<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 MARCH 31, 1998
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 May 11, 1998, there were 23,110,386 shares of the registrant's
voting common stock issued and outstanding, of which 7,060,312 shares were Class
A Common Stock and 16,050,074 shares were Class B Common Stock.
<PAGE> 2
CMP MEDIA INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of Income (Unaudited)
for the three months ended March 31, 1998 and 1997..........................................1
Condensed Consolidated Balance Sheets (Unaudited)
as of March 31, 1998 and December 31, 1997..................................................2
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three months ended March 31, 1998 and 1997..........................................3
Notes to Unaudited Condensed Consolidated Financial Statements .............................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
PART II - OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
<PAGE> 3
CMP MEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Revenues $ 109,185 $ 101,914
Operating costs and expenses:
Cost of revenues 48,980 42,941
Selling and promotion 38,682 37,029
General and administrative 20,872 22,888
--------- ---------
Income (loss) from operations 651 (944)
--------- ---------
Gain on sales 828 --
Other income (expense), net 593 (3,047)
--------- ---------
Income (loss) before provision (benefit) for
income taxes $ 2,072 $ (3,991)
Provision (benefit) for income taxes 893 (133)
--------- ---------
Net income (loss) $ 1,179 $ (3,858)
========= =========
Net income per share - basic $ 0.05
=========
Net income per share - diluted $ 0.05
=========
Pro Forma Data:
Historical loss before benefit for income taxes $ (3,991)
Pro forma benefit for income taxes (1,740)
---------
Pro forma net loss $ (2,251)
=========
Pro forma net loss per share - basic $ (0.10)
=========
Pro forma net loss per share - diluted $ (0.10)
=========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
<PAGE> 4
CMP MEDIA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,740 $ 31,495
Accounts receivable, net 72,187 76,667
Short-term investments 8,676 6,610
Inventories 8,305 7,587
Deferred income taxes 5,695 5,695
Deferred subscription acquisition costs 5,725 --
Prepaid expenses and other current assets 6,718 10,073
--------- ---------
Total current assets 131,046 138,127
--------- ---------
Property and equipment, net 27,664 27,831
Long-term investments 11,940 12,862
Investments in and advances to unconsolidated affiliates 4,715 4,687
Intangible and other assets 8,346 8,890
Deferred income taxes 5,312 5,312
--------- ---------
$ 189,023 $ 197,709
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 25,069 $ 26,389
Accrued expenses and other current liabilities 33,604 38,150
S corporation distribution payable 5,269 12,000
Deferred revenue 13,005 10,666
--------- ---------
Total current liabilities 76,947 87,205
--------- ---------
Other liabilities 14,638 13,908
--------- ---------
Total liabilities 91,585 101,113
--------- ---------
Commitments and contingencies
Stockholders' equity:
Class A Common Stock, par value $.01 per share, 50,000,000 shares authorized,
7,060,312 shares issued and outstanding at March 31,
1998 and December 31, 1997 71 71
Class B Common Stock, par value $.01 per share, 20,000,000 shares
authorized, 16,050,074 shares issued and outstanding at March 31,
1998 and December 31, 1997 160 160
Additional paid-in capital 85,036 86,305
Retained earnings 24,761 23,582
Unamortized restricted stock compensation (12,236) (13,270)
Accumulated other comprehensive income (354) (252)
--------- ---------
Total stockholders' equity 97,438 96,596
--------- ---------
$ 189,023 $ 197,709
========= =========
</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 THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,179 $ (3,858)
Reconciliation of net income (loss) to net cash provided by
operating activities:
Depreciation and amortization of property and equipment 2,432 2,009
Amortization of intangible assets 199 146
Write-off of property and equipment 75 253
Provision for doubtful accounts 722 583
Compensation expense under incentive plans 1,643 1,069
Gain on sales (828) --
(Income) loss from unconsolidated affiliates (16) 2,713
Changes in operating assets and liabilities, net of the effects of
businesses acquired and sold:
Decrease (increase) in accounts receivable 3,758 (3,117)
Increase in inventories (718) (633)
Increase in deferred subscription acquisition costs (5,725) (7,394)
Decrease in prepaid expenses and other assets 1,868 436
Decrease in accounts payable, accrued expenses
and other current liabilities (5,872) (5,481)
Increase in other liabilities 2,429 3,386
-------- --------
Net cash provided by (used in) operating activities 1,146 (9,888)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,340) (3,814)
Investments in and advances to unconsolidated affiliates (12) (856)
Purchase of businesses, net of cash acquired (166) --
Purchase of investments (814) --
Proceeds from sale of investments 500 --
Proceeds from sales of assets 2,000 --
-------- --------
Net cash used in investing activities (832) (4,670)
-------- --------
Cash flows from financing activities:
Borrowings under revolving credit agreement -- 24,970
Repayment of borrowings -- (15,720)
Distributions to S corporation stockholders for taxes and other (8,000) (2,848)
Other financing activities (69) 1,435
-------- --------
Net cash (used in) provided by financing activities (8,069) 7,837
-------- --------
Net change in cash and cash equivalents (7,755) (6,721)
Cash and cash equivalents at beginning of period 31,495 6,721
-------- --------
Cash and cash equivalents at end of period $ 23,740 $ --
======== ========
</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 March 31, 1998 and for the three months ended
March 31, 1998 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, 1997 included in the Company's 1997 Annual Report on Form 10-K. The
condensed consolidated balance sheet as of December 31, 1997 has been summarized
from the Company's audited consolidated balance sheet as of that date.
2. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130") which was effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The
Company's total comprehensive income (loss) for the three months ended March 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Net income (loss)............................................ $1,179 $(3,858)
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale...... 8 -
Foreign currency translation adjustments............... (110) -
------ -------
Total comprehensive income (loss)............................ $1,077 $(3,858)
====== =======
</TABLE>
3. RESULTS OF OPERATIONS
In March 1998, in connection with the sale of its investment in a
company developing Internet-related technologies, the Company recorded a gain of
approximately $828.
During the three months ended March 31, 1997, the Company recorded
charges of $1,200 to reduce the carrying value of two of its investments in
companies developing Internet-related technologies due to impairment. These
charges are included in Other income (expense), net in the accompanying
Condensed Consolidated Statement of Income.
4
<PAGE> 7
CMP MEDIA INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED (IN THOUSANDS, EXCEPT PER
SHARE AND SHARE AMOUNTS)
4. 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.
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 consummation of the Offering of
approximately $39,300. 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 at the time of the Offering and a portion to pay the final S
corporation distribution. 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.
As a result of terminating its S corporation election and converting to
a C corporation in connection with the Offering, the Company is subject to U.S.
federal and all applicable state and local taxes. The unaudited pro forma
benefit for income taxes, unaudited pro forma net loss and unaudited pro forma
net loss per share data for the three months ended March 31, 1997 are presented
as if the Company had terminated its S corporation election prior to January 1,
1997.
5. NET INCOME PER SHARE AND WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Net income per share - basic is calculated using weighted average common
shares outstanding and net income per share - diluted is calculated using
weighted average common shares outstanding including the effect of dilutive
securities calculated using the Treasury Stock Method. Prior to the Offering,
pro forma net loss per share - basic and pro forma net loss per share - diluted
were calculated using weighted average common shares outstanding including the
effect of dilutive securities calculated using the Treasury Stock Method. In
addition, the calculations prior to the Offering include shares of common stock
representing the number of shares, based upon the Offering price of $22.00 per
share, the proceeds from which would be necessary to pay the final S corporation
distribution (see Note 4) 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 "Offering shares").
For the three months ended March 31, 1998, for the purpose of calculating
net income per share - basic, the weighted average number of common shares
outstanding was 23,110,386 and for the purpose
5
<PAGE> 8
CMP MEDIA INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - CONTINUED (IN THOUSANDS, EXCEPT PER
SHARE AND SHARE AMOUNTS)
of calculating net income per share - diluted, the weighted average number of
common shares outstanding and dilutive securities was 24,389,551 which includes
1,279,165 shares representing the impact of common stock options calculated
using the Treasury Stock Method. For the three months ended March 31, 1997, for
the purpose of calculating pro forma net loss per shares - basic and - diluted,
weighted average common shares outstanding including the effect of dilutive
securities and the Offering shares was 22,361,777.
6. SUBSEQUENT EVENTS
Effective April 6, 1998, the Company sold substantially all of the assets
of its HomePC publication to another publisher for approximately $4,000 in cash
and assumed liabilities. In connection with this transaction, the Company
expects to record a nominal gain on sale.
On May 4, 1998, the Company entered into an agreement to purchase
substantially all of the assets of four information technology publications,
Data Communications, LAN Times, tele.com and Byte, as well as NSTL, a
technology and software testing lab, from another publisher. The purchase price
for this acquisition will be $28,600 in cash, plus the assumption of certain
liabilities. The transaction is expected to close on or about May 29, 1998.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items within
the Company's condensed consolidated statements of income. 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
ENDED MARCH 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues......................................... $ 109,185 $ 101,914
Operating costs and expenses:
Cost of revenues........................... 48,980 42,941
Selling and promotion...................... 38,682 37,029
General and administrative................. 20,872 22,888
--------- ---------
Income (loss) from operations.................... 651 (944)
--------- ---------
Gain on sales.................................... 828 --
Other income (expense), net...................... 593 (3,047)
--------- ---------
Income (loss) before provision (benefit)
for income taxes............................. $ 2,072 $ (3,991)
Provision (benefit) for income taxes............. 893 (133)
--------- ---------
Net income (loss)................................ $ 1,179 $ (3,858)
========= =========
Historical loss before benefit for income taxes.. $ (3,991)
Pro forma benefit for income taxes (1)........... (1,740)
---------
Pro forma net loss (1)........................... $ (2,251)
=========
</TABLE>
- -------------------
(1) Pro forma benefit 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, 1997.
7
<PAGE> 10
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1997
REVENUES. Revenues for the three months ended March 31, 1998 increased
$7.3 million, or 7.1%, to $109.2 million compared with $101.9 million for the
same period in 1997. The improvement was primarily attributable to increases in
advertising yield (advertising revenue per page), increased revenues for the
Company's International operations, driven primarily by the launch of CRN France
in the fourth quarter of 1997 as well as the December 1997 acquisition of two
publications in the U.K. and increased revenues from the Company's Internet
services, partially offset by a decrease in the number of advertising pages in
the Company's domestic print publications. Total advertising pages decreased
0.4% to 8,521 pages, primarily due to advertising page decreases for Computer
Reseller News, InternetWeek, and HomePC; also, NetGuide Magazine ceased
publication in July 1997. These decreases in advertising pages were partially
offset by advertising page increases for InformationWeek, VARBusiness and
Network Computing. Excluding the discontinuance of NetGuide Magazine in July
1997, advertising pages for the Company's domestic print publications increased
3.0% during the first quarter of 1998 compared to the same period of last year.
OPERATING COSTS AND EXPENSES. Cost of revenues for the three months
ended March 31, 1998 increased $6.0 million, or 14.1%, to $49.0 million compared
with $43.0 million for the same period in 1997, primarily as a result of
increased production and editorial costs associated with the Company's new
International publications, increased editorial costs attributable to growth in
the Company's Internet services and costs associated with a new conference held
in 1998. In addition, production, editorial distribution and paper costs
increased for the Company's domestic print publications in connection with
increased revenues. Cost of revenues as a percentage of revenues increased to
44.9% in the first quarter of 1998 from 42.1% in the first quarter of 1997. This
resulted primarily from the growth in International operations, which currently
have higher expense ratios than the Company's domestic print publications. Cost
of revenues include production, paper, editorial, distribution and fulfillment
costs.
Selling and promotion expenses for the three months ended March 31,
1998 increased $1.7 million, or 4.5%, to $38.7 million compared with $37.0
million for the same period in 1997. The increase was primarily attributable to
higher commission and sales force costs associated with increased revenues in
the first quarter of 1998 as compared to the first quarter of 1997 and increased
sales efforts associated with the Company's new International publications,
partially offset by decreased selling and promotion costs due to the closing of
NetGuide Magazine. Selling and promotion expenses as a percentage of revenues
decreased to 35.4% in the first quarter of 1998 from 36.3% in the first quarter
of 1997.
General and administrative expenses for the three months ended March
31, 1998 decreased $2.0 million, or 8.8%, to $20.9 million compared with $22.9
million for the same period in 1997, primarily as a result of a $2.4 million
charge taken in the first quarter of 1997 for workforce reduction. Excluding
this charge, general and administrative costs increased slightly during the
first quarter of 1998 as compared to the same period last year. General and
administrative expenses as a percentage of revenues decreased to 19.1% in the
first quarter of 1998 from 22.5% in the first quarter of 1997.
GAIN ON SALES. The gain on sale of $0.8 million in the first quarter of
1998 was realized in connection with the sale of the Company's investment in a
business developing Internet-related technologies.
OTHER INCOME (EXPENSE), NET. Other income, net for the three months
ended March 31, 1998 increased $3.6 million to $0.6 million compared with $3.0
million of other expense, net for the same period in 1997, primarily as a result
of a significant decrease in losses from the Company's Internet-related
investments, as well as interest income earned on short-term and long-term
investments during the first quarter of 1998 as compared to interest expense on
borrowings incurred during the first quarter of 1997. The Company's equity
investments are primarily in International publications and start-up Internet
services and technology companies.
8
<PAGE> 11
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. The Company's effective income
tax rate for the three months ended March 31, 1998 was 43.1%. If the Company and
certain affiliates had been C corporations for the three months ended March 31,
1997 the effective income tax rate would have been 43.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has traditionally required relatively low levels of working
capital to operate its business. Working capital was $54.1 million at March 31,
1998 and $50.9 million at December 31, 1997. The increase in working capital was
primarily attributable to earnings for the three months ended March 31, 1998.
Accounts receivable, net were $72.2 million at March 31, 1998 and $76.7 million
at December 31, 1997. Days sales outstanding was 61.4 at March 31, 1998 and 56.7
at December 31, 1997. Paper inventories were $8.3 million at March 31, 1998 and
$7.6 million at December 31, 1997.
Cash provided by (used in) operating activities was $1.1 million and
$(9.9) million for the three months ended March 31, 1998 and 1997, respectively.
The increase was primarily due to increased earnings as well as changes in
working capital items, the most significant of which were accounts receivable,
deferred subscription acquisition costs and prepaid expenses and other assets,
partially offset by decreased losses from investments in unconsolidated
affiliates.
Investing activities during the three months ended March 31, 1998 used
$0.8 million, consisting primarily of $2.3 million in capital expenditures
partially offset by $2.0 million in proceeds from the sale of the Company's 50%
interest in one of its joint ventures engaged in Internet-related services.
Investing activities during the three months ended March 31, 1997 used $4.7
million, consisting of $3.8 million in capital expenditures and $0.9 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 1998
to continue at least at the pace of 1997 and to be primarily for computer
equipment for business unit and corporate use.
Financing activities during the three months ended March 31, 1998 used
$8.1 million, consisting primarily of $8.0 million of cash distributions to the
Company's stockholders of record prior to the Offering, a significant portion of
which was used by such stockholders to pay taxes they owed on the Company's
income attributable to them as stockholders of an S corporation. Financing
activities for the three months ended March 31, 1997 provided $7.8 million,
consisting primarily of $25.0 million of borrowings under the Company's
revolving credit agreement, partially offset by $15.7 million for repayment of
borrowings.
The Company's revolving credit agreement, as amended, with two
financial institutions provides for borrowings of up to $75 million, all of
which amount was available at March 31, 1998. 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, at the
Company's option. The agreement, as amended, contains certain negative covenants
regarding, among other items, minimum levels of net worth, fixed coverage and
limitations on indebtedness. The agreement expires 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 principal stockholders 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.
9
<PAGE> 12
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.
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 consummation of the Offering of
approximately $39.3 million, a significant portion of which was used by such
stockholders to pay taxes they owed 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 the 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 and long-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.
RECENT EVENTS
Effective April 6, 1998, the Company sold substantially all of the
assets of its HomePC publication to another publisher for approximately $4.0
million in cash and assumed liabilities. In connection with this transaction,
the Company expects to record a nominal gain on sale.
On May 4, 1998, the Company entered into an agreement to purchase
substantially all of the assets of four information technology publications,
Data Communications, LAN Times, tele.com and Byte, as well as NSTL, a
technology and software testing lab, from another publisher. The purchase price
for this acquisition will be $28.6 million in cash, plus the assumption of
certain liabilities. The transaction is expected to close on or about May 29,
1998.
SEASONALITY
Although the Company earned a profit in the first quarter of 1998, it
has typically incurred operating losses in the first quarter of most years, 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. Paper prices rose significantly in 1995, dropped in
1996, increased moderately in 1997 and have increased minimally in recent
months. 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.
10
<PAGE> 13
YEAR 2000
The Company has initiated an enterprise-wide project to assess the
potential issues associated with computer programming codes in its existing
computer systems with respect to a two-digit value for the year 2000. This
project consists of an evaluation of the technology and data used in the
Company's internal operations and the creation and delivery of its products and
services in order to identify potential year 2000 issues. The project also
includes assessing any year 2000 issues that may be caused by the Company's
customers and vendors, but there can be no assurance that such third parties
will successfully remediate their own year 2000 issues over which the Company
has no control. The Company believes that it will complete its assessment as
well as implement any necessary programming modifications prior to the
commencement of the year 2000 and, assuming that the Company's customers and
vendors successfully remediate their own year 2000 issues, the Company believes
it will have no material business risk from such year 2000 issues. Management
believes that any cost associated with the assessment of year 2000 issues as
well as necessary modifications to its systems will not have a material adverse
impact on the Company's financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements regarding matters that
are subject to risks and uncertainties. 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.
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"). After deducting expenses of the Offering, net proceeds received by
the Company were approximately $84.7 million. To date, the Company has used a
portion of such proceeds to pay the $39.3 million final S corporation
distribution and approximately $21.8 million to repay indebtedness outstanding
under its revolving credit agreement. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
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
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) The following reports on Form 8-K were filed during the
Registrant's quarter ended March 31, 1998:
An Item 5 report on Form 8-K, dated March 27, 1998, was filed
reporting Registrant's financial results for the fiscal
quarter and year ended December 31, 1997.
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.
May 15, 1998 By: /s/ Joseph E. Sichler
----------------------
Joseph E. Sichler
Vice President and Chief Financial Officer
(Authorized Executive Officer and Principal
Accounting Officer)
13
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