UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
------------------------------------------
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 March 31, 2003
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
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(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 by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (May 1, 2003).
Common Stock: 33,178,019 shares
PENTON MEDIA, INC.
FORM 10-Q
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2003 and 2002 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 34
Item 4. Controls and Procedures 34
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 35
Item 6. Exhibits and Reports on Form 8-K 35
Signature 36
Certifications 37
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
March 31, December 31,
2003 2002
---------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 53,633 $ 6,771
Restricted cash 629 677
Accounts receivable, less allowance for doubtful accounts of $4,057
and $4,323 in 2003 and 2002, respectively 35,700 34,842
Income taxes receivable 830 53,547
Notes receivable 366 2,124
Inventories 1,168 1,025
Prepayments, deposits and other 7,522 5,094
Current assets of discontinued operations - 2,049
---------- -----------
Total current assets 99,848 106,129
---------- -----------
Property, plant and equipment:
Land, buildings and improvements 8,521 8,878
Machinery and equipment 61,612 61,935
---------- -----------
70,133 70,813
Less: accumulated depreciation 48,272 46,896
---------- -----------
21,861 23,917
---------- -----------
Other assets:
Goodwill 251,979 251,972
Other intangibles, less accumulated amortization of
$14,452 and $13,137 in 2003 and 2002, respectively 30,796 32,754
---------- -----------
282,775 284,726
---------- -----------
$ 404,484 $ 414,772
========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, December 31,
2003 2002
---------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Senior secured credit facility $ - $ 4,500
Accounts payable 7,014 9,464
Accrued compensation and benefits 11,670 11,835
Other accrued expenses 29,592 24,355
Unearned income, principally trade show and conference deposits 19,877 23,026
Current liabilities of discontinued operations - 1,050
---------- -----------
Total current liabilities 68,153 74,230
---------- -----------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 156,825 156,797
Senior subordinated notes, net of discount 171,490 171,423
Note payable 417 417
Net deferred pension credits 14,137 13,762
Other 12,435 13,052
---------- -----------
355,304 355,451
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Commitments and contingencies
Mandatorily redeemable convertible preferred stock, par value $0.01 per share;
50,000 shares authorized, issued and outstanding;
redeemable at $1,000 per share 46,828 46,174
Redeemable common stock, par value $0.01 per share; 1,181,013 and
1,068,343 shares issued and outstanding at March 31, 2003 and
December 31, 2002, respectively 1,009 1,118
Stockholders' deficit:
Preferred stock, par value $0.01 per share; 1,950,000 shares
authorized; none issued or outstanding - -
Common stock, par value $0.01 per share; 155,000,000 shares
authorized; 31,624,090 shares at March 31, 2003 and 31,687,194 shares
at December 31, 2002 issued and outstanding 317 317
Capital in excess of par value 229,695 229,779
Retained deficit (284,704) (279,600)
Notes receivable officers/directors (9,477) (9,720)
Accumulated other comprehensive loss (2,641) (2,977)
---------- -----------
(66,810) (62,201)
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$ 404,484 $ 414,772
========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
4
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31,
----------------------------------
2003 2002
------------ -----------
Revenues $ 54,392 $ 61,128
------------ -----------
Operating expenses:
Editorial, production and circulation 22,353 24,798
Selling, general and administrative 23,641 31,459
Restructuring charges (credits) (84) (263)
Depreciation and amortization 3,722 4,244
------------ -----------
49,632 60,238
------------ -----------
Operating income 4,760 890
Other income (expense):
Interest expense (10,338) (9,274)
Interest income 109 218
Gain on extinguishment of debt - 277
Gain on sale of investments - 1,491
Miscellaneous, net (374) (140)
------------ -----------
(10,603) (7,428)
------------ -----------
Loss from continuing operations before income taxes
and cumulative effect of accounting change (5,843) (6,538)
Benefit (provision) for income taxes (126) 2,712
------------ -----------
Loss from continuing operations before cumulative effect of
accounting change (5,969) (3,826)
Discontinued operations:
Income (loss) from operations of discontinued components
(including gain on disposal of $1.2 million in 2003), net of taxes 866 (407)
------------ -----------
Loss before cumulative effect of accounting change (5,103) (4,233)
Cumulative effect of accounting change, net of taxes - (39,700)
------------ -----------
Net loss (5,103) (43,933)
Amortization of deemed dividend and accretion of preferred stock (655) (363)
------------ -----------
Net loss applicable to common stockholders $ (5,758) $ (44,296)
============ ===========
Net loss per common share - basic and diluted:
Loss from continuing operations applicable to common stockholders $ (0.20) $ (0.14)
Discontinued operations, net of taxes 0.03 (0.01)
Cumulative effect of accounting change, net of taxes - (1.24)
------------ -----------
Net loss applicable to common stockholders $ (0.17) $ (1.39)
============ ===========
Weighted-average number of shares outstanding:
Basic and diluted 33,118 31,970
============ ===========
The accompanying notes are an integral part of these consolidated financial statements.
5
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; DOLLARS IN THOUSANDS)
Three Months Ended March 31,
------------------------------
2003 2002
---------- -----------
Net cash provided by operating activities $ 46,819 $ 6,010
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (562) (578)
Earnouts paid (7) (300)
Proceeds from sale of Jupitermedia Corporation stock - 5,801
Proceeds from sale of discontinued operations 3,250 -
---------- -----------
Net cash provided by investing activities 2,681 4,923
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily redeemable
convertible preferred stock - 46,122
Proceeds from senior secured notes - 156,717
Repurchase of senior subordinated notes - (8,375)
Repayment of senior secured credit facility (4,500) (180,587)
Proceeds from note receivable 1,758 -
Employee stock purchase plan payments (32) (299)
Proceeds from repayment of officers/directors loans 250 -
Payment of financing costs (97) (8,145)
---------- -----------
Net cash provided by (used for) financing activities (2,621) 5,433
---------- -----------
Effect of exchange rate changes on cash (17) (10)
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Net increase in cash and cash equivalents 46,862 16,356
Cash and cash equivalents at beginning of period 6,771 20,191
---------- -----------
Cash and cash equivalents at end of period $ 53,633 $ 36,547
========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
6
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF 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, which are of a normal recurring nature, 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, 2002.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 financial statements to
conform to the 2003 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.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"). This statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. Management does not
believe that the adoption of SFAS 149 will have a significant effect on the
Company's results of operations or its financial condition.
NOTE 2 - GOODWILL AND OTHER INTANGIBLES
A summary of changes in the Company's goodwill during the first three months of
2003, by business segment is as follows (in thousands):
GOODWILL
--------------------------------------------------
DECEMBER 31, MARCH 31,
2002 EARNOUTS 2003
---------------- ---------------- -------------
Industry Media $ 36,278 $ - $ 36,278
Technology Media 96,580 7 96,587
Lifestyle Media 84,924 - 84,924
Retail Media 34,190 - 34,190
------------ ------------ -----------
Total $ 251,972 $ 7 $ 251,979
============ ============ ===========
7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Identifiable intangible assets, exclusive of goodwill, as of March 31, 2003, are
recorded in other intangibles in the Consolidated Balance Sheets and are
comprised of (in thousands):
GROSS
CARRYING ACCUMULATED NET BOOK
VALUE AMORTIZATION VALUE
------------ ------------ -----------
Trade names $ 13,006 $ (3,343) $ 9,663
Mailing/exhibitor lists 9,550 (4,511) 5,039
Advertiser relationships 8,309 (2,759) 5,550
Subscriber relationships 2,100 (665) 1,435
Noncompete agreements 1,286 (1,153) 133
------------ ------------ -----------
Balance at March 31, 2003 $ 34,251 $ (12,431) $ 21,820
============ ============ ===========
Total amortization expense for identifiable intangible assets was $1.5 million
and $2.2 million for the three months ended March 31, 2003 and 2002,
respectively. Amortization expense for these intangibles for 2003 and each of
the four succeeding years is as follows (in thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
------------ --------
2003 $ 3,982
2004 $ 3,771
2005 $ 3,281
2006 $ 3,001
2007 $ 2,119
During the third quarter of 2002, Penton completed its transitional goodwill
impairment test for January 1, 2002, under the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" and recorded a non-cash charge of $39.7
million to reduce the carrying value of goodwill for two of our seven identified
reporting units. The charge is reflected as a cumulative effect of accounting
change in the accompanying consolidated statements of operations for 2002.
At December 31, 2002, the net assets of our Professional Trade Show group
("PTS") were classified as held for sale and reclassified to Current Assets of
Discontinued Operations on the Consolidated Balance Sheet (See Note 3 -
Disposals). Approximately $1.0 million of goodwill related to PTS was
written-off as part of the sale in January 2003.
NOTE 3 - DISPOSALS
At December 31, 2002, the net assets of PTS were classified as held for sale.
The assets were sold in January 2003 for approximately $3.8 million, including
an earnout of $0.6 million based on reaching certain performance objectives in
2003. The sale resulted in a gain of $1.2 million, which was recorded as part of
discontinued operations on the Consolidated Statements of Operations. The
results of PTS are reported as discontinued operations for all periods
presented. PTS was part of our Industry Media segment.
In December 2002, the Company sold the net assets of Penton Media Australia ("PM
Australia") which was part of our Technology Media segment. The results of PM
Australia are reported as discontinued operations at March 31, 2002.
8
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Operating results for the discontinued components, which include PM Australia
and PTS for the three months ended March 31, 2003 and 2002 are as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
------------ -----------
Revenues $ - $ 2,047
============ ===========
Loss before income taxes $ (354) $ (407)
Gain on sale of PTS 1,220 -
------------ -----------
Income (loss) from discontinued operations $ 866 $ (407)
============ ===========
In addition to the above properties classified as discontinued operations, the
Company sold four other properties in December 2002. Three of these properties,
Streaming Media, Boardwatch and ISPCON, were part of our Technology Media
segment. The other property, A/E/C, was part of our Industry Media segment.
Included in revenues and operating expenses in 2002 are approximately $0.5
million and $2.8 million, respectively, associated with these properties, as
these properties did not qualify for discontinued operations treatment.
NOTE 4 - DEBT
In January 2003, the Company amended its senior secured credit facility. The
amended agreement permits the Company to sell certain properties in excess of
the $5.0 million aggregate limit required by the original amended agreement. In
return, the revolving commitment was reduced from $40.0 million to $32.0
million. At the end of January 2003, when the aggregate sum of Penton's cash and
cash equivalents exceeded $40.0 million, an additional one-time reduction of
$10.0 million was required under the amended credit facility. Furthermore, upon
the sale of PTS (see Note 3 - Disposals), the revolving commitment was further
reduced by 50% of the aggregate gross proceeds, as defined, from this sale, or
approximately $1.9 million. For any future asset dispositions, the commitment
under the revolver will be reduced by 50% of the aggregate gross proceeds. The
amended facility allows for additional asset sales, transfers, leases, and other
dispositions and the issuance of equity interests by our subsidiaries up to a
maximum of approximately $3.6 million. The amended facility also increased the
maximum commitment fee from 0.50% to 0.75%. The commitment under the credit
facility decreases by 15% in 2003, 30% in 2004, 35% in 2005 and 20% in 2006.
In January 2003, the Company paid down $4.5 million that was outstanding under
the credit facility. At March 31, 2003, no amounts were outstanding under the
revolver and the commitment was $20.1 million. Availability under the
commitment, which is subject to the Company's eligible accounts receivable, was
$18.1 million at March 31, 2003.
The repayment of the credit facility Term Loan A and Term Loan B in March 2002
resulted in a non-cash extraordinary charge of $0.7 million, net of $0.5 million
in taxes, relating to the write-off of unamortized deferred financing costs. In
addition, in March 2002, the Company repurchased $10.0 million of its 10-3/8%
Senior Subordinated Notes ("Subordinated Notes") with $8.7 million of the
proceeds from the 11-7/8% Senior Secured Notes ("Secured Notes") offering
completed in March 2002, resulting in an extraordinary gain of $0.8 million, net
of $0.6 million in taxes. In the first quarter 2003, these 2002 extraordinary
charges were reclassified to Gain on Extinguishment of Debt in the Consolidated
Statements of Operations in accordance with the provisions of SFAS No. 145,
"Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS 13, and Technical
Corrections as of April 2002" ("SFAS 145").
The reduction of the revolver from $40.0 million to $20.1 million in January
2003 and the reduction of the revolver from $185.0 million to $40.0 million in
March 2002 resulted in the write-off of unamortized financing fees of $0.9
million and $0.7 million, respectively. These charges have been classified as
part of Interest Expense on the Consolidated Statements of Operations.
Cash paid for interest for the three months ended March 31, 2002 was $2.0
million. An immaterial amount of interest was paid for the three months ended
March 31, 2003.
9
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
An event of non-compliance exists under our Series B Convertible Preferred Stock
because the Company's leverage ratio (defined as debt less cash balances in
excess of $5.0 million plus the liquidation value of the preferred stock and
unpaid dividends divided by adjusted EBITDA) at December 31, 2002 of 27x was not
cured by March 31, 2003. Under the agreement, we are required to maintain a
leverage ratio below 7.5 to 1.0. When an event of non-compliance occurs, the
holders of a majority of the preferred stock may nominate two additional members
to our board of directors, which they did effective April 1, 2003. If the event
of non-compliance is not cured by June 30, 2003, the holders of a majority of
the preferred stock then outstanding may elect one less than a minimum majority
of our board of directors. The Company is not expected to be able to correct the
event of non-compliance by June 30, 2003. In addition, upon the occurrence of
this event of non-compliance, the 5% dividend rate on the preferred stock
increased by one percentage point as of April 1, 2003 and the rate increases by
one percentage point each subsequent quarter, up to a maximum rate of 10%. The
conversion price on the preferred stock decreased by $0.76 as of April 1, 2003
and decreases by $0.76 each subsequent quarter up to a maximum reduction of
$3.80. The conversion price will adjust to what it would have been absent such
event (to the extent of any shares of preferred stock still outstanding) once
the leverage ratio is less than 7.5 to 1.0. The dividend rate will adjust back
to 5% as of the date on which the leverage ratio is less than 7.5 to 1.0. Under
the preferred stock agreement, if the leverage ratio exceeds 7.5 to 1.0 for four
consecutive quarters, the preferred stockholders will have the right to cause
the Company to seek a buyer for all of the assets or issued and outstanding
capital stock of the Company. The leverage ratio event of non-compliance does
not represent an event of default or violation under any of the Company's
outstanding notes or the senior secured credit facility. As such, there will not
be an acceleration of any outstanding indebtedness as a result of this event. In
addition, this event of non-compliance and the resulting consequences do not
result in any cash outflow from the Company.
NOTE 6 - COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
In February 2003, Penton's Board of Directors approved a proposal to effect a
reverse stock split to be submitted for stockholder approval at the Company's
annual meeting set for June 12, 2003. This corrective share action is part of
the plan submitted by Penton to the New York Stock Exchange to meet the
Exchanges' $1.00 stock price-listing requirement.
REDEEMABLE COMMON STOCK
Redeemable common stock relates to common stock that may be subject to
rescissionary rights. The sale of common stock to certain employees in the
Company's 401(k) plan from May 2001 through March 2003 was not registered under
the federal securities laws (the "unregistered sales"). As a result, such
purchasers of our common stock may have the right to rescind their purchases
for an amount equal to the purchase price paid for the shares, plus interest
from the date of purchase. Any rescissionary rights will lapse on various dates
under the applicable statute of limitations which is one year. The Company may
also be subject to civil and other penalties by regulatory authorities. The
unregistered sales do not cause an event of default under the Subordinated
Notes, the Secured Notes or the senior secured credit facility. However, an
event of default could occur as an indirect result of the unregistered sales,
if for instance, such unregistered sales lead to restricted payments under the
indentures and/or the credit facility. On March 31, 2003, the Company filed a
Form S-8 registration and registered 6.0 million additional shares to be
offered under the 401(k) plan. At March 31, 2003, the Company classified
approximately 1.2 million shares related to the potential rescissionary rights
outside of stockholders' deficit, because the redemption features are not
within the control of the Company.
In April 2003, the Company offered to reimburse employees who had purchased
Penton common stock through the Company's 401(k) plan between March 25, 2002 and
March 25, 2003. Employees who sign a release will be reimbursed the amount by
which the price they paid for the common stock exceeds the closing price of the
stock on the date they execute the release, or if the stock has been sold, the
amount by which the price paid by the employee exceeded the sales price.
Employees who do not sign the release by May 22, 2003, retain their rights under
the Federal securities laws. As of May 13, 2003, nearly sixty percent of the
employees who were offered the reimbursement have accepted the terms of the
release, representing a liability of approximately $0.6 million. The estimated
total liability for all employees who were offered the reimbursement is
approximately $1.0 million.
10
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
EMPLOYEE STOCK PURCHASE PLAN
In the first quarter of 2003, 65,711 shares were purchased for employees under
the Company's Employee Stock Purchase Plan for employees who participated in the
plan during the fourth quarter of 2002. With this purchase, the maximum number
of shares available to employees under the plan of 750,000 was reached. The plan
was subsequently terminated.
MANAGEMENT STOCK PURCHASE PLAN
For the three months ended March 31, 2003 and 2002, respectively, an immaterial
amount of expense was recognized related to the Management Stock Purchase Plan.
In February 2003, a total of 99,876 restricted stock units ("RSUs") were granted
at $0.34 per share, which represents 80% of fair market value on the date of
grant. At March 31, 2003, 137,999 RSUs were outstanding. During the first three
months of 2003, 19,050 shares of the Company's common stock were issued under
this plan.
EXECUTIVE LOAN PROGRAM
At March 31, 2003, the outstanding loan balance under the Executive Loan Program
was approximately $9.5 million (including $1.1 million of accrued interest). In
the first quarter of 2003, executive loans of approximately $0.3 million were
repaid to the Company. The loan balance is classified in the Stockholders'
Deficit section of the Consolidated Balance Sheets as Notes Receivable
Officers/Directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Stock Options
In July 2002, Penton filed a Tender Offer Statement related to the exchange by
eligible employees of outstanding options to purchase shares of Penton's common
stock issued under the Penton Media, Inc. 1998 Equity and Performance Incentive
Plan with exercise prices greater than or equal to $16.225 per share for new
options to purchase shares of common stock to be issued under the Option Plan
("New Options"). Each eligible employee received a New Option to acquire one
share of Penton's common stock for every two shares of Penton's common stock
subject to an eligible option. In February 2003, 334,850 New Options were
granted at an exercise price of $0.37 per share.
In addition, in February 2003, 264,000 options were granted to certain
executives and other eligible employees and 20,000 options were granted to
Penton's Directors under the 1998 Director Stock Option Plan at an exercise
price of $0.37 per share. As of March 31, 2003, a total of 2,124,305 options
were outstanding. No options were exercised in the first quarter of 2003.
Deferred Shares
For the three months ended March 31, 2003 and 2002, approximately $0.9 million
and $0.6 million, respectively, were recognized as expense related to the
deferred shares. In February 2003, 391,360 deferred shares were granted. As of
March 31, 2003, 862,186 deferred shares were outstanding.
Performance Shares
For the three months ended March 31, 2003 and 2002, approximately $0.01 million
and $0.2 million, respectively, were credited to compensation expense related to
the performance shares. During the first three months of 2003, 30,516 shares of
common stock were issued under this plan. At March 31, 2003, a total of 471,487
performance shares were outstanding. Performance shares are generally not
issuable until earned.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Pro
forma information regarding net income (loss) and earnings per share is required
by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure," and has been determined as if Penton had accounted for its employee
stock options under SFAS 123.
11
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The weighted-average fair value of options granted during the first three months
of 2003 was $0.28. No options were granted in 2002. The fair value of the
options granted in 2003 was estimated on the date of grant using the
Black-Scholes option-pricing model, under the following assumptions:
Risk-free interest rate 2.44%
Dividend yield 0.00%
Expected volatility 115.00%
Expected life 4 years
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair value methodologies consistent with SFAS 123,
Penton's net loss and earnings per share for the three months ended March 31,
2003 and 2002 would have been as follows (in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
----------- -----------
Net loss applicable to common stockholders:
As reported.................................................................... $ (5,758) $ (44,296)
Add: Compensation expense included in net loss, net of related tax effects..... 901 213
Less: Total stock-based compensation expense determined under fair
value based methods for all awards, net of related tax effects.............. (1,638) (550)
----------- -----------
Pro forma...................................................................... $ (6,495) $ (44,633)
=========== ===========
Basic and diluted earnings per share:
As reported................................................................. $ (0.17) $ (1.39)
Pro forma................................................................... $ (0.20) $ (1.40)
NOTE 7 - EARNINGS PER SHARE
Earnings per share have been computed pursuant to the provisions of SFAS No.
128, "Earnings Per Share." Computations of basic and diluted earnings per share
for the three months ended March 31, 2003 and 2002 are as follows (in thousands,
except per share amounts):
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------ -----------
Net loss applicable to common stockholders $ (5,758) $ (44,296)
============ ===========
Number of shares:
Weighted average shares outstanding -
basic and diluted 33,118 31,970
============ ===========
Per share amount - basic and diluted:
Net loss applicable to common stockholders $ (0.17) $ (1.39)
============ ===========
The preferred stock and RSUs are participating securities, such that in the
event a dividend is declared or paid on the common stock, the Company must
simultaneously declare and pay a dividend on the preferred stock and the RSUs as
if the preferred stock and the RSUs had been converted into common stock. Topic
D-95, "Effect of Participating Convertible Securities on the Computation of
Basic Earnings per Share" requires that the participating securities be included
in the computation of basic earnings per share if the effect of inclusion is
dilutive. Vested RSUs are always included in the computation of basic earnings
per share as they are considered equivalent to common stock. For all other
participating securities, the Company's accounting policy requires the use of
the two-class method to determine whether the inclusion of such securities is
dilutive or not. For the three months ended March 31, 2003 and 2002, preferred
stock and non-vested RSUs were excluded from the calculation of basic earnings
per share, as the results were anti-dilutive.
12
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Due to the net loss applicable to common stockholders for the three months ended
March 31, 2003, 2,124,305 stock options, 471,487 performance shares, 538,968
non-vested deferred shares, 120,329 non-vested RSUs, 50,000 redeemable preferred
shares and 1,600,000 warrants were excluded from the calculation of diluted
earnings per share, as the result would have been anti-dilutive. Due to the net
loss applicable to common stockholders for the three months ended March 31,
2002, 2,837,255 stock options, 767,539 performance shares, 373,403 non-vested
deferred shares, 53,221 non-vested RSUs, 50,000 redeemable preferred shares and
1,600,000 warrants were excluded from the calculation of diluted earnings per
share, as the result would have been anti-dilutive.
NOTE 8 - COMPREHENSIVE LOSS
The after-tax component of comprehensive loss for the three months ended March
31, 2003 and 2002 is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------- -------------
Net loss $ (5,103) $ (43,933)
Other comprehensive loss:
Reclassification adjustment for realized gain on
securities sold, net of taxes of $0.3 million - (808)
Reclassification adjustment for cash flow hedges - 1,438
Change in accumulated translation adjustment 336 (251)
------------- -------------
Total comprehensive loss $ (4,767) $ (43,554)
============= =============
NOTE 9 - RELATED PARTY TRANSACTIONS
In January 2003, the Company sold PTS to Cygnus Expositions, a division of
Cygnus Business Media, Inc., (see Note 3 - Disposals) which is owned by ABRY
Partners IV, L.P. ABRY Partners, LLC and its affiliates hold a significant
portion of our preferred stock and currently has two partners who are on the
Company's board of directors.
In March 2003, Neue Medien Ulm Holdings GmbH ("Neue Medien") paid down $1.8
million of the notes receivable balance owed to Penton Media Germany. Neue
Medien has ownership interests in PM Germany.
NOTE 10 - RESTRUCTURING CHARGES
As of March 31, 2003, a majority of the restructuring initiatives undertaken in
2001 and 2002, including the elimination of nearly 716 positions, the closure of
nearly 30 Penton offices worldwide and the cancellation of other contractual
obligations, primarily trade show venue contracts, hotel contracts and service
agreements, have been completed. As of March 31, 2003, all employees whose
positions were eliminated have left the Company, however, severance payments
will continue to be paid to some of those employees through the end of 2003. The
Company no longer occupies the offices for which a restructuring charge has been
recorded, although, Penton remains ultimately liable for all lease payments,
which are expected to continue through 2013.
13
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes quarterly adjustments, amounts paid and the
ending accrual balance at March 31, 2003 (in thousands):
FIRST
ACCRUAL QUARTER CASH ACCRUAL
DESCRIPTION 12/31/02 ADJUSTMENTS PAYMENTS 3/31/03
----------- ----------- ------------ ------------ -----------
Severance, outplacement and
other personnel costs $ 5,123 $ (9) $ (3,411) $ 1,703
Facility closing costs 10,786 48 (983) 9,851
Other exit costs 1,015 (112) (212) 691
----------- ------------ ------------- -----------
Total $ 16,924 $ (73) $ (4,606) $ 12,245
=========== ============ ============= ===========
The remaining balance of other exit costs is expected to be paid by the end of
2003.
NOTE 11 - SEGMENT INFORMATION
Penton has four segments, which derive their revenues from the production of
trade shows, publications and online media products, including Web sites serving
customers in 12 distinct industry sectors. Penton measures segment profitability
using adjusted segment EBITDA. Adjusted segment EBITDA is defined as operating
income (loss) before depreciation and amortization, restructuring charges,
non-cash compensation and corporate and shared service costs. Corporate and
shared service costs include functions such as finance, accounting, human
resources, and information systems, which cannot reasonably be allocated to each
segment. Previously, certain shared service costs were allocated to segments.
Adjusted segment EBITDA for the three months ended March 31, 2002 has been
restated to conform to the current year presentation, which does not allocate
these costs. Management believes that this is a more meaningful presentation.
Summary information by segment for the three months ended March 31, 2003 and
2002, adjusted for discontinued operations, is as follows (in thousands):
INDUSTRY TECHNOLOGY LIFESTYLE RETAIL
MEDIA MEDIA MEDIA MEDIA TOTAL
----------- ----------- --------- ---------- ----------
2003
Revenues $ 19,362 $ 15,212 $ 15,049 $ 4,769 $ 54,392
Adjusted EBITDA $ 3,276 $ 793 $ 9,302 $ 731 $ 14,102
2002
Revenues $ 21,465 $ 20,609 $ 14,470 $ 4,584 $ 61,128
Adjusted EBITDA $ 3,344 $ (1,161) $ 9,018 $ 565 $ 11,766
14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total adjusted segment EBITDA to Consolidated Loss from Continuing Operations
before Income Taxes and Cumulative Effect of Accounting Change (in thousands):
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2003 2002
------------ --------------
Total adjusted segment EBITDA $ 14,102 $ 11,766
Depreciation and amortization (3,722) (4,244)
Restructuring credits 84 263
Non-cash compensation (921) (355)
Gain on sale of investments - 1,491
Interest expense (10,338) (9,274)
Interest income 109 218
Gain on extinguishment of debt - 277
Miscellaneous, net (374) (140)
General and administrative costs (4,783) (6,540)
------------ --------------
Loss from continuing operations before income
taxes and cumulative effect of accounting change $ (5,843) $ (6,538)
============ ==============
NOTE 12 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as of
March 31, 2003 and December 31, 2002, and condensed consolidating statements of
operations and condensed consolidating statements of cash flows for the three
months ended March 31, 2003 and 2002. In the following schedules, "Parent"
refers to Penton Media, Inc., "Guarantor Subsidiaries" refers to Penton's wholly
owned domestic subsidiaries and "Non-guarantor Subsidiaries" refers to Penton's
foreign subsidiaries. "Eliminations" represent the adjustments necessary to (a)
eliminate intercompany transactions and (b) eliminate the investments in
Penton's subsidiaries.
15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 51,020 $ 595 $ 2,018 $ - $ 53,633
Restricted cash 227 - 402 - 629
Accounts receivable, net 19,529 8,640 7,531 - 35,700
Income taxes receivable 346 302 182 - 830
Notes receivable - - 366 - 366
Inventories 853 310 5 - 1,168
Prepayments, deposits and other 4,318 744 2,460 - 7,522
------------- ------------- ------------- ------------- -------------
76,293 10,591 12,964 - 99,848
------------- ------------- ------------- ------------- -------------
Property, plant and equipment, net 17,294 2,778 1,789 - 21,861
Goodwill 122,651 124,898 4,430 - 251,979
Other intangibles, net 14,213 12,723 3,860 - 30,796
Investments (1) (108,499) - - 108,499 -
------------- ------------- ------------- ------------- -------------
45,659 140,399 10,079 108,499 304,636
------------- ------------- ------------- ------------- -------------
$ 121,952 $ 150,990 $ 23,043 $ 108,499 $ 404,484
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 30,841 $ 3,601 $ 2,164 $ - $ 36,606
Accrued compensation and benefits 9,946 1,382 342 - 11,670
Unearned income 6,405 5,234 8,238 - 19,877
------------- ------------- ------------- ------------- -------------
47,192 10,217 10,744 - 68,153
------------- ------------- ------------- ------------- -------------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 79,981 76,844 - - 156,825
Senior subordinated notes, net of discount 87,460 84,030 - - 171,490
Note payable - - 417 - 417
Net deferred pension credits 14,137 - - - 14,137
Intercompany advances (92,748) 54,237 32,088 6,423 -
Other 4,903 2,757 4,775 - 12,435
------------- ------------- ------------- ------------- -------------
93,733 217,868 37,280 6,423 355,304
------------- ------------- ------------- ------------- -------------
Mandatorily redeemable convertible preferred
stock 46,828 - - - 46,828
Redeemable common stock 1,009 - - - 1,009
Stockholders' deficit:
Common stock and capital in excess of par
value 230,012 209,653 16,614 (226,267) 230,012
Retained deficit (284,704) (286,748) (38,954) 325,702 (284,704)
Notes receivable officers/directors (9,477) - - - (9,477)
Accumulated other comprehensive loss (2,641) - (2,641) 2,641 (2,641)
------------- ------------- ------------- ------------- -------------
(66,810) (77,095) (24,981) 102,076 (66,810)
------------- ------------- ------------- ------------- -------------
$ 121,952 $ 150,990 $ 23,043 $ 108,499 $ 404,484
============= ============= ============= ============= =============
(1) Reflects investments in subsidiaries utilizing the equity method.
16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 5,165 $ 460 $ 1,146 $ - $ 6,771
Restricted cash 241 - 436 - 677
Accounts receivable, net 21,120 8,784 4,938 - 34,842
Income taxes receivable 33,470 19,895 182 - 53,547
Notes receivable - - 2,124 - 2,124
Inventories 757 262 6 - 1,025
Prepayments, deposits and other 2,299 821 1,974 - 5,094
Current assets of discontinued operations 2,049 - - - 2,049
------------- ------------- ------------- ------------- -------------
65,101 30,222 10,806 - 106,129
------------- ------------- ------------- ------------- -------------
Property, plant and equipment, net 18,717 3,116 2,084 - 23,917
Goodwill 122,651 124,891 4,430 - 251,972
Other intangibles, net 15,742 13,339 3,673 - 32,754
Investment in subsidiaries (1) (98,098) - - 98,098 -
------------- ------------- ------------- ------------- -------------
59,012 141,346 10,187 98,098 308,643
------------- ------------- ------------- ------------- -------------
$ 124,113 $ 171,568 $ 20,993 $ 98,098 $ 414,772
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Senior secured credit facility $ 4,500 $ - $ - $ - $ 4,500
Accounts payable and accrued expenses 25,504 5,388 2,927 - 33,819
Accrued compensation and benefits 10,713 1,031 91 - 11,835
Unearned income 13,619 5,296 4,111 - 23,026
Current liabilities of discontinued
operations 1,050 - - - 1,050
------------- ------------- ------------- ------------- -------------
55,386 11,715 7,129 - 74,230
------------- ------------- ------------- ------------- -------------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 79,966 76,831 - - 156,797
Senior subordinated notes, net of discount 87,426 83,997 - - 171,423
Note payable - - 417 - 417
Net deferred pension credits 13,762 - - - 13,762
Intercompany advances (102,694) 65,062 31,545 6,087 -
Other 5,176 2,934 4,942 - 13,052
------------- ------------- ------------- ------------- -------------
83,636 228,824 36,904 6,087 355,451
------------- ------------- ------------- ------------- -------------
Mandatorily redeemable convertible
preferred stock 46,174 - - - 46,174
Redeemable common stock 1,118 - - - 1,118
Stockholders' deficit:
Common stock and capital in excess
of par value 230,096 209,653 16,614 (226,267) 230,096
Retained deficit (279,600) (278,624) (36,677) 315,301 (279,600)
Notes receivable officers/directors (9,720) - - - (9,720)
Accumulated other comprehensive loss (2,977) - (2,977) 2,977 (2,977)
------------- ------------- ------------- ------------- -------------
(62,201) (68,971) (23,040) 92,011 (62,201)
------------- ------------- ------------- ------------- -------------
$ 124,113 $ 171,568 $ 20,993 $ 98,098 $ 414,772
============= ============= ============= ============= =============
(1) Reflects investments in subsidiaries utilizing the equity method.
17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
REVENUES $ 42,112 $ 10,141 $ 2,139 $ - $ 54,392
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Editorial, production and circulation 15,995 5,198 1,160 - 22,353
Selling, general and administrative 13,875 7,172 2,594 - 23,641
Restructuring charges (credits) (129) 45 - - (84)
Depreciation and amortization 2,361 955 406 - 3,722
------------- ------------- ------------- ------------- -------------
32,102 13,370 4,160 - 49,632
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS): 10,010 (3,229) (2,021) - 4,760
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense, net of income earned (5,267) (4,888) (74) - (10,229)
Equity in losses of subsidiaries (10,401) - - 10,401 -
Miscellaneous, net (301) (2) (71) - (374)
------------- ------------- ------------- ------------- -------------
(15,969) (4,890) (145) 10,401 (10,603)
------------- ------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,959) (8,119) (2,166) 10,401 (5,843)
Provision for income taxes (70) (5) (51) - (126)
------------- ------------- ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS (6,029) (8,124) (2,217) 10,401 (5,969)
Gain (loss) from operations of discontinued
components 926 - (60) - 866
------------- ------------- ------------- ------------- -------------
NET LOSS $ (5,103) $ (8,124) $ (2,277) $ 10,401 $ (5,103)
============= ============= ============= ============= =============
18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
REVENUES $ 44,999 $ 12,862 $ 3,267 $ - $ 61,128
------------- ------------ ------------- ------------- -------------
OPERATING EXPENSES:
Editorial, production and circulation 16,015 7,542 1,241 - 24,798
Selling, general and administrative 20,847 7,453 3,159 - 31,459
Restructuring charges (credits) (263) - - - (263)
Depreciation and amortization 1,902 2,011 331 - 4,244
------------- ------------ ------------- ------------- -------------
38,501 17,006 4,731 - 60,238
------------- ------------ ------------- ------------- -------------
OPERATING INCOME (LOSS) 6,498 (4,144) (1,464) - 890
------------- ------------ ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense, net of income earned (4,588) (4,408) (60) - (9,056)
Gain on extinguishment of debt 277 - - - 277
Gain on sale of investments 1,491 - - - 1,491
Equity in losses of subsidiaries (48,303) - - 48,303 -
Miscellaneous, net (319) - 179 - (140)
------------- ------------ ------------- ------------- -------------
(51,442) (4,408) 119 48,303 (7,428)
------------- ------------ ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (44,944) (8,552) (1,345) 48,303 (6,538)
Benefit for income taxes 1,418 852 442 - 2,712
-------------- ------------ ------------- ------------- -------------
LOSS FROM CONTINUING OPERATIONS
BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (43,526) $ (7,700) (903) 48,303 (3,826)
-------------- ------------ ------------- ------------- -------------
Loss from operations of discontinued
components (407) - - - (407)
Cumulative effect of accounting change - (34,572) (5,128) - (39,700)
------------- ------------ ------------- ------------- -------------
NET LOSS $ (43,933) $ (42,272) $ (6,031) $ 48,303 $ (43,933)
============= ============ ============= ============= =============
19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- ------------ ------------ --------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ 47,430 $ 221 $ (832) $ - $ 46,819
------------- -------------- ------------ ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (435) (79) (48) - (562)
Earnouts paid - (7) - - (7)
Proceeds from sale of discontinued components 3,250 - - - 3,250
------------- -------------- ------------- ------------ --------------
Net cash provided by (used for)
investing activities 2,815 (86) (48) - 2,681
------------- -------------- ------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior secured credit facility (4,500) - - - (4,500)
Proceeds from note receivable - - 1,758 - 1,758
Employee stock purchase plan payments (26) - (6) - (32)
Proceeds from repayment of officers/directors
loans 250 - - - 250
Payment of financing costs (97) - - - (97)
------------- -------------- ------------- ------------ --------------
Net cash provided by (used for)
financing activities (4,373) - 1,752 - (2,621)
------------- -------------- ------------- ------------ --------------
Effect of exchange rate (17) - - - (17)
------------- -------------- ------------- ------------ --------------
Net increase in cash and equivalents 45,855 135 872 - 46,862
Cash and equivalents at beginning of period 5,165 460 1,146 - 6,771
------------- -------------- ------------- ------------ --------------
Cash and equivalents at end of period $ 51,020 $ 595 $ 2,018 $ - $ 53,633
============= ============== ============= ============ ==============
20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ 13,112 $ (7,006) $ (96) $ - $ 6,010
------------- ------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (531) (2) (45) - (578)
Earnouts paid (300) - - - (300)
Proceeds from sale of Jupitermedia
Corporation stock - 5,801 - - 5,801
------------- ------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities (831) 5,799 (45) - 4,923
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily
redeemable convertible preferred stock 46,122 - - - 46,122
Proceeds from senior secured notes 79,926 76,791 - - 156,717
Purchase of senior subordinated notes (4,271) (4,104) - - (8,375)
Repayment of senior credit facility (180,587) - - - (180,587)
Employee stock purchase plan payments (292) - (7) - (299)
Payment of financing costs (8,145) - - - (8,145)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used for)
financing activities (67,247) 72,687 (7) - 5,433
------------- ------------- ------------- ------------- -------------
Effect of exchange rate (10) - - - (10)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and
equivalents (54,976) 71,480 (148) - 16,356
Cash and equivalents at beginning of period 14,518 1,993 3,680 - 20,191
------------- ------------- ------------- ------------- -------------
Cash and equivalents at end of period $ (40,458) $ 73,473 $ 3,532 $ - $ 36,547
============= ============= ============= ============= =============
21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 13 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The following transactions did not provide for or require the use of cash and,
accordingly, are not reflected in the Condensed Consolidated Statements of Cash
Flows.
For the three months ended March 31, 2003, Penton issued 19,050 shares under the
Management Stock Purchase Plan and 30,516 shares under the Performance Share
Plan to several officers and other key employees. In addition, in February 2003,
618,850 stock options, 99,876 RSUs and 391,360 deferred shares were granted.
Furthermore, for the three months ended March 31, 2003, Penton recorded
amortization of deemed dividend and accretion on preferred stock of $0.7
million.
For the three months ended March 31, 2002, Penton issued 14,704 common shares to
certain officers and other key employees under the Management Stock Purchase
Plan and reported amortization of deemed dividend and accretion on preferred
stock of $0.4 million.
NOTE 14 - INCOME TAXES
The Company assesses the recoverability of its deferred tax assets in accordance
with the provisions of SFAS No. 109 "Accounting for Income Taxes" ("SFAS 109").
As of March 31, 2003 the valuation allowance for its net deferred tax assets and
net operating loss carryforwards totaled $37.4 million.
In January 2003, the Company received a tax refund of $52.7 million and in
February 2002, the Company received a tax refund of $12.2 million. These amounts
are included in net cash provided by operating activities in the Condensed
Consolidated Statements of Cash Flows.
NOTE 15 -- CONTINGENCIES
In connection with the acquisition of Mecklermedia Corporation on December 1,
1998, a lawsuit was brought against the Company by Ariff Alidina (the
"Plaintiff"), a former stockholder of Mecklermedia Corporation, in the United
States Federal District Court in the Southern District of New York for an
unspecified amount, as well as other relief. The Plaintiff has claimed that the
Company violated the federal securities laws by selling Mr. Meckler, a
beneficial owner of approximately 26% of the shares of Mecklermedia, an 80.1%
interest in Jupitermedia Corporation for what the Plaintiff alleges was a
below-market price, thereby giving to Mr. Meckler more consideration for his
common stock in Mecklermedia Corporation than was paid to other stockholders of
Mecklermedia Corporation. On May 16, 2001, the United States District Court for
the Southern District of New York granted the Plaintiff's motion for
certification of a class consisting of all former stockholders of Mecklermedia
who tendered their shares in the tender offer. On October 17, 2001, the District
Court denied the Company's motion for a summary judgment. On November 26, 2002,
the District Court denied a motion for judgment on the pleadings filed by the
Company. Expert discovery is proceeding and the court has ordered the parties to
submit briefs concerning the valuation dates by the parties' expert witnesses
and has scheduled the oral arguments on the issue for June 30, 2003. The Company
intends to vigorously defend this suit.
In the normal course of business, Penton is subject to a number of lawsuits and
claims, both actual and potential in nature. While management believes that
resolution of existing claims and lawsuits will not have a material adverse
effect on Penton's financial statements, management is unable to estimate the
magnitude or financial impact of claims and lawsuits that may be filed in the
future.
In connection with the tax-free spinoff of our common stock by Pittway to its
stockholders in August 1998, we agreed not to take any action that would cause
the spinoff to be taxable to Pittway under Section 355 of the Internal Revenue
Code, and to indemnify Pittway for any liability suffered by it in that event.
The spinoff would be taxable to Pittway if, as part of a plan or series of
related transactions, as determined under a facts and circumstances test, one or
more persons, acting independently or in concert, have acquired 50.0% or more of
our common stock. Since August 1998, our common stock has been involved in a
number of transactions. Because of the open-ended nature of the facts and
circumstances test, we believe, but we cannot assure you, that the Internal
Revenue Service could not successfully assert that one or more transactions
involving our common stock were part of a plan or series of related transactions
that has caused the spinoff to be taxable to Pittway. If the spinoff were
taxable to Pittway, our payment to Pittway under our indemnity agreement could
have a material adverse effect on our financial condition.
22
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 that might appear, should not be taken as indicative of future results.
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 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, fluctuations in advertising revenue
with general economic cycles; the performance of Internet trade shows and
conferences; the seasonality of revenue from publishing and trade shows and
conferences; the success of new products; increases in paper and postage costs;
the infringement or invalidation of Penton's intellectual property rights;
pending litigation; government regulation; competition; technological change;
and international operations.
OVERVIEW
We are a diversified business-to-business media company. We provide media
products that deliver proprietary business information to owners, operators,
managers and professionals in the industries we serve. Through these products,
we offer industry suppliers multiple ways to reach their customers and prospects
as part of their sales and marketing efforts. We publish specialized trade
magazines, produce trade shows and conferences, and maintain Web businesses,
including electronic newsletters. Our products serve 12 industry sectors, which
we group into four segments:
INDUSTRY MEDIA TECHNOLOGY MEDIA
-------------- ----------------
Manufacturing Internet Technologies
Design/Engineering Information Technology
Mechanical Systems/Construction Electronics
Supply Chain
Government/Compliance
Aviation RETAIL MEDIA
------------
Food/Retail
LIFESTYLE MEDIA Leisure/Hospitality
---------------
Natural Products
We believe we have leading media products in most of the industry sectors we
serve. We are structured along segment and industry lines rather than by product
lines. This enables us to promote our related group of products, including
publications, trade shows and conferences, and online media products to our
customers.
RECENT DEVELOPMENTS
DISPOSITIONS
In January 2003, we completed the sale of the assets of our Professional Trade
Show group ("PTS"), which was part of our Industry Media segment, to Cygnus
Expositions, a division of Cygnus Business Media, Inc., for total consideration
of approximately $3.8 million, including a potential earnout of $0.6 million
based on reaching certain performance objectives in 2003. The cash received from
the sale was used to pay down the amounts outstanding under the Company's credit
facility. The Company recognized a gain of approximately $1.2 million on the
sale, which is included as a component of discontinued operations in the
accompanying Consolidated Statements of Operations.
AMENDED CREDIT FACILITY
In January 2003, the Company amended its senior secured credit facility. The
amended agreement permits the Company to sell certain properties in excess of
the $5.0 million aggregate limit required by the original amended agreement. In
return, the revolving
23
commitment was reduced from $40.0 million to $32.0 million. At the end of
January 2003, when the aggregate sum of Penton's cash and cash equivalents
exceeded $40.0 million, an additional one-time reduction of $10.0 million was
required under the amended credit facility. Furthermore, upon the sale of PTS,
as discussed above, the revolving commitment was further reduced by 50% of the
aggregate gross proceeds, as defined, from this sale, or approximately $1.9
million. For any future asset dispositions, the commitment under the revolver
will be reduced by 50% of the aggregate gross proceeds up to the maximum. The
amended facility allows for additional asset sales, transfers, leases, and other
dispositions and the issuance of equity interests by our subsidiaries up to a
maximum of approximately $3.6 million. The amended facility also increased the
maximum commitment fee from 0.50% to 0.75%. The commitment under the credit
facility decreases by 15% in 2003, 30% in 2004, 35% in 2005 and 20% in 2006.
TAX REFUND
In January 2003, the Company received a tax refund of $52.7 million.
REVERSE STOCK SPLIT
In February 2003, Penton's Board of Directors approved a proposal to effect a
reverse stock split to be submitted for shareholder approval at the Company's
annual meeting, set for June 12, 2003. This corrective share action is part of
the plan submitted by Penton to the New York Stock Exchange ("NYSE") to meet the
Exchange's $1.00 stock price listing requirement.
PREFERRED STOCK LEVERAGE RATIO EVENT OF NON-COMPLIANCE
An event of non-compliance exists under our Series B Convertible Preferred Stock
Agreement because the Company's leverage ratio (defined as debt less cash
balances in excess of $5.0 million plus the liquidation value of the preferred
stock and unpaid dividends divided by adjusted EBITDA) at December 31, 2002 of
27x was not cured by March 31, 2003. Under the agreement, we are required to
maintain a leverage ratio below 7.5 to 1.0. When an event of non-compliance
occurs, the holders of a majority of the preferred stock may nominate two
additional members to our board of directors, which they did effective April 1,
2003. If the event of non-compliance is not cured by June 30, 2003, the holders
of a majority of the preferred stock then outstanding may elect one less than a
minimum majority of our board of directors. The Company is not expected to be
able to correct the event of non-compliance by June 30, 2003. In addition, upon
the occurrence of this event of non-compliance, the 5% dividend rate on the
preferred stock increased by one percentage point as of April 1, 2003 and the
rate increases by one percentage point each subsequent quarter, up to a maximum
rate of 10%. The conversion price on the preferred stock decreased by $0.76 as
of April 1, 2003 and decreases by $0.76 each subsequent quarter up to a maximum
reduction of $3.80. The conversion price will adjust to what it would have been
absent such event (to the extent of any shares of preferred stock still
outstanding) once the leverage ratio is less than 7.5 to 1.0. The dividend rate
will adjust back to 5% as of the date on which the leverage ratio is less than
7.5 to 1.0. Under the preferred stock agreement, if the leverage ratio exceeds
7.5 to 1.0 for four consecutive quarters, the preferred stockholders will have
the right to cause the Company to seek a buyer for all of the assets or issued
and outstanding capital stock of the Company. The leverage ratio event of
non-compliance does not represent an event of default or violation under any of
the Company's outstanding notes or the senior secured credit facility. As such,
there will not be an acceleration of any outstanding indebtedness as a result of
this event. In addition, this event of non-compliance and the resulting
consequences do not result in any cash outflow from the Company.
REDEEMABLE COMMON STOCK
In March 2003, it was discovered that the Company had sold approximately 1.1
million shares of common stock to certain employees in the Company's 401(k) plan
from May 2001 through March 2003 which were not registered under the federal
securities laws (the "unregistered sales"). As a result, such purchasers of our
common stock may have the right to rescind their purchases for an amount equal
to the purchase price paid for the shares, plus interest from the date of
purchase. Any rescissionary rights will lapse on various dates under the
applicable statute of limitations which is one year. The Company may also be
subject to civil and other penalties by regulatory authorities. The
unregistered sales do not cause an event of default under the 10-3/8% Senior
Subordinated Notes (the "Subordinated Notes"), the 11-7/8% Senior Secured Notes
(the "Secured Notes") or the credit facility. However, an event of default
could occur as an indirect result of the unregistered sales, if for instance,
such unregistered sales lead to restricted payments under the indentures and/or
the credit facility. On March 31, 2003, the Company filed a Form S-8
registration and registered 6.0 million additional shares to be offered under
the 401(k) plan. At March 31, 2003, the Company has classified 1.2 million
shares related to the potential rescissionary rights outside of stockholders'
deficit, because the redemption features are not within the control of the
Company.
24
In April 2003, the Company offered to reimburse employees who had purchased
Penton common stock through the Company's 401(k) plan between March 25, 2002 and
March 25, 2003. Employees who sign the release will be reimbursed the amount by
which the price they paid for the common stock exceeds the closing price of the
stock on the date they execute the release, or if the stock has been sold, the
amount by which the price paid by the employee exceeded the sale price.
Employees who do not sign the release by May 22, 2003, retain their rights under
the Federal securities laws. As of May 13, 2003, nearly sixty percent of the
employees who were offered the reimbursement have accepted the terms of the
release, representing a liability of approximately $0.6 million. The estimated
total liability for all employees who were offered the reimbursement is
approximately $1.0 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2002
CONSOLIDATED RESULTS
The following table summarizes our results of operations for the three months
ended March 31, 2003 and 2002 (in thousands). Results in 2002 have been
adjusted for discontinued operations.
2003 2002 VARIANCE
----------- ----------- -----------
Revenues $ 54,392 $ 61,128 $ (6,736)
=========== =========== ===========
Operating expenses $ 49,632 $ 60,238 $ (10,606)
=========== =========== ===========
Loss from continuing operations before
cumulative effect of accounting
change $ (5,969) $ (3,826) $ (2,143)
Discontinued operations 866 (407) 1,273
Cumulative effect of an accounting
change, net of taxes - (39,700) 39,700
----------- ----------- -----------
Net loss $ (5,103) $ (43,933) $ 38,830
=========== =========== ===========
Net loss applicable to
common stockholders $ (5,758) $ (44,296) $ 38,538
=========== =========== ===========
Net loss per diluted share applicable
to common stockholders $ (0.17) $ (1.39) $ 1.22
=========== =========== ===========
REVENUES
Total revenues decreased $6.7 million, or 11.0%, from $61.1 million for the
three months ended March 31, 2002, to $54.4 million for the same period in 2003.
The decrease was primarily due to a decrease in trade show and conference
revenues of $2.5 million, or 14.7%, from $17.1 million for the three months
ended March 31, 2002, to $14.6 million for the same period in 2003, and a
decrease in publishing revenues of $4.5 million, or 10.8%, from $41.2 million
for the three months ended March 31, 2002, to $36.8 million for the same period
in 2003. Online media revenues increased $0.2 million, or 8.3%, from $2.8
million for the three months ended March 31, 2002, to $3.1 million for the same
period in 2003. Included in total revenues for the three months ended March 31,
2002 were revenues of $0.5 million associated with properties sold in December
2002, which were not classified as discontinued operations.
25
The decrease in our trade show and conference revenues was primarily due to a
decrease of $3.2 million in our Technology Media segment, which was partially
offset by revenue improvements of approximately $0.5 million in our Industry
Media and Lifestyle Media segments. Our Internet technologies trade show markets
accounted for $2.8 million of the Technology Media segment revenue decrease,
with the electronics market accounting for the remaining portion of the
decrease.
The decrease in publishing revenues was primarily due to the $4.8 million
decrease in our Industry Media and Technology Media segments. Our
design/engineering, electronics, Internet technologies and information
technology markets accounted for $3.8 million of the decrease. These decreases
were partially off-set by our Lifestyle Media segment where publishing revenues
increased by approximately $0.2 million in the first quarter of 2003 when
compared with the same 2002 period.
OPERATING EXPENSES
Operating expenses decreased $10.6 million, or 17.6%, from $60.2 million for the
three months ended March 31, 2002, to $49.6 million for the same period in 2003.
Included in operating expenses for the three months ended March 31, 2003 and
2002 are restructuring credits of $0.1 million and $0.3 million, and
depreciation and amortization charges of $3.7 million and $4.2 million,
respectively. The overall decrease in operating expenses was due primarily to
the effects of cost reduction initiatives and restructuring activities
throughout 2002.
EDITORIAL, PRODUCTION AND CIRCULATION
Editorial, production and circulation expenses decreased to $22.4 million for
the three months ended March 31, 2003, compared to $24.8 million for the same
period in 2002, representing a decrease of $2.4 million, or 9.9%. The decrease
was due to the effects of our expense reduction initiatives, including the
effect of properties sold in December 2002 and in the first quarter of 2003, the
elimination of unprofitable properties, reducing production costs through
process improvements and selective reduction in frequency and circulation
levels, outsourcing various functions in the organization, and the effects of
staff reductions made in 2002.
As a percentage of revenues, editorial, production and circulation expenses
increased from 40.6% for the three months ended March 31, 2002, to 41.1% for the
same period in 2003. The increase was due to the general decrease in revenues,
which was offset only somewhat by our expense reduction initiatives.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses declined $7.9 million, or 24.9%,
from $31.5 million for the three months ended March 31, 2002, to $23.6 million
in the same period in 2003. As a percentage of revenues, selling, general and
administrative expenses decreased from 51.5% for the three months ended March
31, 2002, to 43.5% for the same period in 2003. These decreases were due
primarily to cost savings associated with office closings and staff reductions
in 2002.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization declined $0.5 million, or 12.3%, from $4.2 million
for the three months ended March 31, 2002, to $3.7 million for the same period
in 2003 due to lower amortization expense related to intangible assets of
properties sold in December 2002.
OTHER INCOME (EXPENSE)
Interest expense increased $1.0 million from $9.3 million for the three months
ended March 31, 2002, to $10.3 million for the same period in 2003. Included in
interest expense in the first quarter of 2003 is approximately $0.9 million
related to the write-off of unamortized financing fees associated with the
commitment reduction of our credit facility revolver in January 2003 from $40.0
million to $20.1 million. Included in interest expense in the first quarter of
2002 is approximately $0.7 million related to the write-off of unamortized
finance fees associated with the commitment reduction of our credit facility
revolver from $185.0 million to $40.0 million in March 2002 and approximately
$1.4 million related to hedging activities. The increase in interest expense
also reflects the higher weighted-average interest rate and average debt
outstanding in the first quarter of 2002 compared with the same period in 2003.
In 2002, the gain on extinguishment of debt of $0.3 million was classified as an
extraordinary item. In 2003, in accordance with the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 145, "Rescission of SFAS Nos. 4, 44,
and 64, Amendment
26
of SFAS 13, and Technical Corrections as of April 2002" ("SFAS 145"). SFAS 145,
this gain was reclassified to other income (expense). The balance consisted of
two items. In March 2002, we purchased $10.0 million face value of our
Subordinated Notes at prevailing market prices, resulting in a gain of $1.4
million. This gain was offset by the write-off of unamortized deferred financing
costs of approximately $1.1 million associated with the payoff of our term loan
A and term loan B facilities, which also occurred in March 2002.
In January 2002, Penton sold its remaining 11.8% ownership interest in
Jupitermedia Corporation for $5.8 million and recognized a $1.5 million gain
from its sale.
EFFECTIVE TAX RATES
The effective tax rates for the three months ended March 31, 2003 and 2002 were
(2.2)% and 41.5%, respectively. The difference in the effective tax rate between
years is due to the Company establishing a full valuation allowance in the
third-quarter of 2002 for its net deferred tax assets and net operating loss
carry-forwards in accordance with the provisions of SFAS No. 109 "Accounting for
Income Taxes" ("SFAS 109").
DISCONTINUED OPERATIONS
Discontinued operations for all periods presented include the results of Penton
Media Australia ("PM Australia"), which was sold in December 2002, and the
results of PTS, which was sold in January 2003. PM Australia was part of our
Technology Media segment and PTS was part of our Industry Media segment.
Discontinued operations improved from a loss of $0.4 million for the three
months ended March 31, 2002 to income of $0.9 million for the same period in
2003. The income in the first quarter of 2003 is due to a gain of approximately
$1.2 million associated with the sale of PTS. Revenues for these properties was
approximately $2.0 million for the three months ended March 31, 2002.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
During the third quarter of 2002, Penton completed its transitional goodwill
impairment test for January 1, 2002, under the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" and recorded a non-cash charge of $39.7
million to reduce the carrying value of goodwill for two of our seven identified
reporting units. The charge is reflected as a cumulative effect of accounting
change in the accompanying consolidated statements of operations.
NET LOSS
Due to the factors noted above, we reported a net loss for the three months
ended March 31, 2003 of $5.1 million compared with a net loss of $43.9 million
for the same period in 2002.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
The net loss applicable to common stockholders of $5.8 million, or $0.17 per
diluted share, for the three months ended March 31, 2003, includes $0.7 million
of accrued dividends on our preferred stock. For the three months ended March
31, 2002, the net loss applicable to common stockholders of $44.3 million, or
$1.39 per diluted share, includes $0.4 million associated with the amortization
of deemed dividends and accretion of the preferred stock to its maximum
redemption price.
SEGMENTS
We manage our business based on four operating segments: Industry Media,
Technology Media, Lifestyle Media and Retail Media. All four segments derive
their revenues from publications, trade shows and conferences, and online media
products. See Note 11 - Segment Information, for the definition of adjusted
segment EBITDA and a reconciliation of total adjusted segment EBITDA to loss
from continuing operations before income taxes and cumulative effect of
accounting change.
27
Financial information by segment for the three months ended March 31, 2003 and
2002, adjusted for discontinued operations, is summarized in the following table
(in thousands):
ADJUSTED
REVENUES SEGMENT EBITDA
-------------------------- ------------------------
2003 2002 2003 2002
----------- ---------- ---------- -----------
Industry Media $ 19,362 $ 21,465 $ 3,276 $ 3,344
Technology Media 15,212 20,609 793 (1,161)
Lifestyle Media 15,049 14,470 9,302 9,018
Retail Media 4,769 4,584 731 565
----------- ---------- ---------- -----------
Total $ 54,392 $ 61,128 $ 14,102 $ 11,766
=========== ========== ========== ===========
INDUSTRY MEDIA
Our Industry Media segment, which represented 35.6% of total Company revenues
for the first quarter of 2003, serves customers in the manufacturing,
design/engineering, mechanical systems/construction, government/compliance,
supply chain and aviation industries. Revenues for this segment decreased $2.1
million, or 9.8%, from $21.5 million in the first quarter of 2002, to $19.4
million for the same period in 2003. The decrease was due primarily to lower
revenues from publications of $2.3 million, somewhat offset by increases of
approximately $0.2 million from trade show and conference and online media
products. The decrease in publication revenues was due primarily to year-on-year
advertising declines in products serving the design/engineering and
manufacturing sectors, which accounted for approximately $1.7 million of the
segment's publishing decrease. These two sectors continue to be impacted by the
downturn in the U.S. economy.
Adjusted segment EBITDA for Industry Media decreased $0.1 million, or 2.0%, from
$3.3 million for the three months ended March 31, 2002, to $3.2 million for the
same period in 2003. Publications accounted for $0.7 million of the decrease,
while trade shows and conferences and online media increased by $0.3 million.
General and administrative costs for the segment also improved by approximately
$0.3 million. The decrease in adjusted segment EBITDA was due primarily to the
decrease in revenues by $2.1 million, offset by the effects of our 2002 expense
reduction initiatives, including eliminating unprofitable properties, reducing
production costs through process improvements and selective reduction in
frequency and circulation levels, and staff reductions. Results for the three
months ended March 31, 2002 include an adjusted segment EBITDA loss of
approximately $0.1 million related to the A/E/C properties, which were sold in
December 2002.
TECHNOLOGY MEDIA
Our Technology Media segment, which represented 27.9% of total Company revenues
for the first quarter of 2003, serves customers in the electronics, information
technology and Internet technologies markets. Revenues for this segment
decreased $5.4 million, or 26.2%, from $20.6 million for the three months ended
March 31, 2002, to $15.2 million for the same period in 2003. The decrease was
due primarily to lower revenues from publications of $2.4 million and lower
revenues from trade shows and conferences of $3.1 million. Advertising weakness
in our information technology and electronics sectors and the elimination of
revenues from properties sold in December 2002 of approximately $0.5 million,
accounted for the majority of the publishing decrease. Lower trade show and
conference revenues were primarily due to weaker than expected performance of an
event in the electronics market and the elimination of revenues from technology
events that were held in the first quarter of 2002 but not repeated in the first
quarter of 2003 due to unfavorable market conditions. Online revenues increased
by $0.1 million in the first quarter of 2003 compared with the same 2002 period.
Adjusted segment EBITDA for Technology Media increased $2.0 million from a loss
of $1.2 million for the three months ended March 31, 2002, to income of $0.8
million for the same period in 2003. All product lines for this segment
experienced improvements in adjusted segment EBITDA during the first quarter of
2003 when compared with the same quarter of 2002 due primarily to the impact of
cost reduction measures implemented in 2002 and the sale of unprofitable
technology properties in December 2002 not classified as discontinued
operations. These properties reported an adjusted EBITDA loss of approximately
$1.0 million for the three months ended March 31, 2002.
28
LIFESTYLE MEDIA
Our Lifestyle Media segment, which represented 27.7% of total Company revenues
for the first quarter of 2003, serves customers in the natural products industry
sector. Revenues for this segment increased $0.6 million, or 4.0%, from $14.5
million for the three months ended March 31, 2002, to $15.0 million when
compared with the same period in 2003. The increase was due primarily to higher
revenues from publications of $0.2 million and higher revenues from trade shows
and conferences of $0.4 million. The trade show and conference revenue increase
was due primarily to year-over-year growth from our Natural Products Expo West
show. Online revenues for the first quarter of 2003 were flat with revenues in
the first quarter of 2002.
Adjusted segment EBITDA for the Lifestyle Media segment increased $0.3 million,
or 3.1%, from $9.0 million for the three months ended March 31, 2002, to $9.3
million for the same period in 2003. Publishing adjusted EBITDA improved
slightly in the first quarter of 2003 when compared with the same period in
2002, while online media adjusted EBITDA remained flat. Trade shows and
conferences adjusted EBITDA improved by nearly $0.3 million for the three months
ended March 31, 2003 compared with the same period in 2002 primarily due to the
results of the Natural Products Expo West show.
RETAIL MEDIA
Our Retail Media segment, which represented 8.8% of total Company revenues for
the first quarter of 2003, serves customers in the food/retail and
leisure/hospitality sectors. Revenues for this segment increased $0.2 million,
or 4.0%, from $4.6 million for the three months ended March 31, 2002, to $4.8
million for the same period in 2003. The revenue increase was due to slight
increases in all product lines for this segment.
Adjusted segment EBITDA for the Retail Media segment increased nearly $0.2
million, or 29.4%, from $0.5 million for the three months ended March 31, 2002,
to $0.7 million for the same period in 2003. The increase was due primarily to
improved revenues for the first quarter of 2003 over the first quarter of 2002
and cost reduction efforts undertaken in 2002.
PRODUCTS
We publish specialized trade magazines, produce trade shows and conferences, and
maintain a variety of online media products, including Web businesses and
electronic newsletters. Revenues by product line for the three months ended
March 31, 2003 and 2002 are as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
--------- ----------
Publishing $ 36,770 $ 41,235
Trade shows and conferences 14,567 17,071
Online media 3,055 2,822
--------- ----------
Total revenues $ 54,392 $ 61,128
========= ==========
Publishing revenues decreased nearly $4.4 million from $41.2 million for the
three months ended March 31, 2002, to $36.8 million for the same period in 2003.
The decrease in publishing revenues was due primarily to year-on-year
advertising declines in products serving the design/engineering and
manufacturing sectors, which continue to be impacted by the downturn in the U.S.
economy, advertising weakness in our information technology and electronics
sectors, and the elimination of revenues from properties sold in December 2002.
Trade shows and conference revenues decreased by $2.5 million from $17.1 million
for the three months ended March 31, 2002, to $14.6 million for the same period
in 2003. The decrease in trade shows and conference revenues was due primarily
to a year-over-year decline of an event in the electronics market, the
elimination of revenues from technology properties sold in December 2002, and
the elimination of technology events that were held in the first quarter of 2002
but not repeated in the first quarter of 2003 due to unfavorable market
conditions. The decrease was slightly offset by the year-over-year improvement
in our Natural Products Expo West show, which is part of our Lifestyle Media
segment.
Online media revenues increased $0.2 million, or 8.3%, from $2.8 million for the
three months ended March 31, 2002, to $3.0 million for the same period in 2003.
The increase was due to the success of online products across several of our
markets.
29
LIQUIDITY AND CAPITAL RESOURCES
ANALYSIS OF CASH FLOWS
Penton's total cash and cash equivalents was $53.6 million at March 31, 2003,
compared with $6.8 million at December 31, 2002. Cash provided by operating
activities was $46.8 million for the three months ended March 31, 2003, compared
with $6.0 million for the same period in 2002. Operating cash flows for the
three months ended March 31, 2003, reflect a net loss of $5.1 million, offset by
a net working capital increase of approximately $46.1 million and non-cash
charges (primarily depreciation and amortization) of approximately $5.8 million.
Operating cash flows for the three months ended March 31, 2002, reflected a net
loss of $43.9 million, offset by a net working capital increase of approximately
$5.4 million and non-cash charges (primarily depreciation and amortization and
the cumulative effect of accounting change) of approximately $44.5 million.
The increase in operating cash flows for the three months ended March 31, 2003,
compared with the same 2002 period was due primarily to the tax refund received
in January 2003 of approximately $52.7 million, compared with a tax refund of
$12.2 million in the first quarter of 2002.
Investing activities provided $2.7 million of cash for the three months ended
March 31, 2003, and includes proceeds of $3.3 million from the sale of PTS in
January. These proceeds were partially offset by capital expenditures of
approximately $0.6 million. Investing activities provided $4.9 million of cash
for the three months ended March 31, 2002, primarily from proceeds of $5.8
million from the sale of approximately 3.0 million shares of Jupitermedia
Corporation common stock. These proceeds were partially offset by earnout
payments of approximately $0.3 million.
Financing activities used $2.6 million of cash for the three months ended March
31, 2003, due primarily to the repayment of $4.5 million on the senior secured
credit facility and the payment of finance fees of $0.1 million related to the
credit facility amendment completed in January. These uses were somewhat offset
by proceeds of $1.8 million received on our notes receivable and proceeds of
approximately $0.3 million from the repayment of an officers/directors loan.
Financing activities provided cash of $5.4 million for the three months ended
March 31, 2002, due to the issuance of our Secured Notes and the sale of 50,000
shares of mandatorily redeemable convertible preferred stock. These proceeds
were primarily offset by the paydown of the balance of our senior secured credit
facility term loans; the purchase of $10.0 million face value of our
Subordinated Notes at prevailing market prices; the payment of financing fees
associated with the amendment to our senior secured credit facility; and the
issuance of our Secured Notes.
Capital expenditures in the first three months of 2003 were approximately $0.6
million. We anticipate that we will spend between $3.0 million and $4.0 million
on capital expenditures in 2003, primarily for expenditures related to computers
and management information systems.
FINANCING ACTIVITIES
In June 2001, we issued $185.0 million of Subordinated Notes due June 2011.
Interest on the notes is payable semiannually, on June 15 and December 15. The
Subordinated Notes are fully and unconditionally, jointly and severally
guaranteed, on a senior subordinated basis, by the assets of our domestic
subsidiaries, which are 100% owned by the Company, and may be redeemed, in whole
or in part, on or after June 15, 2006. In addition, we may redeem up to 35% of
the aggregate principal amount of the Subordinated Notes before June 15, 2004
with the proceeds of certain equity offerings. The Subordinated Notes were
offered at a discount of $4.2 million. This discount is being amortized using
the interest method, over the term of the Subordinated Notes. Costs representing
underwriting fees and other professional fees of approximately $1.7 million are
being amortized over the term of the Subordinated Notes. The net proceeds of
$180.2 million were used to pay down the $136.0 million outstanding balance of
the revolving credit facility, $12.8 million of the term loan A facility and
$7.2 million of the term loan B facility. The remaining proceeds were used for
general corporate purposes. The Subordinated Notes are our unsecured senior
subordinated obligations, subordinated in right of payment to all existing and
future senior indebtedness, including the senior secured credit facility and the
Secured Notes discussed below.
In January 2002, we received $5.8 million in net proceeds from the sale of our
remaining investment in Jupitermedia Corporation common stock.
In March 2002, we entered into an agreement with a group of investors to sell
50,000 shares of Series B Convertible Preferred Stock and warrants to purchase
1.6 million shares of our common stock for $50.0 million. We received gross
proceeds of $40.0 million from
30
the sale of 40,000 shares of preferred stock and warrants to purchase 1,280,000
shares of our common stock on March 19, 2002, and gross proceeds of $10.0
million from the sale of 10,000 shares of preferred stock and warrants to
purchase 320,000 shares of our common stock on March 28, 2002 (see Note 5 -
Mandatorily Redeemable Convertible Preferred Stock). Net proceeds from the sale
of the preferred stock, along with the net proceeds from the sale of our
Jupitermedia Corporation common stock, and cash on hand from a tax refund were
used to repay $48.0 million of amounts outstanding under our term loans.
In March 2002, Penton issued $157.5 million of 11-7/8% Senior Secured Notes due
in 2007. Interest is payable on the Secured Notes semiannually on April 1 and
October 1. The Secured Notes are fully and unconditionally, jointly and
severally guaranteed, on a senior basis, by all of our domestic subsidiaries,
which are 100% owned by the Company, and also the stock of certain subsidiaries.
We may redeem the Secured Notes, in whole or in part, during the periods October
1, 2005 through October 1, 2006, and thereafter at redemption prices of
105.9375% and 100.0000% of the principal amount, respectively, together with
accrued and unpaid interest to the date of redemption. In addition, at any time
prior to October 1, 2005, upon certain public equity offerings of our common
stock, up to 35% of the aggregate principal amount of the Secured Notes may be
redeemed at our option, within 90 days of such public equity offering, with cash
proceeds from the offering at a redemption price equal to 111.875% of the
principal amount, together with accrued and unpaid interest to the date of
redemption.
The Secured Notes were offered at a discount of $0.8 million, which is being
amortized, using the interest method, over the term of the Secured Notes. Costs
representing underwriting fees and other professional fees of $6.6 million are
being amortized over the term of the Secured Notes. Net proceeds of $150.1
million were used to pay down $83.6 million of term loan A and $49.0 million of
term loan B, and net proceeds of $8.3 million were used to repurchase $10.0
million of our Subordinated Notes. The remaining net proceeds of $9.2 million
were used for general corporate purposes. The Secured Notes rank senior in right
to all of our senior subordinated indebtedness, including our Subordinated
Notes, and equal in right of payment with all of our other senior indebtedness,
which is approximately $0.4 million at March 31, 2003. The guarantees are senior
secured obligations of each of our subsidiary guarantors and rank senior in
right of payment to all subordinated indebtedness of the subsidiary guarantors,
including the guarantees of our Subordinated Notes, and equal in right of
payment with all of our senior indebtedness. The notes and guarantees are
secured by a lien on substantially all of our assets and those of our subsidiary
guarantors, other than specified excluded assets.
In March 2002, we amended and restated our senior secured credit facility and
repaid our term loan A facility and our term loan B facility under our credit
facility from the proceeds received from the sale of preferred stock and the
issuance of the Secured Notes, as noted above. The amended and restated facility
provided for a revolving credit facility of up to a maximum amount of $40.0
million. Availability under the revolving credit facility is subject to a
borrowing base limited to 80% of eligible receivables. In order to access the
revolver, Penton must not have more than $7.5 million of cash and cash
equivalents available, must be in compliance with the loan documents and must
submit a borrowing base certificate immediately prior to each extension of
credit showing compliance with the provisions of the borrowing base. Penton is
required to prepay the revolver in the event that it has loans outstanding in
excess of the borrowing base, or it has more than $7.5 million in cash and cash
equivalents available at the end of any month. The commitment under the amended
and restated credit facility decreases by 15% in 2003, 30% in 2004, 35% in 2005,
and 20% in 2006. The amended and restated credit facility has no financial
covenants. In connection with the amendment and restatement of the credit
facility, the interest rate on the revolving credit facility was increased. In
addition, further restrictions were placed on Penton's ability to make certain
restricted payments to, make capital expenditures in excess of certain amounts,
to incur additional debt and contingent obligations, make acquisitions and
investments, and to sell assets. As noted below, the credit facility was further
amended in January 2003.
The repayment of the term loans in March 2002 resulted in a non-cash
extraordinary charge of $0.7 million, net of $0.5 million in taxes, relating to
the write-off of unamortized deferred finance costs. In the first quarter of
2003, the 2002 extraordinary charge was reclassified to gain on extinguishment
of debt in the consolidated statements of operations in accordance with the
provisions of SFAS 145.
In September 2002, Moody's Investors Service took the following rating actions
regarding Penton: (i) confirmed the B3 rating on the Company's Secured Notes,
(ii) downgraded the Company's Subordinated Notes due 2011 from Caa2 to Ca, (iii)
downgraded the Company's senior implied rating from B3 to Caa3, and (iv)
downgraded the Company's senior unsecured issuer rating from Caa1 to Ca. These
changes in the rating of our debt instruments by the outside rating agencies
does not negatively impact our ability to use our revolver.
In December 2002, the Company sold four properties for approximately $0.9
million, which was used to repay outstanding amounts under the Company's credit
facility.
31
In January 2003, the Company amended its senior secured credit facility. The
amended agreement permits the Company to sell certain properties in excess of
the $5.0 million aggregate limit required by the original amended agreement. In
return, the revolving commitment was reduced from $40.0 million to $32.0
million. At the end of January 2003, when the aggregate sum of Penton's cash and
cash equivalents exceeded $40.0 million, an additional one-time reduction of
$10.0 million was required under the amended credit facility. Furthermore, upon
the sale of PTS, the revolving commitment was further reduced by 50% of the
aggregate gross proceeds, as defined, from this sale, or approximately $1.9
million. For any future asset dispositions, the commitment under the revolver
will be reduced by 50% of the aggregate gross proceeds up to the maximum. The
amended facility allows for additional asset sales, transfers, leases, and other
dispositions and the issuance of equity interests by our subsidiaries up to a
maximum of approximately $3.6 million. The amended facility also increased the
maximum commitment fee from 0.50% to 0.75%. The commitment under the credit
facility decreases by 15% in 2003, 30% in 2004, 35% in 2005, and 20% in 2006.
In January 2003, the Company paid down the $4.5 million that was outstanding
under the credit facility. At March 31, 2003, no amounts were outstanding under
the revolver and the commitment was $20.1 million. Availability under the
commitment, which is subject to the Company's eligible accounts receivable, was
$18.1 million at March 31, 2003.
The reduction of the revolver from $40.0 million to $20.1 million in January
2003, and the reduction of the revolver from $185.0 million to $40.0 million in
March 2002, resulted in the write-off of unamortized finance fees related to the
revolver of $0.9 million and $0.7 million, respectively. These charges have been
classified as part of interest expense on the Consolidated Statements of
Operations.
In January 2003, the Company also completed the sale of the assets of PTS for
approximately $3.8 million, including an earnout of $0.6 million. The cash
received from the sale was used to pay down the Company's outstanding credit
facility.
The Company has no special purpose entities or off-balance sheet debt other than
operating leases in the ordinary course of business.
CURRENT LIQUIDITY
Our primary future cash needs will be to fund working capital, debt service,
capital expenditures, and our business restructuring charges and related
expenses. We expect capital expenditures in 2003 to remain at or near 2002
levels of approximately $3.0 million to $4.0 million, as we continue to review
our spending as a result of continued economic and business uncertainty. We
expect to make cash payments for the remainder of 2003 related to our business
restructuring initiatives of approximately $3.5 million, which is expected to
comprise of $1.7 million for employee separation costs, $1.4 million for lease
obligations, and $0.4 million for other contractual obligations.
The Company has implemented and continues to implement various cost-cutting
programs and cash conservation plans, which involve the limitation of capital
expenditures and the control of working capital.
We anticipate adequate liquidity from operations and have available cash on hand
to meet all interest payments on our bonds and our other obligations. We have no
principal repayment requirements until maturity of our Secured Notes in October
2007. In addition, we have no bank debt and no maintenance covenants on our
existing bond debt. As noted above, Penton does have access to an asset-based,
maintenance-free revolver of up to $20.1 million under its amended credit
facility. The commitment under the revolving credit facility decreases by 7.5%
at September 30, 2003 and by an additional 7.5% at December 31, 2003.
Our ability to meet cash operating requirements depends upon our future
performance, which is subject to general economic conditions and to financial,
competitive, business and other factors, including factors beyond our control.
If we are unable to meet our debt obligations or fund our other liquidity needs,
we may be required to raise capital through additional financing arrangements or
the issuance of private or public debt or equity securities. We cannot assure
you that such additional financing will be available at acceptable terms. In
addition, the terms of our convertible preferred stock and warrants, including
the conversion price; dividend and liquidation adjustment provisions; the
redemption price premiums; and board representation rights could negatively
impact our ability to access the equity markets in the future.
We may from time to time seek to retire our outstanding debt through cash
purchases on the open market, privately negotiated transactions or otherwise.
Such repurchases, if any, will depend on the prevailing market conditions, our
liquidity requirements, contractual restrictions and other factors. The amounts
involved may be material.
32
Penton did not make any cash contributions to its defined benefit pension plan
in 2001 or 2002. Based on the current value of the assets in our benefit plans,
we do not expect to be required to make any cash contributions in 2003. Future
funding requirements are dependent upon factors such as interest rate levels,
changes to pension plan benefits, funded status, regulatory requirements for
funding purposes, and the level and timing of asset returns as compared with the
level and timing of expected benefit disbursements. Due to the presence of
significant variables, actual future contributions may differ materially.
Our sale of common stock under the 401(k) plan in excess of the number of shares
registered by the Company on Form S-8 with the Securities and Exchange
Commission under the Securities Act of 1933 (the "unregistered sales") could
have a material adverse impact on our financial condition. The unregistered
sales do not cause an event of default under the indentures governing our
Subordinated Notes or Secured Notes or our senior secured credit facility.
However, an event of default could occur as an indirect result of the
unregistered sales.
For example, an event of default would occur under (a) the indentures if the
unregistered sales were to result in (i) unsatisfied judgments not covered by
insurance aggregating in excess of $5 million being rendered against the Company
and not stayed, bonded or discharged within 60 days after such judgment became
final and nonappealable or (ii) the Company's failure to observe the covenant
limiting the Company's ability to make restricted payments (as defined in the
indentures) if, for example, the Company made a rescission offer and as a result
repurchased shares, which could be considered the payment on account of the
purchase, redemption or other acquisition or retirement for value of equity
interest (as defined in the indentures) or (b) the credit agreement if the
unregistered sales were to result in (i) the Company's failure to observe the
covenant limiting the Company's ability to make a restricted payment (as defined
in the credit agreement) if, for example, the Company made a rescission offer
and as a result repurchased shares, which could be considered a restricted
payment by the Company with respect to its equity interests (as defined in the
credit agreement), or (ii) a material adverse change in the business, assets,
operations, prospects or condition, financial or otherwise, of the Company taken
as a whole. The foregoing is not, and no inference should be drawn that the
foregoing is, an exclusive list of circumstances that could result in an event
of default under the indentures or the credit agreement as a consequence of the
unregistered sales. If an event of default occurs, all our indebtedness would be
immediately due and payable, and we cannot assure you that our business will
generate sufficient cash flow to enable us to service our debt obligations. In
addition, we cannot assure you that the Company will be able to obtain
alternative sources of funding (see Risk Factors section of our 2002 Annual
Report on Form 10-K).
We have classified approximately 1.2 million shares of our common stock as
redeemable common stock as a result of rescissionary rights that certain of
our common stockholders may have in connection with the unregistered sales from
May 2001 through March 2003 noted above. A number of remedies may be available
to regulatory authorities and the employees who purchased the common stock,
including, without limitation, a right of rescission and other damages that
could be imposed by regulatory authorities. Pursuant to the rescission rights,
employees may be entitled to return their shares to the Company and receive
back from us the full price they paid, plus interest. The rescission rights
lapse on various dates as prescribed in the securities laws which is one year.
Although the payments under the rescissionary rights are not anticipated to
have a material adverse impact on our financial condition, we have no control
over any civil or other damages that regulatory authorities could impose on the
Company, the result of which could have a material adverse effect on our
financial condition. Please also refer to Note 6 - Common Stock and Common
Stock Award Programs of the Consolidated Financial Statements for further
details.
In April 2003, the Company offered to reimburse employees who had purchased
Penton common stock through the Company's 401(k) plan between March 25, 2002 and
March 25, 2003. Employees who sign the release will be reimbursed the amount by
which the price they paid for the common stock exceeds the closing price of the
stock on the date they execute the release, or if the stock has been sold, the
amount by which the price paid by the employee exceeded the sale price.
Employees who do not sign the release by May 22, 2003, retain their rights under
the Federal securities laws. As of May 13, 2003, nearly sixty percent of the
employees who were offered the reimbursement have accepted the terms of the
release, representing a liability of approximately $0.6 million. The estimated
total liability for all employees who were offered the reimbursement is
approximately $1.0 million.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the Financial Accounting SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). This
statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. Management does not
believe that the adoption of SFAS 149 will have a significant effect on the
Company's results of operations or its financial condition.
33
FOREIGN CURRENCY
The functional currency of our 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.
SEASONALITY
We 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
During the first three months of 2003, there were no significant changes related
to the Company's market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
are effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses, except as follows: the Company
sold common stock under the Company's 401(k) Retirement Savings Plan (the
"Plan") in excess of the number of shares registered by the Company on Form S-8
with the Securities and Exchange Commission under the Securities Act of 1933
(the "unregistered sales") from May 2001 through March 2003. The Company took
corrective actions immediately upon discovery, and has filed an amendment to the
Form S-8 on March 31, 2003, to register additional shares. For further details,
see:
o Liquidity and Capital Resources section of the Management's Discussion and
Analysis of Financial Condition and Results of Operations.
o Note 6 - Common Stock and Common Stock Award Programs of the consolidated
financial statements.
o The Company's Annual Report on Form 10-K for the year ended December 31,
2002.
34
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Between May 2001 and March 2003, the Company issued
approximately 1.7 million shares of its common stock to
certain employees in the Company's 401(k) Plan that were not
registered under the federal securities laws. The purchase of
the common stock was not made pursuant to an effective
registration statement.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(B) REPORTS ON FORM 8-K AND/OR 8-K/A
DATE OF REPORT ITEMS REPORTED
-------------- --------------
February 3, 2003 Item 5. Other Events
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits
35
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/ PRESTON L. VICE
------------------------------
Preston L. Vice
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
Officer)
Date: May 15, 2003
36
CERTIFICATIONS
I, Thomas L. Kemp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Penton Media Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ THOMAS L. KEMP
----------------------------
Thomas L. Kemp
Chief Executive Officer
and Director (Principal
Executive Officer)
Date: May 15, 2003
37
CERTIFICATIONS
I, Preston L. Vice, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Penton Media Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ PRESTON L. VICE
----------------------------
Preston L. Vice
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial Officer)
Date: May 15, 2003
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
99.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
39