**UNITED STATES**SECURITIES AND EXCHANGE COMMISSION

**Washington,D.C. 20549**

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**FORM 10-Q**

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

**Forthe quarterly period ended: September 30, 2006**

**Commissionfile number: 1-11106**

**PRIMEDIA Inc.**

(Exact name of registrantas specified in its charter)

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

 

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

(Address of principalexecutive offices)

**10151**

(Zip Code)

Registrant’s telephone number, including areacode  **(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 | Accelerated filer x | Non-accelerated filer o |
|---------------------------|---------------------|-------------------------|

 

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

Numberof shares of common stock, par value $.01 per share, of PRIMEDIA Inc.outstanding as of October 31, 2006: 264,055,370

 

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**PRIMEDIA Inc.INDEX**

| **Part I. Financial Information:** | ** ** | ** **                                                                                                                | ** ** |
|-----------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| Item 1.                                 |       | Financial Statements                                                                                                      |       |   |   |
|                                    |       | Condensed  Consolidated Balance Sheets (Unaudited) as of September 30, 2006 and  December 31, 2005              |       | 2 |   |
|                                    |       | Condensed  Statements of Consolidated Operations (Unaudited) for the three months ended  September 30, 2006 and 2005 |       | 3 |   |
|                                    |       | Condensed  Statements of Consolidated Operations (Unaudited) for the nine months ended  September 30, 2006 and 2005  |       | 4 |   |
|                                    |       | Condensed  Statements of Consolidated Cash Flows (Unaudited) for the nine months ended  September 30, 2006 and 2005  |       | 5 |   |
|                                    |       | Notes to  Condensed Consolidated Financial Statements (Unaudited)                                                         |       | 6 |   |
| Item 2.                                 |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                               |       | 30 |   |
| Item 3.                                 |       | Quantitative  and Qualitative Disclosures about Market Risk                                                               |       | 54 |   |
| Item 4.                                 |       | Controls and  Procedures                                                                                                  |       | 54 |   |
| **Part II. Other  Information:**   | ** ** | ** **                                                                                                                |       |
| Item  1A.                               |       | Risk Factors                                                                                                              |       | 55 |   |
| Item 6.                                 |       | Exhibits                                                                                                                  |       | 55 |   |
|                                    |       | Signatures                                                                                                                |       | 56 |   |

 

1

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Consolidated Balance Sheets (Unaudited)(in thousands, except share and per share amounts)**
|                                                                                                                                                                                                                                                                                          | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                               | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                               | ** ** |                   | ** ** | ** **            |       | ** ** |   |
| Current assets:                                                                                                                                                                                                                                                                          |       |                   |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                |       |                   | $          | 71,832                |       |   | $ | 7,255 |   |
| Accounts receivable, net                                                                                                                                                                                                                                                                 |       |                   | 132,358    |                  |       | 134,773 |   |
| Inventories                                                                                                                                                                                                                                                                              |       |                   | 16,013     |                  |       | 21,212 |   |
| Prepaid expenses and  other                                                                                                                                                                                                                                                              |       |                   | 41,520     |                  |       | 29,722 |   |
| Assets of businesses  held for sale                                                                                                                                                                                                                                                      |       |                   | —     |                  |       | 109,129 |   |
| Total current assets                                                                                                                                                                                                                                                                     |       |                   | 261,723    |                  |       | 302,091 |   |
| Property and equipment  (net of accumulated depreciation and amortization of $240,150 in 2006 and  $226,600 in 2005)                                                                                                                                                                     |       |                   | 54,603     |                  |       | 56,868 |   |
| Intangible assets, net                                                                                                                                                                                                                                                                   |       |                   | 224,731    |                  |       | 231,404 |   |
| Goodwill                                                                                                                                                                                                                                                                                 |       |                   | 774,101    |                  |       | 763,177 |   |
| Other non-current assets                                                                                                                                                                                                                                                                 |       |                   | 33,053     |                  |       | 35,928 |   |
| Total Assets                                                                                                                                                                                                                                                                             |       |                   | $          | 1,348,211             |       |   | $ | 1,389,468 |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                                                                                        | ** ** |                   | ** ** | ** **            |       | ** ** |   |
| Current liabilities:                                                                                                                                                                                                                                                                     |       |                   |       |                  |       |   |   |
| Accounts payable                                                                                                                                                                                                                                                                         |       |                   | $          | 49,683                |       |   | $ | 52,984 |   |
| Accrued expenses and  other                                                                                                                                                                                                                                                              |       |                   | 141,554    |                  |       | 122,319 |   |
| Deferred revenues                                                                                                                                                                                                                                                                        |       |                   | 108,274    |                  |       | 107,940 |   |
| Current maturities of  long-term debt                                                                                                                                                                                                                                                    |       |                   | 11,325     |                  |       | 7,677 |   |
| Liabilities of  businesses held for sale                                                                                                                                                                                                                                                 |       |                   | —     |                  |       | 33,203 |   |
| Total current  liabilities                                                                                                                                                                                                                                                               |       |                   | 310,836    |                  |       | 324,123 |   |
| Long-term debt                                                                                                                                                                                                                                                                           |       |                   | 1,370,339  |                  |       | 1,456,770 |   |
| Deferred revenues                                                                                                                                                                                                                                                                        |       |                   | 13,175     |                  |       | 14,447 |   |
| Deferred income taxes                                                                                                                                                                                                                                                                    |       |                   | 88,124     |                  |       | 87,655 |   |
| Other non-current  liabilities                                                                                                                                                                                                                                                           |       |                   | 74,809     |                  |       | 78,202 |   |
| Total Liabilities                                                                                                                                                                                                                                                                        |       |                   | 1,857,283  |                  |       | 1,961,197 |   |
| Commitments and contingencies (Note 12)                                                                                                                                                                                                                                                  |       |                   |       |                  |       |   |   |
| Shareholders’ deficiency:                                                                                                                                                                                                                                                           |       |                   |       |                  |       |   |   |
| Common stock ($.01 par  value, 350,000,000 shares authorized at September 30, 2006 and  December 31, 2005; 272,497,779 and 272,158,878 shares issued and  264,055,370 and 263,716,469 shares outstanding at September 30, 2006 and  December 31, 2005, respectively) |       |                   | 2,725      |                  |       | 2,722 |   |
| Additional paid-in  capital (including warrants of $31,690 at September 30, 2006 and  December 31, 2005)                                                                                                                                                                       |       |                   | 2,366,126  |                  |       | 2,363,071 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                      |       |                   | (2,802,046 | )                     |       | (2,861,645 | ) |
| Common stock in  treasury, at cost (8,442,409 shares at September 30, 2006 and  December 31, 2005)                                                                                                                                                                             |       |                   | (75,877    | )                     |       | (75,877 | ) |
| Total Shareholders’  Deficiency                                                                                                                                                                                                                                                     |       |                   | (509,072   | )                     |       | (571,729 | ) |
| Total Liabilities and Shareholders’ Deficiency                                                                                                                                                                                                                                      |       |                   | $          | 1,348,211             |       |   | $ | 1,389,468 |   |

 

See notes to condensed consolidated financial statements (unaudited).

2

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**
|                                                                                                                                                  | ** ** | **Three Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                                                                       | ** ** | **2006**                                                 | ** ** | **2005** | ** ** |
| Revenues, net:                                                                                                                                   |       |                                                     |       |   |   |
| Advertising                                                                                                                                      |       | $                                                        | 159,754    |   | $ | 159,508 |   |
| Circulation                                                                                                                                      |       | 51,508                                                   |       | 51,446 |   |
| Other                                                                                                                                            |       | 42,773                                                   |       | 35,974 |   |
| Total revenues, net                                                                                                                              |       | 254,035                                                  |       | 246,928 |   |
| Operating costs and expenses:                                                                                                                    |       |                                                     |       |   |   |
| Cost of goods sold  (exclusive of depreciation and amortization of property and equipment)                                                       |       | 60,050                                                   |       | 56,237 |   |
| Marketing and selling                                                                                                                            |       | 44,892                                                   |       | 46,930 |   |
| Distribution,  circulation and fulfillment                                                                                                       |       | 47,621                                                   |       | 47,686 |   |
| Editorial                                                                                                                                        |       | 17,460                                                   |       | 17,581 |   |
| Other general expenses                                                                                                                           |       | 30,930                                                   |       | 30,034 |   |
| Corporate administrative  expenses (including non-cash compensation of $411 and $4,070 in 2006 and  2005, respectively)                          |       | 6,978                                                    |       | 10,362 |   |
| Depreciation and  amortization of property and equipment                                                                                         |       | 7,229                                                    |       | 7,049 |   |
| Amortization of  intangible assets and other                                                                                                     |       | 3,479                                                    |       | 2,645 |   |
| Provision for severance,  closures and restructuring related costs                                                                               |       | 292                                                      |       | 256 |   |
| Gain on sale of  businesses and other, net                                                                                                       |       | —                                                   |       | (80 | ) |
| Operating income                                                                                                                                 |       | 35,104                                                   |       | 28,228 |   |
| Other income (expense):                                                                                                                          |       |                                                     |       |   |   |
| Interest expense                                                                                                                                 |       | (33,574                                                  | )          | (32,440 | ) |
| Interest on shares  subject to mandatory redemption                                                                                              |       | —                                                   |       | (4,566 | ) |
| Amortization of deferred  financing costs                                                                                                        |       | (630                                                     | )          | (1,042 | ) |
| Other income (expense),  net                                                                                                                     |       | 787                                                      |       | (2,906 | ) |
| Income (loss) from  continuing operations before provision for income taxes                                                                      |       | 1,687                                                    |       | (12,726 | ) |
| Provision for income  taxes                                                                                                                      |       | (5,009                                                   | )          | (4,090 | ) |
| Loss from continuing  operations                                                                                                                 |       | (3,322                                                   | )          | (16,816 | ) |
| Discontinued operations,  net of tax (including gain on sale of businesses, net of tax, of $52,347 and  $219,039 in 2006 and 2005, respectively) |       | 57,074                                                   |       | 224,570 |   |
| Net income                                                                                                                                       |       | $                                                        | 53,752     |   | $ | 207,754 |   |
| Basic and diluted income (loss) per common share:                                                                                                |       |                                                     |       |   |   |
| Continuing operations                                                                                                                            |       | $                                                        | (0.01      | ) | $ | (0.06 | ) |
| Discontinued operations                                                                                                                          |       | 0.21                                                     |       | 0.85 |   |
| Net income                                                                                                                                       |       | $                                                        | 0.20       |   | $ | 0.79 |   |
| Basic and diluted common  shares outstanding (weighted average)                                                                                  |       | 264,055,370                                              |       | 263,122,384 |   |

\

See notes to condensed consolidated financial statements (unaudited).

3

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Operations (Unaudited)(in thousands, except share and per share amounts)**
|                                                                                                                                                       | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                                                                            | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| Revenues, net:                                                                                                                                        |       |                                                    |       |   |   |
| Advertising                                                                                                                                           |       | $                                                       | 474,786    |   | $ | 476,837 |   |
| Circulation                                                                                                                                           |       | 149,709                                                 |       | 150,742 |   |
| Other                                                                                                                                                 |       | 127,552                                                 |       | 106,754 |   |
| Total revenues, net                                                                                                                                   |       | 752,047                                                 |       | 734,333 |   |
| Operating costs and  expenses:                                                                                                                        |       |                                                    |       |   |   |
| Cost of goods sold  (exclusive of depreciation and amortization of property and equipment)                                                            |       | 176,788                                                 |       | 159,911 |   |
| Marketing and selling                                                                                                                                 |       | 140,767                                                 |       | 142,556 |   |
| Distribution,  circulation and fulfillment                                                                                                            |       | 145,062                                                 |       | 140,786 |   |
| Editorial                                                                                                                                             |       | 51,670                                                  |       | 51,602 |   |
| Other general expenses                                                                                                                                |       | 94,977                                                  |       | 93,250 |   |
| Corporate administrative  expenses (including non-cash compensation of $2,948 and $6,474 in 2006 and  2005, respectively)                             |       | 23,452                                                  |       | 26,405 |   |
| Depreciation and  amortization of property and equipment                                                                                              |       | 21,840                                                  |       | 20,179 |   |
| Amortization of  intangible assets and other                                                                                                          |       | 9,570                                                   |       | 7,288 |   |
| Provision for severance,  closures and restructuring related costs                                                                                    |       | 2,208                                                   |       | 1,556 |   |
| Loss (gain) on sale of  businesses and other, net                                                                                                     |       | 28                                                      |       | (80 | ) |
| Operating income                                                                                                                                      |       | 85,685                                                  |       | 90,880 |   |
| Other income (expense):                                                                                                                               |       |                                                    |       |   |   |
| Interest expense                                                                                                                                      |       | (85,855                                                 | )          | (98,266 | ) |
| Interest on shares  subject to mandatory redemption                                                                                                   |       | —                                                  |       | (21,920 | ) |
| Amortization of deferred  financing costs                                                                                                             |       | (1,946                                                  | )          | (3,560 | ) |
| Other income (expense),  net                                                                                                                          |       | 1,102                                                   |       | (7,083 | ) |
| Loss from continuing  operations before provision for income taxes                                                                                    |       | (1,014                                                  | )          | (39,949 | ) |
| Provision for income  taxes                                                                                                                           |       | (7,137                                                  | )          | (9,842 | ) |
| Loss from continuing  operations                                                                                                                      |       | (8,151                                                  | )          | (49,791 | ) |
| Discontinued operations,  net of tax (including gain on sale of businesses, net of tax, of $66,015  and $601,499 in 2006 and 2005, respectively) |       | 67,728                                                  |       | 628,070 |   |
| Cumulative effect of  change in accounting principle (from the adoption of Statement of Financial  Accounting Standard No. 123 (R))              |       | 22                                                      |       | — |   |
| Net income                                                                                                                                            |       | $                                                       | 59,599     |   | $ | 578,279 |   |
| Basic and diluted income  (loss) per common share:                                                                                                    |       |                                                    |       |   |   |
| Continuing operations                                                                                                                                 |       | $                                                       | (0.03      | ) | $ | (0.19 | ) |
| Discontinued operations                                                                                                                               |       | 0.26                                                    |       | 2.39 |   |
| Cumulative effect of  change in accounting principle                                                                                                  |       | 0.00                                                    |       | — |   |
| Net income                                                                                                                                            |       | $                                                       | 0.23       |   | $ | 2.20 |   |
| Basic and diluted common shares outstanding  (weighted average)                                                                                       |       | 263,923,378                                             |       | 262,919,067 |   |

 

See notes to condensed consolidated financial statements (unaudited).

4

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**PRIMEDIA INC. AND SUBSIDIARIESCondensed Statements of Consolidated Cash Flows (Unaudited)(in thousands)**
|                                                                                                           | ** ** | **Nine Months Ended September 30,**                                                                          | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **          2006          ** | ** ** | **          2005          ** | ** ** |
| **Operating activities:**                                                                                 |       |                                                                                                                             |       |   |   |   |   |   |   |
| Net income                                                                                                |       |                                                                                                                             | $          | 59,599 |   |   |   | $ | 578,279 |   |   |
| Cumulative effect of change in accounting principle                                                       |       |                                                                                                                             | (22        | ) |   |   | — |   |   |
| Adjustments to reconcile net income to net cash  provided by operating activities     |       |                                                                                                                             | (34,202    | ) |   |   | (536,705 | ) |   |
| Changes in operating assets and liabilities                                                               |       |                                                                                                                             | 6,915      |   |   |   | (36,936 | ) |   |
| Net cash provided by operating activities                                                                 |       |                                                                                                                             | 32,290     |   |   |   | 4,638 |   |   |
| **Investing  activities:**                                                                                |       |                                                                                                                             |       |   |   |   |   |   |   |
| Additions to property and equipment                                                                       |       |                                                                                                                             | (18,402    | ) |   |   | (21,681 | ) |   |
| Proceeds from sales of businesses                                                                         |       |                                                                                                                             | 151,848    |   |   |   | 816,502 |   |   |
| Payments for businesses acquired, net of cash  acquired                                                   |       |                                                                                                                             | (20,335    | ) |   |   | (27,830 | ) |   |
| Proceeds from sale of other investments                                                                   |       |                                                                                                                             | 1,300      |   |   |   | — |   |   |
| Net cash provided by investing activities                                                                 |       |                                                                                                                             | 114,411    |   |   |   | 766,991 |   |   |
| **Financing  activities:**                                                                                |       |                                                                                                                             |       |   |   |   |   |   |   |
| Borrowings under credit agreements                                                                        |       |                                                                                                                             | 250,100    |   |   |   | 979,709 |   |   |
| Repayments of borrowings under credit agreements                                                          |       |                                                                                                                             | (268,100   | ) |   |   | (960,616 | ) |   |
| Payments for repurchases of senior notes                                                                  |       |                                                                                                                             | (62,094    | ) |   |   | (81,017 | ) |   |
| Proceeds from issuances of common stock                                                                   |       |                                                                                                                             | 463        |   |   |   | 1,657 |   |   |
| Redemption of Series D and F Exchangeable  Preferred Stock                                           |       |                                                                                                                             | —     |   |   |   | (264,494 | ) |   |
| Deferred financing costs paid                                                                             |       |                                                                                                                             | —     |   |   |   | (832 | ) |   |
| Capital lease payments                                                                                    |       |                                                                                                                             | (2,331     | ) |   |   | (4,141 | ) |   |
| Other                                                                                                     |       |                                                                                                                             | (162       | ) |   |   | (151 | ) |   |
| Net cash used in financing activities                                                                     |       |                                                                                                                             | (82,124    | ) |   |   | (329,885 | ) |   |
| Increase in cash and cash equivalents                                                                     |       |                                                                                                                             | 64,577     |   |   |   | 441,744 |   |   |
| Cash and cash  equivalents, beginning of period                                                           |       |                                                                                                                             | 7,255      |   |   |   | 13,000 |   |   |
| Cash and cash  equivalents, end of period                                                                 |       |                                                                                                                             | $          | 71,832 |   |   |   | $ | 454,744 |   |   |
| **Supplemental  information:**                                                                            |       |                                                                                                                             |       |   |   |   |   |   |   |
| Cash interest paid, including interest on capital  and restructured leases                                |       |                                                                                                                             | $          | 82,439 |   |   |   | $ | 82,997 |   |   |
| Cash interest paid on shares subject to mandatory  redemption                                             |       |                                                                                                                             | $          | — |   |   |   | $ | 26,457 |   |   |
| Cash income taxes paid, net of refunds received                                                           |       |                                                                                                                             | $          | 4,503 |   |   |   | $ | 4,280 |   |   |
| Cash paid for severence, closures and restructuring  related costs                                        |       |                                                                                                                             | $          | 4,901 |   |   |   | $ | 7,869 |   |   |
| Businesses  acquired:                                                                                     |       |                                                                                                                             |       |   |   |   |   |   |   |
| Fair value of assets acquired, net of cash acquired                                                       |       |                                                                                                                             | $          | 19,927 |   |   |   | $ | 27,430 |   |   |
| Deferred purchase price payments, net of liabilities  assumed                                             |       |                                                                                                                             | 408        |   |   |   | 400 |   |   |
| Payments for  businesses acquired, net of cash acquired                                                   |       |                                                                                                                             | $          | 20,335 |   |   |   | $ | 27,830 |   |   |

 

See notes to condensed consolidated financial statements (unaudited).

5

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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 September 30, 2006and December 31, 2005, the results of consolidated operations of theCompany for the three and nine months ended September 30, 2006 and 2005and consolidated cash flows of the Company for the nine months ended September 30,2006 and 2005. The adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. The condensedconsolidated balance sheet as of December 31, 2005 has been derived fromthe Company’s audited consolidated balance sheet included in the Company’sannual report on Form 10-K for the year ended December 31,2005. All intercompany accounts and transactions have been eliminated inconsolidation. These statements should be read in conjunction with the Company’sannual consolidated financial statements and related notes for the year ended December 31,2005, which are included in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005. The operating results for the threeand nine months ended September 30, 2006 are not necessarily indicative ofthe results that may be expected for a full year. Certain amounts in the priorperiods’ condensed consolidated financial statements and related notes havebeen reclassified due to discontinued operations to conform to the presentationas of and for the three and nine months ended September 30, 2006.

***Stock-Based Compensation***

The Company has a stock-based employee compensationplan which is described in Note 9. Prior to January 1, 2006, the Companyaccounted for stock-based compensation using the Financial Accounting StandardsBoard’s Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation” as amended by SFAS No. 148, “Accounting forStock Based Compensation Transition and Disclosure”, under the prospectivemethod. Upon adoption, the Company began expensing the fair value of stockbased compensation for all grants, modifications or settlements made on orafter January 1, 2003. Effective January 1, 2006, the Company adoptedthe provisions of, and account for stock-based compensation in accordance withSFAS No. 123—revised 2004 (“SFAS No. 123(R)”), “Share-Based Payment”,which replaced SFAS No. 123 and supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.” Under the fair value recognition provisions ofthis statement, stock-based compensation cost is measured at the grant datebased on the fair value of the award and is recognized as expense on astraight-line basis over the requisite service period, which is the vestingperiod. The Company elected the modified prospective method, under which priorperiods are not revised for comparative purposes. The modified prospectivetransition method requires recognition of compensation expense from thebeginning of the fiscal period in which the recognition provisions are firstapplied as if the fair-value-based accounting method had been used to accountfor all employees awards granted, modified, or settled after the effective dateand to any awards that were not fully vested as of the effective date. Theadoption of SFAS No. 123(R) did not have a material impact on theCompany’s consolidated financial position, results of operations and cashflows.

6

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**Recent AccountingPronouncements**

*FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes”*

In July of 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, effective for fiscal years beginning after December 15,2006. This Interpretation clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withFASB Statement No. 109, *Accounting for IncomeTaxes.*This interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also requires entities to make further disclosures aboutuncertainties in their income tax position, and to include a rollforward of thetax benefits taken that do not qualify for financial statement recognition. TheCompany is in the process of assessing the impact of this Interpretation on itsconsolidated financial statements.

*SFAS No. 157, “FairValue Measurements”*

In September 2006, theFASB issued SFAS No. 157, which defines fair value, establishes aframework for measuring fair value in generally accepted accounting principles,and expands disclosures about fair value measurements. This Statement appliesunder other accounting pronouncements that require or permit fair valuemeasurements. This Statement is effective for financial statements issued forfiscal years beginning after November 15, 2007, and interim periods withinthose fiscal years. The Company does not anticipate any material impact on itsconsolidated financial statements upon the adoption of this standard.

*Staff Accounting Bulletin No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements’’*

The SEC issued StaffAccounting Bulletin (“SAB”) No. 108 in October of 2006, to addressdiversity in practice regarding the quantification of financial statementmisstatements. SAB 108 requires that a company use both the “rollover” and “ironcurtain” method (the two most commonly used methods) when quantifyingmisstatement amounts. The SEC staff believes that reliance on only one of thesemethods does not appropriately quantify all misstatements that could bematerial to financial-statement users. SAB 108 is effective for annualfinancial statements covering the first fiscal year ending after November 15,2006. The Company is in the process of assessing the impact of thisInterpretation on its consolidated financial statements.

**2.**   Divestitures

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

On March 18, 2005, the Company completed the saleof About.com, part of the Enthusiast Media segment, the results of which havebeen classified as discontinued operations for the period up to the date ofsale. Gross proceeds from the sale of approximately $410,600 were used toreduce the Company’s borrowings under its revolving bank credit facilities andfor general corporate purposes. The Company recorded a net gain on the sale ofAbout.com of $172 and $379,076 included in discontinued operations for thethree and nine months ended September 30, 2005.

On March 31, 2005, the Company completed the saleof Bankers Training & Consulting Company, the financial servicesdivision of Workplace Learning. On April 1, 2005, the Company sold theremaining net assets of Workplace Learning for the assumption of liabilities.The Company recorded a net (loss)/gain of $(132) and $3,423 included indiscontinued operations for the three and nine months ended September 30,2005, respectively. The operating results of Workplace Learning have beenclassified as discontinued operations for all periods presented.

7

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On September 30, 2005, the Company sold itsBusiness Information Segment for approximately $385,000, resulting in a netgain of $219,000 included in discontinued operations for both the three andnine months ended September 30, 2005. During the fourth quarter of 2005,the Company sold Ward’s Automotive Group. The operating results of the BusinessInformation segment, including Ward’s Automotive Group, have been classified asdiscontinued operations for all periods presented. The net proceeds from thesesales are subject to routine post-closing adjustments. Additionally, during thethird quarter of 2005, the Company discontinued the operations of two magazinesin the Enthusiast Media segment. Their operating results have been classifiedas discontinued operations for the period up to the date the two magazines werediscontinued.

During the fourth quarter of 2005, the Company decidedto pursue the sales of its Crafts and History groups, part of the EnthusiastMedia segment, and discontinue the operations of its Software on Demand division,part of the Education segment. The operating results of these operations havebeen classified as discontinued operations for all periods presented.

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

In September of 2006, the Company discontinuedand completed the sale of the Gems group, part of the Enthusiast Media segment.The Company also completed the sale of the Crafts group in the third quarter of2006 for $132,000, resulting in a net gain of $48,983 after certain divestiturerelated expenses and working capital expenses. The sale of these groupsreflects the Company’s continued focus on its properties that reach thevaluable 18-34 male demographic. The net proceeds from these sales aresubject to routine post-closing adjustments

Netassets sold relating to the Crafts group, which were included in assets andliabilities of businesses held for sale, were comprised of the following:

| Accounts  receivable |   | $       | 7,925  |   |
|----------------------|--------|---------|--------|--------|
| Intangible assets    |   | 6,237   |   |
| Goodwill             |   | 74,291  |   |
| Other assets         |   | 5,009   |   |
|                 |   | 93,462  |   |
| Deferred revenues    |   | (18,024 | )      |
| Other liabilities    |   | (4,528  | )      |
| Net assets sold      |   | $       | 70,910 |   |

 

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

| ** **                                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                       | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total revenues,  net                             |       | $                                                    | 15,415     |                                                | $          | 70,698 |   | $ | 47,676 |   | $ | 244,990 |   |
| Income (loss) before  provision for income taxes |       | $                                                    | 2,371      |                                                | $          | 3,215 |   | $ | (306 | ) | $ | 25,153 |   |

 

Income (loss) beforeprovision for income taxes above excludes gains on sale of businesses. Thegains on sales of businesses, which are net of tax, were $52,347 and $219,039for the three months ended September 30, 2006 and 2005, respectively. Thegains on sales of businesses, net of tax, were $66,015 and $601,499 for thenine months ended September 30, 2006 and 2005, respectively.

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*Held for Sale*

Theassets and liabilities of businesses which the Company had initiated plans tosell, but had not sold, as of December 31, 2005, have been reclassified toheld for sale on the accompanying condensed consolidated balance sheet. As of December 31,2005, this represents the assets and liabilities of the Crafts and Historygroups. There were no assets held for sale as of September 30, 2006.

| ** **                               | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| **ASSETS**                               |       |                        |       |   |   |
| Accounts  receivable, net                |       |                        | $          | 12,994 |   |   |
| Inventories                              |       |                        | 1,273      |   |   |
| Prepaid expenses  and other              |       |                        | 883        |   |   |
| Property and  equipment, net             |       |                        | 1,617      |   |   |
| Intangible assets,  net                  |       |                        | 5,148      |   |   |
| Goodwill                                 |       |                        | 87,214     |   |   |
| Assets of  businesses held for sale      |       |                        | $          | 109,129 |   |   |
| **LIABILITIES**                          |       |                        |       |   |   |
| Accounts payable                         |       |                        | $          | 3,929 |   |   |
| Accrued expenses  and other              |       |                        | 1,085      |   |   |
| Deferred  revenues—current          |       |                        | 28,189     |   |   |
| Liabilities of  businesses held for sale |       |                        | $          | 33,203 |   |   |

 

**3.**   Acquisitions

*Automotive.com—ForwardAgreement*

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

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

The component relating to the CEO was measured atintrinsic value for the one and one half months remaining in 2005 following thetransaction date. On January 1, 2006, PRIMEDIA adopted the provisions ofSFAS No. 123(R) (see Note 9), which requires that the portion of theforward agreement relating to the CEO be recorded as a liability and measuredat fair value. The initial recognition of the liability, as of January 1,2006, totaling $330, was recorded as a portion of the cumulative effect ofchange in accounting principle (due to the adoption of SFAS No. 123(R)).The liability measured on September 30, 2006 was $1,182, resulting in acharge to compensation expense of $371 and $852 for the three and nine monthsended September 30, 2006, respectively.

The component of the forward agreement relating to theother minority shareholders was recorded as a liability at fair value as of thetransaction date and an adjustment to the purchase price. On September 30,2006, the fair value of this liability was $12,121, resulting in a charge tointerest expense of 

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$482 for the three monthsended September 30, 2006, and a net reduction to interest expense of$11,559 for the nine months ended September 30, 2006.

In addition, under theprovisions of the Automotive.com Stockholders Agreement, the Company must makequarterly payments (the “Additional Payments”) to the minority shareholders ofAutomotive.com in the amount of 30% of Remaining Free Cash Flow, as defined inthe Automotive.com Stockholders Agreement. For the three and nine months ended September 30,2006, the Company recorded $114 and $176, respectively, of compensation expense,and $329 and $508, respectively, to goodwill relating to the AdditionalPayments made to the minority shareholders.

*RentClicks*

In January 2006,the Consumer Guides segment acquired the assets of *RentClicks*for approximately $12,683 in cash (including acquisition related expenses) anda potential earnout consideration. The amount of the earnout consideration willbe charged to goodwill if and when it is earned and is based on a measure of *RentClicks’* earnings for 2006. The Company allocated thepurchase price of the acquisition to the following asset classes:

| ** **                 | ** ** | **Amortization  Period** | ** ** | **Amount  Allocated** | ** ** |
|----------------------------|------------|--------------------------|------------|-----------------------|------------|
| Goodwill                   |       |                     | —     |                  |       | $ | 5,125 |   |
| Advertiser Lists           |       |                     | 22  years  |                  |       | 5,900 |   |
| Non-Compete  Agreements    |       |                     | 5  years   |                  |       | 860 |   |
| Other                      |       |                     | —     |                  |       | 847 |   |
|                       |       |                     |       |                  |       | 12,732 |   |
| Less: assumed  liabilities |       |                     |       |                  |       | (49 | ) |
| Total                      |       |                     |       |                  |       | $ | 12,683 |   |

 

**Thisacquisition had no material impact on the Company’s results of operations forthe three and nine months ended September 30, 2006.**

**4.**   AccountsReceivable, Net

Accountsreceivable, net, consisted of the following:

| ** **                         | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Accounts  receivable               |       |                         | $          | 142,851                     |       |   |   | $ | 146,289 |   |   |
| Allowance for  doubtful accounts   |       |                         | (8,370     | )                           |       |   | (8,256 | ) |   |
| Allowance for  returns and rebates |       |                         | (2,123     | )                           |       |   | (3,260 | ) |   |
|                               |       |                         | $          | 132,358                     |       |   |   | $ | 134,773 |   |   |

 

**5.**   Inventories

Inventoriesconsisted of the following:

| ** **      | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------|------------|------------------------------|------------|-----------------------------|------------|
| Raw materials   |       |                         | $          | 11,371                      |       |   |   | $ | 17,895 |   |   |
| Work in process |       |                         | 68         |                        |       |   | 125 |   |   |
| Finished goods  |       |                         | 4,574      |                        |       |   | 3,192 |   |   |
|            |       |                         | $          | 16,013                      |       |   |   | $ | 21,212 |   |   |

 

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

In accordance with SFAS No. 142,“Goodwill and Other Intangible Assets” (“SFAS No. 142”), the Companyassesses goodwill and indefinite lived intangible assets for impairment atleast once a year. The Company has established October 31 as its annualimpairment test date. In addition to the annual impairment test, an assessmentis also required whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. For the nine months ended September 30,2006 and 2005, 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.

With the adoption ofSFAS No. 142, the Company no longer amortizes the book basis of theindefinite-lived intangibles, but continues to amortize these intangiblesfor tax purposes. For the three months ended September 30, 2006 and 2005,provision for income taxes primarily consisted of deferred income taxes of $3,945and $4,028, respectively, and for the nine months ended September 30, 2006and 2005, $10,619 and $9,625, respectively. The Company expects that it willrecord a total of approximately $3,692, to increase deferred tax liabilitiesduring the remainder of 2006.

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

| ** **                                                  | ** ** | **Enthusiast  Media** | ** ** | **Consumer  Guides** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|-----------------------|------------|----------------------|------------|-----------|------------|
| Balance as of  January 1, 2006                         |       |                  | $          | 650,510              |       |      | $          | 112,667 |   | $ | 763,177 |   |
| Purchase price  adjustments for valuation reports           |       |                  | 340        |                 |       | (6,741    | )          | (6,401 | ) |
| Adjustment to  goodwill allocated to assets held for sale   |       |                  | 5,477      |                 |       | —    |       | 5,477 |   |
| Goodwill acquired  related to the acquisition of businesses |       |                  | 2,725      |                 |       | 14,904    |       | 17,629 |   |
| Goodwill written  off related to the sale of businesses     |       |                  | (5,781     | )                    |       | —    |       | (5,781 | ) |
| Balance as of  September 30, 2006                      |       |                  | $          | 653,271              |       |      | $          | 120,830 |   | $ | 774,101 |   |

 

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

| ** **                                 | ** ** | ** **               | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                 | ** ** | **Range  of Lives** | ** ** | **Gross  Carrying  Amount**      | ** ** | **Accumulated  Amortization**   | ** ** | **Net** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
| Membership,  subscriber and customer lists |       |                     | 2-20       |                             |       | $                               | 187,880    |   |   | $ | 162,732 |   |   | $ | 25,148 |   | $ | 194,926 |   |   | $ | 166,553 |   |   | $ | 28,373 |   |
| Advertiser lists                           |       |                     | 4-22       |                             |       | 100,484                         |       |   | 79,200 |   |   | 21,284 |   | 96,065 |   |   | 79,418 |   |   | 16,647 |   |
| Other                                      |       |                     | 1-20       |                             |       | 93,126                          |       |   | 83,839 |   |   | 9,287 |   | 109,894 |   |   | 97,945 |   |   | 11,949 |   |
|                                       |       |                     |       |                             |       | $                               | 381,490    |   |   | $ | 325,771 |   |   | $ | 55,719 |   | $ | 400,885 |   |   | $ | 343,916 |   |   | $ | 56,969 |   |

 

Intangible assets notsubject to amortization had a carrying value of $169,012 and $174,435(excluding intangible assets classified as assets held for sale) at September 30,2006 and December 31, 2005, respectively, and consisted primarily oftrademarks. Amortization expense for other intangible assets still subject toamortization was $3,259 and $2,280 for the three months ended September 30,2006 and 2005, respectively, and $9,026 and $6,228 for the nine months ended September 30,2006 and 2005, respectively. Amortization of deferred wiring costs of $220 and$365 for the three months ended September 30, 2006 and 2005, respectively,and $544 and $1,060 for the nine months ended September 30, 2006 and 2005,respectively, is also included in amortization of intangible assets and otheron the accompanying condensed statements of consolidated operations. At September 30,2006, estimated future amortization expenses of other intangible assets stillsubject to amortization, excluding deferred wiring costs, are as follows:approximately $3,000 for the remainder of 2006 and approximately $11,000,$7,000, $6,000 and $5,000 for 2007, 2008, 2009 and 2010, respectively.

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**7.**   AccruedExpenses and Other

Accruedexpenses and other current liabilities consisted of the following:

| ** **                                          | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Payroll,  commissions and related employee benefits |       |                   | $          | 29,094                |       |   |   | $ | 30,333 |   |   |
| Rent and lease  liabilities                         |       |                   | 6,365      |                  |       |   | 5,643 |   |   |
| Retail display  costs and allowances                |       |                   | 9,746      |                  |       |   | 11,450 |   |   |
| Royalties                                           |       |                   | 1,315      |                  |       |   | 2,337 |   |   |
| Circulation costs                                   |       |                   | 4,224      |                  |       |   | 5,399 |   |   |
| Professional fees                                   |       |                   | 3,982      |                  |       |   | 2,943 |   |   |
| Taxes                                               |       |                   | 28,229     |                  |       |   | 19,475 |   |   |
| Deferred purchase  price                            |       |                   | 2,250      |                  |       |   | 2,724 |   |   |
| Interest payable                                    |       |                   | 28,154     |                  |       |   | 13,794 |   |   |
| Other                                               |       |                   | 28,195     |                  |       |   | 28,221 |   |   |
|                                                |       |                   | $          | 141,554               |       |   |   | $ | 122,319 |   |   |

 

**8.**   Long-termDebt

Long-termdebt consisted of the following:

| ** **                                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Borrowings under  bank credit facilities    |       |                   | $          | 495,000               |       |   |   | $ | 513,000 |   |   |
| 87¤8%  Senior Notes Due 2011           |       |                   | 408,411    |                  |       |   | 471,013 |   |   |
| 8% Senior Notes  Due 2013                   |       |                   | 300,000    |                  |       |   | 300,000 |   |   |
| Senior Floating  Rate Notes Due 2010        |       |                   | 175,000    |                  |       |   | 175,000 |   |   |
|                                        |       |                   | 1,378,411  |                  |       |   | 1,459,013 |   |   |
| Obligation under  capital leases            |       |                   | 3,253      |                  |       |   | 5,434 |   |   |
|                                        |       |                   | 1,381,664  |                  |       |   | 1,464,447 |   |   |
| Less: Current  maturities of long-term debt |       |                   | 11,325     |                  |       |   | 7,677 |   |   |
|                                        |       |                   | $          | 1,370,339             |       |   |   | $ | 1,456,770 |   |   |

 

In the first quarter of 2006, the Company redeemed$7,025 principal amount of its 87¤8% Senior Notesdue May 15, 2011 in three different transactions for $6,832 plus $200 ofaccrued interest. In the second quarter of 2006, the Company redeemed $56,615principal amount of its 87¤8%Senior Notes in six different transactions for $55,262 plus $400 of accruedinterest. As a result of these transactions, the Company recorded a gain of$336 net of the write-off of unamortized deferred financing costs and bonddiscount during the nine months ended September 30, 2006. This gain isincluded in the other income (expense), net line on the accompanying condensedstatements of consolidated operations.

Under the most restrictive covenants as defined in thebank credit facilities agreement, as amended on September 30, 2005, theCompany must maintain a minimum interest coverage ratio, as defined, of 1.75 to 1and a minimum fixed charge coverage ratio, as defined, of 1.05 to 1. Themaximum allowable debt leverage ratio, as defined in the bank creditfacilities, is 6.25 to 1 and decreases to 6.00 to 1 on October 1, 2007.

The Senior Floating Rate Notes bear interest equal tothe three-month LIBOR plus 5.375% per year. The interest rate of the SeniorFloating Rate Notes was 10.78% at September 30, 2006.

In October 2006, theCompany redeemed a portion of its 8% Senior Notes (See Note 15).

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**9.**   Share-BasedCompensation Plans

*Accounting Prior toAdoption of SFAS No. 123(R)*

Prior to January 1, 2006, the Company accountedfor stock-based compensation using SFAS No. 123 under the prospectivemethod. Upon adoption on January 1, 2003, the Company began expensing thefair value of stock-based compensation for all grants, modifications orsettlements made on or after January 1, 2003. The company adopted SFAS No. 123(R) onJanuary 1, 2006.

The PRIMEDIA Inc. 1992 Stock Purchase and Option Plan,as amended (the “Stock Option Plan”), authorizes sales of shares of commonstock and grants of incentive awards in the form of, among other things, stockoptions to key employees and other persons with a unique relationship with theCompany. The Stock Option Plan has authorized grants of up to 45,000,000 sharesof the Company’s common stock or options to management personnel.

Stock options are grantedwith exercise prices at or above quoted market value at time of issuance. Mostof the options are exercisable at the rate of 20%-33% per year commencingon the effective date of the grant. Most options granted pursuant to the StockOption Plan will expire no later than ten years from the date the option wasgranted. The grant date fair value is calculated using the Black-Scholespricing model.

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

Under the fair value recognition provisions of SFAS No. 123(R),stock-based compensation cost is measured at the grant date based on the fairvalue of the award and is recognized as expense on a straight-line basis overthe requisite service period, which is the vesting period. The Company electedthe modified prospective method, under which prior periods are not revised forcomparative purposes. The modified prospective transition method requiresrecognition of compensation expense from the beginning of the fiscal period inwhich the recognition provisions are first applied as if the fair-value-basedaccounting method had been used to account for all employees awards granted,modified, or settled after the effective date and to any awards that were notfully vested as of the effective date.

Upon adoption of SFAS No. 123(R),the Company recorded an increase in net income of $352 as a portion of thecumulative effect of change in accounting principle due to SFAS No. 123(R)’srequirement to apply an estimated forfeiture rate to unvested awards(previously the Company recognized forfeitures when occurred) and a reductionto net income of $330 as a portion of the cumulative effect of change in accountingprinciple as described in Note 3. The adoption of SFAS No. 123(R) didnot have a material impact on the Company’s consolidated financial position,results of operations and cash flows.

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*Pro FormaDisclosure for the Three and Nine Months Ended September 30, 2005*

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

| ** **                                                                                                       | ** ** | **Three Months Ended  September 30, 2005** | ** ** | **Nine Months Ended  September 30, 2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| Reported net  income                                                                                             |       |                                                           | $          | 207,754                                                       |       |   |   | $ | 578,279 |   |   |
| Add: stock-based  employee compensation expense included in reported net income                                  |       |                                                           | 3,331      |                                                          |       |   | 4,483 |   |   |
| Deduct: total stock-based employee compensation  expense determined under fair value based method for all awards |       |                                                           | (4,437     | )                                                             |       |   | (7,908 | ) |   |
| Pro forma net income                                                                                             |       |                                                           | $          | 206,648                                                       |       |   |   | $ | 574,854 |   |   |
| Per common share:                                                                                                |       |                                                           |       |                                                          |       |   |   |   |   |
| Reported basic and diluted income                                                                                |       |                                                           | $          | 0.79                                                          |       |   |   | $ | 2.20 |   |   |
| Pro forma basic  and diluted income                                                                              |       |                                                           | $          | 0.79                                                          |       |   |   | $ | 2.19 |   |   |

 

*Fair ValueCalculations by Award*

*Stock Options*

Thefair value of each option award was estimated at the date of grant using theBlack-Scholes pricing model under the assumptions noted in the followingtable. Where certain inputs to the Black-Scholes model varied throughout theperiod, the ranges utilized for those assumptions are disclosed. Expectedvolatilities are based on historical volatilities of the Company’s stock. TheCompany uses historical data to estimate option exercises and employeeterminations within the valuation model. The expected term of options grantedis derived from the historical exercise behavior of employees and representsthe period of time that options granted are expected to be outstanding. Therisk-free rate for the expected term of the option is based on the U.S.Treasury yield curve in effect at the time of grant.

| ** **                   | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Expected  volatility         |       | 61.71                                                | %          | 67.03                                               | %          | 61.71% - 63.63 | % | 67.03% - 75.30 | % |
| Weighted-average  volatility |       | 61.71                                                | %          | 67.03                                               | %          | 61.78 | % | 72.12 | % |
| Expected  dividends          |       | —                                               |       | —                                              |       | — |   | — |   |
| Expected term (in  years)    |       | 3                                                    |       | 3                                                   |       | 3 |   | 3 |   |
| Risk-free rate               |       | 4.95% - 5.03                                         | %          | 4.08                                                | %          | 4.95% - 5.03 | % | 3.25% - 4.08 | % |

 

The Black-Scholes pricing model was developed for usein estimating the fair value of traded options which have no vestingrestrictions and are fully transferable. In addition, option valuation modelsrequire the input of highly subjective assumptions including the expected stockprice volatility. The Company’s employee stock options have characteristicssignificantly different from those of traded options, and changes in thesubjective input assumptions can materially affect the fair value estimate ofits employee stock options.

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In the third quarter of 2006, the Company granted twoboard members an aggregated total of 100,000 options to purchase shares of thecompany’s Common stock. The exercise price of these stock options is $1.60. Theseoptions vest annually over a three-year period following the date of grant.

Asummary of the Company’s stock options award activity as of September 30,2006 and changes during the nine months ended September 30, 2006 ispresented below:

| ** **                              | ** ** | **Options** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Weighted Average  remaining  Contractual Term** | ** ** |
|-----------------------------------------|------------|-------------|------------|------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Outstanding at  January 1, 2006    |       | 20,712,058  |       |                                           | $          | 7.65                                                        |       |   |   |   |   |   |
| Granted                                 |       | 110,000     |       |                                           | $          | 1.62                                                        |       |   |   |   |   |   |
| Exercised                               |       | (19,883     | )          |                                           | $          | 1.82                                                        |       |   |   |   |   |   |
| Expired                                 |       | (458,337    | )          |                                           | $          | 7.37                                                        |       |   |   |   |   |   |
| Forfeited                               |       | (201,198    | )          |                                           | $          | 3.11                                                        |       |   |   |   |   |   |
| Outstanding at  September 30, 2006 |       | 20,142,640  |       |                                           | $          | 7.67                                                        |       |   |   | 4 |   |   |
| Exercisable at  September 30, 2006 |       | 18,584,611  |       |                                           | $          | 7.92                                                        |       |   |   | 4 |   |   |

 

The weighted-average fair value per option foroptions granted during both the three and nine months ended September 30,2006 was $0.73. Cash received from the exercise of stock options during thethree and nine months ended September 30, 2006 was $1 and $36,respectively. No options were settled in cash during the three and nine monthsended September 30, 2006.

The Company’s policy forattributing the value of graded vested share-based compensation awards is on astraight-line basis over the requisite service period for the entire award. Asof September 30, 2006, there was $900 of total unrecognized compensationcost related to unvested stock options. The cost is expected to be recognizedover a weighted average period of 1 year.

*Nonvested shares*

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

Asummary of the Company’s nonvested shares award activity as of September 30,2006 and changes during the nine months ended September 30, 2006 ispresented below:

| ** **                                   | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Grant-Date  Fair Value** | ** ** |
|----------------------------------------------|------------|----------------------------|------------|--------------------------------------------------------|------------|
| Nonvested Shares  at January 1, 2006    |       |                       | 804,500    |                                                   |       |   | $ | 2.95 |   |   |
| Vested                                       |       |                       | (43,963    | )                                                      |       |   | $ | 2.97 |   |   |
| Forfeited                                    |       |                       | (5,500     | )                                                      |       |   | $ | 2.90 |   |   |
| Nonvested Shares at  September 30, 2006 |       |                       | 755,037    |                                                   |       |   | $ | 2.95 |   |   |

 

As of September 30, 2006, there was $967 of totalunrecognized compensation cost related to nonvested shares. The cost isexpected to be recognized over a weighted average period of 1 year.

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

The Company has 9,685,921 sharesof the Company’s common stock reserved for future grants in connection with theStock Option Plan at September 30, 2006.

15

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*Employee StockPurchase Plan (“ESPP”)*

Effective January 1, 2006, the ESPP was amendedto provide that the purchase price of shares through the ESPP is 95% of theclosing stock price on the last day of the offering period. Due to theamendment, the ESPP became non-compensatory and thus no charges were recordedfor the three and nine months ended September 30, 2006. ESPP non-cashcompensation for the three and nine months ended September 30, 2005 didnot have a material impact on the Company’s statements of consolidatedoperations. In January and July 2006, the Company issued 170,054 and112,877 shares purchased under the ESPP during the offering periods of the sixmonths ended December 31, 2005 and June 30,2006, respectively.

The Company has 2,451,000shares of the Company’s common stock reserved for future grants in connectionwith the ESPP at September 30, 2006.

*Non-Cash Compensation*

| ** **                                                     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                     | ** ** | **   2006   **         | ** ** | **   2005   **        | ** ** | **   2006   ** | ** ** | **   2005   ** | ** ** |
| Nonvested shares                                               |       |                                                 | $          | 348                                                 |       |   |   | $ | 739 |   |   |   | $ | 1,085 |   |   |   | $ | 1,991 |   |   |
| Share Based  Compensation (SFAS 123(R) and SFAS 123) |       |                                                 | 63         |                                                |       |   | 3,331 |   |   |   | 1,863 |   |   |   | 4,483 |   |   |
| Total                                                          |       |                                                 | $          | 411                                                 |       |   |   | $ | 4,070 |   |   |   | $ | 2,948 |   |   |   | $ | 6,474 |   |   |

 

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

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

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

| ** **                                        | ** ** | ** **                    | ** ** | **Net Provision**     | ** ** | **Payments**                  | ** ** | ** **                    | ** ** |
|---------------------------------------------------|------------|-------------------------------|------------|----------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **                                        | ** ** | ** **                    | ** ** | **for the Nine** | ** ** | **during the Nine** | ** ** | ** **                    | ** ** |
| ** **                                        | ** ** | **Liability as of** | ** ** | **Months Ended**      | ** ** | **Months Ended**         | ** ** | **Liability as of** | ** ** |
| ** **                                        | ** ** | **January 1,**           | ** ** | **September 30,**     | ** ** | **September 30,**        | ** ** | **September 30,**        | ** ** |
| ** **                                        | ** ** | **2006**                      | ** ** | **2006**                   | ** ** | **2006**                      | ** ** | **2006**                      | ** ** |
| Severance and  closures:                          |       |                          |       |                       |       |                          |       |                          |       |   |   |   |   |   |   |   |   |
| Employee-related  termination costs               |       |                          | $          | 245                        |       |                          |       | $                             | 1,741      |   |   |   | $ | (1,522 | ) |   |   | $ | 464 |   |   |
| Termination of  leases related to office closures |       |                          | 29,228     |                       |       |                          | 467        |                          |       |   | (3,379 | ) |   |   | 26,316 |   |   |
| Total severance and  closures                     |       |                          | $          | 29,473                     |       |                          |       | $                             | 2,208      |   |   |   | $ | (4,901 | ) |   |   | $ | 26,780 |   |   |

 

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

 

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The remaining liabilityrelated to real estate lease commitments forspace that the Company no longer occupies, is expected to be paidthrough 2015. The employee-related termination costs are expected to be paidthrough 2006. To reduce the lease related costs, the Company has aggressivelypursued subleases of its available office space. These leases have beenrecorded at their net present value amounts and are net of sublease incomeamounts. The Company evaluates the appropriateness of its reserves on a quarterlybasis.

As a result of theimplementation of this new plan, the Company has closed 4 office location andhas terminated a total of 70 individuals.

Liabilities of $3,848 and$3,972 representing the current portion of the provision for severance, closuresand restructuring related costs are included in accrued expenses and other onthe condensed consolidated balance sheets as of September 30, 2006 andDecember 31, 2005, respectively. Liabilities of $22,932 and $25,501representing the non-current portion of the provision for severance, closuresand restructuring related costs are included in other non-current liabilitieson the condensed consolidated balance sheets as of September 30, 2006 andDecember 31, 2005, respectively.

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

**11.**   Income per CommonShare

Income per common sharefor the three and nine months ended September 30, 2006 and 2005 has beendetermined based on net income divided by the weighted average number of commonshares outstanding for all periods presented.

The securities that couldpotentially dilute basic earnings per share in the future consist ofapproximately 9,870,000 warrants at September 30, 2006 and 2005, and 20,142,640and 22,103,785 stock options at September 30, 2006 and 2005, respectively.

**12.**   Commitments andContingencies

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

In 2005, the Company soldthe remaining net assets of Workplace Learning for the assumption ofliabilities, however, the Company retained a secondary liability regarding theCarrolton, TX building lease and a lease for satellite time. At the time of thesale the Company received a third party guarantee of up to $10,000 againstthose lease obligations to reimburse the Company for lease payments made.

In 2006, the Company madecertain lease payments on behalf of Workplace Learning pursuant to itssecondary liability. During the second quarter of 2006, the Company determinedthat it was probable that the Company would be responsible for the leasepayments. As a result, as of September 30, 2006, the Company has areceivable of $10,000 included in prepaid expenses and other current assets forthe amount due from the third party guarantor, and a total liability of $15,231for the fair value of the future lease payments, net of estimated subleaseincome, on the accompanying condensed consolidated balance sheet. During thesecond quarter of 2006, the Company recorded a related provision indiscontinued operations of $5,584 and a charge to discontinued operations of$1,643 for the net lease payments made by the Company prior to June 30,2006. As of September 30, 2006, no further provisions were deemednecessary.

**13.   Business Segment Information**

The Company’s productscompete primarily in the United States, in three principal segments: EnthusiastMedia, Consumer Guides and Education. PRIMEDIA believes that this structurealigns its businesses to provide a clearer sense of its strategic focus andoperating performance.

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The Enthusiast Mediasegment produces and distributes content through magazines and via the Internetto consumers in various niche and enthusiast markets. It connects buyers andsellers through the Company’s consumer magazine brands, Internet, events, videoprograms, licensing and merchandising.

The Consumer Guidessegment is the nation’s largest publisher and distributor of free publications,including *Apartment Guide, New Home Guide*and *Auto Guide*and operates related Internet sites*.*

The Education segmentconsists of the businesses that provide content for schools, universities,government and other public institutions as well as training. It includesChannel One, Films Media Group and PRIMEDIA Healthcare, a continuing medicaleducation business.

The following informationincludes certain intersegment transactions and is, therefore, not necessarilyindicative 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.

Informationregarding the operations of the Company in different business segments is setforth below based primarily on the nature of the targeted audience. Corporaterepresents items not allocated to other business segments. PRIMEDIA evaluatesperformance based on several factors, of which the primary financial measure issegment earnings before interest, taxes, depreciation, amortization and othercharges (income) (“Segment EBITDA”). Other charges (income) include non-cash compensation, provision forseverance, closures and restructuring related costs and (gain) loss on sale ofbusinesses and other, net.

| ** **                                                                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues, net:                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                                 |       | $                                                    | 162,182    |                                                | $          | 154,688 |   | $ | 467,640 |   | $ | 449,907 |   |
| Consumer Guides                                                                  |       | 81,352                                               |       | 81,310                                              |       | 244,036 |   | 236,429 |   |
| Education                                                                        |       | 10,610                                               |       | 10,996                                              |       | 40,596 |   | 48,231 |   |
| Intersegment Eliminations                                                        |       | (109                                                 | )          | (66                                                 | )          | (225 | ) | (234 | ) |
| Total                                                                            |       | $                                                    | 254,035    |                                                | $          | 246,928 |   | $ | 752,047 |   | $ | 734,333 |   |
| Segment EBITDA:(1)                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Enthusiast Media                                                                 |       | $                                                    | 34,354     |                                                | $          | 32,417 |   | $ | 88,287 |   | $ | 88,348 |   |
| Consumer Guides                                                                  |       | 21,699                                               |       | 17,791                                              |       | 57,609 |   | 53,947 |   |
| Education                                                                        |       | (2,952                                               | )          | (1,738                                              | )          | (3,064 | ) | 3,969 |   |
| Corporate Overhead                                                               |       | (6,586                                               | )          | (6,302                                              | )          | (20,553 | ) | (19,967 | ) |
| Total Segment  EBITDA                                                            |       | 46,515                                               |       | 42,168                                              |       | 122,279 |   | 126,297 |   |
| Depreciation,  amortization and other charges(2)                                 |       | 11,411                                               |       | 13,940                                              |       | 36,594 |   | 35,417 |   |
| Operating income                                                                 |       | 35,104                                               |       | 28,228                                              |       | 85,685 |   | 90,880 |   |
| Other income  (expense):                                                         |       |                                                 |       |                                                |       |   |   |   |   |
| Interest expense(3)                                                              |       | (33,574                                              | )          | (32,440                                             | )          | (85,855 | ) | (98,266 | ) |
| Interest on shares subject to mandatory  redemption(4)                           |       | —                                               |       | (4,566                                              | )          | — |   | (21,920 | ) |
| Amortization of deferred financing costs                                         |       | (630                                                 | )          | (1,042                                              | )          | (1,946 | ) | (3,560 | ) |
| Other income (expense), net                                                      |       | 787                                                  |       | (2,906                                              | )          | 1,102 |   | (7,083 | ) |
| Income (loss)  from continuing operations before provision for income taxes |       | $                                                    | 1,687      |                                                | $          | (12,726 | ) | $ | (1,014 | ) | $ | (39,949 | ) |

----

(1)          SegmentEBITDA represents the segments’ earnings before interest, taxes, depreciation,amortization and other charges (income) (see Note 2 below). Segment EBITDAis not intended to be and should not be considered as an alternative to netincome or loss (as determined in conformity with generally accepted accountingprinciples), or as an indicator of the Company’s operating performance. Segment

18

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EBITDA is presentedherein because the Company’s chief operating decision maker evaluates andmeasures each business unit’s performance based on its Segment EBITDA results.PRIMEDIA believes that Segment EBITDA is an accurate indicator of its segments’results, because it focuses on revenue and operating cost items driven by eachoperating managers’ performance, and excludes items largely outside of theoperating managers’ control. Segment EBITDA as presented may not be comparableto similarly titled measures reported by other companies since not allcompanies necessarily calculate Segment EBITDA in an identical manner, andtherefore, is not necessarily an accurate measure of comparison betweencompanies.

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

(3)          Interestexpense increased by $482 for the three months ended September 30, 2006and was decreased by $11,559 for the nine months ended September 30, 2006,due to the quarterly fair value measurement of the deferred purchase priceliability arising from the forward agreement related to the Automotive.comacquisition (See Note 3).

(4)          During2005, the Company redeemed all of its outstanding shares subject to mandatoryredemption (liquidation preference of approximately $475,000 for the year endedDecember 31, 2005, and $264,494 for the nine months ended September 30,2005).

**14.   Financial Information for Guarantors of theCompany’s Debt**

The information thatfollows presents condensed consolidating financial information as of September 30,2006 and December 31, 2005 and for the three and nine months ended September 30,2006 and 2005 for a) PRIMEDIA Inc. (as the Issuer), b) the guarantorsubsidiaries, which are with limited exceptions, the restricted subsidiaries,representing the core PRIMEDIA businesses and exclude investment and otherdevelopment properties included in the unrestricted category, c) thenon-guarantor subsidiaries (primarily representing Internet assets andbusinesses, new launches and other properties under evaluation for turnaroundor shutdown), which are with limited exceptions, the unrestricted subsidiaries,d) elimination entries and e) the Company on a consolidated basis.

The condensedconsolidating financial information includes certain allocations of revenues,expenses, assets and liabilities based on management’s best estimates which arenot necessarily indicative of the financial position, results of operations andcash flows that these entities would have achieved on a stand-alone basisand should be read in conjunction with the consolidated financial statements ofthe Company. The intercompany balances in the accompanying condensedconsolidating financial statements include cash management activities,management fees, cross promotional activities and other intercompany chargesbetween Corporate and the business units and among the business units. Thenon-guarantor subsidiaries results of operations include: Internet operations,certain distribution operations, certain start-up magazine businesses, revenuesand related expenses derived from the licensing of certain products ofguarantor subsidiaries and expenses associated with the cross promotion by theguarantor subsidiaries of the activities of the non-guarantor subsidiaries. Thetransactions described above are billed, by the Company, at what the Companybelieves are prevailing market rates. All intercompany related activities areeliminated in consolidation.

The Company is herewith providing detailed informationand disclosure as to the methodology used in determining compliance with theleverage ratio in the credit facilities agreement and Senior Note agreements.Under its bank credit facilities and Senior Note agreements, the Company isallowed to designate certain businesses as unrestricted subsidiaries to theextent that the value of those businesses does not exceed the permittedamounts, as defined in these agreements. The Company has designated certain ofits businesses as unrestricted (the “Unrestricted Group”), which primarilyrepresent Internet businesses, trademark and content licensing and servicecompanies, new launches (including traditional start-ups), other propertiesunder evaluation for turnaround or shutdown and foreign subsidiaries. Except 

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forthose specifically designated by the Company as unrestricted, all businesses ofthe Company are restricted (the “Restricted Group”). Indebtedness under the bankcredit facilities and Senior Note agreements is guaranteed by each of theCompany’s 100%-owned domestic subsidiaries in the Restricted Group inaccordance with the provisions and limitations of the Company’s bank creditfacilities and Senior Note agreements. The guarantees are full, unconditionaland joint and several. The Unrestricted Group does not guarantee the bankcredit facilities or Senior Notes. Although Automotive.com is included in theRestricted Group under the bank credit facilities agreement and Senior Notes itdoes not guarantee the debt. For purposes of determining compliance withcertain financial covenants under the Company’s bank credit facilities, theUnrestricted Group’s results (positive or negative), are not reflected in theConsolidated EBITDA of the Restricted Group which, as defined in the bankcredit facilities agreement, excludes losses of the Unrestricted Group,non-cash charges and restructuring charges and is adjusted primarily for thetrailing four quarters results of acquisitions and divestitures and estimatedsavings for acquired business.

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEET**(UNAUDITED)September 30, 2006(dollars in thousands)
|                                                      | ** ** | **PRIMEDIA Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **PRIMEDIA Inc.  and  Subsidiaries** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-------------------------------------------|------------|
| **ASSETS**                                           |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Current assets:                                      |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |       |                   | $          | 58,657                      |       |                            |       | $                | 4,550      |                                      |       |   | $ | 8,625 |   |   |   | $ | — |   |   |   | $ | 71,832 |   |   |
| Accounts receivable, net                             |       |                   | —     |                        |       |                            | 114,124    |             |       |                                      | 18,234     |   |   |   | — |   |   |   | 132,358 |   |   |
| Inventories                                          |       |                   | —     |                        |       |                            | 14,355     |             |       |                                      | 1,658      |   |   |   | — |   |   |   | 16,013 |   |   |
| Prepaid expenses and other                           |       |                   | 14,455     |                        |       |                            | 19,466     |             |       |                                      | 7,599      |   |   |   | — |   |   |   | 41,520 |   |   |
| Total current assets                                 |       |                   | 73,112     |                        |       |                            | 152,495    |             |       |                                      | 36,116     |   |   |   | — |   |   |   | 261,723 |   |   |
| Property and equipment, net                          |       |                   | 4,271      |                        |       |                            | 38,831     |             |       |                                      | 11,501     |   |   |   | — |   |   |   | 54,603 |   |   |
| Investment in and advances to subsidiaries           |       |                   | 1,291,652  |                        |       |                            | —     |             |       |                                      | —     |   |   |   | (1,291,652 | ) |   |   | — |   |   |
| Intangible assets, net                               |       |                   | —     |                        |       |                            | 185,846    |             |       |                                      | 38,885     |   |   |   | — |   |   |   | 224,731 |   |   |
| Goodwill                                             |       |                   | —     |                        |       |                            | 664,753    |             |       |                                      | 109,348    |   |   |   | — |   |   |   | 774,101 |   |   |
| Other non-current assets                             |       |                   | 5,487      |                        |       |                            | 26,451     |             |       |                                      | 1,115      |   |   |   | — |   |   |   | 33,053 |   |   |
| Total Assets                                         |       |                   | $          | 1,374,522                   |       |                            |       | $                | 1,068,376  |                                      |       |   | $ | 196,965 |   |   |   | $ | (1,291,652 | ) |   |   | $ | 1,348,211 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                 |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                     |       |                   | $          | 4,254                       |       |                            |       | $                | 43,443     |                                      |       |   | $ | 1,986 |   |   |   | $ | — |   |   |   | $ | 49,683 |   |   |
| Intercompany payables                                |       |                   | 300,538    |                        |       |                            | (948,668   | )                |       |                                      | 648,130    |   |   |   | — |   |   |   | — |   |   |
| Accrued expenses and other                           |       |                   | 60,230     |                        |       |                            | 75,151     |             |       |                                      | 6,173      |   |   |   | — |   |   |   | 141,554 |   |   |
| Deferred revenues                                    |       |                   | 1,738      |                        |       |                            | 99,961     |             |       |                                      | 6,575      |   |   |   | — |   |   |   | 108,274 |   |   |
| Current maturities of long-term debt                 |       |                   | 10,248     |                        |       |                            | 1,049      |             |       |                                      | 28         |   |   |   | — |   |   |   | 11,325 |   |   |
| Total current liabilities                            |       |                   | 377,008    |                        |       |                            | (729,064   | )                |       |                                      | 662,892    |   |   |   | — |   |   |   | 310,836 |   |   |
| Long-term debt                                       |       |                   | 1,368,340  |                        |       |                            | 1,897      |             |       |                                      | 102        |   |   |   | — |   |   |   | 1,370,339 |   |   |
| Intercompany notes payable                           |       |                   | —     |                        |       |                            | 2,144,642  |             |       |                                      | —     |   |   |   | (2,144,642 | ) |   |   | — |   |   |
| Deferred revenues                                    |       |                   | 13,175     |                        |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | 13,175 |   |   |
| Deferred income taxes                                |       |                   | 88,124     |                        |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | 88,124 |   |   |
| Other non-current liabilities                        |       |                   | 36,947     |                        |       |                            | 21,692     |             |       |                                      | 16,170     |   |   |   | — |   |   |   | 74,809 |   |   |
| Total Liabilities                                    |       |                   | 1,883,594  |                        |       |                            | 1,439,167  |             |       |                                      | 679,164    |   |   |   | (2,144,642 | ) |   |   | 1,857,283 |   |   |
| Shareholders’ deficiency:                       |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                         |       |                   | 2,725      |                        |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | 2,725 |   |   |
| Additional paid-in capital                           |       |                   | 2,366,126  |                        |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | 2,366,126 |   |   |
| Accumulated deficit                                  |       |                   | (2,802,046 | )                           |       |                            | (370,791   | )                |       |                                      | (482,199   | ) |   |   | 852,990 |   |   |   | (2,802,046 | ) |   |
| Common stock in treasury, at cost               |       |                   | (75,877    | )                           |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | (75,877 | ) |   |
| Total Shareholders’ Deficiency                  |       |                   | (509,072   | )                           |       |                            | (370,791   | )                |       |                                      | (482,199   | ) |   |   | 852,990 |   |   |   | (509,072 | ) |   |
| Total Liabilities  and Shareholders’ Deficiency |       |                   | $          | 1,374,522                   |       |                            |       | $                | 1,068,376  |                                      |       |   | $ | 196,965 |   |   |   | $ | (1,291,652 | ) |   |   | $ | 1,348,211 |   |   |

 

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**PRIMEDIA INC. AND SUBSIDIARIES CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Three Months Ended September 30, 2006(dollars in thousands)**
|                                                                                              | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                   | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                   | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                                                |       |                   | $          | —           |       |              |       | $                | 202,588    |                   |       |   | $ | 54,252 |   |   |   | $ | (2,805 | ) |   |   | $ | 254,035 |   |   |
| Operating costs and expenses:                                                                |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment)   |       |                   | —     |             |       |              | 49,998     |             |       |                   | 10,052     |   |   |   | — |   |   |   | 60,050 |   |   |
| Marketing and selling                                                                        |       |                   | —     |             |       |              | 38,100     |             |       |                   | 6,792      |   |   |   | — |   |   |   | 44,892 |   |   |
| Distribution, circulation and fulfillment                                     |       |                   | —     |             |       |              | 30,729     |             |       |                   | 16,892     |   |   |   | — |   |   |   | 47,621 |   |   |
| Editorial                                                                                    |       |                   | —     |             |       |              | 14,886     |             |       |                   | 2,574      |   |   |   | — |   |   |   | 17,460 |   |   |
| Other general expenses                                                                       |       |                   | 19         |             |       |              | 9,401      |             |       |                   | 24,315     |   |   |   | (2,805 | ) |   |   | 30,930 |   |   |
| Corporate administrative expenses (including non-cash  compensation)     |       |                   | 5,493      |             |       |              | —     |             |       |                   | 1,485      |   |   |   | — |   |   |   | 6,978 |   |   |
| Depreciation and amortization of property and equipment                                      |       |                   | 439        |             |       |              | 4,759      |             |       |                   | 2,031      |   |   |   | — |   |   |   | 7,229 |   |   |
| Amortization of intangible assets and other                                                  |       |                   | —     |             |       |              | 1,580      |             |       |                   | 1,899      |   |   |   | — |   |   |   | 3,479 |   |   |
| Provision for severance, closures and restructuring related  costs                           |       |                   | 11         |             |       |              | 278        |             |       |                   | 3          |   |   |   | — |   |   |   | 292 |   |   |
| Operating income (loss)                                                                      |       |                   | (5,962     | )                |       |              | 52,857     |             |       |                   | (11,791    | ) |   |   | — |   |   |   | 35,104 |   |   |
| Other income (expense):                                                                      |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                             |       |                   | (32,776    | )                |       |              | (297       | )                |       |                   | (501       | ) |   |   | — |   |   |   | (33,574 | ) |   |
| Amortization of deferred financing costs                                           |       |                   | —     |             |       |              | (601       | )                |       |                   | (29        | ) |   |   | — |   |   |   | (630 | ) |   |
| Intercompany management fees and interest                                                    |       |                   | 34,705     |             |       |              | (33,178    | )                |       |                   | (1,527     | ) |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                                                  |       |                   | 764        |             |       |              | 310        |             |       |                   | (287       | ) |   |   | — |   |   |   | 787 |   |   |
| Income (loss) from continuing operations before provision  for income taxes                  |       |                   | (3,269     | )                |       |              | 19,091     |             |       |                   | (14,135    | ) |   |   | — |   |   |   | 1,687 |   |   |
| Provision for income taxes                                                                   |       |                   | (4,947     | )                |       |              | (15        | )                |       |                   | (47        | ) |   |   | — |   |   |   | (5,009 | ) |   |
| Equity in losses of subsidiaries                                                             |       |                   | 58,800     |             |       |              | —     |             |       |                   | —     |   |   |   | (58,800 | ) |   |   | — |   |   |
| Income (loss) from continuing operations                                           |       |                   | 50,584     |             |       |              | 19,076     |             |       |                   | (14,182    | ) |   |   | (58,800 | ) |   |   | (3,322 | ) |   |
| Discontinued operations, net of tax                                                          |       |                   | 3,168      |             |       |              | 55,451     |             |       |                   | (1,545     | ) |   |   | — |   |   |   | 57,074 |   |   |
| Net income (loss)                                                                            |       |                   | $          | 53,752           |       |              |       | $                | 74,527     |                   |       |   | $ | (15,727 | ) |   |   | $ | (58,800 | ) |   |   | $ | 53,752 |   |   |

 

22

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS (UNAUDITED)For the Nine Month Ended September 30, 2006(dollars in thousands)**
|                                                                                                                                   | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                                                        | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                                                        | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net                                                                                                                     |       |                   | $          | —           |       |              |       | $                | 602,927    |                   |       |   | $ | 155,907 |   |   |   | $ | (6,787 | ) |   |   | $ | 752,047 |   |   |
| Operating costs and expenses:                                                                                                     |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment)                                        |       |                   | —     |             |       |              | 150,143    |             |       |                   | 26,645     |   |   |   | — |   |   |   | 176,788 |   |   |
| Marketing and selling                                                                                                             |       |                   | —     |             |       |              | 119,480    |             |       |                   | 21,287     |   |   |   | — |   |   |   | 140,767 |   |   |
| Distribution, circulation and fulfillment                                                                          |       |                   | —     |             |       |              | 93,306     |             |       |                   | 51,756     |   |   |   | — |   |   |   | 145,062 |   |   |
| Editorial                                                                                                                         |       |                   | —     |             |       |              | 43,709     |             |       |                   | 7,961      |   |   |   | — |   |   |   | 51,670 |   |   |
| Other general expenses                                                                                                            |       |                   | 48         |             |       |              | 30,435     |             |       |                   | 71,281     |   |   |   | (6,787 | ) |   |   | 94,977 |   |   |
| Corporate administrative expenses (including non-cash  compensation)                                     |       |                   | 18,859     |             |       |              | 48         |             |       |                   | 4,545      |   |   |   | — |   |   |   | 23,452 |   |   |
| Depreciation and amortization of property and equipment                                                                           |       |                   | 1,128      |             |       |              | 14,465     |             |       |                   | 6,247      |   |   |   | — |   |   |   | 21,840 |   |   |
| Amortization of intangible assets and other                                                                                       |       |                   | —     |             |       |              | 4,617      |             |       |                   | 4,953      |   |   |   | — |   |   |   | 9,570 |   |   |
| Provision for severance, closures and restructuring related  costs                                                                |       |                   | 18         |             |       |              | 2,147      |             |       |                   | 43         |   |   |   | — |   |   |   | 2,208 |   |   |
| Loss on sale of businesses and other, net                                                                                    |       |                   | —     |             |       |              | 28         |             |       |                   | —     |   |   |   | — |   |   |   | 28 |   |   |
| Operating income (loss)                                                                                                           |       |                   | (20,053    | )                |       |              | 144,549    |             |       |                   | (38,811    | ) |   |   | — |   |   |   | 85,685 |   |   |
| Other income (expense):                                                                                                           |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                                                                  |       |                   | (96,384    | )                |       |              | (961       | )                |       |                   | 11,490     |   |   |   | — |   |   |   | (85,855 | ) |   |
| Amortization of deferred financing costs                                                                                |       |                   | —     |             |       |              | (1,858     | )                |       |                   | (88        | ) |   |   | — |   |   |   | (1,946 | ) |   |
| Intercompany management fees and interest                                                                                         |       |                   | 109,119    |             |       |              | (104,623   | )                |       |                   | (4,496     | ) |   |   | — |   |   |   | — |   |   |
| Other income (expense), net                                                                                                       |       |                   | 2,330      |             |       |              | (787       | )                |       |                   | (441       | ) |   |   | — |   |   |   | 1,102 |   |   |
| Income (loss) from continuing operations before provision  for income taxes                                                       |       |                   | (4,988     | )                |       |              | 36,320     |             |       |                   | (32,346    | ) |   |   | — |   |   |   | (1,014 | ) |   |
| Provision for income taxes                                                                                                        |       |                   | (6,506     | )                |       |              | (435       | )                |       |                   | (196       | ) |   |   | — |   |   |   | (7,137 | ) |   |
| Equity in losses of subsidiaries                                                                                                  |       |                   | 74,989     |             |       |              | —     |             |       |                   | —     |   |   |   | (74,989 | ) |   |   | — |   |   |
| Income (loss) from continuing operations                                                                                |       |                   | 63,495     |             |       |              | 35,885     |             |       |                   | (32,542    | ) |   |   | (74,989 | ) |   |   | (8,151 | ) |   |
| Discontinued operations, net of tax                                                                                               |       |                   | (4,248     | )                |       |              | 73,345     |             |       |                   | (1,369     | ) |   |   | — |   |   |   | 67,728 |   |   |
| Cumulative effect of change in accounting principle (from  the adoption of Statement of Financial Accounting Standards No.123(R)) |       |                   | 352        |             |       |              | —     |             |       |                   | (330       | ) |   |   | — |   |   |   | 22 |   |   |
| Net income (loss)                                                                                                                 |       |                   | $          | 59,599           |       |              |       | $                | 109,230    |                   |       |   | $ | (34,241 | ) |   |   | $ | (74,989 | ) |   |   | $ | 59,599 |   |   |

 

23

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Nine Month Ended September 30, 2006(dollars in thousands)**
|                                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                              | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                              | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                               |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                                                                       |       |                   | $          | 59,599           |       |              |       | $                | 109,230    |                   |       |   | $ | (34,241 | ) |   |   | $ | (74,989 | ) |   |   | $ | 59,599 |   |   |
| Cumulative effect of change in accounting principle                                                     |       |                   | (352       | )                |       |              | —     |             |       |                   | 330        |   |   |   | — |   |   |   | (22 | ) |   |
| Adjustments to reconcile net income (loss) to net cash  provided by (used in) operating activities |       |                   | (175,842   | )                |       |              | 60,609     |             |       |                   | 6,042      |   |   |   | 74,989 |   |   |   | (34,202 | ) |   |
| Changes in operating assets and liabilities                                                        |       |                   | 6,685      |             |       |              | 9,498      |             |       |                   | (9,268     | ) |   |   | — |   |   |   | 6,915 |   |   |
| Net cash provided by (used in) operating activities                                                     |       |                   | (109,910   | )                |       |              | 179,337    |             |       |                   | (37,137    | ) |   |   | — |   |   |   | 32,290 |   |   |
| **Investing  activities:**                                                                              |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Additions to property and equipment                                                 |       |                   | (1,916     | )                |       |              | (10,533    | )                |       |                   | (5,953     | ) |   |   | — |   |   |   | (18,402 | ) |   |
| Proceeds from (payments for) sales of businesses and other                                              |       |                   | (843       | )                |       |              | 153,817    |             |       |                   | (1,126     | ) |   |   | — |   |   |   | 151,848 |   |   |
| Payments for businesses acquired, net of cash acquired                                                  |       |                   | (140       | )                |       |              | (4,687     | )                |       |                   | (15,508    | ) |   |   | — |   |   |   | (20,335 | ) |   |
| Proceeds from sale of other investments                                                       |       |                   | 1,300      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 1,300 |   |   |
| Net cash provided by (used in) investing activities                                                     |       |                   | (1,599     | )                |       |              | 138,597    |             |       |                   | (22,587    | ) |   |   | — |   |   |   | 114,411 |   |   |
| **Financing  activities:**                                                                              |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intercompany activity                                                                                   |       |                   | 250,276    |             |       |              | (315,743   | )                |       |                   | 65,467     |   |   |   | — |   |   |   | — |   |   |
| Borrowings under credit agreements                                                                      |       |                   | 250,100    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 250,100 |   |   |
| Repayments of borrowings under credit agreements                                                        |       |                   | (268,100   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (268,100 | ) |   |
| Payments for repurchases of senior notes                                                           |       |                   | (62,094    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (62,094 | ) |   |
| Proceeds from issuances of common stock                                                                 |       |                   | 463        |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 463 |   |   |
| Capital lease payments                                                                                  |       |                   | (800       | )                |       |              | (1,661     | )                |       |                   | 130        |   |   |   | — |   |   |   | (2,331 | ) |   |
| Other                                                                                                   |       |                   | —     |             |       |              | (162       | )                |       |                   | —     |   |   |   | — |   |   |   | (162 | ) |   |
| Net cash provided by (used in) financing activities                                                     |       |                   | 169,845    |             |       |              | (317,566   | )                |       |                   | 65,597     |   |   |   | — |   |   |   | (82,124 | ) |   |
| Increase in cash and cash equivalents                                                                   |       |                   | 58,336     |             |       |              | 368        |             |       |                   | 5,873      |   |   |   | — |   |   |   | 64,577 |   |   |
| Cash and cash equivalents, beginning of period                                                          |       |                   | 321        |             |       |              | 4,182      |             |       |                   | 2,752      |   |   |   | — |   |   |   | 7,255 |   |   |
| Cash and cash equivalents,  end of period                                                |       |                   | $          | 58,657           |       |              |       | $                | 4,550      |                   |       |   | $ | 8,625 |   |   |   | $ | — |   |   |   | $ | 71,832 |   |   |

 

24

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**PRIMEDIA INC. AND SUBSIDIARIESCONSOLIDATING BALANCE SHEETDecember 31, 2005(dollars in thousands)**
|                                                      | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                           | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                           | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **ASSETS**                                           | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                      |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                            |       |                   | $          | 321              |       |              |       | $                | 4,182      |                   |       |   | $ | 2,752 |   |   |   | $ | — |   |   |   | $ | 7,255 |   |   |
| Accounts receivable, net                             |       |                   | —     |             |       |              | 117,528    |             |       |                   | 17,245     |   |   |   | — |   |   |   | 134,773 |   |   |
| Inventories                                          |       |                   | —     |             |       |              | 19,601     |             |       |                   | 1,611      |   |   |   | — |   |   |   | 21,212 |   |   |
| Prepaid expenses and other                           |       |                   | 8,622      |             |       |              | 17,668     |             |       |                   | 3,432      |   |   |   | — |   |   |   | 29,722 |   |   |
| Assets held for sale                                 |       |                   | —     |             |       |              | 109,129    |             |       |                   | —     |   |   |   | — |   |   |   | 109,129 |   |   |
| Total current assets                                 |       |                   | 8,943      |             |       |              | 268,108    |             |       |                   | 25,040     |   |   |   | — |   |   |   | 302,091 |   |   |
| Property and equipment, net                          |       |                   | 3,090      |             |       |              | 42,215     |             |       |                   | 11,563     |   |   |   | — |   |   |   | 56,868 |   |   |
| Investment in and advances to subsidiaries           |       |                   | 471,538    |             |       |              | —     |             |       |                   | —     |   |   |   | (471,538 | ) |   |   | — |   |   |
| Intangible assets, net                               |       |                   | —     |             |       |              | 186,554    |             |       |                   | 44,850     |   |   |   | — |   |   |   | 231,404 |   |   |
| Goodwill                                             |       |                   | —     |             |       |              | 648,185    |             |       |                   | 114,992    |   |   |   | — |   |   |   | 763,177 |   |   |
| Other non-current assets                             |       |                   | 4,727      |             |       |              | 28,990     |             |       |                   | 2,211      |   |   |   | — |   |   |   | 35,928 |   |   |
| Total Assets                                         |       |                   | $          | 488,298          |       |              |       | $                | 1,174,052  |                   |       |   | $ | 198,656 |   |   |   | $ | (471,538 | ) |   |   | $ | 1,389,468 |   |   |
| **LIABILITIES  AND SHAREHOLDERS’ DEFICIENCY**   | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                 |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Accounts payable                                     |       |                   | $          | 8,140            |       |              |       | $                | 37,949     |                   |       |   | $ | 6,895 |   |   |   | $ | — |   |   |   | $ | 52,984 |   |   |
| Intercompany payables                                |       |                   | (588,458   | )                |       |              | (867,988   | )                |       |                   | 1,456,446  |   |   |   | — |   |   |   | — |   |   |
| Accrued expenses and other                           |       |                   | 46,975     |             |       |              | 67,395     |             |       |                   | 7,949      |   |   |   | — |   |   |   | 122,319 |   |   |
| Deferred revenues                                    |       |                   | 1,738      |             |       |              | 94,335     |             |       |                   | 11,867     |   |   |   | — |   |   |   | 107,940 |   |   |
| Current maturities of long-term debt                 |       |                   | 5,816      |             |       |              | 1,827      |             |       |                   | 34         |   |   |   | — |   |   |   | 7,677 |   |   |
| Liabilities of businesses held for sale              |       |                   | —     |             |       |              | 33,203     |             |       |                   | —     |   |   |   | — |   |   |   | 33,203 |   |   |
| Total current liabilities                            |       |                   | (525,789   | )                |       |              | (633,279   | )                |       |                   | 1,483,191  |   |   |   | — |   |   |   | 324,123 |   |   |
| Long-term debt                                       |       |                   | 1,454,174  |             |       |              | 2,457      |             |       |                   | 139        |   |   |   | — |   |   |   | 1,456,770 |   |   |
| Intercompany notes payable                           |       |                   | —     |             |       |              | 2,226,286  |             |       |                   | —     |   |   |   | (2,226,286 | ) |   |   | — |   |   |
| Deferred revenues                                    |       |                   | 14,447     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 14,447 |   |   |
| Deferred income taxes                                |       |                   | 87,655     |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 87,655 |   |   |
| Other non-current liabilities                        |       |                   | 29,540     |             |       |              | 22,069     |             |       |                   | 26,593     |   |   |   | — |   |   |   | 78,202 |   |   |
| Total Liabilities                                    |       |                   | 1,060,027  |             |       |              | 1,617,533  |             |       |                   | 1,509,923  |   |   |   | (2,226,286 | ) |   |   | 1,961,197 |   |   |
| Shareholders’ deficiency:                       |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Common stock                                         |       |                   | 2,722      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,722 |   |   |
| Additional paid-in capital                           |       |                   | 2,363,071  |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 2,363,071 |   |   |
| Accumulated deficit                                  |       |                   | (2,861,645 | )                |       |              | (443,481   | )                |       |                   | (1,311,267 | ) |   |   | 1,754,748 |   |   |   | (2,861,645 | ) |   |
| Common stock in treasury, at cost                    |       |                   | (75,877    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (75,877 | ) |   |
| Total Shareholders’ Deficiency                  |       |                   | (571,729   | )                |       |              | (443,481   | )                |       |                   | (1,311,267 | ) |   |   | 1,754,748 |   |   |   | (571,729 | ) |   |
| Total Liabilities  and Shareholders’ Deficiency |       |                   | $          | 488,298          |       |              |       | $                | 1,174,052  |                   |       |   | $ | 198,656 |   |   |   | $ | (471,538 | ) |   |   | $ | 1,389,468 |   |   |

 

25

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS**(UNAUDITED)For the Three Months Ended September 30, 2005(dollars in thousands)
|                                                                                              | ** ** | **PRIMEDIA Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **PRIMEDIA Inc.  and  Subsidiaries** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|-------------------------------------------|------------|
| Revenues, net                                                                                |       |                   | $          | —                      |       |                            |       | $                | 212,645    |                                      |       |   | $ | 39,585 |   |   |   | $ | (5,302 | ) |   |   | $ | 246,928 |   |   |
| Operating costs and expenses:                                                                |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment)   |       |                   | —     |                        |       |                            | 53,458     |             |       |                                      | 2,779      |   |   |   | — |   |   |   | 56,237 |   |   |
| Marketing and selling                                                                        |       |                   | —     |                        |       |                            | 41,622     |             |       |                                      | 5,308      |   |   |   | — |   |   |   | 46,930 |   |   |
| Distribution, circulation and fulfillment                                     |       |                   | —     |                        |       |                            | 29,895     |             |       |                                      | 17,791     |   |   |   | — |   |   |   | 47,686 |   |   |
| Editorial                                                                                    |       |                   | —     |                        |       |                            | 15,852     |             |       |                                      | 1,729      |   |   |   | — |   |   |   | 17,581 |   |   |
| Other general expenses                                                                       |       |                   | 12         |                        |       |                            | 15,559     |             |       |                                      | 19,765     |   |   |   | (5,302 | ) |   |   | 30,034 |   |   |
| Corporate administrative expenses (including non-cash  compensation)     |       |                   | 8,917      |                        |       |                            | 136        |             |       |                                      | 1,309      |   |   |   | — |   |   |   | 10,362 |   |   |
| Depreciation and amortization of property and equipment                                      |       |                   | 621        |                        |       |                            | 2,989      |             |       |                                      | 3,439      |   |   |   | — |   |   |   | 7,049 |   |   |
| Amortization of intangible assets and other                                                  |       |                   | —     |                        |       |                            | 4,307      |             |       |                                      | (1,662     | ) |   |   | — |   |   |   | 2,645 |   |   |
| Provision for severance, closures and restructuring related  costs                           |       |                   | —     |                        |       |                            | 248        |             |       |                                      | 8          |   |   |   | — |   |   |   | 256 |   |   |
| Gain on sale of businesses and other, net                                               |       |                   | —     |                        |       |                            | (80        | )                |       |                                      | —     |   |   |   | — |   |   |   | (80 | ) |   |
| Operating income (loss)                                                                      |       |                   | (9,550     | )                           |       |                            | 48,659     |             |       |                                      | (10,881    | ) |   |   | — |   |   |   | 28,228 |   |   |
| Other income (expense):                                                                      |       |                   |       |                        |       |                            |       |             |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                             |       |                   | (32,091    | )                           |       |                            | (333       | )                |       |                                      | (16        | ) |   |   | — |   |   |   | (32,440 | ) |   |
| Interest on shares subject to mandatory redemption                                           |       |                   | (4,566     | )                           |       |                            | —     |             |       |                                      | —     |   |   |   | — |   |   |   | (4,566 | ) |   |
| Amortization of deferred financing costs                                                |       |                   | (103       | )                           |       |                            | (921       | )                |       |                                      | (18        | ) |   |   | — |   |   |   | (1,042 | ) |   |
| Intercompany management fees and interest                                                    |       |                   | 35,277     |                        |       |                            | (34,580    | )                |       |                                      | (697       | ) |   |   | — |   |   |   | — |   |   |
| Other expense, net                                                                           |       |                   | (21        | )                           |       |                            | (2,827     | )                |       |                                      | (58        | ) |   |   | — |   |   |   | (2,906 | ) |   |
| Income (loss) from continuing operations before provision  for income taxes                  |       |                   | (11,054    | )                           |       |                            | 9,998      |             |       |                                      | (11,670    | ) |   |   | — |   |   |   | (12,726 | ) |   |
| Provision for income taxes                                                                   |       |                   | (4,029     | )                           |       |                            | (58        | )                |       |                                      | (3         | ) |   |   | — |   |   |   | (4,090 | ) |   |
| Equity in earnings of subsidiaries                                                           |       |                   | 220,291    |                        |       |                            | —     |             |       |                                      | —     |   |   |   | (220,291 | ) |   |   | — |   |   |
| Income (loss) from continuing operations                                           |       |                   | 205,208    |                        |       |                            | 9,940      |             |       |                                      | (11,673    | ) |   |   | (220,291 | ) |   |   | (16,816 | ) |   |
| Discontinued operations, net of tax                                                          |       |                   | 2,546      |                        |       |                            | 225,009    |             |       |                                      | (2,985     | ) |   |   | — |   |   |   | 224,570 |   |   |
| Net income (loss)                                                                            |       |                   | $          | 207,754                     |       |                            |       | $                | 234,949    |                                      |       |   | $ | (14,658 | ) |   |   | $ | (220,291 | ) |   |   | $ | 207,754 |   |   |

 

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING OPERATIONS(UNAUDITED)For the Nine Months Ended September 30, 2005(dollars in thousands)**
|                                                                                              | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                   | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                   | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| Revenues, net:                                                                               |       |                   | $          | —           |       |              |       | $                | 639,691    |                   |       |   | $ | 113,965 |   |   |   | $ | (19,323 | ) |   |   | $ | 734,333 |   |   |
| Operating costs and expenses:                                                                |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods sold (exclusive of depreciation and amortization  of property and equipment)   |       |                   | —     |             |       |              | 153,362    |             |       |                   | 6,549      |   |   |   | — |   |   |   | 159,911 |   |   |
| Marketing and selling                                                                        |       |                   | —     |             |       |              | 128,447    |             |       |                   | 14,109     |   |   |   | — |   |   |   | 142,556 |   |   |
| Distribution, circulation and fulfillment                                     |       |                   | —     |             |       |              | 89,707     |             |       |                   | 51,079     |   |   |   | — |   |   |   | 140,786 |   |   |
| Editorial                                                                                    |       |                   | —     |             |       |              | 47,026     |             |       |                   | 4,576      |   |   |   | — |   |   |   | 51,602 |   |   |
| Other general expenses                                                                       |       |                   | 36         |             |       |              | 52,008     |             |       |                   | 60,529     |   |   |   | (19,323 | ) |   |   | 93,250 |   |   |
| Corporate administrative expenses (including non-cash  compensation)     |       |                   | 22,262     |             |       |              | 135        |             |       |                   | 4,008      |   |   |   | — |   |   |   | 26,405 |   |   |
| Depreciation and amortization of property and equipment                                      |       |                   | 1,986      |             |       |              | 13,355     |             |       |                   | 4,838      |   |   |   | — |   |   |   | 20,179 |   |   |
| Amortization of intangible assets and other                                             |       |                   | —     |             |       |              | 7,065      |             |       |                   | 223        |   |   |   | — |   |   |   | 7,288 |   |   |
| Provision for severance, closures and restructuring related  costs                           |       |                   | (669       | )                |       |              | 2,126      |             |       |                   | 99         |   |   |   | — |   |   |   | 1,556 |   |   |
| Gain on sale of businesses and other, net                                          |       |                   | —     |             |       |              | (80        | )                |       |                   | —     |   |   |   | — |   |   |   | (80 | ) |   |
| Operating income (loss)                                                                      |       |                   | (23,615    | )                |       |              | 146,540    |             |       |                   | (32,045    | ) |   |   | — |   |   |   | 90,880 |   |   |
| Other income (expense):                                                                      |       |                   |       |             |       |              |       |             |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                                             |       |                   | (97,245    | )                |       |              | (969       | )                |       |                   | (52        | ) |   |   | — |   |   |   | (98,266 | ) |   |
| Interest on shares subject to mandatory redemption                                           |       |                   | (21,920    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (21,920 | ) |   |
| Amortization of deferred financing costs                                           |       |                   | (669       | )                |       |              | (2,675     | )                |       |                   | (216       | ) |   |   | — |   |   |   | (3,560 | ) |   |
| Intercompany management fees and interest                                                    |       |                   | 111,424    |             |       |              | (103,578   | )                |       |                   | (7,846     | ) |   |   | — |   |   |   | — |   |   |
| Other expense, net                                                                           |       |                   | (3,607     | )                |       |              | (3,418     | )                |       |                   | (58        | ) |   |   | — |   |   |   | (7,083 | ) |   |
| Income (loss) from continuing operations before provision  for income taxes                  |       |                   | (35,632    | )                |       |              | 35,900     |             |       |                   | (40,217    | ) |   |   | — |   |   |   | (39,949 | ) |   |
| Provision for income taxes                                                                   |       |                   | (9,626     | )                |       |              | (208       | )                |       |                   | (8         | ) |   |   | — |   |   |   | (9,842 | ) |   |
| Equity in earnings of subsidiaries                                                           |       |                   | 621,757    |             |       |              | —     |             |       |                   | —     |   |   |   | (621,757 | ) |   |   | — |   |   |
| Income (loss) from continuing operations                                           |       |                   | 576,499    |             |       |              | 35,692     |             |       |                   | (40,225    | ) |   |   | (621,757 | ) |   |   | (49,791 | ) |   |
| Discontinued operations, net of tax                                                          |       |                   | 1,780      |             |       |              | 628,522    |             |       |                   | (2,232     | ) |   |   | — |   |   |   | 628,070 |   |   |
| Net income (loss)                                                                            |       |                   | $          | 578,279          |       |              |       | $                | 664,214    |                   |       |   | $ | (42,457 | ) |   |   | $ | (621,757 | ) |   |   | $ | 578,279 |   |   |

 

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**PRIMEDIA INC. AND SUBSIDIARIESCONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS(UNAUDITED)For the Nine Months Ended September 30, 2005(dollars in thousands)**
|                                                                                                         | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | **PRIMEDIA Inc.** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------------|------------|
| ** **                                                                                              | ** ** | ** **             | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **and**                | ** ** |
| ** **                                                                                              | ** ** | **PRIMEDIA Inc.** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Subsidiaries**       | ** ** |
| **Operating activities:**                                                                               | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net income (loss)                                                                                       |       |                   | $          | 578,279          |       |              |       | $                | 664,214    |                   |       |   | $ | (42,457 | ) |   |   | $ | (621,757 | ) |   |   | $ | 578,279 |   |   |
| Adjustments to reconcile net income (loss) to net cash  provided by (used in) operating activities |       |                   | (709,600   | )                |       |              | (459,096   | )                |       |                   | 10,234     |   |   |   | 621,757 |   |   |   | (536,705 | ) |   |
| Changes in operating assets and liabilities                                                        |       |                   | (5,915     | )                |       |              | (25,368    | )                |       |                   | (5,653     | ) |   |   | — |   |   |   | (36,936 | ) |   |
| Net cash provided by (used in) operating activities                                                     |       |                   | (137,236   | )                |       |              | 179,750    |             |       |                   | (37,876    | ) |   |   | — |   |   |   | 4,638 |   |   |
| **Investing activities:**                                                                               | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Additions to property, equipment and other, net                                                         |       |                   | (145       | )                |       |              | (15,901    | )                |       |                   | (5,635     | ) |   |   | — |   |   |   | (21,681 | ) |   |
| Proceeds from sales of businesses and other                                                             |       |                   | —     |             |       |              | 795,098    |             |       |                   | 21,404     |   |   |   | — |   |   |   | 816,502 |   |   |
| Payments for businesses acquired, net of cash acquired                                                  |       |                   | —     |             |       |              | (24,027    | )                |       |                   | (3,803     | ) |   |   | — |   |   |   | (27,830 | ) |   |
| Net cash provided by (used in) investing activities                                                     |       |                   | (145       | )                |       |              | 755,170    |             |       |                   | 11,966     |   |   |   | — |   |   |   | 766,991 |   |   |
| **Financing  activities:**                                                                              | ** ** |                   | ** ** | ** **       |       |              | ** ** | ** **       |       |                   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Intercompany activity                                                                                   |       |                   | 911,543    |             |       |              | (937,654   | )                |       |                   | 26,111     |   |   |   | — |   |   |   | — |   |   |
| Borrowings under credit agreements                                             |       |                   | 979,709    |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 979,709 |   |   |
| Repayments of borrowings under credit agreements                                                        |       |                   | (960,616   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (960,616 | ) |   |
| Payments for repurchases of senior notes                                                           |       |                   | (81,017    | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (81,017 | ) |   |
| Proceeds from issuances of common stock                                                                 |       |                   | 1,657      |             |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | 1,657 |   |   |
| Redemption of Series D and F Exchangeable  Preferred Stock                                         |       |                   | (264,494   | )                |       |              | —     |             |       |                   | —     |   |   |   | — |   |   |   | (264,494 | ) |   |
| Deferred financing costs paid                                                                           |       |                   | (549       | )                |       |              | (266       | )                |       |                   | (17        | ) |   |   | — |   |   |   | (832 | ) |   |
| Capital lease payments                                                                                  |       |                   | (1,163     | )                |       |              | (2,816     | )                |       |                   | (162       | ) |   |   | — |   |   |   | (4,141 | ) |   |
| Other                                                                                                   |       |                   | —     |             |       |              | (151       | )                |       |                   | —     |   |   |   |   |   |   |   | (151 | ) |   |
| Net cash provided by (used in) financing activities                                                     |       |                   | 585,070    |             |       |              | (940,887   | )                |       |                   | 25,932     |   |   |   | — |   |   |   | (329,885 | ) |   |
| Increase (decrease) in cash and cash equivalents                                                        |       |                   | 447,689    |             |       |              | (5,967     | )                |       |                   | 22         |   |   |   | — |   |   |   | 441,744 |   |   |
| Cash and cash equivalents, beginning of period                                                          |       |                   | 3,495      |             |       |              | 9,480      |             |       |                   | 25         |   |   |   | — |   |   |   | 13,000 |   |   |
| Cash and cash  equivalents, end of period                                                |       |                   | $          | 451,184          |       |              |       | $                | 3,513      |                   |       |   | $ | 47 |   |   |   | $ | — |   |   |   | $ | 454,744 |   |   |

 

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**15.**          Subsequentevents

*Redemption ofSenior Notes*

During October 2006,the Company redeemed $5,190 principal amount of its 8% Senior Notes due 2013 intwo separate transactions for a total of $4,790 plus $164 of accrued interest. Asa result, the Company recorded a gain of $400 net of the write-off ofunamortized deferred financing costs.

*Filing ofForm 10*

In late 2005, the Company announced that its Board ofDirectors authorized management, along with advisors Goldman Sachs and Lehman Brothers,and counsel Simpson Thacher & Bartlett, to explore the separation ofits businesses via a tax-free spin-off into two separate publicly-tradedcompanies. The plan being contemplated would spin-off PRIMEDIA’s ConsumerGuides Segment. In furtherance of the assessment of a potential spin-off, theBoard of Directors approved the filing of a ruling request with the InternalRevenue Service and a Form 10 with the Securities and Exchange Commission.The IRS ruling request was filed during the third quarter, and the Form 10was filed in November 2006. Although the Board has taken these additionalsteps, there has been no final decision on whether to complete the spin-off.

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

**Introduction**

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

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

**Executive Summary**

*Our Business*

The Company’s revenues are generated from advertising(print and online), circulation (subscriptions and newsstand sales) and othersources including online lead generation, events, third party distribution,television, radio, list rental, brand licensing and merchandising. PRIMEDIA’sOperating expenses, for Segment EBITDA purposes, include cost of goods sold(paper and printing), exclusive of depreciation of property and equipment;marketing and selling; distribution, circulation and fulfillment; editorial;and other general and corporate administrative expenses (collectively referredto as “Operating expenses”). See *Why We Use the TermSegment EBITDA*.

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

*Background*

Historically, PRIMEDIA was a broad based mediaenterprise built primarily from a series of acquisitions and comprised ofnumerous disparate assets. In recent years, in order to better focus on itscore businesses and to reduce debt and shares subject to mandatory redemptionwhile investing in organic growth by primarily making only small Internetacquisitions which accelerate organic growth, the Company has beenopportunistically divesting selective properties. As a result, the Company haspositioned itself as a highly focused targeted media company which is investingin its businesses to drive growth.

Additionally, to counter the effects of the continuedweakness in the overall advertising environment, the Company aggressivelyattacked its cost structure. The Company realigned and reorganized itsmanagement structure to better reflect its emphasis on delivering exceptionalproducts and brands to the marketplace to achieve organic growth while managingcosts. These initiatives have resulted in charges for severance, closures andrestructuring related costs to integrate Company operations and consolidatemany back office functions and facilities, resulting in a significant reductionin the number of employees and office space, creating operational and financialefficiencies.

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

*Business Trends*

The Company is currentlyfacing difficult market conditions, specifically in magazine advertising andcirculation. Additionally, high levels of condominium conversions coupled withlower mortgage rates are spurring housing purchases and limiting existing andpotential customers for Apartment Guide markets while some markets experienceddecreased vacancy rates and lower advertising spending.

*Company Strategy*

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The Company’s strategy is to focus on its coretargeted media businesses and grow by expanding the Internet and leveraging andexpanding its market-leading brands. In 2006, the Company continues tomake organic growth its top priority. PRIMEDIA believes that it is wellpositioned to capitalize on the shift away from mass advertising to targetedmedia.

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

·       improving product qualityand circulation performance,

·       expanding the Internet,particularily in developing new transactional marketplaces,

·       leveraging its dominance inthe highly targeted male 18-34 advertising market,

·       expanding its well-knownbrands through extensions including events, television, radio, licensing andmerchandising.

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

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

*Company ExploresSeparation of its Businesses*

In late 2005, the Companyannounced that its Board of Directors authorized management, along withadvisors Goldman Sachs and Lehman Brothers, and counsel Simpson Thacher &Bartlett, to explore the separation of its businesses via a tax-free spin-offinto two separate publicly-traded companies. The plan being contemplated wouldspin-off PRIMEDIA’s Consumer Guides Segment. In furtherance of the assessmentof a potential spin-off, the Board of Directors approved the filing of a rulingrequest with the Internal Revenue Service and a Form 10 with theSecurities and Exchange Commission (“SEC”). Both the IRS ruling request and Form 10have been filed. Although the Board has taken these additional steps, there hasbeen no final decision on whether to complete the spin-off.

*Summary ofConsolidated Results for the nine months ended September 30, 2006*

For the nine months ended September 30,2006, revenues were $752,047, up 2.4% as compared to $734,333 in 2005. Revenuesincreased in the Company’s Enthusiast Media and Consumer Guides segments, by3.9% and 3.2%, respectively, while revenues decreased in the Education segmentby 15.8%. In 2006, Operating Expenses were $629,768, up 3.6% compared to 2005.In 2006, operating income was $85,685, down $5,195 or 5.7% from $90,880 in2005. Net income was $59,599 in 2006 compared to $578,279 in 2005, the decreaseprimarily due to the gain on sale of About, Inc. of $378,906 in the firstquarter of 2005 and the gain on sale of the Business Information segment of$219,000 in the third quarter of 2005.

*Forward-LookingInformation*

This report containsstatements that are, or may be considered to be, forward-looking statements. Allstatements 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 in this information statement are basedupon our historical performance and on current plans, estimates andexpectations. We may make additional written or oral forward-looking statementsfrom time to time in filings with the SEC or otherwise. Forward-lookingstatements speak only as of the date the statement is made. Forward-lookingstatements involve risks and uncertainties, and the inclusion of this forward-

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lookinginformation should not be regarded as a representation by us or any otherperson that the future plans, estimates or expectations contemplated by us willbe achieved.

*Why We Use the TermSegment EBITDA*

Segment EBITDA represents each segment’s earningsbefore interest, taxes, depreciation, amortization and other charges (income) (“SegmentEBITDA”). Other charges(income) include non-cash compensation, provision for severance, closures andrestructuring related costs and (gain)/loss on sale of businesses and other,net. PRIMEDIA believes that Segment EBITDA is an accurate indicator ofits segments’ results, because it focuses on revenue and operating cost itemsdriven by operating managers’ performance, and excludes items largely outsideof operating managers’ control. Internally, the Company’s chief operatingdecision maker, its Chairman, President and Chief Executive Officer (“CEO”),and the executive team measure performance primarily based on Segment EBITDA.

Segment EBITDA is notintended to be and should not be considered as an alternative to net income orloss, as determined in conformity with accounting principles generally acceptedin the United States of America, as an indicator of the Company’s operatingperformance. Segment EBITDA, as presented, may not be comparable to similarlytitled measures reported by other companies since not all companies necessarilycalculate Segment EBITDA in an identical manner, and therefore, it is notnecessarily an accurate measure of comparison between companies. Seereconciliation of Segment EBITDA to net in *Segment Data*below.

*Why We Use the TermFree Cash Flow*

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

The Company believes that the use of Free Cash Flowenables the Company’s chief operating decision maker, its Chairman, Presidentand CEO, and the executive team to make decisions based on the Company’s cashresources. 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.

*IntersegmentTransactions*

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

*DiscontinuedOperations*

During the first quarter of 2005, the Companycompleted the sales of About.com and the Bankers Training Division of WorkplaceLearning. On April 1, 2005, the Company sold the remaining net assets ofWorkplace Learning for the assumption of liabilities. Also during 2005, theCompany sold its Business Information Segment, including Ward’s AutomotiveGroup, discontinued the operations of two magazines in the Enthusiast Mediasegment, discontinued the operations of its Software on Demand division within 

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the Education segment, anddecided to pursue the sales of its Crafts and History groups within theEnthusiast Media segment.

During the first quarter of 2006, the Companycompleted the sale of the History group and during the third quarter of 2006,the Company completed the sale of the Crafts group. Additionally, during thethird quarter of 2006, the Company discontinued and sold its Gems group,reflecting the Company’s continued focus on growing its properties that reachthe valuable 18-34 male demographic.

Financial results forthese divestitures are reported in discontinued operations on the condensedstatements of consolidated operations for all periods presented.

*Segment Data*

Thefollowing table presents the results of the Company’s three operating segmentsand Corporate:

| ** **                                                                       | ** ** | **Three Months   Ended September 30,** | ** ** | **Nine Months   Ended September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2006**                                                   | ** ** | **2005**                                                  | ** ** | **2006** | ** ** | **2005** | ** ** |
| Revenues, net:                                                                   |       |                                                       |       |                                                      |       |   |   |   |   |
| Enthusiast Media                                                                 |       | $                                                          | 162,182    |                                                      | $          | 154,688 |   | $ | 467,640 |   | $ | 449,907 |   |
| Consumer Guides                                                                  |       | 81,352                                                     |       | 81,310                                                    |       | 244,036 |   | 236,429 |   |
| Education                                                                        |       | 10,610                                                     |       | 10,996                                                    |       | 40,596 |   | 48,231 |   |
| Intersegment Eliminations                                                        |       | (109                                                       | )          | (66                                                       | )          | (225 | ) | (234 | ) |
| Total                                                                            |       | $                                                          | 254,035    |                                                      | $          | 246,928 |   | $ | 752,047 |   | $ | 734,333 |   |
| Segment  EBITDA:(1)                                                              |       |                                                       |       |                                                      |       |   |   |   |   |
| Enthusiast Media                                                                 |       | $                                                          | 34,354     |                                                      | $          | 32,417 |   | $ | 88,287 |   | $ | 88,348 |   |
| Consumer Guides                                                                  |       | 21,699                                                     |       | 17,791                                                    |       | 57,609 |   | 53,947 |   |
| Education                                                                        |       | (2,952                                                     | )          | (1,738                                                    | )          | (3,064 | ) | 3,969 |   |
| Corporate Overhead                                                               |       | (6,586                                                     | )          | (6,302                                                    | )          | (20,553 | ) | (19,967 | ) |
| Total Segment  EBITDA                                                            |       | 46,515                                                     |       | 42,168                                                    |       | 122,279 |   | 126,297 |   |
| Depreciation,  amortization and other charges(2)                                 |       | 11,411                                                     |       | 13,940                                                    |       | 36,594 |   | 35,417 |   |
| Operating income                                                                 |       | 35,104                                                     |       | 28,228                                                    |       | 85,685 |   | 90,880 |   |
| Other income (expense):                                                          |       |                                                       |       |                                                      |       |   |   |   |   |
| Interest expense(3)                                                              |       | (33,574                                                    | )          | (32,440                                                   | )          | (85,855 | ) | (98,266 | ) |
| Interest on shares subject to mandatory  redemption(4)                           |       | —                                                     |       | (4,566                                                    | )          | — |   | (21,920 | ) |
| Amortization of deferred financing costs                                         |       | (630                                                       | )          | (1,042                                                    | )          | (1,946 | ) | (3,560 | ) |
| Other income (expense), net                                                      |       | 787                                                        |       | (2,906                                                    | )          | 1,102 |   | (7,083 | ) |
| Income (loss) from  continuing operations before provision for income taxes |       | $                                                          | 1,687      |                                                      | $          | (12,726 | ) | $ | (1,014 | ) | $ | (39,949 | ) |

----

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

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

(3)          Interest expenseincreased by $482 for the three months ended September 30, 2006 and wasdecreased by $11,559 for the nine months ended September 30, 2006, due tothe quarterly fair value measurement of the deferred purchase price liabilityarising from the forward agreement related to the Automotive.com acquisition.(See Note 3 of Notes to the Condensed Consolidated Financial Statements(unaudited) included herein).

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(4)          During 2005, the Companyredeemed all of its outstanding shares subject to mandatory (liquidationpreference of approximately $475,000 for the year ended December 31, 2005,and $264,494 for the nine months ended September 30, 2005).

**Results ofOperations**

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

**ConsolidatedResults:**

*Revenues, Net*

Consolidatedrevenues were $254,035 in the three months ended September 30, 2006compared to $246,928 in the same period of 2005:

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                             | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                 |       |        |       |   |   |   |   |
| Advertising    |       | $                                                    | 159,754    |        | $          | 159,508 |   |   | 0.2 | % |   |
| Circulation    |       | 51,508                                               |       | 51,446      |       |   | 0.1 | % |   |
| Other          |       | 42,773                                               |       | 35,974      |       |   | 18.9 | % |   |
| Total          |       | $                                                    | 254,035    |        | $          | 246,928 |   |   | 2.9 | % |   |

 

Advertising revenuesincreased slightly by $246 in the third quarter of 2006 compared to 2005 due**to increases of $402 and $280 in theEnthusiast Media and Consumer Guides segments, respectively, partially offsetby an decrease of $436 in the Education segment. Circulation revenues, whichare generated entirely by the Enthusiast Media segment, increased by $62 in2006. Other revenues, including distribution and non-print revenues, increased$6,799 in 2006 compared to 2005, primarily due to an increase in the EnthusiastMedia segment of $6,987. Revenue trends within each segment are furtherdetailed in the segment discussions below.

*Operating Income*

Operating income was$35,104 in 2006 compared to $28,228 in 2005. The increase of $6,876 in operatingincome in 2006 primarily resulted from increased segment EBITDA in the CosumerGuides segment, increased revenues in the Enthusiast Media segment, mainly dueto the acquisition of Automotive.com in the fourth quarter of 2005, partiallyoffset by a related increase in cost of good sold in the Enthusiast Mediasegment. In addition, there was a decrease in non-cash compensation expense inthe third quarter of 2006 primarily due a modification of existing stockoptions in the third quarter of 2005, which resulted in an increase of non-cashcompensation during that period.

*Net Income*

The Company had net income of $53,752 in the threemonths ended September 30, 2006 compared to $207,754 in 2005.

Interest expense increased to $33,574 in 2006 from $32,440in 2005. The increase in interest expense of $1,134 is partially due to theincrease in the quarterly fair value measurement of the deferred purchase priceliability arising from the forward agreement related to the Automotive.comacquisition, of $482 in the third quarter of 2006. In addition, the Company’sinterest expense on its long-term debt increased slightly versus prior year,due to higher interest rates partially offset by lower average debt levels.

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Interest on shares subjectto mandatory redemption was $0 and $4,566 for the three months ended September 30,2006 and 2005, respectively, as the Company redeemed all of its outstandingshares subject to mandatory redemption during 2005.

**Segment Results:**

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

*Revenues, Net*

EnthusiastMedia revenues were $162,182 or 63.8% and $154,688 or 62.6% of the Company’sconsolidated revenues for the three months ended September 30, 2006 and2005, respectively. Enthusiast Media revenues increased $7,494 or 4.8% in thethird quarter of 2006 compared to the same period of 2005 as follows:

| ** **            | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                             | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                 |       |        |       |   |   |   |   |
| Advertising           |       | $                                                    | 88,733     |        | $          | 88,331 |   |   | 0.5 | % |   |
| Circulation           |       | 51,508                                               |       | 51,446      |       |   | 0.1 | % |   |
| Other                 |       | 21,832                                               |       | 14,845      |       |   | 47.1 | % |   |
| Intersegment revenues |       | 109                                                  |       | 66          |       |   |   |   |   |
| Total                 |       | $                                                    | 162,182    |        | $          | 154,688 |   |   | 4.8 | % |   |

 

Enthusiast Media’s advertising revenue is consistentwith prior year as increases in the Consumer Automotive Group were offset by declinesin the International Automotive Group. Circulation revenues increased in thePerformance Automotive Group and Soaps, offset by softness in the InternationalAutomotive Group. Growth in other revenue reflects continued success inexpanding the Segment’s non-print businesses, driven primarily by theacquisitions of Automotive.com and Equine.com, partially offset by declines inlicensing revenue. Automotive.com continues to make progress as auto dealersseek increased car sale leads. Equine.com is tracking well to generateadditional synergies from its proprietary technology and unique marketingtools.

Automotive:   Automotive Group revenue grew 12% inthe third quarter. This revenue growth is primarily due to a significantincrease in print advertising revenue in the Consumer Automotive Group, strongnewsstand performance in the Performance Automotive Group, licensing fees fromthe producer of *Motor Trend TV*, and the impact ofthe acquisition of Automotive.com, which occurred in November, 2005. Continuedweakness in almost all areas of the International Automotive Group continued toreduce results.

In the Consumer Automotive Group, the increase inadvertising revenue was primarily due to increased advertising in *Motor Trend* and *Automobile* aswell as the sale of two additional issues of *Motor TrendClassic* in the quarter. The increase in television and radio revenuefor the Group was attributable to licensing fees from *Motor TrendTV*. During the third quarter, Automotive.com continued to growadvertising revenue and lead generation profitability. Increases in salesvolumes and lead pricing, combined with reduced lead acquisition costs, drovethe growth in lead generation profitability.

In the Performance Automotive Group, the increases innewsstand and print advertising revenue were largely due to the Company’sredesign efforts, including strong performance by the newly redesigned *Hot Rod* and *Car Craft*, andthe expanded frequency of the Company’s *Diesel Power*magazine. In addition, overall Group performance was driven by strong resultsin events, partially offset by a slight decrease in television and radiorevenue.

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The Company’s reliance on automaker print advertisinghas historically been, and continues to be, relatively small. U.S. automakerprint advertising in the quarter was just 5% of the Segment’s total printadvertising revenue. Total automaker print advertising in the quarter was 11%of the Segment’s total, and non-automaker automotive print advertising(aftermarket parts and accessories, as examples) was 51% of the Segment’s total.These percentages reflect little change from last year.

Outdoors:   Outdoors Group revenue declined 0.7%in the third quarter, primarily due to declines in subscriber and eventrevenue, offset primarily by the impact of the acquisition of Equine.com, whichoccurred in October, 2005, and growth in television and radio. Action Sportsnewsstand revenue was down due to a special edition of *Snowboarder**Magazine* produced in the third quarterof 2005 that was not produced in 2006. Excluding this edition, Outdoorsnewsstand revenue was essentially flat. The subscription revenue decline wasdue to a deliberate cut in direct marketing, as subscription levels in theGroup’s rate-base publications exceeded rate-based requirements. The savings indirect marketing expense more than offset the loss in revenue. Despite new orincreased revenue from non-endemic advertisers including Honda ATV, Suzuki ATV,and Activision video games, non-endemic advertising in the Outdoors Groupdeclined due to the loss of non-endemic automaker advertising. Outdoors onlinerevenue grew over 20% organically during the quarter. The Outdoors Group iscapitalizing on the migration of brokerage advertising from print to internetwith its October launch of *Power &Motoryacht’s* online brokerage site, leveraging technology andmanagement from the Company’s acquisition of Equine.com.

Licensing and Merchandising:   Declines in toy sales caused a decline ingroup revenue, partially offset by****strong retailperformance of apparel and accessories lines, and the continued expansion ofcreative licensing programs launched under the Motor Trend and Lowrider brands.Also this quarter, the group contracted to develop a line of Surfer-brandedapparel and headwear and an In-Fisherman men’s apparel line.

The Company continues to execute its growthstrategies:

Thus far in 2006, the Company has implementedsignificant product improvements on 24 magazines, primarily in thePerformance and International Automotive Groups where challenges have been thegreatest. Product improvements have been made on titles representingapproximately 25% of year-to-date print advertising and circulation revenue.

The Company continues to build multiple online revenuestreams, including transactions, lead generation, and online advertising.Online is also generating print subscriptions as magazine subscriberacquisitions via the Company’s websites grew more than 15% in the third quartercompared to last year.

Circulation results areimproving as the Company works to improve the ratio of the number of copiessent to newsstands location-by-location (“draw”) to the number sold and adjustthe draw for the seasonality of its titles. PRIMEDIA continues to optimize circulationdraw and distribution to improve profitability. In the third quarter, PRIMEDIAreduced draw by 4.6 million copies, or 9.4%.

*Segment EBITDA*

Enthusiast Media SegmentEBITDA increased 6.0% to $34,354 in the third quarter of 2006 from $32,417 in2005. This increase resulted primarily from increased Other revenues, includingonline and events revenue, as well as improvements in circulationprofitability. As a result, Segment EBITDA margin increased slightly to 21.2%in 2006 from 21.0% in 2005. In addition, in the third quarter of 2006, theCompany recorded $371 as a charge to compensation expense resulting from thequarterly fair value measurement of the deferred purchase price liabilityarising from the forward agreement related to the CEO of Automotive.com, and$114 of CEO-related compensation expense due to the recording of the additionalpurchase price of Automotive.com.

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*Operating Income*

Operating income was$28,838 for the three months ended September 30, 2006 compared to $28,276in the same period of 2005, an increase of $562, or 2.0%. This increase wasprimarily driven by the increase in Segment EBITDA discussed above, partiallyoffset by an increase in depreciation and amortization expenses, primarily dueto the acquisition of Automotive.com.

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

*Revenues, Net*

ConsumerGuides revenues were $81,352 or 32.0% and $81,310 or 32.9% of the Company’sconsolidated revenues for the three months ended September 30, 2006 and2005, respectively. Consumer Guides revenues increased $42 or 0.1% in 2006compared to 2005 as follows:

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                             | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                 |       |        |       |   |   |   |   |
| Advertising    |       | $                                                    | 67,308     |        | $          | 67,028 |   |   | 0.4 | % |   |
| Other          |       | 14,044                                               |       | 14,282      |       |   | (1.7 | )% |   |
| Total          |       | $                                                    | 81,352     |        | $          | 81,310 |   |   | 0.1 | % |   |

 

Consumer Source’s thirdquarter advertising revenue growth was driven primarily by growth in the NewHome and**Auto Guide**divisions,offset by declines in the Segment’s Apartment division. Other revenue’s slightdecline reflects DistribuTech’s optimization of distribution locations, whichis continually evaluated to best meet the distribution needs of Consumer Source’score guides business.

*Apartment Guide,ApartmentGuide.com, RentClicks.com:*   The Segment’slargest business, representing 76% of advertising revenue, *ApartmentGuide/ApartmentGuide.com*, continues to face challenging marketconditions in the multi-family housing industry. Total advertising revenue inthe quarter declined 5.6%, primarily due to high occupancy rates across overhalf of the markets along with a reduced advertiser base as a result ofcontinued losses from condominium conversions. Although the rate of condominiumconversions has slowed considerably from this time last year, the lostadvertiser base from conversions in prior periods continued to negativelyimpact the business in the third quarter. RentClicks serves the small unitrental property marketplace, which consists of rental houses, townhomes, condosand single-unit apartments, and accounts for approximately 70% of the totalrental market. RentClicks performed well in the third quarter, organicallygrowing revenue 30% versus the previous quarter. The Company continued addingsales resources during the quarter as part of the overall strategy for growingthe business.

*New Home Guide,NewHomeGuide.com:*   The Segment’s New HomeGuide/NewHomeGuide.com business, representing 18% of advertising revenue,continued to deliver strong results with total revenue growth of 24% in thequarter. This strong growth reflects New Home Guide having established itselfas one of the most cost-effective and attractive media channels for homebuilders. The New Home division continues to rapidly grow its online presence. TheNewHomesGuide.com portfolio of sites is the largest on the Internet, and hadthe fastest growing number of unique visitors versus the prior quarteraccording to Nielsen’s Media Metrix.

*Auto Guide, AutoGuide.com:*   During the third quarter, theSegment’s Auto Guide business, representing 6% of advertising revenue,generated total revenue growth of 31%. This new division represents a $17million business based on annualized revenue in the third quarter, andcontinues to have strong growth potential both within its existing markets andthrough new market expansion.

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*DistribuTech:**  *All of PRIMEDIA’s Consumer Source properties continueto benefit from the Company’s leading distribution business, DistribuTech.Consumer Source’s strategy is to continually optimize distribution for its ownguides at minimal cost. DistribuTech’s strategy to optimize its distributionlocations to best meet the distribution needs of the Consumer Source guides hashistorically and will continue to cause DistribuTech revenue to fluctuate.

*Segment EBITDA*

Consumer Guides Segment EBITDAincreased $3,908 or 22.0% in 2006, to $21,699 from $17,791 in 2005. Thisincrease is primarily due to the increase in New Home Guide and Auto Guiderevenues in the quarter and DistribuTech profitability improvements, partiallyoffset by expenses associated with New Home Guide launches, and the revenuedeclines in Apartment Guide advertising. Segment EBITDA margin increased to26.7% in 2006 from 21.9% in 2005.

*Operating Income*

Operating income increased$3,093 or 21.1% to $17,747 in 2006 from $14,654 in 2005 . This increase wasprimarily driven by the increase in Segment EBITDA, partially offset byincreases in depreciation and amortization expenses, due to the acquisitions inthe fourth quarter 2005 and during 2006.

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

*Revenues, Net*

Educationrevenues were $10,610 or 4.2% and $10,996 or 4.5% of the Company’s consolidatedrevenues for 2006 and 2005, respectively. Education revenues decreased $386 or3.5% in 2006 compared to 2005 as follows: 

| ** **     | ** ** | **Three Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|------------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                             | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                 |       |        |       |   |   |   |   |
| Advertising    |       | $                                                    | 3,713      |        | $          | 4,149 |   |   | (10.5 | )% |   |
| Other          |       | 6,897                                                |       | 6,847       |       |   | 0.7 | % |   |
| Total          |       | $                                                    | 10,610     |        | $          | 10,996 |   |   | (3.5 | )% |   |

 

Education advertising revenues, which are generatedentirely by Channel One, declined $436, or 10.5% in the third quarter of 2006compared to the third quarter of 2005. Channel One’s decline in advertisingrevenue is mainly attributable to the ongoing impact of the expiration of largeadvertising contracts in late 2005 and last year’s loss of a large portion ofits government advertising. Additionally, selling efforts in the current yearhaven’t been progressing as fast as anticipated. Channel One’s strategy is tobroaden its revenue base beyond traditional advertising through creativesponsorships and the Internet, and to target organizational support for itspublic affairs programming.

Other revenue was upslightly, by 0.7% in the third quarter of 2006 and primarily consists ofrevenue from PRIMEDIA Healthcare and FMG. PRIMEDIA Healthcare’squarter-over-quarter revenue increased 30.2%, as PRIMEDIA Healthcare hascontracted more revenue in 2006 than in 2005, partially offset by FMG revenues,which were down 8.2% quarter-over-quarter.

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*Segment EBITDA*

Education Segment EBITDAdecreased $1,214 to $(2,952) for the third quarter of 2006, primarily due todecreased revenue, as well as increased expenses. Segment EBITDA margindecreased to (27.8)% in the third quarter of 2006 compared to (15.8)% in thethird quarter of 2005.

*Operating Loss*

Education segmentoperating loss for the third quarter of 2006 was $4,032 compared to $3,844 in2005. This decline was primarily due to the decrease in Segment EBITDA asdiscussed above, partially offset by decreases in depreciation and amortizationexpenses, due to write-offs of the related assets during the fourth quarter of2005.

**Corporate**

*CorporateAdministrative expenses*

Corporate administrativeexpenses were $6,586 for the third quarter of 2006, up from $6,302 in the sameperiod of 2005, primarily due to reduced compensation expense resulting fromheadcount reductions, and lower professional fees, offset by professional feesincurred related to the exploration of the separation of the Company’sbusinesses via a tax-free spin-off.

*Operating Loss*

Corporate operating losswas $7,449 for the third quarter of 2006, down 31.4% compared to $10,858 forthe third quarter of 2005. The decrease was mainly due to the decrease innon-cash compensation during 2006, primarily due a modification of existingstock options in the third quarter of 2005, which resulted in an increase ofnon-cash compensation during that period.

**DiscontinuedOperations**

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

*Enthusiast Media*

The Company discontinued the following entities withinthe Enthusiast Media segment during 2005: About, Inc, Ward’s Automotive Group,the Crafts and History groups and two magazine titles (shut down). In February 2006,the Company completed the sale of the History group. In the third quarter of2006, the Company completed the sale of the Crafts group.

During the third quarter of 2006, the Companydiscontinued and sold its Gems group, part of the Enthusiast Media segment.

Discontinued operations ofthe Enthusiast Media segment for the three months ended September 30, 2006and 2005 include revenue of $15,415 and $22,274, respectively. Operating incomefor the three months ended September 30, 2006 and 2005, of $60,587 and$2,940, respectively, includes gains on sales of businesses, net of tax, of $52,464and $171, respectively.

*Education*

The Company discontinued the operations of itsSoftware on Demand division during 2005. Additionally, the Company completedthe sale of its Workplace Learning division in 2005, excluding PRIMEDIAHealthcare.

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Discontinued operations ofthe Education segment for the three months ended September 30, 2005include an operating loss of $1,126. For the three months ended September 30,2005, discontinued operations include a loss on sale of business. This loss onsale of business, net of tax, was $132 related to the sale of the Company’sWorkplace Learning division.

*BusinessInformation*

The Company sold itsBusiness Information segment during the third quarter of 2005. BusinessInformation segment revenues of $48,424 are included in discontinued operationsfor the three months ended September 30, 2005. Operating income of$221,412 includes a gain on sale of business. This gain on sale of business,net of tax, was $219,000 for the three months ended September 30, 2005.

***Nine Months Ended September 30, 2006 Compared toNine Months Ended September 30, 2005***

**ConsolidatedResults:**

*Revenues, Net*

Consolidatedrevenues were $752,047 in the nine months ended September 30, 2006compared to $734,333 in the same period of 2005:

| ** **     | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                            | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                |       |        |       |   |   |   |   |
| Advertising    |       | $                                                   | 474,787    |        | $          | 476,837 |   |   | (0.4 | )% |   |
| Circulation    |       | 149,709                                             |       | 150,742     |       |   | (0.7 | )% |   |
| Other          |       | 127,551                                             |       | 106,754     |       |   | 19.5 | % |   |
| Total          |       | $                                                   | 752,047    |        | $          | 734,333 |   |   | 2.4 | % |   |

 

Advertising revenuesdecreased by $2,050 in the nine months ended September 30, 2006 comparedto 2005 due**to decreases of$2,382 and $6,612 in the Enthusiast Media and Education segments, respectively,partially offset by an increase of $6,944 in the Consumer Guides segment.Circulation revenues, which are generated entirely by the Enthusiast Mediasegment, decreased $1,033 in 2006 due to continued weakness in single copysales. Other revenues, including distribution and non-print revenues, increased$20,797 in 2006 compared to 2005, primarily due to an increase in theEnthusiast Media segment of $21,134, primarily due to the acquisition ofAutomotive.com in the fourth quarter of 2005. Revenue trends within eachsegment are further detailed in the segment discussions below.

*Operating Income*

Operating income was$85,685 for the nine months ended September 30, 2006 compared to $90,880for the same period of 2005. The decrease in operating income in 2006 primarily resultedfrom increased depreciation and amortization expenses due to the acquisition ofAutomotive.com, partially offset by a decrease in the provision for severance,closures and restructuring related costs at Enthusiast Media, as well as thedecrease in Segment EBITDA primarily resulting from lower revenues in theEducation segment. These reductions were partially offset by a decrease innon-cash compensation, primarily due to a modification of existing stockoptions in the third quarter of 2005, which resulted in an increase of non-cashcompensation during that period at Corporate.

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*Net Income*

The Company had net income of $59,599 in the ninemonths ended September 30, 2006 compared to $578,279 in the same period of2005. The decrease in net income was primarily due to the net gains of $378,906from the sale of About in the first quarter of 2005, and $219,000 from the saleof the Business Information segment in the third quarter of 2005.

Interest expense was$85,855 in the nine months ended September 30, 2006 down from $98,266 inthe same period of 2005. In the nine months ended September 30, 2006, theCompany recorded $11,559 as a reduction to interest expense for the quarterlyfair value measurement of the deferred purchase price liability arising fromthe forward agreement related to the Automotive.com acquisition. Excluding thisreduction, the Company’s interest expense in 2006 slightly decreased, due tolower average debt levels, partially offset by higher interest rates.

*DiscontinuedOperations*

Statement of Accounting Pronouncement (“SFAS”) No. 144,“*Accounting for the Impairment or Disposalof Long-Lived Assets,”* requires sales, disposals of long-livedassets and businesses held for sale that meet certain criteria to be classifiedon the condensed statement of consolidated operations as discontinuedoperations and to reclassify prior periods accordingly. During the firstquarter of 2005, the Company completed the sales of About.com and BankersTraining & Consulting Company and the financial services division ofPRIMEDIA Workplace Learning. On April 1, 2005, the Company sold theremaining net assets of Workplace Learning for the assumption of liabilities.Also during 2005, the Company sold its Business Information Segment, includingWard’s Automotive Group, discontinued the operations of two magazines in theEnthusiast Media segment, discontinued the operations of its Software on Demanddivision within the Education segment, and decided to pursue the sales of itsCrafts and History groups within the Enthusiast Media segment.

In the first quarter of 2006, the Company completedthe sale of the History group and in the third quarter of 2006, the Companycompleted the sale of the Crafts group.

In the third quarter of 2006, the Company discontinuedand sold its Gems group.

In accordance with SFAS No. 144,the financial results of all of these operations have been classified asdiscontinued operations on the condensed statements of consolidated operationsfor all periods presented. For the nine months ended September 30, 2006and 2005, discontinued operations include a net gain on sale of businesses of $66,015and $601,499, respectively.

*Cumulative Effectof Change in Accounting Principle*

Effective January 1,2006, the Company adopted SFAS No. 123(R), “*Share-Based Payment,”* using the modified prospectivemethod. Prior to the adoption of this statement, the Company expensed the fairvalue of stock based compensation for all grants, modifications or settlementsmade on or after January 1, 2003 in accordance with the provisions of SFASNo. 123, “*Accounting for Stock-BasedCompensation,”*adopted on January 1, 2003 using the prospectivemethod. Upon adoption of SFAS No. 123(R), the Company is also required toexpense the fair value of any awards that were granted prior to January 1,2003 and were not fully vested as of January 1, 2006. The cumulativeeffect of adopting this change in accounting principle, as required by SFAS No. 123(R),was $22, included in the nine months ended September 30, 2006.

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**Segment Results:**

**Enthusiast Media Segment(Includes Automotive, Outdoors, and Other groups)**

*Revenues, Net*

EnthusiastMedia revenues were $467,640 or 62.2% and $449,907 or 61.3% of the Company’sconsolidated revenues for the nine months ended September 30, 2006 and2005, respectively. Enthusiast Media revenues increased $17,733 or 3.9% in thethe nine months ended September 30, 2006 compared to the same period of2005 as follows:

| ** **            | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                            | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                |       |        |       |   |   |   |   |
| Advertising           |       | $                                                   | 256,040    |        | $          | 258,422 |   |   | (0.9 | )% |   |
| Circulation           |       | 149,709                                             |       | 150,742     |       |   | (0.7 | )% |   |
| Other                 |       | 61,666                                              |       | 40,532      |       |   | 52.1 | % |   |
| Intersegment revenues |       | 225                                                 |       | 211         |       |   |   |   |   |
| Total                 |       | $                                                   | 467,640    |        | $          | 449,907 |   |   | 3.9 | % |   |

 

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

Automotive:   Automotive Group revenue grew 8% inthe nine months ended September 30, 2006. This revenue growth is primarilydue to a significant increase in print advertising revenue in the ConsumerAutomotive Group, strong newsstand performance in the Performance AutomotiveGroup, licensing fees from the producer of *Motor Trend TV*,and the impact of the acquisition of Automotive.com, which occurred inNovember, 2005. Continued weakness in almost all areas of the International AutomotiveGroup continued to reduce results.

In the Consumer Automotive Group, the increase inadvertising revenue was primarily due to increased advertising in *Motor Trend and Automobile* as well as the sale of fiveadditional issues of *Motor Trend Classic*in the nine months ended September 30, 2006. The increase in televisionand radio revenue for the Group was attributable to licensing fees from *Motor Trend TV*.

In the Performance Automotive Group, the increases innewsstand revenue was largely due to the Company’s redesign efforts, includingstrong performance by the newly redesigned *Hot Rod* and *Car Craft*, and the expanded frequency of the Company’s *Diesel Power* magazine. In addition, overall Group performancewas driven by strong results in events, partially offset by a slight decreasein television and radio revenue.

The Company’s reliance on automaker print advertisinghas historically been, and continues to be, relatively small. U.S. automakerprint advertising in the nine months ended September 30, 2006 was just 4%of the Segment’s total print advertising revenue. Total automaker printadvertising in the nine months ended September 30, 2006 was 11% of theSegment’s total, and non-automaker automotive print advertising (aftermarketparts and accessories, as examples) was 53% of the Segment’s total. Thesepercentages reflect little change from last year. Through the nine months endedSeptember 30, 2006, automaker print advertising revenue across the entire EnthusiastMedia segment grew 2%.

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Outdoors:   Outdoors Grouprevenue grew 0.2% in the nine monthsended September 30, 2006, primarily due to due to the acquisitionof Equine.com, which occurred in October, 2005, and growth in television andradio, offset by declines in subscriber and event revenue. The subscriptionrevenue decline was due to a deliberate cut in direct marketing, assubscription levels in the Group’s rate-base publications exceeded rate-basedrequirements. The savings in directmarketing expense more than offset the loss in revenue. Despite new orincreased revenue from non-endemic advertisers including Honda ATV, Suzuki ATV,and Activision video games, non-endemic advertising in the Outdoors Groupdeclined due to the loss of non-endemic automaker advertising. Outdoors’ onlinerevenue grew 25% organically during the nine months ended September 30,2006. The Outdoors Group is capitalizing on the migration of brokerageadvertising from print to internet with its October launch of *Power & Motoryacht’s* online brokerage site,leveraging technology and management from the Company’s acquisition ofEquine.com.

Licensing and Merchandising:   Declines in toy sales caused a decline ingroup revenue, partially offset by****strong retailperformance of apparel and accessories lines, and the continued expansion ofcreative licensing programs launched under the Motor Trend and Lowrider brands.

*Segment EBITDA*

Enthusiast Media SegmentEBITDA decreased 0.1% to $88,287 in the nine months ended September 30,2006 from $88,348 in the same period of 2005. This decrease resulted primarilyfrom lower print advertising revenues and increases in paper, ink and postagecosts, partially offset by growth in non-print revenues and improvementsin circulation profitability. In addition, in the nine months ended September 30,2006, the Company recorded $852 of compensation expense resulting from thequarterly fair value measurement of the deferred purchase price liabilityarising from the forward agreement related to the CEO of Automotive.com, and$176 of CEO-related compensation expense due to the recording of the additionalpurchase price of Automotive.com. As a result, Segment EBITDA margin decreasedto 18.9% for the nine months ended September 30, 2006 from 19.6% for thesame period of 2005.

*Operating Income*

Operating income was$70,865 for the nine months ended September 30, 2006 compared to $74,987for the same period of 2005, a decrease of $4,122, or 5.5%. This decrease wasprimarily driven by increased depreciation and amortization expenses due to theacquisition of Automotive.com, partially offset by a decrease in the provisionfor severance, closures and restructuring related costs.

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

*Revenues, Net*

ConsumerGuides revenues were $244,036, or 32.4% and $236,429, or 32.2% of the Company’sconsolidated revenues for the nine months ended September 30, 2006 and2005, respectively. Consumer Guides revenues increased $7,607,or 3.2% in thenine months ended September 30, 2006 compared to the same period of 2005,as follows:

| ** **     | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|----------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **     | ** ** | **2006**                                            | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net: |       |                                                |       |        |       |   |   |   |   |
| Advertising    |       | $                                                   | 201,691    |        | $          | 194,747 |   |   | 3.6 | % |   |
| Other          |       | 42,345                                              |       | 41,682      |       |   | 1.6 | % |   |
| Total          |       | $                                                   | 244,036    |        | $          | 236,429 |   |   | 3.2 | % |   |

 

Consumer Source’sadvertising revenue growth was driven primarily by strong performance in theSegment’s New Home Guide**and**Auto Guide**divisions,partially offset by declines in the Segment’s Apartment division. Other revenue’sincrease reflects DistribuTech’s continued optimization of distributionlocations that were unprofitable and not critical to Consumer Source’s coreguides business.

*ApartmentGuide, ApartmentGuide.com, RentClicks.com:*   TheSegment’s largest business, representing 77% of advertising revenue, ApartmentGuide/ApartmentGuide.com continues to face challenging market conditions in themulti-family housing industry. Total advertising revenue in the nine monthsended September 30, 2006 declined 5%, primarily due to high occupancyrates across over half of the markets along with a reduced advertiser base as aresult of continued losses from condominium conversions. Although the rate ofcondominium conversions has slowed considerably from this time last year, thelost advertiser base from conversions in prior periods continued to negativelyimpact the business in 2006. RentClicks performed well in the nine months endedSeptember 30, 2006, organically growing revenue 94% versus last year, asthe Company continued to add sales resources as part of the overall strategyfor growing the business.

*NewHome Guide, NewHomeGuide.com:*   The Segment’s NewHome Guide/NewHomeGuide.com business, representing 17% of advertising revenue,continued to deliver strong results with total revenue growth of 39% in thenine months ended September 30, 2006. This strong growth reflects New HomeGuide having established itself as one of the most cost-effective andattractive media channels for home builders. The New Home division continues torapidly grow its online presence.

*AutoGuide, AutoGuide.com:*   During the nine months ended September 30, 2006, the Segment’s Auto Guide business,representing 6% of advertising revenue, generated total revenue growth of 99%.This new division represents a $17 million business based on annualized revenuein the third quarter, and continues to have strong growth potential both withinits existing markets and through new market expansion.

*DistribuTech:**  *All of PRIMEDIA’s Consumer Source properties continueto benefit from the Company’s leading distribution business, DistribuTech.Consumer Source’s strategy is to continually optimize distribution for its ownguides at minimal cost. DistribuTech’s strategy to optimize its distributionlocations to best meet the distribution needs of the Consumer Source guides hashistorically and will continue to cause DistribuTech revenue to fluctuate.

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*Segment EBITDA*

Consumer Guides SegmentEBITDA increased $3,662, or 6.8% to $57,609 in the nine months ended September 30,2006 from $53,947 in the same period of 2005. The increase in EBITDA isprimarily due to increases revenues as discussed above, partially offset by anincrease in operating costs over prior year, due to the acquisitions in 2005and early 2006. Segment EBITDA margin increased to 23.6% in 2006 from 22.8% in2005.

*Operating Income*

Operating income increased$1,008 or 2.2%, to $46,564 in the nine months ended September 30, 2006from $45,556 in the same period of 2005. This increase was primarily driven bythe increase in Segment EBITDA, partially offset by increased depreciation andamortization expenses due to the acquisitions in 2005 and early 2006, as wellas increased charges for provision for severance, closures and restructuringrelated costs.

**Education Segment(includes Channel One, FMG and PRIMEDIA Healthcare)**

*Revenues, Net*

Educationrevenues were $40,596 or 5.4% and $48,231 or 6.6% of the Company’s consolidatedrevenues for the nine months ended September 30, 2006 and 2005,respectively. Education revenues decreased $7,635 or 15.8% in the nine monthsended September 30, 2006 compared to the same period of 2005 as follows: 

| ** **            | ** ** | **Nine Months Ended  September 30,** | ** ** | **Percent** | ** ** |
|-----------------------|------------|-----------------------------------------------------|------------|-------------|------------|
| ** **            | ** ** | **2006**                                            | ** ** | **2005**    | ** ** | **Change** | ** ** |
| Revenues, net:        |       |                                                |       |        |       |   |   |   |   |
| Advertising           |       | $                                                   | 17,056     |        | $          | 23,668 |   |   | (27.9 | )% |   |
| Other                 |       | 23,540                                              |       | 24,540      |       |   | (4.1 | )% |   |
| Intersegment revenues |       | —                                              |       | 23          |       |   |   |   |   |
| Total                 |       | $                                                   | 40,596     |        | $          | 48,231 |   |   | (15.8 | )% |   |

 

Education advertising revenues, which are generatedentirely by Channel One, declined $6,612, or 27.9% in the nine months ended September 30,2006 compared to the same period of 2005. Channel One’s decline in advertisingrevenue is mainly attributable to the ongoing impact of the expiration of largeadvertising contracts in late 2005 and last year’s loss of a large portion ofits government advertising. Additionally, selling efforts in the current yearhaven’t been progressing as fast as anticipated. Channel One’s strategy is tobroaden its revenue base beyond traditional advertising through creativesponsorships and the Internet, and to target organizational support for itspublic affairs programming.

Other revenue was down4.1% in the nine monthsended September 30, 2006 and primarily consists of revenue fromPRIMEDIA Healthcare and FMG. PRIMEDIA Healthcare’s revenue increased 11% in thefirst nine months of 2006, due to management changes made and new strategicinitiatives launched in late 2004. PRIMEDIA Healthcare has contracted morerevenue in 2006 than in 2005. This increase was offset by a decrease in FMG’srevenue by 8.0% in the nine monthsended September 30, 2006, due to lower direct mail revenues.

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*Segment EBITDA*

Education Segment EBITDAdecreased $7,033 to $(3,064) for the the nine months ended September 30,2006 compared to the same period of 2005, primarily due to the decrease inrevenues as described above.

*Operating Loss*

Education segmentoperating loss for the the nine months ended September 30, 2006 was $7,145compared to $2,040 in the same period of 2005. This increase was primarily dueto the decrease in Segment EBITDA primarily resulting from lower revenues asdiscussed above.

**Corporate**

*CorporateAdministrative expenses*

Corporate administrativeexpenses were $20,553 for the the nine months ended September 30, 2006, upfrom $19,967 for the the nine months ended September 30, 2005, primarilydue to reduced compensation expense resulting from headcount reductions andlower professional fees, offset by professional fees incurred related to theexploration of the separation of the Company’s businesses via a tax-freespin-off, and to a New York office consolidation.

*Operating Loss*

Corporate operating losswas $24,599 for the the nine months ended September 30, 2006, down 10.9%compared to $27,623 for the the nine months ended September 30, 2005. Thederease was mainly due to a decrease in non-cash compensation, primarily due toa modification of existing stock options in the third quarter of 2005, whichresulted in an increase of non-cash compensation during that period.

**DiscontinuedOperations**

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

*Enthusiast Media*

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

During the third quarter of 2006, the Companydiscontinued and sold its Gems group, part of the Enthusiast Media segment.

Discontinued operations ofthe Enthusiast Media segment for the nine months ended September 30, 2006and 2005 include revenue of $47,676 and $70,656, respectively. Operating incomefor the nine months ended September 30, 2006 and 2005, of $79,201 and$391,089, respectively, includes gains on sales of businesses, net of tax, of $66,132and $379,076, respectively.

*Education*

The Company discontinued the operations of itsSoftware on Demand division during 2005. Additionally, the Company completedthe sale of its Workplace Learning division in 2005, excluding PRIMEDIAHealthcare.

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Discontinued operations ofthe Education segment for the nine months ended September 30, 2006 and2005 include revenue of $0 and $9,367, respectively, and operating income of$13 and $1,854, respectively. For the nine months ended September 30,2005, discontinued operations include a gain on sale of business. This gain onsale of businesses, net of tax, was $3,423, and related to the sale ofWorkplace Learning’s Bankers Training Division.

*BusinessInformation*

The Company sold itsBusiness Information segment during the third quarter of 2005. BusinessInformation segment revenues of $164,967 are included in discontinuedoperations for the nine months ended September 30, 2005. Operating incomeof $235,915 includes a gain on sale of business. This gain on sale of business,net of tax, was $219,000 for the nine months ended September 30, 2005.

**Liquidity, Capitaland Other Resources**

As of September 30, 2006, the Company had cashand unused credit facilities of $327,512, as further detailed below under “FinancingArrangements”, compared to $250,889 as of December 31, 2005. 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.

The Company believes itsliquidity, capital resources and cash flow from operations are sufficient tofund planned capital expenditures, working capital requirements, interest andprincipal payments on its debt and other anticipated expenditures for theremainder of 2006 and for the foreseeable future. The Company has nosignificant required debt repayments until 2010.

In connection with theevaluation of a possible spin-off of the Consumer Guides segment, the Companyis reviewing the amount of its net operating losses (“NOLs”) as ofDecember 31, 2005. Although the review is in process, the Company believesthat it has substantial NOLs.

*Working Capital*

Consolidated workingcapital, which includes current maturities of long-term debt, was a deficit of$39,333 at September 30, 2006 compared to a deficit of $22,032 at December 31,2005.

*Cash Flow—2006Compared to 2005*

Net cash provided by operating activities increased$27,652, to $32,290 in 2006, from $4,638 in 2005. This change is primarily dueto lower debt service and improved working capital management, partially offsetby decreased Segment EBITDA. For purposes of calculating net cash provided byoperating activities, discontinued operations are included until sold or shutdown. Hence, the results of the Business Information segment, About, PRIMEDIAWorkplace Learning’s Bankers Training division and the remainder of PWPL wereincluded in this calculation for the first three quarters of 2005 but not inthe first three quarters of 2006 as these units were sold during 2005.

Net cash provided by investing activities decreased to$114,411 from $766,991 for the nine months ended September 30, 2006 and2005, respectively. The primary reason for the decrease is the reduced proceedsfrom sales of businesses in the first three quarters of 2006 versus 2005.Proceeds were $151,848 in 2006 versus $816,502 in 2005.

Net cash used in financingactivities was $82,124 for the first three quarters of 2006, compared to$329,885 for the first three quarters of 2005. The primary reason for thedecrease is the redemption of Series D and F Exchangeable Preferred Stockin the second quarter of 2005.

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*Free Cash Flow*

Thefollowing table presents the Company’s Free Cash Flow for the nine months endedSeptember 30, 2006 and 2005, respectively:

| ** **                                                                 | ** ** | **Nine Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Net cash provided  by operating activities                                 |       | $                                                   | 32,290     |   | $ | 4,638 |   |
| Additions to property and equipment                                        |       | (18,402                                             | )          | (21,681 | ) |
| Capital lease payments                                                     |       | (2,331                                              | )          | (4,141 | ) |
| Free Cash Flow                                                             |       | $                                                   | 11,557     |   | $ | (21,184 | ) |
| Supplemental information:                                                  |       |                                                |       |   |   |
| Cash interest paid, including interest on capital  and restructured leases |       | $                                                   | 82,439     |   | $ | 82,997 |   |
| Cash interest paid on shares subject to mandatory  redemption(1)           |       | $                                                   | —     |   | $ | 26,457 |   |
| Cash income taxes paid, net of refunds received                            |       | $                                                   | 4,503      |   | $ | 4,280 |   |
| Cash paid for  severance, closures and restructuring related costs         |       | $                                                   | 4,901      |   | $ | 7,869 |   |

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(1)          During 2005, the Companyredeemed all of its outstanding shares subject to mandatory redemption(liquidation preference of approximately $475,000 for the year ended December 31,2005 and $264,494 for the nine months ended September 30, 2005).

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

***Financing Arrangements***

*Bank CreditFacilities*

Thebank credit facilities consisted of the following as of September 30,2006:

| ** **                     | ** ** | **Revolver** | ** ** | **Term B** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------|------------|-----------------|------------|-----------|------------|
| Bank Credit  Facilities        |       | $            | 276,795    |            | $          | 495,000   |       | $ | 771,795 |   |
| Borrowings  Outstanding        |       | —       |       | (495,000        | )          | (495,000  | )          |
| Letters of Credit  Outstanding |       | (20,963      | )          | —          |       | (20,963   | )          |
| Unused Bank Commitments        |       | $            | 255,832    |            | $          | —    |       | $ | 255,832 |   |

 

The term loan B bears interest at the base rate plus1.25% or LIBOR plus 2.25% per year. At September 30, 2006, the weightedaverage variable interest rate on all outstanding borrowings under the bankcredit facilities was 7.7%.

Under the bank credit facilities, the Company hasagreed to pay commitment fees at a per annum rate of either 0.375% or 0.5%,depending on its debt to EBITDA ratio, as defined in the bank credit facilitiesagreement, on the daily average aggregate unutilized commitment under therevolving loan commitment. For the nine months ended September 30, 2006,the Company’s commitment fees were paid at a weighted average rate of 0.5%. TheCompany also has agreed to pay certain fees with respect to the issuance ofletters of credit and an annual administration fee. From time to time, the Companymay pay amendment 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 

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credit facilities are$118,627 in 2007 and a final reduction of $158,168 in 2008. To the extent thatthe total revolving credit loans outstanding exceed the reduced commitmentamount, these loans must be paid down to an amount equal to or less than thereduced commitment amount. However, if the total revolving credit loansoutstanding do not exceed the reduced commitment amount, then there is norequirement to pay down any of the revolving credit loans. Remaining aggregateterm loan payments under the bank credit facilities are $5,000 in 2007 through2012 and $465,000 in 2013.

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

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

·       failure to maintainrequired covenant ratios, as described below;

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

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

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

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

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

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

*Senior Notes andSenior Note Redemptions*

*8**7**¤**8*% Senior Notes.   In the firstquarter of 2006, the Company repurchased $7,025 principal amount of its 87¤8%Senior Notes due May 15, 2011 in three different transactions for $6,832plus $200 of accrued interest. In the second quarter of 2006, the Companyrepurchased $56,615 principal amount of its 87¤8% SeniorNotes for $55,262 plus $400 of accrued interest. As a result of thesetransactions, the Company recorded a gain of $336 net of the write-off of unamortizedbond discount during the nine months ended September 30, 2006 The gain of$282 is included in the other income (expense), net line on the accompanyingcondensed statement of consolidated operations for the nine months ended September 30,2006.

*8%Senior Notes.  *During October 2006, theCompany redeemed $5,190 principle amount of its 8% Senior Notes due 2013in two separate transactions for a total of $4,790 plus $164 of accruedinterest. As a result, the Company recorded a gain of $400 net of the write-offof unamortized deferred financing costs and bond discount.

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*ContractualObligations*

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

| ** **                                                | ** ** | ** ** | ** ** | **Payments Due by Period** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**                          | ** ** | ** ** | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **After  5 years** | ** ** |
| Long-term  debt obligations (net of unamortized discount) |       | $          | 1,378,411  |                                      | $          | 10,190 |   | $ | 10,000 |   | $ | 593,411 |   | $ | 764,810 |   |
| Interest on long-term  debt obligations(1)                |       | 672,873    |       | 115,185                                   |       | 225,465 |   | 188,024 |   | 144,199 |   |
| Capital lease  obligations                                |       | 3,253      |       | 1,135                                     |       | 1,365 |   | 753 |   | — |   |
| Fair value of  forward agreement(2)                       |       | 13,303     |       | —                                    |       | 13,303 |   | — |   | — |   |
| Interest on  capital lease obligations                    |       | 470        |       | 217                                       |       | 208 |   | 45 |   | — |   |
| Operating lease  obligations(3)                           |       | 194,578    |       | 43,382                                    |       | 60,007 |   | 35,433 |   | 55,756 |   |
| Workplace  Learning lease obligations(4)                  |       | 15,231     |       | 5,262                                     |       | 3,704 |   | 3,101 |   | 3,164 |   |
| Total Contractual  Obligations                            |       | $          | 2,278,119  |                                      | $          | 175,371 |   | $ | 314,052 |   | $ | 820,767 |   | $ | 967,929 |   |
|                                                           |            |            |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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

(2)          Present value ofexpected future payments related to the acquisition of Automotive.com.

(3)          Future rentalcommitments for the above operating leases have not been reduced by minimumnoncancelable sublease rentals aggregating $64,868 as of September 30,2006.

(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 September 30,2006 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 of $21,115 aggregate face valuewhich expire on or before September 30, 2007.

*Off Balance SheetArrangements*

The Company has no variableinterest (otherwise known as “special purpose”) entities or off balance sheetdebt, other than as related to operating leases in the ordinary course ofbusiness as disclosed above.

*Covenant Compliance*

As defined in the amended bank credit facilitiesagreement, the maximum allowable debt leverage ratio was amended to 6.25 to 1and decreases to 6.00 to 1 on October 1, 2007. The amendment to the bankcredit facilities also sets the minimum interest coverage ratio, as defined inthe bank credit facilities, at 1.75 to 1 through maturity. The minimum fixedcharge coverage ratio, as defined, remains unchanged at 1.05 to 1 throughmaturity.

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

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unrestricted(the “Unrestricted Group”), which represent primarily Internet businesses,trademark and content licensing and service companies, new launches (includingtraditional start-ups), other properties under evaluation for turnaround orshutdown and foreign subsidiaries. Except for those specifically designated bythe Company as unrestricted, all businesses of the Company are restricted (the “RestrictedGroup”). Indebtedness under the bank credit facility and Senior Note agreementsis guaranteed by each of the Company’s domestic subsidiaries in the RestrictedGroup (excluding Automotive.com) in accordance with the provisions andlimitations of the Company’s bank credit facility and Senior Note agreements.The guarantees are full, unconditional and joint and several. The UnrestrictedGroup does not guarantee the bank credit facility or Senior Notes. For purposesof determining compliance with certain financial covenants under the Company’sbank credit facility, the Unrestricted Group’s results (positive or negative)are not reflected in the Consolidated EBITDA of the Restricted Group which, asdefined in the bank credit facility agreement, excludes losses of theUnrestricted Group, non-cash charges and restructuring charges and is adjustedprimarily for the trailing four quarters results of acquisitions anddivestitures and estimated savings for acquired businesses.

The following represents a reconciliation of EBITDA ofthe Restricted Group for purposes of the leverage ratio as defined in the bankcredit facilities agreement to operating income:
|                                                                                                       | ** ** | **For the Three  Months Ended  September 30, 2006** | ** ** | **For the Twelve  Months Ended  September 30, 2006** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| EBITDA of the  Restricted Group                                                                       |       |                                                                         | $          | 59,625                                                                        |       |   |   | $ | 224,299 |   |   |
| EBITDA loss of  the Unrestricted Group                                                                |       |                                                                         | (10,105    | )                                                                             |       |   | (45,012 | ) |   |
| Divestiture and  other adjustments                                                                    |       |                                                                         | (3,005     | )                                                                             |       |   | (7,501 | ) |   |
| Depreciation of  property and equipment                                                               | ** ** | ** **                                                                   | (7,229     | )                                                                             |       |   | (33,137 | ) |   |
| Amortization of  intangible assets and other                                                          | ** ** | ** **                                                                   | (3,479     | )                                                                             |       |   | (21,396 | ) |   |
| Severance related  to separated senior executives                                                     | ** ** | ** **                                                                   | —     |                                                                          |       |   | (1,775 | ) |   |
| Non-cash  compensation                                                                                | ** ** | ** **                                                                   | (411       | )                                                                             |       |   | (2,563 | ) |   |
| Provision for  severance, closures and restructuring related costs      | ** ** | ** **                                                                   | (292       | )                                                                             |       |   | (2,468 | ) |   |
| Gain on the sales  of businesses and other, net                                                       | ** ** | ** **                                                                   | —     |                                                                          |       |   | 101 |   |   |
| Operating income                                                                                      | ** ** | ** **                                                                   | 35,104     |                                                                          |       |   | 110,548 |   |   |
| Other income  (expense):                                                                              | ** ** | ** **                                                                   |       |                                                                          |       |   |   |   |   |
| Interest expense                                                                                      | ** ** | ** **                                                                   | (33,574    | )                                                                             |       |   | (118,116 | ) |   |
| Interest on shares subject to mandatory redemption                                                    | ** ** | ** **                                                                   | —     |                                                                          |       |   | (2,283 | ) |   |
| Amortization of deferred financing costs                                                              | ** ** | ** **                                                                   | (630       | )                                                                             |       |   | (2,677 | ) |   |
| Other income (expense), net                                                                           | ** ** | ** **                                                                   | 787        |                                                                          |       |   | (5,371 | ) |   |
| Income (loss)  from continuing operations before (provision) benefit for income taxes            | ** ** | ** **                                                                   | 1,687      |                                                                          |       |   | (17,899 | ) |   |
| (Provision)  benefit for income taxes                                                                 | ** ** | ** **                                                                   | (5,009     | )                                                                             |       |   | (2,502 | ) |   |
| Income (loss)  from continuing operations                                                             | ** ** | ** **                                                                   | (3,322     | )                                                                             |       |   | (20,401 | ) |   |
| Discontinued  operations                                                                              | ** ** | ** **                                                                   | 57,074     |                                                                          |       |   | 66,317 |   |   |
| Cumulative effect  of change in accounting principle                                                  | ** ** | ** **                                                                   | —     |                                                                          |       |   | 22 |   |   |
| Net income                                                                                            | ** ** | ** **                                                                   | $          | 53,752                                                                        |       |   |   | $ | 45,938 |   |   |

 

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

| ** **                                      | ** ** | **For the Three  Months Ended  September 30, 2006** | ** ** | **For the Twelve  Months Ended  September 30, 2006** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Internet  properties                            |       |                                                                         | $          | 3,879                                                                         |       |   |   | $ | 14,715 |   |   |
| Traditional turnaround  and start-up properties |       |                                                                         | 4,741      |                                                                          |       |   | 24,513 |   |   |
| Related overhead  and other charges             |       |                                                                         | 1,485      |                                                                          |       |   | 5,784 |   |   |
|                                            |       |                                                                         | $          | 10,105                                                                        |       |   |   | $ | 45,012 |   |   |

 

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

Thecalculation of the Company’s leverage ratio, as required under the bank creditfacilities agreement for covenant purposes, is defined as the Company’sconsolidated debt divided by the EBITDA of the Restricted Group. At September 30,2006, this leverage ratio was approximately 6.0 to 1.

***Contingencies***

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

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

In 2006, the Company madecertain lease payments on behalf of Workplace Learning pursuant to itssecondary liability. During the second quarter of 2006, the Company determinedthat it was probable that the Company would be responsible for the leasepayments. As a result, as of September 30, 2006, the Company has areceivable of $10,000 included in prepaid expenses and other current assets forthe amount due from the third party guarantor, and a total liability of $15,231for the fair value of the future lease payments, net of estimated subleaseincome, on the accompanying condensed consolidated balance sheet. During thesecond quarter of 2006, the Company recorded a related provision indiscontinued operations of $5,584 and a charge to discontinued operations of$1,643 for the net lease payments made by the Company prior to June 30,2006. As of September 30, 2006, no further provisions were deemednecessary.

***Critical Accounting Policies and Estimates***

During the third quarterof 2006, there were no significant changes related to the Company’s criticalaccounting policies and estimates as disclosed in the Company’s annual reporton Form 10-K for the year ended December 31, 2005.

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***Recent Accounting Pronouncements***

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

In July of 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, effective for fiscal years beginning after December 15,2006. This Interpretation clarifies the accounting for uncertainty in incometaxes recognized in an enterprise’s financial statements in accordance withFASB Statement No. 109, *Accounting for IncomeTaxes.*This interpretation prescribes a recognition threshold andmeasurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. ThisInterpretation also requires entities to make further disclosures aboutuncertainties in their income tax position, and to include a rollforward of thetax benefits taken that do not qualify for financial statement recognition. TheCompany is in the process of assessing the impact of this Interpretation on itsconsolidated financial statements.

*SFAS No. 157, “FairValue Measurements”*

In September 2006, theFASB issued SFAS 157, which defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles, andexpands disclosures about fair value measurements. This Statement applies underother accounting pronouncements that require or permit fair value measurements.This Statement is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears. The Company does not anticipate any material impact on its consolidatedfinancial statements upon the adoption of this standard.

*Staff Accounting Bulletin No. 108, “Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements’’*

The SEC issued StaffAccounting Bulletin (“SAB”) No. 108 in October of 2006, to addressdiversity in practice regarding the quantification of financial statement misstatements.SAB 108 requires that a company use both the “rollover” and “iron curtain”method (the two most commonly used methods) when quantifying misstatementamounts. The SEC staff believes that reliance on only one of these methods doesnot appropriately quantify all misstatements that could be material tofinancial-statement users. SAB 108 is effective for annual financial statementscovering the first fiscal year ending after November 15, 2006

***Subsequent Events***

*Redemption of Senior Notes*

During October 2006,the Company redeemed $5,190 principal amount of its 8% Senior Notes due 2013 intwo separate transactions for a total of $4,790 plus $164 of accrued interest.As a result, the Company recorded a gain of $400 net of the write-off ofunamortized deferred financing costs.

*Filing of Form 10*

In late 2005, the Company announced that its Board ofDirectors authorized management, along with advisors Goldman Sachs and LehmanBrothers, and counsel Simpson Thacher & Bartlett, to explore theseparation of its businesses via a tax-free spin-off into two separatepublicly-traded companies. The plan being contemplated would spin-off PRIMEDIA’sConsumer Guides Segment. In furtherance of the assessment of a potentialspin-off, the Board of Directors approved the filing of a ruling request withthe Internal Revenue Service and a Form 10 with the Securities andExchange Commission (“SEC”). The IRS ruling request was filed during the thirdquarter, and the Form 10 was filed in November 2006. Although theBoard has taken these additional steps, there has been no final decision onwhether to complete the spin-off.

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

The impact of inflationwas immaterial during the first nine months of 2006. Postage, however, forproduct distribution and direct mail solicitations is a significant expense ofthe Company. The Company uses the U.S. Postal Service for distribution of many ofits products and marketing materials. Postal rates increased 5.4% in 2006. Inthe past, the effects of inflation on operating expenses including postageincreases have substantially been offset by PRIMEDIA’s ability to increaseselling prices. No assurances can be given that the Company can pass such costincreases through to its customers in the future. In addition to pricingactions, the Company is continuing to examine all aspects of the manufacturingand purchasing processes to identify ways to offset price increases. TheCompany’s paper expense decreased approximately 1.3% in the third quarter of2006 compared to 2005. Paper cost represented approximately 9.9% and 10.2% ofthe Company’s total operating expenses for the third quarter of 2006 and 2005,respectively.

***Seasonality***

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

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

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

**Item 4.**                        CONTROLSAND PROCEDURES

***Disclosure Controls and Procedures***

The Company’s management,with the participation of the Company’s Chief Executive Officer, Chief FinancialOfficer and Chief Accounting Officer, has evaluated the effectiveness of theCompany’s disclosure controls and procedures as of the end of the periodcovered by this report. Based on such evaluation, the Company’s Chief ExecutiveOfficer, Chief Financial Officer and Chief Accounting Officer have concludedthat, as of the end of such period, the Company’s disclosure controls andprocedures are effective in recording, processing, summarizing and reporting,on a timely basis, information required to be disclosed by the Company in thereports that it files or submits under the Securities Exchange Act of 1934, asamended. The Company’s Chief Executive Officer, Chief Financial Officer andChief Accounting Officer also have concluded that the controls and proceduresare designed to ensure that information required to be disclosed is accumulatedand communicated to management, including the principal executive and principalfinancial officers as appropriate to allow timely decisions regarding requireddisclosure.

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

During the quarter ended September 30,2006, there have not been any changes in the Company’s internal control overfinancial reporting that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

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**PART II.**   OTHERINFORMATION

**Item 1A.**                RISKFACTORS

**There have been no material changesto the Company’s risk factors during the third quarter of 2006.**

**Item 6.**                        EXHIBITS

(a)           Exhibits

| 10.1 |   | Employment Agreement, dated September 15, 2006,  between PRIMEDIA Inc. and Steven R. Parr(1)                                               |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification by Dean B. Nelson Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002(*)                                                   |
| 31.2 |   | Certification by Kevin J. Neary Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002(*)                                                   |
| 31.3 |   | Certification by Robert J. Sforzo Pursuant to Section 302  of the Sarbanes-Oxley Act of 2002(*)                                                 |
| 32.1 |   | Certification by Dean B. Nelson Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002(*)   |
| 32.2 |   | Certification by Kevin J. Neary Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002(*)   |
| 32.3 |   | Certification by Robert J. Sforzo Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002(*) |

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(*)          Filed herewith.

(1)          Incorporated byreference to PRIMEDIA Inc.’s Current Report on Form 8-K, filed September 15,2006.

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**SIGNATURES**

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

|        |                  | PRIMEDIA INC.                                                                                    |
|--------|-----------------------|--------------------------------------------------------------------------------------------------|
|   |                  | (Registrant)                                                                                     |
| Date:  | November 9, 2006 | /s/ DEAN B. NELSON                                                                               |
|   |                  | (Dean B. Nelson)                                                                                 |
|   | * *              | *Chairman, Chief Executive Officer and President  (Principal Executive Officer)*                 |
| Date:  | November 9, 2006 | /s/ KEVIN J. NEARY                                                                               |
|   |                  | (Kevin J. Neary)                                                                                 |
|   | * *              | *Senior Vice President and Chief Financial Officer*                                              |
|   | * *              | *(Principal Financial Officer)*                                                                  |
| Date:  | November 9, 2006 | /s/ ROBERT J. SFORZO                                                                             |
|   |                  | (Robert J. Sforzo)                                                                               |
|   | * *              | *Senior Vice President, Chief Accounting Officer  and Controller (Principal Accounting Officer)* |

 

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