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<p align="center"><font size="3"><strong>UNITED STATES</br>
SECURITIES AND EXCHANGE COMMISSION</br>
Washington, D.C. 20549</strong></font></p>


<HR align=center SIZE=2 width="25%">
<br>
<p align="center"><font size="5"><strong>FORM 10-Q</strong></center></font></p>
<HR align=center SIZE=2 width="25%">

<p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<i>(Mark One)</i>


<p align="center"><font size="3"><strong>
   [X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="4" color="FF0000"><strong>
        for the period ended December 25, 1999
</strong></font></p>

<p align="center"><font size="3"><strong> OR </strong></font></p>

<p align="center"><font size="3"><strong>
[&nbsp;&nbsp;]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
</strong></font></p>
<p align="center"><font size="3"><strong>
 For the transition period from ________to _________
</strong></font></p>
<p align="center"><font size="3"><strong>
                       <u>Commission file number 0-24617</u>
</strong></font></p>
<p align="center"><font size="6" color="#0000FF"><strong>
                         <u>IDG BOOKS WORLDWIDE, INC.</u>
</strong></font></br>
<font size="2">
               (Exact name of Registrant as specified in its Charter)
</font></p>

<P>&nbsp;
<TABLE COLS=2 WIDTH="100%" >
<TR>
<TD>
<font size="3"><strong>
<CENTER><u>Delaware</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u>04-3078409</u></CENTER>
</font></strong>
</TD>
</TR>
<TR>
<TD>
<font size="2">
<CENTER>&nbsp; (State or Other Jurisdiction of Incorporation or Organization)&nbsp;</CENTER>
</font>
</TD>
<TD>
<font size="2">
<CENTER>(I.R.S. Employer Identification Number)</CENTER>
</font>
</TD>
</TR>
</TABLE>
<BR>



<p align="center"><font size="3"><strong>
                            919 East Hillsdale Blvd.<br>
                       <u>Suite 400, Foster City, CA  &nbsp;&nbsp;94404
</strong></font></u><br>

<font size="2">
        (Address of Principal Executive Offices including Zip Code)
</font></p>

<p align="center"><font size="3"><strong><u>
                                 (650) 653-7000
</strong></font></u><br>

<font size="2">
                 (Registrant's Telephone Number, Including Area Code)
<br>
<br>
<br>
(Former name, former address and former fiscal year if changed
 since last report)

</font></p>




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<p>&nbsp;&nbsp;&nbsp;
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. &nbsp; YES [&nbsp;&nbsp;] &nbsp;&nbsp; NO [X] </p>

The number of shares outstanding of the issuer's Common Stock as of January 31,
2000 was 14,634,097.

This quarterly report on Form 10-Q contains a total of 16 pages, of which this
page is page 1.




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</strong></p>
<p align="center"><strong>

                   IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES<br>
                                    FORM 10-Q<br>
                                     INDEX
</strong></p>
<p align="center"><strong>
PART I. Financial Information
</strong></p>

<p>  Item 1. Financial statements

<BLOCKQUOTE>
<p><A HREF="#bs"> Condensed Consolidated Balance Sheets as of
            December 31, 1999 (unaudited) and September 30, 1999</A>


<p><A HREF="#ops">
           Condensed Consolidated Statements of Operations for the three months
             December 31, 1999 and December 31, 1998 (unaudited)</A>



<p><A HREF="#flows">
          Condensed Consolidated Statements of Cash Flows for the
             three months ended December 31, 1999 and December 31, 1998 (unaudited)</A>




<p><A HREF="#notes">
         Notes to Unaudited Condensed Consolidated Financial
         Statements</A>

</BLOCKQUOTE>


<p>Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations

<BLOCKQUOTE>


<p><A HREF="#overview">
           Overview</A>


<p><A HREF="#results">
         Results of Operations</A>

<p><A HREF="#liquid">
         Financial Condition, Liquidity and Capital Resources</A>


<p><A HREF="#factors">
    Factors Affecting Future Operating Results</A>


<p><A HREF="#Y2K">
         Year 2000 Compliance</A>


<p><A HREF="#market">
         Financial Market Risks</A>



<p><A HREF="#forward">
        Forward-Looking Statements</A>





</BLOCKQUOTE>




<p align="center"><strong>
PART II. Other Information
</strong></p>



<p>Item 6:  Exhibits and Reports on Form 8-K

<p align="left"><strong>
<A HREF="#sign">
Signatures</A>
</strong></p>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>
<br>

<p align="center"><strong>
PART I -- FINANCIAL INFORMATION
</strong></p>
<p>Item 1.  Financial Statements

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="bs"></A>
<p align="center"></font><strong>
             IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES<br>
                      CONDENSED CONSOLIDATED BALANCE SHEETS<br>
                     (in thousands, except share amounts)
</strong>

<pre>

                           ASSETS
                                                    December 31,  September 30,
                                                         1999          1999
                                                    ------------- -------------
Current Assets:                                       (unaudited)
     Cash and equivalents...................                $736        $2,084
     Accounts receivable - net..............              64,846        46,294
     Inventory - net........................              25,622        31,024
     Other current assets...................               4,864         4,092
     Deferred tax assets....................              22,274        21,334
                                                    ------------- -------------
             Total current assets...........             118,342       104,828
Royalty advances - net......................              10,821        12,110
Property and equipment - net................               7,642         6,032
Intangible assets - net ....................              79,671        90,221
Other assets ...............................               3,017         3,280
                                                    ------------- -------------
             TOTAL..........................            $219,493      $216,471
                                                    ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable.......................              $8,775        $9,666
     Accrued liabilities....................              55,466        57,815
                                                    ------------- -------------
             Total current liabilities......              64,241        67,481

Long-term debt..............................              83,000        82,000
Deferred tax liability (note 1).............               4,919         4,950
                                                    ------------- -------------
             Total liabilities..............             152,160       154,431

Minority interest...........................                  96            95

Commitments and contingencies


Stockholders' Equity:
     Preferred stock, $.001 par value;
        authorized: 5,000,000 shares;
        issued and outstanding: 0 shares....                --            --
     Common stock, $.001 par value;
        authorized:  25,000,000 Class A
        shares and 400,000 Class B shares;
        issued and outstanding:
        FY 2000 - 14,434,097 Class A and
          200,000 Class B...................                  15
        FY 1999 - 14,278,825 Class A and
          200,000 Class B...................                                14
     Additional paid-in-capital.............              48,547        46,637
     Retained earnings......................              18,667        15,284
     Accumulated other comprehensive
      income................................                   8            10
                                                    ------------- -------------
             Total stockholders' equity.....              67,237        61,945
                                                    ------------- -------------
             TOTAL..........................            $219,493      $216,471
                                                    ============= =============
</pre>

<p align="center"></font><strong>
          See notes to consolidated financial statements
</strong>


<br>
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<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="ops"></A>
<p align="center"></font><strong>
             IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES<br>
                    CONDENSED CONSOLIDATED STATEMENTS OF INCOME<br>
                     (in thousands, except share amounts)
</strong>

<pre>

                                              THREE MONTHS ENDED
                                                 DECEMBER 31,
                                            ---------------------
                                                 1999       1998
                                            ---------- ----------
                                            (UNAUDITED)(UNAUDITED)

Revenue:
   Net sales ..............................   $53,773    $36,094
   Licensing revenues and other ...........     4,036      1,211
                                            ---------- ----------
      Net revenue .........................    57,809     37,305
                                            ---------- ----------
Operating costs and epenses:
   Cost of sales ..........................    33,420     18,297
   Selling, general and administrative ....    15,553     12,483
   Depreciation and amortization ..........     1,314      1,186
                                            ---------- ----------
      Total operating costs and expenses ..    50,287     31,966
                                            ---------- ----------
Operating income ..........................     7,522      5,339
   Interest income (expense) - net ........    (1,689)       104
                                            ---------- ----------
Income before provision for income taxes ..     5,833      5,443
   Provision for income taxes .............     2,450      2,263
                                            ---------- ----------
Net income ................................    $3,383     $3,180
                                            ========== ==========

Net income per share:
   Basic ..................................     $0.23      $0.22
                                            ========== ==========
   Diluted ................................     $0.23      $0.22
                                            ========== ==========
Shares used in per share calculations:
  Basic net income ........................    14,512     14,302
                                            ========== ==========
  Diluted net income ......................    14,841     14,409
                                            ========== ==========

</pre>

<p align="center"></font><strong>
          See notes to consolidated financial statements
</strong>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="flows"></A>
<p align="center"></font><strong>
             IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES<br>
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<br>
                     (in thousands, except share amounts)
</strong>

<pre>

                                                           THREE MONTHS ENDED
                                                              DECEMBER 31,
                                                    ----------------------------
                                                         1999           1998
                                                    -------------  -------------
Cash Flows from Operating Activities:
  Net Income ......................................       $3,383         $3,180
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
      Depreciation and amortization ...............        1,314          1,186
      Deferred income taxes........................         (940)          (835)
      Changes in operating assets and liabilities
        (net of effects of dispositions):
        Accounts receivable .......................      (18,535)        (7,115)
        Inventory .................................        5,402          1,052
        Royalty advances ..........................         (795)          (127)
        Other current assets ......................         (636)         1,414
        Accounts payable ..........................         (891)        (2,515)
        Accrued liabilities .......................       (1,765)         4,835
                                                    -------------  -------------
           Net cash provided (used) by operating
            activities ............................      (13,463)         1,075
                                                    -------------  -------------
Cash Flows from Investing Activities:
  Capital expenditures ............................       (2,168)          (360)
  Divestitures ....................................       11,819           --
  Acquisitions ....................................         --          (17,118)
  Other investments ...............................          120         (1,760)
                                                    -------------  -------------
           Net cash provided (used) by investing
            activities ............................        9,771        (19,238)
                                                    -------------  -------------
Cash Flows from Financing Activities:
  Advances on the credit facility .................        1,000          4,438
  Proceeds from Exercises of stock options ........        1,344           --
  Payment of Cliffs Notes, Inc. line of credit ....         --             (342)
                                                    -------------  -------------
           Net cash provided by financing
            activities ............................        2,344          4,096
                                                    -------------  -------------
Net Decrease in Cash ..............................       (1,348)       (14,067)
Cash and equivalents, Beginning of Period .........        2,084         15,466
                                                    -------------  -------------
Cash and equivalents, End of Period ...............         $736         $1,399
                                                    =============  =============

Noncash Investing Activity:
  Acquisitions (Note 3):
    Tangible assets ...............................      $  --           $5,217
    Intangible assets .............................         --           16,149
    Less: cash paid ...............................         --          (17,118)
                                                    -------------  -------------
    Liabilities assumed ...........................      $  --           $4,248
                                                    =============  =============

Noncash Financing Activity:
  Issuance of Class A common stock under the
   ESOP plan ......................................         $566         $1,513
                                                    =============  =============

</pre>

<p align="center"></font><strong>
          See notes to consolidated financial statements
</strong>


<br>
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<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="notes"></A>
<p align="center"></font><strong>
                   IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES<br>
          NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<br>
                THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 AND<br>
                   AS OF DECEMBER 31, 1999 AND SEPTEMBER 30, 1999
</strong>


<p><strong>1. Basis of  Presentation </strong></p>

<p>The accompanying interim consolidated financial statements for the three months
ended December 31, 1999 and 1998, and as of December 31, 1999 are unaudited, but
have been prepared in accordance with generally accepted accounting principles for
interim consolidated financial statements. Certain information or footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted in
accordance with guidance for interim financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included.  The results of
operations of any interim period are not necessarily indicative of the results of
the operations for the full year.  These consolidated financial statements should
be read in conjunction with the audited, consolidated financial statements as of
and for the year ended September 30, 1999, and the related notes thereto, included
in the Company's Form 10-K filed with the SEC.

<p>Organization and Description of Business -- IDG Books Worldwide, Inc. (the
"Company"), a Massachusetts company, was founded in 1990 as a wholly-owned
subsidiary (through intermediate companies) of International Data Group, Inc. (the
"Parent"). On March 24, 1998, the Company was reincorporated in Delaware. On July
31, 1998, the Company consummated its initial public offering (the "Offering") of
3,180,000 shares of Class A common stock at an offering price of $15.50 per share
pursuant to a Registration Statement declared effective by the SEC on July 27,
1998. After deducting expenses, the net proceeds to the Company from the Offering
were $44,032,000. The Company used $38,400,000 of the net proceeds of the Offering
to repay indebtedness owed to the Parent.

<p>The Company is a leading global knowledge company featuring a diverse portfolio of
technology, consumer, and general how-to book brands, computer-based learning
tools, Web sites and Internet e-services. The Company publishes and markets under
well-known brand names, including <i>For Dummies &reg;, 3-D Visual &reg;, Bible, CliffsNotes &nbsp;  <sup><font size="1">TM</font size="1"></sup>,
Frommer's &reg;, Betty Crocker's &reg;, Weight Watchers &reg; and Webster's New World <sup><font size="1">TM</font size="1"></sup>.</i>

<p>        Principles of Consolidation -- The consolidated financial statements include the
accounts of IDG Books Worldwide, Inc. and its majority controlled subsidiaries
(collectively referred to as the Company). All significant intercompany accounts
and transactions have been eliminated.

<p>        Reclassifications -- Certain amounts in prior years' financial statements and
related notes have been reclassified to conform to the fiscal year 2000
presentation. The accompanying consolidated balance sheet as of December 31, 1999
reports a deferred tax liability of $5.0 million with a corresponding addition to
goodwill to reflect the book/tax difference related to the carrying value of
Cliff's Notes intangible assets. The accompanying consolidated balance sheet as of
September 30, 1999 has been reclassified to conform to this presentation.

<p><strong>2. Significant Accounting Policies</strong></p>

<p>        Fiscal Year -- The Company's fiscal year ends on the last Saturday of each
September. Fiscal year 1999, ended on September 25, 1999, and consisted of 52
weeks. For convenience, fiscal year-ends are denoted in the accompanying
consolidated financial statements as September 30. Similarly, the thirteen-week
periods ended December 25, 1999 and December 26, 1998 are referred to as the
three-months ended December 31, 1999 and 1998, respectively.

<p>Intangible Assets -- Intangible assets represent trademarked brand names,
goodwill, publishing rights and other intangible assets. Amortization is provided
on a straight-line method over the estimated useful lives of these assets not
exceeding forty years.

<p>        Net Income Per Share -- Basic net income per share excludes dilution and is
computed using the weighted average number of common shares outstanding for the
period. Diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (stock options) were
exercised or converted into common stock. For the quarters ended December 31, 1999
and 1998, respectively, approximately 329,000 and 107,000 shares, reflecting the
dilutive effects of outstanding stock options, were included in computing diluted
net income per share.


<p>        Comprehensive Income - Comprehensive income for the three months ended December
31, 1999 was $3,381,000 and $3,180,000 for the three months ended December 31, 1998.

<p><strong>3. Acquisitions and Divestitures</strong></p>

<p>In August 1999, the Company acquired a portfolio of book and online brands from
the Macmillan General Reference Group (the Reference Brands) of Pearson Education
for $83.0 million, plus $0.5 million in transaction costs. The acquisition was
accounted for as a purchase business combination and, accordingly, the acquisition
cost has been allocated to the fair value of the assets acquired and liabilities
assumed. Assumed liabilities include $2.0 million for the costs of a restructuring
plan involving various settlements and contract terminations ($1.2 million) and
estimated severance and relocation of personnel ($0.8 million). As of December 31,
1999, $0.7 million of costs had been incurred relating to severance.

<p>The purchase price allocation is preliminary and subject to revision upon receipt
of final information concerning valuation of intangible assets, working capital
received at closing, and the actual costs of the restructuring plan.

<p>In November and December 1999, the Company sold the J.K. LasserTM and Chek-chart
brands, respectively, which were purchased in the above-mentioned acquisition, to
unaffiliated companies. The $12.3 million received has been reported as a
reduction to branded trademarks in the current quarter of fiscal 2000, with no
gain or loss resulting from the sale. Transaction costs of $0.5 million resulted
in net proceeds of $11.8 million.

<p><strong>4. Accounts Receivable</strong></p>

<p>Accounts receivable consisted of the following (in thousands):

<pre>

                                              December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Accounts receivable .....................        $102,520      $83,300
Allowance for doubtful accounts .........          (4,847)      (5,010)
Allowance for sales returns .............         (32,827)     (31,996)
                                              ------------ ------------
    Total ...............................         $64,846      $46,294
                                              ============ ============
</pre>


<p><strong>5. Inventories </strong></p>

<p>Inventories consisted of the following (in thousands):

<pre>


                                              December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Books (finished goods) ..................         $35,830      $40,167
Paper ...................................           4,870        5,364
                                              ------------ ------------
    Total Inventory......................          40,700       45,531
Reserve for obsolescence ................         (15,078)     (14,507)
                                              ------------ ------------
    Net Inventory .......................         $25,622      $31,024
                                              ============ ============

</pre>


<p><strong>6. Intangible Assets</strong></p>

<p>Intangible assets consisted of the following (in thousands):

<pre>


                                              December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Branded trademarks.......................         $57,749      $70,000
Goodwill ................................          18,530       16,149
Publishing rights .......................           5,000        5,000
Other intangible assets .................             700          700
                                              ------------ ------------
    Total gross intangible assets .......          81,979       91,849
Less: accumulated amortization ...........         (2,308)      (1,628)
                                              ------------ ------------
    Net intangible assets ...............         $79,671      $90,221
                                              ============ ============

</pre>


<p><strong>7. Accrued Liabilities </strong></p>

<p>Accrued liabilities consisted of the following (in thousands):

<pre>

                                                December 31, September 30,
                                                    1999         1999
                                                ------------ ------------
                                                (unaudited)

Accrued royalties ............................      $16,094      $16,276
Accrued promotions ...........................       15,233       14,068
Accrued compensation and benefits ............        7,109        8,689
Accrued inventory and fulfillment ............        6,644        8,086
Other accrued liabilities ....................        5,981        8,259
Accrued acquistion restructuring costs .......        1,760        2,437
Accrued taxes ................................        2,645          --
                                                ------------ ------------
      Total ..................................      $55,466      $57,815
                                                ============ ============
</pre>



<p><strong>8. Segment Information</strong></p>

<p>The Company adopted SFAS No. 131, <i>"Disclosures about Segments of an Enterprise and
Related Information,"</i> in fiscal year 1999.  SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
geographic information and major customers.

<p>The Company has two general publishing groups:  Technology and Consumer /
Education.  The two segments share the same infrastructure and personnel, and are
not managed as separate operating divisions.  Management evaluates the performance
of these segments at the revenue and gross profit level; the Company's reporting
systems do not track or allocate operating expenses or fixed assets by segment.

<p>The Technology Group consists of brands targeted for computer users, from
beginning through advanced level users, including information technology
professionals and software developers. The Consumer / Education Group includes
brands targeted at the general consumer, including For Dummies &reg;,
CliffsNotes <sup><font size="1">TM</font size="1"></sup>,
and the recently acquired Reference Brands (Note 3). Net revenue by segment is as
follows (in thousands):

<pre>
                                                    Three Months Ended
                                                       December 31,
                                                -------------------------
                                                    1999         1999
                                                ------------ ------------
Revenue:

  Technology group .......................          $30,688      $28,884
  Consumer / Education group..............           27,121        8,421
                                                ------------ ------------
     Total ...............................          $57,809      $37,305
                                                ============ ============
</pre>



<p>The gross profit for the Technology Group and the Consumer / Education Group,
respectively, was $13.1 million and $11.3 million for the first three months of
fiscal year 2000; and $14.8 million and $4.2 million for the first three months of
fiscal year 1999.


<p><strong>Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations</strong></p>

<A NAME="overview"></A>
<p><strong>Overview</strong></p>

<p>IDG Books Worldwide, Inc. is a leading global knowledge company featuring a
diverse portfolio of technology, consumer, and general how-to book brands,
computer-based learning tools, Web sites and Internet e-services. The Company
publishes and markets under well-known brand names, including <i>For Dummies &reg;,
3-D Visual &reg;, Bible, CliffsNotes &nbsp; <sup><font size="1">TM</font size="1"></sup>,
Frommer's &reg; travel guides, Betty Crocker's &reg;, Weight Watchers &reg; and Webster's New World &nbsp; <sup><font size="1">TM</font size="1"></sup>.</i>
These books have created widespread
recognition of the Company's brands by consumers, enabling the Company to
successfully publish across a variety of categories in technology, business, and
general how-to. The Company's portfolio of brand names comprises more than 4,000
active titles. The Company has over 100 million English-language books in print
and has translated its books into 36 languages. The Company believes that its
readers value and trust its products and brands to help obtain computer
proficiency and professional certification, general business know-how, career
growth, and personal enrichment.

<p>Sales of technology-related books account for a majority of the Company's net
revenue. Sales of books devoted to the use of software products sold by Microsoft,
including its Windows operating system, accounted for approximately 20% of the
Company's net revenue for the three months ended December 31, 1999 and
approximately 40% for the three months ended December 31, 1998. The Company does
not expect the percentage of net revenue from the sale of books related to
Microsoft software products to continue to be as significant.

<p>The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs, and
computer/electronic superstores located primarily in the United States and Canada.
Over the last several years, there has been significant consolidation in the
distribution channels for books, including retail outlets, although alternative
distribution channels have emerged. As a result, the Company expects that this
trend will lead to increased concentration within each distribution channel.
During the three months ended December 31, 1999, the Company's top three customers
accounted for approximately 48% of the Company's net revenue as compared to 41% in
1998, and the Company's top ten customers accounted for approximately 68% of the
Company's net revenue in 1999 as compared to 65% in 1998.

<A NAME="results"></A>
<p><strong>Results of Operations</strong></p>

<p>The following table summarizes the results of operations as a percentage of net
revenue for the periods shown:

<pre>

                                              THREE MONTHS ENDED
                                                 DECEMBER 31,
                                            ---------------------
                                                 1999       1998
                                            ---------- ----------

<b>Condensed Consolidated Statement of
 Income Data:</b>
Net Revenue:
Technology group .........................       53.1%      77.4%
Consumer / Education group................       46.9%      22.6%
                                            ---------- ----------
Total Net Revenue ........................      100.0%     100.0%
                                            ========== ==========

Cost of sales ............................       57.8%      49.0%
Selling, general and administrative ......       26.9%      33.5%
Depreciation and amortization ............        2.3%       3.2%
                                            ---------- ----------
Operating income .........................       13.0%      14.3%
   Interest income (expense) - net .......       -2.9%       0.3%
                                            ---------- ----------
Income before provision for income taxes .       10.1%      14.6%
                                            ---------- ----------
Net income ...............................        5.9%       8.5%
                                            ========== ==========

Other Data:
EBITDA(1) ................................       15.3%      17.5%
                                            ========== ==========

</pre>

<p>________________


<p><sup>(1)</sup> "EBITDA" is defined as income before provision for income taxes, interest, depreciation and amortization. EBITDA is not intended
to represent cash flows from operations and should not be considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The Company believes EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties in the publishing and media industries, however, EBITDA, as
presented herein, may not be comparable to similarly titled measures reported by other companies. EBITDA for the three months ended
December 31, 1999 was $8.8 million compared to $6.5 million for the three months ended December 31, 1998.



<p><strong><i>Three Months Ended December 31, 1999 Compared to Three Months Ended December 31, 1998</strong></i>


<p>Net Revenue.  Net revenue increased $20.5 million, or 55.0%, to $57.8 million
for the three months ended December 31, 1999 from $37.3 million for the three
months ended December 31, 1998. This increase was primarily the result of an
increase in net revenues of $18.7 million for the Company's Consumer / Education
Group, which includes the
<i>For Dummies &reg;,
CliffsNotes <sup><font size="1">TM</font size="1"></sup></i>,
and acquired Reference
Brands. A substantial portion of the Consumer / Education Group growth between the
quarters resulted from the acquired Reference Brands which were not included in
the first fiscal quarter of 1999. The Technology Group contributed the remaining
$1.8 million increase in net revenues, an increase of 6.2% over the 1999 fiscal
first quarter. Of the Company's net revenue for the three months ended December
31, 1999, $7.7 million was attributable to sales of titles (including new
editions) first published during that period, as compared to $6.0 million for
titles (including new editions) first published during the same period for 1998.

<p>Cost of Sales.  Cost of sales increased $15.1 million, or 82.7%, to $33.4
million for the three months ended December 31, 1999 from $18.3 million for the
three months ended December 31, 1998.  Cost of sales as a percentage of net
revenue was 57.8% for 1999 and 49.0% for 1998. Product costs, including paper,
printing, and binding expenses, royalty expense and inventory obsolescence expense
increased as a percentage of net revenue to 32.7% for the three months ended
December 31, 1999 from 31.6% for the three months ended December 31, 1998 as a
result of a small change in product mix. Product development costs, which are
relatively fixed, increased as a percentage of net revenue to 13.1% for the three
months ended December 31, 1999 from 10.1% for the three months ended December 31,
1998, reflecting an increase in the development of new cross-branded titles.
Fulfillment and distribution expense increased as a percentage of net revenue to
12.1% for the three months ended December 31, 1999 from 7.4% for the three months
ended December 31, 1998 as a result of one-time costs incurred in the relocation
of product to the Company's new distribution facility.

<p>Selling, General, and Administrative Expenses.  Selling, general, and
administrative expenses increased $3.1 million, or 24.6%, to $15.6 million for the
three months ended December 31, 1999 from $12.5 million for the three months ended
December 31, 1998  Approximately 66.4% or $2.1 million of this increase was
attributable to increased selling and marketing expenses, including increases as a
result of the retail marketing incentive program and expenses for other marketing
programs where costs increase as net revenues increase. A significant portion of
the increase was also attributable to a $1.0 million increase in general and
administrative expenses. Selling, general and administrative expenses as a
percentage of net revenue decreased to 26.9% for the three months ended December
31, 1999 from 33.5% for the three months ended December 31, 1998, which can be
attributable to operating leverage and efficiencies achieved for the incremental
business associated with the acquired reference brands. The Company's sales and
marketing costs as a percentage of net revenue decreased to 16.4% for the three
months ended December 31, 1999 from 19.9% for the three months ended December 31,
1998, due to performance-based customer incentive programs which are driven by net
revenue results.

<p>Depreciation and Amortization. The increase of $0.1 million was due to a larger
depreciable asset base and the amortization of intangible assets.

<p>Operating Income. Operating income increased $2.2 million, or 40.9%, to $7.5
million for the three months ended December 31, 1999 from $5.3 million for the
three months ended December 31, 1998. Operating income decreased as a percentage
of net revenue to 13.0% for the three months ended December 31, 1999 from 14.3%
for the same period the prior year due to an increase in product development and
distribution expenses, as percentages of net revenue, as described above.

<p>Income Before Provision for Income Taxes. Income before provision for income
taxes increased $0.4 million, or 7.2%, to $5.8 million for the three months ended
December 31, 1999 from $5.4 million for the three months ended December 31, 1998.
Income before provision for income taxes decreased as a percentage of net revenue
to 10.1% for the three months ended December 31, 1999 from 14.6% for the three
months ended December 31, 1998 due to an increase in product development and
distribution expenses, as percentages of net revenue, as described above. In
addition, interest expense for 1999 on borrowings used to fund the acquisition of
the Reference Brands reduced income before provision for income taxes.

<p>Net Income.  Net income of $3.4 million for the three months ended December 31,
1999 increased $0.2 million, or 6.4%, from net income of $3.2 million for the
three months ended December 31, 1998.  This increase was primarily the result of
the increase in sales being substantially offset by the increase in product
development and distribution expenses, as percentages of net revenue, as described
above, and interest expense for 1999 on borrowings used to fund the acquisition of
the Reference Brands.

<A NAME="liquid"></A>
<p><strong>Financial Condition, Liquidity, and Capital Resources </strong></p>

<p>As of December 31, 1999, the Company's working capital increased $16.8 million
to $54.1 million from $37.3 million as of September 30, 1999. This increase in
working capital was the result of a decrease in cash of $1.3 million, an increase
in net accounts receivable of $18.6 million, a $5.4 million decrease in net
inventory, and a $1.7 million increase in other current assets and deferred tax
assets. Additionally, there was a $0.9 million decrease in accounts payable and a
$2.3 million decrease in accrued liabilities. These changes in working capital can
be attributed to the acquisition of the Reference Brands and Cliffs Notes, Inc. as
well as growth in the core Company business.

<p>The Company's net cash provided by investing activities for the three months
ended December 31, 1999 was $9.8 million. In December 1999 the Company sold the
J.K. Lasser and Chek-chart brands, which were acquired in August 1999 from Pearson
Education, Inc., for $12.3 million less transaction costs of $0.5 million. Capital
expenditures for the three months ended December 31, 1999 were $2.2 million
compared to $0.4 million for the three months ended December 31, 1998, which
include leasehold improvements and equipment for the Company's new Indianapolis
office.

<p>On July 30, 1999, the Company entered into a $110.0 million credit agreement
with a group of banks. On August 2, 1999, the Company borrowed $87.0 million under
the new agreement, including $83.0 million used to fund the acquisition of the
Reference Brands and $4.0 million for working capital needs. The Company's prior
$20.0 million working capital facility was terminated in conjunction with the
closing of the new credit agreement.

<p>The Company's net cash provided by financing activities was $2.3 million for
the three months ended December 31, 1999 as a result of borrowing on the Company's
credit agreement and issuances of common stock as a result of option exercises,
and $4.1 million for the three months ended December 31, 1998, which included $4.4
million from borrowing on the line of credit.

<p>The Company had $0.5 million in cash invested in short-term financial
instruments as of December 31, 1999. The Company believes that its remaining
borrowing capacity, together with any cash generated from operations and any funds
available under any future credit facilities, will be sufficient to meet the
liquidity requirements of the Company for the foreseeable future. The Company's
future capital requirements will depend on many factors, including, but not
limited to, the levels at which the Company maintains inventory, the market
acceptance of the Company's products, the levels of promotional activities and
advertising required to launch the Company's products, and any future
acquisitions. To the extent that the available cash, together with existing
resources and future earnings, are insufficient to fund the Company's future
activities, the Company may need to raise additional funds through public or
private financing. No assurance can be given that any such additional funding will
be available or that, if available, can be obtained on terms favorable to the
Company.


<A NAME="factors"></A>
<p><strong>Factors Affecting Future Operating Results</strong></p>

<p>Dependence on Microsoft Products and Competition with Microsoft Press.  Sales
of books devoted to the use of software products sold by Microsoft Corporation
("Microsoft"), including its Windows operating system, accounted for approximately
20% of the Company's net revenue in the three months ended December 31, 1999. As a
result, future financial results will depend in part on continued consumer demand
for Microsoft products. A decline in the use of Microsoft products would likely
result in decreased demand for the Company's books and could adversely affect
future financial results.

<p>In addition to relying on the sales of books devoted to Microsoft products, the
Company competes with Microsoft's publishing division, Microsoft Press, for
readers of computer-related books, including books covering Microsoft products.
Microsoft Press has substantially greater financial resources than the Company
and, because it is owned by Microsoft, may have better access to planned and new
Microsoft products. As a result, Microsoft Press may have a competitive advantage
over the Company in providing books devoted to the use of software products sold
by Microsoft.

<p>Dependence on <i>For Dummies &reg;</i> Publications.  The Company derives a material
portion of its net revenue from the sale of the  <i>For Dummies&reg;</i>  brand of books. In
addition, the Company has devoted substantial resources to the publication of
these books and the development of the <i>For Dummies&reg;</i> brand name. As a result, any
change in reader preferences leading to a decline in demand for the <i>For Dummies&reg;</i>
books would likely have a material adverse effect on future financial results.

<p>Risks of New Product Introductions.  Generally, as a particular book gets
older, the Company sells fewer copies of that book.  Consequently, the Company's
future success depends on its ability to identify trends in the technology,
business, and self-help markets and to offer new titles, as well as other products
and services, that address the changing needs of the target audiences. To
establish market acceptance of a new publication, the Company must dedicate
significant resources to research and editorial development, production, and sales
and marketing. The Company incurs significant costs in developing, publishing, and
selling a new book, which often significantly precede meaningful revenues from its
sale. Consequently, new publications can require significant time and investment
to achieve profitability. Investors should note, however, that there can be no
assurance that the Company's efforts to introduce new publications or other
products or services will be successful or profitable.

<p>The Company records as an expense the costs related to the development of new
publications and products, other than author advances, as products are introduced.
As a result, the Company's profitability from quarter to quarter and from year to
year may be adversely affected by the number and timing of new publications and
product launches in any period and the level of acceptance gained by such
publications and products.

<p>Risks Associated with Fluctuations in Paper Costs.  Paper is the principal raw
material used in the Company's business. The Company generally purchases paper
from merchants representing the paper mills. The Company does not have long-term
paper supply contracts with these paper merchants. The arrangements with merchants
are negotiated each year and provide for quarterly price adjustments. Paper prices
have been volatile over the past several years and are affected by many factors,
including demand, mill capacity, pulp supply, energy costs, and general economic
conditions. Consequently, the Company's cost of paper, relative to our net
revenue, can vary from period to period. In the past, paper has also been
difficult to obtain due to industry-wide shortages. Significant paper price
increases, sustained over a period of time, could adversely affect the Company's
future financial condition or operating results.

<p>Fluctuations in Quarterly Results and Cyclicality of Revenue.  The Company's
operating expenses, which include product development costs and selling, general,
and administrative expenses, are relatively fixed in the short term and are based
on our long term revenue expectations. If the Company sells fewer books or
otherwise has lower revenue than expected, the Company may not be able to quickly
reduce its spending.  Any shortfall in the Company's revenue would have a direct
impact on its results of operations, and fluctuations in quarterly results could
affect the market price of its common stock in a manner unrelated to the Company's
long-term operating performance. The Company typically sells more books during the
first and second quarters of its September fiscal year because of increased sales
during the Christmas season. In addition, the Company typically sells more books
in quarters in which software manufacturers release new or updated versions of
popular software products. Because a substantial portion of the Company's selling,
general, and administrative expenses are incurred evenly throughout the year, the
Company generally experiences relatively lower net profit during quarters not
impacted by increases in net revenue due to seasonal or other factors discussed
above.

<p>In addition, the Company typically publishes books relating to new trends and
technologies. Accordingly, if general economic conditions worsen, people may defer
spending on these new trends and technologies, which could reduce the number of
books sold.

<p>Risks Associated with Product Distribution Channels; Risk of Product Returns.
The Company sells its books primarily to large retail chains, large wholesalers,
warehouse clubs, office superstores, and computer and electronics superstores. For
the three months ended December 31, 1999 the Company's three largest customers,
Barnes & Noble, Inc., Borders, Inc., and Ingram Book Company accounted for
approximately 20%, 15%, and 13% of net revenue, respectively. The Company's future
financial results depend in large part on its relationships with its customers.
Any disruption in relationships with its customers could adversely affect
financial performance.

<p>The Company's sales policy generally permits book customers to return any
unsold or damaged books for full credit. The Company records as revenue all books
sold to its customers in a particular quarter and, at the same time, records a
provision for estimated returns. During the three months ended December 31, 1999,
the Company recorded a provision for returns of approximately 22% of its gross
sales. If, during any period, customers return more books than previously
estimated, the Company's financial results in that period would be adversely
affected.

<p>Competition.  The Company faces competition directly from other book publishers
and indirectly from non-print media.  Competition in book publishing stems mainly
from editorial quality, timely introduction of new titles, product positioning,
pricing, and brand name recognition. In addition to the Company, Pearson
Education, Inc., Microsoft Press, and McGraw-Hill all have a strong market
presence in the United States and internationally in technology publishing.  The
principal competitors for the Company's business and self-help titles include
Random House, Simon & Schuster, and HarperCollins.  Each of these competitors has
substantially greater financial resources than the Company.

<p>Non-print media, such as the Internet and CD-ROMs, may also present substantial
competition. If computer users increase their reliance on instruction and other
information disseminated on-line, the Company's business could be adversely
affected.

<p>Control by IDG (Parent); Potential Conflicts of Interests; Benefits to IDG.
The parent owns all of the shares of the Class B common stock, each share of which
is entitled to ten votes per share on most stockholder actions, and has
approximately 76% of the combined voting power of both classes of common stock as
of December 31, 1999. The remaining holders of the shares of Class A common stock
are entitled to one vote per share and have approximately 24% of the combined
voting power. The parent has two representatives on the Company's Board of
Directors and has enough votes to elect all members of the Board of Directors. As
a result of its stock ownership, the parent is in a position, without the approval
of the Company's public stockholders, to amend the Company's charter or approve a
merger, sale of assets, or other major corporate transaction; defeat any non-
negotiated takeover attempt that might otherwise benefit the public stockholders;
determine the amount and timing of dividends paid to itself and to the Company's
public stockholders; and otherwise control the Company's management and operations
and the outcome of all matters submitted for a stockholder vote that could
conflict with the interests of its public stockholders. In January 2000, the
parent announced its plans to purchase up to 500,000 shares of IDGB common stock
from time to time at prevailing market prices.

<p>Dependence on Key Personnel. The Company relies, and will continue to rely, on
its senior executive officers and other key management personnel. Recently, the
Company's President, Steven Berkowitz, and its Chief Financial Officer, James
Doehrman, resigned. In January 2000, the Company announced the appointment of
William Barry as President and Chief Operating Officer, effective March 1, 2000.
Mr. Barry is the former Senior Vice President, Corporate Development of Random
House, Inc. The Company is currently searching for a successor to the CFO. The
Company's Chief Executive Officer, John Kilcullen, and its Executive Vice
President of Operations, John Ball, will assume Mr. Doehrman's responsibilities on
an interim basis. The Company believes that its operations will not be
significantly impacted by this resignation. If any additional senior executives or
key management leave the Company, the relationships that these people have with
the Company's authors, customers, manufacturers, or investors could be lost, and
the Company would need to find people who could develop new relationships. In
addition, the Company expects that it will need to hire additional employees,
including key management positions for Internet business development. The
competition for employees at all levels of the book publishing and Internet
industries is intense and is increasing. In our Northern California operations, in
particular, the Company has experienced increased turnover of employees and is
experiencing difficulty in attracting new employees. If the Company does not
succeed in attracting new employees or retaining and motivating current employees,
the Company's business could suffer significantly.

<p>Transition to New Distribution Service. The Company historically outsourced
distribution and fulfillment functions to retail and wholesale customers through
two vendors. During the first fiscal quarter of 2000, the Company began the
transition of these services to a new single source facility in Virginia. The
outsourced functions accounted for approximately 13% of our distribution and order
fulfillment costs in the three months ended December 31, 1999 compared to 60% for
the same period of 1998. In addition, the Company has continued to transition the
distribution and fulfillment operations of the acquired Reference Brands to its
new facility, a process which was begun in January 2000. Any difficulties in this
continuing transition to the new distribution vendor could adversely impact day-
to-day operating performance and future financial results.

<p>Risks Associated with Acquisitions. As part of the Company's growth strategy,
it may buy or make significant investments in, complementary companies,
publications or products. The Company has completed the acquisition of Cliffs
Notes, Inc. and recently completed the acquisition of the Reference Brands. These
acquisitions, as well as any future acquisition, will be accompanied by the risks
commonly encountered in making acquisitions of products, companies, and
technologies.

<p>For example, it could have difficulty assimilating the personnel and operations
of the acquired company.  This could cause a disruption of its ongoing business,
distraction of management and other resources, and difficulty in maintaining
uniform standards, controls, and procedures. There can be no assurance that the
Company would succeed in overcoming these risks or any other problems encountered
in connection with any acquisitions it may make. In addition, the Company may be
required to incur additional debt or issue equity to pay for any future
acquisitions


<A NAME="Y2K"></A>
<p><strong>Year 2000 Compliance</strong></p>

<p>Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in 2000, these
date code fields will need to accept four-digit entries in order to distinguish
21st century dates from 20th century dates.  As a result, the computer systems
and/or software used by many companies will need to be upgraded to comply with
"Year 2000" requirements by the end of 1999.  Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance issues.

<p>The Company has completed the review of its computer systems to determine the
extent and impact of Year 2000 issues. The Company uses a number of computer
software programs and operating systems, including applications for its internal
electronic communications network and for various administrative and billing
functions.  Many of the Company's systems are new and were designed to accommodate
the Year 2000 issue when originally installed.  The Company has completed testing
of its systems for compliance, and believes it has implemented the necessary
changes.  The Company believes it has completed corrective measures to its
mission-critical systems.  The Company has assessed the scope of its risks related
to problems its computer systems may have related to the Year 2000 issue and
believes such risks are not material.  This conclusion is partly based on
statements provided by the manufacturers of hardware and software used by the
Company.  The Company is not in a position to confirm or deny the claims of the
manufacturers' products in use.  The estimated costs to modify or replace these
applications were included in the Company's cost for its new computer systems and
infrastructure upgrades, and accordingly, are not considered to be incremental
costs.  The Company currently does not have a contingency plan in the event that
the remedial efforts it has completed fail to make its systems Year 2000
compliant. There can be no assurances that the Company will not experience adverse
consequences as a result of the Year 2000 issue.

<p>The Company is continuing to communicate with its customers, suppliers, and
business partners in an effort to assess how they intend to resolve their Year
2000 issues.  The Company, at this time, is not able to form an opinion as to
whether its customers or suppliers will be able to resolve their Year 2000 issues
in a satisfactory and timely manner, or on the magnitude of the adverse impact it
would have on the Company's operations if they fail to do so.  No assurance can be
given that all of these third party systems will be Year 2000 compliant.  Any
failure of the Company's customers, suppliers, or business partners to
satisfactorily address their Year 2000 problems could have a material adverse
effect on the Company's business, financial condition, and results of operations.



<A NAME="market"></A>
<p><strong>Financial Market Risks</strong></p>

<p>For the three months ended December 31, 1999, there were no material changes in
the Company's exposure to financial market risks, including changes in interest
rates and foreign currency exchange rates.



<A NAME="forward"></A>
<p><strong>Forward-Looking Statements</strong></p>

<p>In addition to historical information, this Quarterly Report contains forward-
looking statements. The forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from those
reflected in such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
opinion only as of the date hereof. The Company undertakes no obligation to revise
or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the
Company's Registration Statement on Form S-1 (file no. 333-53433) filed in
connection with the Company's initial public offering, and Form 10-K as of and for
the year ended September 30, 1999.




<p align="center"><strong>
PART II -- Other Information
</strong></p>





<p><strong>Item 6. Exhibits and Reports on Form 8-K</strong></p>

<p>(a) Exhibits


<P>&nbsp;
<TABLE COLS=2 WIDTH="90%" >
  <TR vAlign=bottom>
<TD>
<font size="3"><strong>
<CENTER><u>Exhibit Number</u></CENTER>
</font></strong>
</TD>
<TD>
<font size="3"><strong>
<CENTER><u> Exhibit Description</u></CENTER>
</font></strong>
</TD>
</TR>



  <TR vAlign=top>
<TD>
<font size="3">
<CENTER>&nbsp; 27</CENTER>
</font>
</TD>
<TD>
<font size="3">
Financial Data Schedule
</font>
</TD>
</TR>

</TABLE>



<p>(b) Reports on Form 8-K
<p>A Form 8-K/A filed October 18, 1999 contained the required financial
statements for the August 2, 1999 acquisition of all of the
outstanding stock of Macmillan General Reference USA Inc.


<p><strong> Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.</strong></p>


<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
<A NAME="sign"></A>
<p align="center"><strong>

                               IDG BOOKS WORLDWIDE, INC.
<br>
<br>
                                   SIGNATURES
</strong></p>


<p>Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="62%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left>
                                          IDG BOOKS WORLDWIDE, INC.
</TD></TR></TABLE>

<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="62%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left>
<I>(Registrant)</I>
</TD></TR></TABLE>



<p>Dated: February 8, 2000


<P>
<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="2%"></TD>
    <TD width="60%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align=left>
                /s/ JOHN J. KILCULLEN
</TD></TR></TABLE>


<TABLE border=0 cellPadding=0 cellSpacing=0 width="100%">
  <TR>
    <TD width="38%"></TD>
    <TD width="62%"></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left>
      <HR align=left SIZE=1>
    </TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left>
        John J. Kilcullen
</TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left><I>
         Chairman and Chief Executive Officer
</I></TD></TR>
  <TR vAlign=top>
    <TD>&nbsp;</TD>
    <TD align=left><I>
(Principal Executive Officer and Duly Authorized Officer)
  </I></TD></TR></TABLE></P>

<br>
<br>
<br>
<HR WIDTH="85%">
<br>
<br>
<br>
[{"type": "10-Q", "sequence": "1", "description": "FORM 10-Q FOR PERIOD ENDED DECEMBER 25, 1999", "secsgml_size_bytes": 63447}]
{"company-data": {"conformed-name": "IDG BOOKS WORLDWIDE INC", "cik": "0001061763", "assigned-sic": "2731", "irs-number": "043078409", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-24617", "film-number": "527635"}, "business-address": {"street1": "919 EAST HILLSDALE BLVD", "street2": "SUITE 400", "city": "FOSTER CITY", "state": "CA", "zip": "94404", "phone": "6506537000"}, "mail-address": {"street1": "919 EAST HILLSDALE BLVD", "street2": "SUITE 400", "city": "FOSTER CITY", "state": "CA", "zip": "94404"}}
10Q doc
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
for the period ended December 25, 1999
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-24617
IDG BOOKS WORLDWIDE, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
04-3078409
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification Number)
919 East Hillsdale Blvd.
Suite 400, Foster City, CA    94404
(Address of Principal Executive Offices including Zip Code)
(650) 653-7000
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
 since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.   YES [  ]    NO [X]
The number of shares outstanding of the issuer's Common Stock as of January 31,
2000 was 14,634,097.

This quarterly report on Form 10-Q contains a total of 16 pages, of which this
page is page 1.
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets as of
            December 31, 1999 (unaudited) and September 30, 1999
Condensed Consolidated Statements of Operations for the three months
             December 31, 1999 and December 31, 1998 (unaudited)
Condensed Consolidated Statements of Cash Flows for the
             three months ended December 31, 1999 and December 31, 1998 (unaudited)
Notes to Unaudited Condensed Consolidated Financial
         Statements
Item 2.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations
Overview
Results of Operations
Financial Condition, Liquidity and Capital Resources
Factors Affecting Future Operating Results
Year 2000 Compliance
Financial Market Risks
Forward-Looking Statements
PART II. Other Information
Item 6:  Exhibits and Reports on Form 8-K
Signatures
PART I -- FINANCIAL INFORMATION
Item 1.  Financial Statements
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
                                                    December 31,  September 30,
                                                         1999          1999
                                                    ------------- -------------
Current Assets:                                       (unaudited)
     Cash and equivalents...................                $736        $2,084
     Accounts receivable - net..............              64,846        46,294
     Inventory - net........................              25,622        31,024
     Other current assets...................               4,864         4,092
     Deferred tax assets....................              22,274        21,334
                                                    ------------- -------------
             Total current assets...........             118,342       104,828
Royalty advances - net......................              10,821        12,110
Property and equipment - net................               7,642         6,032
Intangible assets - net ....................              79,671        90,221
Other assets ...............................               3,017         3,280
                                                    ------------- -------------
             TOTAL..........................            $219,493      $216,471
                                                    ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
     Accounts payable.......................              $8,775        $9,666
     Accrued liabilities....................              55,466        57,815
                                                    ------------- -------------
             Total current liabilities......              64,241        67,481

Long-term debt..............................              83,000        82,000
Deferred tax liability (note 1).............               4,919         4,950
                                                    ------------- -------------
             Total liabilities..............             152,160       154,431

Minority interest...........................                  96            95

Commitments and contingencies

Stockholders' Equity:
     Preferred stock, $.001 par value;
        authorized: 5,000,000 shares;
        issued and outstanding: 0 shares....                --            --
     Common stock, $.001 par value;
        authorized:  25,000,000 Class A
        shares and 400,000 Class B shares;
        issued and outstanding:
        FY 2000 - 14,434,097 Class A and
          200,000 Class B...................                  15
        FY 1999 - 14,278,825 Class A and
          200,000 Class B...................                                14
     Additional paid-in-capital.............              48,547        46,637
     Retained earnings......................              18,667        15,284
     Accumulated other comprehensive
      income................................                   8            10
                                                    ------------- -------------
             Total stockholders' equity.....              67,237        61,945
                                                    ------------- -------------
             TOTAL..........................            $219,493      $216,471
                                                    ============= =============
See notes to consolidated financial statements
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share amounts)
THREE MONTHS ENDED
                                                 DECEMBER 31,
                                            ---------------------
                                                 1999       1998
                                            ---------- ----------
                                            (UNAUDITED)(UNAUDITED)

Revenue:
   Net sales ..............................   $53,773    $36,094
   Licensing revenues and other ...........     4,036      1,211
                                            ---------- ----------
      Net revenue .........................    57,809     37,305
                                            ---------- ----------
Operating costs and epenses:
   Cost of sales ..........................    33,420     18,297
   Selling, general and administrative ....    15,553     12,483
   Depreciation and amortization ..........     1,314      1,186
                                            ---------- ----------
      Total operating costs and expenses ..    50,287     31,966
                                            ---------- ----------
Operating income ..........................     7,522      5,339
   Interest income (expense) - net ........    (1,689)       104
                                            ---------- ----------
Income before provision for income taxes ..     5,833      5,443
   Provision for income taxes .............     2,450      2,263
                                            ---------- ----------
Net income ................................    $3,383     $3,180
                                            ========== ==========

Net income per share:
   Basic ..................................     $0.23      $0.22
                                            ========== ==========
   Diluted ................................     $0.23      $0.22
                                            ========== ==========
Shares used in per share calculations:
  Basic net income ........................    14,512     14,302
                                            ========== ==========
  Diluted net income ......................    14,841     14,409
                                            ========== ==========
See notes to consolidated financial statements
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share amounts)
THREE MONTHS ENDED
                                                              DECEMBER 31,
                                                    ----------------------------
                                                         1999           1998
                                                    -------------  -------------
Cash Flows from Operating Activities:
  Net Income ......................................       $3,383         $3,180
  Adjustments to reconcile net income to net cash
    provided (used) by operating activities:
      Depreciation and amortization ...............        1,314          1,186
      Deferred income taxes........................         (940)          (835)
      Changes in operating assets and liabilities
        (net of effects of dispositions):
        Accounts receivable .......................      (18,535)        (7,115)
        Inventory .................................        5,402          1,052
        Royalty advances ..........................         (795)          (127)
        Other current assets ......................         (636)         1,414
        Accounts payable ..........................         (891)        (2,515)
        Accrued liabilities .......................       (1,765)         4,835
                                                    -------------  -------------
           Net cash provided (used) by operating
            activities ............................      (13,463)         1,075
                                                    -------------  -------------
Cash Flows from Investing Activities:
  Capital expenditures ............................       (2,168)          (360)
  Divestitures ....................................       11,819           --
  Acquisitions ....................................         --          (17,118)
  Other investments ...............................          120         (1,760)
                                                    -------------  -------------
           Net cash provided (used) by investing
            activities ............................        9,771        (19,238)
                                                    -------------  -------------
Cash Flows from Financing Activities:
  Advances on the credit facility .................        1,000          4,438
  Proceeds from Exercises of stock options ........        1,344           --
  Payment of Cliffs Notes, Inc. line of credit ....         --             (342)
                                                    -------------  -------------
           Net cash provided by financing
            activities ............................        2,344          4,096
                                                    -------------  -------------
Net Decrease in Cash ..............................       (1,348)       (14,067)
Cash and equivalents, Beginning of Period .........        2,084         15,466
                                                    -------------  -------------
Cash and equivalents, End of Period ...............         $736         $1,399
                                                    =============  =============

Noncash Investing Activity:
  Acquisitions (Note 3):
    Tangible assets ...............................      $  --           $5,217
    Intangible assets .............................         --           16,149
    Less: cash paid ...............................         --          (17,118)
                                                    -------------  -------------
    Liabilities assumed ...........................      $  --           $4,248
                                                    =============  =============

Noncash Financing Activity:
  Issuance of Class A common stock under the
   ESOP plan ......................................         $566         $1,513
                                                    =============  =============
See notes to consolidated financial statements
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998 AND
AS OF DECEMBER 31, 1999 AND SEPTEMBER 30, 1999
1. Basis of  Presentation
The accompanying interim consolidated financial statements for the three months
ended December 31, 1999 and 1998, and as of December 31, 1999 are unaudited, but
have been prepared in accordance with generally accepted accounting principles for
interim consolidated financial statements. Certain information or footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted in
accordance with guidance for interim financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included.  The results of
operations of any interim period are not necessarily indicative of the results of
the operations for the full year.  These consolidated financial statements should
be read in conjunction with the audited, consolidated financial statements as of
and for the year ended September 30, 1999, and the related notes thereto, included
in the Company's Form 10-K filed with the SEC.
Organization and Description of Business -- IDG Books Worldwide, Inc. (the
"Company"), a Massachusetts company, was founded in 1990 as a wholly-owned
subsidiary (through intermediate companies) of International Data Group, Inc. (the
"Parent"). On March 24, 1998, the Company was reincorporated in Delaware. On July
31, 1998, the Company consummated its initial public offering (the "Offering") of
3,180,000 shares of Class A common stock at an offering price of $15.50 per share
pursuant to a Registration Statement declared effective by the SEC on July 27,
1998. After deducting expenses, the net proceeds to the Company from the Offering
were $44,032,000. The Company used $38,400,000 of the net proceeds of the Offering
to repay indebtedness owed to the Parent.
The Company is a leading global knowledge company featuring a diverse portfolio of
technology, consumer, and general how-to book brands, computer-based learning
tools, Web sites and Internet e-services. The Company publishes and markets under
well-known brand names, including
For Dummies ®, 3-D Visual ®, Bible, CliffsNotes
TM
,
Frommer's ®, Betty Crocker's ®, Weight Watchers ® and Webster's New World
TM
.
Principles of Consolidation -- The consolidated financial statements include the
accounts of IDG Books Worldwide, Inc. and its majority controlled subsidiaries
(collectively referred to as the Company). All significant intercompany accounts
and transactions have been eliminated.
Reclassifications -- Certain amounts in prior years' financial statements and
related notes have been reclassified to conform to the fiscal year 2000
presentation. The accompanying consolidated balance sheet as of December 31, 1999
reports a deferred tax liability of $5.0 million with a corresponding addition to
goodwill to reflect the book/tax difference related to the carrying value of
Cliff's Notes intangible assets. The accompanying consolidated balance sheet as of
September 30, 1999 has been reclassified to conform to this presentation.
2. Significant Accounting Policies
Fiscal Year -- The Company's fiscal year ends on the last Saturday of each
September. Fiscal year 1999, ended on September 25, 1999, and consisted of 52
weeks. For convenience, fiscal year-ends are denoted in the accompanying
consolidated financial statements as September 30. Similarly, the thirteen-week
periods ended December 25, 1999 and December 26, 1998 are referred to as the
three-months ended December 31, 1999 and 1998, respectively.
Intangible Assets -- Intangible assets represent trademarked brand names,
goodwill, publishing rights and other intangible assets. Amortization is provided
on a straight-line method over the estimated useful lives of these assets not
exceeding forty years.
Net Income Per Share -- Basic net income per share excludes dilution and is
computed using the weighted average number of common shares outstanding for the
period. Diluted net income per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock (stock options) were
exercised or converted into common stock. For the quarters ended December 31, 1999
and 1998, respectively, approximately 329,000 and 107,000 shares, reflecting the
dilutive effects of outstanding stock options, were included in computing diluted
net income per share.
Comprehensive Income - Comprehensive income for the three months ended December
31, 1999 was $3,381,000 and $3,180,000 for the three months ended December 31, 1998.
3. Acquisitions and Divestitures
In August 1999, the Company acquired a portfolio of book and online brands from
the Macmillan General Reference Group (the Reference Brands) of Pearson Education
for $83.0 million, plus $0.5 million in transaction costs. The acquisition was
accounted for as a purchase business combination and, accordingly, the acquisition
cost has been allocated to the fair value of the assets acquired and liabilities
assumed. Assumed liabilities include $2.0 million for the costs of a restructuring
plan involving various settlements and contract terminations ($1.2 million) and
estimated severance and relocation of personnel ($0.8 million). As of December 31,
1999, $0.7 million of costs had been incurred relating to severance.
The purchase price allocation is preliminary and subject to revision upon receipt
of final information concerning valuation of intangible assets, working capital
received at closing, and the actual costs of the restructuring plan.
In November and December 1999, the Company sold the J.K. LasserTM and Chek-chart
brands, respectively, which were purchased in the above-mentioned acquisition, to
unaffiliated companies. The $12.3 million received has been reported as a
reduction to branded trademarks in the current quarter of fiscal 2000, with no
gain or loss resulting from the sale. Transaction costs of $0.5 million resulted
in net proceeds of $11.8 million.
4. Accounts Receivable
Accounts receivable consisted of the following (in thousands):
December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Accounts receivable .....................        $102,520      $83,300
Allowance for doubtful accounts .........          (4,847)      (5,010)
Allowance for sales returns .............         (32,827)     (31,996)
                                              ------------ ------------
    Total ...............................         $64,846      $46,294
                                              ============ ============
5. Inventories
Inventories consisted of the following (in thousands):
December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Books (finished goods) ..................         $35,830      $40,167
Paper ...................................           4,870        5,364
                                              ------------ ------------
    Total Inventory......................          40,700       45,531
Reserve for obsolescence ................         (15,078)     (14,507)
                                              ------------ ------------
    Net Inventory .......................         $25,622      $31,024
                                              ============ ============
6. Intangible Assets
Intangible assets consisted of the following (in thousands):
December 31, September 30,
                                                  1999         1999
                                              ------------ ------------
                                              (unaudited)

Branded trademarks.......................         $57,749      $70,000
Goodwill ................................          18,530       16,149
Publishing rights .......................           5,000        5,000
Other intangible assets .................             700          700
                                              ------------ ------------
    Total gross intangible assets .......          81,979       91,849
Less: accumulated amortization ...........         (2,308)      (1,628)
                                              ------------ ------------
    Net intangible assets ...............         $79,671      $90,221
                                              ============ ============
7. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
December 31, September 30,
                                                    1999         1999
                                                ------------ ------------
                                                (unaudited)

Accrued royalties ............................      $16,094      $16,276
Accrued promotions ...........................       15,233       14,068
Accrued compensation and benefits ............        7,109        8,689
Accrued inventory and fulfillment ............        6,644        8,086
Other accrued liabilities ....................        5,981        8,259
Accrued acquistion restructuring costs .......        1,760        2,437
Accrued taxes ................................        2,645          --
                                                ------------ ------------
      Total ..................................      $55,466      $57,815
                                                ============ ============
8. Segment Information
The Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and
Related Information,"
in fiscal year 1999.  SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
geographic information and major customers.
The Company has two general publishing groups:  Technology and Consumer /
Education.  The two segments share the same infrastructure and personnel, and are
not managed as separate operating divisions.  Management evaluates the performance
of these segments at the revenue and gross profit level; the Company's reporting
systems do not track or allocate operating expenses or fixed assets by segment.
The Technology Group consists of brands targeted for computer users, from
beginning through advanced level users, including information technology
professionals and software developers. The Consumer / Education Group includes
brands targeted at the general consumer, including For Dummies ®,
CliffsNotes
TM
,
and the recently acquired Reference Brands (Note 3). Net revenue by segment is as
follows (in thousands):
Three Months Ended
                                                       December 31,
                                                -------------------------
                                                    1999         1999
                                                ------------ ------------
Revenue:

  Technology group .......................          $30,688      $28,884
  Consumer / Education group..............           27,121        8,421
                                                ------------ ------------
     Total ...............................          $57,809      $37,305
                                                ============ ============
The gross profit for the Technology Group and the Consumer / Education Group,
respectively, was $13.1 million and $11.3 million for the first three months of
fiscal year 2000; and $14.8 million and $4.2 million for the first three months of
fiscal year 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
IDG Books Worldwide, Inc. is a leading global knowledge company featuring a
diverse portfolio of technology, consumer, and general how-to book brands,
computer-based learning tools, Web sites and Internet e-services. The Company
publishes and markets under well-known brand names, including
For Dummies ®,
3-D Visual ®, Bible, CliffsNotes
TM
,
Frommer's ® travel guides, Betty Crocker's ®, Weight Watchers ® and Webster's New World
TM
.
These books have created widespread
recognition of the Company's brands by consumers, enabling the Company to
successfully publish across a variety of categories in technology, business, and
general how-to. The Company's portfolio of brand names comprises more than 4,000
active titles. The Company has over 100 million English-language books in print
and has translated its books into 36 languages. The Company believes that its
readers value and trust its products and brands to help obtain computer
proficiency and professional certification, general business know-how, career
growth, and personal enrichment.
Sales of technology-related books account for a majority of the Company's net
revenue. Sales of books devoted to the use of software products sold by Microsoft,
including its Windows operating system, accounted for approximately 20% of the
Company's net revenue for the three months ended December 31, 1999 and
approximately 40% for the three months ended December 31, 1998. The Company does
not expect the percentage of net revenue from the sale of books related to
Microsoft software products to continue to be as significant.
The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs, and
computer/electronic superstores located primarily in the United States and Canada.
Over the last several years, there has been significant consolidation in the
distribution channels for books, including retail outlets, although alternative
distribution channels have emerged. As a result, the Company expects that this
trend will lead to increased concentration within each distribution channel.
During the three months ended December 31, 1999, the Company's top three customers
accounted for approximately 48% of the Company's net revenue as compared to 41% in
1998, and the Company's top ten customers accounted for approximately 68% of the
Company's net revenue in 1999 as compared to 65% in 1998.
Results of Operations
The following table summarizes the results of operations as a percentage of net
revenue for the periods shown:
THREE MONTHS ENDED
                                                 DECEMBER 31,
                                            ---------------------
                                                 1999       1998
                                            ---------- ----------
Condensed Consolidated Statement of
 Income Data:
Net Revenue:
Technology group .........................       53.1%      77.4%
Consumer / Education group................       46.9%      22.6%
                                            ---------- ----------
Total Net Revenue ........................      100.0%     100.0%
                                            ========== ==========

Cost of sales ............................       57.8%      49.0%
Selling, general and administrative ......       26.9%      33.5%
Depreciation and amortization ............        2.3%       3.2%
                                            ---------- ----------
Operating income .........................       13.0%      14.3%
   Interest income (expense) - net .......       -2.9%       0.3%
                                            ---------- ----------
Income before provision for income taxes .       10.1%      14.6%
                                            ---------- ----------
Net income ...............................        5.9%       8.5%
                                            ========== ==========

Other Data:
EBITDA(1) ................................       15.3%      17.5%
                                            ========== ==========
________________
(1)
"EBITDA" is defined as income before provision for income taxes, interest, depreciation and amortization. EBITDA is not intended
to represent cash flows from operations and should not be considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The Company believes EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties in the publishing and media industries, however, EBITDA, as
presented herein, may not be comparable to similarly titled measures reported by other companies. EBITDA for the three months ended
December 31, 1999 was $8.8 million compared to $6.5 million for the three months ended December 31, 1998.
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31, 1998
Net Revenue.  Net revenue increased $20.5 million, or 55.0%, to $57.8 million
for the three months ended December 31, 1999 from $37.3 million for the three
months ended December 31, 1998. This increase was primarily the result of an
increase in net revenues of $18.7 million for the Company's Consumer / Education
Group, which includes the
For Dummies ®,
CliffsNotes
TM
,
and acquired Reference
Brands. A substantial portion of the Consumer / Education Group growth between the
quarters resulted from the acquired Reference Brands which were not included in
the first fiscal quarter of 1999. The Technology Group contributed the remaining
$1.8 million increase in net revenues, an increase of 6.2% over the 1999 fiscal
first quarter. Of the Company's net revenue for the three months ended December
31, 1999, $7.7 million was attributable to sales of titles (including new
editions) first published during that period, as compared to $6.0 million for
titles (including new editions) first published during the same period for 1998.
Cost of Sales.  Cost of sales increased $15.1 million, or 82.7%, to $33.4
million for the three months ended December 31, 1999 from $18.3 million for the
three months ended December 31, 1998.  Cost of sales as a percentage of net
revenue was 57.8% for 1999 and 49.0% for 1998. Product costs, including paper,
printing, and binding expenses, royalty expense and inventory obsolescence expense
increased as a percentage of net revenue to 32.7% for the three months ended
December 31, 1999 from 31.6% for the three months ended December 31, 1998 as a
result of a small change in product mix. Product development costs, which are
relatively fixed, increased as a percentage of net revenue to 13.1% for the three
months ended December 31, 1999 from 10.1% for the three months ended December 31,
1998, reflecting an increase in the development of new cross-branded titles.
Fulfillment and distribution expense increased as a percentage of net revenue to
12.1% for the three months ended December 31, 1999 from 7.4% for the three months
ended December 31, 1998 as a result of one-time costs incurred in the relocation
of product to the Company's new distribution facility.
Selling, General, and Administrative Expenses.  Selling, general, and
administrative expenses increased $3.1 million, or 24.6%, to $15.6 million for the
three months ended December 31, 1999 from $12.5 million for the three months ended
December 31, 1998  Approximately 66.4% or $2.1 million of this increase was
attributable to increased selling and marketing expenses, including increases as a
result of the retail marketing incentive program and expenses for other marketing
programs where costs increase as net revenues increase. A significant portion of
the increase was also attributable to a $1.0 million increase in general and
administrative expenses. Selling, general and administrative expenses as a
percentage of net revenue decreased to 26.9% for the three months ended December
31, 1999 from 33.5% for the three months ended December 31, 1998, which can be
attributable to operating leverage and efficiencies achieved for the incremental
business associated with the acquired reference brands. The Company's sales and
marketing costs as a percentage of net revenue decreased to 16.4% for the three
months ended December 31, 1999 from 19.9% for the three months ended December 31,
1998, due to performance-based customer incentive programs which are driven by net
revenue results.
Depreciation and Amortization. The increase of $0.1 million was due to a larger
depreciable asset base and the amortization of intangible assets.
Operating Income. Operating income increased $2.2 million, or 40.9%, to $7.5
million for the three months ended December 31, 1999 from $5.3 million for the
three months ended December 31, 1998. Operating income decreased as a percentage
of net revenue to 13.0% for the three months ended December 31, 1999 from 14.3%
for the same period the prior year due to an increase in product development and
distribution expenses, as percentages of net revenue, as described above.
Income Before Provision for Income Taxes. Income before provision for income
taxes increased $0.4 million, or 7.2%, to $5.8 million for the three months ended
December 31, 1999 from $5.4 million for the three months ended December 31, 1998.
Income before provision for income taxes decreased as a percentage of net revenue
to 10.1% for the three months ended December 31, 1999 from 14.6% for the three
months ended December 31, 1998 due to an increase in product development and
distribution expenses, as percentages of net revenue, as described above. In
addition, interest expense for 1999 on borrowings used to fund the acquisition of
the Reference Brands reduced income before provision for income taxes.
Net Income.  Net income of $3.4 million for the three months ended December 31,
1999 increased $0.2 million, or 6.4%, from net income of $3.2 million for the
three months ended December 31, 1998.  This increase was primarily the result of
the increase in sales being substantially offset by the increase in product
development and distribution expenses, as percentages of net revenue, as described
above, and interest expense for 1999 on borrowings used to fund the acquisition of
the Reference Brands.
Financial Condition, Liquidity, and Capital Resources
As of December 31, 1999, the Company's working capital increased $16.8 million
to $54.1 million from $37.3 million as of September 30, 1999. This increase in
working capital was the result of a decrease in cash of $1.3 million, an increase
in net accounts receivable of $18.6 million, a $5.4 million decrease in net
inventory, and a $1.7 million increase in other current assets and deferred tax
assets. Additionally, there was a $0.9 million decrease in accounts payable and a
$2.3 million decrease in accrued liabilities. These changes in working capital can
be attributed to the acquisition of the Reference Brands and Cliffs Notes, Inc. as
well as growth in the core Company business.
The Company's net cash provided by investing activities for the three months
ended December 31, 1999 was $9.8 million. In December 1999 the Company sold the
J.K. Lasser and Chek-chart brands, which were acquired in August 1999 from Pearson
Education, Inc., for $12.3 million less transaction costs of $0.5 million. Capital
expenditures for the three months ended December 31, 1999 were $2.2 million
compared to $0.4 million for the three months ended December 31, 1998, which
include leasehold improvements and equipment for the Company's new Indianapolis
office.
On July 30, 1999, the Company entered into a $110.0 million credit agreement
with a group of banks. On August 2, 1999, the Company borrowed $87.0 million under
the new agreement, including $83.0 million used to fund the acquisition of the
Reference Brands and $4.0 million for working capital needs. The Company's prior
$20.0 million working capital facility was terminated in conjunction with the
closing of the new credit agreement.
The Company's net cash provided by financing activities was $2.3 million for
the three months ended December 31, 1999 as a result of borrowing on the Company's
credit agreement and issuances of common stock as a result of option exercises,
and $4.1 million for the three months ended December 31, 1998, which included $4.4
million from borrowing on the line of credit.
The Company had $0.5 million in cash invested in short-term financial
instruments as of December 31, 1999. The Company believes that its remaining
borrowing capacity, together with any cash generated from operations and any funds
available under any future credit facilities, will be sufficient to meet the
liquidity requirements of the Company for the foreseeable future. The Company's
future capital requirements will depend on many factors, including, but not
limited to, the levels at which the Company maintains inventory, the market
acceptance of the Company's products, the levels of promotional activities and
advertising required to launch the Company's products, and any future
acquisitions. To the extent that the available cash, together with existing
resources and future earnings, are insufficient to fund the Company's future
activities, the Company may need to raise additional funds through public or
private financing. No assurance can be given that any such additional funding will
be available or that, if available, can be obtained on terms favorable to the
Company.
Factors Affecting Future Operating Results
Dependence on Microsoft Products and Competition with Microsoft Press.  Sales
of books devoted to the use of software products sold by Microsoft Corporation
("Microsoft"), including its Windows operating system, accounted for approximately
20% of the Company's net revenue in the three months ended December 31, 1999. As a
result, future financial results will depend in part on continued consumer demand
for Microsoft products. A decline in the use of Microsoft products would likely
result in decreased demand for the Company's books and could adversely affect
future financial results.
In addition to relying on the sales of books devoted to Microsoft products, the
Company competes with Microsoft's publishing division, Microsoft Press, for
readers of computer-related books, including books covering Microsoft products.
Microsoft Press has substantially greater financial resources than the Company
and, because it is owned by Microsoft, may have better access to planned and new
Microsoft products. As a result, Microsoft Press may have a competitive advantage
over the Company in providing books devoted to the use of software products sold
by Microsoft.
Dependence on
For Dummies ®
Publications.  The Company derives a material
portion of its net revenue from the sale of the
For Dummies®
brand of books. In
addition, the Company has devoted substantial resources to the publication of
these books and the development of the
For Dummies®
brand name. As a result, any
change in reader preferences leading to a decline in demand for the
For Dummies®
books would likely have a material adverse effect on future financial results.
Risks of New Product Introductions.  Generally, as a particular book gets
older, the Company sells fewer copies of that book.  Consequently, the Company's
future success depends on its ability to identify trends in the technology,
business, and self-help markets and to offer new titles, as well as other products
and services, that address the changing needs of the target audiences. To
establish market acceptance of a new publication, the Company must dedicate
significant resources to research and editorial development, production, and sales
and marketing. The Company incurs significant costs in developing, publishing, and
selling a new book, which often significantly precede meaningful revenues from its
sale. Consequently, new publications can require significant time and investment
to achieve profitability. Investors should note, however, that there can be no
assurance that the Company's efforts to introduce new publications or other
products or services will be successful or profitable.
The Company records as an expense the costs related to the development of new
publications and products, other than author advances, as products are introduced.
As a result, the Company's profitability from quarter to quarter and from year to
year may be adversely affected by the number and timing of new publications and
product launches in any period and the level of acceptance gained by such
publications and products.
Risks Associated with Fluctuations in Paper Costs.  Paper is the principal raw
material used in the Company's business. The Company generally purchases paper
from merchants representing the paper mills. The Company does not have long-term
paper supply contracts with these paper merchants. The arrangements with merchants
are negotiated each year and provide for quarterly price adjustments. Paper prices
have been volatile over the past several years and are affected by many factors,
including demand, mill capacity, pulp supply, energy costs, and general economic
conditions. Consequently, the Company's cost of paper, relative to our net
revenue, can vary from period to period. In the past, paper has also been
difficult to obtain due to industry-wide shortages. Significant paper price
increases, sustained over a period of time, could adversely affect the Company's
future financial condition or operating results.
Fluctuations in Quarterly Results and Cyclicality of Revenue.  The Company's
operating expenses, which include product development costs and selling, general,
and administrative expenses, are relatively fixed in the short term and are based
on our long term revenue expectations. If the Company sells fewer books or
otherwise has lower revenue than expected, the Company may not be able to quickly
reduce its spending.  Any shortfall in the Company's revenue would have a direct
impact on its results of operations, and fluctuations in quarterly results could
affect the market price of its common stock in a manner unrelated to the Company's
long-term operating performance. The Company typically sells more books during the
first and second quarters of its September fiscal year because of increased sales
during the Christmas season. In addition, the Company typically sells more books
in quarters in which software manufacturers release new or updated versions of
popular software products. Because a substantial portion of the Company's selling,
general, and administrative expenses are incurred evenly throughout the year, the
Company generally experiences relatively lower net profit during quarters not
impacted by increases in net revenue due to seasonal or other factors discussed
above.
In addition, the Company typically publishes books relating to new trends and
technologies. Accordingly, if general economic conditions worsen, people may defer
spending on these new trends and technologies, which could reduce the number of
books sold.
Risks Associated with Product Distribution Channels; Risk of Product Returns.
The Company sells its books primarily to large retail chains, large wholesalers,
warehouse clubs, office superstores, and computer and electronics superstores. For
the three months ended December 31, 1999 the Company's three largest customers,
Barnes & Noble, Inc., Borders, Inc., and Ingram Book Company accounted for
approximately 20%, 15%, and 13% of net revenue, respectively. The Company's future
financial results depend in large part on its relationships with its customers.
Any disruption in relationships with its customers could adversely affect
financial performance.
The Company's sales policy generally permits book customers to return any
unsold or damaged books for full credit. The Company records as revenue all books
sold to its customers in a particular quarter and, at the same time, records a
provision for estimated returns. During the three months ended December 31, 1999,
the Company recorded a provision for returns of approximately 22% of its gross
sales. If, during any period, customers return more books than previously
estimated, the Company's financial results in that period would be adversely
affected.
Competition.  The Company faces competition directly from other book publishers
and indirectly from non-print media.  Competition in book publishing stems mainly
from editorial quality, timely introduction of new titles, product positioning,
pricing, and brand name recognition. In addition to the Company, Pearson
Education, Inc., Microsoft Press, and McGraw-Hill all have a strong market
presence in the United States and internationally in technology publishing.  The
principal competitors for the Company's business and self-help titles include
Random House, Simon & Schuster, and HarperCollins.  Each of these competitors has
substantially greater financial resources than the Company.
Non-print media, such as the Internet and CD-ROMs, may also present substantial
competition. If computer users increase their reliance on instruction and other
information disseminated on-line, the Company's business could be adversely
affected.
Control by IDG (Parent); Potential Conflicts of Interests; Benefits to IDG.
The parent owns all of the shares of the Class B common stock, each share of which
is entitled to ten votes per share on most stockholder actions, and has
approximately 76% of the combined voting power of both classes of common stock as
of December 31, 1999. The remaining holders of the shares of Class A common stock
are entitled to one vote per share and have approximately 24% of the combined
voting power. The parent has two representatives on the Company's Board of
Directors and has enough votes to elect all members of the Board of Directors. As
a result of its stock ownership, the parent is in a position, without the approval
of the Company's public stockholders, to amend the Company's charter or approve a
merger, sale of assets, or other major corporate transaction; defeat any non-
negotiated takeover attempt that might otherwise benefit the public stockholders;
determine the amount and timing of dividends paid to itself and to the Company's
public stockholders; and otherwise control the Company's management and operations
and the outcome of all matters submitted for a stockholder vote that could
conflict with the interests of its public stockholders. In January 2000, the
parent announced its plans to purchase up to 500,000 shares of IDGB common stock
from time to time at prevailing market prices.
Dependence on Key Personnel. The Company relies, and will continue to rely, on
its senior executive officers and other key management personnel. Recently, the
Company's President, Steven Berkowitz, and its Chief Financial Officer, James
Doehrman, resigned. In January 2000, the Company announced the appointment of
William Barry as President and Chief Operating Officer, effective March 1, 2000.
Mr. Barry is the former Senior Vice President, Corporate Development of Random
House, Inc. The Company is currently searching for a successor to the CFO. The
Company's Chief Executive Officer, John Kilcullen, and its Executive Vice
President of Operations, John Ball, will assume Mr. Doehrman's responsibilities on
an interim basis. The Company believes that its operations will not be
significantly impacted by this resignation. If any additional senior executives or
key management leave the Company, the relationships that these people have with
the Company's authors, customers, manufacturers, or investors could be lost, and
the Company would need to find people who could develop new relationships. In
addition, the Company expects that it will need to hire additional employees,
including key management positions for Internet business development. The
competition for employees at all levels of the book publishing and Internet
industries is intense and is increasing. In our Northern California operations, in
particular, the Company has experienced increased turnover of employees and is
experiencing difficulty in attracting new employees. If the Company does not
succeed in attracting new employees or retaining and motivating current employees,
the Company's business could suffer significantly.
Transition to New Distribution Service. The Company historically outsourced
distribution and fulfillment functions to retail and wholesale customers through
two vendors. During the first fiscal quarter of 2000, the Company began the
transition of these services to a new single source facility in Virginia. The
outsourced functions accounted for approximately 13% of our distribution and order
fulfillment costs in the three months ended December 31, 1999 compared to 60% for
the same period of 1998. In addition, the Company has continued to transition the
distribution and fulfillment operations of the acquired Reference Brands to its
new facility, a process which was begun in January 2000. Any difficulties in this
continuing transition to the new distribution vendor could adversely impact day-
to-day operating performance and future financial results.
Risks Associated with Acquisitions. As part of the Company's growth strategy,
it may buy or make significant investments in, complementary companies,
publications or products. The Company has completed the acquisition of Cliffs
Notes, Inc. and recently completed the acquisition of the Reference Brands. These
acquisitions, as well as any future acquisition, will be accompanied by the risks
commonly encountered in making acquisitions of products, companies, and
technologies.
For example, it could have difficulty assimilating the personnel and operations
of the acquired company.  This could cause a disruption of its ongoing business,
distraction of management and other resources, and difficulty in maintaining
uniform standards, controls, and procedures. There can be no assurance that the
Company would succeed in overcoming these risks or any other problems encountered
in connection with any acquisitions it may make. In addition, the Company may be
required to incur additional debt or issue equity to pay for any future
acquisitions
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in 2000, these
date code fields will need to accept four-digit entries in order to distinguish
21st century dates from 20th century dates.  As a result, the computer systems
and/or software used by many companies will need to be upgraded to comply with
"Year 2000" requirements by the end of 1999.  Significant uncertainty exists in
the software industry concerning the potential effects associated with such
compliance issues.
The Company has completed the review of its computer systems to determine the
extent and impact of Year 2000 issues. The Company uses a number of computer
software programs and operating systems, including applications for its internal
electronic communications network and for various administrative and billing
functions.  Many of the Company's systems are new and were designed to accommodate
the Year 2000 issue when originally installed.  The Company has completed testing
of its systems for compliance, and believes it has implemented the necessary
changes.  The Company believes it has completed corrective measures to its
mission-critical systems.  The Company has assessed the scope of its risks related
to problems its computer systems may have related to the Year 2000 issue and
believes such risks are not material.  This conclusion is partly based on
statements provided by the manufacturers of hardware and software used by the
Company.  The Company is not in a position to confirm or deny the claims of the
manufacturers' products in use.  The estimated costs to modify or replace these
applications were included in the Company's cost for its new computer systems and
infrastructure upgrades, and accordingly, are not considered to be incremental
costs.  The Company currently does not have a contingency plan in the event that
the remedial efforts it has completed fail to make its systems Year 2000
compliant. There can be no assurances that the Company will not experience adverse
consequences as a result of the Year 2000 issue.
The Company is continuing to communicate with its customers, suppliers, and
business partners in an effort to assess how they intend to resolve their Year
2000 issues.  The Company, at this time, is not able to form an opinion as to
whether its customers or suppliers will be able to resolve their Year 2000 issues
in a satisfactory and timely manner, or on the magnitude of the adverse impact it
would have on the Company's operations if they fail to do so.  No assurance can be
given that all of these third party systems will be Year 2000 compliant.  Any
failure of the Company's customers, suppliers, or business partners to
satisfactorily address their Year 2000 problems could have a material adverse
effect on the Company's business, financial condition, and results of operations.
Financial Market Risks
For the three months ended December 31, 1999, there were no material changes in
the Company's exposure to financial market risks, including changes in interest
rates and foreign currency exchange rates.
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains forward-
looking statements. The forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from those
reflected in such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
opinion only as of the date hereof. The Company undertakes no obligation to revise
or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the SEC, including the
Company's Registration Statement on Form S-1 (file no. 333-53433) filed in
connection with the Company's initial public offering, and Form 10-K as of and for
the year ended September 30, 1999.
PART II -- Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number
Exhibit Description
27
Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K/A filed October 18, 1999 contained the required financial
statements for the August 2, 1999 acquisition of all of the
outstanding stock of Macmillan General Reference USA Inc.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
IDG BOOKS WORLDWIDE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IDG BOOKS WORLDWIDE, INC.
(Registrant)
Dated: February 8, 2000
By:
/s/ JOHN J. KILCULLEN
John J. Kilcullen
Chairman and Chief Executive Officer
(Principal Executive Officer and Duly Authorized Officer)