<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 JUNE 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___ No X
As of August 15, 1997, there were 23,109,570 shares of the
registrant's voting common stock issued and outstanding, of which 7,016,320
shares were Class A Common Stock and 16,093,250 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 six months ended June 30, 1996 and 1997.........1
Condensed Consolidated Balance Sheets (Unaudited)
as of December 31, 1996 and June 30, 1997.........................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 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. 6-10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II - OTHER INFORMATION 11
SIGNATURES 12
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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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------------- -------------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 107,674 $ 125,004 $ 192,584 $ 226,918
Operating costs and expenses:
Cost of revenues 43,749 48,231 81,853 91,172
Selling and promotion 36,026 40,526 65,354 77,555
General and administrative 18,675 22,664 38,547 45,552
------------ ------------ ------------ ------------
Income from operations 9,224 13,583 6,830 12,639
------------ ------------ ------------ ------------
Gain on sales of businesses 72 -- 1,288 --
Other income (expense), net (95) (2,076) 281 (5,123)
------------ ------------ ------------ ------------
Income before provision for
income taxes $ 9,201 $ 11,507 $ 8,399 $ 7,516
Provision for income taxes 300 383 274 250
------------ ------------ ------------ ------------
Net income $ 8,901 $ 11,124 $ 8,125 $ 7,266
============ ============ ============ ============
Pro Forma Data:
Historical income before provision
for income taxes $ 9,201 $ 11,507 $ 8,399 $ 7,516
Pro forma provision for income taxes 3,880 5,017 3,542 3,277
------------ ------------ ------------ ------------
Pro forma net income $ 5,321 $ 6,490 $ 4,857 $ 4,239
============ ============ ============ ============
Pro forma net income per share $ 0.24 $ 0.29 $ 0.22 $ 0.19
============ ============ ============ ============
Pro forma weighted average number of
shares of common stock and common
stock equivalents 22,361,777 22,361,777 22,361,777 22,361,777
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
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CMP MEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,721 $ --
Accounts receivable, net 65,145 77,733
Inventories 6,091 6,318
Deferred subscription acquisition costs -- 5,242
Prepaid expenses and other current assets 6,431 4,782
--------- ---------
Total current assets 84,388 94,075
--------- ---------
Property and equipment, net 26,461 27,141
Investment in and advances to unconsolidated affiliates 8,197 5,656
Intangible and other assets 4,889 4,628
--------- ---------
$ 123,935 $ 131,500
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,146 $ 28,843
Accrued expenses and other current liabilities 33,995 28,401
Deferred revenue 11,382 12,854
--------- ---------
Total current liabilities 72,523 70,098
--------- ---------
Long-term debt 25,000 28,750
Deferred compensation and other liabilities 9,699 11,410
--------- ---------
Total liabilities 107,222 110,258
--------- ---------
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
Class B Common Stock, par value $.01 per share, 13 13
20,000,000 shares authorized, 17,553,250 shares issued
and outstanding 176 176
Additional paid-in capital 17,843 17,860
Retained earnings 14,323 17,874
Unamortized restricted stock compensation (15,174) (14,213)
Other (468) (468)
--------- ---------
Total stockholders' equity 16,713 21,242
--------- ---------
$ 123,935 $ 131,500
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE> 5
CMP MEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------------
1996 1997
-------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 18,246 $ (1,144)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment and intangible assets (5,939) (6,369)
Investment in and advances to unconsolidated affiliates (6,926) (1,867)
Purchase of business (2,000)
Proceeds from sales of businesses 2,304
-------- --------
Net cash used in investing activities (12,561) (8,236)
-------- --------
Cash flows from financing activities:
Borrowings under revolving credit agreement 14,550 29,470
Repayment of borrowings (9,550) (25,720)
Distributions paid to S corporation stockholders for taxes and other (11,378) (3,715)
Increase in book overdraft 2,735
Other financing activities 8 (111)
-------- --------
Net cash provided by (used in) financing activities (6,370) 2,659
-------- --------
Net change in cash and cash equivalents (685) (6,721)
Cash and cash equivalents at beginning of period 6,091 6,721
-------- --------
Cash and cash equivalents at end of period $ 5,406 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 6
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 June 30, 1997 and for the three and six
months ended June 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 Form S-1. 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 5,000,000 shares of Class A Common Stock at an offering price of
$22 per share, of which 3,750,000 shares were sold by the Company and 1,250,000
shares were sold by selling shareholders. The Company sold an additional 485,000
shares at $22 per share pursuant to the exercise of an over-allotment option by
the underwriters of the Offering. Net proceeds to the Company after expenses of
the Offering were approximately $85,100.
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 3). The remaining net
proceeds will be used for general corporate purposes. As of June 30, 1997, on a
pro forma basis giving effect to the payment of this distribution, Stockholders'
equity would have been a deficit of $16,758.
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 approximately
210,000 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 which will reduce income before provision for income taxes for the three
months ended September 30, 1997 by approximately $4,600.
4
<PAGE> 7
CMP MEDIA INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
3. INCOME TAXES
In connection with the Offering, the Company terminated its S
corporation election and declared a final S corporation distribution to its
stockholders, 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. 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.
4. 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). 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. In addition,
the calculation 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 referenced in Note 2. above 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. Net income per
share-fully diluted is not presented as it is equivalent to net income per
share-primary.
5
<PAGE> 8
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 5,000,000 shares
of Class A Common Stock at an offering price of $22 per share of which 3,750,000
shares were sold by the Company and 1,250,000 shares were sold by selling
shareholders. The Company sold an additional 485,000 shares at $22 per share
pursuant to the exercise of an over-allotment option by the underwriters of the
Offering. Net proceeds to the Company after expenses of the Offering were
approximately $85.1 million. See "Liquidity and Capital Resources".
Upon the consummation of the Offering, certain members of the founding
family of the Company made a gift from their personal holdings of approximately
210,000 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 which will reduce income before provision for income taxes for the three
months ended September 30, 1997 by approximately $4.6 million.
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 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 40.6 38.6 42.5 40.2
Selling and promotion 33.5 32.4 33.9 34.2
General and administrative 17.3 18.1 20.0 20.1
------ ------ ------ ------
Income from operations 8.6 10.9 3.5 5.6
Gain on sales of businesses 0.1 -- 0.7 --
Other income (expense), net (0.1) (1.7) 0.1 (2.3)
------ ------ ------ ------
Income before pro forma provision for
income taxes 8.5 9.2 4.4 3.3
Pro forma provision for income
taxes (1) 3.6 4.0 1.8 1.4
------ ------ ------ ------
Pro forma net income (1) 4.9% 5.2% 2.5% 1.9%
====== ====== ====== ======
</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
<PAGE> 9
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues for the three months ended June 30, 1997 increased
$17.3 million, or 16.1%, to $125.0 million compared with $107.7 million for the
same period in 1996. The improvement was primarily attributable to increases in
advertising yield (advertising revenue per page) and in the number of
advertising pages as well as increases in revenues from the Company's Internet
services. Total advertising pages increased 10.3% to 10,776 pages, primarily due
to advertising page increases for Computer Reseller News, InformationWeek,
Electronic Buyers' News and WINDOWS Magazine, partially offset by advertising
page decreases for Electronic Engineering Times and CommunicationsWeek.
OPERATING COSTS AND EXPENSES. Cost of revenues for the three months
ended June 30, 1997 increased $4.5 million, or 10.2%, to $48.2 million compared
with $43.7 million for the same period in 1996, primarily as a result of
increased editorial costs of approximately $1.5 million and increased costs
attributable to the Company's Internet services of approximately $2.2 million,
as well as higher distribution and fulfillment costs, partially offset by
decreased paper costs for the Company's print publications. However, cost of
revenues as a percentage of revenues decreased to 38.6% in the second quarter of
1997 as compared to 40.6% in the second quarter 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. Cost of revenues include production, paper,
editorial, distribution and fulfillment costs.
Selling and promotion expenses for the three months ended June 30, 1997
increased by $4.5 million, or 12.5%, to $40.5 million compared with $36.0
million for the same period in 1996. The increase was primarily attributable to
higher commission and sales force costs of approximately $3.4 million associated
with increased revenues in the second quarter of 1997 as compared to the second
quarter of 1996 and planned increases in circulation costs of approximately $1.1
million in the second quarter of 1997. Selling and promotion expenses as a
percentage of revenues decreased to 32.4% in the second quarter of 1997 from
33.5% in the second quarter of 1996. This was principally due to higher revenues
without a corresponding increase in selling and promotion expense for certain of
the Company's print publications.
General and administrative expenses for the three months ended June 30,
1997 increased $4.0 million, or 21.4%, to $22.7 million compared with $18.7
million for the same period in 1996, primarily due to increased costs associated
with higher staffing levels, as well as higher fixed asset depreciation and
disposal losses. General and administrative expenses as a percentage of revenues
increased to 18.1% in the first quarter of 1997 from 17.3% in the first quarter
of 1996.
OTHER INCOME (EXPENSE), NET. Other expense, net for the three months
ended June 30, 1997 increased $2.0 million to $2.1 million compared with $0.1
million for the same period in 1996, primarily as a result of increased losses
from the Company's equity investments of $1.7 million and higher interest
expense due to higher levels of debt, partially offset by lower foreign exchange
losses. The Company's equity investments are primarily in international
publications and start-up Internet services and technology companies.
PROVISION FOR INCOME TAXES. The Company and certain affiliates elected
to be treated as S corporations for U.S. federal income tax purposes, which
requires that the income or loss for federal and certain state and local
jurisdictions be recognized by the stockholders. Had the Company and certain
affiliates been C corporations for the three months ended June 30, 1997 and
1996, the effective income tax rate would have been 43.6% and 42.2%,
respectively.
7
<PAGE> 10
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues for the six months ended June 30, 1997 increased
$34.3 million, or 17.8%, to $226.9 million compared with $192.6 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 increases in
revenues from the Company's Internet services. Total advertising pages increased
8.1% to 19,344 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
and Computer Retail Week.
OPERATING COSTS AND EXPENSES. Cost of revenues for the six months ended
June 30, 1997 increased $9.3 million, or 11.4%, to $91.2 million compared with
$81.9 million for the same period in 1996, primarily as a result of increased
editorial costs of approximately $4.3 million and increased distribution,
production and fulfillment costs, partially offset by decreased paper costs for
the Company's print publications as well as higher costs attributable to the
Company's Internet services. However, cost of revenues as a percentage of
revenues decreased to 40.2% in the first six months of 1997 as compared to 42.5%
in the first six 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, partially offset by costs
attributable to NetGuide and Techweb, which currently have higher expense ratios
than the Company's print publications.
Selling and promotion expenses for the six months ended June 30, 1997
increased by $12.2 million, or 18.7%, to $77.6 million compared with $65.4
million for the same period in 1996. The increase was primarily attributable to
higher commission and sales force costs of approximately $7.9 million associated
with increased revenues in the first six months of 1997 as compared to the first
six months of 1996 and planned increases in circulation costs of approximately
$2.8 million in the first six months of 1997. Selling and promotion expenses as
a percentage of revenues increased to 34.2% in the first six months of 1997 from
33.9% in the first six months of 1996. This was principally due to costs
associated with the Company's Internet services, which have higher expense
ratios than the Company's print publications.
General and administrative expenses for the six months ended June 30,
1997 increased $7.0 million, or 18.2%, to $45.6 million compared with $38.6
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, increased costs
associated with higher staffing levels, as well as higher fixed asset
depreciation and disposal losses. General and administrative expenses as a
percentage of revenues was 20.1% for the first six months of 1997 compared to
20.0% for the first six months of 1996.
OTHER INCOME (EXPENSE), NET. Other expense, net for the six months
ended June 30, 1997 increased $5.4 million to $5.1 million of other expense, net
compared with $0.3 million of other income, net for the same period in 1996,
primarily as a result of increased losses from the Company's equity investments
of approximately $4.3 million, including a $1.2 million charge to reduce the
carrying value of certain of its Internet services investments due to
impairment, and higher interest expense due to higher levels of debt, partially
offset by lower foreign exchange losses.
PROVISION FOR INCOME TAXES. Had the Company and certain affiliates been
C corporations for the six months ended June 30, 1997 and 1996, the effective
income tax rate would have been 43.6% and 42.2%, respectively.
8
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company has traditionally required relatively low levels of working
capital to operate its business. Working capital was $24.0 million at June 30,
1997 and $11.9 million at December 31, 1996. The increase in working capital was
primarily attributable to earnings for the six months ended June 30, 1997 and
borrowings under the Company's revolving credit agreement, partially offset by
capital expenditures and distributions to S corporation stockholders for taxes
and other. Accounts receivable, net were $77.7 million at June 30, 1997 and
$65.1 million at December 31, 1996. Days sales outstanding was 52.4 at June 30,
1997 and 53.3 at December 31, 1996. Paper inventories were $6.3 million at June
30, 1997 and $6.1 million at December 31, 1996.
Cash (used in) provided by operating activities was $(1.1) million and
$18.2 million for the six months ended June 30, 1997 and 1996, respectively. The
significant decrease was primarily due to changes in working capital, the most
significant of which were accounts receivable, accounts payable and accrued
expenses and other current liabilities.
Investing activities during the six months ended June 30, 1997 used
$8.2 million, consisting of $6.4 million in capital expenditures and $1.8
million in investments in and advances to Internet services and other companies
in which CMP has equity investments. Investing activities during the six months
ended June 30, 1996 used $12.6 million, consisting primarily of $5.9 million in
capital expenditures and the purchase of intangible assets and $6.9 million in
investments in and advances to Internet services and other companies in which
CMP has investments. The Company expects total capital expenditures for 1997 to
continue at least at the pace of 1996 and to consist primarily of computer
equipment for business unit and corporate use.
The Company made cash distributions to its stockholders of $3.7 million
and $11.4 million during the six months ended June 30, 1997 and 1996,
respectively, to fund taxes owed by the stockholders on the Company's income
attributable to them as stockholders of an S corporation. The Company's
borrowings under its revolving credit agreement as of June 30, 1997 were $28.8
million and as of December 31, 1996 were $25.0 million.
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. Borrowings outstanding at June 30, 1997 are due November 14, 2001.
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.
In connection with the Offering, the Company terminated its S
corporation election and declared a final S corporation distribution to its
stockholders, estimated to be approximately $38 million, a significant portion
of which will be used by the stockholders of the Company 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 $21.8 million outstanding under its revolving credit
agreement at the time of the Offering. 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
9
<PAGE> 12
facility. Management believes sufficient cash resources will be available to
support its long-term growth strategies through internally generated funds,
existing credit arrangements and the proceeds of the Offering. 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.
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 began to rise
in 1994, rose significantly in 1995, dropped in 1996 and have decreased slightly
in 1997. The Company will continue to monitor the impact of inflation and paper
prices 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
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements which are subject to
various risks and uncertainties. Actual results could differ materially from
those discussed herein. Important factors that could cause or contribute to such
differences include those discussed under the caption "Risk Factors" in the
Prospectus contained in the Company's 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.
10
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
On July 30, 1997, the Company closed an initial public offering of its
Class A Common Stock, par value $0.01 per share (the "Offering"). Of the
5,485,000 shares of Class A Common Stock sold in the Offering, 4,388,000 shares
were offered and sold in the United States (the "U.S. Offering") pursuant to a
Registration Statement on Form S-1 (File No. 333-26741) which was declared
effective July 24, 1997, and 1,097,000 shares were offered and sold in a
concurrent international offering outside the United States (the "International
Offering") pursuant to an exemption from registration provided by Regulation S
promulgated under the Securities Act of 1933, as amended. The initial public
offering price per share and the underwriting discount per share were identical
in both the U.S. Offering and the International Offering. The representatives of
the underwriters in the International Offering were Goldman Sachs International,
Lazard Capital Markets, Bear, Stearns International Limited and Furman Selz LLC.
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.
11
<PAGE> 14
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.
August 21, 1997 By: /s/ Joseph E. Sichler
---------------------
Joseph E. Sichler
Vice President and Chief Financial Officer
(Principal Accounting Officer)
12
<PAGE> 15
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Historical income before provision for income taxes $ 9,201 $ 11,507 $ 8,399 $ 7,516
Pro forma provision for income taxes assuming
change in tax status to C corporation prior to
January 1, 1996 3,880 5,017 3,542 3,277
----------- ----------- ----------- -----------
Pro forma net income applicable to common and
common equivalent shares $ 5,321 $ 6,490 $ 4,857 $ 4,239
=========== =========== =========== ===========
Primary shares:
Weighted average number of common stock and common
stock equivalents outstanding:
Common stock 18,874,570 18,874,570 18,874,570 18,874,570
Options 1,291,753 1,291,753 1,291,753 1,291,753
Shares required to be issued to pay S Corporation
Distribution 1,727,273 1,727,273 1,727,273 1,727,273
Shares required to be issued to pay S corporation
distributions in excess of earnings during the previous
twelve months 468,181 468,181 468,181 468,181
----------- ----------- ----------- -----------
22,361,777 22,361,777 22,361,777 22,361,777
=========== =========== =========== ===========
Fully diluted shares:
Weighted average number of common stock and common stock equivalents
outstanding:
Common stock 18,874,570 18,874,570 18,874,570 18,874,570
Options 1,291,753 1,291,753 1,291,753 1,291,753
Shares required to be issued to pay S Corporation
Distribution 1,727,273 1,727,273 1,727,273 1,727,273
Shares required to be issued to pay S corporation
distributions in excess of earnings during the previous
twelve months 468,181 468,181 468,181 468,181
----------- ----------- ----------- -----------
22,361,777 22,361,777 22,361,777 22,361,777
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 80,670
<ALLOWANCES> 2,937
<INVENTORY> 6,318
<CURRENT-ASSETS> 94,075
<PP&E> 45,528
<DEPRECIATION> 18,387
<TOTAL-ASSETS> 131,500
<CURRENT-LIABILITIES> 70,098
<BONDS> 0
0
0
<COMMON> 189
<OTHER-SE> 21,053
<TOTAL-LIABILITY-AND-EQUITY> 131,500
<SALES> 226,918
<TOTAL-REVENUES> 226,918
<CGS> 91,172
<TOTAL-COSTS> 214,279
<OTHER-EXPENSES> 5,123
<LOSS-PROVISION> 1,298
<INTEREST-EXPENSE> 818
<INCOME-PRETAX> 7,516
<INCOME-TAX> 250
<INCOME-CONTINUING> 7,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,266
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
