**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: March 31, 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 markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months, and (2) has been subject to such filing requirements for the past90 days. Yes  x  No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct).

Large accelerated filer o         Acceleratedfiler x         Non-acceleratedfiler o

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

Number of shares of commonstock, par value $.01 per share, of PRIMEDIA Inc. outstanding as of April 30,2007: 264,526,995

 

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**PRIMEDIAInc.INDEX**

| **Part I. Financial Information:** | ** ** |
|-----------------------------------------|------------|
| Item 1.                                 |       | Financial  Statements |   |
|                                    |       | Condensed Consolidated Balance Sheets (Unaudited) as  of March 31, 2007 and December 31, 2006 | 2 |
|                                    |       | Condensed Statements of Consolidated Operations  (Unaudited) for the three months ended March 31, 2007 and 2006 | 3 |
|                                    |       | Condensed Statements of Consolidated Cash Flows  (Unaudited) for the three months ended March 31, 2007 and 2006 | 4 |
|                                    |       | Notes to Condensed Consolidated Financial Statements  (Unaudited) | 5 |
| Item 2.                                 |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations | 22 |
| Item 3.                                 |       | Quantitative and Qualitative Disclosures about Market  Risk | 36 |
| Item 4.                                 |       | Controls and Procedures | 36 |
| **Part II. Other  Information:**   | ** ** |
| Item 1A.                                |       | Risk Factors | 37 |
| Item 6.                                 |       | Exhibits | 37 |
|                                    |       | Signatures | 38 |

 

1

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

| ** **                                                                                                                                                                                                                                                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                                  |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                       |       | $                  | 145,111    |                  | $          | 5,828 |   |
| Accounts receivable, net                                                                                                                                                                                                                                                         |       | 27,879             |       | 115,284               |       |
| Inventories                                                                                                                                                                                                                                                                      |       | 667                |       | 12,978                |       |
| Prepaid expenses and  other                                                                                                                                                                                                                                                      |       | 18,348             |       | 18,977                |       |
| Assets of businesses  held for sale                                                                                                                                                                                                                                              |       | 905,836            |       | 170,037               |       |
| Total current assets                                                                                                                                                                                                                                                             |       | 1,097,841          |       | 323,104               |       |
| Property and equipment  (net of accumulated depreciation and amortization of $81,461 in 2007 and  $164,478 in 2006)                                                                                                                                                              |       | 20,288             |       | 46,390                |       |
| Intangible assets, net                                                                                                                                                                                                                                                           |       | 25,714             |       | 187,887               |       |
| Goodwill                                                                                                                                                                                                                                                                         |       | 134,098            |       | 674,138               |       |
| Other non-current assets                                                                                                                                                                                                                                                         |       | 16,466             |       | 22,810                |       |
| Total Assets                                                                                                                                                                                                                                                                     |       | $                  | 1,294,407  |                  | $          | 1,254,329 |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                                                                                |       |               |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                                                             |       |               |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                                                 |       | $                  | 12,238     |                  | $          | 47,679 |   |
| Accrued expenses and  other                                                                                                                                                                                                                                                      |       | 86,391             |       | 112,183               |       |
| Deferred revenues                                                                                                                                                                                                                                                                |       | 2,014              |       | 79,035                |       |
| Current maturities of  long-term debt                                                                                                                                                                                                                                            |       | 5,171              |       | 6,070                 |       |
| Liabilities of  businesses held for sale                                                                                                                                                                                                                                         |       | 229,291            |       | 50,300                |       |
| Total current  liabilities                                                                                                                                                                                                                                                       |       | 335,105            |       | 295,267               |       |
| Long-term debt                                                                                                                                                                                                                                                                   |       | 1,311,915          |       | 1,316,959             |       |
| Deferred revenues                                                                                                                                                                                                                                                                |       | 12,325             |       | 12,750                |       |
| Deferred income taxes                                                                                                                                                                                                                                                            |       | 11,697             |       | 72,060                |       |
| Other non-current  liabilities                                                                                                                                                                                                                                                   |       | 57,727             |       | 80,523                |       |
| Total Liabilities                                                                                                                                                                                                                                                                |       | 1,728,769          |       | 1,777,559             |       |
| Commitments and contingencies (Note 12)                                                                                                                                                                                                                                          |       |               |       |                  |       |
| Shareholders’ deficiency:                                                                                                                                                                                                                                                   |       |               |       |                  |       |
| Common stock ($.01 par  value, 350,000,000 shares authorized at March 31, 2007 and December 31,  2006; 272,964,404 and 272,853,162 shares issued and 264,521,995 and  264,410,753 shares outstanding at March 31, 2007 and December 31,  2006, respectively) |       | 2,730              |       | 2,729                 |       |
| Additional paid-in  capital                                                                                                                                                                                                                                                      |       | 2,367,285          |       | 2,366,946             |       |
| Accumulated deficit                                                                                                                                                                                                                                                              |       | (2,728,500         | )          | (2,817,028            | )          |
| Common stock in  treasury, at cost (8,442,409 shares at March 31, 2007 and  December 31, 2006)                                                                                                                                                                         |       | (75,877            | )          | (75,877               | )          |
| Total Shareholders’  Deficiency                                                                                                                                                                                                                                             |       | (434,362           | )          | (523,230              | )          |
| Total Liabilities and Shareholders’ Deficiency                                                                                                                                                                                                                              |       | $                  | 1,294,407  |                  | $          | 1,254,329 |   |

 

See notes tocondensed consolidated financial statements (unaudited).

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

| ** **                                                                                                                                                   | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                                                                                                                                                   | ** ** | ** **                                           | ** ** | **(As restated,  see Note 1)** | ** ** |
| Revenues, net:                                                                                                                                               |       |                                                 |       |   |   |
| Advertising                                                                                                                                                  |       | $                                                    | 66,281     |   | $ | 67,092 |   |
| Other                                                                                                                                                        |       | 13,763                                               |       | 14,310 |   |
| Total revenues, net                                                                                                                                          |       | 80,044                                               |       | 81,402 |   |
| Operating costs  and expenses:                                                                                                                               |       |                                                 |       |   |   |
| Cost of goods sold (exclusive of depreciation and  amortization of property and equipment)                                                                   |       | 8,600                                                |       | 9,927 |   |
| Marketing and selling                                                                                                                                        |       | 22,398                                               |       | 22,228 |   |
| Distribution and circulation                                                                                                                                 |       | 20,190                                               |       | 21,093 |   |
| Editorial                                                                                                                                                    |       | 1,766                                                |       | 1,939 |   |
| Other general expenses                                                                                                                                       |       | 7,689                                                |       | 8,480 |   |
| Corporate administrative expenses (including  non-cash compensation of $161 and $918 in 2007 and 2006, respectively)                                         |       | 6,897                                                |       | 8,827 |   |
| Depreciation and amortization of property and  equipment                                                                                                     |       | 3,113                                                |       | 2,665 |   |
| Amortization of intangible assets and other                                                                                                                  |       | 736                                                  |       | 678 |   |
| Provision for restructuring costs                                                                                                                            |       | 1,589                                                |       | 122 |   |
| Operating income                                                                                                                                             |       | 7,066                                                |       | 5,443 |   |
| Other income (expense):                                                                                                                                      |       |                                                 |       |   |   |
| Interest expense                                                                                                                                             |       | (29,080                                              | )          | (31,457 | ) |
| Amortization of deferred financing costs                                                                                                                     |       | (584                                                 | )          | (659 | ) |
| Other income, net                                                                                                                                            |       | 1,885                                                |       | 156 |   |
| Loss from  continuing operations before benefit for income taxes                                                                                             |       | (20,713                                              | )          | (26,517 | ) |
| Benefit for  income taxes                                                                                                                                    |       | 6,457                                                |       | 9,539 |   |
| Loss from continuing operations                                                                                                                              |       | (14,256                                              | )          | (16,978 | ) |
| Discontinued operations, net of tax (including gain  on sale of businesses, net of tax, of $43,532 and $13,707 in 2007 and 2006,  respectively)              |       | 118,910                                              |       | 19,386 |   |
| 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                                                                                                                                                   |       | $                                                    | 104,654    |   | $ | 2,430 |   |
| Basic and diluted  income (loss) per common share:                                                                                                           |       |                                                 |       |   |   |
| Continuing operations                                                                                                                                        |       | $                                                    | (0.05      | ) | $ | (0.06 | ) |
| Discontinued operations                                                                                                                                      |       | 0.45                                                 |       | 0.07 |   |
| Cumulative effect of change in accounting principle                                                                                                          |       | —                                               |       | 0.00 |   |
| Net income                                                                                                                                                   |       | $                                                    | 0.40       |   | $ | 0.01 |   |
| Basic and diluted  common shares outstanding (weighted average)                                                                                              |       | 264,521,328                                          |       | 263,773,104 |   |

See notes to condensed consolidated financial statements (unaudited).

3

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

| ** **                                                                         | ** ** | **Three Months Ended March 31,**                                                                 | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                         | ** ** | **         2007         ** | ** ** | **        2006        ** | ** ** |
| ** **                                                                         | ** ** | ** **                                                                                                           | ** ** | **(As restated,  see Note 1)** | ** ** |
| **Operating activities:**                                                          |       |                                                                                                                 |       |   |   |   |   |   |   |
| Net income                                                                         |       |                                                                                                                 | $          | 104,654 |   |   |   | $ | 2,430 |   |   |
| Cumulative effect of change in accounting principle,  net of tax                   |       |                                                                                                                 | —     |   |   |   | (22 | ) |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                                                                                                 |       |   |   |   |   |   |   |
| Gain on sale of businesses, net of tax                                             |       |                                                                                                                 | (43,532    | ) |   |   | (13,707 | ) |   |
| Deferred income taxes                                                              |       |                                                                                                                 | (60,363    | ) |   |   | 2,869 |   |   |
| Other, net                                                                         |       |                                                                                                                 | 6,817      |   |   |   | 12,832 |   |   |
| Changes in operating assets and liabilities                                        |       |                                                                                                                 | (3,689     | ) |   |   | 3,422 |   |   |
| Net cash provided by operating activities                                          |       |                                                                                                                 | 3,887      |   |   |   | 7,824 |   |   |
| **Investing activities:**                                                          |       |                                                                                                                 |       |   |   |   |   |   |   |
| Additions to property, equipment and other                                         |       |                                                                                                                 | (5,963     | ) |   |   | (4,730 | ) |   |
| Proceeds from sales of businesses                                                  |       |                                                                                                                 | 170,002    |   |   |   | 17,000 |   |   |
| Payments for businesses acquired, net of cash  acquired                            |       |                                                                                                                 | (24,954    | ) |   |   | (12,317 | ) |   |
| Net cash provided by (used in) investing activities                                |       |                                                                                                                 | 139,085    |   |   |   | (47 | ) |   |
| **Financing activities:**                                                          |       |                                                                                                                 |       |   |   |   |   |   |   |
| Borrowings under credit agreements                                                 |       |                                                                                                                 | 32,800     |   |   |   | 69,600 |   |   |
| Repayments of borrowings under credit agreements                                   |       |                                                                                                                 | (36,300    | ) |   |   | (70,100 | ) |   |
| Payments for repurchases of senior notes                                           |       |                                                                                                                 | —     |   |   |   | (6,832 | ) |   |
| Proceeds from issuances of common stock, net                                       |       |                                                                                                                 | 179        |   |   |   | 246 |   |   |
| Capital lease payments                                                             |       |                                                                                                                 | (311       | ) |   |   | (1,296 | ) |   |
| Other                                                                              |       |                                                                                                                 | (57        | ) |   |   | (54 | ) |   |
| Net cash used in financing activities                                              |       |                                                                                                                 | (3,689     | ) |   |   | (8,436 | ) |   |
| Increase  (decrease) in cash and cash equivalents                                  |       |                                                                                                                 | 139,283    |   |   |   | (659 | ) |   |
| Cash and cash  equivalents, beginning of period                                    |       |                                                                                                                 | 5,828      |   |   |   | 7,255 |   |   |
| Cash and cash  equivalents, end of period                                          |       |                                                                                                                 | $          | 145,111 |   |   |   | $ | 6,596 |   |   |
| **Supplemental information:**                                                      |       |                                                                                                                 |       |   |   |   |   |   |   |
| Cash interest paid, including interest on capital  and restructured leases         |       |                                                                                                                 | $          | 14,033 |   |   |   | $ | 16,033 |   |   |
| Cash income taxes paid, net of refunds received                                    |       |                                                                                                                 | $          | 4,857 |   |   |   | $ | 4,079 |   |   |
| Cash paid for restructuring costs                                                  |       |                                                                                                                 | $          | 2,093 |   |   |   | $ | 1,666 |   |   |
| Businesses  acquired:                                                              |       |                                                                                                                 |       |   |   |   |   |   |   |
| Fair value of assets acquired                                                      |       |                                                                                                                 | $          | 29,729 |   |   |   | $ | 14,315 |   |   |
| (Liabilities assumed) net of deferred purchase price  payments                     |       |                                                                                                                 | (4,775     | ) |   |   | (1,998 | ) |   |
| Payments for  businesses acquired, net of cash acquired                            |       |                                                                                                                 | $          | 24,954 |   |   |   | $ | 12,317 |   |   |

 

See notes to condensed consolidated financial statements (unaudited).

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**PRIMEDIA INC. ANDSUBSIDIARIESNotes to Condensed Consolidated Financial Statements (Unaudited)(in thousands, except share and per share amounts)**

**1.**   Summaryof Significant Accounting Policies

***Basis of Presentation***

PRIMEDIA Inc., togetherwith its subsidiaries, is herein referred to as either “PRIMEDIA” or the “Company”unless the context implies otherwise. In the opinion of the Company’smanagement, the condensed consolidated financial statements present fairly theconsolidated financial position of the Company as of March 31, 2007 and December 31,2006, the results of consolidated operations of the Company for the threemonths ended March 31, 2007 and 2006 and consolidated cash flows of theCompany for the three months ended March 31, 2007 and 2006. The adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included. The condensed consolidated balance sheet as ofDecember 31, 2006 has been derived from the Company’s audited consolidatedbalance sheet included in the Company’s annual report on Form 10-Kfor the year ended December 31, 2006. All intercompany accounts andtransactions have been eliminated in consolidation. These statements should beread in conjunction with the Company’s annual consolidated financial statementsand related notes for the year ended December 31, 2006, which are includedin the Company’s Annual Report on Form 10-K for the year ended December 31,2006. The operating results for the three months ended March 31, 2007 arenot necessarily indicative of the results that may be expected for a full year.Certain amounts in the prior periods’ condensed consolidated statement ofoperations and related notes have been reclassified due to discontinuedoperations to conform to the presentation as of and for the three months ended March 31,2007.

***Recent Accounting Pronouncements Adopted***

*SABNo. 108, “Considering the Effects of Prior Year Misstatements whenQuantifying Misstatements in Current Year Financial Statements”*

During the fourth quarterof 2006, the Company adopted Staff Accounting Bulletin (“SAB”) No. 108,“Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial 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 prioryear’s financial statements. Upon adoption of SAB No. 108 the Company recordeda cumulative effect adjustment as of January 1, 2006 to accumulateddeficit of approximately $7,500.   Of this amount, approximately$5,500 had previously been recorded to income from discontinued operations inthe first quarter of 2006. The consolidated statement of operations for thethree months ended March 31, 2006 has been restated to adjust for theimpact of the SAB No. 108 adjustment.

*FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”*

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes”, effective forfiscal years beginning after December 15, 2006. This Interpretationclarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS No. 109. ThisInterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 requires that, in order to berecognized, tax benefits must be more likely than not to be sustained uponexamination by taxing 

5

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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. (See Note 9).

*EITF 06-3, “*HowTaxes Collected from Customers and Remitted to Governmental Authorities ShouldBe Presented in the Income Statement (That Is, Gross Versus Net Presentation)”

In June 2006, the Financial Accounting StandardsBoard (“FASB”) ratified a consensus on the Emerging Issues Task Force (“EITF”)Issue No. 06-03, “How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross Versus Net Presentation)”, related to the classification of certainsales, value added and excise taxes within the income statement. The EITFreached a tentative conclusion that the presentation of taxes on either a gross(included in revenues and costs) or a net (excluded from revenues) basis is anaccounting policy decision that should be disclosed. The Company records taxescollected from customers and remitted to governmental authorities on a netbasis.

**2.**   Divestitures

The Company has classified the results of certaindivested entities and entities planned for disposition as of March 31,2007 as discontinued 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 Crafts and History groups, part of the Enthusiast Mediasegment, which has been classified as discontinued operations as ofMarch 31, 2007. The Company completed the sales of these groups during2006.

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 in January 2007and the Company recorded a gain of $48,703, net of tax. The net proceeds from this sale aresubject to routine post-closing adjustments. The assets and liabilities of theOutdoors group are included in assets and liabilities of businesses held forsale on the accompanying condensed consolidated 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 is comprised of Channel One, aproprietary network for secondary schools; Films Media Group, a leading sourceof educational video; and PRIMEDIA Healthcare, a medical education business. InApril 2007, the company completed the sale of Channel One. The assets and liabilities of theEducation segment are classified as businesses held for sale on theaccompanying consolidated balance sheets as of March 31, 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, as the market conditions are favorable, in lieu ofthe spin-off of the Consumer Guides segment. PRIMEDIA has retained GoldmanSachs and Lehman Brothers to manage this process. The Company will apply theproceeds from the sale to pay down debt.

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

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

| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Total revenues,  net                      |       | $                                                | 146,103    |   | $ | 179,617 |   |
| Income before provision  for income taxes |       | $                                                | 21,055     |   | $ | 18,003 |   |

 

Income before provisionfor income taxes above excludes gains on sale of businesses. 

The gains on sales ofbusinesses, net of tax, were $43,532 and $13,707 for the three months ended March 31,2007 and 2006, respectively.

*Held for Sale*

Theassets and liabilities of businesses which the Company has initiated plans tosell, but had not sold, as of March 31, 2007 and December 31, 2006,have been classified as held for sale on the accompanying condensedconsolidated balance sheets. As of March 31, 2007, this represents theassets and liabilities of the Enthusiast Media segment and the Educationsegment. As of December 31, 2006, this represents the assets andliabilities of the Outdoors group and the Education segment.

| ** **                               | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                               | ** ** | ** **               | ** ** |                        | ** ** | ** ** |   |
| Accounts  receivable, net                |       | $                        | 97,314     |                        |       | $ | 17,103 | ** ** |   |
| Inventories                              |       | 11,951                   |       |                        | 1,750      | ** ** |   |
| Prepaid expenses  and other              |       | 16,233                   |       |                        | 6,458      | ** ** |   |
| Property and  equipment, net             |       | 33,829                   |       |                        | 8,234      | ** ** |   |
| Intangible assets                        |       | 163,775                  |       |                        | 22,595     | ** ** |   |
| Goodwill                                 |       | 569,827                  |       |                        | 105,238    | ** ** |   |
| Other non-current  assets                |       | 12,907                   |       |                        | 8,659      | ** ** |   |
| Assets held for sale                     |       | $                        | 905,836    |                        |       | $ | 170,037 | ** ** |   |
| **LIABILITIES**                          | ** ** | ** **               | ** ** |                        | ** ** | ** ** |   |
| Accounts payable                         |       | $                        | 32,100     |                        |       | $ | 5,500 | ** ** |   |
| Accrued expenses  and other              |       | 66,874                   |       |                        | 14,977     | ** ** |   |
| Deferred  revenues—current          |       | 83,728                   |       |                        | 29,472     | ** ** |   |
| Current  maturities of long term debt    |       | 797                      |       |                        | —     | ** ** |   |
| Long-term debt                           |       | 1,500                    |       |                        | —     | ** ** |   |
| Other non-current  liabilities           |       | 44,292                   |       |                        | 351        | ** ** |   |
| Liabilities of  businesses held for sale |       | $                        | 229,291    |                        |       | $ | 50,300 | ** ** |   |

 

In January 2007, theCompany completed the sale of its Outdoors group. In April 2007, theCompany completed the sale of Channel One, part of the Education segment.

**3.**   Acquisitions

**Acquisition ofRentalhouses.com**

In February of 2007,the Company acquired the assets of RentalHouses.com, for approximately $9,000in cash. The Company has not yet completed its purchase price allocation and inthe interim has classified the intangible assets to goodwill.

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**Acquisition ofModified Automotive Group**

In January of2007, the Company acquired Modified Automotive Group, publisher of *Modified Magazine*, *Modified Luxury &Exotics Magazine*, *Modified Mustangs Magazine*,and their related event partnerships and websites, for approximately $15,000 incash. The Company has not yet completed its purchase price allocation and inthe interim has classified the intangible assets primarily to goodwill. Thisacquisition is part of the Enthusiast Media segment, therefore goodwill isincluded in assets of businesses held forsale on the accompanying condensed consolidated balance sheet as of March 31,2007.

**Other Acquisitions**

In the first quarter of2007, the Company also acquired a small business within the events industry.

**4.**   AccountsReceivable, Net

Accountsreceivable, net, consisted of the following:

| ** **                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Accounts  receivable               |       |               | $          | 29,028                |       |   |   | $ | 124,788 |   |   |
| Allowance for  doubtful accounts   |       |               | (1,149     | )                     |       |   | (7,368 | ) |   |
| Allowance for  returns and rebates |       |               | —     |                  |       |   | (2,136 | ) |   |
|                               |       |               | $          | 27,879                |       |   |   | $ | 115,284 |   |   |

 

The decrease in accountsreceivable 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 March 31, 2007.

**5.**   Inventories

Inventoriesconsisted of the following:

| ** **      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|--------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Raw materials   |       |               | $          | 667                   |       |   |   | $ | 10,915 |   |   |
| Work in process |       |               | —     |                  |       |   | 79 |   |   |
| Finished goods  |       |               | —     |                  |       |   | 1,984 |   |   |
|            |       |               | $          | 667                   |       |   |   | $ | 12,978 |   |   |

 

The decrease ininventories above is due to the Enthusiast Media segment assets andliabilities, which are classified as held for sale on the condensedconsolidated balance sheet as of March 31, 2007.

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

In accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets” (“SFAS No. 142”), the Company assesses goodwill andindefinite 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 three months ended March 31, 2007and 2006, there were no events or changes in circumstances requiring theCompany to perform an impairment test related to goodwill, intangible assets orother finite lived assets, and accordingly, there were no impairments recorded.

8

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Changesin the carrying amount of goodwill for the three months ended March 31, 2007,by operating 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                       |       | 2,275                 |       | 1,721                |       | 3,996     |       |
| Goodwill acquired  related to the acquisition of businesses             |       | 16,600                |       | 9,191                |       | 25,791    |       |
| Adjustment to  goodwill allocated to assets of businesses held for sale |       | (569,827              | )          | —               |       | (569,827  | )          |
| Balance as of  March 31, 2007                                      |       | $                     | —     |                 | $          | 134,098   |       | $ | 134,098 |   |

 

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

| ** **                                 | ** ** | **Weighted  Average**             | ** ** | **March 31, 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         |   |   | $ | 33 |   |   | $ | 1 |   | $ | 94,011 |   |   | $ | 71,416 |   |   | $ | 22,595 |   |
| Advertiser lists                           |       |                              | 12         |                         |       | 92,125                          |       |   | 74,542 |   |   | 17,583 |   | 99,004 |   |   | 79,987 |   |   | 19,017 |   |
| Other                                      |       |                              | 8          |                         |       | 5,920                           |       |   | 4,519 |   |   | 1,401 |   | 27,924 |   |   | 20,012 |   |   | 7,912 |   |
| Total                                      |       |                              | 12         |                         |       | $                               | 98,079     |   |   | $ | 79,094 |   |   | $ | 18,985 |   | $ | 220,939 |   |   | $ | 171,415 |   |   | $ | 49,524 |   |

 

Intangible assets notsubject to amortization had a carrying value of $6,729 and $138,363 (excludingintangible assets classified as assets of businesses held for sale) at March 31,2007 and December 31, 2006, respectively, and consisted primarily oftrademarks. Amortization expense for other intangible assets still subject toamortization was $736 and $678 for the three months ended March 31, 2007and 2006, respectively. At March 31, 2007, estimated future amortizationexpenses of other intangible assets still subject to amortization, are asfollows: approximately $2,000 for the remainder of 2007 and approximately$2,000 for 2008, 2009, 2010, 2011 and 2012.

**7.**   AccruedExpenses and Other

Accruedexpenses and other current liabilities consisted of the following:

| ** **                                          | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Interest payable                                    |       |               | $          | 27,327                |       |   |   | $ | 12,351 |   |   |
| Payroll,  commissions and related employee benefits |       |               | 15,755     |                  |       |   | 25,340 |   |   |
| Taxes                                               |       |               | 17,022     |                  |       |   | 22,928 |   |   |
| Rent and lease  liabilities                         |       |               | 5,751      |                  |       |   | 7,073 |   |   |
| Deferred purchase  price                            |       |               | 3,834      |                  |       |   | 4,998 |   |   |
| Professional fees                                   |       |               | 2,096      |                  |       |   | 3,806 |   |   |
| Retail display  costs and allowances                |       |               | —     |                  |       |   | 8,263 |   |   |
| Circulation costs                                   |       |               | —     |                  |       |   | 4,840 |   |   |
| Other                                               |       |               | 14,606     |                  |       |   | 22,584 |   |   |
|                                                |       |               | $          | 86,391                |       |   |   | $ | 112,183 |   |   |

 

9

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**8.   Long-termDebt**

Long-termdebt consisted of the following:

| ** **                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Borrowings under  bank credit facilities    |       | $                  | 492,500    |                  |       | $ | 496,000 |   |   |
| 87¤8%  Senior Notes Due 2011           |       | 406,889            |       |                  | 406,733    |   |   |
| 8% Senior Notes  Due 2013                   |       | 294,810            |       |                  | 294,810    |   |   |
| Senior Floating  Rate Notes Due 2010        |       | 122,500            |       |                  | 122,500    |   |   |
|                                        |       | 1,316,699          |       |                  | 1,320,043  |   |   |
| Obligation under  capital leases            |       | 387                |       |                  | 2,986      |   |   |
|                                        |       | 1,317,086          |       |                  | 1,323,029  |   |   |
| Less: Current  maturities of long-term debt |       | 5,171              |       |                  | 6,070      |   |   |
|                                        |       | $                  | 1,311,915  |                  |       | $ | 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. As a result, the Company recorded a gain of $54 net of thewrite-off of unamortized deferred financing costs and bond discount. Thisamount is included in the other income, net line on the accompanying condensedstatements of consoldiated operations for the three months ended March 31,2006.

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.). Consumer Source Inc. includes all of the business andrelated operations of PRIMEDIA Inc. The operating results of Consumer SourceInc. are the same as consolidated PRIMEDIA Inc., and their balance sheets aresubstantially the same, except that PRIMEDIA Inc. holds all of the Company’sbank credit facilities, Senior Notes indebtedness, capital stock accounts andother miscellaneous balance sheet accounts.

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 a minimum fixed charge coverage ratio, as defined, of 1.05 to 1.The maximum allowable debt leverage ratio, as defined in the bank creditfacilities, is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007.

The Senior Floating RateNotes bear interest equal to the three-month LIBOR plus 5.375% per year. Theinterest rate of the Senior Floating Rate Notes was 10.735 % at March 31,2007.

10

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**9.   Income Taxes**

The Company adopted the provisions of FIN 48 onJanuary 1, 2007.  As a result of theimplementation of FIN 48, the Company recognized a liability for unrecognizedtax benefits, interest and penalties of $16,126 which was accounted for as anincrease to the January 1, 2007 balance of accumulated deficit, net of anyvaluation allowance impact.  The totalamount of unrecognized tax benefits as of January 1, 2007 was $15,786, net ofvaluation allowance impact. Substantially all of this amount would, if recognized, have an effect onthe effective income tax rate.   Inaddition to the unrecognized tax benefits, the Company had $3,689 of interestand penalties accrued as of January 1, 2007. 

The Company’s policy is to recognize interest andpenalties related to unrecognized tax benefits in the provision for incometaxes.  

The Company or one of its subsidiaries files incometax returns in the U.S. federal jurisdiction and various state and localjurisdictions, and the Company is routinely under audit by many different taxauthorities. Management believes that its accrual for tax liabilities isadequate for all open audit years based on its assessment of many factors,including past experience and interpretations of tax law.  This assessment relies on estimates andassumptions and may involve a series of complex judgments about futureevents.   As a result of its netoperating loss carryforwards, the Company is subject to federal examination forall years since 1992.

It is possible that federal, state and local taxexaminations will be settled during the next twelve months.  If any of these settlements do occur withinthe next twelve months, the Company would make any necessary adjustments to theliability for unrecognized tax benefits. Until formal resolutions are reached between the Company and the taxauthorities, the determination of a possible audit settlement range withrespect to the impact on uncertain tax benefits 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.  Thestatute of limitations in select jurisdictions is expected to expire within thenext twelve months and may result in a decrease of unrecognized tax benefitsand accrued interest of $2,274.

**During the first quarter of 2007,the Company’s liability for unrecognized tax benefits increased by $2,570, allof which would affect the effective tax rate if recognized. An additional $352of interest was accrued in the first quarter of 2007.**

The Company does not amortize the book basis of itsindefinite-lived intangible assets, but continues to amortize theseintangible assets for tax purposes. For the three months ended March 31,2007 and 2006, provision for income taxes primarily consisted of deferredincome taxes of $636 and $585, respectively. The Company expects that it willrecord a total of approximately $1,905, to increase deferred tax liabilitiesduring the remainder of 2007.

**10.   Provision for Restructuring Costs**

In 2006, the Company begannew cost reduction initiatives to streamline operations, reduce layers ofmanagement and consolidate real estate.

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Detailsof the new initiatives implemented and the payments made related to both thenew and previously implemented plans during the three months ended March 31,2007 and 2006 are presented in the following tables: 

| ** **                                        | ** ** | ** **                    | ** ** | **Net Provision**      | ** ** | **Payments/write-off**         | ** ** | ** **                    | ** ** |
|---------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                        | ** ** | ** **                    | ** ** | **for the Three** | ** ** | **during the Three** | ** ** | ** **                    | ** ** |
| ** **                                        | ** ** | **Liability as of** | ** ** | **Months Ended**       | ** ** | **Months Ended**          | ** ** | **Liability as of** | ** ** |
| ** **                                        | ** ** | **January 1,**           | ** ** | **March 31,**          | ** ** | **March 31,**             | ** ** | **March 31,**            | ** ** |
| ** **                                        | ** ** | **2007**                      | ** ** | **2007**                    | ** ** | **2007**                       | ** ** | **2007**                      | ** ** |
| Employee-related  termination costs               |       |                          | $          | 9                           |       |                           |       | $                             | 255        |   |   |   | $ | (94 | ) |   |   | $ | 170 |   |   |
| Termination of  leases related to office closures |       |                          | 24,684     |                        |       |                           | 1,653      |                          |       |   | (1,602 | ) |   |   | 24,735 |   |   |
| Write-off of  deferred rent liabilities           |       |                          | —     |                        |       |                           | (319       | )                             |       |   | 319 |   |   |   | — |   |   |
| Total                                             |       |                          | $          | 24,693                      | (1)        |                           |       | $                             | 1,589      | (3) |   |   | $ | (1,377 | ) |   |   | $ | 24,905 | (1) |   |

 

| ** **                                        | ** ** | ** **                    | ** ** | **Net Provision**      | ** ** | **Payments**                   | ** ** | ** **                    | ** ** |
|---------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                                        | ** ** | ** **                    | ** ** | **for the Three** | ** ** | **during the Three** | ** ** | ** **                    | ** ** |
| ** **                                        | ** ** | **Liability as of** | ** ** | **Months Ended**       | ** ** | **Months Ended**          | ** ** | **Liability as of** | ** ** |
| ** **                                        | ** ** | **January 1,**           | ** ** | **March 31,**          | ** ** | **March 31,**             | ** ** | **March 31,**            | ** ** |
| ** **                                        | ** ** | **2006**                      | ** ** | **2006**                    | ** ** | **2006**                       | ** ** | **2006**                      | ** ** |
| Termination of leases  related to office closures |       |                          | $     | 26,962                      | (2)        |                           |       | $                             | 122        | (4) |   |   | $ | (1,338 | ) |   |   | $ | 25,746 | (2) |   |
|                                                   |            |                               |            |                             |            |                                |            |                               |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Excludes liabilitiesrelated to discontinued operations totaling $3,826 and $1,827 as of March 31,2007 and January 1, 2007, respectively.

(2)          Excludes liabilitiesrelated to discontinued operations totaling $2,436 and $2,511 as of March 31,2006 and January 1, 2006, respectively.

(3)          Includes $198 related tothe Consumer Guides segment and $1,391 related to Corporate.

(4)          Relates to the Consumer Guidessegment.

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 2007. 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 102individuals.

Liabilities of $4,209 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 of March 31,2007 and December 31, 2006, respectively. Liabilities of $20,696 and$21,208 representing the non-current portion of the provision for restructuringcosts are included in other non-current liabilities on the condensedconsolidated balance sheets as of March 31, 2007 and December 31,2006, respectively.

**11.   Incomeper Common Share**

Income per common share for the three months ended March 31,2007 and 2006 has been determined based on net income divided by the weightedaverage number of common shares outstanding for all periods presented.

The securities that could potentially dilute basicearnings per share in the future consist of approximately 9,870,000 warrants atMarch 31, 2007 and 2006, and 18,688,678 and 20,467,729 stock options at March 31,2007 and 2006, respectively.

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**12.   Commitmentsand Contingencies**

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

In 2005, the Company sold 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 March 31, 2007, the Company has recorded atotal liability of $15,923 for the fair value of the future lease payments, netof estimated sublease income, in the accompanying condensed consolidatedbalance sheet.

**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 is comprised of Channel One, aproprietary network for secondary schools; Films Media Group, a leading sourceof educational video; and PRIMEDIA Healthcare, a medical education business. InApril 2007, the company completed the sale of Channel One.

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment, as the market conditions are favorable, in lieu ofthe spin-off of the Consumer Guides segment. PRIMEDIA has retained GoldmanSachs and Lehman Brothers to manage this process. The Company will apply theproceeds from the sale to pay down debt. The operating results of the Enthusiast Media segmenthave been classified as discontinued operations for all periods 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*.*

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

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. 

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PRIMEDIA evaluates performance based on severalfactors, of which the primary financial measure is segment earnings beforeinterest, taxes, depreciation, amortization and other charges (“Segment EBITDA”).Other charges includenon-cash compensation and provision for restructuring costs.

| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues, net:                                                        |       |                                             |       |   |   |
| Consumer Guides                                                       |       | $                                                | 80,044     |   | $ | 81,402 |   |
| Total                                                                 |       | $                                                | 80,044     |   | $ | 81,402 |   |
| Segment  EBITDA:(1)                                                   |       |                                             |       |   |   |
| Consumer Guides                                                       |       | $                                                | 19,401     |   | $ | 17,735 |   |
| Corporate Overhead                                                    |       | (6,736                                           | )          | (7,909 | ) |
| Segment EBITDA                                                        |       | 12,665                                           |       | 9,826 |   |
| Depreciation and  amortization of property and equipment              |       | 3,113                                            |       | 2,665 |   |
| Amortization of  intangible assets and other                          |       | 736                                              |       | 678 |   |
| Other charges                                                         |       | 1,750                                            |       | 1,040 |   |
| Operating income                                                      |       | 7,066                                            |       | 5,443 |   |
| Other income  (expense):                                              |       |                                             |       |   |   |
| Interest expense                                                      |       | (29,080                                          | )          | (31,457 | ) |
| Amortization of deferred financing costs                              |       | (584                                             | )          | (659 | ) |
| Other income, net                                                     |       | 1,885                                            |       | 156 |   |
| Loss from continuing  operations before benefit for income taxes |       | $                                                | (20,713    | ) | $ | (26,517 | ) |

----

(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.

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

The information that follows presents consolidatingfinancial information as of March 31, 2007 and December 31, 2006 andfor the three months ended March 31, 2007 and 2006 for a) PRIMEDIA Inc.(as the Issuer), b) the guarantor subsidiaries, which are, with limitedexceptions, the restricted subsidiaries, represent the core PRIMEDIA businessesand exclude investment and other development properties included in theunrestricted category, c) the non-guarantor subsidiaries (primarilyrepresenting Internet assets and businesses, new launches and other propertiesunder evaluation for turnaround or shutdown and foreign subsidiaries), whichare with limited exceptions the unrestricted subsidiaries, d) eliminationentries and e) the Company on a consolidated basis. Corporate operatingexpenses have been included in the operations of the guarantor subsidiaries. Thesereclassifications are in compliance with our debt agreements and have not had amaterial effect on the Company’s debt covenant ratios as defined in the bankcredit facilities. Certain 2006 amounts have been recast to conform to the 2007presentation. The Company believes that this presentation more accuratelyreflects the financial information of the categories presented below.

The consolidating financial information includes certainallocations of revenues, expenses, assets and liabilities based on management’sbest estimates which are not necessarily indicative of financial position,results 

14

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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 guarantorsubsidiaries and expenses associated with the cross promotion by the guarantorsubsidiaries of the activities of the non-guarantor subsidiaries. Thetransactions described above are billed, by the Company, at what the Companybelieves are market rates. All intercompany related activities are eliminatedin consolidation. Consumer Source Inc. (formerly known as PRIMEDIA CompaniesInc.) includes all of the businesses and related operations of PRIMEDIA Inc.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.

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 asunrestricted (the “Unrestricted Group”), which primarily represent Internetbusinesses, trademark and content licensing and service companies, new launches(including traditional start-ups), other properties under evaluation forturnaround or shutdown and foreign subsidiaries. Except for those specificallydesignated by the Company as unrestricted, all businesses of the Company arerestricted (the “Restricted Group”). Indebtedness under the bank creditfacilities and Senior Note agreements is guaranteed by each of the Company’s100%-owned domestic subsidiaries in the Restricted Group in accordance with theprovisions and limitations of the Company’s bank credit facilities and SeniorNote agreements. The guarantees are full, unconditional and joint and several.The Unrestricted Group does not guarantee the bank credit facilities or SeniorNotes. For purposes of determining compliance with certain financial covenantsunder the Company’s bank credit facilities, 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 Unrestricted Group, non-cash charges and restructuringcharges and is adjusted primarily for the trailing four quarters results ofacquisitions and divestitures and estimated savings for acquired business.

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET**(UNAUDITED)March 31, 2007(dollars in thousands)

| ** **                                           | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                           | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                           | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                      |       |                   |       |             |       |              |       | ** **       |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |       |                   | $          | 138,297          |       |              |       | $                | 4,390      | ** **             |       |   | $ | 2,424 |   |   |   | $ | — |   |   |   | $ | 145,111 |   |   |
| Accounts receivable, net                             |       |                   | —     |             |       |              | 23,888     | ** **       |       |                   | 3,991      |   |   |   | — |   |   |   | 27,879 |   |   |
| Inventories                                          |       |                   | —     |             |       |              | 667        | ** **       |       |                   | —     |   |   |   | — |   |   |   | 667 |   |   |
| Prepaid expenses and other                           |       |                   | 4,111      |             |       |              | 1,971      | ** **       |       |                   | 12,266     |   |   |   | — |   |   |   | 18,348 |   |   |
| Assets of businesses held for sale                   |       |                   | —     |             |       |              | 746,174    | ** **       |       |                   | 159,662    |   |   |   | — |   |   |   | 905,836 |   |   |
| Total current assets                                 |       |                   | 142,408    |             |       |              | 777,090    | ** **       |       |                   | 178,343    |   |   |   | — |   |   |   | 1,097,841 |   |   |
| Property and equipment, net                          |       |                   | 3,392      |             |       |              | 8,122      | ** **       |       |                   | 8,774      |   |   |   | — |   |   |   | 20,288 |   |   |
| Investment in and  advances to subsidiaries          |       |                   | 115,739    |             |       |              | 7,953      | ** **       |       |                   | —     |   |   |   | (123,692 | ) |   |   | — |   |   |
| Intangible assets,  net                              |       |                   | —     |             |       |              | 17,510     | ** **       |       |                   | 8,204      |   |   |   | — |   |   |   | 25,714 |   |   |
| Goodwill                                             |       |                   | —     |             |       |              | 112,266    | ** **       |       |                   | 21,832     |   |   |   | — |   |   |   | 134,098 |   |   |
| Other non-current  assets                            |       |                   | 15,323     |             |       |              | 1,143      | ** **       |       |                   | —     |   |   |   | — |   |   |   | 16,466 |   |   |
| Total Assets                                         |       |                   | $          | 276,862          |       |              |       | $                | 924,084    | ** **             |       |   | $ | 217,153 |   |   |   | $ | (123,692 | ) |   |   | $ | 1,294,407 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                 |       |                   |       |             |       |              |       | ** **       |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                     |       |                   | $          | 3,004            |       |              |       | $                | 7,135      | ** **             |       |   | $ | 2,099 |   |   |   | $ | — |   |   |   | $ | 12,238 |   |   |
| Intercompany payables                                |       |                   | (741,403   | )                |       |              | 55,884     | ** **       |       |                   | 693,472    |   |   |   | (7,953 | ) |   |   | — |   |   |
| Accrued expenses and other                           |       |                   | 61,164     |             |       |              | 18,455     | ** **       |       |                   | 6,772      |   |   |   | — |   |   |   | 86,391 |   |   |
| Deferred revenues                                    |       |                   | 1,700      |             |       |              | 307        | ** **       |       |                   | 7          |   |   |   | — |   |   |   | 2,014 |   |   |
| Current maturities of long-term debt                 |       |                   | 5,062      |             |       |              | 109        | ** **       |       |                   | —     |   |   |   | — |   |   |   | 5,171 |   |   |
| Liabilities of businesses held for  sale             |       |                   | —     |             |       |              | 194,323    | ** **       |       |                   | 34,968     |   |   |   | — |   |   |   | 229,291 |   |   |
| Total current liabilities                            |       |                   | (670,473   | )                |       |              | 276,213    | ** **       |       |                   | 737,318    |   |   |   | (7,953 | ) |   |   | 335,105 |   |   |
| Long-term debt                                       |       |                   | 1,311,785  |             |       |              | 130        | ** **       |       |                   | —     |   |   |   | — |   |   |   | 1,311,915 |   |   |
| Intercompany notes  payable                          |       |                   | —     |             |       |              | 205,282    | ** **       |       |                   | —     |   |   |   | (205,282 | ) |   |   | — |   |   |
| Deferred revenues                                    |       |                   | 12,325     |             |       |              | —     | ** **       |       |                   | —     |   |   |   | — |   |   |   | 12,325 |   |   |
| Deferred income  taxes                               |       |                   | —     |             |       |              | 11,697     | ** **       |       |                   | —     |   |   |   | — |   |   |   | 11,697 |   |   |
| Other non-current  liabilities                       |       |                   | 57,587     |             |       |              | 140        | ** **       |       |                   | —     |   |   |   | — |   |   |   | 57,727 |   |   |
| Total Liabilities                                    |       |                   | 711,224    |             |       |              | 493,462    | ** **       |       |                   | 737,318    |   |   |   | (213,235 | ) |   |   | 1,728,769 |   |   |
| Shareholders’  deficiency:                      |       |                   |       |             |       |              |       | ** **       |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                         |       |                   | 2,730      |             |       |              | —     | ** **       |       |                   | —     |   |   |   | — |   |   |   | 2,730 |   |   |
| Additional paid-in capital                           |       |                   | 2,367,285  |             |       |              | —     | ** **       |       |                   | —     |   |   |   | — |   |   |   | 2,367,285 |   |   |
| Accumulated deficit                                  |       |                   | (2,728,500 | )                |       |              | 430,622    | ** **       |       |                   | (520,165   | ) |   |   | 89,543 |   |   |   | (2,728,500 | ) |   |
| Common stock in treasury, at cost                    |       |                   | (75,877    | )                |       |              | —     | ** **       |       |                   | —     |   |   |   | — |   |   |   | (75,877 | ) |   |
| Total Shareholders’ Deficiency                  |       |                   | (434,362   | )                |       |              | 430,622    | ** **       |       |                   | (520,165   | ) |   |   | 89,543 |   |   |   | (434,362 | ) |   |
| Total Liabilities  and Shareholders’ Deficiency |       |                   | $          | 276,862          |       |              |       | $                | 924,084    | ** **             |       |   | $ | 217,153 |   |   |   | $ | (123,692 | ) |   |   | $ | 1,294,407 |   |   |

 

16

----

**PRIMEDIAINC. AND SUBSIDIARIES CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Three Months Ended March 31, 2007(dollars in thousands)**

| ** **                                                                                 | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                 | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                 | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net:                                                                             |       |                   | $          | —           |       |              |       | $                | 51,276     |                   |       |   | $ | 32,877 |   |   |   | $ | (4,109 | ) |   |   | $ | 80,044 |   |   |
| Operating costs and  expenses:                                                             |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and  amortization of property and equipment) |       |                   | —     |             |       |              | 7,698      |             |       |                   | 902        |   |   |   | — |   |   |   | 8,600 |   |   |
| Marketing and selling                                                                      |       |                   | —     |             |       |              | 18,760     |             |       |                   | 3,638      |   |   |   | — |   |   |   | 22,398 |   |   |
| Distribution and circulation                                                               |       |                   | —     |             |       |              | 5,582      |             |       |                   | 14,608     |   |   |   | — |   |   |   | 20,190 |   |   |
| Editorial                                                                                  |       |                   | —     |             |       |              | 1,565      |             |       |                   | 201        |   |   |   | — |   |   |   | 1,766 |   |   |
| Other general expenses                                                                     |       |                   | —     |             |       |              | (9,124     | )                |       |                   | 20,922     |   |   |   | (4,109 | ) |   |   | 7,689 |   |   |
| Corporate administrative expenses (including  non-cash compensation)                       |       |                   | —     |             |       |              | 5,838      |             |       |                   | 1,059      |   |   |   | — |   |   |   | 6,897 |   |   |
| Depreciation and amortization of property and  equipment                                   |       |                   | —     |             |       |              | 1,295      |             |       |                   | 1,818      |   |   |   | — |   |   |   | 3,113 |   |   |
| Amortization of intangible assets and other                                                |       |                   | —     |             |       |              | 525        |             |       |                   | 211        |   |   |   | — |   |   |   | 736 |   |   |
| Provision for restructuring costs                                                          |       |                   | —     |             |       |              | 1,589      |             |       |                   | —     |   |   |   | — |   |   |   | 1,589 |   |   |
| Operating income  (loss)                                                                   |       |                   | —     |             |       |              | 17,548     |             |       |                   | (10,482    | ) |   |   | — |   |   |   | 7,066 |   |   |
| Other income (expense):                                                                    |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                           |       |                   | (29,071    | )                |       |              | (9         | )                |       |                   | —     |   |   |   | — |   |   |   | (29,080 | ) |   |
| Amortization of deferred financing costs                                                   |       |                   | (584       | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (584 | ) |   |
| Intercompany management fees and interest                                                  |       |                   | 7,306      |             |       |              | (7,306     | )                |       |                   | —     |   |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                                                |       |                   | —     |             |       |              | 1,902      |             |       |                   | (17        | ) |   |   | — |   |   |   | 1,885 |   |   |
| Income (loss)  from continuing operations before (provision) benefit for income taxes      |       |                   | (22,349    | )                |       |              | 12,135     |             |       |                   | (10,499    | ) |   |   | — |   |   |   | (20,713 | ) |   |
| (Provision)  benefit for income taxes                                                      |       |                   | —     |             |       |              | 6,702      |             |       |                   | (245       | ) |   |   | — |   |   |   | 6,457 |   |   |
| Equity in  earnings (losses) of subsidiaries                                               |       |                   | 127,003    |             |       |              | (12,388    | )                |       |                   | —     |   |   |   | (114,615 | ) |   |   | — |   |   |
| Income (loss)  from continuing operations                                                  |       |                   | 104,654    |             |       |              | 6,449      |             |       |                   | (10,744    | ) |   |   | (114,615 | ) |   |   | (14,256 | ) |   |
| Discontinued  operations, net of tax                                                       |       |                   | —     |             |       |              | 120,554    |             |       |                   | (1,644     | ) |   |   | — |   |   |   | 118,910 |   |   |
| Net income (loss)                                                                          |       |                   | $          | 104,654          |       |              |       | $                | 127,003    |                   |       |   | $ | (12,388 | ) |   |   | $ | (114,615 | ) |   |   | $ | 104,654 |   |   |

 

17

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Three Months Ended March 31, 2007(dollars in thousands)**

| ** **                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                         | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                         | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                          | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net income (loss)                                                                                  |       |                   | $          | 104,654          |       |              |       | $                | 127,003    |                   |       |   | $ | (12,388 | ) |   |   | $ | (114,615 | ) |   |   | $ | 104,654 |   |   |
| Adjustments to reconcile net income (loss) to net  cash provided by (used in) operating activities |       |                   | (105,377   | )                |       |              | (80,980    | )                |       |                   | 3,017      |   |   |   | 86,262 |   |   |   | (97,078 | ) |   |
| Changes in operating assets and liabilities                                                        |       |                   | 723        |             |       |              | 14,510     |             |       |                   | (18,922    | ) |   |   | — |   |   |   | (3,689 | ) |   |
| Net cash provided by (used in) operating activities                                                |       |                   | —     |             |       |              | 60,533     |             |       |                   | (28,293    | ) |   |   | (28,353 | ) |   |   | 3,887 |   |   |
| **Investing  activities:**                                                                         | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Additions to property, equipment and other                                                         |       |                   | —     |             |       |              | (4,228     | )                |       |                   | (1,735     | ) |   |   | — |   |   |   | (5,963 | ) |   |
| Proceeds from sales of businesses                                                                  |       |                   | —     |             |       |              | 165,488    |             |       |                   | 4,514      |   |   |   | — |   |   |   | 170,002 |   |   |
| Payments for businesses acquired, net of cash  acquired                                            |       |                   | —     |             |       |              | (15,157    | )                |       |                   | (9,797     | ) |   |   | — |   |   |   | (24,954 | ) |   |
| Net cash provided by (used in) investing activities                                                |       |                   | —     |             |       |              | 146,103    |             |       |                   | (7,018     | ) |   |   | — |   |   |   | 139,085 |   |   |
| **Financing  activities:**                                                                         | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Intercompany activity                                                                              |       |                   | 140,001    |             |       |              | (205,874   | )                |       |                   | 37,520     |   |   |   | 28,353 |   |   |   | — |   |   |
| 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                                                       |       |                   | 179        |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 179 |   |   |
| Capital lease payments                                                                             |       |                   | —     |             |       |              | (285       | )                |       |                   | (26        | ) |   |   | — |   |   |   | (311 | ) |   |
| Other                                                                                              |       |                   | —     |             |       |              | (57        | )                |       |                   | —     |   |   |   | — |   |   |   | (57 | ) |   |
| Net cash provided by (used in) financing activities                                                |       |                   | 136,680    |             |       |              | (206,216   | )                |       |                   | 37,494     |   |   |   | 28,353 |   |   |   | (3,689 | ) |   |
| Increase in cash and cash equivalents                                                              |       |                   | 136,680    |             |       |              | 420        |             |       |                   | 2,183      |   |   |   | — |   |   |   | 139,283 |   |   |
| Cash and cash equivalents, beginning of period                                                     |       |                   | 1,617      |             |       |              | 3,970      |             |       |                   | 241        |   |   |   | — |   |   |   | 5,828 |   |   |
| Cash and cash  equivalents, end of period                                                          |       |                   | $          | 138,297          |       |              |       | $                | 4,390      |                   |       |   | $ | 2,424 |   |   |   | $ | — |   |   |   | $ | 145,111 |   |   |

 

18

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**PRIMEDIA INC. 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                                         |       |                   | 2,729      |                        |       | —                          |       |            | —     |                                      |       | — |   |   | 2,729 |   |   |
| Additional paid-in capital                           |       |                   | 2,366,946  |                        |       | —                          |       |            | —     |                                      |       | — |   |   | 2,366,946 |   |   |
| 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 |   |   |

 

19

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS**(UNAUDITED) For the Three Months Ended March 31, 2006 (dollars in thousands)

| ** **                                                                                                                                                | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                                                                                | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                                                                                | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                                                                                                             |       |                   | $          | —           |       |              |       | $                | 50,544     |                   |       |   | $ | 33,267 |   |   |   | $ | (2,409 | ) |   |   | $ | 81,402 |   |   |
| Operating costs and  expenses:                                                                                                                            |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and  amortization of property and equipment)                                                                |       |                   | —     |             |       |              | 8,724      |             |       |                   | 1,203      |   |   |   | — |   |   |   | 9,927 |   |   |
| Marketing and selling                                                                                                                                     |       |                   | —     |             |       |              | 16,589     |             |       |                   | 5,639      |   |   |   | — |   |   |   | 22,228 |   |   |
| Distribution and circulation                                                                                                                              |       |                   | —     |             |       |              | 42         |             |       |                   | 21,051     |   |   |   | — |   |   |   | 21,093 |   |   |
| Editorial                                                                                                                                                 |       |                   | —     |             |       |              | 1,704      |             |       |                   | 235        |   |   |   | — |   |   |   | 1,939 |   |   |
| Other general expenses                                                                                                                                    |       |                   | —     |             |       |              | (1,241     | )                |       |                   | 12,130     |   |   |   | (2,409 | ) |   |   | 8,480 |   |   |
| Corporate administrative expenses (including  non-cash compensation)                                                                                      |       |                   | —     |             |       |              | 7,357      |             |       |                   | 1,470      |   |   |   | — |   |   |   | 8,827 |   |   |
| Depreciation and amortization of property and  equipment                                                                                                  |       |                   | —     |             |       |              | 1,233      |             |       |                   | 1,432      |   |   |   | — |   |   |   | 2,665 |   |   |
| Amortization of intangible assets and other                                                                                                               |       |                   | —     |             |       |              | 595        |             |       |                   | 83         |   |   |   | — |   |   |   | 678 |   |   |
| Provision for restructuring costs                                                                                                                         |       |                   | —     |             |       |              | 122        |             |       |                   | —     |   |   |   | — |   |   |   | 122 |   |   |
| Operating income  (loss)                                                                                                                                  |       |                   | —     |             |       |              | 15,419     |             |       |                   | (9,976     | ) |   |   | — |   |   |   | 5,443 |   |   |
| Other income (expense):                                                                                                                                   |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                                          |       |                   | (31,444    | )                |       |              | (10        | )                |       |                   | (3         | ) |   |   | — |   |   |   | (31,457 | ) |   |
| Amortization of deferred financing costs                                                                                                                  |       |                   | (659       | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (659 | ) |   |
| Intercompany management fees and interest                                                                                                                 |       |                   | 36,161     |             |       |              | (36,161    | )                |       |                   | —     |   |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                                                                                                               |       |                   | 297        |             |       |              | (141       | )                |       |                   | —     |   |   |   | — |   |   |   | 156 |   |   |
| Income (loss)  from continuing operations before (provision) benefit for income taxes                                                                     |       |                   | 4,355      |             |       |              | (20,893    | )                |       |                   | (9,979     | ) |   |   | — |   |   |   | (26,517 | ) |   |
| (Provision)  benefit for income taxes                                                                                                                     |       |                   | —     |             |       |              | 9,548      |             |       |                   | (9         | ) |   |   | — |   |   |   | 9,539 |   |   |
| Equity in losses  of subsidiaries                                                                                                                         |       |                   | (1,925     | )                |       |              | (9,147     | )                |       |                   | —     |   |   |   | 11,072 |   |   |   | — |   |   |
| Income (loss)  from continuing operations                                                                                                                 |       |                   | 2,430      |             |       |              | (20,492    | )                |       |                   | (9,988     | ) |   |   | 11,072 |   |   |   | (16,978 | ) |   |
| Discontinued  operations, net of tax                                                                                                                      |       |                   | —     |             |       |              | 18,215     |             |       |                   | 1,171      |   |   |   | — |   |   |   | 19,386 |   |   |
| 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)                                                                                                                                         |       |                   | $          | 2,430            |       |              |       | $                | (1,925     | )                      |       |   | $ | (9,147 | ) |   |   | $ | 11,072 |   |   |   | $ | 2,430 |   |   |

 

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**PRIMEDIAINC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Three Months Ended March 31, 2006(dollars in thousands)**

| ** **                                                                                           | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                           | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                            |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                    |       |                   | $          | 2,430            |       |              |       | $                | (1,925     | )                      |       |   | $ | (9,147 | ) |   |   | $ | 11,072 |   |   |   | $ | 2,430 |   |   |
| Cumulative effect of change in accounting principle,  net of tax                                     |       |                   | —     |             |       |              | (352       | )                |       |                   | 330        |   |   |   | — |   |   |   | (22 | ) |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                   | (11,291    | )                |       |              | (2,221     | )                |       |                   | 4,705      |   |   |   | 10,801 |   |   |   | 1,994 |   |   |
| Changes in operating assets and liabilities                                                          |       |                   | 8,861      |             |       |              | 15,086     |             |       |                   | (20,525    | ) |   |   | — |   |   |   | 3,422 |   |   |
| Net cash provided by (used in) operating activities                                                  |       |                   | —     |             |       |              | 10,588     |             |       |                   | (24,637    | ) |   |   | 21,873 |   |   |   | 7,824 |   |   |
| **Investing activities:**                                                                            |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property, equipment and other                                                           |       |                   | —     |             |       |              | (3,151     | )                |       |                   | (1,579     | ) |   |   | — |   |   |   | (4,730 | ) |   |
| Proceeds from sales of businesses                                                                    |       |                   | —     |             |       |              | 30,039     |             |       |                   | (13,039    | ) |   |   | — |   |   |   | 17,000 |   |   |
| Payments for businesses acquired, net of cash  acquired                                              |       |                   | —     |             |       |              | (12,292    | )                |       |                   | (25        | ) |   |   | — |   |   |   | (12,317 | ) |   |
| Net cash provided by (used in) investing activities                                                  |       |                   | —     |             |       |              | 14,596     |             |       |                   | (14,643    | ) |   |   | — |   |   |   | (47 | ) |   |
| **Financing activities:**                                                                            |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                                |       |                   | 7,074      |             |       |              | (23,630    | )                |       |                   | 38,429     |   |   |   | (21,873 | ) |   |   | — |   |   |
| Borrowings under credit agreements                                                                   |       |                   | 69,600     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 69,600 |   |   |
| Repayments of borrowings under credit agreements                                                     |       |                   | (70,100    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (70,100 | ) |   |
| Payments for repurchases of senior notes                                                             |       |                   | (6,832     | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (6,832 | ) |   |
| Proceeds from issuances of common stock, net                                                         |       |                   | 246        |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 246 |   |   |
| Capital lease payments                                                                               |       |                   | —     |             |       |              | (1,429     | )                |       |                   | 133        |   |   |   | — |   |   |   | (1,296 | ) |   |
| Other                                                                                                |       |                   | —     |             |       |              | (54        | )                |       |                   | —     |   |   |   | — |   |   |   | (54 | ) |   |
| Net cash provided by (used in) financing activities                                                  |       |                   | (12        | )                |       |              | (25,113    | )                |       |                   | 38,562     |   |   |   | (21,873 | ) |   |   | (8,436 | ) |   |
| Increase  (decrease) in cash and cash equivalents                                                    |       |                   | (12        | )                |       |              | 71         |             |       |                   | (718       | ) |   |   | — |   |   |   | (659 | ) |   |
| Cash and cash  equivalents, beginning of period                                                      |       |                   | 321        |             |       |              | 4,182      |             |       |                   | 2,752      |   |   |   | — |   |   |   | 7,255 |   |   |
| Cash and cash  equivalents, end of period                                                            |       |                   | $          | 309              |       |              |       | $                | 4,253      |                   |       |   | $ | 2,034 |   |   |   | $ | — |   |   |   | $ | 6,596 |   |   |

 

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

**Introduction**

PRIMEDIA Inc., togetherwith its subsidiaries, is herein referred to as either “PRIMEDIA” or the “Company.”

The following discussionand analysis summarize the financial condition and operating performance of theCompany and should be read in conjunction with the unaudited condensedconsolidated financial statements and notes thereto.

**Executive Summary**

*Our Business*

PRIMEDIA Inc. is theparent company of Consumer Source Inc., the #1 publisher and distributor offree consumer guides in the U.S. with Apartment Guide, Auto Guide, and New HomeGuide, distributing free consumer publications through its proprietarydistribution network, DistribuTech, in more than 60,000 locations. ConsumerSource owns and operates leading websites including ApartmentGuide.com, AutoGuide.com,NewHomeGuide.com; and America’s largest online single unit rental property business,comprised of RentClicks.com, RentalHouses.com, HomeRentalAds.com, andRentals.com.

The Company’s revenues aregenerated by its Consumer Guides business, from advertising (print and online)and third party distribution. PRIMEDIA’s Operating expenses, for Segment EBITDApurposes, include cost of goods sold (paper, printing and binding), exclusiveof depreciation and amortization of property and equipment; marketing andselling; distribution and circulation; editorial; and other general andcorporate administrative expenses, excluding non-cash compensation(collectively referred to as “Operating expenses”). See *Why We Usethe Term Segment EBITDA*.

*Background*

Historically, PRIMEDIA wasa broad based media enterprise built from a series of acquisitions andcomprised of numerous disparate assets. In recent years, in order to betterfocus on its core businesses and to reduce debt, the Company has beenstrategically divesting selective properties. As a result, the Company has now positioneditself as the number one publisher and distributer of free consumerpublications in the U.S.

Additionally, to counterthe effects of the continued weakness in the overall advertising environment,the Company aggressively attacked its cost structure. The Company realigned andreorganized its management structure to better reflect its emphasis ondelivering exceptional products and brands to the marketplace to achieveorganic growth while managing costs. Organic growth represents growth of theCompany’s businesses, excluding acquisitions made during the periods compared. Theseinitiatives have resulted in charges for restructuring costs to integrateCompany operations and consolidate many back office functions and facilities,resulting in a significant reduction in the number of employees and officespace, creating operational and financial efficiencies.

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

*Business Trends*

Throughout 2005 and 2006,high levels of condominium conversions and low vacancies limited existing andpotential customers for Apartment Guide markets while some markets experiencedmore diversified 

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advertisingspending. Recently, condominium conversions have slowed and vacancy rates haveincreased in the regions impacted in prior years.

In a few markets, newconstruction has almost halted until builders sell off excess inventory.Builder starts have declined across all of the Company’s operating marketsexcept one. We track our penetration of the top 25 builders in each market andthe penetration into the number of their communities available to advertise,and we continue to increase this penetration from quarter to quarter.

The auto industry isreducing newspaper advertising looking for alternative, cost-effectiveadvertising methods. The auto industry uses a variety of media forms such asradio, television, and billboards. Because Auto Guide advertising offers one ofthe most cost effective advertising spends, the Company is focused onincreasing its share of auto advertising budgets.

*Company Strategy*

Making organic growth itstop priority in 2007, the Company’s strategy is to focus on growing its coretargeted consumer guides, maintaining its industry-leading distributionnetwork, and launching into new vertical markets.

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

·       increasingpenetration in existing markets,

·       expandinginto new cities,

·       expandingproduct offerings,

·       enhancingthe end-user experience through new technologies and online features.

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

*Exploration of Sale of Enthusiast Media Segment*

In February 2007, theCompany announced that its Board of Directors had authorized the Company toexplore the sale of its Enthusiast Media segment, as the market conditions arefavorable, in lieu of the spin-off of the Consumer Guides segment. PRIMEDIA hasretained Goldman Sachs and Lehman Brothers to manage this process. The Companywill apply the proceeds from the sale to pay down debt. The operations of theEnthusiast Media segment are included in discontinued operations for all periodspresented.

*Summary of Consolidated Results for the three monthsended March 31, 2007*

For the three months endedMarch 31, 2007, revenues were $80,044, down 1.7% as compared to $81,402 in2006. In 2007, Operating Expenses were $67,379, down 5.9% compared to 2006. In2007, operating income was $7,066, up $1,623 or 29.8% from $5,443 in 2006. Netincome was $104,654 in 2007 compared to $2,430 in 2006, the increase primarilydue to the gain on the sale of the businesses, net of tax, of $43,532 in 2007.

*Forward-Looking Information*

This report containsstatements that are, or may be considered to be, forward-looking statements.All statements that are not historical facts, including statements about ourbeliefs or expectations, are forward-looking statements. You can identify theseforward-looking statements by the use of forward-looking words such as “outlook,”“believes,” “expects,” “potential,” “continues,” “may,” “should,” “seeks,” “approximately,”“predicts,” “intends,” “plans,” “estimates,” “anticipates,” “foresees” or thenegative version of those words or other comparable words and phrases. Anyforward-looking statements contained 

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in thisinformation statement are based upon our historical performance and on currentplans, 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 the Term Segment EBITDA*

Segment EBITDA representseach segment’s earnings before interest, taxes, depreciation, amortization andother charges (“Segment EBITDA”). Other charges include non-cash compensationand provision for restructuring costs. 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 notintended to be and should not be considered as an alternative to net income orloss (as determined in conformity with generally accepted accountingprinciples), or as an indicator of the Company’s operating performance. SegmentEBITDA is presented herein because the Company’s chief operating decision maker,its Chairman, President and CEO, and the executive team evaluate and measureeach business unit’s performance based on its Segment EBITDA results. SegmentEBITDA as presented may not be comparable to similarly titled measures reportedby other companies since not all companies necessarily calculate Segment EBITDAin an identical manner, and therefore, is not necessarily an accurate measureof comparison between companies.

*Why We Use the Term Free Cash Flow*

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

The Company believes thatthe use of Free Cash Flow enables the Company’s chief operating decision maker,and the executive team to make decisions based on the Company’s cash resources.Free Cash Flow also is considered to be an indicator of the Company’sliquidity, including its ability to reduce debt and make strategic investments.

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

*Intersegment Transactions*

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

*Discontinued Operations*

In the fourth quarter of2006, the Company announced that it had agreed to sell its Outdoors group (partof the Enthusiast Media segment), which consists primarily of its hunting,fishing, and shooting titles, for $170,000 in cash. The transaction wascompleted in January 2007. The assets and liabilities of the 

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Outdoors group are included in assets andliabilities of businesses held for sale on the accompanying condensedconsolidated balance sheets as of December 31, 2006.

In the fourth quarter of2006, the Company announced that it would classify the results of operations ofits Education segment as discontinued operations, due to the Company activelypursuing the sale of this segment. The Company’s Education segment is comprisedof Channel One, a proprietary network for secondary schools; Films Media Group,a leading source of educational video; and PRIMEDIA Healthcare, a medicaleducation business. In April 2007, the company completed the sale ofChannel One. Theassets and liabilities of the Education segment are classified as businessesheld for sale on the accompanying consolidated balance sheets as of March 31,2007 and December 31, 2006 (see further discussion below).

In February 2007, theCompany announced that its Board of Directors had authorized the Company toexplore the sale of its Enthusiast Media segment, as the market conditions arefavorable, in lieu of the spin-off of the Consumer Guides segment. PRIMEDIA hasretained Goldman Sachs and Lehman Brothers to manage this process. The Companywill apply the proceeds from the sale to pay down debt.

The operating results ofthese operations have been classified as discontinued operations for allperiods presented.

*Segment Data*

Thefollowing table presents the results of the Company’s one operating segment andCorporate:

| ** **                                                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues, net:                                                        |       |                                             |       |   |   |
| Consumer Guides                                                       |       | $                                                | 80,044     |   | $ | 81,402 |   |
| Total                                                                 |       | $                                                | 80,044     |   | $ | 81,402 |   |
| Segment EBITDA:(1)                                                    |       |                                             |       |   |   |
| Consumer Guides                                                       |       | $                                                | 19,401     |   | $ | 17,735 |   |
| Corporate Overhead                                                    |       | (6,736                                           | )          | (7,909 | ) |
| Segment EBITDA                                                        |       | 12,665                                           |       | 9,826 |   |
| Depreciation and  amortization of property and equipment              |       | 3,113                                            |       | 2,665 |   |
| Amortization of  intangible assets and other                          |       | 736                                              |       | 678 |   |
| Other charges                                                         |       | 1,750                                            |       | 1,040 |   |
| Operating income                                                      |       | 7,066                                            |       | 5,443 |   |
| Other income (expense):                                               |       |                                             |       |   |   |
| Interest expense                                                      |       | (29,080                                          | )          | (31,457 | ) |
| Amortization of deferred  financing costs                             |       | (584                                             | )          | (659 | ) |
| Other income, net                                                     |       | 1,885                                            |       | 156 |   |
| Loss from continuing operations before  benefit for income taxes |       | $                                                | (20,713    | ) | $ | (26,517 | ) |

----

(1)          SegmentEBITDA represents the segments’ earnings before interest, taxes, depreciation,amortization and other charges. Other charges includes non-cash compensationand provision for restructuring costs.

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**Results of Operations**

***Three Months Ended March 31,2007 Compared to Three Months Ended March 31, 2006***

**Consolidated Results**

*Operating Income*

Operating income was$7,066 in 2007 compared to $5,443 in 2006. The increase of $1,623 in operatingincome in 2007 resulted primarily from increased Segment EBITDA in the ConsumerGuides segment and decreased Corporate overhead, partially offset by anincrease in provision for restructuring costs.

*Net Income*

The Company had net incomeof $104,654 in the three months ended March 31, 2007 compared to $2,430 in2006. The increase is primarily due to the gain on the sale of the businessesduring the first quarter of 2007 of $43,532.

Interest expense decreasedto $29,080 in 2007 from $31,457 in 2006 primarily due to lower average debtlevels, as the Company purchased $65,485 principal amount of its 8 7/8% SeniorNotes, $5,190 principal amount of its 8.00% Senior Notes, and $52,500 principalamount of its Senior Floating Rate Notes during 2006, partially offset byhigher interest rates.

**ConsumerGuides Segment (includes *Apartment Guide*,*New Home Guide*, *Auto Guide*,*Rentclicks*, *AmericanHomeGuides.com*,*Single Unit Real Estate Rentals, and theDistribuTech* distribution business)**

*Revenues, Net*

Consumer Guidesrevenues were $80,044 and $81,402 for the three months ended March 31,2007 and 2006, respectively. Consumer Guides revenues decreased $1,358 or 1.7%in 2007 compared to 2006 as follows:

| ** **     | ** ** | **Three Months Ended  March 31,** | ** ** | **Percent** | ** ** |
|----------------|------------|--------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2007**                                         | ** ** | **2006**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                             |       |        |       |   |   |   |   |
| Advertising    |       | $                                                | 66,281     |        | $          | 67,092 |   |   | (1.2 | )% |   |
| Other          |       | 13,763                                           |       | 14,310      |       |   | (3.8 | )% |   |
| Total          |       | $                                                | 80,044     |        | $          | 81,402 |   |   | (1.7 | )% |   |

 

The first quarter advertising revenue decline wasdriven primarily by continued weakness in Apartment Guide’s operatingenvironment. Growth in New Home Guides and the Company’s online business serving advertisers of single unit realestate rentals partially offset the declines in Apartment Guide and Auto Guide.Other revenue’s slight decline reflects DistribuTech’s optimization ofdistribution locations, a continuing evaluation process to best meet thedistribution needs of the Company’s core guides business.

*ApartmentGuide, ApartmentGuide.com, Single Unit Real Estate Rentals:*   These businesses represent 76% of firstquarter 2007 advertising revenue, with a 3.2% revenue decline in the quarter. ApartmentGuide continues to face challenging market conditions marked by high occupancyrates and a reduced advertiser base as a result of lost apartment inventoryfrom condominium conversions. Although the rate of condominium conversions hasslowed considerably, the business experienced a year-over-year decline inrevenue.

Declines in Apartment Guide were partially offset by68% organic growth in the Company’s online single unit real estate rentalbusiness, pro-forma for the acquisitions of RentalHouses.com, announced 

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February 6, 2007, andfor HomeRentalAds.com, acquired in the second quarter, 2006. Consumer Source’sonline single unit real estate rental business is the online leader in themarket, with an estimated 62% of all paid single unit real estate rentallistings on the Internet. This lucrative segment of the marketplace accountsfor approximately 85% of the total rental market. The Company’s online singleunit real estate rental business primarily serves advertisers of single units,including rental houses, town homes, condos, apartments, and communities withless than 50 rental units.

*NewHome Guide, NewHomeGuide.com:*   This business, representing 19% of firstquarter 2007 advertising revenue, continued to deliver strong results withtotal organic revenue growth of 17% in the first 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 March,2007, the Company launched a New Home Guide in Colorado Springs, CO, and aNeighborhood Map in Charlotte, NC. The Company now publishes eight NeighborhoodMaps in two markets. Neighborhood Maps are product line extensions in existingmarkets, providing advertisers with a promotional tool to reach consumersthrough local Chambers of Commerce, realtors, and relocation offices. TheCompany now has 35 New Home Guide publications (including Neighborhood Maps andRealtor Data Books) in 26 markets.

*AutoGuide, AutoGuide.com:*   Auto Guide, representing 5% of first quarter2007 advertising revenue, experienced a 22% revenue decline, primarily due tothe management execution problems first discussed in the Company’s thirdquarter 2006 earnings release, and the third quarter 2006 closing of the SanDiego Auto Guide. To address the management execution problems, new managementwas appointed in the fourth quarter 2006. The new team has upgraded staff,centralized production and initiated product improvements to increase leadgeneration. The 2005 acquisitions in Atlanta and Wisconsin continue to performwell. Auto Guide represents a $13 million revenue business based on annualizingaverage first quarter revenue, and continues to have significant revenue growthpotential both within its existing markets and through expansion into newmarkets.

*DistribuTech:**  *All of ConsumerSource’s print properties continue to benefit from the Company’s leadingdistribution business, DistribuTech. Consumer Source’s strategy is tocontinually optimize distribution for its own guides while minimizing cost. Thisoptimization has historically caused, and will continue to cause, DistribuTechrevenue to fluctuate.

*Segment EBITDA*

Consumer Guides SegmentEBITDA increased $1,666 or 9.4% in 2007, to $19,401 from $17,735 in 2006,despite the overall decrease in revenue. This increase is primarily due to aggressive cost containment by managementcontinued from 2006 into the first quarter of 2007. Segment EBITDAmargin increased to 24.2% in 2007 from 21.8% in 2006.

*Operating Income*

Operating income increased$1,169 or 8.0% to $15,777 in 2007 from $14,608 in 2006. This increase wasprimarily driven by the increase in Segment EBITDA, partially offset byincreases in depreciation and amortization expense, due to the acquisitionsduring 2006 and the first quarter of 2007.

**Corporate**

*CorporateAdministrative expenses*

Corporate administrativeexpenses, excluding non-cash compensation, were $6,736 for the three monthsended March 31, 2007, compared to $7,909 for the three months ended March 31,2006. The 

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decreaseis primarily due to lower compensation expense resulting from headcountreductions and reduced professional fees.

*Operating Loss*

Corporate operating losswas $8,711 for the first quarter of 2007, down 5.0% compared to $9,165 for thefirst quarter of 2006. The decrease was mainly due to lower corporateadministrative expenses as discussed above, as well as reduced non-cashcompensation during 2007.

**DiscontinuedOperations**

The Company has classifiedthe results of divested entities and entities planned for disposition as of March 31,2007 as discontinued operations in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets”.

*Enthusiast Media*

In February 2007, the Company announced that itsBoard of Directors had authorized the Company to explore the sale of itsEnthusiast Media segment, as the market conditions are favorable, in lieu ofthe spin-off of the Consumer Guides segment. PRIMEDIA has retained GoldmanSachs and Lehman Brothers to manage this process. The Company will apply theproceeds from the sale to pay down debt.

Discontinued operations ofthe Enthusiast Media segment for the three months ended March 31, 2007 and2006 include revenue of $135,580 and $164,148, respectively. Operating incomefor the three months ended March 31, 2007 and 2006, was $84,011 and$31,035, respectively. Included in discontinued operations are gains on salesof businesses, net of tax, of $48,532 and $ 13,707, respectively.

*Education*

The Company classified as discontinued operations theentire Education segment during the fourth quarter of 2006. The Company’sEducation segment is comprised of Channel One, a proprietary network for secondaryschools; Films Media Group, a leading source of educational video; and PRIMEDIAHealthcare, a medical education business. The Company completed the sale of ChannelOne during April 2007.

Discontinued operations ofthe Education segment include revenue of $10,523 and $15,469 for the threemonths ended March 31, 2007 and 2006 respectively. Operating loss was$3,529 and $360 for the three months ended March 31, 2007 and 2006,respectively.

*Corporate*

Included in discontinuedoperations is a loss on the sale of Channel One of $5,000 for the three monthsended March 31, 2007.

**Liquidity, Capitaland Other Resources**

As of March 31, 2007, the Company had cash andunused credit facilities of $402,034, as further detailed below under “FinancingArrangements”, compared to $261,466 as of December 31, 2006. The amount asof March 31, 2007 includes the remaining net cash proceeds from theCompany’s sale of the Outdoors group in the first quarter of 2007. The use ofthis cash and unused credit facilities is subject to customary conditions inthe Company’s debt agreements. The Company’s asset sales, debt redemption andinvestment in organic growth have facilitated its strategy to become a betterstrategically focused company while strengthening its balance sheet.

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The Company believes itsliquidity, capital resources and cash flow from operations are sufficient tofund planned capital expenditures, working capital requirements, interest andprincipal payments on its debt and other anticipated expenditures for theremainder of 2007 and for the foreseeable future. The Company has nosignificant required debt repayments until 2010.

*Working Capital*

Consolidated workingcapital, which includes current maturities of long-term debt, was $762,736 at March 31,2007 compared to $27,837 at December 31, 2006. This increase is primarily dueto the increase in assets of businesses held for sale at March 31, 2007and the increase in cash from the net proceeds from the Outdoors sale.

*Cash Flow—2007Compared to 2006*

Net cash provided by operating activities decreased$3,937, to $3,887 in 2007, from $7,824 in 2006. This decrease is primarily dueto timing of vendor payments and increased cash taxes paid, offset by highersegment EBITDA, interest income and lower debt service. For purposes ofcalculating net cash provided by operating activities, discontinued operationsare included until sold or shut down.

Net cash provided by (used in) investing activitieswas $139,085 in 2007, compared to $(47) 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 financingactivities decreased $4,747, to $3,689 in 2007, from $8,436 in 2006. Theprimary reason for the change is the absence of payments for repurchases ofsenior notes during 2007 compared to payments of $6,832 in 2006, partiallyoffset by the net increase in repayments of borrowings under credit agreementsin 2007.

*Free Cash Flow*

The following tablepresents the Company’s Free Cash Flow for the three months ended March 31,2007 and 2006, respectively:

| ** **                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Net cash provided  by operating activities                                 |       | $                                                | 3,887      |   | $ | 7,824 |   |
| Additions to property, equipment and other  (excluding acqusitions)        |       | (5,963                                           | )          | (4,730 | ) |
| Capital lease payments                                                     |       | (311                                             | )          | (1,296 | ) |
| Free Cash Flow                                                             |       | $                                                | (2,387     | ) | $ | 1,798 |   |
| Supplemental  information:                                                 |       |                                             |       |   |   |
| Cash interest paid, including interest on capital  and restructured leases |       | $                                                | 14,033     |   | $ | 16,033 |   |
| Cash income taxes paid, net of refunds received                            |       | $                                                | 4,857      |   | $ | 4,079 |   |
| Cash paid for  restructuring costs                                         |       | $                                                | 2,093      |   | $ | 1,666 |   |

 

The decrease in the Company’s Free Cash Flow isprimarily due to timing of vendor payments and increased cash taxes paid offsetby higher segment EBITDA, interest income and lower debt service.

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***Financing Arrangements***

*Bank CreditFacilities*

The bank creditfacilities consisted of the following as of March 31, 2007:

| ** **                     | ** ** | **Revolver** | ** ** | **Term B** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-----------------|------------|-----------|------------|
| Bank Credit  Facilities        |       | $            | 276,795    |            | $          | 492,500   |       | $ | 769,295 |   |
| Borrowings  Outstanding        |       | —       |       | (492,500        | )          | (492,500  | )          |
| Letters of Credit  Outstanding |       | (19,872      | )          | —          |       | (19,872   | )          |
| Unused Bank Commitments        |       | $            | 256,923    |            | $          | —    |       | $ | 256,923 |   |

 

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 first 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 $118,629 in 2007 and a finalreduction of $158,166 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, consolidationsor transactions with affiliates, make investments in or loans to certainsubsidiaries, issue guarantees and make certain restricted payments includingdividend payments on or repurchases of the Company’s common stock in excess of$75,000 in any given year.

The bank creditfacilities and Senior Note agreements of the Company contain certain customaryevents of default which generally give the banks or the noteholders, asapplicable, the right to accelerate payments of outstanding debt. Under thebank credit facilities agreement, these events include:

·       failureto maintain required covenant ratios, as described below;

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

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

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

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

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

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

8*7**¤**8*% *Senior Notes.**  *The 8*7**¤**8*% Senior Notes mature on May 15,2011, with no sinking fund requirements, and have interest payablesemi-annually in May and November at an annual rate of 8*7**¤**8*%. Beginning in 2006, the 8*7**¤**8*% Senior Notes became redeemableat 104.438% with annual reductions to 100% in 2009 plus accrued and unpaidinterest. The unamortized discount for these notes totaled $3,126 and $4,258 atMarch 30, 2007 and 2006, respectively.

*8% Senior Notes.  **The 8% Senior Notes mature on May 15,2013 with no sinking fund requirements and have interest payable semi-annuallyin May and November at an annual rate of 8.00%.*

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

*Contractual Obligations*

The Senior Notes and thebank credit facilities all rank senior in right of payment to all subordinatedobligations which PRIMEDIA Inc. (a holding company) may incur. The Senior Notesand bank credit facilities are secured by a pledge of stock of Consumer SourceInc. (formerly known as PRIMEDIA Companies Inc.).

If the Company becomessubject to a change of control, as defined in the indentures governing theSenior Notes, each holder of the Senior Notes will have the right to requirethe Company to purchase any or all of its Senior Notes at a purchase priceequal to 101% of the aggregate principal amount of the purchased Senior Notesplus accrued and unpaid interest, if any, to the date of purchase.

Thereare no required significant debt repayments until 2010. The contractualobligations of the Company as of March 31, 2007 are as 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) |       | $          | 1,316,699  |                                      | $          | 5,000                           |   | $ | 10,000 |   | $ | 539,389 |   | $ | 762,310 |   |   |
| Interest on long-term  debt  obligations(1)               |       | 578,030    |       | 108,973                                   |       | 212,741                         |   | 159,295 |   | 97,021 |   |   |
| Capital lease  obligations                                |       | 387        |       | 171                                       |       | 216                             |   | — |   | — |   |   |
| Fair value of  forward agreement(2)                       |       | 25,110     |       | 25,110                                    |       | —                          |   | — |   | — |   |   |
| Interest on  capital lease obligations                    |       | 71         |       | 46                                        |       | 25                              |   | — |   | — |   |   |
| Operating lease  obligations(3)                           |       | 216,318    |       | 33,203                                    |       | 52,253                          |   | 44,613 |   | 86,249 |   |   |
| Workplace  Learning lease  obligations(4)                 |       | 15,923     |       | 5,847                                     |       | 4,190                           |   | 3,226 |   | 2,660 |   |   |
| Total Contractual  Obligations                            |       | $          | 2,152,538  |                                      | $          | 178,350                         |   | $ | 279,425 |   | $ | 746,523 |   | $ | 948,240 |   |   |
|                                                           |            |            |            |                                           |            |                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

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

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(2)          Present value ofexpected future payments related to the acquisition of Automotive.com. The fairvalue of this liability is included in liabilities of businesses held for saleat March 31, 2007.

(3)          Future rentalcommitments for the above operating leases have not been reduced by minimumnoncancelable sublease rentals aggregating $60,367 as of March 31, 2007.

(4)          Present value ofexpected future payments related to Workplace Learning lease obligations,exclusive of a third party guarantee for up to $10,000 to be applied to theCompany’s secondary liability . See *Contingencies*belowfor further detail.

The Company had no borrowings outstanding at March 31,2007 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 othercommitments in the form of letters of credit, which include deferred purchaseprice liabilities, of $19,872 aggregate face value which expire on or before March 31,2008.

*Additional Payments*

Under the provisions ofthe Automotive.com Stockholders Agreement, PRIMEDIA must make quarterlypayments (the “Additional Payments”) to the minority shareholders ofAutomotive.com, as defined in the Automotive.com Stockholders Agreement. Theadditional payments are paid within 45 days of the end of each calendarquarter, with the last payment to be made within 45 days of the quarter ending December 31,2008, or December 31, 2009, if the forward agreement is extended by theminority shareholders. 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 novariable interest (otherwise known as “special purpose”) entities or offbalance sheet debt, other than as related to operating leases in the ordinarycourse of business as disclosed above.

*Covenant Compliance*

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 creditfacilities, is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007.

The Company is herewith providingdetailed information and disclosure as to the methodology used in determiningcompliance with the leverage ratio in the bank credit facility agreement. Underits bank credit facility and Senior Note agreements, the Company is allowed todesignate certain businesses as unrestricted subsidiaries to the extent thatthe value of those businesses does not exceed the permitted amounts, as definedin these agreements. The Company has designated certain of its businesses asunrestricted (the “Unrestricted Group”), which represent primarily Internetbusinesses, trademark and content licensing and service companies, new launches(including traditional start-ups), other properties under evaluation forturnaround or shutdown and foreign subsidiaries. Indebtedness under the bankcredit facilities and Senior Note agreements is guaranteed by each of theCompany’s domestic subsidiaries in the 

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RestrictedGroup in accordance with the provisions and limitations of the Company’s bankcredit facilities and Senior Note agreements. The guarantees are full,unconditional and joint and several. The Unrestricted Group does not guaranteethe bank credit facilities or Senior Notes. For purposes of determiningcompliance with certain financial covenants under the Company’s bank creditfacility, the Unrestricted Group’s results (positive or negative) are notreflected in the Consolidated EBITDA of the Restricted Group which, as definedin the bank credit facilities agreement, excludes losses of the UnrestrictedGroup, non-cash charges and restructuring charges and is adjusted primarily forthe trailing four quarters results of acquisitions and divestitures andestimated savings for acquired businesses.

The following represents a reconciliation of EBITDA of the RestrictedGroup for purposes of the leverage ratio as defined in the bank creditfacilities agreement to net income:

| ** **                                                         | ** ** | **Three**             | ** ** | **Twelve**            | ** ** |
|--------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **Months Ended** | ** ** | **Months Ended** | ** ** |
| ** **                                                         | ** ** | **March 31,**    | ** ** | **March 31,**    | ** ** |
| ** **                                                         | ** ** | **2007**              | ** ** | **2007**              | ** ** |
| EBITDA of the  Restricted Group                                    |       |                  | $          | 50,196                |       |   |   | $ | 212,541 |   |   |
| EBITDA loss of  the Unrestricted Group                             |       |                  | (12,029    | )                     |       |   | (46,911 | ) |   |
| EBITDA of divested  units and other adjustments                    |       |                  | (25,502    | )                     |       |   | (114,972 | ) |   |
| Depreciation and  amortization of property and equipment           |       |                  | (3,113     | )                     |       |   | (12,655 | ) |   |
| Amortization of  intangible assets and other                       |       |                  | (736       | )                     |       |   | (3,350 | ) |   |
| Non-cash  compensation                                             |       |                  | (161       | )                     |       |   | (3,051 | ) |   |
| Provision for  restructuring costs                                 |       |                  | (1,589     | )                     |       |   | (2,773 | ) |   |
| Loss on the sales  of businesses and other, net                    |       |                  | —     |                  |       |   | (28 | ) |   |
| Operating income                                                   |       |                  | 7,066      |                  |       |   | 28,801 |   |   |
| Other expense:                                                     |       |                  |       |                  |       |   |   |   |   |
| Interest expense                                                   |       |                  | (29,080    | )                     |       |   | (124,563 | ) |   |
| Amortization of deferred financing costs                           |       |                  | (584       | )                     |       |   | (2,492 | ) |   |
| Other income, net                                                  |       |                  | 1,885      |                  |       |   | 420 |   |   |
| Loss from  continuing operations before provision for income taxes |       |                  | (20,713    | )                     |       |   | (97,834 | ) |   |
| Benefit for  income taxes                                          |       |                  | 6,457      |                  |       |   | 141 |   |   |
| Loss from  continuing operations                                   |       |                  | (14,256    | )                     |       |   | (97,693 | ) |   |
| Discontinued  operations                                           |       |                  | 118,910    |                  |       |   | 238,168 |   |   |
| Net income                                                         |       |                  | $          | 104,654               |       |   |   | $ | 140,475 |   |   |

 

The EBITDA loss of the Unrestricted Group, as defined in the bank creditfacilities agreement, is comprised of the following categories:

| ** **                                      | ** ** | **Three**                    | ** ** | **Twelve**                   | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                      | ** ** | **Months Ended**        | ** ** | **Months Ended**        | ** ** |
| ** **                                      | ** ** | **March 31, 2007** | ** ** | **March 31, 2007** | ** ** |
| Internet  properties                            |       |                         | $          | (5,899                       | )          |   |   | $ | (21,205 | ) |   |
| Traditional  turnaround and start-up properties |       |                         | (5,071     | )                            |       |   | (19,873 | ) |   |
| Related overhead  and other charges             |       |                         | (1,059     | )                            |       |   | (5,833 | ) |   |
|                                            |       |                         | $          | (12,029                      | )          |   |   | $ | (46,911 | ) |   |

 

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 

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propertiesof the Unrestricted Group. For company-wide consolidated financial reporting,these intercompany transactions are eliminated in consolidation.

Thecalculation of the Company’s leverage ratio, as required under the bank creditfacilities agreement for covenant purposes, is defined as the Company’sconsolidated debt divided by the EBITDA of the Restricted Group. At March 31,2007, this leverage ratio was approximately 5.6 to 1.

***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 three months ended March 31,2007, no officers or directors of the Company have been granted loans by theCompany, 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 $10,000against 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 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 a 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 March 31, 2007,the Company has recorded a total liability of $15,923 for the fair value of thefuture lease payments, net of estimated sublease income, in the accompanyingconsolidated balance sheet.

***Critical Accounting Policies and Estimates***

During the first quarterof 2007, there were no significant changes related to the Company’s criticalaccounting policies and estimates as disclosed in the Company’s annual reporton Form 10-K for the year ended December 31, 2006.

***Recent Accounting Pronouncements Adopted***

During the fourth quarterof 2006, the Company adopted Staff Accounting Bulletin (“SAB”) No. 108,“Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements.” During the fourth quarterof 2006, the Company concluded that deferred income tax benefits ofapproximately $7,500 should have been recorded during the year ended December31, 2005 when it became apparent that certain taxable temporary differenceswould reverse as a result of classification of businesses as discontinuedoperations. Management believes that this error totaling approximately $7,500is not material to the prior year’s financial statements. However, managementdid believe that this error was material to its 2006 financial statements andupon adoption of SAB No. 108 recorded a cumulative effect adjustment as ofJanuary 1, 2006 to accumulated deficit of approximately $7,500.   Of this amount, approximately $5,500 hadpreviously been recorded to income from discontinued 

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operationsin the first quarter of 2006. The consolidated statement of operations for thethree months ended March 31, 2006 has been restated to adjust for the impact ofthe fourth quarter SAB No. 108 adjustment.

*FASB InterpretationNo. 48, “Accounting for Uncertainty 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 taxingauthorities. The amount recognized is measured as the largest amount of benefitthat is greater than 50% likely of being realized upon ultimate settlement.Differences between the amounts recognized in the statements of financialposition prior to the adoption of FIN 48 and the amounts reported afteradoption should be accounted for as a cumulative-effect adjustment recorded tothe beginning balance of retained earnings. FIN 48 also provides guidanceon de-recognition, classification, interest and penalties, accounting ininterim periods, disclosure, and transition.

**The Company adopted the provisionsof FIN 48 on January 1, 2007.  As aresult of the implementation of FIN 48, the Company recognized a liabilityfor unrecognized tax benefits, interest and penalties of $16,126 which wasaccounted for as an increase to the January 1, 2007 balance of accumulateddeficit, net of any valuation allowance impact. The total amount ofunrecognized tax benefits as of January 1, 2007 was $15,786, net of valuationallowance impact.  Substantially all ofthis amount would, if recognized, have an effect on the effective income taxrate. In addition to the unrecognized tax benefits, the Company had $3,689 ofinterest and penalties accrued as of January 1, 2007.**

*EITF 06-3, “*HowTaxes Collected from Customers and Remitted to Governmental Authorities ShouldBe Presented in the Income Statement (That Is, Gross Versus Net Presentation)”

In June 2006, the Financial Accounting StandardsBoard (“FASB”) ratified a consensus on the Emerging Issues Task Force (“EITF”)Issue No. 06-03, “How Taxes Collected from Customers and Remitted toGovernmental Authorities Should Be Presented in the Income Statement (That Is,Gross Versus Net Presentation)”, related to the classification of certainsales, value added and excise taxes within the income statement. The EITFreached a tentative conclusion that the presentation of taxes on either a gross(included in revenues and costs) or a net (excluded from revenues) basis is anaccounting policy decision that should be disclosed. The Company records taxescollected from customers and remitted to governmental authorities on a netbasis.

**Impact of Inflationand Other Costs**

Thecost of paper was stable during 2006 and the first quarter of 2007. The Company’spaper expense decreased approximately 9.82% during the three months ended March 31, 2007compared to 2006. Paper cost represented approximately 4.70% and 4.91% of theCompany’s total operating expenses for the three months ended March 31,2007 and 2006, respectively.

**Seasonality**

The Company’s operations are minimally seasonal innature.

·       The majority of theCompany’s sales comprise 12-month contracts. Sales typically grow sequentially.

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·       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.

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

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

**Item 4.**                        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 thisreport.  

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 March 31, 2007.

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

During the quarter ended March 31, 2007, therehave not been any changes in the Company’s internal control over financialreporting that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

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**PART II.**   OTHERINFORMATION

**Item 1A.**                RISKFACTORS

There have been nomaterial changes to the Company’s risk factors during the first quarter of2007.

**Item 6.**                        EXHIBITS

(a)           Exhibits
| 10.1 |   | Letter agreement, dated January 11, 2007,  between PRIMEDIA Inc. and Steven Aster(*)                                                                 |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification by Dean B.  Nelson Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                   |
| 31.2 |   | Certification by Kevin  J. Neary Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*)                                                   |
| 31.3 |   | Certification by Robert  J. Sforzo Pursuant to Section 302 of the Sarbanes-Oxley Act  of 2002(*)                                                |
| 32.1 |   | Certification by Dean B.  Nelson Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*)   |
| 32.2 |   | Certification by Kevin  J. Neary Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*)   |
| 32.3 |   | Certification by Robert  J. Sforzo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002(*) |

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(*)          Filedherewith.

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        |              | PRIMEDIA INC.                                                                                    |
|--------|-------------------|--------------------------------------------------------------------------------------------------|
|   |              | (Registrant)                                                                                     |
| Date:  | May 10, 2007 | /s/ DEAN B. NELSON                                                                               |
|   |              | (Dean B. Nelson)                                                                                 |
|   | * *          | *Chairman, Chief Executive Officer and President  (Principal Executive Officer)*                 |
| Date:  | May 10, 2007 | /s/ KEVIN J. NEARY                                                                               |
|   |              | (Kevin J. Neary)                                                                                 |
|   | * *          | *Senior Vice President and Chief Financial Officer*                                              |
|   | * *          | *(Principal Financial Officer)*                                                                  |
| Date:  | May 10, 2007 | /s/ ROBERT J. SFORZO                                                                             |
|   |              | (Robert J. Sforzo)                                                                               |
|   | * *          | *Senior Vice President, Chief Accounting Officer  and Controller (Principal Accounting Officer)* |

 

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