<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number: 0-22789
CMP MEDIA INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2240940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Community Drive
Manhasset, New York 11030
(Address of principal executive offices) (Zip code)
(516) 562-5000
(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
--- ---
As of November 10, 1997, there were 23,110,386 shares of the registrant's
voting common stock issued and outstanding, of which 7,015,912 shares were Class
A Common Stock and 16,094,474 shares were Class B Common Stock.
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CMP Media Inc.
Index
Part I - Financial Information
Item 1. Financial Statements.
Condensed Consolidated Statements of Income
(Unaudited) for the three and nine months ended
September 30, 1996 and 1997 .......................................1
Condensed Consolidated Balance Sheets
(Unaudited) as of December 31, 1996 and
September 30, 1997 ................................................2
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the nine months ended September
30, 1996 and 1997 .................................................3
Notes to Unaudited Condensed Consolidated
Financial Statements ............................................4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 6-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
None.
Part II - Other Information 12
Signatures 13
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CMP Media Inc. and Subsidiaries
Condensed Consolidated Statements of Income
in thousands, except per share and share amounts
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 110,578 $ 114,179 $ 303,162 $ 341,097
Operating costs and expenses:
Cost of revenues 46,253 45,117 128,106 136,289
Selling and promotion 34,800 37,579 100,154 115,134
General and administrative 20,445 20,229 58,992 65,780
Non-recurring compensation charge -- 4,449 -- 4,449
------------ ------------ ------------ ------------
Income from operations 9,080 6,805 15,910 19,445
------------ ------------ ------------ ------------
Gain on sales of businesses 146 3,042 1,434 3,042
Other expense, net (655) (3,171) (374) (8,294)
------------ ------------ ------------ ------------
Income before provision (benefit) for
income taxes $ 8,571 $ 6,676 $ 16,970 $ 14,193
Provision (benefit) for income taxes 279 (2,939) 553 (2,689)
------------ ------------ ------------ ------------
Net income $ 8,292 $ 9,615 $ 16,417 $ 16,882
============ ============ ============ ============
Pro Forma Data:
Historical income before provision
for income taxes $ 8,571 $ 6,676 $ 16,970 $ 14,193
Pro forma provision for income taxes 3,614 2,911 7,156 6,188
------------ ------------ ------------ ------------
Pro forma net income $ 4,957 $ 3,765 $ 9,814 $ 8,005
============ ============ ============ ============
Pro forma net income per share $ 0.22 $ 0.16 $ 0.44 $ 0.35
============ ============ ============ ============
Pro forma weighted average number of
shares of common stock and common
stock equivalents 22,361,777 24,072,904 22,361,777 22,932,153
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
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CMP Media Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
in thousands, except share and per share data
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,721 $ 46,517
Accounts receivable, net 65,145 72,330
Inventories 6,091 6,674
Deferred subscription acquisition costs -- 4,773
Deferred tax asset 371 5,471
Prepaid expenses and other current assets 6,060 4,780
--------- ---------
Total current assets 84,388 140,545
--------- ---------
Property and equipment, net 26,461 27,161
Investment in and advances to unconsolidated affiliates 8,197 4,519
Intangible and other assets 4,889 5,366
--------- ---------
$ 123,935 $ 177,591
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,146 $ 26,145
S Corporation distribution payable -- 12,000
Accrued expenses and other current liabilities 33,995 34,637
Deferred revenue 11,382 10,434
--------- ---------
Total current liabilities 72,523 83,216
--------- ---------
Long-term debt 25,000 --
Deferred compensation and other liabilities 9,699 11,883
--------- ---------
Total liabilities 107,222 95,099
--------- ---------
Commitments and contingencies
Stockholders' equity:
Class A Common Stock, par value $.01 per share, 50,000,000 shares
authorized, 1,321,320 shares issued and outstanding at December 31,
1996 and 7,008,506 shares issued and outstanding at September 30, 1997 13 70
Class B Common Stock, par value $.01 per share, 20,000,000 shares
authorized, 17,553,250 shares issued and outstanding at December 31,
1996 and 16,101,064 shares issued and outstanding at September 30, 1997 176 161
Additional paid-in capital 17,843 86,284
Retained earnings 14,323 10,177
Unamortized restricted stock compensation (15,174) (13,732)
Other (468) (468)
--------- ---------
Total stockholders' equity 16,713 82,492
--------- ---------
$ 123,935 $ 177,591
========= =========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
2
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CMP Media Inc. and Subsidiaries
Consolidated Statements of Cash Flows
in thousands
(unaudited)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 16,417 $ 16,882
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation of property and equipment 5,912 6,070
Amortization of intangible assets 289 312
Write-off of property and equipment and intangible assets 857 2,601
Provision for doubtful accounts 2,283 1,787
Compensation expense under incentive plans 1,412 2,863
Gain on sales of businesses (1,434) (3,042)
Non-recurring compensation charge -- 4,449
Losses from investments in unconsolidated affiliates 462 7,850
Deferred income taxes 150 (5,100)
Cash effects of changes in assets and liabilities, net of
the effects of businesses acquired and sold:
Increase in accounts receivable (3,118) (8,972)
Decrease (increase) in inventories 5,334 (583)
Increase in deferred subscription acquisition costs (2,734) (4,773)
Decrease in prepaid expenses and other current assets 3,905 1,280
Increase in other assets (553) (1,139)
Increase (decrease) in accounts payable 5,225 (1,002)
Increase in accrued expenses and other current liabilities 4,918 642
Increase in deferred revenue 1,411 226
(Decrease) increase in other liabilities (335) 957
-------- --------
Net cash provided by operating activities 40,401 21,308
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (9,685) (9,021)
Purchase of intangible assets (150) --
Investment in and advances to unconsolidated affiliates (9,226) (4,172)
Purchase of business (2,000) --
Proceeds from sales of businesses 2,489 1,868
-------- --------
Net cash used in investing activities (18,572) (11,325)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of expenses of $8,459 -- 84,711
Borrowings under revolving credit agreement 15,550 29,475
Repayment of borrowings (20,550) (54,475)
Distributions paid to S corporation stockholders for taxes and other (14,990) (29,721)
Other financing activities (33) (177)
-------- --------
Net cash (used in) provided by financing activities (20,023) 29,813
-------- --------
Net change in cash and cash equivalents 1,806 39,796
Cash and cash equivalents at beginning of period 6,091 6,721
-------- --------
Cash and cash equivalents at end of period $ 7,897 $ 46,517
======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
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CMP Media Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except per share and share amounts)
1. Basis of Presentation
The condensed consolidated financial statements of CMP Media Inc. and
subsidiaries (the "Company") as of September 30, 1997 and for the three and nine
months ended September 30, 1996 and 1997 are unaudited but have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations for the full year.
The accompanying financial information should be read in conjunction with
the financial statements, including the notes thereto, for the year ended
December 31, 1996 included in the Company's Registration Statement on Form S-1
(File No. 333-26741). The condensed consolidated balance sheet as of December
31, 1996 has been summarized from the Company's audited consolidated balance
sheet as of that date.
2. Consummation of Initial Public Offering
On July 30, 1997, the Company closed an initial public offering (the
"Offering") of 5,485,000 shares of Class A Common Stock at an offering price of
$22.00 per share, of which 4,235,000 shares were sold by the Company and
1,250,000 shares were sold by selling stockholders. Net proceeds to the Company
after expenses of the Offering were $84,711.
The Company has used a portion of the net proceeds of the Offering to
repay outstanding debt of $21,750 under its revolving credit agreement and a
portion to pay $26,000 of an estimated $38,000 S corporation distribution
declared immediately prior to the Offering (see Note 5). The remaining net
proceeds will be used for general corporate purposes.
Prior to the consummation of the Offering, the Company declared a
35.75-for-one stock split, in the form of a stock dividend, of all classes of
its common stock and restated its certificate of incorporation to, among other
things, change the par value of all classes of its common stock from $0.10 per
share to $0.01 per share. The stock dividend and change in par value have been
given retroactive treatment in the condensed consolidated financial statements
for all periods presented.
Upon the consummation of the Offering, certain members of the founding
family of the Company made a gift from their personal holdings of 202,186 shares
of Class A Common Stock to substantially all of the employees of the Company. As
required by generally accepted accounting principles, the Company recorded, at
the date of the gift, a one-time, non-cash compensation charge of $4,449.
3. Gain on Sales of Businesses
In August 1997, the Company sold the subscriber list of NetGuide Magazine,
which was discontinued in July 1997, for approximately $3,042 in cash and
assumed liabilities. The sale resulted in a pro forma, after-tax gain of
approximately $1,716.
4
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CMP Media Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements - Continued
(in thousands, except per share and share amounts)
4. Other Expense, Net
During the nine months ended September 30, 1997, the Company recorded
charges of $3,200 to reduce the carrying value of two of its Internet
investments due to impairment. These charges are included in Other Expense, Net
in the accompanying Condensed Consolidated Statement of Income. The pro forma,
after-tax impact of these charges for the nine months ended September 30, 1997
was approximately $1,800.
5. Income Taxes
In connection with the Offering, the Company terminated its S corporation
election and declared a final S corporation distribution to stockholders of
record prior to the consummation of the Offering, which is estimated to be
approximately $38,000 (see Note 2). As a result of terminating its S corporation
election and converting to a C corporation, the Company is subject to U.S.
federal and all applicable state and local taxes. In connection with its
conversion to a C corporation, the Company recorded a cumulative deferred tax
benefit of $5,100. The unaudited pro forma provision for income taxes, unaudited
pro forma net income and unaudited pro forma net income per share are presented
as if the Company had terminated its S corporation election prior to January 1,
1996.
6. Pro Forma Net Income Per Share and Weighted Average Common Shares Outstanding
Pro forma net income per share-primary is computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding (using the Treasury Stock Method). Net income per share-fully
diluted is not presented as it is equivalent to net income per share-primary.
Common stock options issued during the twelve-month period prior to the
Offering have been included in the calculation as if they were outstanding for
all periods using the Treasury Stock Method and the initial public offering
price of $22.00 per share prior to the Offering and the average market price of
the Company's common stock subsequent to the Offering. In addition, the
calculation of shares outstanding prior to the Offering includes shares of
common stock representing the number of shares, based upon the initial public
offering price of $22.00 per share, the proceeds from which would be necessary
to pay the final S corporation distribution (see Note 5) and S corporation
distributions of approximately $10,300 made in the twelve months preceding May
31, 1997 which were in excess of net income for such twelve-month period. The
calculation of shares outstanding subsequent to the Offering is based on the
actual weighted average number of shares outstanding.
5
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
Initial Public Offering
On July 30, 1997, the Company closed the Offering of 5,485,000 shares of
Class A Common Stock at an offering price of $22.00 per share of which 4,235,000
shares were sold by the Company and 1,250,000 shares were sold by selling
stockholders. Net proceeds to the Company after expenses of the Offering were
approximately $84.7 million. See "Liquidity and Capital Resources".
Results of Operations
The following table sets forth, for the periods indicated, items within
the Company's condensed consolidated statements of income as a percentage of
revenues for each period. This table and the subsequent discussion should be
read in conjunction with the condensed consolidated financial statements and the
notes thereto contained elsewhere in this Form 10-Q.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
-------------------- -------------------
1996 1997 1996 1997
-------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of revenues ..................... 41.8% 39.5% 42.3% 40.0%
Selling and promotion ................ 31.5% 32.9% 33.0% 33.7%
General and administrative ........... 18.5% 17.7% 19.5% 19.3%
Non-recurring compensation charge .... -- 3.9% -- 1.3%
-------- -------- -------- --------
Income from operations ..................... 8.2% 6.0% 5.2% 5.7%
Gain on sales of businesses ................ 0.1% 2.7% 0.5% 0.9%
Other expense, net ......................... (0.6%) (2.8%) (0.1%) (2.4%)
-------- -------- -------- --------
Income before pro forma provision for
income taxes ........................... 7.7% 5.9% 5.6% 4.2%
Pro forma provision for income
taxes (1) .............................. 3.2% 2.6% 2.4% 1.9%
-------- -------- -------- --------
Pro forma net income (1) ................... 4.5% 3.3% 3.2% 2.3%
======== ======== ======== ========
</TABLE>
- ----------
(1) Pro forma provision for income taxes is presented as if the Company had
changed its tax status from an S corporation to a C corporation prior to
January 1, 1996.
6
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Three Months Ended September 30, 1997 Compared with Three Months Ended September
30, 1996
Revenues. Revenues for the three months ended September 30, 1997 increased
$3.6 million, or 3.3%, to $114.2 million compared with $110.6 million for the
same period in 1996. The improvement was primarily attributable to increases in
advertising yield (advertising revenue per page), increased revenues from the
Company's Internet services and increases in the number of advertising pages in
the Company's print publications. Total advertising pages increased 3.7% to
10,142 pages, primarily due to advertising page increases for Computer Reseller
News, InformationWeek, and Network Computing, partially offset by advertising
page decreases for CommunicationsWeek, which was re-launched in September 1997
as InternetWeek; also, NetGuide Magazine ceased publication in July 1997. The
overall increase in revenues was partially offset by the discontinuance of the
Company's conference business in the fourth quarter of 1996.
Operating Costs and Expenses. Cost of revenues for the three months ended
September 30, 1997 decreased $1.2 million, or 2.6%, to $45.1 million compared
with $46.3 million for the same period in 1996, primarily as a result of
decreased paper and distribution costs partially offset by increased editorial
costs for the Company's print publications, as well as increased costs
attributable to the Company's Internet services. The decrease in distribution
costs was due to the closing of NetGuide Magazine during the quarter. However,
cost of revenues as a percentage of revenues decreased to 39.5% in the third
quarter of 1997 from 41.8% in the third quarter of 1996. This resulted primarily
from higher revenues resulting from increased advertising yield and advertising
pages without a corresponding increase in cost of revenues for certain of the
Company's print publications, as well as the closing of NetGuide Magazine which
had higher expense ratios than several of the Company's other print
publications. Cost of revenues include production, paper, editorial,
distribution and fulfillment costs.
Selling and promotion expenses for the three months ended September 30,
1997 increased by $2.8 million, or 8.0%, to $37.6 million compared with $34.8
million for the same period in 1996. The increase was primarily attributable to
higher commission and sales force costs of approximately $1.8 million associated
with increased revenues in the third quarter of 1997 as compared to the third
quarter of 1996, increased sales efforts associated with the Company's Internet
services, partially offset by decreased selling and promotion costs due to the
closing of NetGuide Magazine, as well as increased promotion and circulation
costs. Selling and promotion expenses as a percentage of revenues increased to
32.9% in the third quarter of 1997 from 31.5% in the third quarter of 1996. This
was principally due to costs associated with the Company's Internet services,
which currently have higher expense ratios than the Company's print
publications.
General and administrative expenses for the three months ended September
30, 1997 decreased $0.2 million, or 1.0%, to $20.2 million compared with $20.4
million for the same period in 1996 primarily as a result of the
discontinuance of the Company's conference business in the fourth quarter of
1996. General and administrative expenses as a percentage of revenues decreased
to 17.7% in the third quarter of 1997 from 18.5% in the third quarter of 1996
primarily as a result of increased revenues and the decrease in general and
administrative expenses.
Non-recurring Compensation Charge. Upon the consummation of the Offering,
certain members of the founding family of the Company made a gift from their
personal holdings of 202,186 shares of Class A Common Stock to substantially all
of the employees of the Company. In connection with this gift, the Company
recorded a one-time, non-cash compensation charge of $4.4 million.
Gain on Sales of Businesses. The gain on sale of $3.0 million in the third
quarter of 1997 was attributable to the sale of the subscriber list of the
discontinued publication, NetGuide Magazine.
Other Expense, Net. Other expense, net for the three months ended
September 30, 1997 increased $2.5 million to $3.2 million compared with $0.7
million for the same period in 1996, primarily as a result of increased losses
from the Company's equity investments of $3.4 million, including a $2.0 million
charge to write-off the remaining carrying value of one of the Company's
Internet investments due to
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impairment, partially offset by foreign exchange gains and a reduction in
interest expense due to the repayment in full of borrowings under the Company's
revolving credit agreement and interest income earned on short term investments.
The Company's equity investments are primarily in international publications and
start-up Internet services and technology companies.
Provision for Income Taxes. Prior to changing its tax election from S
corporation to C corporation, the Company and certain affiliates had elected to
be treated as S corporations for U.S. federal income tax purposes, which
required that the income or loss for federal and certain state and local
jurisdictions be recognized by the stockholders. In connection with the Offering
(see "Liquidity and Capital Resources"), the Company terminated its S
corporation election and became a C corporation. If the Company and certain
affiliates had been C corporations for the three months ended September 30, 1997
and 1996, the effective income tax rate would have been 43.6% and 42.2%,
respectively.
Nine months Ended September 30, 1997 Compared with Nine months Ended September
30, 1996
Revenues. Revenues for the nine months ended September 30, 1997 increased
$37.9 million, or 12.5%, to $341.1 million compared with $303.2 million for the
same period in 1996. The improvement was primarily attributable to increases in
advertising yield and in the number of advertising pages as well as increased
revenues from the Company's Internet services. Total advertising pages increased
6.5% to 29,486 pages, primarily due to advertising page increases for Computer
Reseller News, InformationWeek, Network Computing and Electronic Buyers' News,
partially offset by advertising page decreases for Electronic Engineering Times,
CommunicationsWeek, which was re-launched in September 1997 as InternetWeek, and
Computer Retail Week. Revenues from Internet services for the nine months ended
September 30, 1997 represented approximately 3% of the Company's total revenues
for that period. These Internet services revenues were triple those of the same
period last year; however this growth was less than expected. The Company is
expecting that revenues from Internet services for the fourth quarter of 1997
may be approximately $2 million to $4 million less than previously anticipated.
Operating Costs and Expenses. Cost of revenues for the nine months ended
September 30, 1997 increased $8.2 million, or 6.4%, to $136.3 million compared
with $128.1 million for the same period in 1996, primarily as a result of
increased editorial, distribution and fulfillment costs, as well as higher costs
attributable to the Company's Internet services, partially offset by decreased
paper costs for the Company's print publications. However, cost of revenues as a
percentage of revenues decreased to 40.0% in the first nine months of 1997 as
compared to 42.3% in the first nine months of 1996, primarily as a result of
higher revenues resulting from increased advertising yield and advertising pages
without a corresponding increase in cost of revenues for certain of the
Company's print publications.
Selling and promotion expenses for the nine months ended September 30,
1997 increased by $14.9 million, or 14.9%, to $115.1 million compared with
$100.2 million for the same period in 1996. The increase was primarily
attributable to higher commission and sales force costs of approximately $7.1
million associated with increased revenues in the first nine months of 1997 as
compared to the first nine months of 1996, increased selling and promotion costs
of approximately $5.3 million for the Company's Internet services and increased
circulation and promotion costs partially offset by decreased costs related to
the Company's conference business, which was discontinued in the fourth quarter
of 1996. Selling and promotion expenses as a percentage of revenues increased to
33.8% in the first nine months of 1997 from 33.0% in the first nine months of
1996.
General and administrative expenses for the nine months ended September
30, 1997 increased $6.8 million, or 11.5%, to $65.8 million compared with $59.0
million for the same period in 1996, primarily due to costs of approximately
$2.4 million related to a reduction in the Company's work force, mainly at the
corporate level, but also in the Company's personal computing publications,
WINDOWS Magazine, Home PC and NetGuide Magazine, and NetGuide (the on-line
service), plus increased costs associated with higher staffing levels, as well
as higher depreciation expense. General and administrative expenses
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as a percentage of revenues was 19.3% for the first nine months of 1997 compared
to 19.5% for the first nine months of 1996.
Non-recurring Compensation Charge. Upon the consummation of the Offering,
certain members of the founding family of the Company made a gift from their
personal holdings of 202,186 shares of Class A Common Stock to substantially all
of the employees of the Company. In connection with this gift, the Company
recorded a one-time, non-cash compensation charge of $4.4 million.
Gain on Sales of Businesses. The gain on sale of $3.0 million for the nine
months ended September 30, 1997 was attributable to the sale of the circulation
list of the discontinued publication, NetGuide Magazine. The gain on sale of
$1.4 million for the nine months ended September 30, 1996 was realized primarily
from the sale of the Company's CommunicationsWeek International publication in
February 1996.
Other Expense, Net. Other Expense, Net for the nine months ended September
30, 1997 increased $7.9 million to $8.3 million compared with $0.4 million for
the same period in 1996, primarily as a result of increased losses from the
Company's equity investments of approximately $7.7 million, including charges of
$3.2 million to reduce the carrying value of certain of its Internet services
investments due to impairment, as well as higher interest expense.
Provision for Income Taxes. If the Company and certain affiliates had been
C corporations for the nine months ended September 30, 1997 and 1996, the
effective income tax rate would have been 43.6% and 42.2%, respectively.
Liquidity and Capital Resources
The Company has traditionally required relatively low levels of working
capital to operate its business. Working capital was $57.3 million at September
30, 1997 and $11.9 million at December 31, 1996. The increase in working capital
was primarily attributable to the net proceeds of the Offering, borrowings under
the Company's revolving credit agreement and earnings for the nine months ended
September 30, 1997, partially offset by repayments of borrowings and
distributions to S corporation stockholders for taxes and other. Accounts
receivable, net were $72.3 million at September 30, 1997 and $65.1 million at
December 31, 1996. Days sales outstanding was 56.0 at September 30, 1997 and
53.3 at December 31, 1996. Paper inventories were $6.7 million at September 30,
1997 and $6.1 million at December 31, 1996.
Cash provided by operating activities was $21.3 million and $40.4 million
for the nine months ended September 30, 1997 and 1996, respectively. The
significant decrease was primarily due to changes in working capital, the most
significant of which were accounts receivable, inventory and accounts payable as
well as increased losses from investments in unconsolidated affiliates, the
change in deferred taxes and the non-recurring compensation charge.
Investing activities during the nine months ended September 30, 1997 used
$11.3 million, consisting of $9.0 million in capital expenditures and $4.2
million in investments in and advances to entities in which the Company has
equity investments, partially offset by $1.9 million in proceeds from the sale
of the subscriber list of NetGuide Magazine. Investing activities during the
nine months ended September 30, 1996 used $18.6 million, consisting primarily of
$9.7 million in capital expenditures and $9.2 million in investments in and
advances to Internet services and other entities in which the Company has
investments. The Company expects total capital expenditures for 1997 to continue
at a similar pace to 1996 and to consist primarily of computer equipment for
business unit and corporate use.
Financing activities during the nine months ended September 30, 1997
provided $29.8 million, consisting primarily of $84.7 million in net proceeds
from the Offering and $29.5 million of borrowings under the Company's revolving
credit agreement, partially offset by $54.5 million of repayments of
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borrowings and $29.7 million of cash distributions to the Company's stockholders
of record prior to the Offering, a significant portion of which will be used to
pay taxes such stockholders will owe on the Company's income attributable to
them as stockholders of an S corporation. Financing activities for the nine
months ended September 30, 1996 used $20.0 million, consisting primarily of
$20.6 million of repayments of borrowings, $15.0 million of cash distributions
to the Company's stockholders for taxes and other, partially offset by $15.6 of
borrowings under the Company's revolving credit agreement. The Company had no
borrowings under its revolving credit agreement as of September 30, 1997 and
$25.0 million of borrowings as of December 31, 1996.
The Company's revolving credit agreement, as amended, with two financial
institutions provides for borrowings of up to $75 million. Borrowings are
unsecured and bear interest at either (i) LIBOR plus .35% to .825% depending on
outstanding loan balances and the Company's earnings levels, or (ii) the prime
rate. The agreement, as amended, contains certain negative covenants regarding
minimum levels of net worth, fixed coverage and limitations on indebtedness.
In April 1997, the Company guaranteed loans totaling $4.7 million to two
of its senior executives to pay taxes in connection with their purchase of Class
A Common Stock from the Co-Chairpersons of the Company. The loans are from one
of the financial institutions with which the Company has its revolving credit
agreement. These loans will be payable in November 2001 and are guaranteed
through such date. The Company is obligated to extend the guarantees for $3.0
million and $1.7 million through December 31, 2005 and December 31, 2007,
respectively, at the request of the senior executives.
In connection with the Offering, the Company terminated its S corporation
election and declared a final S corporation distribution to its stockholders of
record prior to the Offering, estimated to be approximately $38 million, a
significant portion of which will be used by such stockholders to pay taxes they
will owe on the Company's income attributable to them as stockholders of an S
corporation. The Company has used a portion of the net proceeds of the Offering
to pay $26 million of the estimated $38 million final S corporation distribution
and a portion to repay approximately $21.8 million outstanding under its
revolving credit agreement at the time of the Offering. The remaining net
proceeds are currently held in short term investments. The Company plans to use
the remaining net proceeds of the Offering for general corporate purposes.
The Company's working capital requirements and costs associated with new
product development have been met by cash flow from operations and short-term
borrowings under its existing revolving credit facility. Management believes
sufficient cash resources will be available to support its long-term growth
strategies through internally generated funds, the proceeds of the Offering and
existing credit arrangements. However, no assurance can be given that financing
will continue to be available on favorable terms.
Seasonality
The Company has typically incurred operating losses in the first quarter
of each year, but generally has earned profits in each of the remaining
quarters. First quarter losses have been primarily due to lower than average
advertising sales during the quarter and relatively even distribution of certain
costs throughout the year. First-quarter losses have varied from year-to-year
due to a variety of factors, including the timing of new product launches and
price increases from suppliers.
Fourth-quarter revenues and income from operations of the Company have
traditionally been more favorable than those of the preceding quarters as a
result of a tendency of technology advertisers to place more advertising in the
latter part of the year and the scheduling of major technology industry trade
shows in the fourth quarter. While operating results for any quarter are not
necessarily indicative of results for any future period, the Company expects
that these quarterly trends will continue for the foreseeable future.
10
<PAGE> 13
Inflation and Volatility of Paper Prices
The Company continually reviews the impact of inflation and the volatility
of paper prices. In early 1995, a postal rate increase went into effect, which
was the first such increase since 1991. Paper prices rose significantly in 1995,
dropped in 1996 and have decreased slightly through mid-1997 and increased
minimally in recent months. The Company will continue to monitor the impact of
inflation and paper rices and will consider these matters in setting its
pricing policies. There can be no assurance that the Company can recoup paper
price increases by passing them through to its advertisers and readers. In
addition, the Company continually reviews its purchasing and manufacturing
processes for opportunities to reduce costs and mitigate the impact of paper
and postage increases (such as purchasing lighter-grade paper stock or, when
paper prices are at cyclical lows, increasing paper inventory or entering into
longer term contracts with suppliers). However, the Company has not entered,
and does not currently plan to enter, into forward contracts. The Company also
takes advantage of various postal discounts. However, unexpected or significant
increases in paper prices may have an adverse affect on the Company's future
financial position, results of operations and cash flows.
Forward-Looking Statements
This report contains forward-looking statements regarding matters that are
subject to risks and uncertainties. Forward-looking statements include, among
others, information regarding the Company's anticipated revenues. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in Section 21E of the Securities Exchange
Act of 1934, as amended. The Company's results could differ materially from
those discussed in each forward-looking statement due to various factors which
are outside the Company's control, including a reduction in demand for
advertising by technology advertisers, competition from other media companies
for audience and advertising revenue, market acceptance and penetration of new
products and services, and material adverse changes in general economic
conditions. For a more detailed discussion of these factors and others, see the
"Risk Factors" section of the Company's Prospectus filed as part of its
Registration Statement on Form S-1 (File No. 333-26741).
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"), which simplifies existing computational guidelines, revises
disclosure requirements and increases the comparability of earnings-per-share
data on an international basis. SFAS No. 128 is effective for financial
statements for periods ending after December 15, 1997 and requires restatement
of all prior-period earnings-per-share data presented. The Company is currently
evaluating the new statement; however, the impact of adoption of SFAS No. 128 on
the Company's financial statements is not expected to be significant.
11
<PAGE> 14
Part II - Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
The Company's Registration Statement on Form S-1 (File No. 333-26741) was
declared effective by the Securities and Exchange Commission (the "Commission")
on July 24, 1997. On July 30, 1997, the Company closed the initial public
offering of its Class A Common Stock, par value $.01 per share (the "Offering").
The representatives of the underwriters for the Offering were Goldman, Sachs &
Co., Lazard Freres & Co. Inc., Bear Stearns & Co. Inc., Furman Selz LLC and each
of their respective international affiliates. Of the 5,485,000 shares of Class A
Common Stock sold in the Offering, 4,235,000 shares were sold by the Company and
1,250,000 shares were sold by selling stockholders. The Company did not receive
any proceeds from the sale of shares by the selling stockholders. The gross
proceeds to the Company from the Offering were approximately $93.2 million and
the aggregate underwriting discount was approximately $6.5 million. After
deducting expenses of the Offering, net proceeds received by the Company were
approximately $84.7 million. As of September 30, 1997, the Company has used a
portion of such proceeds to pay $26 million of the estimated $38 million final S
corporation distribution and approximately $21.8 million to repay indebtedness
outstanding under its revolving credit agreement.
Item 3. Defaults Upon 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
*3.3 Restated Certificate of Incorporation of CMP Media Inc.
*3.4 Amended and Restated By-laws of CMP Media Inc.
*4.1 Reference is made to Exhibits 3.3 and 3.4
*4.2 Specimen Class A Common Stock certificate
*4.3 1997 Stockholders' Agreement
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
- ----------
* Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1 of CMP Media Inc., as amended (Commission File No.
333-26741).
(b) Reports on Form 8-K
None.
12
<PAGE> 15
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CMP MEDIA INC.
November 14, 1997 By:/s/ Joseph E. Sichler
------------------------------------
Joseph E. Sichler
Vice President and Chief Financial Officer
(Principal Accounting Officer)
13
<PAGE> 16
EXHIBIT INDEX
*3.3 Restated Certificate of Incorporation of CMP Media Inc.
*3.4 Amended and Restated By-laws of CMP Media Inc.
*4.1 Reference is made to Exhibits 3.3 and 3.4
*4.2 Specimen Class A Common Stock certificate
*4.3 1997 Stockholders' Agreement
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
* Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1 of CMP Media Inc., as amended (Commission File No.
333-26741).
<PAGE> 1
Exhibit 11
CMP Media Inc. and Subsidiaries
Computation of Pro Forma Net Income Per
Common and Common Equivalent Share
(in thousands, except share amounts)
unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Historical income before provision for income taxes $ 8,571 $ 6,676 $ 16,970 $ 14,193
Pro forma provision for income taxes assuming
change in tax status to C corporation prior to
January 1, 1996 3,614 2,911 7,156 6,188
----------- ----------- ----------- -----------
Pro forma net income applicable to common and
common equivalent shares $ 4,957 $ 3,765 $ 9,814 $ 8,005
=========== =========== =========== ===========
Primary shares:
Weighted average number of common stock and
common stock equivalents outstanding:
Common stock 18,874,570 21,697,904 18,874,570 19,815,681
Options 1,291,753 1,643,182 1,291,753 1,408,896
Shares required to be issued to pay S corporation
Distribution 1,727,273 575,758 1,727,273 1,343,435
Shares required to be issued to pay S corporation
distributions in excess of earnings during the
previous twelve months 468,181 156,060 468,181 364,141
----------- ----------- ----------- -----------
22,361,777 24,072,904 22,361,777 22,932,153
=========== =========== =========== ===========
Fully diluted shares:
Weighted average number of common stock and
common stock equivalents outstanding:
Common stock 18,874,570 21,697,904 18,874,570 19,815,681
Options 1,291,753 1,643,182 1,291,753 1,408,896
Shares required to be issued to pay S corporation
Distribution 1,727,273 575,758 1,727,273 1,343,435
Shares required to be issued to pay S corporation
distributions in excess of earnings during the
previous twelve months 468,181 156,060 468,181 364,141
----------- ----------- ----------- -----------
22,361,777 24,072,904 22,361,777 22,932,153
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 46,517
<SECURITIES> 0
<RECEIVABLES> 75,671
<ALLOWANCES> 3,341
<INVENTORY> 6,674
<CURRENT-ASSETS> 140,545
<PP&E> 47,164
<DEPRECIATION> 20,003
<TOTAL-ASSETS> 177,591
<CURRENT-LIABILITIES> 83,216
<BONDS> 0
0
0
<COMMON> 231
<OTHER-SE> 82,261
<TOTAL-LIABILITY-AND-EQUITY> 177,591
<SALES> 341,097
<TOTAL-REVENUES> 341,097
<CGS> 136,289
<TOTAL-COSTS> 321,652
<OTHER-EXPENSES> 5,252
<LOSS-PROVISION> 1,787
<INTEREST-EXPENSE> 639
<INCOME-PRETAX> 14,193
<INCOME-TAX> (2,689)
<INCOME-CONTINUING> 16,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,882
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
