ZIFF DAVIS INC, 10-Q, 1999-11-15

ZIFF DAVIS INC
10-Q, 1999-11-15
PERIODICALS: PUBLISHING OR PUBLISHING & PRINTING

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 quarterly period ended September 30, 1999.

[_] 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 001-14055

Ziff-Davis Inc.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
Delaware 13-3987754
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
28 East 28th Street, 10016
New York, New York (Zip Code)
(Address of principal executive offices)
</TABLE>

Registrants telephone number, including area code: (212) 503-3500

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 such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

As of November 11, 1999, there were 103,338,627 shares outstanding of the
registrant's Ziff-Davis Inc.--ZD Common Stock, par value $0.01 per share, and
13,707,063 shares outstanding of the registrant's Ziff-Davis Inc.--ZDNet
Common Stock, par value $0.01 per share.

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<PAGE>

ZIFF-DAVIS INC.

INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
Page
----
PART 1. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Ziff-Davis Inc.
Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and
December 31, 1998....................................................... 1
Consolidated Statements of Operations (Unaudited) for the three and nine
months ended September 30, 1999 and 1998................................ 2
Consolidated Statements of Comprehensive Loss (Unaudited) for the three
and nine months ended September 30, 1999 and 1998....................... 3
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 1999 and 1998....................................... 4
Consolidated Statement of Changes in Stockholders' Equity (Unaudited) for
the nine months ended September 30, 1999................................ 5
Notes to unaudited consolidated financial statements..................... 6

ZD
Combined Balance Sheets as of September 30, 1999 (Unaudited) and December
31, 1998................................................................ 14
Combined Statements of Operations (Unaudited) for the three and nine
months ended September 30, 1999 and 1998................................ 15
Combined Statements of Comprehensive Income (Loss) (Unaudited) for the
three and nine months ended September 30, 1999 and 1998................. 16
Combined Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 1999 and 1998............................................. 17
Combined Statement of Changes in Division Equity (Unaudited) for the nine
months ended September 30, 1999......................................... 18
Notes to unaudited combined financial statements......................... 19

ZDNet
Combined Balance Sheets as of September 30, 1999 (Unaudited) and December
31, 1998................................................................ 27
Combined Statements of Operations (Unaudited) for the three and nine
months ended September 30, 1999 and 1998................................ 28
Combined Statements of Comprehensive Income Loss (Unaudited) for the
three and nine months ended September 30, 1999 and 1998................. 29
Combined Statements of Cash Flows (Unaudited) for the nine months ended
September 30, 1999 and 1998............................................. 30
Combined Statement of Changes in Division Equity (Unaudited) for the nine
months ended September 30, 1999......................................... 31
Notes to unaudited combined financial statements......................... 32

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Ziff-Davis Inc............................................................ 38
ZD........................................................................ 47
ZDNet..................................................................... 56

Item 3. Quantitative and Qualitative Disclosures about Market Risk......... 61

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 63
Item 2. Changes in Securities and Use of Proceeds.......................... 64
Item 3. Defaults Upon Senior Securities.................................... 64
Item 4. Submission of Matters to a Vote of Security Holders................ 64
Item 5. Other Information.................................................. 64
Item 6. Exhibits and Reports on Form 8-K................................... 64

SIGNATURES................................................................. 65
</TABLE>

<PAGE>

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ZIFF-DAVIS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 29,791 $ 32,566
Accounts receivable, net........................... 218,437 227,325
Inventories........................................ 12,946 15,551
Prepaid expenses and other current assets.......... 37,407 34,543
Due from affiliates................................ 4,722 53,984
Deferred taxes..................................... 22,262 22,262
---------- ----------
Total current assets............................. 325,565 386,231
Securities available for sale....................... 7,916 --
Property and equipment, net......................... 116,917 91,189
Intangible assets, net.............................. 2,935,514 2,907,043
Other assets........................................ 58,024 49,340
---------- ----------
Total assets..................................... $3,443,936 $3,433,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 36,506 $ 75,863
Accrued expenses................................... 136,081 97,319
Unearned income, net............................... 195,613 152,081
Due to affiliates and management................... -- 4,618
Current portion of notes payable to affiliates..... 6,923 7,692
Other current liabilities.......................... 17,054 13,125
---------- ----------
Total current liabilities........................ 392,177 350,698
Notes payable to affiliates......................... 65,769 70,192
Notes payable, net of unamortized discount.......... 1,199,215 1,469,130
Deferred taxes...................................... 134,884 165,082
Due to management................................... 665 5,400
Other liabilities................................... 14,813 19,690
---------- ----------
Total liabilities................................ 1,807,523 2,080,192
---------- ----------
Commitments and contingencies (See Note 9)
Minority Interest................................... 31,255 1,013
---------- ----------
Stockholders' equity:
Preferred stock(1)................................. -- --
Common stock--Ziff-Davis Inc.--ZD Common
Stock(2).......................................... 1,033 1,000
Common stock--Ziff-Davis Inc.--ZDNet Common
Stock(3).......................................... 137 --
Additional paid-in capital......................... 1,874,312 1,571,681
Accumulated deficit................................ (253,185) (197,238)
Deferred compensation.............................. (17,606) (22,024)
Unrealized gain on securities available for sale... 989 --
Cumulative translation adjustment.................. (522) (821)
---------- ----------
Total stockholders' equity....................... 1,605,158 1,352,598
---------- ----------
Total liabilities and stockholders' equity....... $3,443,936 $3,433,803
========== ==========
</TABLE>
- --------
(1) September 30, 1999 and December 31, 1998: par value $.01 per share,
10,000,000 shares authorized, no shares issued and outstanding.
(2) September 30, 1999: par value $.01 per share, 210,000,000 shares
authorized (including Ziff-Davis Inc.--ZDNet Common Stock), 103,310,097
shares issued and outstanding; December 31, 1998: par value $.01 per share
120,000,000 shares authorized, 100,000,000 shares issued and outstanding.
(3) September 30, 1999: par value $.01 per share, 210,000,000 shares
authorized (including Ziff-Davis Inc.--ZD Common Stock), 13,706,063 shares
issued and outstanding; December 31, 1998: no shares authorized, issued or
outstanding.

The accompanying notes are an integral part of these financial statements.

1
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net:
Publishing............ $ 165,268 $ 181,727 $ 518,626 $ 571,391
Events................ 63,085 29,787 157,150 122,690
Internet.............. 26,291 14,504 67,791 36,466
Television............ 3,642 -- 9,343 --
------------ ------------ ------------ ------------
258,286 226,018 752,910 730,547
Cost of production...... 68,932 62,512 202,038 207,395
Selling, general and
administrative
expenses............... 157,557 140,412 458,593 425,764
Stock-based
compensation........... 1,474 63 4,861 189
Depreciation and
amortization of
property and
equipment.............. 8,583 7,870 25,558 22,597
Amortization of
intangible assets...... 36,160 29,973 102,308 91,997
------------ ------------ ------------ ------------
Loss from operations.... (14,420) (14,812) (40,448) (17,395)
Interest expense, net... (28,632) (29,093) (89,602) (111,185)
Other non-operating
income, net............ 15,271 4,396 26,762 8,482
Minority interest in
losses of
subsidiaries........... 5,491 60 15,686 330
------------ ------------ ------------ ------------
Loss before income
taxes.................. (22,290) (39,449) (87,602) (119,768)
Income tax benefit...... (7,259) (34,951) (31,655) (33,589)
------------ ------------ ------------ ------------
Net loss................ $ (15,031) $ (4,498) $ (55,947) $ (86,179)
============ ============ ============ ============
ZDNet
Pro forma net income
(loss) per basic common
share.................. $ (.01) $ .00 $ (.00) $ (.12)
Pro forma weighted
average basic common
shares outstanding..... 73,402,667 71,500,000 72,315,852 71,500,000
ZD Group
Pro forma net loss per
basic common share..... $ (.14) $ (.04) $ (.55) $ (.86)
Pro forma weighted
average basic common
shares outstanding..... 103,287,483 100,000,000 102,508,377 100,000,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

2
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................ $(15,031) $(4,498) $(55,947) $(86,179)
Other comprehensive income (loss):
Foreign currency translation
adjustments.......................... 5,627 1,152 299 999
Unrealized (loss) gain on securities
available for sale................... (1,648) -- 989 --
-------- ------- -------- --------
Comprehensive loss...................... $(11,052) $(3,346) $(54,659) $(85,180)
======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

3
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (55,947) $ (86,179)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 127,866 114,594
Amortization of debt issuance costs and discount..... 5,129 1,313
Stock-based compensation............................. 4,861 189
Gain from sale of business units..................... (20,420) --
Income from equity investments....................... (4,457) (4,688)
Deferred tax benefit................................. (31,655) (33,589)
Minority interest.................................... (15,686) --
Changes in operating assets and liabilities:
Accounts receivable................................ 11,554 28,622
Inventories........................................ 2,605 (591)
Accounts payable and accrued expenses.............. 12,043 6,703
Unearned income.................................... 38,495 62,770
Due to/from affiliates and management.............. -- 10,707
Other, net......................................... (10,465) (17,060)
--------- -----------
Net cash provided by operating activities............. 63,923 82,791
--------- -----------
Cash flows from investing activities:
Capital expenditures................................. (64,624) (27,399)
Proceeds from sale of business units................. 29,105 --
Investments and other................................ (19,195) (6,193)
Distributions from joint ventures.................... 4,000 --
Acquisitions, net of cash acquired................... (45,986) (6,999)
--------- -----------
Net cash used by investing activities................. (96,700) (40,591)
--------- -----------
Cash flows from financing activities:
Proceeds from sale of Ziff-Davis Inc.--ZD common
stock(1)............................................ 52,557 380,337
Proceeds from issuance of notes payable(1)........... -- 242,723
Proceeds from issuance of bank debt(1)............... -- 1,240,200
Proceeds from sale of Ziff-Davis Inc.--ZDNet common
stock(2)............................................ 198,537 --
Proceeds from sale of interest in ZDTV............... 54,000 --
Principal payments on notes payable to affiliates.... (5,192) (314,798)
Repayments of credit facility........................ (320,400) (45,000)
Borrowings under credit facility..................... 50,500 --
Payments of debt due to affiliate.................... -- (1,569,532)
Purchase of treasury shares.......................... -- (29,500)
Sale of treasury shares.............................. -- 29,500
Advance from majority shareholder.................... -- 20,377
Contributed capital.................................. -- 345
--------- -----------
Net cash provided (used) by financing activities...... 30,002 (45,348)
--------- -----------
Net decrease in cash and cash equivalents............. (2,775) (3,148)
Cash and cash equivalents at beginning of period...... 32,566 30,301
--------- -----------
Cash and cash equivalents at end of period............ $ 29,791 $ 27,153
========= ===========
Supplemental cash flow information:
Cash paid for income taxes........................... $ -- $ 642
Cash paid for interest............................... $ 74,298 $ 94,360
</TABLE>
- --------
(1) Net of transaction costs of $19,563; $9,800; and $7,277, respectively, for
the nine months ended September 30, 1998.
(2) Net of transaction costs of $19,897.

The accompanying notes are an integral part of these financial statements.

4
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Unrealized
gain on
ZD Stock ZD Net Stock Additional securities Cumulative Total
------------------ ----------------- Paid-in Accumulated Deferred available Translation Stockholders'
Shares Amount Shares Amount Capital Deficit Compensation for sale adjustment equity
----------- ------ ---------- ------ ---------- ----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998........... 100,000,000 $1,000 -- $-- $1,571,681 $(197,238) $ (22,024) $-- $(821) $1,352,598
Issuance of
common stock... 3,030,303 30 -- -- 49,970 -- -- -- -- 50,000
Sale of minority
interest in
subsidiary..... -- -- -- -- 7,176 -- -- -- -- 7,176
Stock-based
compensation
earned......... -- -- -- -- -- -- 4,861 -- -- 4,861
Issuance of
Ziff-Davis
Inc.--ZDNet
Common Stock,
net of offering
costs.......... -- -- 11,500,000 115 198,340 -- -- -- -- 198,455
Shares and
options issued
to acquire
minority
interest in
GameSpot....... -- -- 600,000 6 12,025 -- (443) -- -- 11,588
Shares issued
for
acquisitions... -- -- 1,573,564 16 32,484 -- -- -- -- 32,500
Sale of shares
under employee
stock purchase
plan........... 152,764 2 -- -- 1,775 -- -- -- -- 1,777
Stock options
exercised...... 127,030 1 32,499 -- 861 -- -- -- -- 862
Unrealized gain
on securities
available for
sale, net...... -- -- -- -- -- -- -- 989 -- 989
Net loss........ -- -- -- -- -- (55,947) -- -- -- (55,947)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- -- 299 299
----------- ------ ---------- ---- ---------- --------- --------- ---- ----- ----------
Balance at
September 30,
1999
(unaudited).... 103,310,097 $1,033 13,706,063 $137 $1,874,312 $(253,185) $(17, 606) $989 $(522) $1,605,158
=========== ====== ========== ==== ========== ========= ========= ==== ===== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

5
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. The Company and Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the consolidated financial position of Ziff-Davis Inc. at
September 30, 1999 and the results of its consolidated operations for the
three and nine months ended September 30, 1999 and 1998 and cash flows for the
nine months ended September 30, 1999 and 1998 have been included. Operating
results for the periods presented are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. It is
suggested that the statements be read in conjunction with Ziff-Davis Inc.'s
consolidated financial statements and notes thereto included in Ziff-Davis
Inc.'s December 31, 1998 Annual Report and Form 10-K.

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of SOFTBANK
Corp. ("MAC Assets"). As such, financial statements for periods prior to May
4, 1998 have been prepared on a combined basis while the financial statements
for the periods after May 4, 1998 have been prepared on a consolidated basis.

The results of the MAC Assets, which were acquired in two tranches on
October 31, 1997 and May 4, 1998, have been included in Ziff-Davis Inc.'s
financial statements from the time of their acquisition by MAC Inc. ("MAC") on
February 29, 1996. These results have been included in a manner similar to a
pooling of interests, as the MAC Assets and predecessor companies of Ziff-
Davis Inc. were under common control at the time the MAC Assets were acquired
by Ziff-Davis Inc.

Ziff-Davis Inc. operates in four business segments: (1) publishing, (2)
events, (3) Internet and (4) television.

Publishing

The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and market
research about computer technology and the Internet. The publishing segment's
principal operations are in the U.S. and Europe, although it also licenses or
syndicates its editorial content to over 50 publications distributed
worldwide. The market research division was sold on October 1, 1999 (see Note
12).

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer technology and
Internet industries. The events segment's principal operations are in the U.S.
and to a lesser extent in Europe and Asia.

Internet

The Internet segment is engaged in providing computer technology and
internet related news and information to Internet users worldwide. The
Internet segment's principal operations are in the U.S. and to a lesser extent
in Europe.

6
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for and
about the computer technology and the Internet industries. The television
segment's principal operations are in the U.S. although it licenses or
syndicates programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

On April 6, 1999, the Company completed a public offering of 11,500,000
shares of a new class of common stock called Ziff-Davis Inc.--ZDNet Common
Stock (see Note 3).

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

2. Reorganization and Initial Public Offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary SOFTBANK
Holdings Inc. ("SBH"), completed a reorganization whereby the common stock of
the predecessor companies to Ziff-Davis Inc. was contributed to Ziff-Davis
Inc. in exchange for 73,619,355 shares of Ziff-Davis Inc.'s common stock.
Concurrent with the reorganization, Ziff-Davis Inc. (1) completed an initial
public offering of 25,800,000 common shares at an initial public offering
price of $15.50 per share, (2) issued $250,000,000 of 8 1/2% subordinated
notes due 2008, (3) entered into a $1,350,000,000 credit facility with a group
of banks under which $1,250,000,000 was borrowed and (4) converted
$908,673,000 of intercompany indebtedness to equity. In addition, Ziff-Davis
Inc. received approximately $9,107,000 of fixed assets from Kingston
Technology Company ("Kingston"), a related party, in exchange for 580,645
shares of Ziff-Davis Inc.'s common stock and $107,000 in cash. These assets
were subsequently leased back to Kingston. Total shares of common stock issued
to Softbank were 74,200,000. The transactions described above are hereafter
referred to as the "Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of the MAC Assets for $370,000,000 and repay
intercompany indebtedness.

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is
intended to reflect the performance of Ziff-Davis Inc.'s Internet business
division ("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-
Davis Inc.'s existing common stock was re-classified as Ziff-Davis Inc.--ZD
Common Stock ("ZD Stock"), which is intended to reflect the performance of
Ziff-Davis Inc.'s other businesses and a retained interest in ZDNet. The
businesses represented by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock, at $19.00 per share, including
1,500,000 shares issued in conjunction with the underwriters' exercise of
their option to purchase additional shares to cover over-allotments. Net
proceeds of approximately $198,600,000 were received on April 6, 1999 and were
used to repay indebtedness under the revolving credit agreement.

7
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $4,215,000 reduction of interest expense and the tax effect of this
adjustment at a statutory rate of 41.0%. There is no pro forma impact for the
three month period ended September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended
September 30, 1999
----------------------
(dollars in thousands)
<S> <C>
Revenue, net....................................... $752,910
Loss from operations............................... (40,448)
Interest expense, net.............................. (85,387)
Loss before taxes.................................. (83,387)
Income tax benefit................................. (29,927)
Net loss........................................... (53,460)
</TABLE>

Pro forma loss per share is not shown since subsequent to the ZDNet
offering, Ziff-Davis Inc. reports earnings for each class of stock in its
related financial statements (i.e. ZD or ZDNet). The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results.

4. ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC ("ZDTV") from MAC
Holdings (America) Inc., a related party, for a purchase price of
approximately $81,400,000. Ziff-Davis Inc. paid approximately $32,800,000 of
the purchase price in cash (settled on February 5, 1999) and paid the
remainder by applying approximately $48,600,000 in advances owed to it by MAC
Holdings (America) Inc. Ziff-Davis Inc. also agreed to fund ZDTV during the
period in 1999 prior to the purchase which was accounted for as additional
purchase price. Such funding amounted to approximately $4,200,000.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third equity interest in ZDTV for $54,000,000 in cash.
In March 1999, an additional 4.0% equity interest was acquired by ZDTV's
president. In both cases, the acquisitions were effected by issuing additional
equity.

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the acquisition of a one-third equity interest in ZDTV
by Vulcan Programming Inc. had been consummated on January 1, 1999.
Adjustments for ZDTV transactions include the operating results of ZDTV,
amortization of the purchase price of ZDTV, Vulcan Programming Inc.'s one-
third interest in the losses of ZDTV and the tax effects of these items. Pro
forma loss per share is not shown since subsequent to the ZDNet Stock
offering, Ziff-Davis Inc. reports earnings for each class of stock in its
related financial statements (i.e. ZD or ZDNet). The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three months ended
September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended September
30, 1999
-------------------------------
Ziff- Adjustments
Davis for ZDTV Pro
Inc. transactions Forma
-------- ------------ --------
(dollars in thousands)
<S> <C> <C> <C>
Revenue.................................. $752,910 $ 316 $753,226
Loss from operations..................... (40,448) (2,546) (42,994)
Net loss................................. (55,947) (1,006) (56,953)
</TABLE>

8
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

ZDTV 1999 Profits Interest Plan

On May 11, 1999, ZDTV's Board of Directors adopted and approved the ZDTV
1999 Profits Interest Plan. Under such plan, ZDTV's Board of Directors may
issue interests in ZDTV for incentive purposes to employees, directors and
consultants covered by the plan. At September 30, 1999, there were 10,724,200
units issued under the plan.

5. Acquisitions and Dispositions

GameSpot Inc.

On April 7, 1999, Ziff-Davis Inc. completed the acquisition of the remaining
30.0% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet Stock valued at approximately $11,400,000. This acquisition was
accounted for under the purchase method of accounting.

Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for a purchase price of
approximately $18,500,000. Consideration was in the form of $5,000,000 in cash
and 582,526 shares of ZDNet Stock valued at $13,500,000. This acquisition was
accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, ZDNet acquired SoftSeek Inc. for a purchase price of
approximately $26,000,000. Consideration was in the form of $7,000,000 in cash
and 991,038 shares of ZDNet Stock valued at $19,000,000. This acquisition was
accounted for under the purchase method of accounting.

Sale of Business Units

Ziff-Davis Inc. has completed the sale of its 50.0% interest in ExpoComm LLC
along with other smaller business units from the ZD Market Intelligence and ZD
Education platforms. The proceeds from the sale of these business units
totaled $29,105,000 and are reflected as investing activities in the statement
of cash flows.

6. Investments

On February 19, 1999 Ziff-Davis Inc. acquired warrants to purchase 2,005,400
shares of Series E preferred stock of BuyDirect.com Inc. ("Series E shares")
at an exercise price of $1.65 per share. On March 25, 1999, Ziff-Davis Inc.
exercised its warrants and received 1,510,020 Series E shares in a cashless
exercise by exchanging 495,380 warrants in lieu of payment of the exercise
price. On March 30, 1999, BuyDirect.com Inc. was acquired by Beyond.com
Corporation and these Series E shares were converted to 438,057 shares of
Beyond.com Corporation and at September 30, 1999 are reflected in the balance
sheet as Securities Available for Sale.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants at February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair
value of the warrants was determined to be $6,240,000.

In June 1999, Ziff-Davis Inc. entered into an agreement to hedge a portion
of the unrealized gain associated with these shares. (See Note 9).

9
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

7. Income Taxes

Income taxes are provided based on Ziff-Davis Inc.'s projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35.0%
due to (i) certain items which are not deductible for income tax purposes,
primarily nondeductible goodwill amortization, and (ii) the effect of state
and local taxes. The tax benefit recorded for the nine months ended September
30, 1999 has been reflected as a reduction of the deferred tax liability as it
is anticipated that the benefit will be realizable in future periods.

8. Earnings per share

Ziff-Davis Inc. reports earnings per share for its two classes of common
stock, ZD Stock and ZDNet Stock.

The pro forma weighted average common shares outstanding and the pro forma
loss per share related to ZD Stock has been prepared assuming the
reorganization and initial public offering of ZD Stock (see Note 2) occurred
on January 1, 1998. ZD's earnings include its retained interest in ZDNet's
results. Diluted earnings per share are not shown as the impact of stock
options would be anti-dilutive.

The pro forma weighted average common shares outstanding and the pro forma
income (loss) per share related to ZDNet Stock has been prepared assuming the
reorganization and initial public offering of ZDNet Stock (see Note 3)
occurred on January 1, 1998. Diluted earnings per share are not shown as the
impact of stock options would be anti-dilutive.

9. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it had retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular alternatives and will
investigate all possible alternatives, including strategic alliances, mergers
and the sale or joint venture of all or some of Ziff-Davis Inc.'s businesses.
No assurances can be given that any transaction will result from the
exploration process that Morgan Stanley has been retained to manage.

On May 24, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley to explore strategic alternatives for its ZD Market Intelligence Unit,
the sale of which was completed on October 1, 1999. (See Note 12).

Class action and derivative litigations

Ziff-Davis Inc. is subject to various claims and legal proceedings arising
in the normal course of business.

Following a decline in the price per share of Ziff-Davis Inc.'s common stock
in October 1998, eight securities class action suits were filed against Ziff-
Davis Inc. and certain of its directors and officers in the United States
District Court for the Southern District of New York.

10
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)
revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission, and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on June 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933.
On May 20, 1999, Ziff-Davis Inc. moved to dismiss the consolidated amended
complaint. In July 1999, plaintiff filed their response to the motion. Ziff-
Davis Inc. filed a reply on August 11, 1999. The motion has not been decided.

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly
"reduced exercise price") and the actions have been consolidated. Answers to
the amended complaint on behalf of both Ziff-Davis Inc. and its directors were
filed on April 12, 1999. Discovery is proceeding.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders
of SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect
subsidiary of SOFTBANK Corp. The complaint alleged, among other things, that
SBH, SIM's majority stockholder, acting with Ziff-Davis Inc. and two of its
senior officers and directors who were directors of SIM (and who were also
named as defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in
the best interests of SIM and the minority stockholders by taking actions
which benefited Ziff-Davis Inc. The complaint stated claims based on common
law fraud, breach of fiduciary duty and aiding and abetting theories and seeks
in excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the
other defendants, all of the claims against them other than a breach of
contract claim which is solely against SBH, were dismissed on February 26,
1999. On April 1, 1999, plaintiffs filed a notice of appeal of the dismissal.
On September 2, 1999, the remaining claim, which was solely against SBH, was
dismissed. On October 6, 1999, plaintiffs filed a notice of appeal of this
dismissal.

Ziff-Davis Inc. and ZDTV, L.L.C. ("ZDTV"), a majority owned affiliate of
Ziff-Davis Inc., were named as defendants in an action filed on November 10,
1999 in the U.S. District Court, Southern District of New York, by plaintiff.
In October, 1998 ZDTV through a subsidiary purchased certain assets from
corporations owned by plaintiff and two other individuals. In addition to a
cash payment at the closing of the sale, ZDTV agreed to pay additional
purchase price, contingent on the future operating profits of the SkyTV
division. Ziff-Davis Inc. guaranteed the obligations of ZDTV. The complaint
alleges, among other things, that ZDTV and Ziff-Davis Inc. breached their
covenants of good faith and fair dealing by failing to act in the best
interests of the SkyTV division, to support and procure business for the SkyTV
division, and to provide public relations, marketing assistance and corporate
sales team support, thereby lessening plaintiff's opportunity to earn
additional purchase price. The complaint seeks an amount to be determined at
trial, but not less than $60,000,000 in damages.

Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate its ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.

11
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Interest rate swap

On June 15, 1999, Ziff-Davis Inc. amended a swap agreement (with a notional
amount of $100,000,000) by reducing the fixed rate paid to the counterparty
and providing the counterparty with a one-time option to cancel the swap
agreement on February 5, 2000. Ziff-Davis Inc. entered into another swap
agreement (with a notional amount of $50,000,000) on June 15, 1999. Under this
swap agreement, Ziff-Davis Inc. will receive a fixed rate of interest and pay
a floating rate of interest based on 3 months LIBOR, which resets quarterly,
for the term of the agreement.

Beyond.com hedge

In June 1999, Ziff-Davis Inc. entered into a short-sale to effect a hedge on
300,000 of its 438,057 shares of Beyond.com. These shares were sold on behalf
of Ziff-Davis Inc. by a third party at a weighted average price of $22.50 per
share. In September 1999, Ziff-Davis Inc. delivered the shares required to
close the short position by repurchasing the shares at a market price of
$14.00 per share. A gain of approximately $2,600,000 was deferred in the
period relating to this hedge transaction.

10. Registration Statement

On August 5, 1999, Ziff-Davis Inc. filed a registration statement on Form S-
3 (File No. 333-84555), which became effective on August 11, 1999, with the
Securities and Exchange Commission to register 1,180,173 shares of ZDNet Stock
in connection with the acquisition of Updates.com Inc. and SoftSeek Inc.

11. Segment Information

Ziff-Davis Inc. operates in four reportable business segments: (1)
publishing, (2) events, (3) Internet and (4) television. All material inter-
segment revenue has been eliminated. The following table presents information
about each of the reported segments:

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue:
Publishing....................... $ 165,268 $ 181,727 $518,626 $571,391
Events........................... 63,085 29,787 157,150 122,690
Internet......................... 26,291 14,504 67,791 36,466
Television....................... 3,642 -- 9,343 --
--------- --------- -------- --------
Total.......................... $ 258,286 $ 226,018 $752,910 $730,547
========= ========= ======== ========
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Publishing....................... $ 17,475 $ 23,558 $ 80,185 $ 88,544
Events........................... 35,962 2,135 60,164 21,879
Internet......................... 4,621 1,857 11,177 (4,223)
Television....................... (7,030) -- (20,924) --
--------- --------- -------- --------
Total.......................... $ 51,028 $ 27,550 $130,602 $106,200
========= ========= ======== ========
</TABLE>

12
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing..................................... $1,944,663 $2,192,099
Events......................................... 1,195,191 1,144,018
Internet....................................... 179,650 97,686
Television..................................... 124,432 --
---------- ----------
Total........................................ $3,443,936 $3,433,803
========== ==========
</TABLE>

A reconciliation of EBITDA to loss before income taxes is below:

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total segment EBITDA............ $ 51,028 $ 27,550 $130,602 $ 106,200
Depreciation and amortization of
property and equipment......... (8,583) (7,870) (25,558) (22,597)
Amortization of intangible
assets......................... (36,160) (29,973) (102,308) (91,997)
Stock-based compensation........ (1,474) (63) (4,861) (189)
Minority interest in ZDTV's non-
EBITDA losses.................. 1,531 -- 4,125 --
Interest expense, net........... (28,632) (29,093) (89,602) (111,185)
--------- --------- -------- ---------
Loss before income taxes........ $ (22,290) $ (39,449) $(87,602) $(119,768)
========= ========= ======== =========
</TABLE>

12. Subsequent Events

Sale of Market Intelligence Unit

On October 1, 1999, Ziff-Davis Inc. completed the sale of its Market
Intelligence unit for $101,000,000 in cash plus $5,000,000 in assumed deferred
revenue obligations.

Registration Statement

On October 22, 1999, Ziff-Davis Inc. filed a registration statement on Form
S-3 (File No. 333-89597), which became effective on October 29, 1999, with the
Securities and Exchange Commission to register 180,000 shares of ZDNet Stock
acquired by three selling shareholders of GameSpot in connection with its
merger with Ziff-Davis Inc.

Smart Planet Inc.

In September 1999, the Company formed Smart Planet Inc. to conduct the
operations of its consumer based educational website. In conjunction with the
launch of this business a stock option plan was adopted. On October 25, 1999,
the Company granted options to purchase approximately 2,468,000 shares of
Smart Planet Inc. The exercise price of the options was based on an estimate
of the fair value of the underlying shares.

13
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 29,300 $ 32,274
Accounts receivable, net........................... 197,555 208,593
Inventories........................................ 12,946 15,551
Prepaid expenses and other current assets.......... 36,954 34,278
Due from affiliates................................ 4,722 53,984
Deferred taxes..................................... 22,262 21,483
---------- ----------
Total current assets............................. 303,739 366,163
Property and equipment, net.......................... 110,517 85,571
Retained interest in ZDNet........................... 149,053 89,547
Intangible assets, net............................... 2,823,236 2,844,317
Other assets......................................... 46,406 44,340
---------- ----------
Total assets..................................... $3,432,951 $3,429,938
========== ==========

LIABILITIES AND DIVISION EQUITY
Current liabilities::
Accounts payable................................... $ 32,411 $ 73,310
Accrued expenses................................... 130,623 93,824
Unearned income, net............................... 187,090 151,003
Due to ZDNet....................................... 16,729 --
Due to affiliates and management................... -- 4,618
Current portion of notes payable to affiliates..... 6,923 7,692
Other current liabilities.......................... 17,054 13,125
---------- ----------
Total current liabilities........................ 390,830 343,572
Notes payable to affiliates.......................... 65,769 70,192
Notes payable, net of unamortized discount........... 1,199,215 1,469,130
Deferred taxes....................................... 137,767 169,356
Due to management.................................... 665 5,400
Other liabilities.................................... 14,813 18,677
---------- ----------
Total liabilities................................ 1,809,059 2,076,327
---------- ----------
Commitments and contingencies (see Note 7)
Minority interest.................................... 31,255 1,013
Division equity...................................... 1,592,637 1,352,598
---------- ----------
Total liabilities and division equity............ $3,432,951 $3,429,938
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

14
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net:
Publishing............ $ 165,268 $ 181,727 $ 518,626 $ 571,391
Events................ 63,085 29,787 157,150 122,690
Television............ 3,642 -- 9,343 --
------------ ------------ ------------ ------------
231,995 211,514 685,119 694,081
Cost of production...... 67,494 62,898 197,986 206,656
Selling, general and
administrative
expenses............... 137,325 127,319 405,913 385,484
Stock-based
compensation........... 635 63 1,908 189
Depreciation and
amortization of
property and
equipment.............. 7,724 7,253 23,527 21,235
Amortization of
intangible assets...... 32,784 28,953 96,549 88,579
------------ ------------ ------------ ------------
Loss from operations.... (13,967) (14,972) (40,764) (8,062)
Interest expense, net... (29,025) (29,093) (90,545) (111,185)
Income (loss) related to
retained interest in
ZDNet.................. (604) 212 (111) (8,691)
Other non-operating
income, net............ 15,271 4,396 26,762 8,482
Minority interest in
losses of
subsidiaries........... 5,491 -- 15,569 --
------------ ------------ ------------ ------------
Loss before income
taxes.................. (22,834) (39,457) (89,089) (119,456)
Income tax benefit...... (7,940) (34,959) (33,142) (33,277)
------------ ------------ ------------ ------------
Net loss................ $ (14,894) $ (4,498) $ (55,947) $ (86,179)
============ ============ ============ ============
Pro forma net loss per
basic common share..... $ (.14) $ (.04) $ (.55) $ (.86)
Pro forma weighted
average basic common
shares outstanding..... 103,287,483 100,000,000 102,508,377 100,000,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

15
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................ $(14,894) $(4,498) $(55,947) $(86,179)
Other comprehensive income, net of tax
Foreign currency translation
adjustments.......................... 5,627 1,152 299 999
Appreciation in equity of retained
interest in ZDNet.................... 26,022 -- 61,477 --
-------- ------- -------- --------
Comprehensive income (loss)............. $ 16,755 $(3,346) $ 5,829 $(85,180)
======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

16
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (55,947) $ (86,179)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 120,076 109,814
Amortization of debt discount........................ 5,129 1,313
Loss from retained interest in ZDNet................. 111 8,691
Loss from equity investments......................... (4,457) (4,688)
Gain from sale of business units..................... (20,420) --
Deferred tax provision............................... (33,142) (33,277)
Stock-based compensation............................. 1,908 189
Minority interest.................................... (15,569) --
Changes in operating assets and liabilities:
Accounts receivable................................ 13,285 32,334
Inventories........................................ 2,605 (591)
Accounts payable and accrued expenses.............. 9,120 3,836
Unearned income.................................... 37,290 62,036
Due to affiliates and management................... -- 10,707
Other, net......................................... (11,090) (16,730)
--------- -----------
Net cash provided by operating activities............. 48,899 87,455
--------- -----------
Cash flows from investing activities:
Capital expenditures................................. (61,861) (24,218)
Capital contributions to ZDNet....................... -- (13,242)
Proceeds from sale of business units................. 29,105 --
Distributions from joint ventures.................... 4,000 --
Investments and other................................ (12,577) (1,193)
Acquisitions, net of cash acquired................... (33,986) (6,999)
--------- -----------
Net cash used by investing activities................. (75,319) (45,652)
--------- -----------
Cash flows from financing activities:
Proceeds from sale of Ziff-Davis Inc.--ZD common
stock(1) 52,557 380,337
Proceeds from issuance of notes payable(1)........... -- 242,723
Proceeds from issuance of bank debt(1)............... -- 1,240,200
Proceeds from sale of Ziff-Davis Inc.--ZDNet common
stock(2)............................................ 172,572 --
Proceeds from sale of interest in ZDTV............... 54,000 --
Repayments of credit facility........................ -- --
Borrowings under credit facility..................... 50,500 --
Payments of notes payable to affiliates.............. -- (1,569,532)
Payments of bank debt................................ (320,400) (45,000)
Payments of debt due to affiliate.................... (5,192) (314,798)
Purchase of treasury shares.......................... -- (29,500)
Return of capital from ZDNet......................... 2,723
Sale of treasury shares.............................. -- 29,500
Advance from affiliate, net.......................... 16,686 20,377
Contributed capital.................................. -- 345
--------- -----------
Net cash provided (used) by financing activities...... 23,446 (45,348)
--------- -----------
Net decrease in cash and cash equivalents............. (2,974) (3,545)
Cash and cash equivalents at beginning of period...... 32,274 30,273
--------- -----------
Cash and cash equivalents at end of period............ $ 29,300 $ 26,728
========= ===========
Supplemental cash flow information:
Cash paid for income taxes........................... $ -- $ 642
Cash paid for interest............................... $ 74,298 $ 94,360
</TABLE>
- --------
(1)1998 amounts net of transaction costs of $19,563; $9,800; and $7,277,
respectively.
(2)Net of transaction costs of $19,897.

The accompanying notes are an integral part of these financial statements.

17
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Cumulative Total
Division Accumulated Deferred translation division
capital deficit compensation adjustment equity
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $1,559,336 $(197,238) $(8,679) $(821) $1,352,598
Issuance of common
stock.................. 50,000 50,000
Sale of minority
interest in
subsidiary............. 7,176 7,176
Stock-based compensation
earned................. 1,908 1,908
Issuance of ZDNet Stock,
net of offering cost... 172,572 172,572
Sale of stock under
employee stock purchase
plan................... 1,775 1,775
Stock options
exercised.............. 779 779
Appreciation in equity
of retained interest in
ZDNet.................. 61,477 61,477
Net loss................ (55,947) (55,947)
Foreign currency
translation
adjustment............. 299 299
---------- --------- ------- ----- ----------
Balance at September 30,
1999 (unaudited)....... $1,853,115 $(253,185) $(6,771) $(522) $1,592,637
========== ========= ======= ===== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

18
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to present
fairly the combined financial position of ZD at September 30, 1999 and the
results of its combined operations for the three and nine months ended
September 30, 1999 and 1998 and cash flows for the nine months ended September
30, 1999 and 1998 have been included. Operating results for the periods
presented are not necessarily indicative of the results that may be expected
for the year ended December 31, 1999. It is suggested that the statements be
read in conjunction with ZD's combined financial statements and notes thereto
for the year ended December 31, 1998, included in Ziff-Davis Inc.'s Current
Report on Form 8-K dated August 4, 1999 (File No. 001-14055).

Formation of Ziff-Davis Inc.

ZD is the division of Ziff-Davis Inc. focused on the business of print
publishing, tradeshows and conferences, television, market research and
education. ZDNet is the Internet business division of Ziff-Davis Inc. As of
September 30, 1999, ZD held a retained interest in ZDNet of approximately
81.5% (see Note 3).

ZD operates in three business segments: (1) publishing, (2) events and (3)
television.

Publishing

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for computer technology and the
Internet industries. The events segment's principal operations are in the U.S.
and to a lesser extent in Europe and Asia.

19
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for and
about the computer technology and the Internet industries. The television
segment's principal operations are in the U.S although it licenses or
syndicates programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

On April 6, 1999, ZD completed a public offering of 10,000,000 shares of a
new class of common stock called Ziff-Davis Inc.--ZDNet Stock (see Note 3).

Earnings per share

Pro forma net loss per basic common share and the associated weighted
average common shares outstanding in the 1998 period presented on the combined
statement of operations assumes the initial public offering of Ziff-Davis Inc.
common stock (see Note 2) was completed on January 1, 1998.

Pro forma net loss per basic common share presented elsewhere in these
financial statements is calculated based on pro forma net loss for the
transaction being described divided by the weighted average common shares
outstanding indicated on the statement of operations.

Diluted earnings per share are not shown as the impact of stock options
would be anti-dilutive.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

2. Reorganization and Initial Public Offering

20
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is
intended to reflect the performance of Ziff-Davis Inc.'s Internet business
division ("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-
Davis Inc.'s existing common stock was re-classified as Ziff-Davis Inc.--ZD
Common Stock ("ZD Stock"), which is intended to reflect the performance of
Ziff-Davis Inc.'s other businesses and a retained interest in ZDNet (i.e.,
Ziff-Davis Inc.'s interest in ZDNet excluding the interest intended to be
represented by outstanding shares of ZDNet Stock) (collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis
Inc. issued 11,500,000 shares at $19.00 per share, including 1,500,000 shares
issued in conjunction with the underwriters' exercise of their option to
purchase additional shares to cover over-allotments. Ziff-Davis Inc.
attributed to ZDNet 1,500,000 of the sold shares in a manner analogous to a
primary offering, and attributed to ZD 10,000,000 of the sold shares in
respect of its retained interest in ZDNet, in a manner analogous to a
secondary offering. ZD received net proceeds of approximately $172,700,000 and
ZDNet received net proceeds of approximately $25,900,000. The ZDNet net
proceeds were loaned to ZD as an intercompany loan which bears interest at the
rate at which funding is available to Ziff-Davis Inc. After giving effect to
the ZDNet Stock offering, there were 11,500,000 shares of ZDNet Stock
outstanding and another 60,000,000 notional shares of ZDNet Stock intended to
represent ZD's retained interest in ZDNet, which was approximately 83.9%
immediately following the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued with these practices until the ZDNet
Stock was issued. Accordingly, no interest expense or income to or from ZDNet
has been reflected in the financial statements of ZD for any period prior to
the date on which the ZDNet Stock was issued.

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $3,666,000 reduction of interest expense and the tax effect of this
adjustment at a statutory tax rate of 41.0%. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three-month period
ended September 30, 1999.

<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
--------------------
(in thousands except
per share amount)
<S> <C>
Revenue, net......................................... $685,119
Loss from operations................................. (40,764)
Interest expense, net................................ (86,879)
Loss before taxes.................................... (85,423)
Income tax benefit................................... (31,639)
Net loss............................................. (53,784)
Pro forma loss per basic common share................ (.52)
</TABLE>

21
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

4. ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC ("ZDTV") from MAC Holdings
(America) Inc., a related party, for a purchase price of approximately
$81,400,000. ZD paid approximately $32,800,000 of the purchase price in cash
(settled on February 5, 1999) and paid the remainder by applying approximately
$48,600,000 in advances owed to it by MAC Holdings (America) Inc. ZD also
agreed to fund ZDTV during the period in 1999 prior to the purchase which was
accounted for as additional purchase price. Such funding amounted to
approximately $4,200,000.

On February 5, 1999 Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third interest in ZDTV for $54,000,000 in cash. In March
1999, an additional 4.0% equity interest was acquired by ZDTV's president. In
both cases the acquisitions were effected by issuing additional equity.

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the acquisition of a one-third equity interest in ZDTV
by Vulcan Programming Inc. had been consummated on January 1, 1999.
Adjustments for ZDTV transactions include the operating results of ZDTV,
amortization of the purchase price of ZDTV, Vulcan Programming's one-third
interest in the losses of ZDTV and the tax effects of these items. The pro
forma data is not necessarily indicative of actual results had the transaction
occurred on January 1, 1999. Further, pro forma results are not meant to
represent future financial results. There is no pro forma impact for the three
months ended September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended September
30, 1999
-------------------------------
Adjustments
for
ZDTV Pro
ZD transactions Forma
-------- ------------ --------
(in thousands except per share
amounts)
<S> <C> <C> <C>
Revenue................. $685,119 $ 316 $685,435
Loss from operations.... (40,764) (2,546) (43,310)
Net loss................ (55,947) (1,006) (56,953)
Pro forma loss per basic
common share........... (0.56)
</TABLE>

ZDTV 1999 Profits Interest Plan

5. Income Taxes

Income taxes are provided based on ZD's projected annual effective tax rate
which differs from the U.S. federal statutory rate of 35.0% due to (i) certain
items which are not deductible for income tax purposes, primarily losses of
the MAC Assets prior to their purchase by ZD and nondeductible goodwill
amortization, and (ii) the effect of state and local taxes. The tax benefit
recorded for the three and nine months ended September 30, 1999 has been
reflected as a reduction of the deferred tax liability as it is anticipated
that the benefit will be realizable in future periods.

22
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

6. Sale of Business Units

ZD has completed the sale of its 50.0% interest in ExpoComm LLC along with
other smaller business units from the ZD Market Intelligence and ZD Education
platforms. The proceeds from the sale of these business units totaled
$29,105,000 and are reflected as investing activities in the statement of cash
flows.

7. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it had retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular strategic alternatives
and will investigate all possible alternatives, including strategic alliances,
mergers, and the sale or joint venture of all or some of Ziff-Davis Inc.'s
businesses (including the businesses which make up ZD). No assurances can be
given that any transaction will result from the exploration process that
Morgan Stanley has been retained to manage.

On May 24, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley to explore strategic alternatives for its ZD Market Intelligence unit,
the sale of which was completed on October 1, 1999. (See Note 9).

Class action and derivative litigations

ZD and Ziff-Davis Inc. are subject to various claims and legal proceedings
arising in the normal course of business.

The complaints alleged that defendants violated Sections 11, 12(a) (2) and
15 of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock completed on May 4,
1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8,
1998, unspecified damages, interest, fees and costs, rescission, and
injunctive relief such as the imposition of a constructive trust upon the
proceeds of the IPO.

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on June 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933.
On May 20, 1999,Ziff-Davis Inc. moved to dismiss the consolidated amended
complaint. In July 1999, plaintiff filed their response to the motion. Ziff-
Davis Inc. filed a reply on August 11, 1999. The motion has not been decided.

23
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

directors and demand the nullification of the repricing and an injunction
against exercise by the directors of any repriced option. Plaintiffs filed an
amended complaint on February 17, 1999 (which is substantially similar to the
original complaints, except that the amended complaint also addresses the
granting of "new options" at an allegedly "reduced exercise price") and the
actions have been consolidated. Answers to the amended complaint on behalf of
both Ziff-Davis Inc. and its directors were filed on April 12, 1999. Discovery
is proceeding.

Other legal proceedings

Interest rate swap

On June 15, 1999, ZD amended a swap agreement (with a notional amount of
$100,000,000) by reducing the fixed rate paid to the counterparty and
providing the counterparty with a one-time option to cancel the swap agreement
on February 5, 2000. ZD entered into another swap agreement (with a notional
amount of $50,000,000) on June 15, 1999. Under this swap agreement, ZD will
receive a fixed rate of interest and pay a floating rate of interest based on
3 months LIBOR, which resets quarterly, for the term of the agreement.

24
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

8. Segment Information

ZD operates in three reportable business segments: (1) publishing, (2)
events and (3) television. All material inter-segment revenue has been
eliminated. The following table presents information about each of the
reported segments:

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue:
Publishing............................. $165,268 $181,727 $518,626 $571,391
Events................................. 63,085 29,787 157,150 122,690
Television............................. 3,642 -- 9,343 --
-------- -------- -------- --------
Total................................ $231,995 $211,514 $685,119 $694,081
======== ======== ======== ========
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Publishing............................. $ 21,253 $ 25,415 $ 89,745 $ 84,321
Events................................. 35,962 2,135 60,164 21,879
Television............................. (7,030) -- (20,924) --
-------- -------- -------- --------
Total................................ $ 50,185 $ 27,550 $128,985 $106,200
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing.................................... $2,113,328 $2,285,920
Events........................................ 1,195,191 1,144,018
Television.................................... 124,432 --
---------- ----------
Total....................................... $3,432,951 $3,429,938
========== ==========
</TABLE>

A reconciliation of EBITDA to loss before income taxes is below:

<TABLE>
<CAPTION>
Three months
ended Nine months ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
-------- -------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total segment EBITDA................. $ 50,185 $ 27,550 $128,985 $ 106,200
Depreciation and amortization of
property and equipment.............. (7,724) (7,253) (23,527) (21,235)
Amortization of intangible assets.... (32,784) (28,953) (96,549) (88,579)
Stock-based compensation............. (635) (63) (1,908) (189)
Retained interest in ZDNet's non-
EBITDA losses....................... (4,380) (1,645) (9,670) (4,468)
Minority interest in ZDTV's non-
EBITDA losses....................... 1,529 -- 4,125 --
Interest expense, net................ (29,025) (29,093) (90,545) (111,185)
-------- -------- -------- ---------
Loss before income taxes............. $(22,834) $(39,457) $(89,089) $(119,456)
======== ======== ======== =========
</TABLE>

25
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

9. Subsequent Events

Sale of Market Intelligence Unit

On October 1, 1999, Ziff-Davis Inc. completed the sale of its Market
Intelligence unit for $101,000,000 in cash plus $5,000,000 in assumed deferred
revenue obligations.

Smart Planet Inc.

26
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
</TABLE>
Current assets:
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 491 $ 292
Accounts receivable, net.................................... 20,882 18,732
Receivable from ZD.......................................... 16,729 --
Deferred taxes.............................................. -- 779
Other current assets........................................ 453 265
-------- -------
Total current assets...................................... 38,555 20,068
Securities available for sale................................. 7,916 --
Property and equipment, net................................... 6,400 5,618
Investments, at cost.......................................... 11,618 5,000
Deferred taxes................................................ 2,883 4,274
Intangible assets, net........................................ 112,278 62,726
-------- -------
Total assets.............................................. $179,650 $97,686
======== =======
</TABLE>

<TABLE>
<S> <C> <C>
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable............................................ $ 4,095 $ 2,553
Accrued expenses............................................ 5,458 3,495
Unearned income............................................. 8,523 1,078
-------- -------
Total current liabilities................................. 18,076 7,126
Non-current liabilities....................................... -- 1,013
-------- -------
Total liabilities......................................... 18,076 8,139
-------- -------
Commitments and contingencies (see Note 9)
Division equity............................................... 161,574 89,547
-------- -------
Total liabilities and division equity..................... $179,650 $97,686
======== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

27
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net............... $ 26,291 $ 14,504 $ 67,791 $ 36,466
Cost of operations:
Production and content... 9,205 5,906 25,491 18,971
Selling, general and
administrative
expenses................ 12,464 6,801 31,241 22,048
Stock-based
compensation............ 839 -- 2,953 --
Depreciation and
amortization of property
and equipment........... 860 617 2,031 1,362
Amortization of
intangible assets....... 3,376 1,020 5,759 3,418
----------- ----------- ----------- -----------
Income (loss) from
operations................ (453) 160 316 (9,333)
Interest income............ 393 -- 943 --
Minority interest.......... -- 60 117 330
----------- ----------- ----------- -----------
Income (loss) before income
taxes..................... (60) 220 1,376 (9,003)
Income tax provision
(benefit)................. 681 8 1,487 (312)
----------- ----------- ----------- -----------
Net income (loss).......... $ (741) $ 212 $ (111) $ (8,691)
=========== =========== =========== ===========
Pro forma net income (loss)
per basic common share.... $ (.01) $ .00 $ (.00) $ (.12)
Pro forma weighted average
basic common shares
outstanding............... 73,402,667 71,500,000 72,315,852 71,500,000
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

28
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine months
Three months ended ended
September 30, September 30,
--------------------- ---------------
1999 1998 1999 1998
---------- --------- ------ -------
<S> <C> <C> <C> <C>
Net (loss) income ...................... $ (741) $ 212 $ (111) $(8,691)
Other comprehensive income (loss), net
of tax:
Foreign currency translation
adjustments.......................... 118 (129) 864 (105)
Unrealized (loss) gain on securities
available for sale................... (1,648) -- 989 --
---------- -------- ------ -------
Comprehensive (loss) income ............ $ (2,271) $ 83 $1,742 $(8,796)
========== ======== ====== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

29
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (111) $(8,691)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization of property and equipment.. 2,031 1,362
Amortization of intangible assets........................ 5,759 3,418
Minority interest........................................ (117) --
Deferred tax provision (benefit)......................... 1,487 (312)
Stock-based compensation................................. 2,953 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,731) (3,712)
Other current assets................................... (191) (1)
Accounts payable and accrued expenses.................. 2,923 2,867
Unearned income........................................ 1,205 734
Other, net............................................. 814 (329)
-------- -------
Net cash provided (used) by operating activities........... 15,022 (4,664)
-------- -------
Cash flows from investing activities:
Capital expenditures..................................... (2,763) (3,181)
Investments.............................................. (6,618) (5,000)
Acquisitions............................................. (12,000) --
-------- -------
Net cash used by investing activities...................... (21,381) (8,181)
-------- -------
Cash flows from financing activities:
Capital (distributions) contributions to from ZD......... (2,723) 13,242
Advances to ZD, net...................................... (16,686) --
Proceeds from stock offering(1).......................... 25,885 --
Proceeds from exercise of stock options.................. 82 --
-------- -------
Net cash provided by financing activities.................. 6,558 13,242
-------- -------
Net increase in cash and cash equivalents.................. 199 397
Cash and cash equivalents at beginning of period........... 292 28
-------- -------
Cash and cash equivalents at end of period................. $ 491 $ 425
======== =======
</TABLE>
- --------
(1) Net of transaction costs of $2,615.

The accompanying notes are an integral part of the combined financial
statements.

30
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Unrealized gain Cumulative Total
Division Deferred Accumulated on securities translation division
capital compensation deficit available for sale adjustment equity
--------- ------------ ----------- ------------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $ 148,975 $(13,345) $ (46,047) $-- $(36) $ 89,547
Return of capital to
parent................. (2,723) (2,723)
Stock-based compensation
earned................. 2,953 2,953
Unrealized gain on
securities available
for sale, net.......... 989 989
Issuance of ZDNet
Stock.................. 25,885 25,885
Acquisition of
GameSpot............... 12,031 (443) 11,588
Exercise of ZDNet
options................ 82 82
Stock issued for
acquisitions........... 32,500 32,500
Net income.............. (111) (111)
Foreign exchange
translation
adjustment............. 864 864
--------- -------- --------- ---- ---- --------
Balance at September 30,
1999 (unaudited)....... $ 216,750 $(10,835) $(46,158) $989 $828 $161,574
========= ======== ========= ==== ==== ========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

31
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary to present
fairly the combined financial position of ZDNet at September 30, 1999 and the
results of its combined operations for the three and nine months ended
September 30, 1999 and 1998 and cash flows for the nine months ended September
30, 1999 and 1998 have been included. Operating results for the periods
presented are not necessarily indicative of the results that may be expected
for the year ended December 31, 1999. It is suggested that the statements be
read in conjunction with ZDNet's combined financial statements for the year
ended December 31, 1998, included in Ziff-Davis Inc.'s Current Report on Form
8-K dated August 4, 1999 (File No. 001-14055).

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of Softbank
("MAC Assets").

ZDNet is the Internet business division of Ziff-Davis Inc. ZD is the
division of Ziff-Davis Inc. focused on the business of print publishing, trade
shows and conferences, television, market research and education. At September
30, 1999, ZD held a retained interest in ZDNet of approximately 81.5% (see
Note 3).

Acquisition of GameSpot, Inc.

In January 1997, SOFTBANK Holdings Inc. ("SBH"), an affiliate of Ziff-Davis
Inc., acquired 70.0% of GameSpot Inc. ("GameSpot", formerly SpotMedia
Communications, Inc.) for approximately $3,000,000. Funds for this acquisition
were provided by Ziff-Davis Inc. to SBH. As part of the reorganization and
initial public offering that was completed on May 4, 1998 (See Note 2), the
70.0% interest in GameSpot was contributed to ZDNet. Because GameSpot and
Ziff-Davis Inc. were under common control at the time of the transaction, the
GameSpot acquisition has been accounted for in a manner similar to a pooling
of interests and GameSpot's results have been included in ZDNet's results
since the time of common ownership (January 1997).

On April 7, 1999, Ziff-Davis Inc. completed the acquisition of the remaining
30.0% interest in GameSpot in exchange for 600,000 newly issued shares of
Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock") valued at approximately
$11,400,000. This acquisition has been accounted for under the purchase method
of accounting.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

32
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

2. Reorganization and Initial Public Offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary, SBH,
completed a reorganization whereby the common stock of the predecessor
companies to Ziff-Davis Inc. was contributed to Ziff-Davis Inc. in exchange
for 73,619,355 shares of Ziff-Davis Inc.'s common stock. Concurrent with the
reorganization, Ziff-Davis Inc. (1) completed an initial public offering of
25,800,000 common shares at an initial public offering purchase price of
$15.50 per share, (2) issued $250,000,000 of 8 1/2% subordinated notes due
2008, (3) entered into a $1,350,000,000 credit facility with a group of banks
under which $1,250,000,000 was borrowed and (4) converted $908,673,000 of
intercompany indebtedness to equity. In addition, Ziff-Davis Inc. received
approximately $9,107,000 of fixed assets from Kingston Technology Company
("Kingston"), a related party, in exchange for 580,645 shares of Ziff-Davis
Inc.'s common stock and $107,000 in cash. These assets have been subsequently
leased back to Kingston. Total shares of common stock issued to Softbank were
74,200,000. The transactions described above are herein referred to as the
"Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of certain assets from MAC for $370,000,000, and repay
intercompany indebtedness. The ZDNet business was a portion of the MAC Assets
acquired at that time.

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is
intended to reflect the performance of Ziff-Davis Inc.'s Internet business
division ("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-
Davis Inc.'s existing common stock was re-classified as Ziff-Davis Inc.--ZD
Common Stock ("ZD Stock"), which is intended to reflect the performance of
Ziff-Davis Inc.'s other businesses and a retained interest in ZDNet (i.e.,
Ziff-Davis Inc.'s retained interest in ZDNet excluding the interest intended
to be represented by outstanding shares of ZDNet Stock)(collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis
Inc. issued 11,500,000 shares at $19.00 per share including 1,500,000 shares
issued in conjunction with the underwriters' exercise of their option to
purchase additional shares to cover over-allotments. Ziff-Davis Inc.
attributed to ZDNet 1,500,000 of the sold shares in a manner analogous to a
primary offering and the related net proceeds of approximately $25,900,000.
The full amount of the net proceeds was loaned to ZD as an intercompany loan
which bears interest at the rate at which funding is available to Ziff-Davis
Inc. After giving effect to the ZDNet Stock offering, there were 11,500,000
shares of ZDNet Stock outstanding and another 60,000,000 notional shares of
ZDNet Stock intended to represent ZD's retained interest in ZDNet, which was
approximately 83.9% immediately following the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued these practices until the ZDNet Stock
was issued. Accordingly, no interest expense or income to or from ZD has been
reflected in the financial statements of ZDNet for any period prior to the
date on which the ZDNet Stock was issued.

The following summary pro forma information has been prepared as if the
ZDNet Stock offering had been consummated on January 1, 1999. The pro forma
adjustments include the recognition of $550,000 of interest income from ZD and
the tax effect of this adjustment at a statutory tax rate of 41.0%. The pro
forma data is not

33
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three month period
ended September 30, 1999.

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999
-----------------
(in thousands,
except share
amounts)
<S> <C>
Revenue, net.......................................... $67,791
Loss from operations.................................. 316
Interest income....................................... 1,493
Income before taxes................................... 1,926
Income tax provision.................................. 1,712
Net income............................................ 214
Pro forma net income per basic and diluted common
share................................................ 0.00
</TABLE>

4. Investments

BuyDirect.com Inc.

On February 19, 1999 ZDNet acquired warrants to purchase 2,005,400 shares of
Series E preferred stock of BuyDirect.com Inc. ("Series E shares") at a
exercise price $1.65 per share. On March 25, 1999, ZDNet exercised its
warrants and received 1,510,020 Series E shares in a cashless exercise by
exchanging 495,380 warrants in lieu of payment of the exercise price. On March
30, 1999, BuyDirect.com Inc. was acquired by Beyond.com Corporation and these
Series E shares were converted to 438,057 shares of Beyond.com Corporation and
at September 30, 1999 are reflected in the balance sheet as Securities
Available for Sale.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants on February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair
value of the warrants was determined to be $6,240,000.

In June 1999, ZDNet entered into an agreement to hedge a portion of the
unrealized gain associated with these shares. (See Note 9).

Deja.com Inc.

On May 13, 1999, ZDNet made an additional investment in Deja.com Inc.
(formerly Deja News, Inc.) with the purchase of 386,939 shares of Series D
convertible non-voting preferred stock at a purchase price of $3.61 per share.
This investment is accounted for at cost.

Onebox.com, Inc.

On July 30, 1999, ZDNet made an investment in Onebox.com, Inc. with the
purchase of 346,650 shares of Series B preferred stock at a purchase price of
approximately $1,000,000. This investment is accounted for at cost.

Techies.com, Inc.

On September 14, 1999, ZDNet made an investment in Techies.com, Inc. ZDNet
paid $4,000,000 in cash for 655,738 shares of Series B convertible preferred
stock. This investment is accounted for at cost.

34
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

5. Acquisitions

Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for a purchase price of
approximately $18,500,000. Consideration was in the form of $5,000,000 in cash
and 582,526 shares of ZDNet Stock valued at $13,500,000. This acquistion was
accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, ZDNet acquired SoftSeek Inc. for a purchase price of
approximately $26,000,000. Consideration was in the form of $7,000,000 in cash
and 991,038 shares of ZDNet stock valued at $19,000,000. This acquisition was
accounted for under the purchase method of accounting.

6. Income Taxes

Income taxes are provided based on ZDNet's projected annual effective tax
rate which differs from the U.S. federal statutory rate of 35.0% due to (i)
certain items which are not deductible for income tax purposes, primarily
nondeductible goodwill amortization, and (ii) the effect of state and local
taxes. In addition, tax benefits attributable to losses in foreign
jurisdictions and certain U.S. losses are subject to the establishment of a
valuation allowance inasmuch as such loss carryforwards are not expected to be
utilized in the future. The tax benefit recorded for the nine months ended
September 30, 1999 has been reflected as a non-current deferred tax asset as
it is anticipated that the benefit will reverse in future periods when ZDNet
generates taxable income.

7. Earnings per share

Pro forma earnings per share and the related weighted average common shares
outstanding presented in the statement of operations assume that the ZDNet
Stock offering (see Note 3) occurred on January 1, 1998. Diluted earnings per
share are not shown as the impact of stock options would be anti-dilutive.

8. Registration Statement

9. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it has retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular strategic alternative
and will investigate all possible alternatives, including strategic alliances,
mergers, and the sale or joint venture of all or some of Ziff-Davis Inc.'s
businesses (including ZDNet). No assurances can be given that any transaction
will result from the exploration process that Morgan Stanley Dean Witter has
been retained to manage.

35
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Class action and derivative litigations

ZDNet and Ziff-Davis Inc. are subject to various legal proceedings arising
in the normal course of business.

Other legal proceedings

36
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Beyond.com Hedge

In June 1999, ZDNet entered into a short-sale to effect a hedge on 300,000
of its 438,057 shares of Beyond.com. These shares were sold on behalf of ZDNet
by a third party at a weighted average price of $22.50 per share. In September
1999, ZDNet delivered the shares required to close the short position by
repurchasing the shares at a market price of $14.00 per share. A gain of
approximately $2,600,000 was deferred in the period related to this hedge
transaction.

10. Subsequent Events

Registration statement

37
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Ziff-Davis Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Overview

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998. Prior to that date, the
predecessors of Ziff-Davis Inc. were wholly owned indirect subsidiaries of
SOFTBANK Corp. (together with its non-Ziff-Davis Inc. affiliates, "Softbank")
or assets owned by MAC Inc., an affiliate of SOFTBANK Corp. ("MAC Assets"). As
such, financial statements for periods prior to May 4, 1998 have been prepared
on a combined basis while the financial statements for the periods after May
4, 1998 have been prepared on a consolidated basis.

Ziff-Davis Inc.'s revenue and profitability are influenced by a number of
external factors, including the volume of new technology product
introductions, the amount and allocation of marketing expenditures by clients,
the extent to which sellers elect to advertise using print and online media or
participate in industry events, and competition among computer technology
marketers. Accordingly, Ziff-Davis Inc. may experience fluctuations in revenue
from period to period.

Historically, Ziff-Davis Inc.'s business has been seasonal, earning a
significant portion of its revenue in the second and fourth quarters. In
addition, the shift in timing of a tradeshow or conference may result in
material differences in comparison to prior periods.

On July 14, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley Dean Witter ("Morgan Stanley") to explore strategic alternatives to
maximize shareholder value. The Ziff-Davis Inc. Board of Directors has not
embraced any particular strategic alternatives, and will investigate all
possible alternatives, including strategic alliances, mergers and the sale or
joint venture of all or some of Ziff-Davis Inc.'s businesses. No assurances
can be given that any transaction will result from the exploration process
that Morgan Stanley has been retained to manage.

On October 1, 1999, Ziff-Davis Inc. completed the sale of its ZD Market
Intelligence ("ZDMI") unit for $101.0 million in cash plus $5.0 million in
assumed deferred revenue obligations. In 1998, the latest complete fiscal
year, ZDMI contributed 5.1% of the Company's total revenue and 3.2% of total
EBITDA. As such, the sale of this business unit is not expected to have a
material impact on the future results of operations or cash flows of Ziff-
Davis Inc.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is
intended to reflect the performance of Ziff-Davis Inc.'s Internet business
division, ZDNet. When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis
Inc.'s existing common stock was re-classified as Ziff-Davis Inc.--ZD Common
Stock ("ZD Stock"), which is intended to reflect the performance of Ziff-Davis
Inc.'s other businesses and a retained interest in ZDNet. The businesses
represented by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11.5 million shares of ZDNet Stock, including 1.5 million shares issued
in conjunction with the underwriters' exercise of their option to purchase
additional shares to cover over-allotments. Net proceeds of approximately
$198.6 million were received on April 6, 1999.

38
<PAGE>

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC ("ZDTV") from MAC
Holdings (America) Inc., a related party, for a purchase price of
approximately $81.4 million. Ziff-Davis Inc. paid approximately $32.8 million
of the purchase price in cash (settled on February 5, 1999) and paid the
remainder by applying approximately $48.6 million in advances owed to it by
MAC Holdings (America) Inc. Ziff-Davis Inc. also agreed to be responsible for
the funding of ZDTV during the period in 1999 prior to the purchase which was
accounted for as additional purchase price. Such funding amounted to
approximately $4.2 million.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third equity interest in ZDTV for $54.0 million in cash.
In March 1999, an additional 4.0% equity interest was acquired by ZDTV's
president. In both cases, the acquisitions were effected by issuing additional
equity.

As a result of the acquisition, Ziff-Davis Inc. recorded an increase in
intangible assets of $76.1 million which will be amortized over 10 years.
ZDTV's cash requirements are currently expected to be approximately $50
million for 1999. The $54.0 million invested in ZDTV by Vulcan Programming
Inc. will be used to fund ZDTV and thereafter cash requirements will be funded
by the members or by third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for $50.0
million in cash.

GameSpot Inc.

On April 7, 1999, Ziff-Davis Inc. closed on the acquisition of the remaining
30% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet Stock valued at approximately $11.4 million. This acquisition was
accounted for under the purchase method of accounting.

Updates.com Inc.

On July 2, 1999, Ziff-Davis Inc. acquired Updates.com, Inc. for $5.0 million
in cash and 582,526 shares of ZDNet Stock valued at $13.5 million. This
acquisition was accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, Ziff-Davis Inc. acquired SoftSeek Inc. for $7.0 million in
cash and 991,038 shares of ZDNet Stock valued at $19 million. This acquisition
was accounted for under the purchase method of accounting.

In connection with the acquisitions described in the preceding three
paragraphs, Ziff-Davis Inc. will record additional amortization expense in
1999 of approximately $5.5 million.

Presentation of Financial Information

Ziff-Davis Inc. is comprised of certain operations which were acquired at
various times and completed a reorganization in May 1998. See Notes 1 and 2 to
the Consolidated Financial Statements included in Ziff-Davis Inc.'s Annual
Report on Form 10-K (File No. 001-14055).

39
<PAGE>

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998

Revenue

Revenue for the third quarter of 1999 was $258.3 million compared to $226.0
million for the third quarter of 1998, an increase of $32.3 million or 14.3%.
Revenue by segment is summarized in the following table:

<TABLE>
<CAPTION>
Three months
ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing............................................. $165,268 $181,727
Events................................................. 63,085 29,787
Internet............................................... 26,291 14,504
Television............................................. 3,642 --
-------- --------
Total................................................ $258,286 $226,018
======== ========
</TABLE>

Revenue from the publishing segment decreased by $16.5 million or 9.1% from
$181.7 million in the third quarter of 1998 to $165.3 million in the third
quarter of 1999. Excluding the effect of the three magazines that were closed
in October 1998 as part of a restructuring, publishing segment revenue
decreased by $10.4 million or 5.9%. Revenue from newer business publications
and consumer publications increased by 80.8% and 28.1%, respectively, but were
more than offset by a revenue decline from the major business publications,
most significantly at Computer Shopper. Margin pressure on computer equipment
manufacturers, industry consolidation product delays, and a focus on Year 2000
transition contributed to reduced demand for advertising in these
publications.

Revenue from the events segment increased by $33.3 million or 111.8% from
$29.8 million in the third quarter of 1998 to $63.1 million in the third
quarter of 1999. The primary reason for the increase was the shift of two
events from the fourth quarter of 1998 to the third quarter of 1999. Excluding
the shifting of events, revenue decreased by $5.7 million or 8.3%, primarily
due to the discontinuation of certain smaller events.

Revenue from the Internet segment increased by $11.8 million or 81.3% from
$14.5 million in the third quarter of 1998 to $26.3 million in the third
quarter of 1999. Revenue from advertising accounted for 92.7% of total revenue
for 1999 compared to 86.4% for the same period in 1998. During the period both
the number of advertisers and the average monthly revenue per advertiser
increased as did the average sale price per page. Subscription-based fees and
services declined as expected and were $1.9 million of the three months ended
September 30, 1999 compared to $2.0 million for the same period in 1998.

Revenue from the television segment was $3.6 million for 1999. The
television segment was acquired on February 4, 1999 when Ziff-Davis Inc.
purchased ZDTV from MAC Holdings (America) Inc. for an aggregate purchase
price of $81.4 million. (See Note 4 in the Ziff-Davis Inc. Unaudited
Consolidated Financial Statements).

Cost of production

The cost of production increased by $6.4 million or 10.3% from $62.5 million
in the third quarter of 1998 to $69.0 million in the third quarter of 1999.
The increase was driven by the acquisition of ZDTV and the shift in timing of
certain events. The increase was mostly offset by the decline in publishing
production costs related to a decline in advertising pages and the absence of
costs related to the closure of certain publications. Cost of production was
26.7% and 27.7% of revenue for the three months ended September 30, 1999 and
1998, respectively. The decrease as a percentage of revenue primarily reflects
the increased profitability of ZDNet.

40
<PAGE>

Selling, general and administrative expenses

Selling, general and administrative expenses were $157.5 million for the
third quarter of 1999 compared to $140.4 million in the third quarter of 1998,
an increase of $17.1 million or 12.2%. The increase was primarily related to
the acquisition of ZDTV and the increase in personnel and advertising costs
required to support the growth of ZDNet, partially offset by the reduced costs
as a result of the fourth quarter 1998 restructuring. Selling, general and
administrative expenses were 61.0% and 62.1% of revenue for the three months
ended September 30, 1999 and 1998, respectively.

Stock-based compensation

Stock-based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-
based compensation increased by $1.4 million from $0.1 million in the third
quarter of 1998 to $1.5 million for the third quarter of 1999. The increase
was a result of the issuance of certain options of ZDNet Stock and the
conversion of certain SOFTBANK Corp. stock options to Ziff-Davis Inc. stock
options in December 1998, both of which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $44.7 million for the third
quarter of 1999 compared to $37.8 for the third quarter of 1998, an increase
of $6.9 million or 18.2%. The primary reason for the increase was depreciation
and amortization of assets associated with the acquisitions of ZDTV,
Updates.com and SoftSeek along with depreciation at Ziff-Davis Inc.'s new
offices. These increases were partially offset by the absence of amortization
related to intangible assets written off as part of the October 1998
restructuring.

Interest expense, net

Net interest expense declined by $0.5 million or 1.6% to $28.6 million for
the third quarter of 1999 from $29.1 million for the third quarter of 1998.
This was primarily due to a significant reduction in Ziff-Davis Inc.'s
outstanding debt through the reorganization and initial public offering
completed in May 1998 and the ZDNet Stock offering completed in April 1999,
partially offset by higher average interest rates in the 1999 period and non-
cash interest charges related to the amortization of fees paid in connection
with the December 1998 amendment to the credit facility.

Other non-operating income, net

Other non-operating income primarily reflects Ziff-Davis Inc.'s equity share
of earnings and losses from joint ventures, fees earned from management of
events not produced by Ziff-Davis and gains or losses realized on the
disposition of business units. Income of $15.3 million for the quarter ended
September 30, 1999 was $10.9 million higher than the income for the same
period in 1998 of $4.4 million. This difference was primarily due to one-time
gains of $13.3 million from the sale of several business units, principally
the sale of Ziff-Davis Inc.'s 50.0% interest in the ExpoComm joint venture,
partially offset by lower joint venture and management fee income. The sale of
these business units is not expected to have a material impact on Ziff-Davis
Inc.'s future results from operations or cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of Ziff-Davis Inc.'s
subsidiaries increased $5.4 million from $0.1 million for the third quarter of
1998 to $5.5 million for the third quarter of 1999. This increase is primarily
due to the sale of a one-third interest in ZDTV in February 1999, creating a
minority interest in the losses of ZDTV.

41
<PAGE>

Income taxes

The consolidated tax benefit for the third quarter of 1999 was $7.3 million
compared to $35.0 million in the third quarter of 1998. The effective tax rate
for the three months ended September 30, 1999 was 32.6% compared to 88.6% for
the 1998 quarter. The difference is due to variances in the projected annual
effective tax rate for the respective years. These rates are based on
estimates for annual earnings and taxes available at the time and reflect
adjustments to record year-to-date income tax benefits or expense at revised
rates of 36.1% and 28.0% for the 1999 and 1998 periods, respectively. The
actual annual effective tax rate for 1988 was 25.4%.

Income taxes are provided based on Ziff-Davis Inc.'s projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35.0%
due to certain items which are not deductible for income tax purposes,
primarily (i) losses of the MAC Assets prior to their purchase by Ziff-Davis
Inc., (ii) non-deductible goodwill amortization, and (iii) the effect of state
and local taxes. The deferred tax benefit for the three months ended September
30, 1999 has been reflected as a reduction of the long-term deferred tax
liability.

Net loss

As a result of the factors discussed above, the net loss increased from $4.5
million for the three months ended September 30, 1998 to $15.0 million for the
three months ended September 30, 1999.

EBITDA

EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation
expense. EBITDA as reported for Ziff-Davis Inc. includes its interest in the
EBITDA of ZDTV, currently 64.0%.

EBITDA for the third quarter of 1999 was $51.0 million compared to $27.6
million for the third quarter of 1998, an increase of $23.4 million or 84.8%.
This change in EBITDA reflects the shift in timing of two events, one-time
gains from the sale of business units, and the significant improvement at
ZDNet, partly offset by the inclusion of ZDTV losses and declines in the
publishing segment.

Comparison of the nine months ended September 30, 1999 and 1998

Revenue

Revenue for the nine months ended September 30, 1999 was $752.9 million
compared to $730.5 million for the nine months ended September 30, 1998, an
increase of $22.3 million or 3.1%. Revenue by segment is summarized in the
following table:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing............................................. $518,626 $571,391
Events................................................. 157,150 122,690
Internet............................................... 67,791 36,466
Television............................................. 9,343 --
-------- --------
Total................................................ $752,910 $730,547
======== ========
</TABLE>

42
<PAGE>

revenue decreased by $28.7 million or 5.2%. Revenue from newer business
publications and consumer publications increased by 53.8% and 43.8%,
respectively, but were more than offset by a decline from the major business
publications, most significantly at Computer Shopper. Margin pressure on
computer equipment manufacturers, industry consolidation, product delays, and
a focus on Year 2000 transition contributed to reduced demand for advertising
in these publications.

Revenue from the events segment increased by $34.5 million or 28.1% from
$122.7 million in the nine months ended September 30, 1998 to $157.2 million
in the nine months ended September 30, 1999. This increase is primarily due to
the shift in timing of two events from the fourth quarter of 1998 to the third
quarter of 1999. This increase was partly offset by declines related to
discontinuation of certain smaller shows.

Revenue from the Internet segment increased by $31.3 million or 85.9% from
$36.5 million in the first nine months of 1998 to $67.8 million for the first
nine months of 1999. Revenue from advertising accounted for 92.4% of total
revenue for 1999 compared to 83.1% for the same period in 1998. During the
period both the number of advertisers and the average monthly revenue per
advertiser increased as did the average sale price per page. Subscription-
based fees and services declined as expected and were $5.1 million for the
nine months ended September 30, 1999 compared to $6.2 million for the same
period in 1998.

Revenue from the television segment was $9.3 million for 1999. The
television segment was acquired on February 4, 1999 when Ziff-Davis Inc.
purchased ZDTV from MAC Holdings (America) Inc. for an aggregate purchase
price of $81.4 million. (See Note 4 in the Ziff-Davis Inc. Unaudited
Consolidated Financial Statements.)

Cost of production

The cost of production decreased by $5.4 million or 2.6% from $207.4 million
for the nine months ended September 30, 1998 to $202.0 million for the nine
months ended September 30, 1999. The decline was consistent with the decrease
in revenue attributed to the discontinuation of three magazines in October
1998 as well as the decline in advertising pages in the business magazines.
These cost reductions were partially offset by production costs incurred from
the acquisitions of ZDTV and the shift in timing of certain events. Cost of
production was 26.8% and 28.4% of revenue for the three months ended September
30, 1999 and 1998, respectively. The decrease as a percentage of revenue
primarily reflects the increased profitability of ZDNet.

Selling, general and administrative expenses

Selling, general and administrative expenses were $458.6 million for the
nine months ended September 30, 1999 compared to $425.8 million for the nine
months ended September 30, 1998, an increase of $32.8 million or 7.7%. The
increase was primarily related to the acquisition of ZDTV and increased cost
to support ZDNet's growth, offset by cost savings realized from the October
1998 restructuring. Selling, general and administrative expenses were 60.9%
and 58.3% of revenue for the nine months ended September 30, 1999 and 1998,
respectively. The percentage increase primarily represents increased personnel
costs related to the growth of ZDNet.

Stock-based compensation

Stock-based compensation increased by $4.7 million from $0.2 million for the
first nine months of 1998 to $4.9 million for the same period of 1999. The
increase was a result of the issuance of certain options of ZDNet Stock and
the conversion of certain SOFTBANK Corp. stock options to Ziff-Davis Inc.
stock options in December 1998, both of which resulted in compensation. In
addition, $0.4 million of stock compensation was incurred in 1999 relating to
the issuance of ZDNet stock options as part of completing the GameSpot
minority interest acquisition.

Depreciation and amortization

Total depreciation and amortization expense was $127.9 million for the nine
months ended September 30, 1999 compared to $114.6 million for the nine months
ended September 30, 1998, an increase of $13.3 million or

43
<PAGE>

11.6%. The primary reason for the increase was depreciation and amortization
of assets acquired through acquisitions of ZDTV, Sky TV, Updates.com and
SoftSeek, as well as assets associated with Ziff-Davis Inc.'s new
headquarters. These increases were partially offset by the absence of
amortization related to intangible assets written off as part of the October
1998 restructuring.

Interest expense, net

Net interest expense declined by $21.6 million or 19.4% from $111.2 million
for the nine months ended September 30, 1998 to $89.6 million for the nine
months ended September 30, 1999. This was primarily due to a significant
reduction in Ziff-Davis Inc.'s outstanding debt through the reorganization and
initial public offering completed in May 1998 and the ZDNet Stock offering
completed in April 1999, partially offset by higher average interest rates in
the 1999 period and non cash interest charges related to the amortization of
fees paid in connection with the December 1998 amendment to the credit
facility.

Other non-operating income, net

Income of $26.8 million for the nine months ended September 30, 1999 was
$18.3 million higher than the income for the same period in 1998 of $8.5
million, primarily due to $20.4 million of one-time gains from the sale of
several business units, partially offset by lower joint venture and management
fee income. The sale of these business units is not expected to have a
material impact on Ziff-Davis Inc.'s future results of operations or cash
flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of Ziff-Davis Inc.'s
subsidiaries increased $15.4 million from $0.3 million to $15.7 million. This
increase is primarily due to the sale of a one-third interest in ZDTV in
February 1999, creating a minority interest in the losses of ZDTV.

Income taxes

The consolidated tax benefit for the nine months ended September 30, 1999
was $31.7 million compared to $33.6 million in the nine months ended September
30, 1998. The effective tax rate for the nine months ended September 30, 1999
was 36.1% compared to 28.0% for the 1998 period. These rates are based on
estimates for annual earnings and taxes available at the time. The actual
annual effective tax rate for 1998 was 25.4%.

Net loss

As a result of the factors discussed above, the net loss decreased from
$86.2 million for the nine months ended September 30, 1998 to $55.9 million
for the nine months ended September 30, 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $130.6 million
compared to $106.2 million for the nine months ended September 30, 1998, an
increase of $24.4 million or 23.0%. This increase is primarily due to the
shift in timing of events, one-time gains from the sale of businesses and
improvements at ZDNet, partly offset by the inclusion of ZDTV losses and a
decline in the publishing segment.

Liquidity and Capital Resources

At September 30, 1999, Ziff-Davis Inc.'s total outstanding debt was $1,272.7
million, excluding unamortized discount, and consisted of $72.7 million due to
Softbank and $1,200.0 million in notes.

Cash and cash equivalents were $29.8 million at September 30, 1999 compared
to $32.6 million at December 31, 1998. The change during the nine months ended
September 30, 1999 was due to the factors discussed below.

44
<PAGE>

Cash provided by operations was $63.9 million for the nine months ended
September 30, 1999 compared to $82.8 million for the nine months of 1998
primarily due to changes in working capital.

Cash used by investing activities was $96.7 million for the nine months
ended September 30, 1999 compared to $40.6 million for the nine months ended
September 30, 1998. The increase reflects higher capital spending of $37.2
million primarily due to one-time spending on relocation of the New York
operations. In addition, Ziff-Davis Inc. paid $9.4 million to the previous
owners of Inter@ctive Enterprises in connection with the contingent purchase
price adjustment. The remainder of the increase relates to an increase in the
cash paid for acquisitions of $39.0 million, primarily of ZDTV ($32.8
million), partly offset by $29.1 million of proceeds from the sale of several
business units, principally the sale of Ziff-Davis Inc.'s 50.0% interest in
the ExpoComm joint venture.

Cash provided by financing activities was $30.0 million for the nine months
ended September 30, 1999 compared to a use of $45.3 million for the nine
months ended September 30, 1998. Financing activities in 1998 primarily
represent remittance of excess cash to Softbank to repay intercompany
obligations prior to ZD's initial public offering. Financing activities in
1999 include the ZDNet Stock offering, proceeds of $54.0 million from Vulcan
Programming Inc. for the issuance of a one-third equity interest in ZDTV and
$50.0 million for issuing approximately 3 million shares of ZD Common Stock to
Vulcan Ventures Inc., as well as the partial use of these proceeds to repay
indebtedness.

In connection with Ziff-Davis Inc.'s intention to pursue strategic
alternatives, programs have been put in place in order to retain employees.
The cost of such programs, which include enhanced severance packages,
accelerated vesting of stock options and employer contributions to the 401(k)
plan, can not yet be estimated.

Ziff-Davis Inc. believes, based on it current level of operations and
anticipated growth, that its ability to generate cash, together with cash on
hand and available lines of credit, will be sufficient to make required
payments of principal and interest on its indebtedness and to fund anticipated
capital expenditures and working capital requirements. However, actual capital
expenditures may change, particularly as a result of any acquisitions Ziff-
Davis Inc. may pursue. The ability of Ziff-Davis Inc. to meet its debt service
obligations and reduce its total debt will depend on its future performance.

Interest rate swap

On June 15, 1999, Ziff-Davis Inc. amended a swap agreement (with a notional
amount of $100 million) by reducing the fixed rate paid to the counterparty
and providing the counterparty with a one-time option to cancel the swap
agreement on February 5, 2000. Ziff-Davis Inc. entered into another swap
agreement (with a notional amount of $50 million) on June 15, 1999. Under this
swap agreement, Ziff-Davis Inc. will receive a fixed rate of interest and pay
a floating rate of interest based on 3 months LIBOR, which resets quarterly,
for the term of the agreement.

Restructuring

In October 1998, Ziff-Davis Inc. announced a restructuring program with the
intent of significantly reducing its cost base. As a result, a charge of $52.2
million was recorded in the fourth quarter of 1998. The charge included asset
impairment costs ($37.9 million), employee termination costs ($8.6 million)
and costs to exit activities ($5.7 million). Approximately $3.7 million
remains accrued on the balance sheet related to the restructuring, primarily
related to the future costs of vacant lease space.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc. began a review of its computer systems and
software to identify systems and software which might malfunction due to
misidentification of the Year 2000. Ziff-Davis Inc. is using both internal and
external resources to identify, test, correct and reprogram systems and
software for Year 2000 readiness.

45
<PAGE>

At December 31, 1998, Ziff-Davis Inc. was in the research and validation
phase of its Year 2000 project for information technology, or IT systems and
non-IT systems. This phase consisted of research and validation of all
infrastructure, hardware and software, including platform, wide-area network
and local-area network components. Research for non-IT systems included
identifying systems that contained embedded technology, such as micro-
controllers, which were not Year 2000 compliant.

Ziff-Davis Inc. has identified critical systems and applications that have
been or are being validated for compliance through formal documentation,
vendors or testing. During the second quarter of 1999, Ziff-Davis Inc. entered
the testing phase of its infrastructure, hardware, software and databases and
plans to complete such phase by the fourth quarter of 1999. Contingency plans
are being finalized for any systems or platforms that remain in the testing
phase during the fourth quarter of 1999.

Some of Ziff-Davis Inc. computer systems and databases, including its
subscription fulfillment and payroll systems, are managed by third parties
under contractual arrangements. Ziff-Davis Inc. is not currently aware of any
Year 2000 compliance problems related to those third parties. In the second
quarter of 1999 Ziff-Davis Inc. had requested those third parties with which
Ziff-Davis Inc. has material relationships to advise it as to whether such
third parties anticipate difficulties in addressing Year 2000 compliance
problems, and if so, the nature of such difficulties. Such inquiries are
substantially completed and no material matters have been identified.

In addition, Ziff-Davis Inc. is developing contingency plans in order to
compensate for any disruption or downtime that could result from a Year 2000
compliance problem. Ziff-Davis Inc. has replaced or is remediating IT and non-
IT systems that it determined were not Year 2000 compliant.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The internal costs
to address Year 2000 issues, which have been included in the general and
administrative expenses of Ziff-Davis Inc., have not been tracked separately
and are therefore not determinable. However, management believes these
expenses have been substitutive rather than incremental to the recurring level
of general and administrative expenses. Total capitalized costs incurred in
the replacement of systems in connection with Ziff-Davis Inc.'s Year 2000
readiness efforts as of December 31, 1997 and 1998 were $1.7 million and $3.8
million, respectively. Ziff-Davis Inc. estimates that it will incur external
selling, general and administrative expenses of approximately $7.0 to
$9.0 million and capital costs of $5.0 to $6.0 million during 1999 related to
its Year 2000 readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems in the fourth quarter of 1999. Ziff-Davis Inc.'s estimate of its most
reasonably likely "worst case scenario" would be the failure of its internal
applications and systems that process and store certain information and data.
Ziff-Davis Inc. would resolve the failure of such applications and systems one
by one, and management of Ziff-Davis Inc. does not believe that the impact on
its critical systems would be material. However, if Ziff-Davis Inc. or any of
its subscribers, advertisers, licensors, vendors or other third parties on
whom it relies experiences a Year 2000 compliance problem, this could have a
material adverse effect on Ziff-Davis Inc.'s profit and liquidity.

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contain forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those discussed under the caption "Risk Factors" in the Prospectus
dated March 30, 1999 contained in the Ziff-Davis Inc.'s Registration Statement
on Form S-1 (File No. 333-69447), in the Registration Statement on Form S-3
(File No. 333-84555) and in the Registration Statement on Form S-3 (File No.
333-89597).

46
<PAGE>

ZD
(A Division of Ziff-Davis Inc.)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS)

Overview

ZD is the division of Ziff-Davis Inc. which focuses on the businesses of
print publishing, trade shows and conferences, market research, education and
television, and holds a retained interest in ZDNet, Ziff-Davis Inc.'s Internet
business. The market research division was sold on October 1, 1999.

ZD's revenue and profitability are influenced by a number of external
factors, including the volume of new technology product introductions, the
amount and allocation of marketing expenditures by clients, the extent to
which sellers elect to advertise using print and online media or participate
in industry events, and competition among computer technology marketers.
Accordingly, ZD may experience fluctuations in revenue from period to period.

Historically, ZD's business has been seasonal, earning a significant portion
of its revenue in the second and fourth quarters. In addition, the shift in
timing of a tradeshow or conference may result in material differences in
comparison to prior periods.

On July 14, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley Dean Witter ("Morgan Stanley") to explore strategic alternatives to
maximize shareholder value. The Ziff-Davis Inc. Board of Directors has not
embraced any particular strategic alternative, and will investigate all
possible alternatives, including strategic alliances, mergers and the sale or
joint venture of all or some of Ziff-Davis Inc.'s businesses including the
businesses that make up ZD). No assurance can be given that any transaction
will result from the exploration process that Morgan Stanley has been retained
to manage.

On October 1, 1999, Ziff-Davis Inc. completed the sale of its ZD Market
Intelligence ("ZDMI") unit for $101.0 million in cash plus $5.0 million in
assumed deferred revenue obligations. In 1998, the latest complete fiscal
year, ZDMI contributed 5.1% of ZD's total revenue and 3.2% of total EBITDA. As
such, the sale of the business unit is not expected to have a material impact
on ZD's future results of operations or cash flows.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is
intended to reflect the performance of Ziff-Davis Inc.'s Internet business
division, ZDNet. When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis
Inc.'s existing common stock was reclassified as Ziff-Davis Inc.--ZD Common
Stock ("ZD Stock"), which is intended to reflect the performance of Ziff-Davis
Inc.'s other businesses and a retained interest in ZDNet. The businesses
represented by ZD Stock are referred to as "ZD".

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis
Inc. issued 11.5 million shares of ZDNet stock at $19.00 per share, including
1.5 million shares issued in conjunction with the underwriters' exercise of
their option to purchase additional shares to cover over-allotments. Ziff-
Davis Inc. attributed to ZDNet 1.5 million of the sold shares in a manner
analogous to a primary offering and attributed to ZD 10 million of the sold
shares in respect of its

47
<PAGE>

retained interest in ZDNet, in a manner analogous to a secondary offering. ZD
received net proceeds of approximately $172.7 million and ZDNet received net
proceeds of approximately $25.9 million. The ZDNet net proceeds were loaned to
ZD as an intercompany loan which bears interest at the rate at which funding
is available to Ziff-Davis Inc. After giving effect to the ZDNet Stock
offering, there were 11.5 million shares of ZDNet Stock outstanding and
another 60 million notional shares of ZDNet Stock intended to represent ZD's
retained interest in ZDNet, which was approximately 83.9% immediately
following the offering.

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC ("ZDTV") from MAC Holdings
(America) Inc., a related party, for a purchase price of approximately $81.4
million. ZD paid approximately $32.8 million of the purchase price in cash
(settled on February 5, 1999) and paid the remainder by applying approximately
$48.6 million in advances owed to it by MAC Holdings (America) Inc. ZD also
agreed to be responsible for the funding of ZDTV during the period in 1999
prior to the purchase which was accounted for as additional purchase price.
Such funding amounted to approximately $4.2 million.

As a result of the acquisition, ZD recorded an increase in intangible assets
of $76.1 million which will be amortized over 10 years. ZDTV's cash
requirements are currently expected to be approximately $50.0 million for
1999. The $54.0 million invested in ZDTV by Vulcan Programming Inc. will be
used to fund ZDTV and thereafter cash requirements will be funded by the
members or by third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of ZD common stock for $50.0 million in
cash.

Presentation of Financial Information

ZD is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Notes 1 and 2 to ZD's Combined
Financial Statements included in Ziff-Davis Inc.'s Current Report on Form 8-K
(File No. 001-14055).

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998 (unaudited)

Revenue

Revenue for the third quarter of 1999 was $232.0 million compared to $211.5
million for the third quarter of 1998, an increase of $20.5 million or 9.7%.
Revenue by segment is summarized in the following table:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.............................................. $165,268 $181,727
Events.................................................. 63,085 29,787
Television.............................................. 3,642 --
-------- --------
Total................................................. $231,995 $211,514
======== ========
</TABLE>

48
<PAGE>

Revenue from the television segment was $3.6 million for 1999. The
television segment was acquired on February 4, 1999 when ZD purchased ZDTV
from MAC Holdings (America) Inc. for an aggregate purchase price of $81.4
million. (See Note 4 in the ZD Unaudited Consolidated Financial Statements).

Cost of production

The cost of production increased by $4.6 million or 7.3% from $62.9 million
in the third quarter of 1998 to $67.5 million in the third quarter of 1999.
The increase was driven by the acquisition of ZDTV and the shift in timing of
certain events partly offset by a decline in publishing production costs
related to a decline in advertising pages and the absence of costs related to
the closure of three magazines in October 1998. Cost of production was 29.1%
and 29.7% of revenue for the third quarter of 1999 and 1998, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $137.3 million for the
third quarter of 1999 compared to $127.3 million in the third quarter of 1998,
an increase of $10.0 million or 7.9%. The increase was primarily related to
the acquisition of ZDTV partly offset by the reduced costs as a result of the
fourth quarter 1998 restructuring. Selling, general and administrative
expenses were 59.2% and 60.2% of revenue for the third quarter of 1999 and
1998, respectively.

Stock-based compensation

Stock-based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-
based compensation increased by $0.5 million from $0.1 million in the third
quarter of 1998 to $0.6 million for the third quarter of 1999. The increase
was a result of the issuance of certain options of ZDNet Stock and the
conversion of certain SOFTBANK Corp. stock options to ZD stock options in
December 1998, both of which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $40.5 million for the third
quarter of 1999 compared to $36.2 million for the third quarter of 1998, an
increase of $4.3 million or 11.9%. The primary reason for the increase was
depreciation and amortization of assets associated with the acquisition of
ZDTV, along with depreciation at ZD's new offices. These increases were
partially offset by the absence of amortization related to intangible assets
written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense remained flat at $29.0 million for the third quarter of
1999. This reflects the net impact of lower debt levels offset by higher
interest rates and non cash interest charges related to amortization of fees
paid in connection with the December 1998 amendment to the credit facility.

49
<PAGE>

Income (loss) related to retained interest in ZDNet

The retained interest in ZDNet decreased from an income of $0.2 million in
the third quarter of 1998 to a loss of $0.6 million in the third quarter of
1999. The change is due to the performance of the ZDNet business which had an
EBITDA increase of $2.7 million from $1.9 million to $4.6 million that was
offset by higher non-cash charges of stock-based compensation, depreciation,
amortization and taxes. See "ZDNet--Management's Discussion and Analysis of
Financial Condition and Result of Operations". Ziff-Davis Inc. completed an
initial public offering of the ZDNet Stock on April 6, 1999. As a result of
the ZDNet Stock Offering, ZD's retained interest in ZDNet decreased from 100%
to approximately 83.9%. During the quarter, ZDNet acquired Updates.com and
SoftSeek, in part by issuing ZDNet Stock, thus, reducing ZD's retained
interest to 81.5%.

Other non-operating income, net

Other non-operating income primarily reflects ZD's equity share of earnings
and losses from joint ventures, fees earned from management of events not
produced by ZD and gains or losses realized on the disposition of businesses.
Income of $15.3 million for the quarter ended September 30, 1999 was $10.9
million more than the income for the same period in 1998 of $4.4 million due
primarily to $13.3 million of one-time gains from the sale of several business
units, principally the sale of ZD's 50% interest in the ExpoComm joint
venture, partially offset by lower joint venture and management fee income.
The sale of these business units is not expected to have a material impact on
ZD's future results of operations or cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of ZD's subsidiaries increased
$5.4 million from a zero balance in 1998. The reason for this increase is the
sale of a one-third interest in ZDTV in February 1999, creating a minority
interest in the losses of ZDTV.

Income taxes

The tax benefit for the third quarter of 1999 was $7.9 million compared to
$35.0 million in the third quarter of 1998. The difference is due to changes
in the projected annual effective tax rate for the respective years. The
effective tax rate for the three months ended September 30, 1999 was 34.8%
compared to 88.6% for the 1998 quarter. These rates reflect adjustments to
record year-to-date income tax benefit or expense at a revised rate of 36.1%
and negative 1.7% for the 1999 and 1998 periods, respectively. These rates are
based on estimates for annual earnings and taxes available at the time. The
actual annual effective tax rate for 1998 was 25.7%.

Income taxes are provided based on ZD's projected annual effective tax rate
which differs from the U.S. federal statutory rate of 35.0% due to certain
items which are not deductible for income tax purposes, primarily (i) losses
the MAC Assets prior to their purchase by ZD, (ii) non-deductible goodwill
amortization, and (iii) the effect of state and local taxes. The deferred tax
benefit for the three months ended September 30, 1999 has been reflected as a
reduction of the long-term deferred tax liability.

Net loss

As a result of the factors discussed above, the net loss increased from $4.5
million for the three months ended September 30, 1998 to $14.9 million for the
three months ended September 30, 1999.

EBITDA

EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation
expense. EBITDA as reported for ZD includes its interests in the EBITDA of
ZDTV and ZDNet. At September 30, 1999, ZD's interest in ZDTV and ZDNet were
approximately 64.0% and 81.5%, respectively.

50
<PAGE>

EBITDA for the third quarter of 1999 was $50.2 million compared to $27.6
million for the third quarter of 1998, an increase of $22.6 million or 81.9%.
Increases due to the shift in timing of events, one-time gains from the sale
of business units and increases at ZDNet were partially offset by the
inclusion of losses from ZDTV and declines in the publishing segment. EBITDA
from ZDNet increased $1.9 million from $1.9 million in the 1998 period to $3.8
million in the 1999 period.

Comparison of the nine months ended September 30, 1999 and 1998 (unaudited)

Revenue

Revenue for the nine months ended September 30, 1999 was $685.1 million
compared to $694.1 million for the nine months ended September 30, 1998, a
decrease of $9.0 million or 1.3%. Revenue by segment is summarized in the
following table:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.............................................. $518,626 $571,391
Events.................................................. 157,150 122,690
Television.............................................. 9,343 --
-------- --------
Total................................................. $685,119 $694,081
======== ========
</TABLE>

Revenue from the publishing segment decreased by $52.8 million or 9.2% from
$571.4 million for the nine months ended September 30, 1998 to $518.6 million
for the nine months ended September 30, 1999. Excluding the effect of the
three magazines that were closed in October 1998 as part of a restructuring,
publishing segment revenue decreased by $28.7 million or 5.2%. Revenue from
newer business publications and consumer publications increased by 53.8% and
43.8%, respectively, but were more than offset by a decline from the major
business publications, most significantly at Computer Shopper. Margin pressure
on computer equipment manufacturers, industry consolidation, product delays,
and a focus on Year 2000 transition contributed to reduced demand for
advertising in these publications.

Revenue from the events segment increased by $34.5 million or 28.1% from
$122.7 million for the nine months ended September 30, 1998 to $157.2 million
for the nine months ended September 30, 1999. This increase is primarily due
to the shift in timing of two events from the fourth quarter of 1998 to the
third quarter of 1999. This increase was partially offset by declines related
to discontinuation of certain smaller shows.

Revenue from the television segment was $9.3 million for 1999. The
television segment was acquired on February 4, 1999 when ZD purchased ZDTV
from MAC Holdings (America) Inc. for an aggregate purchase price of $81.4
million. (See Note 4 in the ZD Unaudited Combined Financial Statements).

Cost of production

The cost of production decreased by $8.7 million or 4.2% from $206.7 million
for the nine months ended September 30, 1998 to $198.0 million for the nine
months ended September 30, 1999. The decline was consistent with the decrease
in revenue attributed to the discontinuation of three magazines in October
1998 as well as the decline in advertising pages in the business magazines.
These cost reductions were partially offset by production costs incurred from
the acquisition of ZDTV and the shift in timing of certain events. Cost of
production was 28.9% and 29.8% of revenue for the nine months ended September
30, 1999 and 1998, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $405.9 million for the
nine months ended September 30, 1999 compared to $385.5 million for the nine
months ended September 30, 1998, an increase of $20.4 million or

51
<PAGE>

5.3%. The increase primarily related to the acquisition of ZDTV, partially
offset by savings realized from the restructuring action taken during the
fourth quarter of 1998. Selling, general and administrative expenses were
59.2% and 55.5% of revenue for the nine months ended September 30, 1999 and
1998, respectively. The percentage increase primarily represents the impact of
acquiring ZDTV.

Stock-based compensation

Stock-based compensation increased by $1.7 million from $0.2 million for the
nine months ended September 30, 1998 to $1.9 million for the nine months ended
September 30, 1999. The increase was a result of the issuance of certain
options of ZDNet Stock and the conversion of certain SOFTBANK Corp. stock
options to ZD stock options in December 1998, both of which resulted in
compensation.

Depreciation and amortization

Total depreciation and amortization expense was $120.1 million for the nine
months ended September 30, 1999 compared to $109.8 million for the nine months
ended September 30, 1998, an increase of $10.3 or 9.3%. The primary reason for
the increase was depreciation and amortization of assets acquired through the
acquisition of ZDTV along with depreciation at ZD's new offices. These
increases were partially offset by the absence of amortization related to
intangible assets written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense declined by $20.6 million or 18.6% from $111.2 million
for the nine months ended September 30, 1998 to $90.5 million for the nine
months ended September 30, 1999. This was primarily due to a significant
reduction in ZD's outstanding debt through the reorganization and initial
public offering completed in May 1998 and the ZDNet Stock offering completed
in April 1999, partially offset by higher average interest rates in the 1999
period and non cash interest charges related to amortization of fees paid in
connection with the December 1998 amendment to the credit facility.

Income (loss) related to retained interest in ZDNet

The retained interest in ZDNet decreased from a loss of $8.7 million in the
first nine months of 1998 to a loss of $0.1 million in the first nine months
of 1999. The difference is due primarily to a significant improvement in the
performance of the ZDNet business. See "ZDNet--Management's Discussion and
Analysis of Financial Condition and Results of Operations". Ziff-Davis Inc.
completed an initial public offering of the ZDNet Stock on April 6, 1999. As a
result of the ZDNet Stock offering and the acquisitions of GameSpot, SoftSeek
and Updates.com, ZD's retained interest in ZDNet decreased from 100% to
approximately 81.5%.

Other non-operating income, net

Income of $26.8 for the nine months ended September 30, 1999 was $18.3
million more than the income for the same period in 1998 of $8.5, primarily
due to $20.4 million of one-time gains from the sale of several business
units, partially offset by lower joint venture and management fee income. The
sale of these business units is not expected to have a material impact on ZD's
future results of operations and cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of ZD's subsidiaries increased
$15.6 million from a zero balance in 1998. This increase is due to the sale of
a one-third interest in ZDTV in February 1999, creating a minority interest in
the losses of ZDTV.

52
<PAGE>

Income taxes

The tax benefit for the nine months ended September 30, 1999 was $33.1
million compared to $33.3 million for the nine months ended September 30,
1998. The effective tax rate for the nine months ended September 30, 1999 was
37.2% compared to 27.9% for the 1998 period. These rates are based on
estimates for annual earnings and taxes available at the time. The actual
annual effective rate for 1998 was 25.4%.

Net loss

As a result of the factors discusses above, the net loss decreased from
$86.2 million for the nine months ended September 30, 1998 to $55.9 million
for the nine months ended September 30, 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $129.0 million
compared to $106.2 million for the same period of 1998, an increase of $22.8
million or 21.5%. The increase was due to one-time gains from the sale of
business units, the shifting of events and improvement at ZDNet were partly
offset by the inclusion of ZDTV losses and declines in the publishing
business. EBITDA from ZDNet increased $13.8 million from a loss of $4.2
million in 1998 to $9.6 million in 1999.

Liquidity and Capital Resources

At September 30, 1999, ZD's total outstanding debt was $1,272.7 million,
excluding unamortized discount, and consisted of $72.7 million due to
Softbank, $1,200.0 million in notes.

Cash and cash equivalents were $29.3 million at September 30, 1999 and $32.3
million at December 31, 1998. The change during the nine months ended
September 30, 1999 was due to the factors discussed below.

Cash provided by operations was $48.9 million for the nine months ended
September 30, 1999 compared to $87.5 million for the nine months ended
September 30, 1998. This change was primarily due to changes in working
capital.

Cash used by investing activities was $75.3 million for the nine months
ended September 30, 1999 compared to $45.7 million for the nine months ended
September 30, 1998. The increase reflects higher capital spending of $37.6
million primarily due to one time spending on relocation of the New York
operations and higher spending of $27.0 million on acquisitions (ZDTV in
1999), partially offset by $29.1 million of proceeds received from the sale of
several business units. In addition, ZD paid $9.4 million to the previous
owners of Inter@ctive Enterprises in connection with the contingent purchase
price adjustment. Finally, in 1998 ZD paid $13.2 million to fund the business
of ZDNet, which required no such funding in 1999.

Cash provided by financing activities was $23.4 million for the nine months
ended September 30, 1999 compared to a use of $45.3 million for the nine
months ended September 30, 1998. During the first quarter of 1999, ZD received
proceeds of $54.0 million from Vulcan Programming Inc. for the issuance of a
one-third equity interest in ZDTV and $50.0 million for issuing approximately
3 million shares of ZD Common Stock to Vulcan Ventures Inc. ZD also paid down
approximately $275.1 million of net indebtedness during the first nine months
of 1999. Financing activities in 1998 primarily represent remittance of excess
cash to Softbank to repay intercompany obligations prior to ZD's initial
public offering. Prior to the ZDNet Stock offering, ZD also received a return
of capital of approximately $2.7 million from ZDNet.

Upon completion of the offering of the ZDNet Stock, ZD received net proceeds
of approximately $172.5 million plus an additional $25.9 million advance from
ZDNet on April 6, 1999. These proceeds were used to repay indebtedness under
ZD's revolving credit agreement. The advance from ZDNet represents ZDNet's
proceeds from the ZDNet Stock offering and bears interest at the rate which
funding is available to Ziff-Davis Inc.

53
<PAGE>

ZD believes, based on its current level of operations and anticipated
growth, that ZD's ability to generate cash, together with cash on hand and
available lines of credit will be sufficient to make required payments of
principal and interest on ZD's indebtedness and to fund anticipated capital
expenditures and working capital requirements. However, actual capital
expenditures may change, particularly as a result of any acquisitions ZD may
pursue. The ability of ZD to meet its debt service obligations and reduce its
total debt will depend on its future performance.

Interest rate swap

Restructuring

In October 1998, ZD announced a restructuring program with the intent of
significantly reducing its cost base. As a result, a charge of $52.2 million
was recorded in the fourth quarter of 1998. The charge included assets
impairment costs ($37.9 million), employee termination costs ($8.6 million)
and costs to exit activities ($5.7 million). Approximately $3.7 million
remains accrued on the balance sheet related to the restructuring, primarily
related to the future costs of vacant lease space.

Year 2000 Readiness Disclosure

54
<PAGE>

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contain forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those under the caption "Risk Factors" in the Prospectus dated March
30, 1999 contained in Ziff-Davis Inc.'s Registration Statement on Form S-1
(File No. 333-69447), the Registration Statement on Form S-3 (File No. 333-
84555) and in the Registration Statement on Form S-3 (File No. 333-89597).

55
<PAGE>

ZDNet
(A Division of Ziff-Davis Inc.)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

ZDNet's objective is to be the leading online content site focused on
technology products and services for users and the preferred online platform
for advertisers and merchants. ZDNet's Web sites are designed to capitalize on
the market opportunities created by the increasing importance of technology,
the emergence of the Internet as a mass medium and the appealing demographics
of technology-oriented Web users. ZDNet focuses on content, community and
commerce, enabling users to research topics of interest, interact with other
users, download software and evaluate and purchase a wide range of products
and services at a single destination. Ziff-Davis Inc. was among the first
content providers to focus its efforts on the Internet, launching its
zdnet.com service in the fall of 1994.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on
March 30, 1999, to authorize the issuance of a new series of common stock,
designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock'), which is
intended to reflect the performance of Ziff-Davis Inc.'s online business
division, ZDNet. When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis
Inc.'s existing common stock was reclassified as Ziff-Davis Inc.--ZD Common
Stock ("ZD Stock"), which is intended to reflect the performance of Ziff-Davis
Inc.'s other businesses and a retained interest in ZDNet.

Prior to the ZDNet Stock offering, ZD held a 100% Retained Interest in
ZDNet. The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis
Inc. issued 11.5 million shares of ZDNet Stock, including 1.5 million shares
issued in conjunction with the underwriters' exercise of their option to
purchase additional shares to cover over-allotments. Ziff-Davis Inc.
attributed to ZDNet 1.5 million of the sold shares in a manner analogous to a
primary offering and attributed to ZD 10 million of the sold shares in respect
of its retained interest in ZDNet, in a manner analogous to a secondary
offering. ZD received net proceeds of approximately $172.7 million and ZDNet
received net proceeds of approximately $25.9 million. The ZDNet net proceeds
were loaned to ZD as an intercompany loan which will bear interest at the rate
at which funding is currently available to Ziff-Davis Inc. After giving effect
to the ZDNet Stock offering, there were 11.5 million shares of ZDNet Stock
outstanding and another 60 million notional shares of ZDNet Stock intended to
be represented by ZD's retained interest in ZDNet, which was approximately
83.9% immediately following the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet, which was accounted for as division equity contributions or a
return of capital. Ziff-Davis Inc. continued with these practices until the
ZDNet Stock was issued. Accordingly, no interest expense or income to or from
ZD has been reflected in the financial statements of ZDNet for any period
prior to the date on which the ZDNet Stock was issued.

Acquisition of GameSpot Inc.

On April 7, 1999, ZDNet closed on the acquisition of the remaining 30%
interest in GameSpot Inc. in exchange for 600,000 newly issued shares of ZDNet
Stock valued at approximately $11.4 million. This acquisition was accounted
for under the purchase method of accounting.

56
<PAGE>

Acquisition of Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for $5.0 million in cash
and 582,526 shares of ZDNet stock valued at $13.5 million. This acquisition
will be accounted for under the purchase method of accounting.

Acquisition of SoftSeek Inc.

On July 30, 1999, Ziff-Davis Inc. acquired SoftSeek Inc. for $7.0 million in
cash and 991,038 shares of ZDNet Stock valued at $19.0 million. This
acquisition will be accounted for under the purchase method of accounting.

In connection with the acquisitions described in the preceding three
paragraphs, amortization expense for 1999 will increase by approximately $5.5
million.

Presentation of Financial Information

ZDNet is comprised of certain operations which were acquired at various
times and completed a reorganization in May 1998. See Note 1 to ZDNet's
combined financial statements included in Ziff-Davis Inc.'s Current Report on
Form 8-K, dated April 2, 1999 (File No. 001-14055).

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998

Revenue

Revenue for the third quarter of 1999 increased by $11.8 million or 81.3%
from $14.5 million in 1998 to $26.3 million in 1999. Revenue from advertising
accounted for 92.7% of total revenue for 1999 compared to 86.4% for the same
period in 1998.

Revenue from advertising increased 94.5% to $24.4 million for the three
months ended September 30, 1999 from $12.5 million for the three months ended
September 30, 1998. The increase in advertising revenue was attributed to an
increase in rates and volume. During the period both the number of advertisers
and the average monthly revenue per advertiser increased as did the average
sale price per page. Subscription-based fees and services declined as expected
and were $1.9 million for the three months ended September 30, 1999 compared
to $2.0 million for the same period in 1998. These results reflect the
continuing shift from a subscription-based business model to an advertising
based model.

Cost of operations

Production and content. Production and content expenses were $9.2 million or
35.0% of revenue compared to $5.9 million or 40.7% of revenue for the quarters
ended September 30, 1999 and 1998, respectively. The absolute dollar increase
was due to an increase in ZD's revenue-based royalty charge to ZDNet, as well
as an increase in production costs to support higher user traffic. The cost of
production and content decreased as a percentage of revenue due to economies
of scale and revenue growth significantly exceeding the growth of the cost
base. Royalty payments to ZD were $1.3 million and $0.7 million in the 1999
and 1998 periods, respectively.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $12.5 million or 47.4% of revenue compared to
$6.8 million or 46.9% of revenue for the quarters ended September 30, 1999 and
1998, respectively. The absolute dollar increase was due to additional
personnel and advertising costs required to support and strengthen the growth
of ZDNet. Included in the selling, general and administrative costs was an
allocation from Ziff-Davis Inc. relating to certain selling, general and
administrative services and shared services provided on a centralized basis
which amounted to $1.3 million and $0.7 million for the quarters ended
September 30, 1999 and 1998, respectively.

57
<PAGE>

Stock-based compensation. As a result of the grant of certain stock options
in December 1998, ZDNet incurred a deferred compensation charge of $13.3
million. This non-cash charge will be recognized ratably over the vesting
period of the underlying options. The charge on a quarterly basis is $0.8
million. This charge did not exist in 1998 because the options were granted in
December 1998.

Depreciation. Depreciation expense was $0.9 million for the three months
ended September 30, 1999 compared to $0.6 million for the three months ended
September 30, 1998. The increase primarily relates to increased capital
expenditures made by ZDNet for equipment necessary to expand it network and
infrastructure in order to support its continued growth.

Amortization of intangible assets. Amortization was $3.4 million for the
three months ended September 30, 1999 compared to $1.0 million for the three
months ended September 30, 1998. The increase in amortization is a result of
the acquisitions of Updates.com, SoftSeek and the remaining interest in
GameSpot Inc.

Interest income. ZDNet's portion of the proceeds from the ZDNet Stock
offering have been advanced to ZD. Such advance bears interest at the rate at
which funds are available to ZD (currently approximately 8.5%). As a result of
such advance, interest income of $0.4 million was reported in the third
quarter of 1999. No such amounts were reported in prior periods.

Income taxes. ZDNet recorded an income tax provision of $0.7 million in 1999
and $8,000 million in 1998. Income taxes are provided based on ZDNet's
projected annual effective tax rate which differs from the U.S. federal
statutory rate of 35.0% due to certain items which are not deductible for
income tax purposes, primarily losses at GameSpot prior to acquisition of the
minority interest, and the effect of state and local taxes.

Net income loss. As a result of the items described above, ZDNet's net
income decreased from income of $0.2 million in 1998 to a loss of $0.7 million
in 1999.

EBITDA

EBITDA for the three months ended September 30, 1999 was $4.6 million
compared to an EBITDA of $1.9 million for the three months ended September 30,
1998. The improvement was due primarily to higher revenue, offset to some
extent by higher production and content and selling, general and
administrative expenses.

Comparison of the nine months ended September 30, 1999 and 1998

Revenue

Revenue for the nine months ended September 30, 1999 increased by $31.3
million or 85.8% from $36.5 million in 1998 to $67.8 million for the nine
months ended September 30, 1999. Revenue from advertising accounted for 92.4%
of total revenue for 1999 compared to 83.1% for the same period in 1998.

Revenue from advertising increased 106.7% to $62.7 million for the nine
months ended September 30, 1999 from $30.3 million for the nine months ended
September 30, 1998. The increase in advertising revenue was attributed to an
increase in rates and volume. During the period both the number of advertisers
and the average monthly revenue per advertiser increased as did the average
sale price per page. Subscription-based fees and services declined as expected
and were $5.1 million for the nine months ended September 30, 1999 compared to
$6.2 million for the nine months ended September 30, 1998. These results
reflect the continuing shift from a subscription-based business model to an
advertising based model.

58
<PAGE>

Cost of operations

Production and content. Production and content expenses were $25.5 million
or 37.6% of revenue compared to $19.0 million or 52.0% of revenue for the nine
months ended September 30, 1999 and 1998, respectively. The absolute dollar
increase was due to an increase in ZD's revenue-based royalty charge to ZDNet,
as well as an increase in production costs to support higher user traffic. The
cost of production and content decreased as a percentage of revenue due to
economies of scale and revenue growth significantly exceeding the growth of
the cost base. Royalty payments to ZD were $3.4 million and $1.8 million in
the 1999 and 1998 periods, respectively.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $31.2 million or 46.1% of revenue compared to
$22.0 million or 60.5% of revenue for the nine months ended September 30, 1999
and 1998, respectively. The absolute dollar increase was due to additional
personnel and advertising costs required to support and strengthen the growth
of ZDNet. Included in the selling, general and administrative costs was an
allocation from Ziff-Davis Inc. relating to certain selling, general and
administrative services and shared services provided on a centralized basis
which amounted to $4.0 million and $2.9 million for the nine months ended
September 30, 1999 and 1998, respectively. ZDNet has announced a significant
marketing campaign and anticipates spending $25 million over the next 18
months.

Stock-based compensation. The charge for the nine months ended September 30,
1999 was $3.0 million. This charge did not exist in 1998 because the options
were granted in December 1998. In addition, $0.4 million of stock compensation
was incurred in 1999 relating to the issuance of ZDNet stock options as part
of completing the GameSpot minority interest acquisition.

Depreciation. Depreciation expense was $2.0 million for the nine months
ended September 30, 1999 compared to $1.4 million for the nine months ended
September 30, 1998. The increase related primarily to increased capital
expenditures made by ZDNet for equipment necessary to expand it network and
infrastructure in order to support its continued growth.

Amortization of intangible assets. Amortization was $5.8 million for the
nine months ended September 30, 1999 compared to $3.4 million for the nine
months ended September 30, 1998. The increase in amortization is primarily due
to the acquisitions of Updates.com, SoftSeek and the remaining interest in
GameSpot Inc., partly offset by certain intangible assets becoming fully
amortized as of March 1, 1998.

Interest income. ZDNet's portion of the proceeds from the ZDNet Stock
offering have been advanced to ZD. Such advance bears interest at the rate at
which funds are available to ZD (currently approximately 8.5%). As a result of
such advance, interest income of $0.9 million was reported for the nine months
ended September 30, 1999. No amounts were reported in prior periods.

Minority interest. The minority interest of $0.1 million in 1999 and $0.3
million in 1998 represents the losses attributed to the holders of the
minority interest in GameSpot Inc. The remaining minority interest was
acquired in April 1999.

Income taxes. ZDNet recorded an income tax provision of $1.5 million in 1999
and a benefit of $0.3 in 1998. Income taxes are provided based on ZDNet's
projected annual effective tax rate which differs from the U.S. federal
statutory rate of 35.0% due to certain items which are not deductible for
income tax purposes, primarily losses at GameSpot prior to the acquisition of
the minority interest.

Net loss. As a result of the items described above, ZDNet's net loss
improved from $8.7 million 1998 to a loss of $0.1 million in 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $11.2 million
compared to an EBITDA loss of $4.2 million for the nine months ended September
30, 1998. The improvement was due primarily to higher revenue, offset to some
extent by higher production and content and selling, general and
administrative expenses.

59
<PAGE>

Liquidity and Capital Resources

Historically, the cash needs for ZDNet, excluding the cash needs of ZDNet's
foreign operations and operations that were not wholly owned, were funded by
ZD and accounted for as a capital contribution (i.e. as an increase in ZDNet's
division equity and ZD's retained interest in ZDNet). Accordingly, no interest
expense had been reflected in the financial statements of ZDNet. After the
completion of the ZDNet Stock offering, Ziff-Davis Inc. accounts for all cash
transfers between ZD and ZDNet, other than transfers in return of assets or
services rendered or transfers in respect of ZD's retained interest that
correspond to dividends paid on ZDNet stock, as inter-group revolving credit
advances. ZDNet received net proceeds of $25.9 million from the initial public
offering of the ZDNet Stock, which were loaned to ZD as an interest bearing
advance. These advances will bear interest at the rate at which Ziff-Davis
Inc. could borrow such funds on a revolving credit basis as the Board of
Directors determines in its sole discretion. Funding for ZDNet's future cash
needs will be provided by ZD through a reduction of the interest bearing
advance and to the extent necessary, as a revolving credit advance bearing
interest.

Sources and uses of cash

Cash and cash equivalents were $0.5 million at September 30, 1999 compared
to $0.3 million at December 31, 1998. The increase was due to the factors
discussed below.

Cash provided by operations was approximately $15.0 million for the nine
months ended September 30, 1999 compared to a use of $4.7 million for the nine
months ended September 30, 1998. The improvement was due primarily to an
improvement in net loss from $8.7 million in 1998 to $0.1 million in 1999,
despite higher non-cash charges related to depreciation, amortization and
stock-based compensation expense.

Cash used by investing activities was $21.4 million in 1999 compared to $8.2
million in 1998. This increase is a result of ZDNet's continued investments
and acquisitions of other Internet related businesses.

Cash provided by financing in 1999 was $6.5 million compared to cash
provided by financing of $13.3 million in 1998. As a result of decreased
losses, ZDNet did not require the same level of funding from ZD in 1999 as was
required in 1998. Financing activities in 1998 reflected advances from ZD to
fund the business prior to the ZDNet Stock offering. Financing activities in
1999 primarily represent the receipt of proceeds from the ZDNet Stock offering
partly offset by the advances of such funds to ZD, net of the amount used by
ZDNet to fund acquisitions and capital spending. In addition, prior to the
ZDNet Stock offering, ZDNet generated positive cash flow which was treated as
a return of capital to ZD in the first quarter of 1999.

Year 2000 Readiness Disclosure

60
<PAGE>

Forward-Looking Statements

Certain statements contained in this Form 10-Q and in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements, which are subject to various risks and
uncertainties. Actual results could differ materially from those discussed
herein. Important factors that could cause or contribute to such differences
include those under the caption "Risk Factors" in the Prospectus dated March
30, 1999 contained in Ziff-Davis Inc.'s Registration Statement on Form S-1
(File No. 333-69447), the Registration Statement on Form S-3 (File No. 333-
84555) and in the Registration Statement on Form S-3 (File No. 333-89597).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Swap Agreements

Ziff-Davis Inc.'s credit facility exposes it to market risk with respect to
changes in interest rates. Ziff-Davis Inc. manages this risk through the use
of interest rate swap agreements.

On June 15, 1999, Ziff-Davis Inc. amended a swap agreement (with a notional
amount of $100 million) by reducing the fixed rate paid to the counterparty
and providing the counterparty with a one-time option to cancel the swap
agreement on February 5, 2000 (or reduce the term of the agreement by 3 1/2
years). Ziff-Davis Inc. entered into another swap agreement (with a notional
amount of $50 million) on June 15, 1999. Under this swap agreement, Ziff-Davis
Inc. will receive a fixed rate of interest and pay a floating rate of interest
based on 3 month LIBOR, which resets quarterly, for the term of the agreement.

61
<PAGE>

Through the use of swap agreements, Ziff-Davis Inc. has effectively
established a fixed interest rate for $500 million of the outstanding credit
facility. Based on the $950 million outstanding under the credit facility as
of September 30, 1999, if the LIBOR rate were to increase by 1%, Ziff-Davis
Inc. would incur, after giving effect to the swap agreements, an additional
$4.5 million of annual interest expense. The weighted average fixed rate Ziff-
Davis Inc. pays under these agreements is approximately 5.1%.

These swap agreements are viewed by Ziff-Davis Inc. as risk management tools
and are not used for trading or speculative purposes. The notional amount of
$500 million does not represent a real amount exchanged by the parties and
therefore, is not a measure of Ziff-Davis Inc.'s exposure through its use of
swap agreements. The fair values of these swap agreements were estimated by
obtaining quotes from brokers. These quotes represented the amounts that Ziff-
Davis Inc. would pay if the agreements were terminated at the balance sheet
date. Although it is not Ziff-Davis Inc.'s intention to terminate these swap
agreements, these fair values indicated that the termination of the swap
agreements would have resulted in a gain of approximately $8.1 million. By
their nature, swap agreements involve credit risk, due to the possible
nonperformance by counterparties. To mitigate this risk, Ziff-Davis Inc.
enters into swap agreements with major financial institutions and diversifies
the counterparties used as a means to limit counterparty exposure and
concentration of risk.

Hedge transaction

In June 1999, Ziff-Davis Inc. entered into a short-sale to effect a hedge on
300,000 of its 438,057 shares of Beyond.com Corporation. These shares were
sold on behalf of Ziff-Davis Inc. by a third party, at a weighted average
price of $22.50 per share. In September 1999, Ziff-Davis Inc. delivered the
shares required to close the short position and repurchased the shares at a
market price of $14.00 per share. An unrealized gain of approximately
$2,600,000 was deferred in the period related to this hedge transaction.

62
<PAGE>

PART II--OTHER INFORMATION

ITEM 1. Legal Proceedings

ZD, ZDNet and Ziff-Davis Inc. are subject to various legal proceedings
arising in the normal course of business.

Class action and derivative litigation's

The complaints alleged that defendants violated Sections 11, 12(a) (2) and
15 of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock on April 28, 1998
(the "IPO"). More particularly, the complaints alleged that the registration
statement contained false and misleading statements and failed to disclose
facts that could have indicated an impending decline in Ziff-Davis Inc.'s
revenue. The complaints sought on behalf of a class of purchasers of Ziff-
Davis Inc. common stock from the date of the IPO through October 8, 1998,
unspecified damages, interest, fees and costs, recession and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders
of SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect
subsidiary of SOFTBANK Corp. The complaint alleged, among other things, that
SBH, SIM's majority stockholder, acting with Ziff-Davis Inc. and two of its
senior officers and directors who were directors of SIM (and who were also
named as defendants), had conflicts of interest between SIM and other Softbank
investments (including investment in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the
other defendants, all of the claims against them other than a breach of
contract claim which is solely against SBH, were dismissed on February 26,
1999. On April 1, 1999, plaintiffs filed a notice of appeal of the dismissal.
On September 2, 1999, the remaining claim, which was solely against SBH, was
dismissed. On October 6, 1999, plaintiffs filed a notice of appeal of this
dismissal.

63
<PAGE>

plaintiff and two other individuals. In addition to a cash payment at the
closing of the sale, ZDTV agreed to pay additional purchase price, contingent
on the future operating profits of the SkyTV division. Ziff-Davis Inc.
guaranteed the obligations of ZDTV. The complaint alleges, among other things,
that ZDTV and Ziff-Davis Inc. breached their covenants of good faith and fair
dealing by failing to act in the best interests of the SkyTV division, to
support and procure business for the SkyTV division, and to provide public
relations, marketing assistance and corporate sales team support, thereby
lessening plaintiff's opportunity to earn additional purchase price. The
complaint seeks an amount to be determined at trial, but not less than
$60,000,000 in damages.

Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate it ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.

ITEM 2. Changes in Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Submission of Matters to a Vote of Security Holders

Not applicable.

ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits

27.1 Financial Data Schedule (EDGAR filing only)

(b) Reports on Form 8-K

On July 20, 1999, Ziff-Davis Inc. filed a Form 8-K (File No. 001-
14055) to report that it had retained the investment banking firm of
Morgan Stanley Dean Witter to explore strategic alternatives to
maximize shareholder value. Ziff-Davis Inc. expects to investigate a
wide range of possible alternatives, including strategic alliances,
mergers and the sale or joint venture of all or some of the company's
businesses. The Ziff-Davis Inc. Board of Directors has not embraced any
particular strategic alternative and no assurance can be given that any
transaction will result from the exploration process that Morgan
Stanley Dean Witter has been retained to manage.

On August 4, 1999, Ziff-Davis Inc. filed a Form 8-K (File No. 001-
14055) to report the prospectus which was included in Ziff-Davis Inc.'s
Form S-1 (File No. 333-69447), filed on March 30, 1999.

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<PAGE>

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.

Ziff-Davis Inc.

/s/ Timothy C. O'Brien
By: _________________________________
Timothy C. O'Brien
Chief Financial Officer, Director
(On behalf of the Registrant and as
Principal
Financial Officer)

Date: November 12, 1999

/s/ Mark D. Moyer
By: _________________________________
Mark D. Moyer
Vice President and Controller
(On behalf of the Registrant and as
Principal
Accounting Office Officer)

Date: November 12, 1999

65
<PAGE>

EXHIBIT INDEX

<TABLE>
<C> <S>
27.1 Financial Data Schedule (EDGAR filing only)
</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZIFF-DAVIS
INC.'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,791
<SECURITIES> 7,916
<RECEIVABLES> 314,838
<ALLOWANCES> 96,401
<INVENTORY> 12,946
<CURRENT-ASSETS> 325,565
<PP&E> 222,013
<DEPRECIATION> 105,906
<TOTAL-ASSETS> 3,443,936
<CURRENT-LIABILITIES> 392,177
<BONDS> 1,264,981
0
0
<COMMON> 1,170
<OTHER-SE> 1,603,988
<TOTAL-LIABILITY-AND-EQUITY> 3,443,936
<SALES> 752,910
<TOTAL-REVENUES> 752,910
<CGS> 202,038
<TOTAL-COSTS> 793,358
<OTHER-EXPENSES> (42,448)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,602
<INCOME-PRETAX> (87,602)
<INCOME-TAX> (31,655)
<INCOME-CONTINUING> (87,602)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (55,947)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>EPS IS NOT IN THOUSANDS AND REPORTED FOR ZIFF-DAVIS INC.'S TWO CLASSES OF
COMMON STOCK. ZD COMMON STOCK EPS WAS $(0.55) AND ZDNET EPS WAS $(0.00)
</FN>

</TABLE>