**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, 2007**

**Commissionfile number: 1-11106**

**PRIMEDIA Inc.**

(Exact name of registrantas specified in its charter)

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

 

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

(Address of principalexecutive offices)

**10151**

(Zip Code)

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

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(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

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer (asdefined in Rule 12b-2 of the Exchange Act).

Large acceleratedfiler o         Accelerated filer x         Non-accelerated filer o

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

Numberof shares of common stock, par value $.01 per share, of PRIMEDIA Inc.outstanding as of August 2, 2007: 44,120,007

 

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**PRIMEDIA Inc.INDEX**
| **Part I. Financial Information:** |
|-----------------------------------------|
|                                    |
| Item 1.                                 | Financial Statements |   |
|                                    |   |   |
|                                    | Condensed  Consolidated Balance Sheets (Unaudited) as of June 30, 2007 and  December 31, 2006 | 2 |
|                                    |   |   |
|                                    | Condensed  Statements of Consolidated Operations (Unaudited) for the three months ended  June 30, 2007 and 2006 | 3 |
|                                    |   |   |
|                                    | Condensed  Statements of Consolidated Operations (Unaudited) for the six months ended  June 30, 2007 and 2006 | 4 |
|                                    |   |   |
|                                    | Condensed  Statements of Consolidated Cash Flows (Unaudited) for the six months ended  June 30, 2007 and 2006 | 5 |
|                                    |   |   |
|                                    | Notes to  Condensed Consolidated Financial Statements (Unaudited) | 6 |
|                                    |   |   |
| Item 2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 26 |
|                                    |   |   |
| Item 3.                                 | Quantitative  and Qualitative Disclosures about Market Risk | 44 |
|                                    |   |   |
| Item 4.                                 | Controls and  Procedures | 44 |
| ** **                              |
| **Part II. Other  Information:**   |
|                                    |
| Item 1A.                                | Risk  Factors | 45 |
|                                    |   |   |
| Item 4.                                 | Submission of  Matters to a Vote of Security Holders | 45 |
|                                    |   |   |
| Item 6.                                 | Exhibits | 46 |
|                                    |   |   |
|                                    | Signatures | 47 |

 

1

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**PRIMEDIAINC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets (Unaudited)(in thousands, except share and per share amounts)**
| ** **                                                                                                                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                 | ** ** | **2007**          | ** ** | **2006**              | ** ** |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| **ASSETS**                                                                                                                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                                                                                            |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                 |       | $                 | 111,040    |                  | $          | 5,828 |   |
| Accounts  receivable, net                                                                                                                                                                                                                                  |       | 28,564            |       | 115,284               |       |
| Inventories                                                                                                                                                                                                                                                |       | 443               |       | 12,978                |       |
| Prepaid expenses  and other                                                                                                                                                                                                                                |       | 15,185            |       | 18,977                |       |
| Assets of  businesses held for sale                                                                                                                                                                                                                        |       | 882,016           |       | 170,037               |       |
| Total current  assets                                                                                                                                                                                                                                      |       | 1,037,248         |       | 323,104               |       |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Property and equipment  (net of accumulated depreciation and amortization of $82,149 in 2007 and  $164,478 in 2006)                                                                                                                                        |       | 21,078            |       | 46,390                |       |
| Intangible assets, net                                                                                                                                                                                                                                     |       | 25,988            |       | 187,887               |       |
| Goodwill                                                                                                                                                                                                                                                   |       | 133,133           |       | 674,138               |       |
| Other non-current  assets                                                                                                                                                                                                                                  |       | 15,777            |       | 22,810                |       |
| Total Assets                                                                                                                                                                                                                                               |       | $                 | 1,233,224  |                  | $          | 1,254,329 |   |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS’  DEFICIENCY**                                                                                                                                                                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current liabilities:                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                           |       | $                 | 10,816     |                  | $          | 47,679 |   |
| Accrued expenses  and other                                                                                                                                                                                                                                |       | 45,841            |       | 112,183               |       |
| Deferred  revenues                                                                                                                                                                                                                                         |       | 1,924             |       | 79,035                |       |
| Current  maturities of long-term debt                                                                                                                                                                                                                      |       | 5,177             |       | 6,070                 |       |
| Liabilities of  businesses held for sale                                                                                                                                                                                                                   |       | 203,380           |       | 50,300                |       |
| Total current  liabilities                                                                                                                                                                                                                                 |       | 267,138           |       | 295,267               |       |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Long-term debt                                                                                                                                                                                                                                             |       | 1,312,026         |       | 1,316,959             |       |
| Deferred revenues                                                                                                                                                                                                                                          |       | 11,900            |       | 12,750                |       |
| Deferred income taxes                                                                                                                                                                                                                                      |       | 12,322            |       | 72,060                |       |
| Other non-current liabilities                                                                                                                                                                                                                              |       | 56,111            |       | 80,523                |       |
| Total  Liabilities                                                                                                                                                                                                                                         |       | 1,659,497         |       | 1,777,559             |       |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Commitments and  contingencies (Note 12)                                                                                                                                                                                                                   |       |              |       |                  |       |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Shareholders’  deficiency:                                                                                                                                                                                                                            |       |              |       |                  |       |
| Common stock  ($.01 par value, 350,000,000 shares authorized at June 30, 2007 and December  31, 2006; 45,520,324 and 45,475,527 shares issued and 44,113,256 and  44,068,459 shares outstanding at June 30, 2007 and December 31, 2006,  respectively) (1) |       | 455               |       | 455                   |       |
| Additional  paid-in capital (including warrants of $31,690 at June 30, 2007 and December  31, 2006)                                                                                                                                                        |       | 2,370,063         |       | 2,369,220             |       |
| Accumulated  deficit                                                                                                                                                                                                                                       |       | (2,720,914        | )          | (2,817,028            | )          |
| Common stock in  treasury, at cost (1,407,068 shares at June 30, 2007 and December 31, 2006)  (1)                                                                                                                                                          |       | (75,877           | )          | (75,877               | )          |
| Total  Shareholders’ Deficiency                                                                                                                                                                                                                       |       | (426,273          | )          | (523,230              | )          |
|                                                                                                                                                                                                                                                       |       |              |       |                  |       |
| Total Liabilities and  Shareholders’ Deficiency                                                                                                                                                                                                       |       | $                 | 1,233,224  |                  | $          | 1,254,329 |   |

 

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(1) Reflects the one-for-sixreverse stock split effected on August 1, 2007. All periods have been restated to reflect the reverse stock split.

See notes tocondensed consolidated financial statements (unaudited).

2

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**PRIMEDIA INC. ANDSUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**
| ** **                                                                                                                                     | ** ** | **Three Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                                     | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
|                                                                                                                                           |       |                                                |       |   |   |
| Revenues, net:                                                                                                                                 |       |                                                |       |   |   |
| Advertising                                                                                                                                    |       | $                                                   | 67,018     |   | $ | 67,291 |   |
| Other                                                                                                                                          |       | 14,552                                              |       | 13,992 |   |
| Total revenues, net                                                                                                                            |       | 81,570                                              |       | 81,283 |   |
|                                                                                                                                           |       |                                                |       |   |   |
| Operating costs  and expenses:                                                                                                                 |       |                                                |       |   |   |
| Cost of goods sold (exclusive of depreciation and  amortization of property and equipment)                                                     |       | 8,658                                               |       | 9,871 |   |
| Marketing and selling                                                                                                                          |       | 23,815                                              |       | 22,344 |   |
| Distribution and circulation                                                                                                                   |       | 21,820                                              |       | 20,750 |   |
| Editorial                                                                                                                                      |       | 1,678                                               |       | 1,914 |   |
| Other general expenses                                                                                                                         |       | 7,348                                               |       | 8,228 |   |
| Corporate administrative expenses (including  non-cash compensation of $397 and $1,619 in 2007 and 2006, respectively)                         |       | 7,438                                               |       | 10,628 |   |
| Depreciation and amortization of property and  equipment                                                                                       |       | 3,286                                               |       | 3,377 |   |
| Amortization of intangible assets and other                                                                                                    |       | 856                                                 |       | 716 |   |
| Provision for restructuring costs                                                                                                              |       | 1,015                                               |       | 155 |   |
| Loss on sale of businesses                                                                                                                     |       | —                                              |       | 28 |   |
|                                                                                                                                           |       |                                                |       |   |   |
| Operating income                                                                                                                               |       | 5,656                                               |       | 3,272 |   |
|                                                                                                                                           |       |                                                |       |   |   |
| Other income  (expense):                                                                                                                       |       |                                                |       |   |   |
| Interest expense                                                                                                                               |       | (29,031                                             | )          | (32,176 | ) |
| Amortization of deferred financing costs                                                                                                       |       | (584                                                | )          | (657 | ) |
| Other income, net                                                                                                                              |       | 1,934                                               |       | 629 |   |
|                                                                                                                                           |       |                                                |       |   |   |
| Loss from  continuing operations before benefit for income taxes                                                                               |       | (22,025                                             | )          | (28,932 | ) |
| Benefit for  income taxes                                                                                                                      |       | 10,913                                              |       | 9,880 |   |
|                                                                                                                                           |       |                                                |       |   |   |
| Loss from  continuing operations                                                                                                               |       | (11,112                                             | )          | (19,052 | ) |
|                                                                                                                                           |       |                                                |       |   |   |
| Discontinued  operations, net of tax (including loss on sale of businesses, net of tax, of  $(2,270) and $(40) in 2007 and 2006, respectively) |       | 18,698                                              |       | 16,937 |   |
| Net income  (loss)                                                                                                                             |       | $                                                   | 7,586      |   | $ | (2,115 | ) |
|                                                                                                                                           |       |                                                |       |   |   |
| Basic and  diluted earnings (loss) per common share (1):                                                                                       |       |                                                |       |   |   |
| Continuing operations                                                                                                                          |       | $                                                   | (0.25      | ) | $ | (0.43 | ) |
| Discontinued operations                                                                                                                        |       | 0.42                                                |       | 0.38 |   |
| Net income (loss)                                                                                                                              |       | $                                                   | 0.17       |   | $ | (0.05 | ) |
| Basic and diluted  common shares outstanding (weighted average) (1)                                                                            |       | 44,098,131                                          |       | 43,990,277 |   |

 

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(1) Reflects the one-for-sixreverse stock split effected on August 1, 2007. All periods have been restated to reflect the reverse stock split.

See notes tocondensed consolidated financial statements (unaudited).

3

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**PRIMEDIAINC. AND SUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**
| ** **                                                                                                                                         | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                         | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                                                                                                         | ** ** | ** **                                        | ** ** | **(As restated,  see Note 1)** | ** ** |
| Revenues, net:                                                                                                                                     |       |                                              |       |   |   |
| Advertising                                                                                                                                        |       | $                                                 | 133,299    |   | $ | 134,383 |   |
| Other                                                                                                                                              |       | 28,315                                            |       | 28,302 |   |
| Total revenues, net                                                                                                                                |       | 161,614                                           |       | 162,685 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Operating costs  and expenses:                                                                                                                     |       |                                              |       |   |   |
| Cost of goods sold (exclusive of depreciation and  amortization of property and equipment)                                                         |       | 17,258                                            |       | 19,798 |   |
| Marketing and selling                                                                                                                              |       | 46,213                                            |       | 44,572 |   |
| Distribution and circulation                                                                                                                       |       | 42,010                                            |       | 41,843 |   |
| Editorial                                                                                                                                          |       | 3,444                                             |       | 3,853 |   |
| Other general expenses                                                                                                                             |       | 15,037                                            |       | 16,708 |   |
| Corporate administrative expenses (including  non-cash compensation of $558 and $2,537 in 2007 and 2006, respectively)                             |       | 14,335                                            |       | 19,456 |   |
| Depreciation and amortization of property and  equipment                                                                                           |       | 6,399                                             |       | 6,041 |   |
| Amortization of intangible assets and other                                                                                                        |       | 1,592                                             |       | 1,394 |   |
| Provision for restructuring costs                                                                                                                  |       | 2,604                                             |       | 277 |   |
| Loss on sale of businesses                                                                                                                         |       | —                                            |       | 28 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Operating income                                                                                                                                   |       | 12,722                                            |       | 8,715 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Other income  (expense):                                                                                                                           |       |                                              |       |   |   |
| Interest expense                                                                                                                                   |       | (58,111                                           | )          | (63,633 | ) |
| Amortization of deferred financing costs                                                                                                           |       | (1,168                                            | )          | (1,315 | ) |
| Other income, net                                                                                                                                  |       | 3,820                                             |       | 785 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Loss from  continuing operations before benefit for income taxes                                                                                   |       | (42,737                                           | )          | (55,448 | ) |
| Benefit for  income taxes                                                                                                                          |       | 17,369                                            |       | 19,419 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Loss from  continuing operations                                                                                                                   |       | (25,368                                           | )          | (36,029 | ) |
|                                                                                                                                               |       |                                              |       |   |   |
| Discontinued  operations, net of tax (including gain on sale of businesses, net of tax, of  $41,258 and $13,668 in 2007 and 2006, respectively)    |       | 137,608                                           |       | 36,322 |   |
| Cumulative  effect of change in accounting principle, net of tax (from the adoption of of  Statement of Financial Accounting Standard No. 123 (R)) |       | —                                            |       | 22 |   |
| Net income                                                                                                                                         |       | $                                                 | 112,240    |   | $ | 315 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Basic and  diluted earnings (loss) per common share (1):                                                                                           |       |                                              |       |   |   |
| Continuing operations                                                                                                                              |       | $                                                 | (0.57      | ) | $ | (0.82 | ) |
| Discontinued operations                                                                                                                            |       | 3.12                                              |       | 0.82 |   |
| Cumulative effect of change in accounting principle                                                                                                |       | —                                            |       | 0.00 |   |
| Net income                                                                                                                                         |       | $                                                 | 2.55       |   | $ | 0.00 |   |
|                                                                                                                                               |       |                                              |       |   |   |
| Basic and diluted  common shares outstanding (weighted average) (1)                                                                                |       | 44,092,510                                        |       | 43,976,230 |   |

 

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(1) Reflects the one-for-six reverse stock split effected on August 1,2007.  All periods have been restated toreflect the reverse stock split.

See notes tocondensed consolidated financial statements (unaudited).

4

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**PRIMEDIAINC. AND SUBSIDIARIESCondensed Statements of Consolidated Cash Flows (Unaudited)(in thousands)**
| ** **                                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| ** **                                                                                   | ** ** | ** **                                        | ** ** | **(As restated,   see Note 1)** | ** ** |
| **Operating  activities:**                                                                   | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | $                                                 | 112,240    |   | $ | 315 |   |
| Cumulative effect of change in accounting principle,  net of tax                             |       | —                                            |       | (22 | ) |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: |       |                                              |       |   |   |
| Gain on sales of businesses, net                                                             |       | (41,258                                           | )          | (13,640 | ) |
| Deferred income taxes                                                                        |       | (59,738                                           | )          | 6,870 |   |
| Other, net                                                                                   |       | 14,448                                            |       | 16,341 |   |
| Changes in operating assets and liabilities                                                  |       | (48,324                                           | )          | 510 |   |
| Net cash (used in) provided by operating activities                                          |       | (22,632                                           | )          | 10,374 |   |
| **Investing  activities:**                                                                   | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Additions to property, equipment and other                                                   |       | (11,990                                           | )          | (10,767 | ) |
| Proceeds from sales of businesses                                                            |       | 175,391                                           |       | 17,000 |   |
| Payments for businesses acquired, net of cash acquired                                       |       | (31,658                                           | )          | (15,813 | ) |
| Net cash provided by (used in) investing activities                                          |       | 131,743                                           |       | (9,580 | ) |
| **Financing  activities:**                                                                   | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Borrowings under credit agreements                                                           |       | 32,800                                            |       | 202,500 |   |
| Repayments of borrowings under credit agreements                                             |       | (36,300                                           | )          | (142,500 | ) |
| Payments for repurchases of senior notes                                                     |       | —                                            |       | (62,094 | ) |
| Proceeds from issuances of common stock, net                                                 |       | 286                                               |       | 265 |   |
| Capital lease payments                                                                       |       | (571                                              | )          | (1,879 | ) |
| Other                                                                                        |       | (114                                              | )          | (108 | ) |
| Net cash used in financing activities                                                        |       | (3,899                                            | )          | (3,816 | ) |
| Increase  (decrease) in cash and cash equivalents                                            |       | 105,212                                           |       | (3,022 | ) |
| Cash and cash  equivalents, beginning of period                                              |       | 5,828                                             |       | 7,255 |   |
| Cash and cash  equivalents, end of year period                                               |       | $                                                 | 111,040    |   | $ | 4,233 |   |
| **Supplemental  information:**                                                               | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Cash interest paid, including interest on capital  and restructured leases                   |       | $                                                 | 58,076     |   | $ | 64,718 |   |
| Cash income taxes paid, net of refunds received                                              |       | $                                                 | 16,943     |   | $ | 4,740 |   |
| Cash paid for restructuring costs                                                            |       | $                                                 | 4,993      |   | $ | 2,715 |   |
| Businesses acquired:                                                                         |       |                                              |       |   |   |
| Fair value of assets acquired                                                                |       | $                                                 | 32,725     |   | $ | 15,544 |   |
| (Liabilities assumed) net of deferred purchase price  payments                               |       | (1,067                                            | )          | 269 |   |
| Payments for  businesses acquired, net of cash acquired                                      |       | $                                                 | 31,658     |   | $ | 15,813 |   |

 

 See notes to condensed consolidated financialstatements (unaudited).

5

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**PRIMEDIAINC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Unaudited)(in thousands, except share and per share amounts)**

**1.**                                      Summary ofSignificant Accounting Policies

***Basis of Presentation***

PRIMEDIA Inc., together with its subsidiaries, isherein referred to as either “PRIMEDIA” or the “Company” unless the contextimplies otherwise. In the opinion of the Company’s management, the condensedconsolidated financial statements present fairly the consolidated financialposition of the Company as of June 30, 2007 and December 31, 2006, theresults of consolidated operations of the Company for the three and six monthsended June 30, 2007 and 2006 and consolidated cash flows of the Company for thesix months ended June 30, 2007 and 2006. The adjustments (consisting of normalrecurring accruals) considered necessary for a fair presentation have beenincluded. The condensed consolidated balance sheet as of December 31, 2006has been derived from the Company’s audited consolidated balance sheet includedin the Company’s annual report on Form 10-K for the year endedDecember 31, 2006. All intercompany accounts and transactions have beeneliminated in consolidation. These statements should be read in conjunctionwith the Company’s annual consolidated financial statements and related notesfor the year ended December 31, 2006, which are included in the Company’sAnnual Report on Form 10-K for the year ended December 31,2006. The operating results for the three and six months ended June 30, 2007are not necessarily indicative of the results that may be expected for a fullyear. Certain amounts in the prior periods’ condensed consolidated statement ofoperations and related notes have been reclassified due to discontinuedoperations to conform to the presentation for the three and six months endedJune 30, 2007.

On August 1, 2007, the Company effected a one-for-sixreverse stock split.  The number ofoutstanding common shares have become one-sixth of their prior amount, and thepar value remains at $0.01 per share. All references to share data in this Quarterly Report on Form 10-Q havebeen restated to reflect the reverse stock split.  See Note 15 for further details.

***Recent Accounting Pronouncements Adopted***

*SAB No. 108, “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements”*

During the fourth quarter of 2006, the Company adoptedStaff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements.” During the fourth quarter of 2006, the Company concludedthat deferred income tax benefits of approximately $7,500 should have beenrecorded during the year ended December 31, 2005 when it became apparent thatcertain taxable temporary differences would reverse as a result ofclassification of businesses as discontinued operations. Management believesthat this error totaling approximately $7,500 is not material to the 2006financial statements. Upon adoption of SAB No. 108 the Company recorded acumulative effect adjustment as of January 1, 2006 to accumulated deficitof approximately $7,500, which was reflected in the Company’s 2006 AnnualReport on Form 10-K.  Of this amount, approximately $5,500 and $2,000had been recorded to income from discontinued operations in the first quarterand third quarter of 2006, respectively. The consolidated statement ofoperations for the six months ended June 30, 2006 has been restated to adjustfor the impact of the SAB No. 108 adjustment.

*FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes”*

In July 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accountingfor Uncertainty in Income Taxes”, effective for fiscal years beginning afterDecember 15, 2006. This Interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial 

6

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statements in accordancewith Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accountingfor Income Taxes”. 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. FIN 48requires that, in order to be recognized, tax benefits must be more likely thannot to be sustained upon examination by taxing authorities. The amountrecognized is measured as the largest amount of benefit that is greater than50% likely of being realized upon ultimate settlement. Differences between theamounts recognized in the statements of financial position prior to theadoption of FIN 48 and the amounts reported after adoption were accounted foras a cumulative-effect adjustment recorded to the beginning balance of retainedearnings. FIN 48 also provides guidance on de-recognition, classification,interest and penalties, accounting in interim periods, disclosure, andtransition. See Note 9 for the adjustments that resulted from the Company’sadoption of FIN 48.

**2.**                                      Divestitures

The Company has classified the results of certaindivested entities and entities planned for disposition as of June 30, 2007 asdiscontinued operations in accordance with SFAS No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets”.

In the fourth quarter of 2005, the Company decided topursue the sales of its History and Crafts groups, part of the Enthusiast Mediasegment.  The Company completed the saleof the History group during  the first quarterof 2006, for $17,000, resulting in a net gain of approximately $13,700.  The sale of the Crafts group was completedduring the third quarter of 2006.

In the fourth quarter of 2006, the Company announcedthat it had agreed to sell its Outdoors group (part of the Enthusiast Mediasegment), which consists primarily of its hunting, fishing, and shootingtitles, for $170,000 in cash. The transaction was completed inJanuary 2007 and the Company recorded a gain of $57,577. The net proceedsfrom this sale are subject to routine post-closing adjustments. The assets andliabilities of the Outdoors group are included in assets and liabilities ofbusinesses held for sale on the accompanying condensed consolidated balancesheet as of December 31, 2006.

In the fourth quarter of 2006, the Company announcedthat it would classify the results of operations of its Education segment asdiscontinued operations, due to the Company actively pursuing the sale of thissegment. The Company’s Education segment was comprised of Channel One, aproprietary network for secondary schools; Films Media Group, a leading sourceof educational video; and PRIMEDIA Healthcare, a medical education business.During the second quarter, the Company completed the sale of Channel One for aloss of $6,399, of which $5,000 was recorded during the first quarter of 2007.  Also during the second quarter of 2007, theCompany completed the sale of Films Media Group, for a gain of $184. Theremaining assets and liabilities of the Education segment are classified asbusinesses held for sale on the accompanying consolidated balance sheets as ofJune 30, 2007 and December 31, 2006 (see further discussion below).

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothersto manage this process. In May 2007,the Company entered into an agreement to sell the Enthusiast Media Segment for$1,177,900 to Source Interlink Companies, Inc., subject to certain post-closingadjustments. The sale was completed on August 1, 2007.  The Company has applied the proceedsfrom the sale to pay down debt. See Note 15.

The results of these operations have been classifiedas discontinued for all periods presented.

7

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Total revenues,net, and income before provision for income taxes included in discontinuedoperations on the accompanying condensed statements of consolidated operationsare as follows:
| ** **                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Total revenues,  net                          |       | $                                               | 145,715    |                                          | $          | 187,972 |   | $ | 291,819 |   | $ | 367,588 |   |
| Income before provision  for income taxes (1) |       | $                                               | 31,628     |                                          | $          | 32,067 |   | $ | 52,684 |   | $ | 50,070 |   |

 

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(1) Income before provision for income taxes aboveexcludes gains (losses) on sale of businesses.

 The losses onsales of businesses were $2,592 and $40 for the three months ended June 30,2007 and 2006, respectively.   The gainson sales of businesses were $50,779 and $13,668 for the six months ended June30, 2007 and 2006, respectively.

During the first half of 2007, the Company recorded atax benefit of approximately $61,000 related to the Enthusiast Mediasegment.  This benefit, which is recorded as a component of discontinuedoperations, represents the tax consequences of the recharacterization ofcertain indefinite-lived intangible assets to definite-lived in connection withreclassification of the Enthusiast Media segment as held for sale during the firstquarter of 2007 and was recorded when it became apparent that certain taxabletemporary differences would reverse.

*Held for Sale*

The assets andliabilities of businesses which the Company has initiated plans to sell, buthad not sold, as of June 30, 2007 and December 31, 2006, have beenclassified as held for sale on the accompanying condensed consolidated balancesheets. As of June 30, 2007, this represents the assets and liabilities ofthe Enthusiast Media segment and PRIMEDIA Healthcare. As of December 31,2006, this represents the assets and liabilities of the Outdoors group and theEducation segment.
| ** **                               | ** ** | **June 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| **ASSETS**                               | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Accounts  receivable, net                |       | $                       | 87,879     |                        | $          | 17,103 |   |
| Inventories                              |       | 10,781                  |       | 1,750                       |       |
| Prepaid expenses  and other              |       | 13,032                  |       | 6,458                       |       |
| Property and  equipment, net             |       | 31,094                  |       | 8,234                       |       |
| Intangible  assets                       |       | 171,528                 |       | 22,595                      |       |
| Goodwill                                 |       | 562,585                 |       | 105,238                     |       |
| Other  non-current assets                |       | 5,117                   |       | 8,659                       |       |
| Assets held for  sale                    |       | $                       | 882,016    |                        | $          | 170,037 |   |
| **LIABILITIES**                          | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Accounts payable                         |       | $                       | 27,730     |                        | $          | 5,500 |   |
| Accrued expenses  and other              |       | 46,477                  |       | 14,977                      |       |
| Deferred  revenues—current          |       | 80,439                  |       | 29,472                      |       |
| Current  maturities of long term debt.   |       | 846                     |       | —                      |       |
| Long-term debt                           |       | 1,707                   |       | —                      |       |
| Other  non-current liabilities           |       | 46,181                  |       | 351                         |       |
| Liabilities of  businesses held for sale |       | $                       | 203,380    |                        | $          | 50,300 |   |

 

As discussed above, in January 2007, the Companycompleted the sale of its Outdoors group. During the second quarter of 2007, the Company completed the sale ofChannel One and Films Media Group, part of the Education segment.  On August 1, 2007, the Company completed thesale of the Enthusiast Media segment. See Note 15.

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**3.**                                      Acquisitions

**Acquisition ofRentalhouses.com**

In February of 2007, the Company acquired theassets of RentalHouses.com, for approximately $9,000 in cash. The Company hasnot yet completed its purchase price allocation and in the interim hasclassified the intangible assets to goodwill.

**Acquisition ofModified Automotive Group**

In January of 2007, theCompany acquired Modified Automotive Group, publisher of *ModifiedMagazine*, *Modified Luxury &Exotics Magazine*, *Modified Mustangs Magazine*,and their related event partnerships and websites, for $15,050 in cash(including acquisition related expenses). The Company completed its purchaseprice allocation during the second quarter of 2007. This acquisition is part ofthe Enthusiast Media segment, therefore goodwill is included in assets of businesses held for sale on theaccompanying condensed consolidated balance sheet as of June 30, 2007.
|                            | ** ** | **Amortization  Period** | ** ** | **Amount  Allocated** | ** ** |
|----------------------------|------------|--------------------------|------------|-----------------------|------------|
| Goodwill                   |       | —                   |       | $                     | 7,942      |   |
| Advertiser Lists           |       | 5 years                  |       | 3,000                 |       |
| Subscriber Lists           |       | 5 years                  |       | 580                   |       |
| Trademarks                 |       | —                   |       | 3,300                 |       |
| Non-Compete  Agreements    |       | 5 years                  |       | 490                   |       |
| Other                      |       | —                   |       | 46                    |       |
|                       |       |                     |       | 15,358                |       |
| Less: assumed  liabilities |       |                     |       | (308                  | )          |
| Total                      |       |                     |       | $                     | 15,050     |   |

 

**These acquisitions did not have amaterial impact on the Company’s results of operations for the three and sixmonths ended June 30, 2007.**

**Other**

In the six months ended June 30, 2007, the Companymade two small acquisitions totaling approximately $1,500, made earnoutpayments for prior acquisitions totaling approximately $3,800, and madedeferred purchase price payments of approximately $3,100.

**4.**                                      AccountsReceivable, Net

Accountsreceivable, net, consisted of the following:
|                                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Accounts  receivable               |       | $                 | 29,631     |                  | $          | 124,788 |   |
| Allowance for  doubtful accounts   |       | (1,067            | )          | (7,368                | )          |
| Allowance for  returns and rebates |       | —            |       | (2,136                | )          |
|                               |       | $                 | 28,564     |                  | $          | 115,284 |   |

 

The decrease in accounts receivable above is due tothe Enthusiast Media segment assets and liabilities, which are classified asheld for sale on the condensed consolidated balance sheet as of June 30, 2007.

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**5.**                                      Inventories

Inventoriesconsisted of the following:
|                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Raw materials   |       | $                 | 443        |                  | $          | 10,915 |   |
| Work in process |       | —            |       | 79                    |       |
| Finished goods  |       | —            |       | 1,984                 |       |
|            |       | $                 | 443        |                  | $          | 12,978 |   |

 

The decrease in inventories above is due to theEnthusiast Media segment assets and liabilities, which are classified as heldfor sale on the condensed consolidated balance sheet as of June 30, 2007.

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

In accordance with SFAS No. 142, “Goodwill andOther Intangible Assets” (“SFAS No. 142”), the Company assesses goodwilland indefinite lived intangible assets for impairment at least once a year. TheCompany has established October 31 as its annual impairment test date. Inaddition to the annual impairment test, an assessment is also required wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. For the six months ended June 30, 2007 and 2006,there were no events or changes in circumstances requiring the Company toperform an impairment test related to goodwill, intangible assets or otherfinite lived assets, and accordingly, there were no impairments recorded.

Changes in thecarrying amount of goodwill for the six months ended June 30, 2007, byoperating segment, are as follows:
|                                                                         | ** ** | **Enthusiast  Media** | ** ** | **Consumer  Guides** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|-----------|------------|
| Balance as of  January 1, 2007                                     |       | $                     | 550,952    |                 | $          | 123,186   |       | $ | 674,138 |   |
| Purchase price  adjustments for valuation reports                       |       | (4,967                | )          | 601                  |       | (4,366    | )          |
| Goodwill  acquired related to the acquisition of businesses             |       | 16,600                |       | 9,346                |       | 25,946    |       |
| Adjustment to  goodwill allocated to assets of businesses held for sale |       | (562,585              | )          | —               |       | (562,585  | )          |
| Balance as of June 30,  2007                                            |       | $                     | —     |                 | $          | 133,133   |       | $ | 133,133 |   |

 

Intangible assetssubject to amortization in accordance with SFAS No. 142 consist of the following:
| ** **                                 | ** ** | **Weighted  Average**             | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **Amortization  Period  (Years)** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization**   | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Membership,  subscriber and customer lists |       | 4                                 |       | $                           | 34         |                            | $          | 34 |   | $ | — |   | $ | 94,011 |   | $ | 71,416 |   | $ | 22,595 |   |
| Advertiser lists                           |       | 12                                |       | 93,105                      |       | 75,166                          |       | 17,939 |   | 99,004 |   | 79,987 |   | 19,017 |   |
| Other                                      |       | 8                                 |       | 6,060                       |       | 4,743                           |       | 1,317 |   | 27,924 |   | 20,012 |   | 7,912 |   |
| Total                                      |       | 12                                |       | $                           | 99,199     |                            | $          | 79,943 |   | $ | 19,256 |   | $ | 220,939 |   | $ | 171,415 |   | $ | 49,524 |   |

 

Intangible assets not subject to amortization had acarrying value of $6,732 and $138,363 (excluding intangible assets classifiedas assets of businesses held for sale) as of June 30, 2007 and December 31,2006, respectively, and consisted primarily of trademarks. Amortization expensefor other intangible assets still subject to amortization was $856 and $716 forthe three months ended June 30, 2007 and 2006, respectively. Amortizationexpense for other intangible assets still subject to amortization was $1,592and $1,394 for the six 

10

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months ended June 30,2007 and 2006, respectively. As of June 30, 2007, estimated future amortizationexpenses of other intangible assets still subject to amortization, are asfollows: approximately $2,000 for the remainder of 2007, $3,000 for 2008, and$2,000 for 2009, 2010, 2011 and 2012.

**7.**                                      AccruedExpenses and Other

Accrued expensesand other current liabilities consisted of the following:
|                                                     | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Interest payable                                    |       | $                 | 12,424     |                  | $          | 12,351 |   |
| Payroll,  commissions and related employee benefits |       | 11,517            |       | 25,340                |       |
| Taxes                                               |       | 4,984             |       | 22,928                |       |
| Rent and lease  liabilities                         |       | 3,614             |       | 7,073                 |       |
| Deferred  purchase price                            |       | —            |       | 4,998                 |       |
| Professional  fees                                  |       | 1,870             |       | 3,806                 |       |
| Retail display  costs and allowances                |       | —            |       | 8,263                 |       |
| Circulation  costs                                  |       | —            |       | 4,840                 |       |
| Other                                               |       | 11,432            |       | 22,584                |       |
|                                                |       | $                 | 45,841     |                  | $          | 112,183 |   |

 

**The decrease in accrued expensesand other above is due to the Enthusiast Media segment assets and liabilities,which are classified as held for sale on the condensed consolidated balancesheet as of June 30, 2007.**

**8.**                                      Long-termDebt

Long-term debtconsisted of the following:
|                                             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Borrowings under  bank credit facilities    |       | $                 | 492,500    |                  | $          | 496,000 |   |
| 87¤8%  Senior Notes Due 2011           |       | 407,047           |       | 406,733               |       |
| 8% Senior Notes  Due 2013                   |       | 294,810           |       | 294,810               |       |
| Senior Floating  Rate Notes Due 2010        |       | 122,500           |       | 122,500               |       |
|                                        |       | 1,316,857         |       | 1,320,043             |       |
| Obligation under  capital leases            |       | 346               |       | 2,986                 |       |
|                                        |       | 1,317,203         |       | 1,323,029             |       |
| Less: Current  maturities of long-term debt |       | 5,177             |       | 6,070                 |       |
|                                        |       | $                 | 1,312,026  |                  | $          | 1,316,959 |   |

 

During the first quarter of 2006, the Companypurchased $7,025 principal amount of its 87¤8% Senior Notesdue May 15, 2011 in three different transactions for $6,832 plus $200 ofaccrued interest. In the second quarter of 2006, the Company redeemed $56,615principal 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 endedJune 30, 2006, respectively. This gain is included in the other income,net line on the accompanying condensed statements of consolidated operations.

 The SeniorNotes and the bank credit facilities all rank senior in right of payment to allsubordinated obligations which PRIMEDIA Inc. (a holding company) may incur. TheSenior Notes and bank credit facilities are secured by a pledge of stock ofConsumer Source Inc. (formerly known as PRIMEDIA Companies Inc.). ConsumerSource Inc. includes all of the business and related operations of PRIMEDIAInc. The operating results of Consumer Source Inc. are the same as consolidatedPRIMEDIA Inc., and their balance sheets are substantially the same, except thatPRIMEDIA Inc. holds all of the Company’s bank credit facilities, Senior Notesindebtedness, capital stock accounts and other miscellaneous balance sheetaccounts.

Under the most restrictive covenants as defined in thebank credit facilities agreement, as amended on September 30, 2005, theCompany must maintain a minimum interest coverage ratio, as defined, of 1.75to 1 and 

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a minimum fixed chargecoverage ratio, as defined, of 1.05 to 1. The maximum allowable debt leverageratio, as defined in the bank credit facilities, is 6.25 to 1 and decreases to6.00 to 1 on October 1, 2007.

The Senior Floating Rate Notes bear interest equal tothe three-month LIBOR plus 5.375% per year. The interest rate of the SeniorFloating Rate Notes was 10.735 % as of June 30, 2007.

During the third quarter of 2007, the Company restructuredits financing arrangements. See Note 15 for further details.

**9.**                                      IncomeTaxes

The Companyadopted the provisions of FIN 48 on January 1, 2007.  As a result of theimplementation of FIN 48, the Company recognized a liability for uncertain taxpositions and related interest and penalties of $16,126 which was accounted foras an increase to the January 1, 2007 balance of accumulated deficit, net ofany valuation allowance impact.  The liability is included in othernon-current liabilities on the accompanying balance sheet as of June 30, 2007.The total amount of unrecognized tax benefits as of January 1, 2007 was$15,786, net of valuation allowance impact.  Substantially all of thisamount would, if recognized, have an effect on the effective income taxrate.   In addition to the unrecognized tax benefits, the Company had$3,689 of interest and penalties accrued as of January 1, 2007.

The Company’spolicy is to recognize interest and penalties related to unrecognized taxbenefits in the provision for income taxes.

The Company or oneof its subsidiaries files income tax returns in the U.S. federal jurisdictionand various state and local jurisdictions, and the Company is routinely underaudit by many different tax authorities. Management believes that its accrualfor tax liabilities is adequate for all open audit years based on itsassessment of many factors, including past experience and interpretations oftax law.  This assessment relies on estimates and assumptions and mayinvolve a series of complex judgments about future events.   As aresult of its net operating loss carryforwards, the Company is subject tofederal examination for all years since 1992.

It is possiblethat federal, state and local tax examinations will be settled during the nexttwelve months.  If any of these settlements do occur within the nexttwelve months, the Company would make any necessary adjustments to theliability for unrecognized tax benefits.  Until formal resolutions arereached between the Company and the tax authorities, the determination of apossible audit settlement range with respect to the impact on uncertain taxbenefits is not practicable.  On the basis of present information, it isthe opinion of the Company’s management that any assessments resulting from thecurrent examinations will not have a material adverse effect on the Company’sconsolidated financial statements.  The statute of limitations in selectjurisdictions is expected to expire within the next twelve months and mayresult in a decrease of unrecognized tax benefits and accrued interest of$2,120.

**Duringthe quarter ended June 30, 2007, the Company’s liability for unrecognized taxbenefits decreased by $206 to $22,190. An additional $577 and $929 of interestwas accrued in the three and six months ended June 30, 2007, respectively.**

The Company doesnot amortize the book basis of its indefinite-lived intangible assets,but continues to amortize these intangible assets for tax purposes. For the sixmonths ended June 30, 2007 and 2006, provision for income taxes primarilyconsisted of deferred income taxes of $1,261 and $1,158, respectively. TheCompany expects that it will record approximately $1,250, to increase deferredtax liabilities during the remainder of 2007.

**10.**                               Provisionfor Restructuring Costs

In the secondquarter of 2007, the Company’s management approved a plan to reduce its annualcorporate overhead expenses to an amount appropriate to service its continuingConsumer Source operations and relocate 

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its corporateheadquarters from New York to Atlanta, where its Consumer Source business islocated. The Company expects to complete this plan by March 31, 2008.

In 2006, the Company began cost reduction initiativesto streamline operations, reduce layers of management and consolidate realestate.

Details of the initiatives implemented and thepayments made related to both the new and previously implemented plans duringthe six months ended June 30, 2007 and 2006 are presented in the followingtables: 
| ** **                                              | ** ** | ** **                    | ** ** | **Net Provision**    | ** ** | **Payments/write-off**       | ** ** | ** **                    | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|---------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **                                              | ** ** | ** **                    | ** ** | **for the Six** | ** ** | **during the Six** | ** ** | ** **                    | ** ** |
| ** **                                              | ** ** | **Liability as of** | ** ** | **Months Ended**     | ** ** | **Months Ended**        | ** ** | **Liability as of** | ** ** |
| ** **                                              | ** ** | **January 1,**           | ** ** | **June 30,**         | ** ** | **June 30,**            | ** ** | **June 30,**             | ** ** |
| ** **                                              | ** ** | **2007**                      | ** ** | **2007**                  | ** ** | **2007**                     | ** ** | **2007**                      | ** ** |
| Employee-related  termination costs                     |       | $                             | 9          |                      | $          | 1,704                        |       | $                             | (295       | ) | $ | 1,418 |   |
| Termination of  leases related to office closures       |       | 24,684                        |       | 1,913                     |       | (4,355                       | )          | 22,242                        |       |
| Write-off of  deferred rent and other lease liabilities |       | —                        |       | (1,013                    | )          | 1,013                        |       | —                        |       |
| Total                                                   |       | $                             | 24,693     | (1)                       | $          | 2,604                        | (3)        | $                             | (3,637     | ) | $ | 23,660 | (1) |

 
| ** **                                        | ** ** | ** **                    | ** ** | **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**                      | ** ** |
| Termination of  leases related to office closures |       | $                        | 26,962     | (2)                       | $     | 277                          | (4)        | $                             | (1,530     | ) | $  | 25,709 | (2) |
|                                                   |            |                               |            |                           |            |                              |            |                               |            |  |  |  |  |

 

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(1)             Excludesliabilities related to discontinued operations totaling $1,269 and $1,827 as ofJune 30, 2007 and January 1, 2007, respectively.

(2)             Excludesliabilities related to discontinued operations totaling $2,965 and $2,511 as ofJune 30, 2006 and January 1, 2006, respectively.

(3)             Includes$1,374 related to the Consumer Guides segment and $1,230 related to Corporate.

(4)             Includes$270 related to the Consumer Guides segment and $7 related to Corporate.

The remaining liability related to real estate lease commitments for space that theCompany no longer occupies, is expected to be paid through 2015. Theemployee-related termination costs are expected to be paid through 2008. 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 6 office locations and has terminated a total of 107individuals.

Liabilities of $3,335 and $3,485 representing thecurrent portion of the provision for restructuring costs are included inaccrued expenses and other on the condensed consolidated balance sheets as ofJune 30, 2007 and December 31, 2006, respectively. Liabilities of $20,325and $21,208 representing the non-current portion of the provision forrestructuring costs are included in other non-current liabilities on thecondensed consolidated balance sheets as of June 30, 2007 and December 31,2006, respectively.

**11.**                               Incomeper Common Share

Income per common share for the six months ended June30, 2007 and 2006 has been determined based on net income divided by theweighted average number of common shares outstanding for all periods presented.

The securities that could potentially dilute basicearnings per share in the future consist of approximately 1,645,000 warrants atJune 30, 2007 and 2006, and 3,063,777 and 3,383,963 stock options at June 30,2007 and 2006, respectively.

On August 1, 2007, the Company effected aone-for-six reverse stock split. All references to share data above have beenrestated to reflect the reverse stock split. See Note 15 for furtherdetails.

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**12.**                               **Commitments and 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 substantially all of theassets of Workplace Learning for the assumption of ongoing liabilities whileretaining a secondary liability as the assignor of the building and satellitetime leases. The Company received a third party guaranty of up to $10,000against those lease obligations to reimburse the Company for lease paymentsmade (the “Guaranty”). In the first half of 2006, the Company made payments onbehalf of Workplace Learning pursuant to its secondary liability. During thesecond quarter of 2006, the Company recorded a liability for the fair value ofthe lease payments, net of sublease income, related to its secondary liabilityon the lease payments. At that time, the Company also recorded a receivable of$10,000 for the amount due from the third party guarantor for the leasepayments. As a result of recording the receivable and liability during thesecond quarter, the Company has recorded a charge of approximately $7,200 todiscontinued operations. In the second half of 2006, the Company commenced alawsuit to collect on the Guaranty. During the fourth quarter of 2006, theCompany determined that it was not probable that the third party would remitpayment, as required under the Guaranty, and fully reserved for the $10,000receivable with a charge to discontinued operations as of December 31,2006. The Company continues to exercise all available legal remedies againstthe third party guarantor and to fulfill its secondary obligation regarding theWorkplace Learning leases.

At June 30, 2007 and December 31, 2006, theCompany has recorded a total liability of $14,997 and $16,156, respectively,for the fair value of the future lease payments, net of estimated subleaseincome, in the accompanying condensed consolidated balance sheets.

**13.**                               BusinessSegment Information

In the fourth quarter of 2006, the Company announcedthat it would classify the results of operations of its Education segment asdiscontinued operations, due to the Company actively pursuing the sale of thissegment. The Company’s Education segment was comprised of Channel One, aproprietary network for secondary schools; Films Media Group, a leading sourceof educational video; and PRIMEDIA Healthcare, a medical education business.During the second quarter of 2007, the Company completed the sales of ChannelOne and Films Media Group.

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothersto manage this process. In May 2007,the Company entered into an agreement to sell the Enthusiast Media Segment for$1,177,900 to Source Interlink Companies, Inc., subject to certain post-closingadjustments. The sale is was completed on August 1, 2007.   See Note 15.

The operating results of the Enthusiast Media andEducation segments have been classified as discontinued operations for allperiods presented.

The Company operates in one segment, the ConsumerGuides segment, and has a Corporate function, which supports the ConsumerGuides segment as well as the Enthusiast Media and Education segments, whichare included in discontinued operations. The Consumer Guides segment is thenation’s largest publisher and distributor of free publications, including *Apartment Guide, New Home Guide* and *Auto Guide*and operates related Internet sites*.*

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Informationregarding the operations of the Company is set forth below based primarily onthe nature of the targeted audience. Corporate overhead represents items notallocated to other business segments.

PRIMEDIA evaluatesperformance based on several factors, of which the financial measure is segmentearnings before interest, taxes, depreciation, amortization and other charges (“SegmentEBITDA”). Other charges include non-cash compensation, provision forrestructuring costs and loss on sale of businesses.
| ** **                                                            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues, net:                                                        |       |                                                |       |                                              |       |   |   |   |   |
| Consumer Guides                                                       |       | $                                                   | 81,570     |                                              | $          | 81,283 |   | $ | 161,614 |   | $ | 162,685 |   |
| Segment  EBITDA:(1)                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Consumer Guides                                                       |       | $                                                   | 18,251     |                                              | $          | 18,176 |   | $ | 37,652 |   | $ | 35,911 |   |
| Corporate Overhead                                                    |       | (7,041                                              | )          | (9,009                                            | )          | (13,777 | ) | (16,919 | ) |
| Segment EBITDA                                                        |       | 11,210                                              |       | 9,167                                             |       | 23,875 |   | 18,992 |   |
| Depreciation and  amortization of property and equipment              |       | 3,286                                               |       | 3,377                                             |       | 6,399 |   | 6,041 |   |
| Amortization of  intangible assets and other                          |       | 856                                                 |       | 716                                               |       | 1,592 |   | 1,394 |   |
| Other charges                                                         |       | 1,412                                               |       | 1,802                                             |       | 3,162 |   | 2,842 |   |
| Operating income                                                      |       | 5,656                                               |       | 3,272                                             |       | 12,722 |   | 8,715 |   |
| Other income  (expense):                                              |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                                      |       | (29,031                                             | )          | (32,176                                           | )          | (58,111 | ) | (63,633 | ) |
| Amortization of deferred financing costs                              |       | (584                                                | )          | (657                                              | )          | (1,168 | ) | (1,315 | ) |
| Other income, net                                                     |       | 1,934                                               |       | 629                                               |       | 3,820 |   | 785 |   |
| Loss from continuing  operations before benefit for income taxes |       | $                                                   | (22,025    | )                                                 | $          | (28,932 | ) | $ | (42,737 | ) | $ | (55,448 | ) |

 

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(1)             Segment EBITDA represents the segments’ earningsbefore interest, taxes, depreciation, amortization and other charges. SegmentEBITDA is not intended to be and should not be considered as an alternative tonet income or loss (as determined in conformity with generally acceptedaccounting principles), or as an indicator of the Company’s operatingperformance. Segment EBITDA is presented herein because the Company’s chiefoperating decision maker evaluates and measures each business unit’sperformance based on its Segment EBITDA results. PRIMEDIA believes that SegmentEBITDA is an accurate indicator of its segments’ results, because it focuses onrevenue and operating cost items driven by each operating managers’performance, and excludes items largely outside of the operating managers’control. Segment EBITDA as presented may not be comparable to similarly titledmeasures reported by other companies since not all companies necessarilycalculate Segment EBITDA in an identical manner, and therefore, is notnecessarily an accurate measure of comparison between companies.

15

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**14.**                               Financial Informationfor Guarantors of the Company’s Debt

The following consolidatedfinancial information is required to be disclosed as the Company hadoutstanding registered debt as of June 30, 2007.  The registered debt is comprised of all ofthe Company’s Senior Notes as described in Note 8.  The information that follows presentsconsolidating financial information as of June 30, 2007 and December 31,2006 and for the three and six months ended June 30, 2007 and 2006 for a)PRIMEDIA Inc. (as the Issuer), b) the guarantor subsidiaries, which are,with limited exceptions, the restricted subsidiaries, represent the corePRIMEDIA businesses and exclude investment and other development propertiesincluded in the unrestricted category, c) the non-guarantor subsidiaries(primarily representing Internet assets and businesses, new launches and otherproperties under evaluation for turnaround or shutdown and foreignsubsidiaries), which are with limited exceptions the unrestricted subsidiaries,d) elimination entries and e) the Company on a consolidated basis.Corporate operating expenses have been included in the operations of theguarantor subsidiaries. These reclassifications are in compliance with our debtagreements and have not had a material effect on the Company’s debt covenantratios as defined in the bank credit facilities. Certain 2006 amounts have beenrecast to conform to the 2007 presentation. The Company believes that thispresentation more accurately reflects the financial information of thecategories presented below.

The consolidating financialinformation includes certain allocations of revenues, expenses, assets andliabilities based on management’s best estimates which are not necessarilyindicative of financial position, results of operations and cash flows thatthese entities would have achieved on a stand-alone basis and should beread in conjunction with the consolidated financial statements of the Company.The intercompany balances in the accompanying consolidating financialstatements include cash management activities, management fees, crosspromotional activities and other intercompany charges between PRIMEDIA Inc. andthe business units and among the business units. The non-guarantor subsidiaryresults of operations include: internet operations, foreign operations, certaindistribution operations, certain start-up magazine businesses, revenues andrelated expenses derived from the licensing of certain products of guarantor subsidiariesand expenses associated with the cross promotion by the guarantor subsidiariesof the activities of the non-guarantor subsidiaries. The transactions describedabove are billed, by the Company, at what the Company believes are marketrates. All intercompany related activities are eliminated in consolidation.Consumer Source Inc. (formerly known as PRIMEDIA Companies Inc.) includes allof the businesses and related operations of PRIMEDIA Inc. The operating resultsof Consumer Source Inc. are the same as consolidated PRIMEDIA Inc., and theirbalance sheets are substantially the same, except that PRIMEDIA Inc. holds allof the Company’s bank credit facilities, Senior Notes indebtedness, capitalstock accounts and other miscellaneous balance sheet accounts.

The Company is herewith providing detailed informationand disclosure as to the methodology used in determining compliance with theleverage ratio in the credit facilities agreement. Under its bank creditfacilities and Senior Note agreements, the Company is allowed to designatecertain businesses as unrestricted subsidiaries to the extent that the value ofthose businesses does not exceed the permitted amounts, as defined in theseagreements. The Company has designated certain of its businesses as unrestricted(the “Unrestricted Group”), which primarily represent Internet businesses,trademark and content licensing and service companies, new launches (includingtraditional start-ups), other properties under evaluation for turnaround orshutdown and foreign subsidiaries. Except for those specifically designated bythe Company as unrestricted, all businesses of the Company are restricted (the “RestrictedGroup”). Indebtedness under the bank credit facilities and Senior Noteagreements is guaranteed by each of the Company’s 100%-owned domesticsubsidiaries in the Restricted Group in accordance with the provisions andlimitations of the Company’s bank credit facilities and Senior Note agreements.The guarantees are full, unconditional and joint and several. The UnrestrictedGroup does not guarantee the bank credit facilities or Senior Notes. Forpurposes of determining compliance with certain financial covenants under theCompany’s bank 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.

16

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET**(UNAUDITED)June 30, 2007(dollars in thousands)
| ** **                                           | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                           | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                           | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **             | ** ** |
| Current assets:                                      |       |                   |       |             |       |              |       |             |       |                   |       |
| Cash and cash  equivalents                           |       | $                      | 104,186    |             | $          | 3,949             |       | $                | 2,905      |                   | $          | — |   | $ | 111,040 |   |
| Accounts  receivable, net                            |       | —                 |       | 24,080           |       | 4,484             |       | —           |       | 28,564                 |       |
| Inventories                                          |       | —                 |       | 443              |       | —            |       | —           |       | 443                    |       |
| Prepaid expenses  and other                          |       | 6,047                  |       | 4,238            |       | 4,900             |       | —           |       | 15,185                 |       |
| Assets of  businesses held for sale                  |       | —                 |       | 708,812          |       | 173,204           |       | —           |       | 882,016                |       |
| Total current  assets                                |       | 110,233                |       | 741,522          |       | 185,493           |       | —           |       | 1,037,248              |       |
|                                                 |       |                   |       |             |       |              |       |             |       |                   |       |
| Property and equipment,  net                         |       | 3,628                  |       | 8,072            |       | 9,378             |       | —           |       | 21,078                 |       |
| Investment in and  advances to subsidiaries          |       | 459,086                |       | (10,023          | )          | —            |       | (449,063         | )          | —                 |       |
| Intangible assets, net                               |       | —                 |       | 17,576           |       | 8,412             |       | —           |       | 25,988                 |       |
| Goodwill                                             |       | —                 |       | 111,770          |       | 21,363            |       | —           |       | 133,133                |       |
| Other non-current  assets                            |       | 14,630                 |       | 1,147            |       | —            |       | —           |       | 15,777                 |       |
| Total Assets                                         |       | $                      | 587,577    |             | $          | 870,064           |       | $                | 224,646    |                   | $          | (449,063 | ) | $ | 1,233,224 |   |
|                                                 |       |                   |       |             |       |              |       |             |       |                   |       |
| **LIABILITIES AND SHAREHOLDERS’  DEFICIENCY**   | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **             | ** ** |
| Current liabilities:                                 |       |                   |       |             |       |              |       |             |       |                   |       |
| Accounts payable                                     |       | $                      | 2,559      |             | $          | 6,823             |       | $                | 1,434      |                   | $          | — |   | $ | 10,816 |   |
| Intercompany  payables                               |       | (407,327               | )          | (318,335         | )          | 715,639           |       | 10,023           |       | —                 |       |
| Accrued expenses  and other                          |       | 32,037                 |       | 11,106           |       | 2,698             |       | —           |       | 45,841                 |       |
| Deferred  revenues                                   |       | 1,700                  |       | 135              |       | 89                |       | —           |       | 1,924                  |       |
| Current  maturities of long-term debt                |       | 5,065                  |       | 112              |       | —            |       | —           |       | 5,177                  |       |
| Liabilities of  businesses held for sale             |       | —                 |       | 166,426          |       | 36,954            |       | —           |       | 203,380                |       |
| Total current  liabilities                           |       | (365,966               | )          | (133,733         | )          | 756,814           |       | 10,023           |       | 267,138                |       |
|                                                 |       |                   |       |             |       |              |       |             |       |                   |       |
| Long-term debt                                       |       | 1,311,926              |       | 100              |       | —            |       | —           |       | 1,312,026              |       |
| Intercompany notes  payable                          |       | —                 |       | 205,282          |       | —            |       | (205,282         | )          | —                 |       |
| Deferred revenues                                    |       | 11,900                 |       | —           |       | —            |       | —           |       | 11,900                 |       |
| Deferred income taxes                                |       | —                 |       | 12,322           |       | —            |       | —           |       | 12,322                 |       |
| Other non-current  liabilities                       |       | 55,990                 |       | 121              |       | —            |       | —           |       | 56,111                 |       |
| Total  Liabilities                                   |       | 1,013,850              |       | 84,092           |       | 756,814           |       | (195,259         | )          | 1,659,497              |       |
|                                                 |       |                   |       |             |       |              |       |             |       |                   |       |
| Shareholders’  deficiency:                      |       |                   |       |             |       |              |       |             |       |                   |       |
| Common stock                                         |       | 455                    |       | —           |       | —            |       | —           |       | 455                    |       |
| Additional  paid-in capital                          |       | 2,370,063              |       | —           |       | —            |       | —           |       | 2,370,063              |       |
| Accumulated  deficit                                 |       | (2,720,914             | )          | 785,972          |       | (532,168          | )          | (253,804         | )          | (2,720,914             | )          |
| Common stock in  treasury, at cost                   |       | (75,877                | )          | —           |       | —            |       | —           |       | (75,877                | )          |
| Total  Shareholders’ Deficiency                 |       | (426,273               | )          | 785,972          |       | (532,168          | )          | (253,804         | )          | (426,273               | )          |
|                                                 |       | —                 |       | —           |       |              |       |             |       |                   |       |
| Total  Liabilities and Shareholders’ Deficiency |       | $                      | 587,577    |             | $          | 870,064           |       | $                | 224,646    |                   | $          | (449,063 | ) | $ | 1,233,224 |   |

 

17

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**PRIMEDIA INC. ANDSUBSIDIARIES CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Three Months Ended June 30, 2007(dollars in thousands)**
| ** **                                                                                 | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                 | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Revenues, net:                                                                             |       | $                      | —     |             | $          | 50,329            |       | $                | 33,084     |                   | $          | (1,843 | ) | $ | 81,570 |   |
| Operating costs  and expenses:                                                             |       |                   |       |             |       |              |       |             |       |                   |       |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment) |       | —                 |       | 7,700            |       | 958               |       | —           |       | 8,658                  |       |
| Marketing and selling                                                                      |       | —                 |       | 16,317           |       | 7,498             |       | —           |       | 23,815                 |       |
| Distribution and circulation                                                               |       | —                 |       | 9,135            |       | 12,685            |       | —           |       | 21,820                 |       |
| Editorial                                                                                  |       | —                 |       | 1,404            |       | 274               |       | —           |       | 1,678                  |       |
| Other general expenses                                                                     |       | —                 |       | (9,753           | )          | 18,944            |       | (1,843           | )          | 7,348                  |       |
| Corporate administrative expenses (including non-cash  compensation)                       |       | —                 |       | 6,249            |       | 1,189             |       | —           |       | 7,438                  |       |
| Depreciation and amortization of property and  equipment                                   |       | —                 |       | 1,300            |       | 1,986             |       | —           |       | 3,286                  |       |
| Amortization of intangible assets and other                                                |       | —                 |       | 583              |       | 273               |       | —           |       | 856                    |       |
| Provision for restructuring costs                                                          |       | —                 |       | 1,015            |       | —            |       | —           |       | 1,015                  |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Operating income  (loss)                                                                   |       | —                 |       | 16,379           |       | (10,723           | )          | —           |       | 5,656                  |       |
| Other income  (expense):                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |
| Interest expense                                                                           |       | (29,022                | )          | (9               | )          | —            |       | —           |       | (29,031                | )          |
| Amortization of deferred financing costs                                                   |       | (584                   | )          | —           |       | —            |       | —           |       | (584                   | )          |
| Intercompany management fees and interest                                                  |       | 9,356                  |       | (9,356           | )          | —            |       | —           |       | —                 |       |
| Other income (expense), net                                                                |       | —                 |       | 2,019            |       | (85               | )          | —           |       | 1,934                  |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Income (loss)  from continuing operations before (provision) benefit for income taxes      |       | (20,250                | )          | 9,033            |       | (10,808           | )          | —           |       | (22,025                | )          |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| (Provision)  benefit for income taxes                                                      |       | —                 |       | 11,018           |       | (105              | )          | —           |       | 10,913                 |       |
| Equity in  earnings (losses) of subsidiaries                                               |       | 27,836                 |       | (12,004          | )          | —            |       | (15,832          | )          | —                 |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Income (loss)  from continuing operations                                                  |       | 7,586                  |       | 8,047            |       | (10,913           | )          | (15,832          | )          | (11,112                | )          |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Discontinued  operations, net of tax                                                       |       | —                 |       | 19,789           |       | (1,091            | )          | —           |       | 18,698                 |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Net income (loss)                                                                          |       | $                      | 7,586      |             | $          | 27,836            |       | $                | (12,004    | )                      | $          | (15,832 | ) | $ | 7,586 |   |

 

18

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**PRIMEDIA INC. ANDSUBSIDIARIES CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Six Months Ended June 30, 2007(dollars in thousands)**
| ** **                                                                                 | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                 | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Revenues, net:                                                                             |       | $                      | —     |             | $          | 101,604           |       | $                | 65,962     |                   | $          | (5,952 | ) | $ | 161,614 |   |
| Operating costs  and expenses:                                                             |       |                   |       |             |       |              |       |             |       |                   |       |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment) |       | —                 |       | 15,396           |       | 1,862             |       | —           |       | 17,258                 |       |
| Marketing and selling                                                                      |       | —                 |       | 35,074           |       | 11,139            |       | —           |       | 46,213                 |       |
| Distribution and circulation                                                               |       | —                 |       | 14,717           |       | 27,293            |       | —           |       | 42,010                 |       |
| Editorial                                                                                  |       | —                 |       | 2,969            |       | 475               |       | —           |       | 3,444                  |       |
| Other general expenses                                                                     |       | —                 |       | (18,876          | )          | 39,865            |       | (5,952           | )          | 15,037                 |       |
| Corporate administrative expenses (including non-cash  compensation)                       |       | —                 |       | 12,087           |       | 2,248             |       | —           |       | 14,335                 |       |
| Depreciation and amortization of property and  equipment                                   |       | —                 |       | 2,596            |       | 3,803             |       | —           |       | 6,399                  |       |
| Amortization of intangible assets and other                                                |       | —                 |       | 1,108            |       | 484               |       | —           |       | 1,592                  |       |
| Provision for restructuring costs                                                          |       | —                 |       | 2,604            |       | —            |       | —           |       | 2,604                  |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Operating income  (loss)                                                                   |       | —                 |       | 33,929           |       | (21,207           | )          | —           |       | 12,722                 |       |
| Other income  (expense):                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |
| Interest expense                                                                           |       | (58,092                | )          | (19              | )          | —            |       | —           |       | (58,111                | )          |
| Amortization of deferred financing costs                                                   |       | (1,168                 | )          | —           |       | —            |       | —           |       | (1,168                 | )          |
| Intercompany management fees and interest                                                  |       | 16,662                 |       | (16,662          | )          | —            |       | —           |       | —                 |       |
| Other income (expense), net                                                                |       | —                 |       | 3,922            |       | (102              | )          | —           |       | 3,820                  |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Income (loss)  from continuing operations before (provision) benefit for income taxes      |       | (42,598                | )          | 21,170           |       | (21,309           | )          | —           |       | (42,737                | )          |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| (Provision)  benefit for income taxes                                                      |       | —                 |       | 17,719           |       | (350              | )          | —           |       | 17,369                 |       |
| Equity in  earnings (losses) of subsidiaries                                               |       | 154,838                |       | (24,393          | )          | —            |       | (130,445         | )          | —                 |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Income (loss)  from continuing operations                                                  |       | 112,240                |       | 14,496           |       | (21,659           | )          | (130,445         | )          | (25,368                | )          |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Discontinued  operations, net of tax                                                       |       | —                 |       | 140,342          |       | (2,734            | )          | —           |       | 137,608                |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Net income (loss)                                                                          |       | $                      | 112,240    |             | $          | 154,838           |       | $                | (24,393    | )                      | $          | (130,445 | ) | $ | 112,240 |   |

 

19

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Six Months Ended June 30, 2007(dollars in thousands)**
| ** **                                                                                          | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                          | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                          | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating  activities:**                                                                          | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **             | ** ** |
| Net income  (loss)                                                                                  |       | $                      | 112,240    |             | $          | 154,838           |       | $                | (24,393    | )                      | $          | (130,445 | ) | $ | 112,240 |   |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities |       | (78,348                | )          | (127,624         | )          | 6,773             |       | 112,651          |       | (86,548                | )          |
| Changes in  operating assets and liabilities                                                        |       | (33,892                | )          | 8,031            |       | (22,463           | )          | —           |       | (48,324                | )          |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| Net cash  provided by (used in) operating activities                                                |       | —                 |       | 35,245           |       | (40,083           | )          | (17,794          | )          | (22,632                | )          |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| **Investing  activities:**                                                                          | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **             | ** ** |
| Additions to  property, equipment and other                                                         |       | —                 |       | (8,095           | )          | (3,895            | )          | —           |       | (11,990                | )          |
| Proceeds from  sales of businesses                                                                  |       | —                 |       | 170,602          |       | 4,789             |       | —           |       | 175,391                |       |
| Payments for  businesses acquired, net of cash acquired                                             |       | —                 |       | (17,812          | )          | (13,846           | )          | —           |       | (31,658                | )          |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| Net cash  provided by (used in) investing activities                                                |       | —                 |       | 144,695          |       | (12,952           | )          | —           |       | 131,743                |       |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| **Financing  activities:**                                                                          | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **             | ** ** |
| Intercompany  activity                                                                              |       | 105,783                |       | (179,304         | )          | 55,727            |       | 17,794           |       | —                 |       |
| Borrowings under  credit agreements                                                                 |       | 32,800                 |       | —           |       | —            |       | —           |       | 32,800                 |       |
| Repayments of  borrowings under credit agreements                                                   |       | (36,300                | )          | —           |       | —            |       | —           |       | (36,300                | )          |
| Proceeds from  issuances of common stock, net                                                       |       | 286                    |       | —           |       | —            |       | —           |       | 286                    |       |
| Capital lease  payments                                                                             |       | —                 |       | (543             | )          | (28               | )          | —           |       | (571                   | )          |
| Other                                                                                               |       | —                 |       | (114             | )          | —            |       | —           |       | (114                   | )          |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| Net cash  provided by (used in) financing activities                                                |       | 102,569                |       | (179,961         | )          | 55,699            |       | 17,794           |       | (3,899                 | )          |
|                                                                                                |       |                   |       |             |       |              |       |             |       |                   |       |
| Increase (decrease)  in cash and cash equivalents                                                   |       | 102,569                |       | (21              | )          | 2,664             |       | —           |       | 105,212                |       |
| Cash and cash  equivalents, beginning of period                                                     |       | 1,617                  |       | 3,970            |       | 241               |       | —           |       | 5,828                  |       |
| Cash and cash  equivalents, end of period                                                           |       | $                      | 104,186    |             | $          | 3,949             |       | $                | 2,905      |                   | $          | — |   | $ | 111,040 |   |

 

20

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETDecember 31, 2006(dollars in thousands)**
| ** **                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Elimination** | ** ** | **PRIMEDIA Inc.  and  Subsidiaries** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|---------------------------------|------------|-----------------|------------|-------------------------------------------|------------|
| **ASSETS**                                           | ** ** | ** **             | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **      | ** ** | ** **                                | ** ** |
| Current assets:                                      |       |                   |       |                        |       |                            |       |            |       |                                      |       |
| Cash and cash equivalents                            |       | $                      | 1,617      |                        | $          | 3,970                           |       | $               | 241        |                                      | $          | — |   | $ | 5,828 |   |
| Accounts receivable, net                             |       | —                 |       | 98,268                      |       | 17,016                          |       | —          |       | 115,284                                   |       |
| Inventories                                          |       | —                 |       | 12,283                      |       | 695                             |       | —          |       | 12,978                                    |       |
| Prepaid expenses and other                           |       | 2,740                  |       | 13,561                      |       | 2,676                           |       | —          |       | 18,977                                    |       |
| Assets of businesses held for sale                   |       | —                 |       | 170,037                     |       | —                          |       | —          |       | 170,037                                   |       |
| Total current assets                                 |       | 4,357                  |       | 298,119                     |       | 20,628                          |       | —          |       | 323,104                                   |       |
| Property and  equipment, net                         |       | 2,590                  |       | 31,337                      |       | 12,463                          |       | —          |       | 46,390                                    |       |
| Investment in  and advances to subsidiaries          |       | 1,161,383              |       | 40,986                      |       | —                          |       | (1,202,369      | )          | —                                    |       |
| Intangible  assets, net                              |       | —                 |       | 126,854                     |       | 61,033                          |       | —          |       | 187,887                                   |       |
| Goodwill                                             |       | —                 |       | 567,605                     |       | 106,533                         |       | —          |       | 674,138                                   |       |
| Other  non-current assets                            |       | 15,896                 |       | 6,398                       |       | 516                             |       | —          |       | 22,810                                    |       |
| Total Assets                                         |       | $                      | 1,184,226  |                        | $          | 1,071,299                       |       | $               | 201,173    |                                      | $          | (1,202,369 | ) | $ | 1,254,329 |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   |       |                   |       |                        |       |                            |       |            |       |                                      |       |
| Current  liabilities:                                |       |                   |       |                        |       |                            |       |            |       |                                      |       |
| Accounts payable                                     |       | $                      | 9,189      |                        | $          | 34,784                          |       | $               | 3,706      |                                      | $          | — |   | $ | 47,679 |   |
| Intercompany payables                                |       | 297,495                |       | (922,783                    | )          | 666,274                         |       | (40,986         | )          | —                                    |       |
| Accrued expenses and other                           |       | 31,578                 |       | 74,063                      |       | 6,542                           |       | —          |       | 112,183                                   |       |
| Deferred revenues                                    |       | 1,738                  |       | 70,865                      |       | 6,432                           |       | —          |       | 79,035                                    |       |
| Current maturities of long-term debt                 |       | 5,058                  |       | 988                         |       | 24                              |       | —          |       | 6,070                                     |       |
| Liabilities of businesses held for sale              |       | —                 |       | 50,300                      |       | —                          |       | —          |       | 50,300                                    |       |
| Total current liabilities                            |       | 345,058                |       | (691,783                    | )          | 682,978                         |       | (40,986         | )          | 295,267                                   |       |
| Long-term debt                                       |       | 1,315,146              |       | 1,732                       |       | 81                              |       | —          |       | 1,316,959                                 |       |
| Intercompany  notes payable                          |       | —                 |       | 2,091,297                   |       | —                          |       | (2,091,297      | )          | —                                    |       |
| Deferred  revenues                                   |       | 12,750                 |       | —                      |       | —                          |       | —          |       | 12,750                                    |       |
| Deferred income  taxes                               |       | —                 |       | 72,060                      |       | —                          |       | —          |       | 72,060                                    |       |
| Other non-current  liabilities                       |       | 34,502                 |       | 20,132                      |       | 25,889                          |       | —          |       | 80,523                                    |       |
| Total Liabilities                                    |       | 1,707,456              |       | 1,493,438                   |       | 708,948                         |       | (2,132,283      | )          | 1,777,559                                 |       |
| Shareholders’  deficiency:                      |       |                   |       |                        |       |                            |       |            |       |                                      |       |
| Common stock                                         |       | 455                    |       | —                      |       | —                          |       | —          |       | 455                                       |       |
| Additional paid-in capital                           |       | 2,369,220              |       | —                      |       | —                          |       | —          |       | 2,369,220                                 |       |
| Accumulated deficit                                  |       | (2,817,028             | )          | (422,139                    | )          | (507,775                        | )          | 929,914         |       | (2,817,028                                | )          |
| Common stock in treasury, at cost                    |       | (75,877                | )          | —                      |       | —                          |       | —          |       | (75,877                                   | )          |
| Total Shareholders’ Deficiency                  |       | (523,230               | )          | (422,139                    | )          | (507,775                        | )          | 929,914         |       | (523,230                                  | )          |
| Total  Liabilities and Shareholders’ Deficiency |       | $                      | 1,184,226  |                        | $          | 1,071,299                       |       | $               | 201,173    |                                      | $          | (1,202,369 | ) | $ | 1,254,329 |   |

 

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS**(UNAUDITED) For the Three Months Ended June 30, 2006 (dollars in thousands)
| ** **                                                                                 | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                 | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Revenues, net                                                                              |       | $                      | —     |             | $          | 49,855            |       | $                | 33,001     |                   | $          | (1,573 | ) | $ | 81,283 |   |
| Operating costs  and expenses:                                                             |       |                   |       |             |       |              |       |             |       |                   |       |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment) |       | —                 |       | 8,550            |       | 1,321             |       | —           |       | 9,871                  |       |
| Marketing and selling                                                                      |       | —                 |       | 19,566           |       | 2,778             |       | —           |       | 22,344                 |       |
| Distribution and circulation                                                               |       | —                 |       | 9,380            |       | 11,370            |       | —           |       | 20,750                 |       |
| Editorial                                                                                  |       | —                 |       | 1,610            |       | 304               |       | —           |       | 1,914                  |       |
| Other general expenses                                                                     |       | —                 |       | (14,110          | )          | 23,911            |       | (1,573           | )          | 8,228                  |       |
| Corporate administrative expenses (including non-cash  compensation)                       |       | —                 |       | 9,039            |       | 1,589             |       | —           |       | 10,628                 |       |
| Depreciation and amortization of property and  equipment                                   |       | —                 |       | 1,378            |       | 1,999             |       | —           |       | 3,377                  |       |
| Amortization of intangible assets and other                                                |       | —                 |       | 637              |       | 79                |       | —           |       | 716                    |       |
| Provision for restructuring costs                                                          |       | —                 |       | 155              |       | —            |       | —           |       | 155                    |       |
| Loss on sale of businesses                                                                 |       | —                 |       | 28               |       | —            |       | —           |       | 28                     |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Operating income  (loss)                                                                   |       | —                 |       | 13,622           |       | (10,350           | )          | —           |       | 3,272                  |       |
| Other income  (expense):                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |
| Interest expense                                                                           |       | (32,164                | )          | (12              | )          | —            |       | —           |       | (32,176                | )          |
| Amortization of deferred financing costs                                                   |       | (657                   | )          | —           |       | —            |       | —           |       | (657                   | )          |
| Intercompany management fees and interest                                                  |       | 38,253                 |       | (35,284          | )          | (2,969            | )          | —           |       | —                 |       |
| Other income (expense), net                                                                |       | 699                    |       | (70              | )          | —            |       | —           |       | 629                    |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Income (loss)  from continuing operations before (provision) benefit for income taxes      |       | 6,131                  |       | (21,744          | )          | (13,319           | )          | —           |       | (28,932                | )          |
| (Provision)  benefit for income taxes                                                      |       | —                 |       | 10,019           |       | (139              | )          | —           |       | 9,880                  |       |
| Equity in losses  of subsidiaries                                                          |       | (8,246                 | )          | (8,453           | )          | —            |       | 16,699           |       | —                 |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Loss from  continuing operations                                                           |       | (2,115                 | )          | (20,178          | )          | (13,458           | )          | 16,699           |       | (19,052                | )          |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Discontinued  operations, net of tax                                                       |       | —                 |       | 11,932           |       | 5,005             |       | —           |       | 16,937                 |       |
|                                                                                       |       |                   |       |             |       |              |       |             |       |                   |       |
| Net loss                                                                                   |       | $                      | (2,115     | )                | $          | (8,246            | )          | $                | (8,453     | )                      | $          | 16,699 |   | $ | (2,115 | ) |

 

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED 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**               | ** ** |
| ** **                                                                                                                                     | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **(As restated, see  Note 1)** | ** ** |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Revenues, net                                                                                                                                  |       | $                      | —     |             | $          | 100,402           |       | $                | 66,265     |                           | $          | (3,982 | ) | $ | 162,685 |   |
| Operating costs  and expenses:                                                                                                                 |       |                   |       |             |       |              |       |             |       |                           |       |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment)                                                     |       | —                 |       | 17,273           |       | 2,525             |       | —           |       | 19,798                         |       |
| Marketing and selling                                                                                                                          |       | —                 |       | 36,154           |       | 8,418             |       | —           |       | 44,572                         |       |
| Distribution and circulation                                                                                                                   |       | —                 |       | 9,423            |       | 32,420            |       | —           |       | 41,843                         |       |
| Editorial                                                                                                                                      |       | —                 |       | 3,314            |       | 539               |       | —           |       | 3,853                          |       |
| Other general expenses                                                                                                                         |       | —                 |       | (15,350          | )          | 36,040            |       | (3,982           | )          | 16,708                         |       |
| Corporate administrative expenses (including non-cash  compensation)                                                                           |       | —                 |       | 16,396           |       | 3,060             |       | —           |       | 19,456                         |       |
| Depreciation and amortization of property and  equipment                                                                                       |       | —                 |       | 2,610            |       | 3,431             |       | —           |       | 6,041                          |       |
| Amortization of intangible assets and other                                                                                                    |       | —                 |       | 1,233            |       | 161               |       | —           |       | 1,394                          |       |
| Provision for restructuring costs                                                                                                              |       | —                 |       | 277              |       | —            |       | —           |       | 277                            |       |
| Loss on sale of businesses                                                                                                                     |       | —                 |       | 28               |       | —            |       | —           |       | 28                             |       |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Operating income  (loss)                                                                                                                       |       | —                 |       | 29,044           |       | (20,329           | )          | —           |       | 8,715                          |       |
| Other income  (expense):                                                                                                                       |       |                   |       |             |       |              |       |             |       |                           |       |
| Interest expense                                                                                                                               |       | (63,608                | )          | (21              | )          | (4                | )          | —           |       | (63,633                        | )          |
| Amortization of deferred financing costs                                                                                                       |       | (1,315                 | )          | —           |       | —            |       | —           |       | (1,315                         | )          |
| Intercompany management fees and interest                                                                                                      |       | 74,414                 |       | (71,445          | )          | (2,969            | )          | —           |       | —                         |       |
| Other income (expense), net                                                                                                                    |       | 920                    |       | (135             | )          | —            |       | —           |       | 785                            |       |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Income (loss)  from continuing operations before provision for income taxes                                                                    |       | 10,411                 |       | (42,557          | )          | (23,302           | )          | —           |       | (55,448                        | )          |
| Provision for  income taxes                                                                                                                    |       | —                 |       | 19,567           |       | (148              | )          | —           |       | 19,419                         |       |
| Equity in losses  of subsidiaries                                                                                                              |       | (10,096                | )          | (17,608          | )          | —            |       | 27,704           |       | —                         |       |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Income (loss)  from continuing operations                                                                                                      |       | 315                    |       | (40,598          | )          | (23,450           | )          | 27,704           |       | (36,029                        | )          |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Discontinued  operations, net of tax                                                                                                           |       | —                 |       | 30,150           |       | 6,172             |       | —           |       | 36,322                         |       |
| Cumulative  effect of change in accounting principle, net of tax (from the adoption of  Statement of Financial Accounting Standard No.123 (R)) |       | —                 |       | 352              |       | (330              | )          | —           |       | 22                             |       |
|                                                                                                                                           |       |                   |       |             |       |              |       |             |       |                           |       |
| Net income (loss)                                                                                                                              |       | $                      | 315        |             | $          | (10,096           | )          | $                | (17,608    | )                              | $          | 27,704 |   | $ | 315 |   |

 

23

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**PRIMEDIA INC. ANDSUBSIDIARIESCONDENSED 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**               | ** ** |
| ** **                                                                            | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **(As restated, see  Note 1)** | ** ** |
| **Operating  activities:**                                                            | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **                     | ** ** |
| Net income  (loss)                                                                    |       | $                      | 315        |             | $          | (10,096           | )          | $                | (17,608    | )                              | $          | 27,704 |   | $ | 315 |   |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| Cumulative effect of change in accounting principle,  net of tax                      |       | —                 |       | (352             | )          | 330               |       | —           |       | (22                            | )          |
| Adjustments to reconcile net income (loss) to net cash  used in operating activities: |       | 3,384                  |       | (14,437          | )          | (1,095            | )          | 21,719           |       | 9,571                          |       |
| Changes in operating assets and liabilities                                           |       | (3,699                 | )          | 16,254           |       | (12,045           | )          | —           |       | 510                            |       |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| Net cash used in operating activities                                                 |       | —                 |       | (8,631           | )          | (30,418           | )          | 49,423           |       | 10,374                         |       |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| **Investing  activities:**                                                            | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **                     | ** ** |
| Additions to property, equipment and other                                            |       | —                 |       | (7,407           | )          | (3,360            | )          | —           |       | (10,767                        | )          |
| Proceeds from sales of businesses                                                     |       | —                 |       | 17,342           |       | (342              | )          | —           |       | 17,000                         |       |
| Payments for businesses acquired, net of cash  acquired                               |       | —                 |       | (6,102           | )          | (9,711            | )          | —           |       | (15,813                        | )          |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| Net cash provided by (used in) investing activities                                   |       | —                 |       | 3,833            |       | (13,413           | )          | —           |       | (9,580                         | )          |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| **Financing  activities:**                                                            | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **                     | ** ** |
| Intercompany activity                                                                 |       | 1,625                  |       | 6,599            |       | 41,199            |       | (49,423          | )          | —                         |       |
| 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, net                                          |       | 265                    |       | —           |       | —            |       | —           |       | 265                            |       |
| Capital lease payments                                                                |       | —                 |       | (2,007           | )          | 128               |       | —           |       | (1,879                         | )          |
| Other                                                                                 |       | —                 |       | (108             | )          | —            |       | —           |       | (108                           | )          |
|                                                                                  |       |                   |       |             |       |              |       |             |       |                           |       |
| Net cash provided by (used in) financing activities                                   |       | (204                   | )          | 4,484            |       | 41,327            |       | (49,423          | )          | (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 |   |

 

24

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**15.   SubsequentEvents**

*Sale of Enthusiast Media Segment*

InMay 2007, the Company entered into an agreement to sell its EnthusiastMedia Segment for $1,177,900 to Source Interlink Companies, Inc., subject tocertain post-closing adjustments. The sale was completed on August 1, 2007, andresulted in an estimated gain of $446,512, net of tax.

*Debt Refinancing*

OnAugust 1, 2007, the Company completed financing commitments for a $350,000senior secured credit facility, including a $100,000 revolving loan facility anda $250,000 term loan.

Thenew credit facility combined with the net proceeds received from the sale ofthe Enthusiast Media Segment have been or will be used to repay the Company’sterm loan, redeem the Company’s 87¤8% Senior Notes due 2011, redeem the Company’s8.00% Senior Notes due 2013, redeem the Company’s Senior Floating Rate Notesdue 2010, pay accrued interest on the Company’s Senior Notes and pay financingfees. At the time of the debt refinancing, the Company will write offapproximately $8,900 of deferred financing fees, and will capitalize the costrelated to the new credit facility.

On August 1, 2007,PRIMEDIA accepted for payment $122,500 of its Senior Floating Rate Notes due2010, $393,700 principal amount of its 87¤8% SeniorNotes due 2011 and $292,000 principal amount of its 8.00% Senior Notesdue 2013 pursuant to the terms of its previously announced tender offersand consent solicitations for such securities.  As a result of theacceptance for payment of such securities, the supplemental indentures thatwere the subject of the consent solicitations have become operative.

Inaddition, the Company has announced its intention to pay a one-time qualifieddividend of approximately $96,000 to PRIMEDIA shareholders and to institute anongoing dividend program. However, any such dividend payments are subject tofinal approval of the Board of Directors of PRIMEDIA.

*Reverse Stock-Split*

On August 1, 2007, theCompany effected a 1-for-6 reverse stock split of its common stock.  The primary purpose of the reverse stocksplit was to make the Company’s common stock purchasable by investors that requireinvestments to have a share price above $10 per share at the time ofinvestment.  After the reverse stocksplit was effected, each PRIMEDIA stockholder received one new share ofPRIMEDIA common stock in exchange for every six existing shares of PRIMEDIAcommon stock.  The share amounts,including warrants and stock options, and earnings (loss) per share amountspresented in this report have been effected for the reverse stock split for allperiods presented.

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**Item2.**         MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars inthousands, except share and per share amounts)

**Introduction**

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

The following discussion and analysis summarize thefinancial condition and operating performance of the Company and should be readin conjunction with the unaudited condensed consolidated financial statementsand notes thereto.

**Executive Summary**

*Our Business*

PRIMEDIA Inc. is the parent company of Consumer SourceInc., the #1 publisher and distributor of free consumer guides in the U.S. withApartment Guide, Auto Guide, and New Home Guide, distributing free consumerpublications through its proprietary distribution network, DistribuTech, inmore than 60,000 locations. Consumer Source owns and operates leading websitesincluding ApartmentGuide.com, AutoGuide.com, NewHomeGuide.com, and America’slargest online single unit rental property business, Rentals.com.

The Company’s revenues are generated by its ConsumerGuides business, from advertising (print and online) and third partydistribution. PRIMEDIA’s Operating expenses, for Segment EBITDA purposes,include cost of goods sold (paper, printing and binding), exclusive ofdepreciation and amortization of property and equipment; marketing and selling;distribution and circulation; editorial; and other general and corporateadministrative expenses, excluding non-cash compensation (collectively referredto as “Operating expenses”). See *Why We Use the TermSegment EBITDA*.

*Background*

Historically, PRIMEDIA was a broad based mediaenterprise built from a series of acquisitions and comprised of numerousdisparate assets. In recent years, in order to better focus on its corebusinesses and to reduce debt, the Company has been strategically divestingselective properties. As a result, the Company has now positioned itself as thenumber one publisher and distributor of free consumer publications in the U.S.

Additionally, to counter the effects of the continuedweakness in the overall advertising environment, the Company has aggressivelyattacked its cost structure. The Company realigned and reorganized itsmanagement structure to better reflect its emphasis on delivering exceptionalproducts and brands to the marketplace to achieve organic growth while managingcosts. Organic growth represents growth of the Company’s businesses, excludingacquisitions made during the periods compared. These initiatives have resultedin charges for restructuring 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 actions have made the Company today amore efficient organization with a strengthened balance sheet and improvedliquidity.

*Business Trends*

The Consumer Guides business is experiencing a periodof significant change in real estate market conditions.  High levels of condominium conversions andlow vacancy rates reduced advertising revenue of Apartment Guide. Morerecently, conditions in the real property leasing and rental markets havecontinued to improve as the level of condominium conversions has slowed andvacancy rates have increased, particularly in the regions most impacted in prior years.

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In the new home market, new construction has virtuallyhalted in several geographic areas as builders sell off excess inventory. NewHousing starts have continued to decline across all of the Company’s operating marketsexcept one. We track our penetration of the top builders in each market and thepenetration into the number of their communities available to advertise, and wecontinue to increase this penetration from quarter to quarter.

Local automotive dealers continue to reduce newspaperadvertising, as they explore alternative, cost-effective advertising. Localautomotive dealers use a variety of media forms such as radio, television,newspapers and billboards. Though advertising budgets for this segment of theauto industry declined in 2006, we believe targeted print and onlineadvertising, such as Auto Guide and Auto Guide.com, offer one of the mostcost-effective advertising spends,.

*Company Strategy*

Making organic growth its top priority in 2007, theCompany’s strategy is to focus on growing its core targeted consumer guides,maintaining its industry-leading distribution network, and launching into newvertical markets.

The Company continues to implement this organic growthstrategy through various actions, including:

·       increasing penetration inexisting markets;

·       expanding into new cities;

·       expanding productofferings; and

·       enhancing the end-userexperience through new technologies and online features.

At the same time, the Company continues to focus oncost reductions, which will be utilized to fund various elements of its growthstrategy.

*Sale of EnthusiastMedia Segment*

In February 2007,the Company announced that its Board of Directors had authorized the Company toexplore the sale of its Enthusiast Media segment. PRIMEDIA retained GoldmanSachs and Lehman Brothers to manage this process. In May 2007, the Company entered into an agreement to sell theEnthusiast Media Segment for $1,177,900 to Source Interlink Companies, Inc.,subject to certain post-closing adjustments. The sale was completed on August1, 2007.  The Company has applied theproceeds to pay down debt (See *Debt Refinancing*discussion below). The operationsof the Enthusiast Media segment are included in discontinued operationsfor all periods presented.

*Debt Refinancing*

OnAugust 1, 2007, the Company completed financing commitments for a $350,000senior secured credit facility, including a $100,000 revolving loan facilityand a $250,000 term loan.

Thenew credit facility combined with the net proceeds received from the sale ofthe Enthusiast Media Segment have been or will be used to repay the Company’sterm loan, redeem the Company’s 87¤8% Senior Notes due 2011, redeem the Company’s8.00% Senior Notes due 2013, redeem the Company’s Senior Floating Rate Notesdue 2010, pay accrued interest on the Company’s Senior Notes and pay financingfees.

On August 1, 2007,PRIMEDIA accepted for payment $122,500 of its Senior Floating Rate Notes due2010, $393,700 principal amount of its 87¤8% Senior Notesdue 2011 and $292,000 principal amount of its 8.00% Senior Notesdue 2013 pursuant to the terms of its previously announced tender offersand consent solicitations for such securities.  As a result of theacceptance for payment of such securities, the supplemental indentures thatwere the subject of the consent solicitations have become operative.

Inaddition, the Company has announced its intention to pay a one-time qualifieddividend of approximately $96,000 to PRIMEDIA shareholders and to institute anongoing dividend program. However, any such dividend payments are subject tofinal approval of the Board of Directors of PRIMEDIA.

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*Reverse Stock-Split*

OnAugust 1, 2007, the Company effected a 1-for-6 reverse stock split of itscommon stock.  The primary purpose of thereverse stock split was to make the Company’s common stock purchasable byinvestors that require investments to have a share price above $10 per share atthe time of investment.  After thereverse stock split was effected, each PRIMEDIA stockholder received one newshare of PRIMEDIA common stock in exchange for every six existing shares ofPRIMEDIA common stock.  All shareamounts, including warrants and stock options, and earnings (loss) per shareamounts presented in this report have been effected for the reverse stocksplit.

*Transition Plan*

The Company is in the process of relocating itscorporate headquarters from New York to Atlanta, where its Consumer Sourcebusiness is based.  The Company may continue certain of its New York basedpublic company-related functions and their associated costs through the 2007Form 10-K reporting period in 2008.

*Summary ofConsolidated Results for the Six Months Ended June 30, 2007*

For the six months ended June 30, 2007, revenues were$161,614, down 0.7% as compared to $162,685 in 2006. In 2007, Operatingexpenses were $137,739, down 4.1% compared to 2006. In 2007, operating incomewas $12,722, up $4,007 or 46% from $8,715 in 2006. Net income was $112,240 in2007 compared to $315 in 2006.  Includedin 2007 net income is a gain on the sale of businesses of $50,779.

*Forward-LookingInformation*

This report contains statements that are, or may beconsidered to be, forward-looking statements. All statements that are nothistorical facts, including statements about our beliefs or expectations, areforward-looking statements. You can identify these forward-looking statementsby the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,”“continues,” “may,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,”“estimates,” “anticipates,” “foresees” or the negative version of those wordsor other comparable words and phrases. Any forward-looking statements containedin this report are based upon our historical performance and on current plans,estimates and expectations. We may make additional written or oralforward-looking statements from time to time in filings with the SEC orotherwise. Forward-looking statements speak only as of the date the statementis made. Forward-looking statements involve risks and uncertainties, and theinclusion of this forward-looking information should not be regarded as arepresentation by us or any other person that the future plans, estimates orexpectations contemplated by us will be achieved.

*Why We Use theTerm Segment EBITDA*

Segment EBITDA represents each segment’s earningsbefore interest, taxes, depreciation, amortization and other charges (“SegmentEBITDA”). Other charges include non-cash compensation, provision for restructuringcosts and loss on sale of businesses. PRIMEDIA believes that Segment EBITDA isan accurate indicator of its segments’ results, because it focuses on revenueand operating cost items driven by operating managers’ performance, andexcludes items largely outside of operating managers’ control.

Segment EBITDA is not intended to be and should not beconsidered as an alternative to net income or loss (as determined in conformitywith generally accepted accounting principles), or as an indicator of theCompany’s operating performance. Segment EBITDA is presented herein because theCompany’s chief operating decision maker, its Chairman, President and CEO, andthe executive team evaluate and measure each business unit’s performance basedon its Segment EBITDA results. Segment EBITDA as presented may not becomparable to similarly titled measures reported by other companies since notall companies necessarily calculate Segment EBITDA in an identical manner, andtherefore, is not necessarily an accurate measure of comparison betweencompanies.

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*Why We Use theTerm Free Cash Flow*

Free Cash Flow is defined as net cash provided byoperating activities adjusted for additions to property, equipment and other,exclusive of acquisitions, and capital lease payments (“Free Cash Flow”).

The Company believes that the use of Free Cash Flowenables the Company’s chief operating decision maker, and the executive team tomake decisions based on the Company’s cash resources. Free Cash Flow also isconsidered to be an indicator of the Company’s liquidity, including its abilityto reduce debt and make strategic investments.

Free Cash Flow is not intended to represent cash flowsfrom operating activities as determined in conformity with accountingprinciples generally accepted in the United States of America. Free Cash Flowas presented may not be comparable to similarly titled measures reported byother companies since not all companies necessarily calculate Free Cash Flow inan identical manner, and therefore, is not necessarily an accurate measure ofcomparison between companies.

*DiscontinuedOperations*

The Company has classified the results of divestedentities and entities planned for disposition as of June 30, 2007 asdiscontinued operations in accordance with Statement of Financial AccountingStandard (“SFAS”) No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets”.

In the fourth quarter of 2006, the Company announcedthat it had agreed to sell its Outdoors group (part of the Enthusiast Mediasegment), which consists primarily of its hunting, fishing, and shootingtitles, for $170,000 in cash, subject to certain post-closing adjustments. Thetransaction was completed in January 2007, and resulted in a gain of $57,577.The assets and liabilities of the Outdoors group are included in assets andliabilities of businesses held for sale on the accompanying condensedconsolidated balance sheet as of December 31, 2006.

In the fourth quarter of 2006, the Company announcedthat it would classify the results of operations of its Education segment asdiscontinued operations, due to the Company actively pursuing the sale of thissegment. The Company’s Education segment was comprised of Channel One, aproprietary network for secondary schools; Films Media Group, a leading sourceof educational video; and PRIMEDIA Healthcare, a medical education business.During the second quarter of 2007, the Company completed the sales of ChannelOne and Films Media Group for a net gain (loss) of $(6,399) and $184,respectively. The remaining assets and liabilities of the Education segment areclassified as businesses held for sale on the accompanying consolidated balancesheets as of June 30, 2007 and December 31, 2006 (see further discussionbelow).

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothersto manage this process. In May 2007,the Company entered into an agreement to sell the Enthusiast Media Segment for$1,177,900 to Source Interlink Companies, Inc., subject to certain post-closingadjustments. The sale was completed on August 1, 2007.

The operating results of these operations have beenclassified as discontinued operations for all periods presented.

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*Segment Data*

The following table presents the results of theCompany’s one operating segment and Corporate:
| ** **                                                            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues, net:                                                        |       |                                                |       |                                              |       |   |   |   |   |
| Consumer Guides                                                       |       | $                                                   | 81,570     |                                              | $          | 81,283 |   | $ | 161,614 |   | $ | 162,685 |   |
| Segment EBITDA:(1)                                                    |       |                                                |       |                                              |       |   |   |   |   |
| Consumer Guides                                                       |       | $                                                   | 18,251     |                                              | $          | 18,176 |   | $ | 37,652 |   | $ | 35,911 |   |
| Corporate Overhead                                                    |       | (7,041                                              | )          | (9,009                                            | )          | (13,777 | ) | (16,919 | ) |
| Segment EBITDA                                                        |       | 11,210                                              |       | 9,167                                             |       | 23,875 |   | 18,992 |   |
| Depreciation and  amortization of property and equipment              |       | 3,286                                               |       | 3,377                                             |       | 6,399 |   | 6,041 |   |
| Amortization of  intangible assets and other                          |       | 856                                                 |       | 716                                               |       | 1,592 |   | 1,394 |   |
| Other charges                                                         |       | 1,412                                               |       | 1,802                                             |       | 3,162 |   | 2,842 |   |
| Operating income                                                      |       | 5,656                                               |       | 3,272                                             |       | 12,722 |   | 8,715 |   |
| Other income (expense):                                               |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                                      |       | (29,031                                             | )          | (32,176                                           | )          | (58,111 | ) | (63,633 | ) |
| Amortization of  deferred financing costs                             |       | (584                                                | )          | (657                                              | )          | (1,168 | ) | (1,315 | ) |
| Other income, net                                                     |       | 1,934                                               |       | 629                                               |       | 3,820 |   | 785 |   |
| Loss from continuing  operations before benefit for income taxes |       | $                                                   | (22,025    | )                                                 | $          | (28,932 | ) | $ | (42,737 | ) | $ | (55,448 | ) |

 

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(1)             Segment EBITDArepresents the segments’ earnings before interest, taxes, depreciation,amortization and other charges. Other charges includes non-cash compensation, provisionfor restructuring costs and loss on sale of businesses.

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**Results ofOperations**

***Three Months Ended June 30, 2007 Compared to ThreeMonths Ended June 30, 2006***

**ConsolidatedResults**

*Operating Income*

Operating income was $5,656 in 2007 compared to $3,272in 2006. The increase of $2,384 in operating income in 2007 resulted primarilyfrom increased Segment EBITDA due to continued reductions in Corporate overhead.Expenses associated with adding retail distribution locations adverselyimpacted Consumer Source Segment EBITDA.

*Net Income(Loss)*

The Company had net income (loss) of $7,586 for thethree months ended June 30, 2007 compared to $(2,115) for the same period of2006. The increase is primarily due to the reduced Corporate Overhead expensesand reduced interest expense in 2007, partially offset by the loss on the saleof businesses during 2007 of $2,592.  In addition, during the three months endedJune 30, 2007 the Company’s liability for unrecognized tax benefits decreasedby $206, and an additional $577 of interest was accrued due to the adoption ofFIN 48.

Interest expense decreased to $29,031 in 2007 from$32,176 in 2006 primarily due to lower average debt levels, as the Companypurchased $65,485 principal amount of its 87¤8% SeniorNotes, $5,190 principal amount of its 8.00% Senior Notes, and $52,500 principalamount of its Senior Floating Rate Notes during 2006. This decrease waspartially offset by higher interest rates.

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

*Revenues, Net*

Consumer Guides revenues were $81,570 and $81,283 forthe three months ended June 30, 2007 and 2006, respectively. Consumer Guidesrevenues increased $287 or 0.4% in 2007 compared to 2006 as follows:
| ** **     | ** ** | **Three Months Ended  June 30, ** | ** ** | **Percent** | ** ** |
|----------------|------------|-------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2007**                                              | ** ** | **2006**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                  |       |        |       |   |   |
| Advertising    |       | $                                                     | 67,018     |        | $          | 67,291 |   | (0.4 | ) |
| Other          |       | 14,552                                                |       | 13,992      |       | 4.0 |   |
| Total          |       | $                                                     | 81,570     |        | $          | 81,283 |   | 0.4 |   |

 

The second quarter advertising revenue decline wasdriven primarily by Apartment Guide and Auto Guide, which is experiencing thefull impact of quarter over quarter execution issues. Partially offsetting thesecond quarter advertising revenue decline was continued growth in New HomeGuide and in the Company’s online business serving advertisers of single unitreal estate rentals, which the Company refers to as Rentals.com. Other revenue’sslight increase was driven primarily by an increase in the total number ofretail distribution locations, partially offset by the loss of third partyrevenue from the distribution of resale home guides, many of which have goneout of business during this resale housing industry downturn.

*ApartmentGuide, ApartmentGuide.com, Rentals.com:*   These businesses, which represent 76%of second quarter 2007 advertising revenue, experienced a 0.5% revenue declinein the quarter.  However, this groupexperienced sequential quarterly growth versus the first quarter of 2007,reflecting the Company’s actions throughout 2006 and 2007 to strengthen clientrelationships, promote the value of blended media, and add tools to bettertrack results for advertisers.  Some ofthe negative market forces that have caused abnormally high apartment occupancyrates and revenue pressure on Apartment Guide are abating, as fewer apartmentcommunities are being converted to condominiums. However, while construction ofnew apartment communities is increasing across the country, this activityremains below levels from more than two years ago, and occupancy rates remainhigh in many markets. Apartment Guide’s addressable market is primarilyadvertisers of apartment communities with 50 or more units, whose listingscomprise approximately 15% of the total rental market.

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The Company’s online single unit real estate rentalbusiness, Rentals.com, which address the approximately 85% of the listings notserved by Apartment Guide, grew revenue 52% in the second quarter, partiallyoffsetting declines in Apartment Guide. Rentals.com’s online single unit realestate rental business is the leader in the market, with an estimated 62% ofall paid single unit real estate rental listings on the Internet. The Company’sonline single unit real estate rental business primarily serves advertisers ofsingle units, including rental houses, town homes, condos, apartments, andcommunities with less than 50 rental units. The Company spent the second quarter integrating acquisitions into Rentals.com,a single operating unit, while building out the sales force and infrastructure.

The Company completed testing of its MaxLeases product,with an official launch on June 28,2007. MaxLeases provides multi-family property managers with a sophisticatedset of tools to capture, track, and report leads from all sources, includingtelephone, e-mail, and walk-ins.  Propertymanagers can use this information to measure and optimize their mix ofmarketing investments.

*NewHome Guide, NewHomeGuide.com:*   Thisbusiness, representing 19% of second quarter 2007 advertising revenue,continued to deliver solid results with total revenue growth of 12% in thesecond quarter.  This strong growthreflects New Home Guide having established itself as one of the mostcost-effective and attractive media channels for home builders and demonstratesits ability to successfully adapt to changing market conditions. In the secondquarter of 2007, the Company launched Neighborhood Maps in Charlotte, NC. TheCompany now publishes ten Neighborhood Maps in two markets.  Neighborhood Maps are product line extensionsin existing markets, providing advertisers with a promotional tool to reachconsumers through local Chambers of Commerce, realtors, and relocationoffices.  The Company now has 37 New HomeGuide publications (including Neighborhood Maps and Realtor Data Books) in 26markets.

*AutoGuide, AutoGuide.com:*   AutoGuide, representing 5% of second quarter 2007 advertising revenue, experienceda 32% revenue decline, in part due to the closing of the San Diego Auto Guidein the third quarter of 2006.  Managementhas completed the conversion of all markets to a new guide format, and theupgrading of key management and publisher positions is expected to be completedin August, 2007. Auto Guide represents a $12 million revenue business based onannualizing average second quarter revenue. The Company started seeing progress during the second quarter includingweekly revenue growth, classified ad growth, and dealer growth as theinitiatives put in place in prior quarters began producing results.

*DistribuTech:**  *All ofConsumer Source’s print properties continue to benefit from the Company’sleading distribution business, DistribuTech. Consumer Source’s strategy is tocontinually optimize distribution for its own guides while minimizing cost.This optimization has historically caused, and will continue to cause,DistribuTech revenue to fluctuate.  Inthe second quarter of 2007, DistribuTech grew revenue primarily by expandingstore locations in various new and current retail programs including a largedrug store chain.  In addition,DistribuTech extended the contract term of a large grocery store chain,securing the Company’s rights to be the exclusive distributor of freepublications in this chain.  Partiallyoffsetting DistribuTech’s revenue growth in the second quarter were the loss ofa national client that changed its marketing strategy in late 2006, and certaincustomers going out of business, primarily resale home-oriented publicationsadversely impacted by the downturn in the resale housing industry, in whichConsumer Source does not directly participate.

*Segment EBITDA*

Consumer Guides Segment EBITDA increased $75 or 0.4%in 2007, to $18,251 from $18,176 in 2006. Segment EBITDA margin remains the same at 22% for both 2007 and 2006.

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*Operating Income*

Operating income decreased $946 or 6.7% to $13,264 in2007 from $14,210 in 2006.  This decreasewas primarily driven by the increase in restructuring costs during 2007.    

**Corporate**

*Corporate AdministrativeExpenses*

Corporate administrative expenses, excluding non-cashcompensation, were $7,041 for the three months ended June 30, 2007, compared to$9,009 for the three months ended June 30, 2006. The decrease is primarily dueto lower compensation expense resulting from headcount reductions and reducedprofessional fees.

*Operating Loss*

Corporate operating loss was $7,608 for the secondquarter of 2007, down 30.4% compared to $10,938 for the second quarter of 2006.The decrease was mainly due to lower corporate administrative expenses asdiscussed above, as well as reduced non-cash compensation expense during 2007.

**DiscontinuedOperations**

*Enthusiast Media*

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothersto manage this process. In May 2007,the Company entered into an agreement to sell the Enthusiast Media Segment for$1,177,900 to Source Interlink Companies, Inc., subject to certain post-closingadjustments. The sale was completed on August 1, 2007.

Discontinued operations of the Enthusiast Mediasegment for the three months ended June 30, 2007 and 2006 include revenue of$139,519 and $173,456, respectively. Operating income for the three monthsended June 30, 2007 and 2006, was $31,971 and $32,249, respectively. Includedin discontinued operations for the three months ended June 30, 2007 and 2006are losses on sales of businesses of $1,377 and $40, respectively.

*Education*

The Company classified the entire Education segment asdiscontinued operations during the fourth quarter of 2006. The Company’sEducation segment was comprised of Channel One, a proprietary network forsecondary schools; Films Media Group, a leading source of educational video;and PRIMEDIA Healthcare, a medical education business. The Company completedthe sales of Channel One and Films Media Group during the secondquarter of 2007.

Discontinued operations of the Education segmentinclude revenue of $6,196 and $14,516 for the three months ended June 30, 2007and 2006, respectively. Operating loss was $6,089 and $2,431 for the threemonths ended June 30, 2007 and 2006, respectively. Included in discontinuedoperations is the gain (loss) on the sales of Channel One of $(1,399) and FilmsMedia Group of $184 for the three months ended June 30, 2007.

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**Results ofOperations**

***Six Months Ended June 30, 2007 Compared to Six MonthsEnded June 30, 2006***

**ConsolidatedResults**

*Operating Income*

Operating income was $12,722 in 2007 compared to$8,715 in 2006. The increase of $4,007 in operating income in 2007 resulted fromincreased Segment EBITDA in the Consumer Guides segment and decreased Corporateoverhead.

*Net Income*

The Company had net income of $112,240 in the sixmonths ended June 30, 2007 compared to $315 in 2006. In 2007, net incomeincludes a gain the sale of the businesses of $50,779.  In addition, during the six months ended June 30, 2007, the Company’s liability forunrecognized tax benefits increased by $2,715, and an additional $929 ofinterest was accrued due to the adoption of FIN 48.

Interest expense decreased to $58,111 in 2007 from $63,633in 2006 primarily due to lower average debt levels, as the Company purchased$65,485 principal amount of its 8 7/8% Senior Notes, $5,190 principal amount ofits 8.00% Senior Notes, and $52,500 principal amount of its Senior FloatingRate Notes during 2006, partially offset by higher interest rates.

**Consumer Guides Segment (includes *Apartment Guide*, *New Home Guide*,*Auto Guide*, *Rentals.com*andthe*DistribuTech* distribution business)**

*Revenues, Net*

Consumer Guides revenues were $161,614 and $162,685for the six months ended June 30, 2007 and 2006, respectively. Consumer Guidesrevenues decreased $1,071 or 0.7% in 2007 compared to 2006 as follows:
| ** **     | ** ** | **Six Months Ended  June 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2007**                                      | ** ** | **2006**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                          |       |        |       |   |   |
| Advertising    |       | $                                             | 133,299    |        | $          | 134,383 |   | (0.8 | ) |
| Other          |       | 28,315                                        |       | 28,302      |       | 0.0 |   |
| Total          |       | $                                             | 161,614    |        | $          | 162,685 |   | (0.7 | ) |

 

Advertising revenues decreased by $1,084 in the sixmonths ended June 30, 2007 compared to 2006 due primarily to continued weaknessin Apartment Guide’s operating environment and Auto Guide’s execution issuesfrom 2006. Growth in New Home Guides and the Company’s online business servingadvertisers of single unit real estate rentals partially offset the declines inApartment Guide and Auto Guide. Other revenue’s slight increase reflectsDistribuTech’s optimization of distribution locations as new locations wereadded in the first half of 2007.

*ApartmentGuide, ApartmentGuide.com, Rentals.com:*   Total advertising revenue declined 1.9%in the first half of 2007. Apartment Guide continues to face challenging marketconditions marked by high occupancy rates and a reduced advertiser base as aresult of lost apartment inventory from condominium conversions. Although therate of condominium conversions has slowed considerably, the businessexperienced a year-over-year decline in revenue.

Declines in Apartment Guide were partially offset by60% growth in the Company’s online single unit real estate rental business,which the Company refers to as Rentals.com. Consumer Source’s online singleunit real estate rental business is the leader in the market, with an estimated62% of all paid single unit real estate rental listings on the Internet. Thislucrative segment of the marketplace accounts for approximately 85% of thetotal rental

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market. The Company’sonline single unit real estate rental business primarily serves advertisers ofsingle units, including rental houses, town homes, condos, apartments, andcommunities with less than 50 rental units.

*NewHome Guide, NewHomeGuide.com:*   Thisbusiness, representing 19% of 2007 advertising revenue, continued to deliverstrong results with total revenue growth of 15% in the first half of 2007. Thisstrong growth reflects New Home Guide having established itself as one of themost cost-effective and attractive media channels for home builders anddemonstrates its ability to successfully adapt to changing market conditions.In the first half of 2007, the Company launched a New Home Guide in ColoradoSprings, CO, and three Neighborhood Maps in Charlotte, NC. The Company nowpublishes ten Neighborhood Maps in two markets. Neighborhood Maps are productline extensions in existing markets, providing advertisers with a promotionaltool to reach consumers through local Chambers of Commerce, realtors, andrelocation offices. The Company now has 37 New Home Guide publications(including Neighborhood Maps and Realtor Data Books) in 26 markets.

*AutoGuide, AutoGuide.com:*   AutoGuide, representing 5% of 2007 advertising revenue, experienced a 27% revenuedecline in the first half of 2007, primarily due the third quarter 2006 closingof the San Diego Auto Guide. Management has completed the conversion of allmarkets to a new guide format, and the upgrading of key management andpublisher positions is expected to be completed in August, 2007. Auto Guiderepresents a $12 million revenue business based on annualizing average secondquarter revenue, and continues to have significant revenue growth potentialboth within its existing markets and through expansion into new markets.

*DistribuTech:**  *All ofConsumer Source’s print properties continue to benefit from the Company’sleading distribution business, DistribuTech. Consumer Source’s strategy is tocontinually optimize distribution for its own guides while minimizing cost.This optimization has historically caused, and will continue to cause,DistribuTech revenue to fluctuate. DistribuTech revenue was essentially flatfor the six months ended June 30, 2007, as compared to the same period of2006. Contributing to this were the loss of a national client that changed itsmarketing strategy in late 2006, and certain customers going out of business,primarily resale home-oriented publications adversely impacted by the downturnin the resale housing industry, in which Consumer Source does not directlyparticipate. These losses represented approximately 4% of DistribuTech revenue.

*Segment EBITDA*

Consumer Guides Segment EBITDA increased $1,741 or4.8% in the six months ended June 30, 2007, to $37,652 from $35,911 in the sameperiod of 2006, despite the slight decrease in revenue. This increase isprimarily due to aggressive cost containment by management continued from 2006into the first half of 2007. Segment EBITDA margin increased to 23% in firsthalf of 2007 from 22% in the same period of 2006.

*Operating Income*

Operating income increased $224 or 0.8% to $29,041 inthe six months ended June 30, 2007 from $28,817 in the same period of 2006.This increase was primarily driven by the increase in Segment EBITDA, partiallyoffset by increases in restructuring costs.

**Corporate**

*CorporateAdministrative Expenses*

Corporate administrative expenses, excluding non-cashcompensation, were $13,777 for the six months ended June 30, 2007, compared to$16,919 for the six months ended June 30, 2006. The decrease is primarily dueto lower compensation expense resulting from headcount reductions and reducedprofessional fees.

*Operating Loss*

Corporate operating loss was $16,319 for the sixmonths ended June 30, 2007, down 18.9% compared to $20,102 for the six monthsended June 30, 2006. The decrease was mainly due to lower corporateadministrative expenses as discussed above, as well as reduced non-cashcompensation during 2007.

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**DiscontinuedOperations**

*Enthusiast Media*

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment. PRIMEDIA retained Goldman Sachs and Lehman Brothersto manage this process. In May 2007,the Company entered into an agreement to sell the Enthusiast Media Segment for$1,177,900 to Source Interlink Companies, Inc., subject to certain post-closingadjustments. The sale was completed on August 1, 2007.

Discontinued operations of the Enthusiast Mediasegment for the six months ended June 30, 2007 and 2006 include revenue of$275,099 and $337,603, respectively. Operating income for the six months endedJune 30, 2007 and 2006, was $115,981 and $63,284, respectively. Included indiscontinued operations are gains on sales of businesses of $56,994 and$13,668, respectively.

During the first half of 2007, the Company recorded atax benefit of approximately $61,000 related to the Enthusiast Mediasegment.  This benefit, which is recorded as a component of discontinuedoperations, represents the tax consequences of the recharacterization ofcertain indefinite-lived intangible assets to definite-lived in connection withreclassification of the Enthusiast Media segment as held for sale and wasrecorded when it became apparent that certain taxable temporary differenceswould reverse.

*Education*

The Company classified the entire Education segment asdiscontinued operations during the fourth quarter of 2006. The Company’sEducation segment was comprised of Channel One, a proprietary network forsecondary schools; Films Media Group, a leading source of educational video;and PRIMEDIA Healthcare, a medical education business. The Company completedthe sales of Channel One and Films Media Group during the second quarter of 2007.

Discontinued operations of the Education segmentinclude revenue of $16,720 and $29,985 for the six months ended June 30, 2007and 2006, respectively. Operating loss was $9,617 and $2,791 for the six monthsended June 30, 2007 and 2006, respectively. Included in discontinued operations is a gain (loss) on the sale ofChannel One of $(6,399) and Films Media Group of $184 for the six months endedJune 30, 2007.

**Liquidity, Capitaland Other Resources**

As of June 30, 2007, the Company had cash and unusedcredit facilities of $327,670, as further detailed below under “FinancingArrangements”, compared to $261,466 as of December 31, 2006. The amount asof June 30, 2007 includes the remaining net cash proceeds from the Company’ssale of the Outdoors group in the first quarter of 2007. The use of this cashand unused credit facilities is subject to customary conditions in the Company’sdebt agreements. The Company’s asset sales, debt redemption and investment inorganic growth have facilitated its strategy to become a better strategicallyfocused company while strengthening its balance sheet.

The Company believes its liquidity, capital resourcesand cash flow from operations are sufficient to fund planned capitalexpenditures, working capital requirements, interest and principal payments onits debt and other anticipated expenditures for the remainder of 2007 and forthe foreseeable future. Under the Company’s new credit facility, the Companyhas no significant scheduled commitment reductions until 2013.

*Working Capital*

Consolidated working capital, which includes currentmaturities of long-term debt, was $770,110 at June 30, 2007 compared to $27,837at December 31, 2006. This increase is primarily due to the increase inassets of businesses held for sale at June 30, 2007 and the remaining cash proceedsfrom the Outdoors sale.

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*Cash Flow—2007Compared to 2006*

Net cash (used in) provided by operating activitieswas $(22,632) in 2007, compared to $10,374 in 2006. This decrease is primarilydue to increased cash taxes paid primarily related to divestitures, and timingof receivables collections, partially offset by lower debt service.  Free Cash Flow includes discontinuedoperations. For purposes of calculating net cash provided by operatingactivities, discontinued operations are included until sold or shut down.

Net cash provided by (used in) investing activitieswas $131,743 in 2007, compared to $(9,580) in 2006. This increase in cash isprimarily due to cash received for the sale of the Outdoors group in the firstquarter of 2007 of $170,000. This increase was partially offset by payments forthe acquisitions of Rentalhouses.com and Modified Automotive Group during thefirst quarter of 2007.

Net cash used in financing activities was $3,899 in2007, compared to $3,816 in 2006. The primary reason for the change is theabsence of payments for repurchases of senior notes during 2007 compared topayments of $62,094 in 2006, partially offset by the net borrowings undercredit agreements in 2006 of $60,000, compared to net repayments of $3,500 in2007.

*Free Cash Flow*

The following table presents the Company’s Free CashFlow for the six months ended June 30, 2007 and 2006, respectively:
| ** **                                                                 | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| Net cash (used in)  provided by operating activities                       |       | $                                             | (22,632    | ) | $ | 10,374 |   |
| Additions to property,  equipment and other (excluding acquisitions)       |       | (11,990                                       | )          | (10,767 | ) |
| Capital lease payments                                                     |       | (571                                          | )          | (1,879 | ) |
| Free Cash Flow                                                             |       | $                                             | (35,193    | ) | $ | (2,272 | ) |
| Supplemental  information:                                                 |       |                                          |       |   |   |
| Cash interest paid,  including interest on capital and restructured leases |       | $                                             | 58,076     |   | $ | 64,718 |   |
| Cash income taxes paid,  net of refunds received                           |       | $                                             | 16,943     |   | $ | 4,740 |   |
| Cash paid for  restructuring costs                                         |       | $                                             | 4,993      |   | $ | 2,715 |   |

 

The decrease in the Company’s Free Cash Flow isprimarily due to increased cash taxes paid primarily related to divestitures,and timing of receivables collections, partially offset by lower debt service.

***Financing Arrangements***

OnAugust 1, 2007, the Company completed financing commitments for a $350,000senior secured credit facility, including a $100,000 revolving loan facilityand a $250,000 term loan.

Thenew credit facility combined with the net proceeds received from the sale ofthe Enthusiast Media Segment have been or will be used to repay the Company’sterm loan, redeem the Company’s 87¤8% Senior Notes due 2011, redeem the Company’s8.00% Senior Notes due 2013, redeem the Company’s Senior Floating Rate Notesdue 2010, pay accrued interest on the Company’s Senior Notes and pay financingfees.

On August 1, 2007,PRIMEDIA accepted for payment $122,500 of its Senior Floating Rate Notes due2010, $393,700 principal amount of its 87¤8% Senior Notesdue 2011 and $292,000 principal amount of its 8.00% Senior Notesdue 2013 pursuant to the terms of its previously announced tender offersand consent solicitations for such securities.  As a result of theacceptance for payment of such securities, the supplemental indentures thatwere the subject of the consent solicitations have become operative.

The new credit facilityprovides for two loan facilities: (1) a revolving credit facility withaggregate commitments of approximately $100,000 (the “Revolving Facility”),which matures on August 1, 2013, and (2) a Term Loan B credit facility in an aggregate principalamount of $250,000 (the “Term Loan B Facility”), which matures onAugust 1, 2014 (the “Term Loan B Maturity Date”).

Amountsborrowed under the Revolving Facility bear interest, at the Company’s option,at an annual rate of either the base rate plus an applicable margin rangingfrom 0.625% to 1.00% or the eurodollar rate plus an applicable margin rangingfrom 1.625% to 2.00%. The Term Loan B Facility bears interest, at the Company’soption, at an annual rate of either the base rate plus an applicable marginranging from 1.00% to 1.25% or the eurodollar rate plus an applicable marginranging from 2.00% to 2.25%.

Thereare no scheduled commitment reductions under the Revolving Facility.  Theloans under the Term Loan B Facility are subject to scheduled repayment inquarterly installments of $625 each payable on March 31, June 30,September 30 and December 31 of each year commencing onMarch 31, 2008 and ending on June 30, 2014, followed by a finalrepayment of $233,750 on the Term Loan B Maturity Date.

Underthe new credit facility, the Company’s maximum allowable leverage ratio,as defined, is 5.25 to 1.

Financingarrangments as of June 30, 2007 were as follows:

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*Bank CreditFacilities*

The bank credit facilities consisted of the followingas of June 30, 2007:
|                                | ** ** | **Revolver** | ** ** | **Term B** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-----------------|------------|-----------|------------|
| Bank Credit Facilities         |       | $            | 237,252    |            | $          | 492,500   |       | $ | 729,752 |   |
| Borrowings Outstanding         |       | —       |       | (492,500        | )          | (492,500  | )          |
| Letters of Credit  Outstanding |       | (20,622      | )          | —          |       | (20,622   | )          |
| Unused Bank Commitments        |       | $            | 216,630    |            | $          | —    |       | $ | 216,630 |   |

 

With the exception of the term loan B and the SeniorFloating Rate Notes, the amounts borrowed bear interest, at the Company’soption, at either the base rate plus an applicable margin ranging from 0.125%to 1.5% or LIBOR plus an applicable margin ranging from 1.125% to 2.5%. TheSenior Floating Rate Notes bear interest equal to three-month LIBOR plus 5.375%per year. The term loan B bears interest at base rate plus 1.25% or LIBOR plus2.25% per year.

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. During the second quarter of 2007, the Company’scommitment fees were paid at a weighted average rate of 0.5%. The Company alsohas 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 $79,084 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 $2,500 in 2007, $5,000 in 2008 through 2012 and $465,000in 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, engage in mergers,consolidations or transactions with affiliates, make investments in or loans tocertain subsidiaries, issue guarantees and make certain restricted paymentsincluding dividend payments on or repurchases of the Company’s common stock inexcess of $75,000 in any given year.

The bank credit facilities and Senior Note agreementsof the Company contain certain customary events of default which generally givethe banks or the noteholders, as applicable, the right to accelerate paymentsof outstanding debt. Under the bank credit facilities agreement, these eventsinclude:

·       failure to maintainrequired covenant ratios, as described below;

·       failure to make a paymentof principal, interest or fees within five days of its due date;

·       default, beyond anyapplicable grace period, on any aggregate indebtedness of PRIMEDIA exceeding$20,000;

·       occurrence of certaininsolvency proceedings with respect to PRIMEDIA or any of its materialsubsidiaries;

·       entry of one judgment ordecree involving a liability of $15,000 or more (or more than one involving anaggregate liability of $25,000 or more); and

·       occurrence of certainevents constituting a change of control of the Company.

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The events of default contained in the Senior Notesare similar to, but generally less restrictive than, those contained in theCompany’s bank credit facilities.

87¤8% *Senior Notes.**  *The87¤8%Senior Notes mature on May 15, 2011, with no sinking fund requirements,and have interest payable semi-annually in May and November at anannual rate of 87¤8%.Beginning in 2006, the 87¤8%Senior Notes became redeemable at 104.438% with annual reductions to 100% in2009 plus accrued and unpaid interest. The unamortized discount for these notestotaled $2,968 and $3,598 at June 30, 2007 and 2006, respectively.

*8%Senior Notes.  **The 8% Senior Notes mature on May 15, 2013 withno sinking fund requirements and have interest payable semi-annually inMay and November at an annual rate of 8.00%.*

*SeniorFloating Rate Notes.**  *TheFloating Rate Senior Notes mature on May 15, 2010 with no sinking fund andhave interest payable quarterly in February, May, August andNovember at the annual rate equal to the three month LIBOR plus 5.375%.

*ContractualObligations*

The Senior Notes and the bank credit facilities allrank senior in right of payment to all subordinated obligations which PRIMEDIAInc. (a holding company) may incur. The Senior Notes and bank credit facilitiesare secured by a pledge of stock of Consumer Source Inc. (formerly known asPRIMEDIA Companies Inc.).

If the Company becomes subject to a change of control,as defined in the indentures governing the Senior Notes, each holder of theSenior Notes will have the right to require the Company to purchase any or allof its Senior Notes at a purchase price equal to 101% of the aggregateprincipal amount of the purchased Senior Notes plus accrued and unpaidinterest, if any, to the date of purchase.

There are no required significant debt repaymentsuntil 2010. The contractual obligations of the Company as of June 30, 2007 areas follows:
| ** **                                                | ** ** | ** ** | ** ** | **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) |       | $          | 1,316,857  |                                      | $          | 5,000 |   | $ | 132,500 |   | $ | 417,047 |   | $ | 762,310 |   |
| Interest on long-term  debt obligations(1)                |       | 575,455    |       | 109,662                                   |       | 216,793 |   | 153,384 |   | 95,616 |   |
| Capital lease  obligations                                |       | 2,900      |       | 1,023                                     |       | 1,437 |   | 440 |   | — |   |
| Fair value of forward  agreement(2)                       |       | 27,154     |       | —                                    |       | 27,154 |   | — |   | — |   |
| Interest on capital  lease obligations                    |       | 384        |       | 201                                       |       | 167 |   | 16 |   | — |   |
| Operating lease  obligations(3)                           |       | 229,985    |       | 40,368                                    |       | 62,030 |   | 45,523 |   | 82,064 |   |
| Workplace Learning  lease obligations(4)                  |       | 14,997     |       | 5,530                                     |       | 4,045 |   | 3,156 |   | 2,266 |   |
| Total Contractual  Obligations                            |       | $          | 2,167,732  |                                      | $          | 161,784 |   | $ | 444,126 |   | $ | 619,566 |   | $ | 942,256 |   |

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

(2)             Presentvalue of expected future payments related to the acquisition of Automotive.com.The fair value of this liability is included in liabilities of businesses heldfor sale at June 30, 2007.

(3)             Futurerental commitments for the above operating leases have not been reduced byminimum noncancelable sublease rentals aggregating $61,742 as of June 30, 2007.

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

The Company had no borrowings outstanding at June 30,2007 under the revolving loan portion of the bank credit facility. Therevolving loan portion of the bank credit facility matures in 2008, and theterm loan B matures in 2013.

The Company has other commitments in the form ofletters of credit, which include deferred purchase price liabilities, of$20,622 aggregate face value which expire on or before June 30, 2008.

The FIN 48 liability of $22,190 is excluded from thecontractual obligations table as the Company is unable to make reasonably reliableestimates of the period of cash settlement with the respective taxingauthority.

*AdditionalPayments*

Under the provisions of the Automotive.comStockholders Agreement, PRIMEDIA must make quarterly payments (the “AdditionalPayments”) to the minority shareholders of Automotive.com, as defined in theAutomotive.com Stockholders Agreement. The additional payments are paid within45 days of the end of each calendar quarter, with the last payment to be madewithin 45 days of the quarter ending December 31, 2008, orDecember 31, 2009, if the forward agreement is extended by the minorityshareholders. The additional payments are recognized when the relatedcontingency is resolved and the consideration is paid or becomes payable. Thepro rata share of the additional payments made or estimated to be made toAutomotive.com’s Chief Executive Officer is recorded as compensation expensedue to the nature of his ongoing relationship with Automotive.com. Theremaining pro rata share of the Additional Payments to be made to the otherminority shareholders is recorded as an adjustment to the purchase price ofAutomotive.com.

*Off Balance SheetArrangements*

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.

*CovenantCompliance*

Under the Company’s new credit facility, the Company’smaximum allowable leverage ratio, as defined, is 5.25 to 1.

Covenant compliance as of June 30, 2007 was asfollows:

Under the most restrictive covenants as defined in thebank credit facilities agreement, as amended on September 30, 2005, except for those businesses specificallydesignated by the Company as unrestricted, all businesses of the Company (the “RestrictedGroup”), must maintain a minimum interest coverage ratio, as defined, of1.75 to 1 and a minimum fixed charge coverage ratio, as defined, of 1.05 to 1.The maximum allowable debt leverage ratio, as defined in the bank credit facilities,is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007.

The Company is herewithproviding detailed information and disclosure as to the methodology used indetermining compliance with the leverage ratio in the bank credit facilityagreement. Under its bank credit facility and Senior Note agreements, theCompany is allowed to designate certain businesses as unrestricted subsidiariesto the extent that the value of those businesses does not exceed the permittedamounts, as defined in these agreements. The Company has designated certain ofits businesses as unrestricted (the “Unrestricted Group”), which representprimarily Internet businesses, trademark and content licensing and servicecompanies, new launches (including traditional start-ups), other propertiesunder evaluation for turnaround or shutdown and foreign subsidiaries.Indebtedness under the bank credit facilities and Senior Note agreements isguaranteed by each of the Company’s 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. For purposes of determining compliance with certain financial covenantsunder the Company’s bank credit facility, the Unrestricted Group’s results(positive or negative) are not reflected in the Consolidated EBITDA of theRestricted Group which, as defined in the bank credit facilities agreement,excludes losses of the

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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 businesses.

The following represents areconciliation of EBITDA of the Restricted Group for purposes of the leverageratio as defined in the bank credit facilities agreement to net income:
| ** **                                                       | ** ** | **For the Three** | ** ** | **For the Twelve** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                       | ** ** | **Months Ended**       | ** ** | **Months Ended**        | ** ** |
| ** **                                                       | ** ** | **June 30, 2007** | ** ** | **June 30, 2007**  | ** ** |
| EBITDA of the  Restricted Group                                  |       | $                           | 58,257     |                         | $          | 219,415 |   |
| EBITDA loss of the  Unrestricted Group                           |       | (11,297                     | )          | (46,974                      | )          |
| EBITDA of divestited  units and other adjustments                |       | (35,750                     | )          | (119,738                     | )          |
| Depreciation and  amortization of property and equipment         |       | (3,286                      | )          | (12,564                      | )          |
| Amortization of  intangible assets and other                     |       | (856                        | )          | (3,490                       | )          |
| Non-cash compensation                                            |       | (397                        | )          | (1,830                       | )          |
| Provision for  restructuring costs                               |       | (1,015                      | )          | (3,633                       | )          |
| Operating income                                                 |       | 5,656                       |       | 31,186                       |       |
| Other expense:                                                   |       |                        |       |                         |       |
| Interest expense                                                 |       | (29,031                     | )          | (121,418                     | )          |
| Amortization of  deferred financing costs                        |       | (584                        | )          | (2,419                       | )          |
| Other income, net                                                |       | 1,934                       |       | 1,725                        |       |
| Loss from continuing  operations before benefit for income taxes |       | (22,025                     | )          | (90,926                      | )          |
| Benefit for income  taxes                                        |       | 10,913                      |       | 14,250                       |       |
| Loss from continuing  operations                                 |       | (11,112                     | )          | (76,676                      | )          |
| Discontinued operations                                          |       | 18,698                      |       | 226,852                      |       |
| Net income                                                       |       | $                           | 7,586      |                         | $          | 150,176 |   |

 

The EBITDA loss of theUnrestricted Group, as defined in the bank credit facilities agreement, iscomprised of the following categories:

 
| ** **                                      | ** ** | **For the Three** | ** ** | **For the Twelve** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **Months Ended**       | ** ** | **Months Ended**        | ** ** |
| ** **                                      | ** ** | **June 30, 2007** | ** ** | **June 30, 2007**  | ** ** |
| Internet properties                             |       | $                           | (3,285     | )                            | $          | (21,227 | ) |
| Traditional turnaround  and start-up properties |       | (6,823                      | )          | (20,314                      | )          |
| Related overhead and  other charges             |       | (1,189                      | )          | (5,433                       | )          |
|                                            |       | $                           | (11,297    | )                            | $          | (46,974 | ) |

 

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 the Unrestricted Group. Forcompany-wide consolidated financial reporting, these intercompany transactionsare eliminated in consolidation.

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The calculation of the Company’sleverage ratio, as required under the bank credit facilities agreement forcovenant purposes, is defined as the Company’s consolidated debt divided by theEBITDA of the Restricted Group. 

***Contingencies and Other***

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 theconsolidated financial statements of the Company.

As of and for the six months ended June 30, 2007, noofficers or directors of the Company have been granted loans by the Company,nor has the Company guaranteed any obligations of such persons.

In 2005, the Company sold substantially all of theassets of Workplace Learning for the assumption of ongoing liabilities whileretaining a secondary liability as the assignor of the building and satellitetime leases. The Company received a third party guaranty of up to $10,000 againstthose lease obligations to reimburse the Company for lease payments made (the “Guaranty”).In the first half of 2006, the Company made payments on behalf of WorkplaceLearning pursuant to its secondary liability. During the second quarter of2006, the Company recorded a liability for the fair value of the leasepayments, net of sublease income, related to its secondary liability on thelease payments. At that time, the Company also recorded a receivable of $10,000for the amount due from the third party guarantor for the lease payments. As aresult of recording the receivable and liability during the second quarter, theCompany recorded a charge of approximately $7,200 to discontinued operations.In the second half of 2006, the Company commenced a lawsuit to collect on theGuaranty. During the fourth quarter of 2006, the Company determined that it wasnot probable that the third party would remit payment, as required under theGuaranty, and fully reserved for the $10,000 receivable with a charge to discontinuedoperations as a of December 31, 2006. The Company continues to exerciseall available legal remedies against the third party guarantor and to fulfillits secondary obligation regarding the Workplace Learning leases.

At June 30, 2007 and December 31, 2006, theCompany has recorded a total liability of $14,997 and $16,156, respectively, forthe fair value of the future lease payments, net of estimated sublease income,in the accompanying consolidated balance sheet.

***Critical Accounting Policies and Estimates***

During the second quarter of 2007, there were nosignificant changes related to the Company’s critical accounting policies andestimates as disclosed in the Company’s annual report on Form 10-Kfor the year ended December 31, 2006.

***Recent Accounting Pronouncements Adopted***

*SAB No. 108, “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements”*

During the fourth quarter of 2006, the Company adoptedStaff Accounting Bulletin (“SAB”) No. 108, “Considering the Effects ofPrior Year Misstatements when Quantifying Misstatements in Current YearFinancial Statements.” During the fourth quarter of 2006, the Company concludedthat deferred income tax benefits of approximately $7,500 should have been recordedduring the year ended December 31, 2005 when it became apparent that certaintaxable temporary differences would reverse as a result of classification ofbusinesses as discontinued operations. Management believes that this errortotaling approximately $7,500 is not material to the prior year’s financialstatements. Upon adoption of SAB No. 108, the Company recorded acumulative effect adjustment as of January 1, 2006 to accumulated deficitof approximately $7,500.   Of this amount, approximately $5,500 hadpreviously been recorded to income from discontinued operations in the firstquarter of 2006. The consolidated statement of operations for the six monthsended June 30, 2006 has been restated to adjust for the impact of the SABNo. 108 adjustment.

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*FASB Interpretation No. 48, “Accounting forUncertainty in Income Taxes”*

In July 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accountingfor Uncertainty in Income Taxes”, effective for fiscal years beginning afterDecember 15, 2006. This Interpretation clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with SFAS No. 109. This Interpretation prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return. FIN 48 requires that, in order to be recognized, tax benefitsmust be more likely than not to be sustained upon examination by taxing authorities.The amount recognized is measured as the largest amount of benefit that isgreater than 50% likely of being realized upon ultimate settlement. Differencesbetween the amounts recognized in the statements of financial position prior tothe adoption of FIN 48 and the amounts reported after adoption should beaccounted for as a cumulative-effect adjustment recorded to the beginningbalance of retained earnings. FIN 48 also provides guidance onde-recognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition.  Asa result of the implementation of FIN 48, the Company recognized a liabilityfor uncertain tax positions and related interest and penalties of $16,126 whichwas accounted for as an increase to the January 1, 2007 balance of accumulateddeficit, net of any valuation allowance impact. The liability is included in other non-current liabilities on theaccompanying balance sheet as of June 30, 2007.   Duringthe three months ended June 30, 2007, the Company’s liability for unrecognizedtax benefits decreased by $206 to $22,190. An additional $577 and $929 of interestwas accrued in the three and six months ended June 30, 2007, respectively.

***SubsequentEvents***

*Sale of Enthusiast Media Segment*

InMay 2007, the Company entered into an agreement to sell its EnthusiastMedia Segment for $1,177,900 to Source Interlink Companies, Inc., subject tocertain post-closing adjustments. The sale was completed on August 1, 2007, andresulted in an estimated gain of $446,512, net of tax.

*Debt Refinancing*

OnAugust 1, 2007, the Company completed financing commitments for a $350,000senior secured credit facility, including a $100,000 revolving loan facilityand a $250,000 term loan.

Thenew credit facility combined with the net proceeds received from the sale ofthe Enthusiast Media Segment have been or will be used to repay the Company’sterm loan, redeem the Company’s 8 7¤8% Senior Notes due 2011, redeem the Company’s8.00% Senior Notes due 2013, redeem the Company’s Senior Floating Rate Notesdue 2010, pay accrued interest on the Company’s Senior Notes and pay financingfees.  At the time of the debtrefinancing, the Company will write off approximately $8,900 of deferredfinancing fees, and will capitalize the cost related to the new creditfacility.

On August 1, 2007,PRIMEDIA accepted for payment $122,500 of its Senior Floating Rate Notes due2010, $393,700 principal amount of its 87¤8% Senior Notesdue 2011 and $292,000 principal amount of its 8.00% Senior Notesdue 2013 pursuant to the terms of its previously announced tender offersand consent solicitations for such securities.  As a result of theacceptance for payment of such securities, the supplemental indentures thatwere the subject of the consent solicitations have become operative.

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Inaddition, the Company has announced its intention to pay a one-time qualifieddividend of approximately $96,000 to PRIMEDIA shareholders and to institute anongoing dividend program. However, any such dividend payments are subject to finalapproval of the Board of Directors of PRIMEDIA.

*Reverse Stock-Split*

OnAugust 1, 2007, the Company effected a 1-for-6 reverse stock split of itscommon stock.  The primary purpose of thereverse stock split was to make the Company’s common stock purchasable byinvestors that require investments to have a share price above $10 per share atthe time of investment.  After thereverse stock split was effected, each PRIMEDIA stockholder received one newshare of PRIMEDIA common stock in exchange for every six existing shares ofPRIMEDIA common stock.  All shareamounts, including warrants and stock options, and earnings (loss) per shareamounts presented in this report have been effected for the reverse stocksplit.

**Impact ofInflation and Other Costs**

The cost of paper was stable during 2006 and the firsthalf of 2007. The Company’s paper expense decreased approximately 11.16% duringthe six months ended June 30, 2007 compared to 2006. Paper costrepresented approximately 4.60% and 4.96% of the Company’s total operatingexpenses for the six months ended June 30, 2007 and 2006, respectively.

**Seasonality**

The Company’s operations are minimally seasonal innature.

·       The majority of the Company’ssales comprise 12-month contracts.  Salestypically grow sequentially.

·       The Company experiencesmodest seasonality in the categories of the single unit real estate listing andautos as both businesses decline in the winter months.  These businesses represent a relatively smallpart of the total consumer guides business.

**Item3.**                          QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the second quarter of 2007, there were nosignificant changes related to the Company’s market risk exposure.

**Item4.**                          CONTROLSAND PROCEDURES

***Disclosure Controls and Procedures***

The Company’s management, with the participation ofthe Company’s Chief Executive Officer, Chief Financial Officer and ChiefAccounting Officer, has evaluated the effectiveness of the Company’s disclosurecontrols and procedures as of the end of the period covered by this report.

Based on such evaluation, the Company’s ChiefExecutive Officer, Chief Financial Officer and Chief Accounting Officer haveconcluded that, due to a material weakness in the accounting for income taxesrelated to discontinued operations as described in the Company’s Annual Reporton Form 10-K for the period ended December 31, 2006, the Company’s disclosurecontrols and procedures were not effective as of June 30, 2007.

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

During the quarter ended June 30, 2007, there have notbeen any changes in the Company’s internal control over financial reportingthat have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

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**PART II.**   OTHER INFORMATION

**Item1A.**                 RISKFACTORS

There have been no material changes to the Company’srisk factors during the second quarter of 2007.

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

The following share amounts have been reported beforethe effects of the reverse stock split which was effected on August 1, 2007.

a)              The Annual Meetingof Stockholders was held May 23, 2007. As of the April 9, 2007 record date for the meeting, there were264,898,002 shares issued and outstanding and entitled to vote. At the meeting,241,365,933 shares were present in person or by proxy, constitutingapproximately 91.12% of the shares entitled to vote.

b)             At the meeting,directors David Bell, Beverly C. Chell, Dan Ciporin, Meyer Feldberg, Perry Golkin,H. John Greeniaus, Dean B. Nelson, Kevin Smith and Thomas Uger were elected.

c)              Set forth below is adescription of the items that were voted upon at the meeting and the number ofvotes cast for, against or withheld, plus abstentions and broker non-votes, asapplicable, as to each such matter and director.

**Election ofDirectors**

Nine directors were elected at the meeting and theshares voted and withheld for each director are as follows:
|                    | ** ** | **Number of   Shares Voted for** | ** ** | **Number of   Shares   Withheld** | ** ** |
|--------------------|------------|------------------------------------------------------|------------|--------------------------------------------------|------------|
| David Bell         |       | 240,176,182                                          |       | 1,189,751                                        |       |
| Beverly C. Chell   |       | 217,900,557                                          |       | 23,465,376                                       |       |
| Dan Ciporin        |       | 240,174,686                                          |       | 1,191,247                                        |       |
| Meyer Feldberg     |       | 239,663,826                                          |       | 1,702,107                                        |       |
| Perry Golkin       |       | 218,009,564                                          |       | 23,356,369                                       |       |
| H. John  Greeniaus |       | 240,174,577                                          |       | 1,191,356                                        |       |
| Dean B. Nelson     |       | 240,119,605                                          |       | 1,246,328                                        |       |
| Kevin Smith        |       | 240,176,182                                          |       | 1,189,751                                        |       |
| Thomas Uger        |       | 218,011,469                                          |       | 23,354,444                                       |       |

 

**Approval ofIndependent Auditors**

The approval of Deloitte & Touche LLP asindependent auditors for the Company for the fiscal year endingDecember 31, 2007 was ratified with 240,302,976 votes for, 137,677 votesagainst and 925,281 votes abstaining.

 

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**Item6.**                          EXHIBITS

(a)           Exhibits
| 2.1        |   | Stock Purchase Agreement dated May 13, 2007  between Consumer Source, Inc., PRIMEDIA, Inc. and Source Interlink  Companies, Inc.(1) |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| †10.1 |   | Letter Agreement, dated June 12, 2007 between  PRIMEDIA Inc. and Kevin Neary(*)                                                                    |
| †10.2 |   | Letter Agreement, dated June 12, 2007 between  PRIMEDIA Inc. and Steve Parr(*)                                                                     |
| †10.3 |   | Letter Agreement, dated June 12, 2007 between  PRIMEDIA Inc. and Dean Nelson(*)                                                                    |
|       |   |                                                                                                                                                    |
| 31.1       |   | Certification by Dean B. Nelson Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                 |
| 31.2       |   | Certification by Kim R. Payne 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 Kim R. Payne 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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† Executive contract or compensation plan orarrangement

(*)            Filedherewith.

(1)             Incorporatedby reference to PRIMEDIA Inc.’s current report on Form 8-K filedMay 21, 2007.

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|        |           | Primedia Inc.                                                                                     |
|--------|----------------|---------------------------------------------------------------------------------------------------|
|   |           | (Registrant)                                                                                      |
|   |           |                                                                                              |
|   |           |                                                                                              |
| Date:  | August 7, 2007 | /s/ Dean B.  Nelson                                                                               |
|   |           | (Dean B. Nelson)                                                                                  |
|   | * *       | *Chairman, Chief Executive Officer and President  (Principal Executive Officer)*                  |
|   | * *       | * *                                                                                          |
|   | * *       | * *                                                                                          |
| Date:  | August 7, 2007 | /s/ Kim R.  Payne                                                                            |
|   |           | (Kim R. Payne)                                                                               |
|   | * *       | *Senior Vice President and Chief Financial Officer*                                               |
|   | * *       | *(Principal Financial Officer)*                                                                   |
|   | * *       | * *                                                                                          |
|   | * *       | * *                                                                                          |
| Date:  | August 7, 2007 | /s/ Robert J.  Sforzo                                                                             |
|   |           | (Robert J. Sforzo)                                                                                |
|   | * *       | *Senior Vice President, Chief Accounting Officer  and  Controller (Principal Accounting Officer)* |

 

** **

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