versus prior year, due to lower average debtlevels offset by higher interest rates.

Interest on shares subjectto mandatory redemption was $0 and $6,409 for the three months ended June 30,2006 and 2005, respectively, as the Company redeemed all of its outstandingshares subject to mandatory redemption during 2005.

**Segment Results:**

**Enthusiast MediaSegment (Includes Automotive, Outdoors and Other groups)**

*Revenues, Net*

EnthusiastMedia revenues were $157,706 or  62.2%and $157,849 or 61.8% of the Company’s consolidated revenues for the threemonths ended June 30, 2006 and 2005, respectively. Enthusiast Mediarevenues decreased $143 or 0.1% in the second quarter of 2006 compared to thesame period of 2005 as follows:

| ** **            | ** ** | **Three Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                        | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                            |       |        |       |   |   |   |   |
| Advertising           |       | $                                               | 88,601     |        | $          | 92,703 |   |   | (4.4 | )% |   |
| Circulation           |       | 50,328                                          |       | 51,237      |       |   | (1.8 | )% |   |
| Other                 |       | 18,739                                          |       | 13,839      |       |   | 35.4 | % |   |
| Intersegment revenues |       | 38                                              |       | 70          |       |   |   |   |   |
| Total                 |       | $                                               | 157,706    |        | $          | 157,849 |   |   | (0.1 | )% |   |

 

Enthusiast Media’s advertising revenue decline thisquarter primarily reflects continued challenges in the International Auto Groupand in the smallerpublication groups. Growth in other revenue reflects continued success inexpanding the Segment’s non-print businesses, driven primarily by theacquisitions of Automotive.com and Equine.com, partially offset by declines inlicensing. Automotive.com continues to make progress as auto dealers seekincreased car sale leads. Equine.com is tracking well to generate additionalsynergies from its proprietary technology and unique marketing tools.

Automotive: The Automotive Group grew 1.4% in thesecond quarter. This revenue growth is primarily due to the acquisition ofAutomotive.com, organic growth of PRIMEDIA’s Automotive Digital Network,Automobile magazine’s performance, and growth in television and radio,partially offset by declines in the International and Performance Automotivegroups. The International Automotive Group’s underlying market continues todecline, although the revenue grew quarter-over-quarter. During the quarter,the International Automotive Group was restructured, dividing the publicationsbetween the Consumer and Performance Automotive Groups to both significantlyreduce overhead costs and improve market execution.

U.S. automaker print advertising in the quarter wasjust 4% of the Segment’s total print advertising revenue. Total automaker printadvertising in the quarter was 12% of the Segment’s total, and non-automakerautomotive print advertising (aftermarket parts and accessories, as examples)was 56% of the Segment’s total. These percentages reflect little change fromlast year.

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Outdoors: During the quarter, the Company’s ActionSports Group was combined with its Outdoor, Marine, and Equine groups to formPRIMEDIA Outdoors. PRIMEDIA Outdoors grew 1% in the second quarter. Outdoors’quarter-over-quarter revenue growth was primarily driven by newsstand growth,the acquisition of Equine.com, and organic non-print growth, mostly intelevision and radio.

Additionally, in the Outdoors group, Petersen’s Hunting, Skateboarder, andSurfing all generated strong results. Non-endemic advertising in the Outdoorsgroup continues to be adversely impacted by automakers’ industry-wide reductionin advertising in publications not primarily targeted to in-market car buyers. Outdoors’online revenue grew 19%organically during the quarter. PRIMEDIA is currently applyingEquine.com’s transactions engine to develop online marketplaces in the marineand shooting categories and anticipates launches before year-end. Televisionrevenue grew 30% in the second quarter as the Outdoors Group continues toaggressively extend its print franchises.

Licensing and Merchandising:   Licensingand Merchandising revenue was down slightly quarter-over-quarter as a result ofa difficult environment for the toy business. The group continues to fostercreative business development initiatives, collaborating with PRIMEDIA’sOutdoors and Automotive titles. Lowrider-branded merchandise continues to growits retail presence through branded apparel and product extensions. As a resultof strong demand and in-store sales, nearly 4,000 retailers such as Mervyn’s,City Trends, and Wal-Mart, now carry Lowrider-branded toy, apparel andaccessories lines. In addition, several product and apparel licensing dealswere struck to expand the current product portfolio and create new retailopportunities for the In-Fisherman brand.

The Company continues to execute its growthstrategies:

The Company has completed product improvements on 16magazines thus far in 2006. Except for Automobile Magazine, improvements are inthe Performance and International Automotive Groups where newsstand challengeshave been greatest. The Company expects to implement over 20 productimprovements in total by September 2006. In addition, editorial and arttalent upgrades are in progress while surveys and content testing programs areenabling the Company to increase its product’s appeal to consumers.

The Company continues to build multiple online revenuestreams, including transactions, lead generation, and online advertising.Online is also generating print subscriptions as magazine subscriberacquisitions via the Company’s websites grew more than  5% in the second quartercompared to last year. Online represented 6.7% of segment revenue in thequarter, up from 2.4% in the prior year.

During the second quarter of 2006, the Companycontinued to improve circulation performance as a result of product qualityimprovements implemented prior to 2006. Circulation results are improving asthe Company works to improve the ratio of the number of copies sent tonewsstands location-by-location (“draw”) to the number sold and adjust the drawfor the seasonality of its titles. In the second quarter, PRIMEDIA reduced drawby 3.1 million copies, or 6%, which led to a positive impact on circulationprofitability with a minimal loss of sales.

At the same time, theCompany is focused on managing costs, particularly when its underlying marketsare soft. The cost control effort will assist in providing funding for thegrowth strategies.

*Segment EBITDA*

Enthusiast Media Segment EBITDA decreased 7.1% to$32,635 in the second quarter of 2006 from $35,115 in 2005. This decrease resultedprimarily from lower print advertising revenues and increases in paper, ink andpostage costs, partially offset by growth in non-print revenues and improvementsin circulation profitability. As a result, Segment EBITDA margin decreased to20.7% in 2006 from 22.2% in 2005. In addition, in the second quarter of 2006,the Company recorded $138 as a reduction of 

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compensation expenseresulting from the quarterly fair value measurement of the deferred purchaseprice liability arising from the forward agreement related to the CEO ofAutomotive.com.

Belowis a reconciliation of Enthusiast Media Segment EBITDA to operating income forthe three months ended June 30, 2006 and 2005: 

| ** **                                                         | ** ** | **Three Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Segment EBITDA                                                     |       | $                                               | 32,635     |   | $ | 35,115 |   |
| Depreciation of property and equipment                             |       | 3,741                                           |       | 3,428 |   |
| Amortization of intangible assets and other                        |       | 1,878                                           |       | 460 |   |
| Provision for severance, closures and restructuring  related costs |       | 372                                             |       | 808 |   |
| Operating income                                                   |       | $                                               | 26,644     |   | $ | 30,419 |   |

 

*Operating Income*

Operating income was$26,644 for the three months ended June 30, 2006 compared to $30,419 inthe same period of 2005, a decrease of $3,775, or 12.4%. This decrease wasprimarily driven by a decrease in Segment EBITDA as discussed above, and anincrease in depreciation and amortization expenses, primarily due to theacquisition of Automotive.com. 

**ConsumerGuides Segment (includes *Apartment Guide, New HomeGuide, Auto Guide, Rentclicks, AmericanHomeGuides.com, Rentals.com, and theDistribuTech* distribution business)**

*Revenues, Net*

ConsumerGuides revenues were $81,283 or 32.1% and $79,471 or 31.1% of the Company’sconsolidated revenues for the three months ended June 30, 2006 and 2005,respectively. Consumer Guides revenues increased $1,812 or 2.3% in 2006compared to 2005 as follows:

| ** **     | ** ** | **Three Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|--------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                   | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                       |       |        |       |   |   |   |   |
| Advertising    |       | $                                          | 67,291     |        | $          | 65,402 |   |   | 2.9 | % |   |
| Other          |       | 13,992                                     |       | 14,069      |       |   | (0.5 | )% |   |
| Total          |       | $                                          | 81,283     |        | $          | 79,471 |   |   | 2.3 | % |   |

 

Consumer Guides’ second quarter advertising revenuegrowth was driven primarily by strong results in the Segment’s New Home Guide**division and**the expansionof the Segment’s Auto Guide**division,offset by the forecasted declines in the Segment’s Apartment Guide division. Otherrevenue’s slight decline reflects DistribuTech’s optimization of distributionlocations that were unprofitable and not critical to Consumer Source’s coreguides business.

*ApartmentGuide, ApartmentGuide.com, RentClicks.com:*   TheSegment’s largest business, representing 76.6% of advertising revenue, Apartment Guide/ApartmentGuide.comcontinues to face challenging market conditions in the multi-family housingindustry. Total advertising revenue inthe quarter declined 6.2%, primarily due to high occupancy rates inseveral large markets that lost supply to condominium conversions or wereimpacted by 2005 hurricane activity. Condominium conversions, which reduceexisting and potential customers from Apartment Guide markets, continued tonegatively impact the business in the second quarter, although the rate ofcondominium conversions has slowed considerably. While these negative marketconditions resulted in reduced advertising revenue for the quarter, the 

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Apartment Guide brandcontinued to show its strength as ApartmentGuide.com grew leads by 14% versusthe previous quarter. RentClicks performed well in the second quarter, organically growing revenue 53% versus theprevious quarter.

*NewHome Guide, NewHomeGuide.com:*   The Segment’s NewHome Guide/NewHomeGuide.com business, representing 16.7% of advertisingrevenue, continued to deliver strong results with total revenue growth of 34%in the quarter. This strong growth reflects New Home Guide continuing toestablish itself as one of the most cost-effective and attractive mediachannels for home builders. The Company is confident that New Home Guide’svalue to advertisers, usefulness to home buyers and brokers, current lowpenetration of builder communities, and strong momentum in its existing marketswill allow it to continue to grow even through a softer housing market,especially as developers increase their emphasis on marketing to reduce housinginventory*.*

*AutoGuide, AutoGuide.com:*   During the second quarter, the Segment’s Auto Guidebusiness, representing 6.7% of advertising revenue, continued to show strongperformance with total revenue growth of 123% in the quarter. This new divisionnow represents an $18 million business based on annualized revenue in thesecond quarter, and continues to have strong growth potential both within itsexisting markets and through new market expansion.

DistribuTech*:*DistribuTech’s revenue decreased by 0.5% in the secondquarter. Consumer Guides’ strategy is to continually optimize distribution forits own guides at minimal cost. As a result, in the second quarter the Companyreduced its quantity of revenue-generating distribution locations (retaillocations in which DistribuTech leases to third parties rack space it does notuse for its own products) while increasing its quantity ofnon-revenue-generating distribution locations, such as street boxes. This shiftin the mix of distribution locations took place primarily in markets whereDistribuTech had an extremely high share of retail distribution. The net effectof this optimization was reduced Consumer Guides revenue with a positive impacton Consumer Guide profitability. DistribuTech’s strategy to optimize itsdistribution locations to best meet the distribution needs of the ConsumerSource guides has historically and will continue to cause DistribuTech revenueand profitability to fluctuate.

*Segment EBITDA*

Consumer Guides Segment EBITDA increased $263 or 1.5%in 2006 to $18,175, from $17,912 in 2005. This increase is primarily due to theincrease in New Home Guide organic growth and DistribuTech profitability improvements,largely offset by expenses associated with New Home and Auto Guide launches,and the revenue declines in Apartment Guide advertising. Segment EBITDA margindecreased slightly to 22.4% in 2006 from 22.5% in 2005.

Belowis a reconciliation of Consumer Guides Segment EBITDA to operating income forthe three months ended June 30, 2006 and 2005: 

| ** **                                                         | ** ** | **Three Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| Segment EBITDA                                                     |       | $                                               | 18,175     |   | $ | 17,912 |   |
| Depreciation of property and equipment                             |       | 3,050                                           |       | 2,029 |   |
| Amortization of intangible assets and other                        |       | 716                                             |       | 678 |   |
| Non-cash compensation                                              |       | 24                                              |       | — |   |
| Provision for severance, closures and restructuring  related costs |       | 147                                             |       | — |   |
| Loss on sale of businesses and other, net                          |       | 28                                              |       | — |   |
| Operating income                                                   |       | $                                               | 14,210     |   | $ | 15,205 |   |

 

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*Operating Income*

Operating income decreased$995 or 6.5% in 2006. This decrease was primarily driven by the increase indepreciation and amortization expenses, due to the acquisitions in the fourthquarter 2005 and the first quarter of 2006.

**Education Segment(includes Channel One, Films Media Group (“FMG”) and PRIMEDIA Healthcare)**

*Revenues, Net*

Educationrevenues were $14,516 or 5.7% and $18,352 or 7.2% of the Company’s consolidatedrevenues for 2006 and 2005, respectively. Education revenues decreased $3,836or 20.9% in 2006 compared to 2005 as follows: 

| ** **     | ** ** | **Three Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                        | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                            |       |        |       |   |   |   |   |
| Advertising    |       | $                                               | 5,903      |        | $          | 9,363 |   |   | (37.0 | )% |   |
| Other          |       | 8,613                                           |       | 8,989       |       |   | (4.2 | )% |   |
| Total          |       | $                                               | 14,516     |        | $          | 18,352 |   |   | (20.9 | )% |   |

 

Education advertising revenues, which are generatedentirely by Channel One, declined $3,460, or 37.0% in the second quarter of2006 compared to the second quarter of 2005. Channel One’s decline inadvertising revenue is mainly attributable to the ongoing impact of largereductions in advertising from a few advertisers in late 2005 and a decrease insales from the entertainment category. Channel One’s strategy is to broaden itsrevenue base beyond traditional advertising through creative sponsorships andthe Internet, and to target foundation support for its public affairsprogramming.

Other revenue was down4.2% in the second quarter of 2006 and primarily consists of revenue fromPRIMEDIA Healthcare and FMG. PRIMEDIA Healthcare’s quarter-over-quarter revenuewas down, but it is expected to have a second year of solid growth in itscontinuing medical education business following from its new strategicdirection in 2004. PRIMEDIA Healthcare has already contracted for more revenuein 2006 than in all of 2005. In the first quarter 2006, the Company decided to actively pursue thesale of FMG. The operations of FMG were classified as discontinued operationsfor all periods presented. Subsequently, the Company actively solicited, butultimately did not receive any reasonable offers to purchase FMG. The Companyconcluded that the offers did not reflect FMG’s financial potential and as aresult, decided to hold and continue to operate FMG.  In addition, the Company hired new managementto operate FMG. Consequently, in the second quarter of 2006, the operations ofFMG have been reclassified to continuing operations for all periods presented.

*Segment EBITDA*

Education Segment EBITDA decreased $3,627 to $(522)for the second quarter of 2006, primarily due to decreased revenue. SegmentEBITDA margin decreased to (3.6)% in second quarter 2006 compared to 16.9% insecond quarter 2005.

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Belowis a reconciliation of Education Segment EBITDA to operating income (loss) forthe three months ended June 30, 2006 and 2005:

| ** **                                                         | ** ** | **Three Months Ended  June 30,**                      | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **     2006     ** | ** ** | **     2005     ** | ** ** |
| Segment EBITDA                                                     |       |                                                                 | $          | (522 | ) |   |   | $ | 3,105 |   |   |
| Depreciation of property and equipment                             |       |                                                                 | 556        |   |   |   | 733 |   |   |
| Amortization of intangible assets and other                        |       |                                                                 | 476        |   |   |   | 1,225 |   |   |
| Provision for severance, closures and restructuring  related costs |       |                                                                 | 1,015      |   |   |   | — |   |   |
| Operating income (loss)                                            |       |                                                                 | $          | (2,569 | ) |   |   | $ | 1,147 |   |   |

 

*Operating Income(Loss)*

Education segmentoperating income (loss) for the second quarter of 2006 was $(2,569) compared to$1,147 in 2005. This loss was primarily due to the decrease in Segment EBITDAresulting from lower revenues.

**Corporate**

*CorporateAdministrative expenses*

Corporate administrativeexpenses were $7,524 for the second quarter of 2006, up from $7,136 in the sameperiod of 2005, primarily due to reduced compensation expense resulting fromheadcount reductions, offset by onetime professional fees incurred related tothe exploration of the separation of the Company’s businesses via a tax-freespin-off and to a New York office consolidation.

*Operating Loss*

Corporate operating losswas $9,453 for the second quarter of 2006, up 11.8% compared to $8,453 for thesecond quarter of 2005. The increase was mainly due to the increase incorporate administrative expenses as discussed above, as well as an increase indepreciation expense in the second quarter of 2006.

**DiscontinuedOperations**

In accordance with SFAS No. 144,the Company has classified the operating results of all of its divestedentities and businesses held for sale as discontinued operations for allperiods presented.

*Enthusiast Media*

The Company discontinued the following entities withinthe Enthusiast Media segment during 2005: About, Inc, Ward’s Automotive Group,the Crafts and History groups and two magazine titles (shut down). In February 2006,the Company completed the sale of the History group.

Discontinued operations ofthe Enthusiast Media segment for the three months ended June 30, 2006 and2005 include revenue of $15,787 and $20,855, respectively, operating income of$4,258 and $4,880, respectively, and loss on sale of businesses, net of tax, of$40 and $0, respectively.

*Education*

The Company discontinued the operations of itsSoftware on Demand division during 2005. Additionally, the Company completedthe sale of its Workplace Learning division in 2005, excluding PRIMEDIAHealthcare.  In the first quarter 2006, the Company decidedto actively pursue the sale of FMG. The operations of FMG were classified asdiscontinued operations for all periods presented. Subsequently, the Companyactively solicited, but ultimately did not receive any reasonable offers to 

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purchaseFMG. The Company concluded that the offers did not reflect FMG’s financialpotential and as a result, decided to hold and continue to operate FMG. Inaddition, the Company hired new management to operate FMG. Consequently, in thesecond quarter of 2006, the operations of FMG have been reclassified tocontinuing operations for all periods presented.

Discontinued operations ofthe Education segment for the three months ended June 30, 2005 includeoperating loss of $1,154. For the three months ended June 30, 2005,discontinued operations include a loss on sale of business, net of tax, of $740related to the sale of the Company’s Workplace Learning division.

*BusinessInformation*

The Company sold itsBusiness Information segment during the third quarter of 2005. BusinessInformation segment revenues of $63,139 are included in discontinued operationsfor the three months ended June 30, 2005. Also included is operatingincome of $11,250, and a gain on sale of business, net of tax, of $24 for thethree months ended June 30, 2005.

***Six Months Ended June 30, 2006 Compared to SixMonths Ended June 30, 2005***

**ConsolidatedResults:**

*Revenues, Net*

Consolidated revenues were $500,389 in the six monthsended June 30, 2006 compared to $490,041 in the same period of 2005:

| ** **     | ** ** | **Six Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                      | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                          |       |        |       |   |   |   |   |
| Advertising    |       | $                                             | 315,926    |        | $          | 318,345 |   |   | (0.8 | )% |   |
| Circulation    |       | 99,333                                        |       | 100,605     |       |   | (1.3 | )% |   |
| Other          |       | 85,130                                        |       | 71,091      |       |   | 19.7 | % |   |
| Total          |       | $                                             | 500,389    |        | $          | 490,041 |   |   | 2.1 | % |   |

 

Advertising revenuesdecreased by $2,419 in the six months ended June 30, 2006 compared to 2005due**to decreases of $2,906 and$6,177 in the Enthusiast Media and Education segments, respectively, partiallyoffset by an increase of $6,664 in the Consumer Guides segment. Circulationrevenues, which are generated entirely by the Enthusiast Media segment,decreased $1,272 in 2006 due to continued weakness in single copy sales. Otherrevenues, including distribution and non-print revenues, increased $14,039 in2006 compared to 2005, primarily due to an increase in the Enthusiast Mediasegment of $14,187, primarily due to the acquisition of Automotive.com in thefourth quarter of 2005. Revenue trends within each segment are further detailedin the segment discussions below.

*Operating Income*

Operating income was$50,321 for the six months ended June 30, 2006 compared to $62,627 for thesame period of 2005. The decrease in operating income in 2006 primarilyresulted from increased operating expenses due to significant investments madein new publications and in increased distribution capacity at Consumer Guides,as well as increased paper, ink and postage costs at Enthusiast Media.

*Net Income*

The Company had net income of $5,847 in the six monthsended June 30, 2006 compared to $370,524 in the same period of 2005. Thedecrease in net income was primarily due to the net gain of $378,906 from thesale of About in the first quarter of 2005.

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Interest expense was$52,281 in the six months ended June 30, 2006 down from $65,826 in thesame period of 2005. In the six months ended June 30, 2006, the Companyrecorded $12,041 as a reduction to interest expense for the quarterly fairvalue measurement of the deferred purchase price liability arising from theforward agreement related to the Automotive.com acquisition. Excluding thisreduction, the Company’s interest expense in 2006 decreased, due to loweraverage debt levels, partially offset by higher interest rates.

*DiscontinuedOperations*

SFAS 144 requires sales, disposals of long-livedassets and businesses held for sale that meet certain criteria to be classifiedon the condensed statement of consolidated operations as discontinuedoperations and to reclassify prior periods accordingly. During the first quarterof 2005, the Company completed the sales of About.com and Bankers Training &Consulting Company, the financial services division of PRIMEDIA WorkplaceLearning. On April 1, 2005, the Company sold the remaining net assets ofWorkplace Learning for the assumption of liabilities. Also during 2005, theCompany sold its Business Information Segment, including Ward’s, discontinuedthe operations of two magazines in the Enthusiast Media segment, discontinuedthe operations of its Software on Demand division within the Education segment,and decided to pursue the sales of its Crafts and History groups within theEnthusiast Media segment.

In the first quarter of 2006, the Company completedthe sale of the History group.

In accordance with SFAS 144, the financial results ofall of these operations have been classified as discontinued operations on thecondensed statements of consolidated operations for all periods presented. Forthe six months ended June 30, 2006 and 2005, discontinued operationsinclude a net gain on sale of businesses of $13,668 and $382,462, respectively.

In the first quarter 2006,the Company decided to actively pursue the sale of FMG included in the ducationSegment. The operations of FMG were classified as discontinued operations forall periods presented. Subsequently, the Company actively solicited, butultimately did not receive any reasonable offers to purchase FMG. The Company concluded that the offers didnot reflect FMG’s financial potential and as a result, decided to holdand continue to operate FMG. Inaddition, the Company hired new management to operate FMG. Consequently,in the second quarter of 2006, theoperations of FMG have been reclassified to continuing operations for allperiods presented and are included in the Education Segment results.

*Cumulative Effectof Change in Accounting Principle*

Effective January 1,2006, the Company adopted SFAS 123(R) using the modified prospectivemethod. Prior to the adoption of this statement, the Company expensed the fairvalue of stock based compensation for all grants, modifications or settlementsmade on or after January 1, 2003 in accordance with the provisions of SFAS123 adopted on January 1, 2003 using the prospective method. Upon adoptionof SFAS 123(R), the Company is also required to expense the fair value of anyawards that were granted prior to January 1, 2003 and were not fullyvested as of January 1, 2006. The cumulative effect of adopting thischange in accounting principle, as required by SFAS 123(R), was $22, includedin the six months ended June 30, 2006.

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**Segment Results:**

**Enthusiast MediaSegment (Includes Automotive, Outdoors, and Other groups)**

*Revenues, Net*

EnthusiastMedia revenues were $307,834 or 61.5% and $297,854 or 60.8% of the Company’sconsolidated revenues for the six months ended June 30, 2006 and 2005,respectively. Enthusiast Media revenues increased $9,980 or 3.4% in the the sixmonths ended June 30, 2006 compared to the same period of 2005 as follows:

| ** **            | ** ** | **Six Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                      | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                          |       |        |       |   |   |   |   |
| Advertising           |       | $                                             | 168,201    |        | $          | 171,107 |   |   | (1.7 | )% |   |
| Circulation           |       | 99,333                                        |       | 100,605     |       |   | (1.3 | )% |   |
| Other                 |       | 40,185                                        |       | 25,998      |       |   | 54.6 | % |   |
| Intersegment revenues |       | 115                                           |       | 144         |       |   |   |   |   |
| Total                 |       | $                                             | 307,834    |        | $          | 297,854 |   |   | 3.4 | % |   |

 

Enthusiast Media’s advertising revenue declineprimarily reflects continued challenges in the International Auto Group and inthe smaller publication groups. Growth in other revenue reflects continuedsuccess in expanding the Segment’s non-print businesses, driven primarily bythe acquisitions of Automotive.com and Equine.com. Automotive.com continues tomake substantial progress as auto dealers seek increased car sale leads. Equine.comis tracking well to generate additional synergies from its proprietarytechnology and unique marketing tools.

Automotive: The Automotive Group grew 5.6% in thefirst half of 2006. This revenue growth is primarily due to the acquisition ofAutomotive.com, organic growth of PRIMEDIA’s Automotive Digital Network,Automobile magazine’s performance, and growth in television and radio,partially offset by declines in the International and Performance Automotivegroups. During the first half of 2006, the International Automotive Group wasrestructured, dividing the publications between the Consumer and PerformanceAutomotive Groups to both significantly reduce overhead costs and improvemarket execution.

The Company has implemented significant productimprovements on 16 magazines****thus far in2006. The majority of these improvements have been made in the Performance andInternational Automotive groups, where challenges have been greatest. The earlyresults of the redesigns are positive as the total newsstand units on the 16titles have increased by over 5% versus the average sales in the six monthsprior to the redesigns. This growth rate compares favorably with lowsingle-digit declines over the same time period in the publications that werenot redesigned. In addition, almost 40% of the units sold are at a higher coverprice than prior to the redesign. Advertising revenue trends were over 20%higher on the redesigned titles than on the rest of the portfolio. Thisadvertising gap includes a surge in advertiser enthusiasm for redesignedpublications’ first issues, and is expected to continue at a somewhat lowerlevel over time. The 16 publications that have been redesigned representapproximately 20% of total Enthusiast media print revenue.

U.S. automaker print advertising in the first half of2006 was just 4% of the Segment’s total print advertising revenue. Totalautomaker print advertising in the first half of 2006 was 12% of the Segment’stotal, and non-automaker automotive print advertising (aftermarket parts andaccessories, as examples) was 53% of the Segment’s total. These percentagesreflect little change from last year.

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Outdoors: During the first half of 2006, the Company’sAction Sports Group was combined with its Outdoor, Marine, and Equine groups toform PRIMEDIA Outdoors. PRIMEDIA Outdoors grew 0.8%  in the first half of 2006. Additionally, inthe Outdoors group, Petersen’sHunting, Skateboarder, and Surfing all generated strong results. Non-endemicadvertising in the Outdoors group continues to be adversely impacted byautomakers’ industry-wide reduction in advertising in publications notprimarily targeted to in-market car buyers. Outdoors’ online revenue grew 18%organically in the first half of 2006. PRIMEDIA is currently applyingEquine.com’s transactions engine to develop online marketplaces in the marineand shooting categories and anticipates launches before year-end. Televisionrevenue grew 19%  in the first half of2006 as the Outdoors Group continues to aggressively extend its printfranchises.

Licensing andMerchandising:   Licensing andMerchandising revenue was down year-over-year as a result of a difficultenvironment for the toy business. The group continues to foster creativebusiness development initiatives, collaborating with PRIMEDIA’s Outdoors andAutomotive titles. Lowrider-branded merchandise continues to grow its retailpresence through branded apparel and product extensions. As result of strongdemand and in-store sales, nearly 4,000 retailers such as Mervyn’s, CityTrends, and Wal-Mart, now carry Lowrider-branded toy, apparel and accessorieslines. In addition, several product and apparel licensing deals were struck toexpand the current product portfolio and create new retail opportunities forthe In-Fisherman brand.

*Segment EBITDA*

Enthusiast Media Segment EBITDA decreased 4% to$53,682 in the six months ended June 30, 2006 from $55,917 in the sameperiod of 2005. This decrease resulted primarily from lower print advertisingrevenues and increases in paper, ink and postage costs, partially offset bygrowth in non-print revenues and improvements in circulation profitability. Inaddition, in the the six months ended June 30, 2006, the Company recorded$481 of compensation expense resulting from the quarterly fair valuemeasurement of the deferred purchase price liability arising from the forwardagreement related to the CEO of Automotive.com. As a result, Segment EBITDAmargin decreased to 17.4% for the six months ended June 30, 2006 from18.8% for the same period of 2005.

Belowis a reconciliation of Enthusiast Media Segment EBITDA to operating income forthe six months ended June 30, 2006 and 2005: 

| ** **                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Segment EBITDA                                                     |       | $                                             | 53,682     |   | $ | 55,917 |   |
| Depreciation of property and equipment                             |       | 7,533                                         |       | 6,342 |   |
| Amortization of intangible assets and other                        |       | 3,756                                         |       | 920 |   |
| Provision for severance, closures and restructuring  related costs |       | 625                                           |       | 1,969 |   |
| Operating income                                                   |       | $                                             | 41,768     |   | $ | 46,686 |   |

 

*Operating Income*

Operating income was $41,768 for the six months ended June 30,2006 compared to $46,686 for the same period of 2005, a decrease of $4,918, or10.5%. This decrease was primarily driven by a decrease in Segment EBITDA asdiscussed above, as well as increased depreciation and amortization expenses,primarily due to the acquisition of Automotive.com, partially offset by adecrease in the provision for severance, closures and restructuring relatedcosts. 

**Consumer Guides Segment(includes Apartment Guide, New Home Guide, Auto Guide, Rentclicks, AmericanHomeGuides.com,Rentals.com, and the DistribuTech distribution business)**

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* *

*Revenues, Net*

Consumer Guides revenueswere $162,685, or 32.5% and $155,118, or 31.7% of the Company’s consolidatedrevenues for the six months ended June 30, 2006 and 2005, respectively.Consumer Guides revenues increased $7,567,or 4.9% in the six months ended June 30,2006 compared to the same period of 2005, as follows:

| ** **     | ** ** | **Six Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                 | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                     |       |        |       |   |   |   |   |
| Advertising    |       | $                                        | 134,383    |        | $          | 127,719 |   |   | 5.2 | % |   |
| Other          |       | 28,302                                   |       | 27,399      |       |   | 3.3 | % |   |
| Total          |       | $                                        | 162,685    |        | $          | 155,118 |   |   | 4.9 | % |   |

 

Consumer Guides’ advertising revenue growth was drivenprimarily by strong results in the Segment’s New Home Guide**divisionand**the expansion of the Segment’s AutoGuide**division, offset by the forecasteddeclines in the Segment’s Apartment Guide division. Other revenue increased3.3% as the DistribuTech division increased its utilization of retaildistribution programs throughout the country.

*Apartment Guide,ApartmentGuide.com, RentClicks.com:*The Segment’s largest business, Apartment Guide/ ApartmentGuide.com,continues to face challenging market conditions in the multi-family housingindustry. Advertising revenue declined 5.4% in the first half of 2006,primarily due to high occupancy rates in several large markets that lost supplyto condominium conversions or were impacted by 2005 hurricane activity. Condominiumconversions, which reduce existing and potential customers from Apartment Guidemarkets, continued to negatively impact the business in the first half of 2006,although the rate of condominium conversions has slowed considerably. Whilethese negative market conditions resulted in reduced advertising revenue forthe first half of 2006, the Apartment Guide brand continued to show itsstrength as ApartmentGuide.com grew leads by 3.3% versus 2005. RentClicks wasacquired in the first quarter of 2006, and performed well with revenue of$2,355 in the first half of 2006.

*New Home Guide,NewHomeGuide.com:*The Segment’sNew Home Guide/NewHomeGuide.com business continued to deliver strong results inthe first half of 2006. This reflects New Home Guide continuing to establishitself as one of the most cost-effective and attractive media channels for homebuilders. The Company is confident that New Home Guide’s value to advertisers,usefulness to home buyers and brokers, current low penetration of buildercommunities, and strong momentum in its existing markets will allow it tocontinue to grow through a softer housing market, especially as developersincrease their emphasis on marketing to reduce housing inventory*.*

*Auto Guide,AutoGuide.com:*During the first half of 2006, the Segment’s Auto Guide business continued to showstrong growth with revenue growth of 169% in the first half of 2006. This newdivision now represents an $18 million business based on annualized revenue inthe second quarter, and continues to have strong growth potential both withinits existing markets and through new market expansion.

*DistribuTech: DistribuTech’s revenueincreased by 3.3% in the first half of 2006. Consumer Guides’ strategy is tocontinually optimize distribution for its own guides at minimal cost. As aresult, in the second quarter the Company reduced its quantity ofrevenue-generating distribution locations (retail locations in whichDistribuTech leases to third parties rack space it does not use for its ownproducts) while increasing its quantity of non-revenue-generating distributionlocations, such as street boxes. This shift in the mix of distributionlocations took place primarily in markets where DistribuTech had an extremelyhigh share of retail distribution. The net effect of this optimization wasreduced Consumer Guides revenue with a*

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*positiveimpact on Consumer Guide profitability. DistribuTech’s strategy to optimize itsdistribution locations to best meet the distribution needs of the ConsumerSource guides has historically and will continue to cause DistribuTech revenueand profitability to fluctuate.*

*SegmentEBITDA*

Consumer Guides Segment EBITDA decreased $245, or 0.7%in the six months ended June 30, 2006 from $36,155 in the same period of2005. The slight decrease in EBITDA is primarily due to increases in operatingcosts of approximately 6.6% over prior year, due to the acquisitions in 2005and early 2006.

Below is a reconciliationof Consumer Guides Segment EBITDA to operating income for the six months ended June 30,2006 and 2005: 

| ** **                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Segment EBITDA                                                     |       | $                                             | 35,910     |   | $ | 36,155 |   |
| Depreciation of property and equipment                             |       | 5,353                                         |       | 3,965 |   |
| Amortization of intangible assets and other                        |       | 1,394                                         |       | 1,289 |   |
| Non-cash compensation                                              |       | 49                                            |       | — |   |
| Provision for severance, closures and restructuring  related costs |       | 269                                           |       | — |   |
| Loss on sale of businesses and other, net                          |       | 28                                            |       | — |   |
| Operating income                                                   |       | $                                             | 28,817     |   | $ | 30,901 |   |

 

*Operating Income*

Operating income decreased$2,084 or 6.8% in the six months ended June 30, 2006 from the same periodof 2005. This decrease was primarily driven by the slight decline in SegmentEBITDA, coupled with increased depreciation and amortization expenses due tothe acquisitions in 2005 and early 2006, as well as increased charges forprovision for severance, closures and restructuring related costs.

**Education Segment(includes Channel One, Films Media Group (“FMG”) and PRIMEDIA Healthcare)**

*Revenues, Net*

Educationrevenues were $29,985 or 6.0% and $37,236 or 7.6% of the Company’s consolidatedrevenues for the six months ended June 30, 2006 and 2005, respectively.Education revenues decreased $7,251 or 19.5% in the six months ended June 30,2006 compared to the same period of 2005 as follows: 

| ** **            | ** ** | **Six Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                      | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                          |       |        |       |   |   |   |   |
| Advertising           |       | $                                             | 13,342     |        | $          | 19,519 |   |   | (31.6 | )% |   |
| Other                 |       | 16,643                                        |       | 17,694      |       |   | (5.9 | )% |   |
| Intersegment revenues |       | —                                        |       | 23          |       |   |   |   |   |
| Total                 |       | $                                             | 29,985     |        | $          | 37,236 |   |   | (19.5 | )% |   |

 

Education advertising revenues, which are generatedentirely by Channel One, declined $6,177, or 31.6% in the the six months ended June 30,2006 compared to the same period of 2005. Channel One’s decline in advertisingrevenue is mainly attributable to the ongoing impact of large reductions inadvertising from a few advertisers in late 2005 and a decrease in sales fromthe entertainment category. Channel One’s strategy is to broaden its revenuebase beyond traditional advertising through creative sponsorships and theInternet, and to target organizational support for its public affairsprogramming.

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Other revenue was down5.9% in the first half of 2006 and primarily consists of revenue from PRIMEDIAHealthcare and FMG. PRIMEDIA Healthcare’s revenue increased 4% in the firsthalf of 2006, due to management changes made and new strategic initiativeslaunched in late 2004. PRIMEDIA Healthcare has already contracted for morerevenue in 2006 than in all of 2005. This increase was offset by a decrease inFMG’s revenue by 8.2% in the first half of 2006, due to lower direct mailrevenues during 2006. Inthe first quarter 2006, the Company decided to actively pursue the sale of FMG.The operations of FMG were classified as discontinued operations for allperiods presented. Subsequently, the Company actively solicited, but ultimatelydid not receive any reasonable offers to purchase FMG. The Company concludedthat the offers did not reflect FMG’s financial potential and as a result,decided to hold and continue to operate FMG. In addition, the Company hired newmanagement to operate FMG. Consequently, in the second quarter of 2006, theoperations of FMG have been reclassified to continuing operations for allperiods presented.

*Segment EBITDA*

Education Segment EBITDAdecreased $5,819 to $(111) for the the six months ended June 30, 2006compared to the same period of 2005.

Belowis a reconciliation of Education Segment EBITDA to operating income (loss) forthe six months ended June 30, 2006 and 2005:

| ** **                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Segment EBITDA                                                     |       | $                                             | (111       | ) | $ | 5,708 |   |
| Depreciation of property and equipment                             |       | 1,038                                         |       | 1,459 |   |
| Amortization of intangible assets and other                        |       | 949                                           |       | 2,445 |   |
| Provision for severance, closures and restructuring  related costs |       | 1,015                                         |       | — |   |
| Operating income (loss)                                            |       | $                                             | (3,113     | ) | $ | 1,804 |   |

 

*Operating Income (Loss)*

Education segmentoperating income (loss) for the the six months ended June 30, 2006 was$(3,113) compared to $1,804 in the same period of 2005. This decrease wasprimarily due to the decrease in Segment EBITDA primarily resulting from lowerrevenues as discussed above.

**Corporate**

*Corporate Administrative expenses*

Corporate administrativeexpenses were $13,967 for the the six months ended June 30, 2006, flatcompared to $13,664 for the the six months ended June 30, 2005, primarilydue to reduced compensation expense resulting from headcount reductions, offsetby one-time professional fees incurred related to the exploration of theseparation of the Company’s businesses via a tax-free spin-off, and to a NewYork office consolidation.

*Operating Loss*

Corporate operating losswas $17,151 for the the six months ended June 30, 2006, up 2.3% comparedto $16,764 for the the six months ended June 30, 2005. The increase wasmainly due to an increase in corporate administrative expenses.

**Discontinued Operations**

In accordance with SFAS No. 144,the Company has classified the operating results of all of its divestedentities and businesses held for sale as discontinued operations for allperiods presented.

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*Enthusiast Media*

The Company discontinuedthe following entities within the Enthusiast Media segment during 2005: About,Inc, Ward’s Automotive Group, the Crafts and History groups and two magazinetitles (shut down). In February 2006, the Company completed the sale ofthe History group.

Discontinued operations ofthe Enthusiast Media segment for the six months ended June 30, 2006 and2005 include revenue of $29,884 and $45,746, respectively, operating income of$18,873 and $388,173, respectively, and gain on sale of businesses, net of tax,of $13,668 and $378,907, respectively.

*Education*

The Company discontinuedthe operations of its Software on Demand division during 2005. Additionally,the Company completed the sale of its Workplace Learning division in 2005,excluding PRIMEDIA Healthcare. In the first quarter 2006, the Company decided to actively pursue thesale of FMG. The operations of FMG were classified as discontinued operationsfor all periods presented. Subsequently, the Company actively solicited, butultimately did not receive any reasonable offers to purchase FMG. The Companyconcluded that the offers did not reflect FMG’s financial potential and as a result,decided to hold and continue to operate FMG. In addition, the Company hired newmanagement to operate FMG.  Consequently,in the second quarter of 2006, the operations of FMG have been reclassified tocontinuing operations for all periods presented.

Discontinued operations ofthe Education segment for the six months ended June 30, 2006 and 2005include revenue of $0 and $9,367, respectively, and operating income of $13 and$2,980, respectively. For the six months ended June 30, 2005, discontinuedoperations include a gain on sale of business, net of tax, of $3,557 related tothe sale of Workplace Learning’s Bankers Training Division.

*Business Information*

The Company sold itsBusiness Information segment during the third quarter of 2005. BusinessInformation segment revenues of $116,543 are included in discontinuedoperations for the six months ended June 30, 2005. Also included isoperating income of $14,503, and a loss on sale of business, net of tax, of $2for the six months ended June 30, 2005.

**Liquidity, Capital and Other Resources**

As of June 30, 2006,the Company had cash and unused credit facilities of $181,695, as furtherdetailed below under “Financing Arrangements”, compared to $250,889 as of December 31,2005. The Company’s asset sales, debt redemption and investment in organicgrowth have facilitated its strategy to become a better strategically focusedcompany while strengthening its balance sheet.

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 other anticipated expenditures for theremainder of 2006 and for the foreseeable future. The Company has nosignificant required debt repayments until 2010.

*Working Capital*

Consolidated workingcapital, which includes current maturities of long-term debt, was a deficit of$24,961 at June 30, 2006 compared to a working capital deficit of $22,032at December 31, 2005.

*Cash Flow—2006 Compared to 2005*

Net cash provided by (usedin) operating activities increased $36,492, to $10,374 in 2006, from $(26,118)in 2005. This change is primarily due to lower debt service and improvedworking capital management, partially offset by decreased Segment EBITDA. Forpurposes of calculating net cash provided by operating activities, discontinuedoperations are included until sold or shut down. Hence, the results of theBusiness Information segment, About, PRIMEDIA Workplace Learning’s BankersTraining 

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divisionand the remainder of PWPL were included in this calculation for the first twoquarters of 2005 but not in the first two quarters of 2006 as these units weresold during 2005.

Net cash (used in) providedby investing activities decreased to $(9,580) from $390,840 for the first halfof 2006 and 2005, respectively. The primary reason for the decrease is thereduced proceeds from sales of businesses in the first half of 2006 versus2005. Proceeds were $17,000 in 2006 versus $431,306 in 2005.

Net cash used in financingactivities was $3,816 for the first half of 2006, compared to $370,037 for thefirst half of 2005. The primary reason for the decrease is the redemption of Series Dand F exchangeable preferred stock in the second quarter of 2005.

*Free Cash Flow*

Thefollowing table presents the Company’s Free Cash Flow for the six months ended June 30,2006 and 2005, respectively:

| ** **                                                                 | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Net cash provided  by (used in) operating activities                       |       | $                                             | 10,374     |   | $ | (26,118 | ) |
| Additions to property, equipment and other, net                            |       | (10,767                                       | )          | (13,505 | ) |
| Capital lease payments                                                     |       | (1,879                                        | )          | (2,697 | ) |
| Free Cash Flow                                                             |       | $                                             | (2,272     | ) | $ | (42,320 | ) |
| Supplemental  information:                                                 |       |                                          |       |   |   |
| Cash interest paid, including interest on capital  and restructured leases |       | $                                             | 64,718     |   | $ | 68,740 |   |
| Cash interest paid on shares subject to mandatory  redemption(1)           |       | $                                             | —     |   | $ | 23,735 |   |
| Cash taxes paid, net of refunds received                                   |       | $                                             | 4,740      |   | $ | 232 |   |
| Cash paid for  severance, closures and restructuring related costs         |       | $                                             | 2,715      |   | $ | 5,986 |   |

----

(1)        During 2005, the Company redeemed all of its outstanding sharessubject to mandatory redemption (liquidation preference of approximately$475,000).

The Company’s Free Cash Flow improved in 2006primarily due to lower debt service and improved working capital management,partially offset by decreased Segment EBITDA.

***Financing Arrangements***

*Bank CreditFacilities*

The bank credit facilities consisted of the followingas of June 30, 2006:

| ** **                     | ** ** | **Revolver** | ** ** | **Term B** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-----------------|------------|-----------|------------|
| Bank Credit  Facilities        |       | $            | 276,795    |            | $          | 495,000   |       | $ | 771,795 |   |
| Borrowings  Outstanding        |       | (78,000      | )          | (495,000        | )          | (573,000  | )          |
| Letters of Credit  Outstanding |       | (21,332      | )          | —          |       | (21,332   | )          |
| Unused Bank Commitments        |       | $            | 177,463    |            | $          | —    |       | $ | 177,463 |   |

 

The term loan B bears interest at the base rate plus1.25% or LIBOR plus 2.25% per year. At June 30, 2006, the weighted averagevariable interest rate on all outstanding borrowings under the bank creditfacilities was 7.3%.

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 six months ended June 30, 2006, theCompany’s commitment fees were paid at a weighted average 

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rate of 0.5%. The Companyalso has agreed to pay certain fees with respect to the issuance of letters ofcredit and an annual administration fee. From time to time, the Company may payamendment fees under its bank credit facilities.

The commitments under the revolving loan portion ofthe bank credit facilities are subject to mandatory reductions semi-annually onJune 30 and December 31, with the final reduction on June 30,2008. The aggregate remaining mandatory reductions of the revolving loancommitments under the bank credit facilities are $118,627 in 2007 and a finalreduction of $158,168 in 2008. To the extent that the total revolving creditloans outstanding exceed the reduced commitment amount, these loans must bepaid down to an amount equal to or less than the reduced commitment amount.However, if the total revolving credit loans outstanding do not exceed thereduced commitment amount, then there is no requirement to pay down any of therevolving credit loans. Remaining aggregate term loan payments under the bankcredit facilities are $5,000 in 2007 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 creditfacilities and Senior Notes agreements of the Company contain certain customaryevents of default which generally give the banks or the noteholders, asapplicable, the right to accelerate payments of outstanding debt. Under thebank credit facilities 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.

*Senior Notes andSenior Note Redemptions*

*8**7**¤**8* Senior Notes.*  * In the firstquarter of 2006, the Company repurchased $7,025 principal amount of its 87¤8%Senior Notes due May 15, 2011 in three different transactions for $6,832plus $200 of accrued interest. As a result, the Company recorded a gain of $54net of the write-off of unamortized deferred financing costs and bond discount.In the second quarter of 2006, the Company repurchased $56,615 principal amountof its 87¤8%Senior Notes for $55,262 plus $398 of accrued interest, recording a gain of$282 net of the write-off of unamortized deferred financing costs and bonddiscount.  Gains of $54 and $282 areincluded in the other income, net line on the accompanying condensed statementsof consolidated operations for the three and six months ended June 30,2006, respectively.

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*Contractual Obligations*

Thereare no required significant debt repayments until 2010. The following arecertain contractual obligations of the Company as of June 30, 2006:

| ** **                                                | ** ** | ** ** | ** ** | **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) |       | $          | 1,456,262  |                                      | $          | 2,500 |   | $ | 88,000 |   | $ | 185,000 |   | $ | 1,180,762 |   |
| Interest on long-term  debt obligations(1)                |       | 719,588    |       | 117,475                                   |       | 232,382 |   | 212,439 |   | 157,292 |   |
| Capital lease obligations                                 |       | 3,555      |       | 1,366                                     |       | 1,327 |   | 862 |   | — |   |
| Fair value of forward  agreement (2)                      |       | 12,450     |       | —                                    |       | 12,450 |   | — |   | — |   |
| Interest on capital  lease obligations                    |       | 508        |       | 225                                       |       | 225 |   | 58 |   | — |   |
| Operating lease  obligations(3)                           |       | 202,760    |       | 43,844                                    |       | 62,780 |   | 36,746 |   | 59,390 |   |
| Workplace Learning lease  obligations (4)                 |       | 15,584     |       | 4,999                                     |       | 3,893 |   | 3,162 |   | 3,530 |   |
| Total Contractual Obligations                             |       | $          | 2,410,707  |                                      | $          | 170,409 |   | $ | 401,057 |   | $ | 438,267 |   | $ | 1,400,974 |   |
|                                                           |            |            |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Interestpayments are based on the Company’s projected interest rates and estimated principalamounts outstanding for the periods presented.

(2)          Presentvalue of expected future payments related to the acquisition of Automotive.com.

(3)          Futurerental commitments for the above operating leases have not been reduced byminimum noncancelable sublease rentals aggregating $67,233 as of June 30,2006.

(4)          Presentvalue of expected future payments related to Workplace Learning leaseobligatioins, exclusive of a third party guarantee for up to $10,000 to be appliedto the Company’s secondary liability . See *Contingencies*belowfor further detail.

The Company had $78,000 ofborrowings outstanding at June 30, 2006 under the revolving loan portionof the bank credit facility. The revolving loan portion of the bank creditfacility matures in 2008, and the term loan B matures in 2013. Assumingthis balance remains constant until the end of the term, and application of theCompany’s projected interest rates, total interest payments related to therevolver under our bank credit facility are estimated to be $12,280 for theperiods presented in the above table. These interest payments are not includedin the above table.

The Company has other commitments in the form ofletters of credit of $21,332 aggregate face value which expire on or before June 30,2007.

*Off Balance Sheet Arrangements*

The Company has no variable interest (otherwise knownas “special purpose”) entities or off balance sheet debt, other than as relatedto operating leases in the ordinary course of business as disclosed above.

*Covenant Compliance*

As defined in the amendedbank credit facilities agreement, the maximum allowable debt leverage ratio wasamended to 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007. Theamendment to the bank credit facilities also sets the minimum interest coverageratio, as defined in the bank credit facilities, at 1.75 to 1 through maturity.The minimum fixed charge coverage ratio, as defined, remains unchanged at 1.05to 1 through maturity. The Company is in compliance with all of the financialand operating covenants of its financing arrangements.

TheCompany is herewith providing detailed information and disclosure as to themethodology used in determining compliance with the leverage ratio in the bankcredit facility agreement. Under its bank credit facility and Senior Noteagreements, the Company is allowed to designate certain businesses asunrestricted subsidiaries to the extent that the value of those businesses doesnot exceed the permitted amounts, as defined in these agreements. The Companyhas designated certain of its businesses as unrestricted (the “UnrestrictedGroup”), which represent primarily Internet businesses, trademark and contentlicensing and service companies, new launches (including traditionalstart-ups), other properties 

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under evaluation for turnaround or shutdown and foreignsubsidiaries. Except for those specifically designated by the Company asunrestricted, 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  Months Ended  June 30, 2006** | ** ** | **For the Twelve  Months Ended  June 30, 2006** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| EBITDA of the  Restricted Group                                             |       |                                                                    | $          | 58,541                                                                   |       |   |   | $ | 239,632 |   |   |
| EBITDA loss of  the Unrestricted Group                                      |       |                                                                    | (10,927    | )                                                                        |       |   | (50,682 | ) |   |
| Divestiture and  other adjustments                                          |       |                                                                    | (4,850     | )                                                                        |       |   | (21,376 | ) |   |
| Depreciation of  property and equipment                                     |       |                                                                    | (7,674     | )                                                                        |       |   | (32,959 | ) |   |
| Amortization of  intangible assets and other                                |       |                                                                    | (3,070     | )                                                                        |       |   | (20,568 | ) |   |
| Severance related  to separated senior executives                           |       |                                                                    | —     |                                                                     |       |   | (1,775 | ) |   |
| Non-cash  compensation                                                      |       |                                                                    | (1,619     | )                                                                        |       |   | (6,222 | ) |   |
| Provision for  severance, closures and restructuring related costs          |       |                                                                    | (1,541     | )                                                                        |       |   | (2,432 | ) |   |
| (Loss) gain on  the sales of businesses and other, net                      |       |                                                                    | (28        | )                                                                        |       |   | 181 |   |   |
| Operating income                                                            |       |                                                                    | 28,832     |                                                                     |       |   | 103,799 |   |   |
| Other income (expense):                                                     |       |                                                                    |       |                                                                     |       |   |   |   |   |
| Interest expense                                                            |       |                                                                    | (21,457    | )                                                                        |       |   | (116,981 | ) |   |
| Interest on shares subject to mandatory redemption                          |       |                                                                    | —     |                                                                     |       |   | (6,849 | ) |   |
| Amortization of deferred financing costs                                    |       |                                                                    | (657       | )                                                                        |       |   | (3,089 | ) |   |
| Other income (expense), net                                                 |       |                                                                    | 164        |                                                                     |       |   | (9,068 | ) |   |
| Income (loss)  from continuing operations before provision for income taxes |       |                                                                    | 6,882      |                                                                     |       |   | (32,188 | ) |   |
| Provision for  income taxes                                                 |       |                                                                    | (3,277     | )                                                                        |       |   | (2,726 | ) |   |
| Income (loss)  from continuing operations                                   |       |                                                                    | 3,605      |                                                                     |       |   | (34,914 | ) |   |
| Discontinued  operations                                                    |       |                                                                    | (5,720     | )                                                                        |       |   | 234,062 |   |   |
| Cumulative effect  of change in accounting principle                        |       |                                                                    | —     |                                                                     |       |   | 22 |   |   |
| Net income (loss)                                                           |       |                                                                    | $          | (2,115                                                                   | )          |   |   | $ | 199,170 |   |   |

 

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  June 30, 2006** | ** ** | **For the Twelve  Months Ended  June 30, 2006** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| Internet  properties                            |       |                                                                    | $          | 3,263                                                                    |       |   |   | $ | 13,600 |   |   |
| Traditional  turnaround and start-up properties |       |                                                                    | 6,075      |                                                                     |       |   | 31,475 |   |   |
| Related overhead  and other charges             |       |                                                                    | 1,589      |                                                                     |       |   | 5,607 |   |   |
|                                            |       |                                                                    | $          | 10,927                                                                   |       |   |   | $ | 50,682 |   |   |

 

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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.

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. At June 30,2006, this leverage ratio was approximately 6.18 to 1.0.

***Contingencies***

The Company is involved in ordinaryand 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.

In 2005, the Company sold the remaining net assets ofWorkplace Learning for the assumption of liabilities, however, the Companyretained a secondary liability regarding the Carrolton, TX building lease and alease for satellite time. At the time of the sale the Company received a thirdparty guarantee of up to $10,000 against those lease obligations to reimbursethe Company for lease payments made.

In 2006, the Company madecertain lease payments on behalf of Workplace Learning pursuant to itssecondary liability. During the second quarter of 2006, the Company determinedthat it was probable that the Company would be responsible for the leasepayments. As a result, as of June 30, 2006, the Company recorded areceivable of $10,000 included in prepaid expenses and other current assets forthe amount due from the third party guarantor, and a total liability of $15,584for the fair value of the future lease payments, net of estimated subleaseincome, on the accompanying condensed consolidated balance sheet. During thesecond quarter of 2006, the Company recorded a related provision indiscontinued operations of $5,584 and a charge to discontinued operations of$1,643 for the net lease payments made by the Company prior to June 30,2006.

***Critical Accounting Policies and Estimates***

During the second quarterof 2006, 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, 2005.

***Recent Accounting Pronouncements***

In July of 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, effective for fiscal years beginning after December 15,2006. This Interpretation clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withFASB Statement No. 109, *Accounting for IncomeTaxes.*This Interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. This Interpretationalso requires entities to make further disclosures about uncertainties in theirincome tax position, and to include a rollforward of the tax benefits takenthat do not qualify for financial statement recognition. The Company is in theprocess of assessing the impact of this Interpretation on its financialstatements.

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

The impact of inflationwas immaterial during the first half of 2006. Postage, however, for productdistribution and direct mail solicitations is a significant expense of theCompany. The Company uses the U.S. Postal Service for distribution of many ofits products and marketing materials. Postal rates increased 5.4% in 2006. 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 price increases. The costof paper continues to moderately increase. The Company’s paper expenseincreased approximately 1.8% in the second quarter of 2006 compared to 2005.Paper cost represented approximately 9.5% of the Company’s total operatingexpenses for the second quarter of 2006 and 2005.

***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 second quarterof 2006, there were no significant changes related to the Company’s market riskexposure.

**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. The Company’s Chief Executive Officer, Chief Financial Officer andChief Accounting Officer also have concluded that the controls and proceduresare designed to ensure that information required to be disclosed is accumulatedand communicated to management, including the principal executive and principalfinancial officers as appropriate to allow timely decisions regarding requireddisclosure.

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

During the quarter ended June 30,2006, 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.

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**PART II. OTHER INFORMATION**

**Item4.**                        SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

a)               The Annual Meetingof Stockholders was held May 17, 2006.  As of the April 6, 2006 record date forthe meeting, there were 263,888,027 shares issued and outstanding and entitledto vote. At the meeting, 250,396,353 shares were present in person or by proxy,constituting approximately 94.89% of the shares entitled to vote.

b)              At the meeting,directors David Bell, Beverly C. Chell, Meyer Feldberg, Perry Golkin, H. JohnGreeniaus, Dean B. Nelson and Thomas Uger were elected.

c)               Setforth below is a description of the items that were voted upon at the meetingand the number of votes cast for, against or withheld, plus abstentions andbroker non-votes, as applicable, as to each such matter and director.

**Election of Directors**

Sevendirectors were elected at the meeting and the shares voted and withheld foreach director are as follows:

| ** **        | ** ** | **Number of   Shares Voted for** | ** **  | **Number of   Shares   Withheld** | ** ** |
|-------------------|------------|------------------------------------------------------|-------------|--------------------------------------------------|------------|
| David Bell        |       |                                                 | 245,161,727 |                                             |       | 5,234,626 |   |
| Beverly C. Chell  |       |                                                 | 231,040,092 |                                             |       | 19,356,261 |   |
| Meyer Feldberg    |       |                                                 | 245,213,718 |                                             |       | 5,182,635 |   |
| Perry Golkin      |       |                                                 | 229,592,011 |                                             |       | 20,804,342 |   |
| H. John Greeniaus |       |                                                 | 244,891,758 |                                             |       | 5,504,595 |   |
| Dean B. Nelson    |       |                                                 | 232,005,149 |                                             |       | 18,391,204 |   |
| Thomas Uger       |       |                                                 | 229,570,503 |                                             |       | 20,825,850 |   |

 

**Approval of Independent Auditors**

The approval of Deloitte &Touche LLP as independent auditors for the Company for the fiscal year ending December 31,2006 was ratified with 247,209,700 votes for, 2,178,460 votes against and1,008,193 votes abstaining.

**Item 6.**                        EXHIBITS

(a)           Exhibits

| 10.1 |   | Consulting Agreement between PRIMEDIA Inc. and  Beverly C. Chell, dated as of July 1, 2006 (1)                                                       |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2 |   | Employment Agreement  between PRIMEDIA Inc. and Kevin J. Neary, dated May 30, 2006 (1)                                                               |
| 31.1 |   | Certification by Dean B.  Nelson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                   |
| 31.2 |   | Certification by Kevin  J. Neary 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 Kevin  J. Neary 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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(*)          Filedherewith.

(1)          Incorporated byreference to PRIMEDIA Inc.’s Current Report on Form 8-K, filed June 1,2006

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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:  | August 8, 2006 | /s/ DEAN B. NELSON                                                                                |
|   |                | (Dean B. Nelson)                                                                                  |
|   |                | *Chairman, Chief Executive Officer and President  (Principal Executive Officer)*                  |
| Date:  | August 8, 2006 | /s/ KEVIN J. NEARY                                                                                |
|   |                | (Kevin J. Neary)                                                                                  |
|   |                | *Senior Vice President and Chief Financial Officer*                                               |
|   |                | *(Principal Financial Officer)*                                                                   |
| Date:  | August 8, 2006 | /s/ ROBERT J. SFORZO                                                                              |
|   |                | (Robert J. Sforzo)                                                                                |
|   |                | *Senior Vice President, Chief Accounting Officer  and Controller  (Principal Accounting Officer)* |
|        |                     |                                                                                                   |  |

 

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