1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
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PENTON MEDIA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
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(State of Incorporation) (I.R.S. Employer Identification No.)
1300 EAST NINTH STREET, CLEVELAND, OH 44114
-------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
216/696-7000
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(Registrant's Telephone Number, Including Area Code)
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 practicable date (August 10, 2001).
Common Stock 31,934,690
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PENTON MEDIA, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 3
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2001 and 2000 5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 25
Item 3. Quantitative and Qualitative Disclosure About Market Risk 34
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits and Reports on Form 8-K 36
Signature 37
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3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
June 30, December 31,
2001 2000
---------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 55,669 $ 11,605
Accounts and notes receivable, less allowance
for doubtful accounts of $7,559 and $3,863
in 2001 and 2000, respectively 71,463 70,059
Inventories 1,795 798
Deferred tax assets 5,562 5,562
Prepayments, deposits and other 21,709 11,763
--------- ---------
156,198 99,787
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 8,808 8,205
Machinery and equipment 69,403 63,998
--------- ---------
78,211 72,203
Less: Accumulated depreciation (41,868) (36,706)
--------- ---------
36,343 35,497
--------- ---------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$63,082 and $49,142 in 2001 and 2000, respectively 573,856 574,626
Other intangibles, less accumulated amortization of
$18,269 and $14,901 in 2001 and 2000, respectively 52,758 54,122
Investments 11,894 17,725
--------- ---------
638,508 646,473
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$ 831,049 $ 781,757
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
June 30, December 31,
2001 2000
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility $ 14,750 $ 11,250
Accounts payable 8,722 12,054
Income taxes payable - 3,260
Accrued earnouts 2,868 14,704
Accrued compensation and benefits 12,036 18,485
Other accrued expenses 23,564 15,024
Unearned income, principally trade
show and conference deposits 47,392 55,772
--------- ---------
109,332 130,549
--------- ---------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility - 91,000
Senior debt facility 192,500 199,875
Senior subordinated notes, net of discount 180,836 -
Notes payable 3,526 -
Net deferred pension credits 15,640 15,395
Deferred tax liability 3,674 5,978
Other 3,395 2,391
--------- ---------
399,571 314,639
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued - -
Common stock 319 318
Capital in excess of par value 228,105 226,446
Retained earnings 104,069 112,745
Notes receivable officers/directors (11,289) (10,207)
Accumulated other comprehensive income 942 7,267
--------- ---------
322,146 336,569
--------- ---------
$ 831,049 $ 781,757
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED; DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
REVENUES $ 106,777 $ 109,058 $ 219,470 $ 184,883
--------- --------- --------- ---------
OPERATING EXPENSES:
Editorial, production and circulation 43,171 34,895 84,012 65,204
Selling, general and administrative 47,692 41,162 99,636 75,641
Impairment of assets - 1,051 - 1,051
Restructuring charge - - 5,567 -
Depreciation and amortization 11,135 7,376 22,714 15,029
--------- --------- --------- ---------
101,998 84,484 211,929 156,925
--------- --------- --------- ---------
OPERATING INCOME 4,779 24,574 7,541 27,958
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net of interest earned (6,249) (2,441) (12,250) (5,176)
Gain on sale of investments - - - 110,210
Miscellaneous, net (1,501) (424) (1,450) (444)
--------- --------- --------- ---------
(7,750) (2,865) (13,700) 104,590
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (2,971) 21,709 (6,159) 132,548
PROVISION FOR INCOME TAXES 2,512 13,014 602 57,430
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (5,483) 8,695 (6,761) 75,118
LOSS FROM OPERATIONS OF
DISCONTINUED BUSINESS, NET - - - (85)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (5,483) $ 8,695 $ (6,761) $ 75,033
========= ========= ========= =========
EARNINGS PER SHARE - Basic
Income (loss) from continuing operations $ (0.17) $ 0.27 $ (0.21) $ 2.36
Discontinued operations - - - -
--------- --------- --------- ---------
Net income (loss) $ (0.17) $ 0.27 $ (0.21) $ 2.36
========= ========= ========= =========
EARNINGS PER SHARE - Diluted
Income (loss) from continuing operations $ (0.17) $ 0.27 $ (0.21) $ 2.35
Discontinued operations - - - (0.01)
--------- --------- --------- ---------
Net income (loss) $ (0.17) $ 0.27 $ (0.21) $ 2.34
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 31,930 31,814 31,904 31,769
========= ========= ========= =========
Diluted 31,930 32,051 31,904 32,006
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED; DOLLARS IN THOUSANDS)
2001 2000
---------- ----------
Net cash used for operating activities $ (15,016) $ (10,534)
--------- ---------
Cash flows from investing activities:
Capital expenditures (5,448) (5,833)
Acquisitions and investments, net of cash acquired (8,285) (12,592)
Earnouts paid (11,975) (4,780)
Proceeds from sale of INT Media Group, Inc. stock -- 113,100
Net proceeds from sale of discontinued operations -- 4,000
--------- ---------
Net cash provided by (used for) investing activities (25,708) 93,895
--------- ---------
Cash flows from financing activities:
Proceeds from senior subordinated notes 180,836 --
Proceeds from $340 million senior debt facility 45,000 --
Repayment of $340 million senior debt facility (139,875) --
Employee stock purchase plan payments (139) --
Proceeds from deferred shares and options exercised 1,049 688
Payment of financing costs (85) --
Dividends paid (1,912) (1,906)
--------- ---------
Net cash provided by (used for) financing activities 84,874 (1,218)
--------- ---------
Effect of exchange rate changes on cash (86) (99)
--------- ---------
Net increase in cash and equivalents 44,064 82,044
Cash and equivalents at beginning of period 11,605 30,370
--------- ---------
Cash and equivalents at end of period $ 55,669 $ 112,414
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED; DOLLARS IN THOUSANDS)
NOTE 1 - NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
These financial statements have been prepared by management in accordance
with generally accepted accounting principles for interim financial information
and the applicable rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, the interim financial
statements reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results of the periods
presented. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying unaudited interim consolidated financial statements should
be read together with the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 financial statements
to conform to the 2001 presentation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 - ACQUISITIONS
2001 ACQUISITIONS
In 2001, Penton acquired nine companies for an aggregate purchase price of
approximately $9.7 million in cash and $3.5 million in promissory notes, with
potential contingent consideration of up to $4.8 million based on the
achievement of specified business targets through 2003. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $11.5 million is being amortized over a period ranging from 5 to
40 years.
2000 ACQUISITIONS
In September 2000, Penton acquired the assets of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50.0 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.3 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the AS/400 and Windows 2000 operating systems markets and other
technology operating platform markets.
In September 2000, Penton acquired the stock of Streaming Media, Inc., for
$65.0 million in cash plus contingent consideration of up to $35.0 million based
on the achievement of specified business targets in 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $62.9 million is being amortized over periods ranging from 15 to
20 years. Streaming Media, Inc. is a leading integrated media company serving
the streaming media market.
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 2000, Penton acquired the assets of Professional Trade Shows
("PTS") for $17.0 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $16.1 million
is being amortized over 20 years. PTS produces 50 regional trade shows for the
plant engineering and maintenance, material handling, buildings and facilities
maintenance, design engineering, and machine tool industries.
In addition, Penton acquired five companies in 2000 for an aggregate
purchase price of approximately $3.8 million in cash with potential contingent
consideration based on the achievement of specified business targets through
2001. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $3.7 million is being amortized over a
period ranging from 5 to 20 years.
NOTE 3 - DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss for the six months ended June 30, 2000 of $0.08 million, net of a
tax benefit of $0.06 million, was recorded and classified as discontinued
operations in the accompanying financial statements. This loss was in addition
to the $0.06 million that was accrued in 1999.
NOTE 4 - INVESTMENTS
In February 2000, Penton sold 2.0 million shares of INT Media Group, Inc.
(formerly known as internet.com Corporation) stock as part of a 3.75
million-share secondary offering. Penton received cash of $113.1 million and
recognized a pre-tax gain of approximately $110.2 million. As of June 30, 2000
Penton maintains an 11.8% ownership interest in INT Media Group, Inc., or
approximately 3.0 million shares. Penton intends for its investment to be
temporary; accordingly, Penton marks to market its investment in INT Media
Group, Inc. At June 30, 2001, Penton's investment totaled $11.9 million,
including a cumulative mark to market adjustment of $7.6 million and related
adjustment in long-term deferred tax liability of $3.0 million and other
comprehensive income of $4.6 million.
NOTE 5 - PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information for the six months
ended June 30, 2000 assumes that the 2000 acquisitions occurred as of the
beginning of the period, after giving effect to certain adjustments, including
the amortization of intangible assets, interest expense on acquisition debt and
related income tax effects. The pro forma information excludes the effects of
synergies and cost reduction initiatives directly related to all acquisitions.
These actions have already commenced and are expected to continue in the year
2001. Pro forma results for the six months ended June 30, 2001 have not been
presented because the impact of the 2001 acquisitions was immaterial.
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma information is presented for information purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had these transactions been consummated at the beginning of the
period presented (in thousands, except per share data):
Six Months Ended
June 30, 2000
-------------
Pro forma revenues $ 217,726
==========
Pro forma income from continuing operations $ 72,174
==========
Pro forma net income applicable
to common stockholders $ 72,089
==========
Per share data:
Earnings per common share - basic:
Income from continuing operations $ 2.29
==========
Net income $ 2.28
==========
Earnings per common share - diluted:
Income from continuing operations $ 2.27
==========
Net income $ 2.27
==========
The pro forma information above does not reflect the 2001 acquisitions or
the operations of certain 2000 acquisitions, as the historical information is
immaterial.
NOTE 6 - DEBT
SENIOR SUBORDINATED NOTES
In June 2001, Penton issued $185.0 million of 10 3/8% Senior Subordinated
Notes ("the Notes") due 2011 to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933, as amended. Interest is payable on the Notes
semiannually on June 15 and December 15 of each year. The Notes are guaranteed,
on a senior subordinated basis, by the Company's domestic subsidiaries and may
be redeemed on or after June 15, 2006. In addition, the Company may redeem up
to 35% of the aggregate principal amount of the Notes before June 15, 2004 with
the proceeds of certain equity offerings. The Notes were offered at a discount
of $4.2 million to be amortized over the term of the Notes. Amortization of the
discount was not material for the six month period ended June 30, 2001. Costs
representing underwriting fees and other expenses of $0.6 million will be
amortized over the term of the Notes. Net proceeds of $180.2 million were used
to pay down $136.0 million outstanding under the Revolving Credit Facility. In
addition, a portion of the Company's Term Loan A and B will be paid down on a
pro rata basis (see Note 15 Subsequent Events). The Notes are unsecured senior
subordinated obligations of the Company, subordinated in right of payment to
all existing and future senior indebtedness of the Company, including the
credit facility. The Notes contain covenants that will, among other things,
restrict the Company's ability to borrow money, pay dividends on or repurchase
capital stock, make investments, sell assets or enter into mergers or
consolidations.
SENIOR CREDIT FACILITY
Penton maintains a credit agreement with several banks under which it may
borrow up to $340.0 million. The agreement provides for a revolving credit
facility of up to $125.0 million, a long-term loan of $140.0 million ("Term Loan
A") and a long-term loan of $75.0 million ("Term Loan B"). In October 2000,
Penton amended its
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Credit Agreement to give the Company the option to increase, in the aggregate,
its Term Loan A, Term Loan B and/or its Revolver by $100.0 million. The Term
Loans and the Revolver cannot be increased on more than three separate
occasions, and any increase must take place by September 30, 2001. Concurrent
with the closing of the amendment, the Company obtained committed financing in
the amount of $60.0 million of the $100.0 million under the Revolver, thereby
increasing the total available under the Revolver to $185.0 million.
The credit facility is collateralized by all tangible and intangible assets
of Penton, including the equity interests in all of its U.S. subsidiaries and
not less than 65% of the equity interests of any of its foreign subsidiaries.
Under the terms of the agreement, Penton is required to meet certain covenants.
The agreement also prohibits Penton from incurring certain additional
indebtedness; limits certain investments, advances or loans; and restricts
substantial asset sales and cash dividends. At June 30, 2001, Penton was in
compliance with all covenants.
The revolving credit facility bears interest, at Penton's option, at either
the Alternative Base Rate ("ABR"), defined as the higher of the Administrative
Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at LIBOR, plus a
rate margin ranging from 0.25% to 2.125% based on Penton's consolidated leverage
ratio, as defined. Up to the full amount of the revolving credit facility may be
borrowed, repaid and reborrowed until maturity on August 31, 2006; however, the
revolving credit facility commitment shall be reduced as of September 30, 2003,
by 7.5% per quarter until September 30, 2005, at which time it will be reduced
by 10% per quarter until maturity. At June 30, 2001, no amounts were outstanding
under the revolving credit facility. Penton has agreed to pay a commitment fee
ranging from 0.375% to 0.50%, based on Penton's consolidated leverage ratio, on
the average unused portion of the revolving credit facility commitment. At June
30, 2001, $185.0 million was available under the facility.
Term Loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At June 30, 2001, the
rate in effect was 6.00%. The loan, which requires quarterly principal payments,
will mature on June 30, 2006. At June 30, 2001, $133.0 million was outstanding
under Term Loan A.
Term Loan B bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.5% to 2.50%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At June 30, 2001, the
rate in effect was 6.50%. The loan requires quarterly principal payments of
approximately $0.2 million, and four balloon payments of $17.6 million beginning
in September 2006, and will mature on June 30, 2007. At June 30, 2001, $74.3
million was outstanding under Term Loan B.
Cash paid for interest for the six months ended June 30, 2001 and 2000, was
$9.0 million and $8.6 million, respectively. Included in interest expense in the
Consolidated Statements of Income are $0.8 million and $3.5 million of interest
income for the six months ended June 30, 2001 and 2000, respectively.
NOTES PAYABLE
The Company's long-term notes payable at June 30, 2001 of $3.5 million
represents indebtedness resulting from the acquisition of Hillgate in February
2001. The notes are denominated in British pounds, bear interest at 1% and
mature in April 2002 ($2.9 million) and April 2004 ($0.6 million).
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - NET INCOME PER COMMON SHARE
The following table sets forth the reconciliation of basic and diluted
weighted average shares (in thousands) for the three months and six months ended
June 30, 2001 and 2000:
Three Month Period Six Month Period
Ended June 30, Ended June 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Income (loss) applicable to
common shareholders $ (5,483) $ 8,695 $ (6,761) $ 75,033
======== ======== ======== ========
Denominator (Number of shares):
Basic - weighted average shares outstanding 31,930 31,814 31,904 31,769
Effect of dilutive securities:
Stock options -- 197 -- 199
Restricted stock units -- 26 -- 26
Deferred shares -- 14 -- 12
-------- -------- -------- --------
Diluted - weighted average shares outstanding 31,930 32,051 31,904 32,006
======== ======== ======== ========
Due to the net loss from operations for the three and six months ended June
30, 2001, stock options, restricted stock units or deferred shares were
excluded from the calculation of diluted earnings per share as the result would
have been antidilutive.
NOTE 8-COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
STOCK OFFERINGS
In September 2000, Penton arranged a secondary offering in which existing
stockholders, other than management, offered 3,638,320 shares of common stock at
a price of $30.00 per share. The Company did not receive any proceeds from this
offering.
STOCKHOLDERS RIGHTS AGREEMENT
In June 2000, the Company adopted a Stockholders Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with the Company's common stock and will not be exercisable. In the absence of
further board action, the rights generally will become exercisable and allow the
holder to acquire the Company's common stock at a discounted price if any person
or group acquires 20 percent or more of the outstanding shares of the Company's
common stock. Rights held by the persons who exceed the applicable threshold
will be void.
Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price. The plan also includes an
exchange option. In general, after the rights become exercisable, the Penton
Board may, at its option, effect an exchange of part or all of the rights, other
than rights that have become void, for shares of Penton Media, Inc. common
stock. Under this option, Penton Media, Inc. would issue one share of common
stock for each right, subject to adjustment in certain circumstances.
The Penton Board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
amended by the Penton Board. The Rights Agreement has no impact on the
consolidated financial statements or earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, the Company established an Employee Stock Purchase
Plan, with the intent of aligning the interests of Penton's employees and its
stockholders by allowing employees the opportunity to purchase shares of Penton
at a discount. The plan, which was effective January 1, 2000, allows employees
to purchase common stock at 85% of the lower of the market price at the
beginning or end of each quarter. This plan was deemed to be non-compensatory
pursuant to the appropriate sections of the Internal Revenue Service Codes.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, the Company established a Management Stock Purchase
Plan for designated officers and other key employees. Participants in the plan
may elect to receive restricted stock units ("RSUs") in lieu of a designated
portion of up to 100% of their annual incentive bonus. Each RSU represents the
right to receive one share of Penton common stock. RSUs are granted at a 20%
discount from fair market value on the date awarded. RSUs vest two years after
the date of grant and are settled in shares of common stock after a period of
deferral (of no less than two years) selected by the participant, or upon
termination of employment. In February 2001 and 2000, 31,942 and 25,507 RSUs
were granted at a fair market value of $25.10 and $25.94 per share,
respectively. At June 30, 2001, 57,449 RSUs were outstanding. The discount is
recorded as compensation expense over the minimum vesting period. For the six
months ended June 30, 2001 and 2000, approximately $0.07 million and $0.02
million, respectively, was charged to expense for the RSUs.
EXECUTIVE LOAN PROGRAM
In January 2000, the Company established the Executive Loan Program, which
allowed Penton to issue an aggregate of up to 400,000 shares of Penton common
stock at fair market value to six key executives, in exchange for full recourse
notes. In addition, on October 27, 2000, the Board of Directors authorized one
additional executive to borrow up to $1.0 million under the Executive Loan
Program for the purchase of Penton stock at fair value in exchange for full
recourse notes. All notes bear interest compounded semiannually at a rate equal
to the applicable interest rate as published by the Internal Revenue Service and
mature on or before the fifth anniversary of the first loan date. No principal
or interest payments are required until maturity, at which time all outstanding
amounts are due.
At June 30, 2001, 449,430 shares had been issued under the Executive Loan
Program and the outstanding loan balance was approximately $11.3 million
(including $0.9 million of accrued interest), which is classified in the
Stockholders' Equity section of the balance sheet as notes receivable from
officers/directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
In May 2001, the Stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Equity and
Performance Incentive Plan from 2.5 million shares to 5.5 million shares.
Stock Options
In May 2001, the Stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Director Stock
Option Plan from 100,000 shares to 250,000 shares.
In February 2001 and 2000, 539,500 options and 512,600 options,
respectively, were granted under the Company's Performance Incentive Plan.
Options granted under the plan generally vest equally over three years from
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the date of grant. However, most options granted are not exercisable until the
third anniversary. All options granted pursuant to the plan will expire no later
than 10 years from the date the option was granted. Option grants do not have
any associated compensation charge as all grants are issued at fair market
value.
Deferred Shares
At June 30, 2001 and 2000, 63,029 deferred shares, which were granted in
1998 and 1999, were outstanding. Of these shares, 54,333 shares vest on the
third anniversary of the grant date, while the remaining 8,696 shares vest at
the rate of 20% per year over a five-year period from date of grant.
Compensation expense is being recognized over the related vesting period based
on the fair value of the shares at the date of grant. For the six months ended
June 30, 2001 and 2000, approximately $0.2 million, respectively, were charged
to expense for these shares.
Performance Shares
In February 2001, the Board of Directors approved a grant of 139,985
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2001 through
December 31, 2003. Each grantee is eligible to receive between 50% and 150% of
the granted shares.
In June 2000, the Board of Directors approved a grant of 20,000 performance
shares to two key executives, subject to the attainment of certain performance
goals over a three-year period from January 1, 2000 through December 31, 2002.
Each grantee is eligible to receive between 10% and 150% of the granted shares.
In February 2000, the Board of Directors approved a grant of 136,054
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2000 through
December 31, 2002. For 99,000 of the shares, each grantee is eligible to receive
between 50% and 150% of the granted shares.
Performance shares are not issuable until earned. Compensation expense
related to these shares is recorded over the performance period. For the six
months ended June 30, 2001 and 2000, approximately $1.2 million and $1.0
million, respectively, were charged to expense for these shares.
13
14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMPREHENSIVE INCOME
Total comprehensive loss for the six months ended June 30, 2001 and 2000
was $13.1 million and $44.2 million, respectively.
COMMON NOTES ACCUMULATED
STOCK CAPITAL IN RECEIVABLE OTHER
PAR EXCESS OF RETAINED OFFICERS/ COMPREHENSIVE
VALUE PAR VALUE EARNINGS DIRECTORS INCOME TOTAL
--------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Balance at December 31, 2000 $ 318 $ 226,446 $ 112,745 $ (10,207) $ 7,267 $ 336,569
Comprehensive loss:
Net loss -- -- (6,761) -- -- (6,761)
Unrealized loss on securities
reported at fair value -- -- -- -- (3,457) (3,457)
Net loss on cash flow hedges -- -- -- -- (1,965) (1,965)
Foreign currency translation
adjustment -- -- -- -- (903) (903)
---------
Total comprehensive loss (13,086)
---------
Dividends -- -- (1,915) -- -- (1,915)
Issuance of common stock:
Executive loan shares issued -- 750 -- -- -- 750
Exercise of stock options 1 1,048 -- -- -- 1,049
Employee Stock Purchase Plan -- (139) -- -- -- (139)
Receivable from officers/directors -- -- -- (1,082) -- (1,082)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 2001 $ 319 $ 228,105 $ 104,069 $ (11,289) $ 942 $ 322,146
========= ========= ========= ========= ========= =========
NOTE 10 - HEDGING ACTIVITIES
ADOPTION OF FAS 133
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (collectively referred to hereafter as "FAS 133"), on January 1, 2001.
The Company recorded a $1.4 million, net-of-tax, cumulative-effect
adjustment in other comprehensive income as of January 1, 2001. The transition
adjustment recorded in other comprehensive income will be reclassified to
earnings on a quarterly basis as interest payments occur. The Company expects
that within the twelve months following the date of initial application it
will reclassify to earnings $0.9 million of the transition adjustment that was
recorded in accumulated other comprehensive income.
The Company had the following activity in other comprehensive income
related to derivatives:
Total cumulative effect of adoption on other comprehensive
income, net of tax, at January 1, 2001 $ 1,351
Net change related to current period hedging transactions 941
Net amount reclassified to earnings (115)
---------
Net deferred loss on cash flow hedges at March 31, 2001 2,177
Net change related to current period hedging transactions (30)
Net amount reclassified to earnings (182)
---------
Net deferred loss on cash flow hedges at June 30, 2001 $ 1,965
=========
14
15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTING POLICY FOR DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are recognized on the balance sheet at their fair value. On
the date that the Company enters into a derivative contract, it designates the
derivative as (1) a hedge of (a) the fair value of a recognized asset or
liability or (b) an unrecognized firm commitment (a "fair value" hedge); (2) a
hedge of (a) a forecasted transaction or (b) the variability of cash flows that
are to be received or paid in connection with a recognized asset or liability (a
"cash flow" hedge); (3) a foreign-currency fair-value or cash flow hedge (a
"foreign currency" hedge); (4) a hedge of a net investment in a foreign
operation; or (5) an instrument that is held for trading or non-hedging purposes
(a "trading" or "non-hedging" instrument).
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a fair-value hedge, along with changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk (including changes that reflect losses or gains on firm
commitments), are recorded in current period earnings. The Company did not have
any fair value hedges during the six months ended June 30, 2001.
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a cash flow hedge, to the extent that the
hedge is effective, are recorded in other comprehensive income, until earnings
are affected by the variability of cash flows of the hedged transaction (e.g.,
until periodic settlements of a variable-rate asset or liability are recorded in
earnings). Any hedge ineffectiveness (which represents the amount by which the
changes in the fair value of the derivative exceed the variability in the cash
flows of the forecasted transaction) is recorded in current period earnings. The
Company had interest rate swaps and caps which were designated as cash flow
hedges for the six months ended June 30, 2001.
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a foreign-currency hedge is recorded in
either current period earnings or other comprehensive income, depending on
whether the hedging relationship satisfies the criteria for a fair-value or
cash-flow hedge. If, however, a derivative is used as a hedge of a net
investment in a foreign operation, the changes in the derivative's fair value,
to the extent that the derivative is effective as a hedge, are recorded in the
cumulative translation adjustment account within other comprehensive income.
Changes in the fair value of derivative trading and non-hedging instruments are
reported in current period earnings. For the six months ended June 30, 2001, the
Company did not have any foreign-currency or net investment hedges.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as fair-value, cash flow, or
foreign-currency hedges to (1) specific assets and liabilities on the balance
sheet or (2) specific firm commitments or forecasted transactions. The Company
also formally assesses (both at the hedge's inception and on an ongoing basis)
whether the derivatives that are used in hedging transactions have been highly
effective in offsetting changes in the fair value or cash flows of hedged items
and whether those derivatives may be expected to remain highly effective in
future periods. When it is determined that a derivative is not (or has ceased to
be) highly effective as a hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate. In all
situations in which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current period earnings.
15
16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At June 30, 2001, Penton had the following interest rate instruments in
effect (in thousands):
NOTIONAL
AMOUNT RATE PERIOD
Interest rate swap $26,875 6.22% 1/00-10/02
Interest rate swap $35,832 6.77% 5/00-11/02
Interest rate swap $25,000 7.09% 6/00-12/01
Interest rate swap $17,916 5.95% 9/99-10/02
Interest rate cap $26,875 8.50% 10/99-10/02
At June 30, 2001, the interest rate instruments had a negative fair value
of $3.1 million recorded as a liability in Other Accrued Expenses on the balance
sheet. The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the other counter-parties as they are
major financial institutions. The Company controls the credit risk of its
interest rate swap agreements through credit approvals, limits and monitoring
procedures. The Company also maintains a policy of requiring that all swap
derivative contracts be pursuant to the International Swaps and Derivatives
Association Master Agreement.
RISK MANAGEMENT
In the ordinary course of business, Penton is exposed to fluctuations in
interest rates and foreign currency rates. Penton maintains assets and
operations in Europe and Asia, and as a result, may be exposed to cost increases
relative to the markets in which it sells; however, Penton does not manage this
risk using derivative instruments. The Company is exposed to interest rate risk
due to the variable interest rate of the Credit Agreement. The Company
maintains an overall interest rate risk-management strategy that incorporates
the use of derivative instruments to minimize significant unplanned
fluctuations in earnings that are caused by interest rate volatility.
Derivative instruments that are used as part of the Company's interest rate
risk-management strategy include primarily interest rate swaps and interest
rate caps.
CASH FLOW HEDGES
The Company uses interest rate swaps to convert a portion of its
variable-rate debt to fixed-rate debt. The specific terms and notional amounts
of the swaps are determined based on management's assessment of future interest
rates, the requirements under the Credit Agreement (see Note 6), and other
factors. The Company purchases interest rate caps and swaps to minimize its
exposure to volatility in LIBOR. The level of fixed rate debt, after the effects
of interest rate swaps and caps have been considered, is maintained at a level
that is greater than 50% of the total Company debt.
For the six months ended June 30, 2001, the Company recognized a net loss
of $0.5 million (reported as interest expense in the Consolidated Statements of
Income), which represents the total ineffectiveness of all cash flow hedges,
including the time value of option contracts. All components of each
derivative's gain or loss were included in the assessment of hedge effectiveness
except for the time value of interest rate caps (option contracts).
During the six months ended June 30, 2001, the Company reclassified $0.3
million from accumulated other comprehensive income to current period earnings
(reported as interest expense in the Consolidated Statements of Income). The net
deferred loss recorded in accumulated other comprehensive income will be
reclassified to earnings on a quarterly basis as interest payments occur. As of
June 30, 2001, $0.3 million of deferred losses on derivative instruments
accumulated in other comprehensive income is expected to be reclassified as
earnings during the next twelve months. As of June 30, 2001, the maximum term
over which the Company is hedging its exposure to the variability of future cash
flows is sixteen months.
16
17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - RESTRUCTURING CHARGES
Penton announced a restructuring program in February 2001 with the intent
of discontinuing certain internet operations that have not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. Penton
incurred a pre-tax charge of $5.6 million for this restructuring program in the
first quarter of 2001. The charge was reported as a component of operating
expenses.
An analysis of restructuring charges recorded in the Consolidated
Statements of Income as of June 30, 2001, and the amount accrued in the
Consolidated Balance Sheets at June 30, 2001 are as follows:
Ending
Description Restructuring Cash Other Accrual
----------- Charge Payments Adjustments Balance
------------------------------------------------------------
Severance, outplacement and
other personnel costs $ 1,913 $ 1,674 $ - $ 239
Impaired assets 2,054 567 1,487 -
Other exit costs 1,600 255 - 1,345
----------- ----------- --------- ---------
Total $ 5,567 $ 2,496 $ 1,487 $ 1,584
=========== =========== ========= =========
Asset impairment costs primarily included the write-off of capitalized
software development costs associated with the discontinuance of the industry
exchange component of New Hope Natural Media's Healthwell.com. Personnel costs
include the reduction of approximately 60 employees at Healthwell.com as well as
a reduction of workforce in a number of other internet initiatives throughout
Penton. Such personnel costs include payments for severance, earned vacation,
outplacement services and provision for continued benefits to personnel. Costs
to exit activities reflect the costs associated with existing office spaces
under lease and other contractual obligations. During the second quarter, $0.6
million was charged against the restructuring reserve. Other adjustments
reflect the write-off of impaired assets that did not involve the use of cash
during the six months ended June 30, 2001.
NOTE 12 - SEGMENT INFORMATION
Penton adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in 1998.
As previously reported, Penton's business units had been aggregated into three
reportable segments: Media Services, Printing, and Direct Mail. The sale of the
Printing and Direct Mail segments has eliminated all segments except for the
Media Services segment. Accordingly, the Company now operates in only one
segment.
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as
of June 30, 2001 and December 31, 2000 and our condensed consolidating
statements of income and condensed consolidating statements of cash flows for
the six months ended June 30, 2001 and 2000. In the following schedules, "Parent
Company" refers to the combined balances of Penton Media, Inc., "Guarantor
Subsidiaries" refer to Penton's wholly owned domestic subsidiaries, and
"Non-guarantor Subsidiaries" refer to Penton's foreign subsidiaries.
"Eliminations" represent the adjustments necessary to (a) eliminate intercompany
transactions and (b) eliminate the investments in our subsidiaries.
17
18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,197 $ 5,857 $ 6,615 $ -- $ 55,669
Accounts and notes receivable, net 41,480 96,225 13,758 (80,000) 71,463
Inventories 1,367 397 31 -- 1,795
Deferred tax asset 3,600 1,962 -- -- 5,562
Prepayments, deposits and other 12,898 6,570 2,309 (68) 21,709
--------- --------- --------- --------- ---------
102,542 111,011 22,713 (80,068) 156,198
--------- --------- --------- --------- ---------
Property, plant and equipment, net 27,473 6,334 2,536 -- 36,343
Goodwill, net 139,701 397,823 36,332 -- 573,856
Other intangibles, net 12,239 38,286 2,233 -- 52,758
Deferred tax asset 4,187 1,045 -- (5,232) --
Investment in subsidiaries 238,720 144,235 -- (382,955) --
Investments -- 11,894 -- -- 11,894
--------- --------- --------- --------- ---------
422,320 599,617 41,101 (388,187) 674,851
--------- --------- --------- --------- ---------
$ 524,862 $ 710,628 $ 63,814 $(468,255) $ 831,049
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility $ 14,750 $ -- $ -- $ -- $ 14,750
Accounts payable and accrued expenses 23,270 (4,012) 15,896 -- 35,154
Accrued compensation and benefits 12,738 1,213 (1,914) -- 12,037
Unearned income 19,332 23,963 4,096 -- 47,391
--------- --------- --------- --------- ---------
70,090 21,164 18,078 -- 109,332
--------- --------- --------- --------- ---------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility 192,500 -- -- -- 192,500
Senior subordinated notes 180,836 -- -- -- 180,836
Notes payable 80,000 -- 3,526 (80,000) 3,526
Net deferred pension credits 15,640 -- -- -- 15,640
Deferred tax liability (3,631) 12,537 -- (5,232) 3,674
Intercompany advances (276,639) 256,772 19,867 -- --
Other 2,105 145 1,145 -- 3,395
--------- --------- --------- --------- ---------
190,811 269,454 24,538 (85,232) 399,571
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common stock 228,424 349,428 16,614 (366,042) 228,424
Retained earnings 48,752 66,028 6,270 (16,981) 104,069
Notes receivable officers/directors (11,289) -- -- -- (11,289)
Accumulated other comprehensive income (1,926) 4,554 (1,686) -- 942
--------- --------- --------- --------- ---------
263,961 420,010 21,198 (383,023) 322,146
--------- --------- --------- --------- ---------
$ 524,862 $ 710,628 $ 63,814 $(468,255) $ 831,049
========= ========= ========= ========= =========
18
19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 8,678 $ 3,970 $ (1,043) $ 11,605
Accounts and notes receivable, net 40,592 96,850 12,617 (80,000) 70,059
Inventories 495 282 21 -- 798
Deferred tax asset 3,600 1,962 -- -- 5,562
Prepayments, deposits and other 5,282 4,710 1,771 -- 11,763
--------- --------- --------- --------- ---------
49,969 112,482 18,379 (81,043) 99,787
--------- --------- --------- --------- ---------
Property, plant and equipment, net 28,951 5,462 1,084 -- 35,497
Goodwill, net 139,023 405,987 29,616 -- 574,626
Other intangibles, net 26,548 25,562 2,012 -- 54,122
Deferred tax asset 2,472 -- 6 (2,478) --
Investment in subsidiaries 238,788 144,235 -- (383,023) --
Investments -- 17,725 -- -- 17,725
--------- --------- --------- --------- ---------
435,782 598,971 32,718 (385,501) 681,970
--------- --------- --------- --------- ---------
$ 485,751 $ 711,453 $ 51,097 $(466,544) $ 781,757
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility $ 11,250 $ -- $ -- $ -- $ 11,250
Accounts payable and accrued expenses 32,273 7,412 6,400 (1,043) 45,042
Accrued compensation and benefits 15,200 2,985 300 -- 18,485
Unearned income 17,253 28,860 9,659 -- 55,772
--------- --------- --------- --------- ---------
75,976 39,257 16,359 (1,043) 130,549
--------- --------- --------- --------- ---------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility 91,000 -- -- -- 91,000
Senior debt facility 199,875 -- -- -- 199,875
Notes payable 80,000 -- -- (80,000) --
Net deferred pension credits 15,395 -- -- -- 15,395
Deferred tax liability -- 8,456 -- (2,478) 5,978
Intercompany advances (273,733) 257,298 16,435 -- --
Other 2,395 25 (29) -- 2,391
--------- --------- --------- --------- ---------
114,932 265,779 16,406 (82,478) 314,639
--------- --------- --------- --------- ---------
STOCKHOLDERS' EQUITY:
Common stock 226,764 349,428 16,614 (366,042) 226,764
Retained earnings 78,372 48,982 2,372 (16,981) 112,745
Notes receivable officers/directors (10,207) -- -- -- (10,207)
Accumulated other comprehensive income (86) 8,007 (654) -- 7,267
--------- --------- --------- --------- ---------
294,843 406,417 18,332 (383,023) 336,569
--------- --------- --------- --------- ---------
$ 485,751 $ 711,453 $ 51,097 $(466,544) $ 781,757
========= ========= ========= ========= =========
19
20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 112,931 $ 77,899 $ 28,640 $ -- $ 219,470
----------- --------- --------- --------- ---------
OPERATING EXPENSES:
Editorial, production and circulation 47,698 26,791 9,523 -- 84,012
Selling, general and administrative 56,233 31,668 11,735 -- 99,636
Depreciation and amortization 19,356 3,055 303 -- 22,714
Restructuring charges 5,567 -- -- -- 5,567
----------- --------- --------- --------- ---------
128,854 61,514 21,561 -- 211,929
----------- --------- --------- --------- ---------
OPERATING INCOME (LOSS) (15,923) 16,385 7,079 -- 7,541
----------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net of income earned (14,628) 2,571 (193) -- (12,250)
Gain on sale of investments -- -- -- -- --
Miscellaneous, net (216) -- (1,234) -- (1,450)
----------- --------- --------- --------- ---------
(14,844) 2,571 (1,427) -- (13,700)
----------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (30,767) 18,956 5,652 -- (6,159)
PROVISION (BENEFIT) FOR INCOME TAXES (3,062) 1,910 1,754 -- 602
----------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (27,705) $ 17,046 $ 3,898 $ -- $ (6,761)
=========== ========= ========= ========= =========
20
21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 112,801 $ 61,717 $ 10,365 $ -- $ 184,883
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Editorial, production and circulation 46,016 15,779 3,409 -- 65,204
Selling, general and administrative 53,216 17,934 4,491 -- 75,641
Depreciation and amortization 12,944 1,934 151 -- 15,029
Restructuring charges -- -- -- -- --
Impairment of other assets 1,051 -- -- -- 1,051
------------- ------------- ------------- ------------- -------------
113,227 35,647 8,051 -- 156,925
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (426) 26,070 2,314 -- 27,958
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense, net of income earned (4,904) 18 (290) -- (5,176)
Gain on sale of investments 110,210 -- -- -- 110,210
Miscellaneous, net (436) (8) -- -- (444)
------------- ------------- ------------- ------------- -------------
104,870 10 (290) -- 104,590
------------- ------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 104,444 26,080 2,024 -- 132,548
PROVISION FOR INCOME TAXES 45,356 11,388 686 -- 57,430
------------- ------------- ------------- ------------- -------------
INCOME FROM CONTINUING OPERATIONS 59,088 14,692 1,338 -- 75,118
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net (85) -- -- -- (85)
------------- ------------- ------------- ------------- -------------
NET INCOME $ 59,003 $ 14,692 $ 1,338 $ -- $ 75,033
============= ============= ============= ============= =============
21
22
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ (24,565) $ 1,348 $ 7,158 $ 1,043 $ (15,016)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,187) (1,727) (1,534) -- (5,448)
Acquisitions and investments, net of cash
acquired (4,631) (675) (2,979) -- (8,285)
Earnouts paid (10,208) (1,767) -- -- (11,975)
--------- --------- --------- --------- ---------
Net cash used for investing activities (17,026) (4,169) (4,513) -- (25,708)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes 180,836 -- -- -- 180,836
Proceeds from senior debt facility 45,000 -- -- -- 45,000
Repayment of senior debt facility (139,875) -- -- -- (139,875)
Employee stock purchase plan payments (139) -- -- -- (139)
Proceeds from deferred shares and options
exercised 1,049 -- -- -- 1,049
Payment of financing costs (85) -- -- -- (85)
Dividends paid (1,912) -- -- -- (1,912)
--------- --------- --------- --------- ---------
Net cash provided by financing
activities 84,874 -- -- -- 84,874
--------- --------- --------- --------- ---------
Effect of exchange rate (86) -- -- -- (86)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
equivalents 43,197 (2,821) 2,645 1,043 44,064
Cash and equivalents at beginning of period -- 8,678 3,970 (1,043) 11,605
--------- --------- --------- --------- ---------
Cash and equivalents at end of period $ 43,197 $ 5,857 $ 6,615 $ -- $ 55,669
========= ========= ========= ========= =========
22
23
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ (22,971) $ 8,490 $ 3,947 $ -- $ (10,534)
--------- --------- --------- -------------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,422) (2,339) (72) -- (5,833)
Acquisitions and investments, net of cash
acquired (7,352) (3,823) (1,417) -- (12,592)
Earnouts paid (3,205) (980) (595) -- (4,780)
Proceeds from sale of INT Media Group
Inc. stock 113,100 -- -- -- 113,100
Net proceeds from sale of discontinued
operations 4,000 -- -- -- 4,000
--------- --------- --------- -------------- ---------
Net cash provided by investing
activities 103,121 (7,142) (2,084) -- 93,895
--------- --------- --------- -------------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt facility -- -- -- -- --
Repayment of senior debt facility -- -- -- -- --
Employee stock purchase plan payments -- -- -- -- --
Proceeds from deferred shares and options
exercised 688 -- -- -- 688
Dividends paid (1,906) -- -- -- (1,906)
--------- --------- --------- -------------- ---------
Net cash used for financing
activities (1,218) -- -- -- (1,218)
--------- --------- --------- -------------- ---------
Effect of exchange rate (99) -- -- -- (99)
Net increase in cash and
equivalents 78,833 1,348 1,863 -- 82,044
Cash and equivalents at beginning
of period 24,664 2,918 2,788 -- 30,370
--------- --------- --------- -------------- ---------
Cash and equivalents at end of period $ 103,497 $ 4,266 $ 4,651 $ -- $ 112,414
========= ========= ========= ============== =========
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
For the six months ended June 30, 2001, Penton issued 39,430 shares to an
officer under the executive loan program, marked to market its investment in INT
Media Group, Inc. stock by approximately $7.6 million and declared dividends of
$1.0 million which were accrued but not paid at quarter end. In addition, Penton
acquired Hillgate for approximately $4.1 million, of which $3.5 million was in
the form of notes payable.
For the six months ended June 30, 2000, Penton issued 52,920 common shares
valued at approximately $1.4 million in connection with New Hope's earnout;
issued 400,000 shares to officers and directors; and marked to market its
investment in INT Media Group, Inc. stock by approximately $54.2 million.
The foregoing transactions did not provide for or require the use of cash
and, accordingly, are not reflected in the Consolidated Statements of Cash
Flows.
NOTE 15- SUBSEQUENT EVENTS
In July 2001, Penton used $20.0 million of the net proceeds from the Senior
Subordinated Notes to pay down Term Loan A by $12.8 million and B by $7.2
million. The remaining net proceeds of $24.2 million will be used for general
corporate purposes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto. Historical results and
percentage relationships set forth in the consolidated financial statements,
including trends which might appear, should not be taken as indicative of future
operations. Penton considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933 and Section 21E of the Securities Exchange Act of 1934, both as amended,
with respect to Penton's expectations for future periods. Although Penton
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. A number of important factors could cause
Penton's results to differ materially from those indicated by such
forward-looking statements, including, among other factors, pending litigation,
government regulation, competition, technological change, intellectual property
rights, capital spending, international operations and Penton's acquisition and
Internet strategies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2000
REVENUES
Total revenues decreased $2.3 million, or 2.1%, from $109.1 million for the
three months ended June 30, 2000 to $106.8 million for the same period in 2001.
Publishing revenues increased $2.4 million, or 4.3%, from $56.0 million for
the three months ended June 30, 2000 to $58.4 million in the same period in
2001, due primarily to the following: (i) the addition of Windows 2000 Magazine,
Business Finance Magazine, SQL Server Magazine and NEWS/400 magazine, which were
part of the Duke acquisition in September 2000; (ii) the addition of IT
Consultant, m-CommerceWorld, ISPWorld, and Service Management magazines, which
were part of the Hillgate acquisition in February 2001; (iii) the addition of
Contractor magazine which was acquired in April 2001; (iv) the addition of
iTgraphics Magazine, and the Australian editions of Computer Reseller News
and Information Week magazines, which were all part of the DWR Media acquisition
completed in May 2001; (v) the addition of Group Computing magazine which was
acquired in December 2000; (vi) the launch of Streaming Media magazine in the
fourth quarter of 2000 and (vii) significant year-over-year increases in Air
Transport World and Expansion Management magazines. These increases were
partially offset by revenue declines on technology magazines, especially
Internet World magazine, as well as on select magazines serving the
manufacturing industry.
Trade show and conference revenues decreased $7.2 million, or 13.8%, from
$52.3 million for the three months ended June 30, 2000 to $45.1 million for the
same period in 2001, due primarily to the timing of the Internet World Spring
and eCRM trade shows which were held in the first quarter of 2001 compared with
the second quarter of 2000 offset by (i) substantial year-on-year gains posted
by key trade shows held in the quarter, including Internet World UK and Natural
Products Expo Europe; (ii) results from acquired properties, including Internet
World Berlin, Streaming Media West, and PTS regional events and (iii) trade show
launches including Steaming Media events in Berlin, Hong Kong and Tokyo.
Online media revenues increased $2.6 million, from $0.7 million for the
three months ended June 30, 2000 to $3.3 million for the same period in 2001,
due primarily to the addition of Duke's online media business which was acquired
in September 2000.
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OPERATING EXPENSES
Operating expenses increased $17.5 million, or 20.7%, from $84.5 million
for the three months ended June 30, 2000 to $102.0 million for the same period
in 2001. As a percentage of revenues, operating costs increased from 77.5% in
2000 to 95.5% in 2001. The increase in operating expenses as a percentage of
revenues was due primarily to the move of the highly successful Internet World
Spring show and the eCRM show from the second quarter in 2000 to the first
quarter in 2001, and higher depreciation and amortization expense related to
acquisitions and capitalized costs related to the relocation of the Company's
corporate headquarters.
Editorial, Production and Circulation
Editorial, production and circulation expenses grew to $43.2 million for
the three months ended June 30, 2001, compared with $34.9 million for the same
period in 2000, representing an increase of $8.3 million, or 23.7%. The increase
was due primarily to the acquisitions of Duke, Streaming Media and PTS in
September 2000, offset by the impact of the Internet World Spring and eCRM trade
shows, which were held in the second quarter of 2000 compared to the first
quarter of 2001.
As a percentage of revenues, editorial, production and circulation expenses
increased from 32.0% in 2000 to 40.4% in 2001. The increase was due largely to
the timing of the trade shows, as noted above.
Selling, General and Administrative
Selling, general and administrative expenses grew $6.5 million, or 15.9%,
from $41.2 million for the three months ended June 30, 2000 to $47.7 million for
the same period in 2001. The increase was due primarily to the acquisition of
Duke, Streaming Media and PTS in September 2000, offset by the impact of the
Internet World Spring and eCRM trade shows, which were held in the second
quarter of 2000 compared to the first quarter of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 37.7% in 2000 to 44.7% in 2001. The increase was due largely to
the timing of the trade shows, as noted above.
Impairment of Assets
Based upon Penton's review of the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," Penton recorded a $1.0 million non-cash charge in the second quarter of
2000 to write down the carrying value of certain leasehold improvements,
furniture and fixtures, and computer equipment to fair value.
Depreciation and Amortization
Depreciation and amortization increased $3.7 million, or 51.0%, to $11.1
million for the three months ended June 30, 2001. The higher expense primarily
was the result of the amortization of goodwill and intangible assets from
acquisitions and increased depreciation associated with capital expenditures,
primarily related to the corporate headquarters relocation in the fourth quarter
of 2000.
OPERATING INCOME
Overall, Penton's operating income decreased $19.8 million, or 80.6%, from
$24.6 million for the three months ended June 30, 2000 to $4.8 million for the
same period in 2001. Operating income as a percentage of revenue decreased from
22.5% in 2000 to 4.5% in 2001.
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OTHER INCOME (EXPENSE)
Interest expense, net of interest earned, increased $3.8 million to $6.2
million for the three months ended June 30, 2001, compared with the same prior
year period, due to a higher average debt balance outstanding for the three
months ending June 30, 2001 when compared with the same prior year period, as
well as a decrease in interest earned on Penton's lower average cash balance
compared with the prior year.
EFFECTIVE TAX RATES
The effective tax rates were (85.0%) and 60.0% for the three months ended
June 30, 2001 and 2000, respectively. During the second quarter, Penton changed
its method for calculating its interim tax provision from the use of the annual
effective tax rate approach to the discrete period approach. The tax provision
change was made due to the limited forward visibility on results of operations
for the remainder of 2001.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2000
REVENUES
Total revenues increased $34.6 million, or 18.7%, from $184.9 million for
the six months ended June 30, 2000 to $219.5 million for the same period in
2001.
Publishing revenues increased $6.7 million, or 6.2%, from $108.9 million
for the six months ended June 30, 2000 to $115.6 million in the same period in
2001, due primarily to the following: (i) the addition of Windows 2000 Magazine,
Business Finance Magazine, SQL Server Magazine and NEWS/400 magazine, which were
part of the Duke acquisition in September 2000; (ii) the addition of IT
Consultant, m-CommerceWorld, ISPWorld, and Service Management magazines, which
were part of the Hillgate acquisition in February 2001; (iii) the addition of
Contractor magazine, which was acquired in April 2001; (iv) the addition of
Group Computing magazine which was acquired in December 2000; (v) the launch of
Streaming Media magazine in the fourth quarter of 2000 and (vi) significant
year-over-year increases in Supply Chain Technology News and Transportation &
Distribution magazines. These increases were partially offset by revenue
declines on technology magazines, especially Internet World magazine, as well as
on select magazines serving the manufacturing industry and the absence of a
major directory, which was published in the first quarter of 2000 and will be
published in the second half of 2001.
Trade show and conference revenues increased $22.6 million, or 30.2%, from
$74.8 million for the six months ended June 30, 2000 to $97.4 million for the
same period in 2001, due primarily to the following: (i) added results of
acquired properties, including Internet World Berlin, Streaming Media West and
PTS regional events; (ii) the successful launches of Internet World Wireless
East, ASPCON London, Streaming Media events in Berlin, Hong Kong and Tokyo, and
m-Commerce World; and (iii) strong year-on-year growth of events including
Internet World UK, Service Management Europe, ISPCON London, Natural Product
Expo West and Natural Products Expo Europe. Revenues were partially offset by a
significant decline in the high-margin Internet World Spring show.
Online media revenues increased $5.4 million, from $1.1 million for the six
months ended June 30, 2000 to $6.5 million for the same period in 2001, due
primarily to the addition of Duke's online media business, which was acquired in
September 2000.
OPERATING EXPENSES
Operating expenses increased $55.0 million, or 35.1%, from $156.9 million
for the six months ended June 30, 2000 to $211.9 million for the same period in
2001. As a percentage of revenues, operating costs increased from 84.9% in 2000
to 96.6% in 2001. The increase in operating expenses as a percentage of revenues
was due primarily to lower margins earned from the trade shows held during the
first half of 2001,
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higher depreciation and amortization expense related to acquisitions and the
relocation of the corporate headquarters as, previously noted.
Editorial, Production and Circulation
Editorial, production and circulation expenses grew to $84.0 million for
the six months ended June 30, 2001 compared with $65.2 million for the same
period in 2000, representing an increase of $18.8 million, or 28.7%. The
increase was due primarily to the acquisitions of Duke, Streaming Media and PTS
in September 2000, as well as the nine acquisitions completed in the first half
of 2001.
As a percentage of revenues, editorial, production and circulation expenses
increased from 35.3% in 2000 to 38.3% in 2001. The increase was due largely to
lower margins earned from both trade shows and conferences and magazines.
Selling, General and Administrative
Selling, general and administrative expenses grew $24.0 million, or 31.7%,
from $75.6 million for the six months ended June 30, 2000 to $99.6 million for
the same period in 2001. The increase was due primarily to the acquisition of
Duke, Streaming Media and PTS in September 2000, as well as the nine
acquisitions completed in the first half of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 40.9% in 2000 to 45.4% in 2001. The increase was due largely to
an increase in health care costs and compensation expense.
Impairment of Assets
In accordance with the Company's review of impairment of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company recorded a $1.0 million non-cash charge in the
second quarter of 2000 to write down the carrying value of certain leasehold
improvements, furniture and fixtures, and computer equipment to fair value.
Restructuring Charge
As a result of the current economic environment, Penton is adjusting its
portfolio of online media products to focus on those that are demonstrating
revenue growth, customer acceptance and near-term opportunity for profit. To
that end, Penton announced a restructuring program in February 2001 with the
intent of discontinuing certain online media operations that have not met these
objectives. Penton incurred a pre-tax charge of $5.6 million for this
restructuring program in the first quarter of 2001. The charge was reported as a
component of operating expenses. See Note 11 - Restructuring Charges for
additional information on related cash payments. The following sets forth
additional detail concerning the principal components of the charge:
* Asset impairment costs totaled $2.1 million. These costs primarily
included the write-off of capitalized software costs associated with
the discontinuance of the industry exchange component of New Hope
Natural Media's Healthwell.com.
* Personnel costs of $1.9 million primarily are associated with the
separation of 60 employees at Healthwell.com as well as a reduction of
workforce in a number of other online media initiatives at Penton.
Personnel costs included payments for severance, earned vacation,
costs of outplacement services and provision for continued
benefits to personnel.
* Exit costs of $1.6 million reflecting the costs associated with
existing office spaces under lease and other contractual obligations.
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Depreciation and Amortization
Depreciation and amortization increased $7.7 million, or 51.1%, to $22.7
million for the six months ended June 30, 2001. The higher expense is primarily
the result of the amortization of goodwill and intangible assets from
acquisitions and increased depreciation associated with capital expenditures
related to the relocation of the corporate headquarters in November 2000.
OPERATING INCOME
Overall, Penton's operating income decreased $20.4 million, or 73.0%, from
$28.0 million for the six months ended June 30, 2000 to $7.5 million for the
same period in 2001. Operating income as a percentage of revenue decreased from
15.1% in 2000 to 3.4% in 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $7.1 million to $12.3 million for the six months
ended June 30, 2001, compared with $5.2 million in the same prior year period,
due to a higher average debt balance outstanding for the six months ending June
30, 2001 when compared with the same prior year period, as well as a significant
decrease in interest earned on the Company's lower average cash balance compared
with the prior year.
In February 2000, Penton sold 2.0 million shares of INT Media Group, Inc.
stock as part of a 3.75 million-share secondary offering. Penton received cash
of $113.1 million and recognized a pre-tax gain of approximately $110.2 million.
EFFECTIVE TAX RATES
The effective tax rates were (10.0%) and 43.0% for the six months ended June 30,
2001 and 2000, respectively. During the second quarter, Penton changed its
method for calculating its interim tax provision from use of the annual
effective tax rate approach to the discrete period approach. The tax provision
change was made due to the limited forward visibility on results for the
remainder of 2001. The low effective tax rate for the six months ended June 30,
2000 was due to Penton's sale of a portion of its investment in INT Media Group,
Inc. stock, which resulted in the recognition of a pre-tax gain of $110.2
million.
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ADJUSTED EBITDA
Net income before interest, taxes, depreciation and amortization, and
nonrecurring items ("adjusted EBITDA") is a widely used and commonly reported
standard measure utilized by analysts and investors in the analysis of companies
in the media industry. Adjusted EBITDA is not a measure of performance under
GAAP because it excludes those items listed above that are significant
components in understanding and evaluating Penton's financial performance.
However, the following adjusted EBITDA information can be helpful in determining
Penton's ability to meet its debt service requirements and in comparative
analyses of operating performance relative to other media companies. Penton's
calculation of adjusted EBITDA is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Net income (loss) $ (5,483) $ 8,695 $ (6,761) $ 75,033
Interest expense, net of interest earned 6,249 2,441 12,250 5,176
Restructuring charge -- -- 5,567 --
Gain on sale of investments -- -- -- (110,210)
Provision for income taxes 2,512 13,014 602 57,430
Depreciation and amortization 11,135 7,376 22,714 15,029
Impairment of assets -- 1,051 -- 1,051
Discontinued operation -- -- -- 85
Miscellaneous, net 1,501 424 1,450 444
--------- --------- --------- ---------
Adjusted EBITDA $ 15,914 $ 33,001 $ 35,822 $ 44,038
========= ========= ========= =========
For the three months ended June 30, 2001, the Company's adjusted EBITDA
decreased $17.1 million, or 51.8%, to $15.9 million from $33.0 million for the
same period in 2000. Adjusted EBITDA margins decreased to 14.9% for the quarter
compared with 30.3% in the same year ago period. The decease in both adjusted
EBITDA and adjusted EBITDA margins were primarily due to the inclusion of the
highly successful Internet World Spring trade show and the eCRM show in the
second quarter of 2000 compared with the first quarter this year.
For the six months ended June 30, 2001, the Company's adjusted EBITDA
decreased $8.2 million, or 18.7%, to $35.8 million from $44.0 million for the
same period in 2000. Adjusted EBITDA margins were 16.3% for the six months ended
June 30, 2001 compared with 23.8% for the same period in 2000. The decreases
reflect significant declines on certain high-margin properties serving
technology markets, declines on select manufacturing titles, and investments in
magazine launches, partially offset by added results from acquisitions and
profit improvements on certain existing properties.
Penton's calculation of adjusted EBITDA by product is as follows (in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ----------- ---------
Publishing $ 8,563 $ 14,042 $ 15,332 $ 25,086
Trade shows & conferences 15,956 27,709 41,316 36,669
Online media (943) (1,361) (1,930) (2,146)
----------- ---------- ----------- -----------
Subtotal 23,576 40,390 54,718 59,609
General and administrative (7,662) (7,389) (18,896) (15,571)
----------- ---------- ----------- -----------
Adjusted EBITDA $ 15,914 $ 33,001 $ 35,822 $ 44,038
========== ========= ========== ===========
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For the three months ended June 30, 2001, adjusted EBITDA for the Company's
publishing operations decreased $5.5 million, or 39.0%, when compared with the
same prior year period. Adjusted EBITDA was heavily impacted by declines on
Penton's technology magazines, most significantly Internet World; declines on
select manufacturing titles; and investments in magazine launches, partially
offset by results of acquisitions.
For the three months ended June 30, 2001, adjusted EBITDA for the Company's
trade show and conference operations decreased $11.8 million, or 42.4% when
compared with the same prior year period. Adjusting for the change in the timing
of the Internet World Spring and eCRM trade shows, adjusted EBITDA increased
91.9% for the quarter ended June 30, 2001 when compared with the same period in
2000. The increase was due to substantial year-on-year gains posted by key trade
shows held in the quarter, including Internet World UK and Natural Products Expo
Europe; added results from acquired properties, including Internet World Berlin,
Streaming Media West, and PTS regional events; and trade show launches including
Streaming Media events in Berlin, Hong Kong and Tokyo.
For the three months ended June 30, 2001, adjusted EBITDA for the Company's
online media operations decreased from a loss of $1.4 million to a loss of $0.9
million.
For the three months ended June 30, 2001, general and administrative costs
increased $0.3 million, when compared with the same prior year period.
For the six months ended June 30, 2001 adjusted EBITDA for the Company's
publishing operations decreased $9.8 million, or 38.9%, when compared with the
prior year period, as a result of declines on high-margin magazines serving
technology markets and select manufacturing magazines, investments in magazine
launches and the absence of a major directory, which was published in the first
quarter of 2000 but will be published in the second half of 2001.
For the six months ended June 30, 2001 adjusted EBITDA for the Company's
trade show and conference operations increased $4.6 million, or 12.7%. This
increase was due to added results of acquired properties, including Internet
World Berlin, Streaming Media West and PTS regional events; successful launches,
including Internet World Wireless East, ASPCON London, Streaming Media events in
Berlin, Hong Kong and Tokyo, and m-Commerce World; and strong year-on-year
growth of events, including Internet World UK, Service Management Europe, ISPCON
London, Natural Products Expo West and Natural Products Expo Europe. Adjusted
EBITDA for events were partially offset by the decline of the Internet World
Spring show.
For the six months ended June 30, 2001, adjusted EBITDA for the Company's
online media operations decreased from a loss of $2.1 million to a loss of $1.9
million.
For the six months ended June 30, 2001, general and administrative costs
increased $3.3 million, when compared with the same prior-year period. The
increase was primarily due to higher compensation expense, a significant
year-over-year increase in healthcare costs and acquisitions.
FOREIGN CURRENCY
The functional currency of the Company's foreign operations is their local
currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. Dollars at the rates of exchange on the balance sheet date;
income and expense are translated at the average rates of exchange prevailing
during the period. There were no significant foreign currency transaction gains
or losses for the periods presented.
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LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, Penton financed its operations primarily
through cash generated from operating activities, borrowings under its credit
facilities, the issuance of senior subordinated notes and the sale of
investments.
Cash used by operating activities was $15.0 million and $10.5 million for
the six months ended June 30, 2001 and 2000, respectively. Operating cash flows
for the six months ended June 30, 2001 reflect the Company's net loss of $6.8
million in addition to a net working capital decrease of approximately $35.5
million and non-cash charges of approximately $27.2 million. Operating cash
flows for the six months ended June 30, 2000 reflect the Company's net income of
$75.0 million in addition to a net working capital increase of approximately
$7.6 million and non-cash charges of approximately $93.1 million.
Investing activities used $25.7 million for the six months ended June 30,
2001, primarily due to the nine acquisitions completed in 2001, earnouts and
capital expenditures. For the six months ended June 30, 2000, investing
activities provided $93.9 million, primarily from proceeds from the sale of 2.0
million shares of INT Media Group, Inc. stock and proceeds from the sale of the
Direct Mail segment. These proceeds were partially offset by the use of cash
for acquisitions, investments, earnouts and capital expenditures.
Financing activities provided $84.9 million for the six months ended June
30, 2001, primarily from borrowings under the Company's revolving credit
facility and proceeds from the senior subordinated notes, offset partially by
repayments under the credit facility and dividends paid to stockholders.
Financing activities used $1.2 million in 2000, primarily for the payment of
dividends to stockholders.
In June 2001, Penton issued $185.0 million of 10 3/8% Senior Subordinated
Notes ("the Notes") due 2011 to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933, as amended. Interest is payable on the Notes
semiannually on June 15 and December 15 of each year. The Notes are guaranteed,
on a senior subordinated basis, by the Company's domestic subsidiaries and may
be redeemed on or after June 15, 2006. In addition, the Company may redeem up to
35% of the aggregate principal amount of the Notes before June 15, 2004 with the
proceeds of certain equity offerings. The Notes were offered at a discount of
$4.2 million to be amortized over the term of the Notes. Amortization of the
discount was not material for the six month period ended June 30, 2001. Costs
representing underwriting fees and other expenses of $0.6 million will be
amortized over the term of the Notes. Net proceeds of $180.2 million were used
to pay down the $136.0 million outstanding balance of the Revolving Credit
Facility. In addition, a portion of the Company's Term Loan A and B will be
paid down on a pro rata basis (see Note 15 Subsequent Events). The Notes are
unsecured senior subordinated obligations of the Company, subordinated in right
of payment to all existing and future senior indebtedness of the Company,
including the credit facility. The Notes contain covenants that will, among
other things, restrict the Company's ability to borrow money, pay dividends on
or repurchase capital stock, make investments, sell assets or enter into mergers
or consolidations.
In October 2000, Penton amended its Credit Agreement to give the Company
the option to increase, in the aggregate, its Term Loan A, Term Loan B and/or
its Revolver by $100.0 million. The Term Loans and the Revolver cannot be
increased on more than three separate occasions, and any increase must take
place by September 30, 2001. Concurrent with the closing of the amendment, the
Company obtained committed financing in the amount of $60.0 million of the
$100.0 million under the Revolver, thereby increasing the total available under
the Revolver to $185.0 million.
Based upon current and anticipated levels of operations, management
believes that cash on hand and cash flow from operations, combined with
borrowings available under Penton's credit facilities, will be sufficient to
enable Penton to meet current and anticipated cash operating requirements,
including scheduled interest and principal payments, capital expenditures and
working capital needs. However, actual capital requirements may change,
particularly as a result of any acquisitions that Penton may make. Penton's
ability to meet current and anticipated operating requirements will depend upon
its future performance, which, in turn, will be subject to
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general economic conditions and to financial, business and other factors,
including factors beyond Penton's control. Depending on the nature, size and
timing of future acquisitions, Penton may be required to raise additional
capital through additional financing arrangements or the issuance of private or
public debt or equity securities. Management cannot assure that such additional
financing will be available at acceptable terms. Substantially all of Penton's
debt bears interest at floating rates. Therefore, Penton's liquidity and
financial condition are, and will continue to be, affected by changes in
prevailing interest rates.
SEASONALITY
The introduction of trade shows and conferences into Penton's product mix
through the acquisition of INDEX and ISOA in late 1997, the acquisition of IWM
in November 1998, the acquisition of New Hope in May 1999 and the acquisition of
Streaming Media in September 2000 has changed the seasonal pattern of revenue
and profit because all five companies have pronounced seasonal patterns in their
businesses. The majority of the trade shows of ISOA, Streaming Media and IWM are
held in the second and fourth quarters and, accordingly, the majority of their
revenue is recognized in these quarters. Furthermore, the majority of the INDEX
shows historically have been held in the fourth quarter, and the New Hope shows
have been held in the first and third or fourth quarters. Accordingly, these
acquisitions have had and will have a positive impact on revenue and profit for
these quarters.
Penton also may experience seasonal fluctuations as trade shows and
conferences held in one period in the current year may be held in a different
period in future years.
INFLATION
The impact of inflation on Penton's results of operations has not been
significant in recent years.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") No. 141 "Business
Combinations". FAS No. 141 requires that all business combinations be accounted
for under the purchase method of accounting. In addition, this Statement
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. The Statement also
provides criteria for the separate recognition of intangible assets acquired in
a business combination. FAS No. 141 is effective for all business combinations
initiated after June 30, 2001.
In July 2001, the FASB also issued FAS No. 142 "Goodwill and Other
Intangible Assets". FAS 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. FAS No. 142 presumes that goodwill and certain intangible assets
have indefinite useful lives. Accordingly, goodwill and certain intangibles will
not be amortized but rather will be tested at least annually for impairment. FAS
No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. FAS No. 142 is effective for
fiscal years beginning after December 15, 2001. As of the date of this filing we
have not yet completed our assessment of the impact of FAS 142 on our financial
statements.
EURO CONVERSION
On January 1, 1999, 11 of the 15 participating countries that are members
of the European Union established a new uniform currency known as the Euro. The
currency existing prior to such date in the participating countries will be
phased out during the transition period commencing January 1, 1999, and ending
January 1, 2002. During this transition period, both the Euro and the existing
currency will be available in the participating countries. Although Penton
generates revenues in some of the participating countries, management does not
anticipate that the introduction and use of the Euro will materially affect
Penton's business, results of operations or financial condition.
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34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. Penton
does not enter into financial instruments for trading or speculative purposes.
In the normal course of business, Penton manages fluctuations in interest
rates through swap and cap agreements to hedge at least 50% of its floating rate
borrowings. Penton's objective in managing this exposure is to reduce
fluctuations in earnings and cash flows associated with changes in interest
rates.
Penton maintains assets and operations in Europe and in various other
countries. As a result, it may be exposed to cost increases relative to the
markets in which it sells. At June 30, 2001, a hypothetical 10% strengthening of
the U.S. dollar relative to the currencies of foreign countries in which Penton
operates was not material.
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35
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 2001 the Company held its Annual Meeting of
Stockholders. The matters presented to the stockholders for a vote
and the vote on such matters were as follows:
a) Election of directors for a three-year term expiring in 2004.
For Abstain
--- -------
King Harris 28,895,227 674,365
Thomas L. Kemp 24,911,173 4,658,419
Edward J. Schwartz 28,895,866 673,726
William B. Summers 28,784,045 785,547
b) Proposal to amend Penton's 1998 Equity and Performance Incentive
Plan.
For Against Abstain
---------- ---------- ---------
15,693,462 10,437,144 58,342
c) Proposal to amend Penton's 1998 Director Stock Option Plan.
For Against Abstain
---------- ---------- ---------
21,652,459 4,471,938 64,462
d) Proposal to ratify the appointment of the Independent Certified
Accountants of Penton for the fiscal year ending December 31,
2001.
For Against Abstain
---------- ---------- ---------
29,422,970 131,321 15,301
No other matters were submitted to the stockholders for a vote.
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Indenture, dated as of June 28, 2001, between Penton Media, Inc.,
as issuer, the Subsidiary Guarantors named herein, and The Bank of
New York, as Trustee, including the form of the Company's 10.375%
Senior Subordinated Notes due June 15, 2011 attached as Exhibit A
thereto, filed herewith.
4.2 Registration Rights Agreement, dated as of June 28, 2001 between
Penton Media, Inc., as issuer, the Guarantors named therein, and
Credit Suisse First Boston Corporation acting on behalf of itself
and as representative of the Initial Purchasers named therein, for
the Company's 10.375% Senior Subordinated Notes due June 15, 2011,
filed herewith.
10.1 Amendment No. 3 to the Credit Facility, dated May 12, 2001,
between Penton Media, Inc., as borrower, the lenders listed
therein, as lenders, Banc of America Securities, LLC, as
syndication agent, The First National Bank of Chicago, as
documentation agent and The Bank of New York, as administrative
agent, filed herewith.
10.2 Amendment No. 4 and Waiver No. 1 to the Credit Facility, dated
June 14, 2001, between Penton Media, Inc., as borrower, the
lenders listed therein, as lenders, Banc of America Securities,
LLC, as syndication agent, The First National Bank of Chicago, as
documentation agent and The Bank of New York, as administrative
agent, filed herewith.
10.3 Amendment No 5 and Waiver No. 2 to the Credit Facility, dated June
21, 2001, between Penton Media, Inc., as borrower, the lenders
listed therein, as lenders, Banc of America Securities, LLC, as
syndication agent, The First National Bank of Chicago, as
documentation agent and The Bank of New York, as administrative
agent, filed herewith.
10.4 Penton Media, Inc. Amended and Restated 1998 Director Stock Option
Plan, filed herewith.
10.5 Penton Media, Inc. Amended and Restated 1998 Equity and
Performance Incentive Plan, filed herewith.
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
June 8, 2001 Item 5 Other Events
June 22, 2001 Item 5 Other Events
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SIGNATURE
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.
Penton Media, Inc.
(Registrant)
By: /s/ JOSEPH G. NECASTRO
--------------------------------
Joseph G. NeCastro
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 2001
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
4.1 Indenture, dated as of June 28, 2001, between Penton Media,
Inc., as issuer, the Subsidiary Guarantors named herein, and The
Bank of New York, as Trustee, including the form of the
Company's 10.375% Senior Subordinated Notes due June 15, 2011
attached as Exhibit A thereto, filed herewith.
4.2 Registration Rights Agreement, dated as of June 28, 2001 between
Penton Media, Inc., as issuer, the Guarantors named therein, and
Credit Suisse First Boston Corporation acting on behalf of
itself and as representative of the Initial Purchasers named
therein, for the Company's 10.375% Senior Subordinated Notes due
June 15, 2011, filed herewith.
10.1 Amendment No. 3 to the Credit Facility, dated May 12, 2001,
between Penton Media, Inc., as borrower, the lenders listed
therein, as lenders, Banc of America Securities, LLC, as
syndication agent, The First National Bank of Chicago, as
documentation agent and The Bank of New York, as administrative
agent, filed herewith.
10.2 Amendment No. 4 and Waiver No. 1 to the Credit Facility, dated
June 14, 2001, between Penton Media, Inc., as borrower, the
lenders listed therein, as lenders, Banc of America Securities,
LLC, as syndication agent, The First National Bank of Chicago,
as documentation agent and The Bank of New York, as
administrative agent, filed herewith.
10.3 Amendment No 5 and Waiver No. 2 to the Credit Facility, dated
June 21, 2001, between Penton Media, Inc., as borrower, the
lenders listed therein, as lenders, Banc of America Securities,
LLC, as syndication agent, The First National Bank of Chicago,
as documentation agent and The Bank of New York, as
administrative agent, filed herewith.
10.4 Penton Media, Inc. Amended and Restated 1998 Director Stock
Option Plan, filed herewith.
10.5 Penton Media, Inc. Amended and Restated 1998 Equity and
Performance Incentive Plan, filed herewith.
38