<PAGE> 1
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
-------
PENTON MEDIA, INC.
------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
1100 Superior Avenue, Cleveland, OH 44114
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
216/696-7000
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (August 12,1999).
Common Stock 31,314,277
<PAGE> 2
PENTON MEDIA, INC.
------------------
FORM 10-Q
---------
QUARTER ENDED JUNE 30, 1999
---------------------------
<TABLE>
INDEX
-----
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
ITEM 1. Financial Statements
Consolidated Statement of Income -
For the Three and Six Months Ended
June 30, 1999 and 1998 3
Consolidated Balance Sheet -
As of June 30, 1999 and December 31, 1998 4 - 5
Consolidated Statement of Cash Flows -
For the Six Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 13
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 23
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk 23
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
</TABLE>
2
<PAGE> 3
<TABLE>
PENTON MEDIA, INC.
------------------
CONSOLIDATED STATEMENT OF INCOME
--------------------------------
FOR THE THREE MONTHS AND SIX MONTHS
-----------------------------------
ENDED JUNE 30, 1999 AND 1998
----------------------------
(Unaudited; Dollars in Thousands, Except Per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $84,460 $59,186 $142,756 $111,671
------- ------- -------- --------
OPERATING EXPENSES:
Editorial, production and
circulation 32,112 26,849 59,253 50,171
Selling, general and
administrative 29,688 23,299 55,918 45,770
Depreciation and amortization 7,193 2,129 14,426 4,156
------- ------- -------- --------
68,993 52,277 129,597 100,097
------- ------- -------- --------
OPERATING INCOME 15,467 6,909 13,159 11,574
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (6,212) (691) (12,596) (1,353)
Miscellaneous, net 420 82 456 85
------- ------- -------- --------
(5,792) (609) (12,140) (1,268)
------- ------- -------- --------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 9,675 6,300 1,019 10,306
Provision for income taxes 6,511 2,619 691 4,285
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 3,164 3,681 328 6,021
------- ------- -------- --------
Extraordinary item - early
extinguishment of debt (net
of applicable income taxes
of $1,437) 2,156 -- 2,156 --
------- ------- -------- --------
NET INCOME (LOSS) $ 1,008 $ 3,681 $ (1,828) $ 6,021
======= ======= ======== ========
EARNINGS PER COMMON SHARE
(Basic and Diluted):
Income before
extraordinary item $ 0.12 $ 0.17 $ 0.01 $ 0.28
Extraordinary item (0.08) -- (0.08) --
------- ------- -------- --------
Net income (loss) $ 0.04 $ 0.17 $ (0.07) $ 0.28
======= ======= ======== ========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 27,018 21,240 24,900 21,240
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
<TABLE>
PENTON MEDIA, INC.
------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited; Dollars in Thousands)
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and equivalents $ 7,516 $ 3,953
Accounts and notes receivable, less
allowance for doubtful accounts of
$5,651 and $4,899 42,855 37,956
Inventories 2,289 2,361
Deferred tax assets 9,059 5,797
Prepayments, deposits and other 8,175 8,086
-------- --------
69,894 58,153
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Buildings 6,170 6,170
Machinery and equipment 75,518 69,730
-------- --------
81,688 75,900
Less: Accumulated depreciation 52,843 47,395
-------- --------
28,845 28,505
Land 426 426
-------- --------
29,271 28,931
-------- --------
OTHER ASSETS:
Goodwill, less accumulated
amortization of $18,745 and $10,129 406,871 340,706
Other intangibles, less accumulated
amortization of $9,159 and $7,828 47,399 46,906
Investments 68,885 4,472
Miscellaneous 245 133
-------- --------
523,400 392,217
-------- --------
$622,565 $479,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
<TABLE>
PENTON MEDIA, INC.
------------------
CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited; Dollars in Thousands)
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Senior debt facility $ 8,504 $ 11,250
Revolving credit facility 15,500 6,000
Notes payable 500 1,000
Accounts payable 8,096 10,823
Income taxes payable -- 8,059
Accrued compensation and benefits 6,979 9,644
Other accrued expenses 11,974 17,522
Unearned income, principally trade
show and conference deposits 20,972 14,564
-------- --------
72,525 78,862
-------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility 222,236 288,750
Net deferred pension credits 18,007 18,007
Deferred taxes 29,700 5,313
Other 817 880
-------- --------
270,760 312,950
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued -- --
Common stock 313 228
Capital in excess of par value 214,610 55,050
Retained earnings 28,812 32,262
Other comprehensive income 35,545 (51)
-------- --------
279,280 87,489
-------- --------
$622,565 $479,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
<TABLE>
PENTON MEDIA, INC.
------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
(Unaudited; Dollars in Thousands)
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net cash provided by (used for)
operating activities $ (3,191) $ 6,082
-------- -------
Cash flows from investing activities:
Capital expenditures (2,162) (2,931)
Acquisitions (43,100) --
Investment in internet.com (3,446) --
-------- -------
Net cash used for investing activities (48,708) (2,931)
-------- -------
Cash flows from financing activities:
Proceeds from revolving credit facility 9,500 --
Proceeds from term B senior debt 15,000 --
Repayment of senior debt facility (84,261) --
Repayment of notes payable (1,000) --
Payment of finance fees (1,033) --
Proceeds from equity offering, net 118,644 --
Advances to parent company -- (3,699)
Dividends paid (1,366) --
-------- -------
Net cash provided by (used for)
financing activities 55,484 (3,699)
-------- -------
Effect of exchange rate changes on cash (22) (21)
-------- -------
Net increase (decrease) in cash and equivalents 3,563 (569)
Cash and equivalents at beginning of period 3,953 2,419
-------- -------
Cash and equivalents at end of period $ 7,516 $ 1,850
======== =======
Supplemental disclosure of non cash investing
and financing activities:
</TABLE>
In conjunction with the acquisition of New Hope, the Company issued 2.1 million
common shares valued at $41.0 million in consideration. In addition, the Company
marked to market it investment in internet.com for approximately $61.0 million.
The foregoing transactions did not provide for or require the use of cash.
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
PENTON MEDIA, INC.
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited; Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Penton
Media, Inc. (formerly known as Penton Publishing, Inc.) and its subsidiaries
("Penton" or the "Company"). The Company was a wholly owned subsidiary of
Pittway Corporation ("Pittway" or "Parent Company") until August 7, 1998, when
it was spun off as a separate entity.
The accompanying unaudited interim consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
In the opinion of management, the interim consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
interim periods. The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected for the full
year.
Certain reclassifications of previously reported financial information
were made to conform to the 1999 presentation.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 - SPINOFF FROM PITTWAY AND SUBSEQUENT ACQUISITIONS
Prior to August 7, 1998, Penton was a wholly owned subsidiary of
Pittway Corporation. On August 7, 1998, Pittway distributed 100% of the
Company's common stock on a share-for-share basis to holders of Pittway stock.
Immediately after the spinoff, the Company entered into an agreement
(the "Combination Agreement") and completed the acquisition of Donohue/Meehan
Publishing Company ("DM Publishing"). DM Publishing was acquired for $7.0
million in cash, 6.767% (1,541,638 shares) of the Company's stock to be
outstanding immediately after the acquisition and up to an additional $4.0
million in cash based on DM Publishing's pre-tax income for the years 1998 and
1999, of which $2.0 million was earned in 1998. The Company also has agreed to
make a contingent cash payment to the extent, if any, that the shares issued in
the acquisition have an average aggregate market value of less than $29.0
million during either of two 30-day periods in the year 2000. The contingent
payment is subject to certain limitations as to any of such shares sold prior to
the payment. A portion of the contingent payment may be made with common stock
rather than cash under certain conditions.
The transaction was accounted for as a purchase and, accordingly, the
operating results of DM Publishing have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of approximately $32.4 million is being amortized over 40 years.
In addition to the acquisition of DM Publishing, the Company, pursuant to
an Agreement and Plan of Merger, completed its cash tender offer for all of the
outstanding shares of Mecklermedia Corporation ("Mecklermedia") on November 24,
1998. In connection with the acquisition, each Mecklermedia shareholder received
$29.00 in cash for each share of common stock owned. The total value of the
transaction was $273.8 million, and it was funded with the net proceeds
available from the credit agreement dated November 24, 1998
7
<PAGE> 8
(See Note 8). The transaction was accounted for as a purchase and, accordingly,
the operating results of Mecklermedia have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of approximately $242.5 million is being amortized over 20 years.
In February 1999, the Company acquired the assets of MFG Publishing,
Inc., of Beverly, MA, for a total purchase price of up to $2.5 million, of which
$0.8 million was paid in cash and the remaining $1.7 million is contingent upon
future earnings through the year 2001. The excess of the aggregate purchase
price over the fair market value of net assets acquired of approximately $0.4
million is being amortized over 40 years. MFG is a leading information provider
to the enterprise resource planning segment of the manufacturing technology
industry.
In May 1999, the Company completed the acquisition of Jon Peddie
Associates ("Jon Peddie") of Tiburon, CA., for $1.3 million in cash and future
contingent payments of up to $3.0 million tied to future earnings through the
year 2001. The excess of the aggregate purchase price over the fair market value
of net assets acquired of approximately $1.0 million is being amortized over 40
years. Jon Peddie is an information company that conducts research, publishes
market studies and special reports and provides consulting services to the
digital media, semiconductor and electronics industries.
In May 1999, pursuant to an Asset Purchase Agreement, the Company
acquired substantially all of the assets of New Hope Communications Inc. ("New
Hope"). In full consideration for the transfer of the assets, the Company agreed
to pay a total purchase price of up to $97.0 million to New Hope. The purchase
price was comprised of: (i) $41.0 million in cash and $41.0 million (2,102,564
shares) of Company stock, both of which were paid at the closing, and (ii) a
contingent payment of up to $15.0 million to be paid half in cash and half in
stock, if earned, based on the performance of New Hope for the fiscal years
1999, 2000 and 2001. The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $74.0 million is being
amortized over periods ranging from 20 to 40 years.
NOTE 3 - OFFERING
In May, 1999 the Company completed a 6,500,000 common share offering of
which 6,250,000 of the shares were offered by the Company and 250,000 were
offered by existing stockholders. The underwriters also exercised their option
to purchase an additional 180,000 shares from Penton and 795,000 shares from
existing stockholders to cover over-allotments. The Company received net
proceeds of approximately $118.6 million which was used to repay debt and for
general corporate purposes, including the acquisition of New Hope. The Company
did not receive any proceeds from the shares sold by the selling stockholders.
NOTE 4 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating data is
presented for the six months ended June 30, 1999 as if each of the following
transactions had occurred on January 1, 1999: (i) the acquisition of MFG
Publishing Inc. in February 1999; (ii) the addition of $15 million in term B
loans in April 1999; (iii) the sale by Penton of 6,430,000 common shares in May
1999; and (iv) the acquisition of New Hope in May 1999.
The following unaudited supplemental pro forma operating data is
presented for the six months ended June 30, 1998 as if each of the following
transactions had occurred on January 1, 1998: (i) the acquisition of DM
Publishing in August 1998; (ii) the issuance of 1,541,638 shares of common stock
for the acquisition of DM Publishing (iii) the acquisition of Mecklermedia in
November 1998; (iv) the sale of an 80.1%interest in internet.com to Alan M.
Meckler in November 1998; (v) the acquisition of MFG Publishing Inc. in February
1999; (vi) the addition of $15 million in term B loans in April 1999; (vii) the
sale by Penton of 6,430,000 common shares in May 1999 and (viii) the acquisition
of New Hope in May 1999.
8
<PAGE> 9
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars in Thousands, Except Per Share Data)
1999 1998
---- ----
<S> <C> <C>
Pro forma revenues $158,939 $163,343
======== ========
Pro forma income before extraordinary item $ 4,675 $ 3,599
======== ========
Pro forma net income applicable
to common shareholders $ 2,519 $ 3,599
======== ========
Per share data:
Earnings per common share - basic and diluted:
Income before extraordinary item $ 0.15 $ 0.11
Extraordinary item (0.07) --
-------- --------
Net income $ 0.08 $ 0.11
======== ========
</TABLE>
The 1999 and 1998 pro forma information above does not include the
operations of Jon Peddie Associates as the impact of the transaction is
immaterial to such information.
NOTE 5 - INVESTMENTS
In November 1998, the Company entered into a joint venture agreement
with Alan M. Meckler, Mecklermedia's founder, with respect to the limited
liability company internet.com, which was part of Mecklermedia. Internet.com LLC
("internet.com") is a network of Web sites that provides news, analysis and
information resources for Internet professionals. As part of the Company's
acquisition of Mecklermedia in November 1998, the Company sold 80.1% of
internet.com to Mr. Meckler.
In April 1999, the Company made an additional equity contribution of
$0.4 million to retain its pro rata ownership share of internet.com., and, in
June 1999, the Company paid $3.0 million to exercise its warrant to increase its
ownership interest in internet.com from 19.0% to 27.4%.
On June 23, 1999, internet.com completed its initial public offering at
$14.0 per share and Penton was issued 5,483,383 shares, retaining a 23.4%
interest. At June 30, 1999 the Company marked to market its investment at $12.56
per share, the closing price of internet.com on that date. As the Company has
little ability to exercise significant influence over internet.com, it records
its investment utilizing accounting for marketable investments and accordingly,
the Company increased its investment by approximately $61.0 million and recorded
a corresponding increase to long-term deferred taxes of $24.4 million and other
comprehensive income of $36.6 million. In July 1999, the Company sold 510,000
shares of internet.com stock as part of internet.com's offering over-allotment
option and reduced its ownership interest to 21.25%.
NOTE 6 - RELATIONSHIP AND TRANSACTIONS WITH PITTWAY
Included in the 1998 consolidated statements of income is an allocation
of corporate expenses related to services provided to the Company by Pittway.
Certain of the Company's employees participated in Pittway's 1990 Stock Awards
Plan, for which Pittway has allocated costs to the Company totaling $1.2 million
for the six months ended June 30, 1998. No Stock Award costs were allocated for
the three months ended June 30, 1998. Other allocated costs from Pittway to the
Company totaled $0.1 million for the six months and three months ended June 30,
1998, respectively.
9
<PAGE> 10
NOTE 7 - INVENTORIES
The LIFO reserve balance of $0.5 million at June 30, 1999 and $0.4
million at December 31, 1998, represent the excess of current replacement cost
over the LIFO value of inventory, which consists principally of raw materials.
NOTE 8 - DEBT
Credit Agreement:
On November 24, 1998, the Company entered into a credit agreement with
several banks under which it may borrow up to $325.0 million. The agreement
provides for a revolving loan facility of up to $25.0 million, a long-term loan
of $175.0 million ("Term A Loan") and a long-term loan of $125.0 million ("Term
B Loan"). The proceeds of the new facility were used to repay the Company's debt
outstanding under a $75.0 million revolving credit facility obtained at the
spinoff date and to purchase Mecklermedia.
The credit facility is collateralized by receivables, inventories,
equipment and certain real and personal property. Under the terms of the
agreement, the Company is required to maintain certain financial ratios and
other financial conditions. The agreement also prohibits the Company from
incurring certain additional indebtedness; limits certain investments, advances
or loans; and restricts substantial asset sales, capital expenditures and cash
dividends. At June 30, 1999, the Company was in compliance with all loan
covenants.
On March 31, 1999, the Company amended its credit agreement to, among
other things; (1) increase term loan B by $15.0 million from $125.0 million to
$140.0 million, (2) stipulate the allocation of proceeds from any debt or equity
offering undertaken by the Company, and (3) amend current covenants to allow for
the additional borrowings.
In May 1999, the Company recognized a non-cash extraordinary charge of
approximately $2.2 million ($0.08 per share), net of approximately $1.4 million
in taxes, for the write-off of deferred finances upon the extinguishment of part
of the outstanding senior debt with the proceeds from the 6,430,000 common stock
offering.
The revolving loan facility includes a revolving loan and swing loan.
The revolving loan requires payment of interest (only) at a Base Rate
(determined as the higher of the Prime Rate or the Federal Funds Effective Rate
plus 1/2 of 1%) or an Adjusted Eurodollar Rate, at the Company's option, plus a
rate margin ranging from 1.25% to 3.0% based on the Company's consolidated
leverage ratio, as defined. At June 30, 1999, $13.0 million was outstanding
under the revolving loan facility with interest rates ranging from 7.68% to
9.5%.
The swing loan, which permits borrowings up to $5.0 million, requires
payment of interest (only) at the Base Rate plus a Base Rate margin ranging from
1.25% to 2.00% based on the Company's consolidated leverage ratio, as defined,
less the applicable commitment fee percentage per annum. At June 30, 1999, $2.5
million was outstanding under the swing loan facility with interest at 9.0%.
The company has agreed to pay a commitment fee of 0.50% on the unused
portion of the revolving loan facility commitment. At June 30, 1999, $9.5
million was available under the facility.
The Term A Loan bears interest at the Base Rate or at an Adjusted
Eurodollar Rate, at the Company's option, plus a rate margin ranging from 1.25%
to 3.0% based on the Company's consolidated leverage ratio, as defined. Interest
is payable monthly; at June 30, 1999, the rate in effect was 7.96%. The loan,
which requires quarterly principal payments of $1.9 million for the remainder of
1999, will mature on June 30, 2005. At June 30, 1999, $126.8 million was
outstanding under the Term A Loan.
10
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The Term B Loan bears interest at the Base Rate plus 2.5% or at the
Adjusted Eurodollar Rate plus 3.5%, at the Company's option. Interest is payable
monthly; at June 30, 1999, the rate in effect was 8.71%. The loan, which
requires quarterly principal payments of $0.3 million and a balloon payment at
maturity, will mature on May 31, 2005. At June 30, 1999, $103.9 million was
outstanding under the Term B Loan.
Note Payable:
The short-term note payable at December 31, 1998 of $1.0 million
represented foreign indebtedness, was denominated in British pounds and bore
interest at the Company's foreign borrowing rate (8.2% at December 31, 1998).
The note, plus accrued interest, was paid off in early January 1999.
In connection with the acquisition of New Hope, the Company issued a
note payable in the amount of $0.5 million to New Hope's Chief Executive Officer
and primary shareholder. The note is due in total on September 24, 1999, and
bears interest at 4.9%.
NOTE 9 - FINANCIAL INSTRUMENTS
In February 1999, the Company entered into an interest rate cap and
several swap agreements with several financial institutions, as required under
its credit facility, to reduce the impact of changes in interest rates on a
portion of its floating rate debt. The notional amounts of the interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The net cash paid for the
interest rate cap and various swaps was immaterial and was charged to expense
when paid.
At June 30, 1999, the Company had the following interest rate
instruments in effect that provide protection on the three month LIBOR rate upon
which the Company's variable rate Term A Loan is based (actual rate paid is
LIBOR plus the respective margin):
<TABLE>
<CAPTION>
Notional
Amount Rate Period
------ ---- ------
<S> <C> <C> <C>
Interest Rate Cap $28,500 8.50% 2/99-2/01
Interest Rate Swaps $59,000 5.08% 2/99-2/01
</TABLE>
NOTE 10 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands) for the three months and six months ended June
30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) available to common stockholders $ 1,008 $ 3,681 $(1,828) $ 6,021
======= ======= ======= =======
Denominator: (Number of shares)
Basic - average shares outstanding 27,018 21,240 24,900 21,240
Effect of dilutive securities:
Stock options 191 -- -- --
------- ------- ------- -------
Diluted - average shares outstanding 27,209 21,240 24,900 21,240
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
Due to the net loss for the six month period ended June 30, 1999, any
potential common stock equivalents would have been antidilutive. Accordingly,
they were excluded from the calculation of diluted earnings per share.
NOTE 11 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive
Income", effective for the fiscal years beginning after December 15, 1997. FAS
130 requires that the Company report comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income
represents the change in stockholders' equity during the period from non-owner
sources.
Total comprehensive income for the six months ended June 30, 1999 and
1998 was $33.8 million and $6.0 million, respectively.
Activity in Stockholders' Equity is as follows (dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Current Capital in Other
Comprehensive Common Excess of Retained Comprehensive
Income Stock Par Value Earnings Income Total
------------- ------ ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $228 $ 55,050 $ 32,262 $ (51) $ 87,489
Dividends (1,622) (1,622)
Common stock offering 64 118,581 118,645
Issuance of New Hope shares 21 40,979 41,000
Comprehensive Income:
Net income (loss) $(1,828) (1,828) (1,828)
Unrealized gain on securities
Reported at Fair Value 36,580 36,580 36,580
Foreign currency translation
Adjustment (984) (984) (984)
------- ---- -------- ------- ------- --------
Balance at June 30, 1999 $33,768 $313 $214,610 $28,812 $35,545 $279,280
======= ==== ======== ======= ======= ========
</TABLE>
NOTE 12 - SEGMENT INFORMATION
The Company has three reportable segments: Media Services, Printing and
Direct Mail. The segments are based on the Company's internal organization and
are managed separately due to inherent differences in the nature of these
businesses.
The Media Services segment serves specific industries and broad markets
with integrated product offerings including trade magazines, trade shows and
conferences, directories, direct mail lists and a variety of other products and
services. Revenues of this segment are generated primarily from magazine
advertising and trade show booth rentals. The Printing segment prints magazines,
catalogs, brochures and direct mail pieces for the Media Services segment and
outside commercial customers. The Direct Mail segment serves primarily the
pharmaceutical and business services markets with the ability to design,
produce, print and mail direct mail marketing campaigns. (unaudited; dollars in
thousands)
12
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total segment revenues:
Media Services:
Publishing & Other $51,700 $46,219 $ 96,973 $ 89,346
Trade shows & conferences 27,093 6,414 34,338 9,917
------- ------- -------- --------
78,793 52,633 131,311 99,263
Printing 9,122 10,387 18,223 20,081
Direct Mail 3,139 3,577 6,059 6,443
Less: intersegment revenues: (6,594) (7,411) (12,837) (14,116)
------- ------- -------- --------
$84,460 $59,186 $142,756 $111,671
======= ======= ======== ========
Operating Income:
Media Services:
Publishing & Other $ 9,280 $ 9,541 $ 16,342 $ 18,420
Trade shows & conferences 9,309 908 4,123 668
------- ------- -------- --------
18,589 10,449 20,465 19,088
------- ------- -------- --------
Printing 769 64 1,172 480
Direct Mail (7) (66) (81) (312)
Corporate (previously in Media Services) (3,884) (3,538) (8,397) (7,682)
------- ------- -------- --------
$15,467 $ 6,909 $ 13,159 $ 11,574
======= ======= ======== ========
</TABLE>
For the three months and six months ended June 30, 1999, the Company
has disclosed the major components of the Media Services segment because of the
significant increase in the trade show and conference component of this segment.
The three months and six months ended June 30, 1998 components of the Media
Services segment have been restated for comparison purposes.
NOTE 13 - SUBSEQUENT EVENTS
In July 1999, the Company sold 510,000 shares of internet.com stock as
part internet.com's initial public offering over-allotment option. The Company
received cash, net of expenses, of approximately $6.6 million and recognized a
gain of approximately $5.9 million.
The Company is in the process of refinancing its senior debt facility.
The new facility will lower the Company's effective interest rate and provide
greater flexibility to complete future acquisitions. If the refinancing is
completed as planned, the Company would take an additional non-cash
extraordinary charge of approximately $6.5 million, net of taxes, in the third
quarter of 1999.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited consolidated financial statements and the notes thereto.
Impact of Acquisitions
The Company was spun off from Pittway Corporation ("Pittway") and
acquired Donohue/Meehan Publishing Company ("DM Publishing") in August 1998;
acquired Mecklermedia Corporation ("Mecklermedia") in November 1998; MFG
Publishing Inc. ("MFG") in February 1999; Jon Peddie Associates ("Jon Peddie")
in May 1999 and New Hope Communications Inc. ("New Hope") in May 1999. As the
Company acquires additional companies, its sales mix, market focus, cost
structure, operating leverage and the seasonality of the business may change
significantly. Consequently, the Company's historical and future results of
operations reflect and will reflect the impact of acquisitions, and
period-to-period comparisons may not be meaningful in certain respects.
Historical information for companies subsequent to their acquisition may include
integration and other costs that are not expected to continue in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1998 (UNAUDITED)
REVENUES
Total revenues, after elimination of intersegment sales, increased
$25.3 million, or 42.7%, from $59.2 million to $84.5 million.
Media Services revenues increased $26.2 million, or 49.7%, to $78.8
million. Advertising revenues from Penton's publishing operations accounted for
$8.1 million of the increase, due primarily to the following: (i) the DM
Publishing acquisition in August 1998; (ii) the addition of Boardwatch magazine
and Internet World magazine which were part of the Mecklermedia acquisition in
November 1998; (iii) ) the addition of Delicious, Expansion Management, Health &
Nutrition Breakthroughs, Natural Foods Merchandiser, and Nutrition Science News
magazines which were part of the New Hope acquisition in May 1999, and (iv) the
addition of IW Growing Companies, the first issue of which was not published
until the second quarter in 1998. These increases were offset by lower revenues
from Electronic Design as compared with the same period in the prior year due to
a slowdown in the electronics market, and the absence of the Fluid Power
Handbook & Directory, which was published in the first quarter of 1998, and is
published every other year. Trade show and conference revenues increased $20.7
million, or 322.4%, to 27.1 million. Approximately $21.3 million of the increase
was due to the first-time inclusion of the operations of Mecklermedia.
Printing revenues decreased $1.3 million, or 12.2%, bringing total
segment revenue to $9.1 million. Sales to external customers decreased $0.4
million, or 15.1%, to $2.5 million, while intercompany sales decreased $0.8
million, or 11.0%, to $6.6 million.
Direct mail revenues decreased $0.4 million, or 12.2%, when compared
with the same prior year period.
OPERATING EXPENSES
Operating expenses for Penton, after elimination of intersegment
charges, increased $16.7 million, or 32.0%, from $52.3 million in 1998 to $69.0
million in 1999. As a percentage of revenues, operating costs decreased from
88.3% in 1998 to 81.7% in 1999. The improvement in operating expenses as a
percentage of revenues is due primarily to higher margins earned on acquired
trade shows which were held in the second quarter
14
<PAGE> 15
of 1999. These improvements were offset by the increase in depreciation and
amortization related to acquisitions and the change in Penton's goodwill
amortization policy for acquired trade shows which reduced the write-off period
from 40 years to 20 years.
Editorial, Production and Circulation
Total editorial, production and circulation expenses, after elimination
of intersegment charges, grew to $32.1 million in 1999 compared with $26.8
million in 1998, representing an increase of $5.3 million, or 19.6%. As a
percentage of revenues, editorial, production and circulation expenses decreased
from 45.4% in 1998 to 38.0% in 1999. The decrease is due primarily to the
acquisition of DM Publishing in August 1998 and higher margins earned on the
Meckler trade shows which were held in the second quarter of 1999.
Media Services editorial, production and circulation expenses grew $6.0
million, or 25.8%, due to the DM Publishing acquisition in August 1998, which
accounted for $0.7 million of the increase, the Mecklermedia acquisition in
November 1998, which accounted for an additional $5.7 million in costs, and the
New Hope acquisition in May 1999, which accounted for $0.8 of the increase.
Costs incurred related to the biennial Fluid Power Handbook and Directory, which
was published in the first quarter of 1998, were not incurred in 1999 because
the directory is published every other year. In addition, costs related to the
Company's core publishing operations decreased due to advertising slowdowns
primarily in the electronics and computer markets.
Editorial, production and circulation expenses for the Printing segment
decreased $0.3 million, or 26.3%, while costs related to the direct mail segment
decreased $0.4 million, when compared with the prior year.
Selling, General, and Administrative
Total selling, general, and administrative expenses grew $6.4 million,
or 27.4%, to $29.7 million. As a percentage of revenues, selling, general and
administrative expenses decreased from 39.4% in 1998 to 35.2% in 1999. The
improvement in percentage of revenues is due largely to the addition of trade
shows to the Company's product mix.
Media Services selling, general, and administrative expenses increased
$6.2 million, or 33.8%. The increase was due to the DM Publishing acquisition in
August 1998, which accounted for $0.6 million of the increase; the Mecklermedia
acquisition in November 1998, which accounted for an additional $5.8 million in
costs, and the acquisition of New Hope in May 1999 which contributed $0.9
million of additional costs. Costs incurred related to the biennial Fluid Power
Handbook and Directory, which was published in 1998, were not incurred in 1999
because the directory is published every other year. In addition, costs related
to the Company's core publishing operations decreased due to advertising
slowdowns in the computer, electronics and telecommunications markets.
Selling, general, and administrative expenses of the printing and the
direct mail segments decreased $0.1 million when compared with the prior year.
Depreciation and Amortization
Depreciation and amortization increased $5.1 million, or 237.9%, to
$7.2 million. The higher expense was primarily the result of the amortization of
intangible assets associated with the DM Publishing acquisition in August 1998
of approximately $0.3 million, the Mecklermedia acquisition in November 1998 of
approximately $4.5 million; the New Hope acquisition in May 1999 of
approximately $0.3 million, and, beginning with the fourth quarter of 1998, the
change in Penton's goodwill amortization policy for acquired trade shows which
reduced the write-off period from 40 years to 20 years, which accounted for
approximately $0.3 million of additional amortization in the second quarter of
1999 compared to 1998. These increases were offset by decreases in amortization
and depreciation at both the printing and direct mail segments when compared to
the same prior year period.
15
<PAGE> 16
OPERATING INCOME
Overall, the Company's operating income for the three months increased
$8.6 million, or 123.9%, to $15.5 million from $6.9 million in the prior year.
Operating income as a percentage of revenue increased from 11.7% to 18.3%, due
primarily to the increased margins associated with the trade shows acquired
during the second half of 1998. These improvements were offset by the increase
in depreciation and amortization associated with those acquisitions.
Media Services operating income increased $8.1 million, or 77.9%.
Operating income from Penton's trade show and conference operations increased
$8.4 due to the acquisition of Mecklermedia in November 1998. Publishing
operating income decreased $0.3 million, or 2.7%, due to advertising slowdowns
primarily in the electronics and computer markets.
Operating income of the Printing segment increased $0.7 million to $0.8
million for the three months ended June 30, 1999 when compared with the same
prior year period.
Direct Mail operating income increased $0.1 million to a breakeven
level, compared with the same period in the prior year.
INTEREST EXPENSE
Interest expense increased $5.5 million to $6.2 million due to
additional borrowings used to finance the DM Publishing acquisition in August
1998; the Mecklermedia acquisition in November 1998; the MFG acquisition in
February 1999 and the Jon Peddie acquisition in May 1999.
EFFECTIVE TAX RATES
The effective tax rates were 67.3% and 41.6%, for the second quarters
of 1999 and 1998, respectively. The Company's acquisition of DM Publishing in
August 1998 and Mecklermedia in November 1998 resulted in the recording of
goodwill. The amortization of such goodwill is recognized for financial
statement purposes but not deductible for tax purposes due to the structure of
these two purchase transactions. Accordingly, the Company's effective tax rate
has increased.
EXTRAORDINARY ITEM
The extraordinary item, which aggregated $2.2 million, net of $1.4
million in taxes, for the three months ended June 30, 1999, related to the
write-off of unamortized deferred finance costs associated with the partial
pay-down of senior debt with the proceeds from the common stock offering
completed in May 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
REVENUES
Total revenues, after elimination of intersegment sales, increased
$31.1 million, or 27.8%, from $111.7 million to $142.8 million.
Media services revenues increased $32.0 million, or 32.3%, to $131.3
million. Advertising revenues from Penton's publishing operations accounted for
$7.6 million of the increase, due primarily to the following: (i) the addition
of Baking Management, Convenience Store Decisions and Modern Baking magazines
which were part of the DM Publishing acquisition in August 1998; (ii) the
addition of Boardwatch magazine and Internet World magazine which were part of
the Mecklermedia acquisition in November 1998; (iii) the addition of Delicious,
Expansion Management, Health & Nutrition Breakthroughs, Natural Foods
Merchandiser, and
16
<PAGE> 17
Nutrition Science News magazines which were part of the New Hope acquisition in
May 1999, and (iv) the addition of IW Growing Companies, the first issue of
which was not published until the second quarter of 1998. These increases were
offset by lower revenues from Electronic Design as compared with the same period
in the prior year due to a slowdown in the electronics market, and the absence
of the Fluid Power Handbook & Directory, which was published in the first
quarter of 1998, and is published every other year. Trade show and conference
revenues increased $24.4 million, or 246.3%, to $34.3 million. Approximately
$23.4 million of the increase was due to the first-time inclusion of the
operations of Mecklermedia. In addition, in the first quarter of 1999, Penton
held the A/E/C SYSTEMS Information Technology Pavilion at CONEXPO - CON/AGG and
the Restaurant Hospitality Kids Marketing conference for the first time, with
combined revenues of approximately $0.6 million. Also, revenues for the Wireless
Symposium/Portable by Design Conference & Exhibition increased $0.3 million over
the same prior year period.
Printing revenues decreased $1.9 million, or 9.3%, bringing total
segment revenue to $18.2 million. Sales to external customers decreased $0.6
million or 9.7% to $5.4 million, while intercompany sales decreased $1.3
million, or 9.1%, to $12.8 million.
Direct mail revenues decreased $0.4 million or 6.0% over the same prior
year period.
OPERATING EXPENSES
Operating expenses for Penton, after elimination of intersegment
charges, increased $29.5 million, or 29.5%, from $100.1 million in 1998 to
$129.6 million in 1999. As a percentage of revenues, operating costs increased
from 89.6% in 1998 to 90.8% in 1999. The increase in percentage was due
primarily to the increase in depreciation and amortization related to the
acquisitions in the second half of 1998 and the first half of 1999 and to the
change in Penton's goodwill amortization policy for acquired trade shows which
reduced the write-off period from 40 years to 20 years.
Editorial, Production and Circulation
Total editorial, production and circulation expenses, after elimination
of intersegment charges, grew to $59.3 million in 1999 compared with $50.2
million in 1998, representing an increase of $9.1 million, or 18.1%. As a
percentage of revenues, editorial, production and circulation expenses decreased
from 44.9% in 1998 to 41.5% in 1999. The decrease is due largely to the
acquisition of DM Publishing in August 1998; higher margins earned from the
Mecklermedia trade shows which were acquired in November 1998, and to production
improvements.
Media Services editorial, production and circulation expenses grew $9.3
million, or 21.2%, due to the DM Publishing acquisition in August 1998, which
accounted for $1.4 million of the increase; the Mecklermedia acquisition in
November 1998, which accounted for an additional $8.9 million in costs, and the
New Hope acquisition in May 1999, which accounted for an additional $1.3 million
in costs. These costs were offset by costs incurred related to the biennial
Fluid Power Handbook and Directory, which was published in the first quarter of
1998, were not incurred in 1999 because the directory is published every other
year. In addition, costs related to the Company's core publishing operations
were down due to the advertising slowdowns primarily in the electronics and
computer markets.
Editorial, production and circulation expenses for the Printing segment
decreased $0.8 million, or 25.2%, while costs related to the direct mail segment
decreased $0.5 million, or 10.8%. These decreases were due to lower sales volume
and cost cutting measures implemented by the Company.
17
<PAGE> 18
Selling, General, and Administrative
Total selling, general, and administrative expenses grew $10.1 million,
or 22.2%, to $55.9 million. As a percentage of revenues, selling, general and
administrative expenses decreased from 41.0% in 1998 to 39.2% in 1999. The
improvement in percentage of revenue is largely due to the addition of trade
shows and conferences to the Company's product mix.
Media Services selling, general, and administrative expenses increased
$9.7 million, or 27.9%. The increase was due to the DM Publishing acquisition in
August 1998, which accounted for $1.3 million of the increase; the Mecklermedia
acquisition in November 1998, which accounted for an additional $9.5 million in
costs, and the acquisition of New Hope in May 1999 which contributed $0.9 of
additional costs. Costs incurred related to the biennial Fluid Power Handbook
and Directory, which was published in the first quarter of 1998, were not
incurred in 1999 because the directory is published every other year. In
addition, costs related to the Company's core publishing operations decreased
due to advertising slowdowns primarily in the electronics and computer markets.
Selling, general, and administrative expenses of the printing segment
decreased $0.2 million while expenses for the direct mail segment decreased $0.1
million when compared with the prior year.
Depreciation and Amortization
Depreciation and amortization increased $10.3 million, or 247.1%, to
$14.4 million. The higher expense was primarily the result of the amortization
of intangible assets associated with the DM Publishing acquisition in August
1998 of approximately $0.5 million; the Mecklermedia acquisition in November
1998 of approximately $8.3 million; the New Hope acquisition in May 1999 of
approximately $0.3 million, and, beginning with the fourth quarter of 1998, the
change in Penton's goodwill amortization policy for acquired trade shows which
reduced the write-off period from 40 years to 20 years, which accounted for
approximately $0.6 million of additional amortization for the first six months
of 1999 compared to the same period in 1998. In addition, the acquisitions of
MFG in February 1999 and Jon Peddie in May 1999 contributed to the increase.
OPERATING INCOME
Overall, the Company's operating income for the six months increased
$1.6 million, or 13.7%, to $13.2 million from $11.6 million in the prior year.
Operating income as a percentage of revenue decreased from 10.4% to 9.2%, due
primarily to the increase in depreciation and amortization associated with the
Company's acquisitions.
Media Services operating income increased $1.4 million, or 7.2%.
Operating income from Penton's trade show and conference operations increased
$3.5 million due to the acquisition of Mecklermedia in November 1998. Publishing
operating income decreased $2.1 million, or 11.3%, due primarily to advertising
slowdowns primarily in the electronics and computer markets.
Operating income of the Printing segment increased $0.7 million to $1.2
million for the first six months of 1999 compared with $0.5 in the prior year.
Direct Mail operating income increased $0.2 million to an operating
loss of $0.1 million, compared with an operating loss of $0.3 million for the
same period in 1998.
INTEREST EXPENSE
Interest expense increased $11.2 million to $12.6 million due to
additional borrowings used to finance the DM Publishing acquisition in August
1998; the Mecklermedia acquisition in November 1998; the MFG acquisition in
February 1999, and the Jon Peddie acquisition in May 1999.
18
<PAGE> 19
EFFECTIVE TAX RATES
The effective tax rates were 67.8% and 41.6%, for the six months ended
June 30, 1999 and 1998, respectively. The Company's acquisition of DM Publishing
in August 1998 and Mecklermedia in November 1998 resulted in the recording of
goodwill. The amortization of such goodwill is recognized for financial
statement purposes but not deductible for tax purposes due to the structure of
these two purchase transactions.
Accordingly, the Company's effective tax rate has increased.
EXTRAORDINARY ITEM
The extraordinary item, which aggregated $2.2 million, net of $1.4
million in taxes, for the six months ended June 30, 1999, related to the
write-off of unamortized deferred finance costs associated with the partial
pay-down of senior debt with the proceeds from the common stock offering
completed in May 1999.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a widely used and commonly reported standard measure utilized by
analysts and investors in the analysis of the media industry. EBITDA is not a
measure of performance under GAAP because it excludes those items listed above
which are significant components in understanding and evaluating the Company's
financial performance. However, the following EBITDA information can provide
additional information for determining the ability of the company to meet its
debt service requirements and for other comparative analyses of the Company's
operating performance relative to other media companies. The Company's
calculation of EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 1,008 $3,681 $(1,828) $ 6,021
Interest expense 6,212 691 12,596 1,353
Provision for income taxes 6,511 2,619 691 4,285
Depreciation and amortization 7,193 2,129 14,426 4,156
Extraordinary item 2,156 -- 2,156 --
Miscellaneous, net (420) (82) (456) (85)
------- ------ ------- -------
EBITDA $22,660 $9,038 $27,585 $15,730
======= ====== ======= =======
</TABLE>
For the six months ended June 30, 1999, the Company's EBITDA increased
$11.9 million, or 75.4%, to $27.6 million from $15.7 million at June 30, 1998.
For the three months ended June 30, 1999, EBITDA increased $13.6 million, or
150.7%, to $22.7 million from $9.0 million for the same period in 1998. EBITDA
margins rose to 26.8% for the quarter compared with 15.3% in the same year ago
period, while margins for the six months ended June 30, 1999 and 1998 were 19.3%
and 14.1%, respectively. The increases were due primarily to the Spring Internet
World, Internet World UK and ISPCON Spring trade shows which were held in the
second quarter. These shows were part of the Mecklermedia acquisition in
November 1998.
19
<PAGE> 20
The Company's calculation of EBITDA by business segment is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Media Services
Publishing & other $10,821 $10,456 $19,741 $20,145
Trade shows & conferences 14,324 1,348 13,878 1,548
------- ------- ------- -------
25,145 11,804 33,619 21,693
Printing 1,281 676 2,196 1,703
Direct Mail 118 96 167 16
Corporate (previously in Media Services) (3,884) (3,538) (8,397) (7,682)
------- ------- ------- -------
EBITDA $22,660 $ 9,038 $27,585 $15,730
======= ======= ======= =======
</TABLE>
For the three months ended June 30, 1999, EBITDA for the Company's
publishing operations increased $0.4 million, or 3.5%, when compared with the
same prior year period. For the six months ended June 30, 1999, EBITDA for the
Company's publishing operations decreased $0.4 million, when compared with the
same prior year period. EBITDA increases for publishing operations, which were
primarily due to the acquisition of DM Publishing, were offset by advertising
decreases from slowdowns in the electronics and computer markets as noted above.
For the three and six months ended June 30, 1999, EBITDA for the Company's trade
show & conference operations increased $13.0 million and $12.3 million,
respectively, when compared with the same prior year period. These increase's
are due primarily to the acquired Mecklermedia trade shows noted above.
FOREIGN CURRENCY
The functional currency of the Company's foreign operations is their
local currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. Dollars at the rates of exchange on the balance sheet date;
income and expense are translated at the average rates of exchange prevailing
during the year. There were no significant foreign currency transaction gains or
losses during 1998 or for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, cash flow generated by the Company's operations has been
used to invest in capital assets, finance acquisitions and reduce debt. Excess
cash was used to pay dividends to Pittway Corporation, its former parent
company. The Company's principal sources of funds are cash flows from operations
and borrowings under its Revolving Credit Facility. The principal use of funds
consists of payments of principal and interest on its Senior Debt Facility and
capital expenditures. Capital expenditures totaled approximately $2.2 million
for the six months ended June 30, 1999. At June 30, 1999, the Company had $9.5
million available under its Revolving Credit Facility. The weighted average
interest rate on total debt was 8.3%.
In May, 1999 the Company completed a 6,430,000 common share offering
and received net proceeds of approximately $118.6 million which was used to
repay senior debt and for general corporate purposes, including the acquisition
of New Hope.
On August 7, 1998, the Company entered into a five-year, $75.0 million
unsecured revolving credit agreement, which included an option to increase the
facility to $100 million. The Company's short-term notes payable were refinanced
with this facility, which was also utilized to finance the cash portion of the
acquisition price of DM Publishing.
20
<PAGE> 21
On November 24, 1998, the Company entered into a credit agreement with
several banks under which it could borrow up to $325.0 million. The agreement
provides for a revolving loan facility of up to $25.0 million, a long-term loan
of $175.0 million (Term Loan A) and a long-term loan of $125.0 million (Term
Loan B). The proceeds of this credit agreement were used to repay Penton's debt
outstanding under the $75.0 million revolving credit facility obtained at the
spin-off date and to purchase Mecklermedia. On March 31, 1999 the Company and
the banks amended this agreement to enable the Company to borrow an additional
$15.0 million as part of the Term Loan B facility. At June 30, 1999, $246.2
million was outstanding under the credit agreement.
Based upon current and anticipated levels of operations, we believe
that our cash on hand and cash flow from operations, combined with borrowings
available under our credit facilities, will be sufficient to enable us to meet
our current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs.
However, actual capital requirements may change, particularly as a result of any
acquisitions that we may make. Our ability to meet current and anticipated
operating requirements will be dependent upon our future performance, which, in
turn, will be subject to general economic conditions and to financial, business
and other factors, including factors beyond our control. Depending on the
nature, size and timing of future acquisitions, we may be required to raise
additional capital through additional financing arrangements or the issuance of
private or public debt or equity securities of the Company. We cannot assure you
that such additional financing will be available on acceptable terms.
Substantially all of our debt bears interest at floating rates. Therefore, our
liquidity and financial condition is and will continue to be affected by changes
in prevailing interest rates.
SEASONALITY
Historically, the Company has not experienced significant seasonality
in its business. The introduction of trade shows and conferences into the
Company's product mix through the acquisitions of Independent Exhibitions, Ltd.,
and Industrial Shows of America in late 1997, the acquisition of Mecklermedia in
November 1998 and the acquisition of New Hope in May 1999 has changed the
seasonal pattern of revenue and profit, as all four companies have pronounced
seasonal patterns in their businesses. The majority of the trade shows owned by
Industrial Shows of America and Mecklermedia are held in the second and fourth
quarters and, accordingly, the majority of their revenue is recognized in these
quarters. Further, the majority of the Independent Exhibitions, Ltd. shows
historically have been held in the fourth quarter and the New Hope shows have
been held in the first and fourth quarters. Accordingly, the Company
anticipates that these acquisitions will have a positive impact on revenue and
profit for these quarters.
The Company may also experience seasonality fluctuations as trade shows
and conferences held in one period in the current year may be held in a
different period in future years.
INFLATION
The impact of inflation on the Company's results of operations has not
been significant in recent years.
ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Company was required to
adopt this statement in the first quarter of 2000. In June 1999, the SFAB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 an amendment of SFAB
Statement No 133" ("SFAS 137"). SFAS No. 137 deferred the effective date of SFAS
No. 133 for all fiscal quarters of all fiscal years beginning after June 15,
2000. Even though the Company has entered into an interest rate cap and swap
agreement, Management does not believe these statements will have a material
impact on the Company's business, results of operations or financial condition.
21
<PAGE> 22
YEAR 2000
General:
The "Year 2000 Issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Penton's Year 2000 Project ("Project") is proceeding as scheduled. Some
of our systems and related software are already Year 2000 compliant, however the
Project is designed to bring the remaining software and systems into Year 2000
compliance in time to minimize any significant detrimental effects on
operations. Our Project covers information systems infrastructure, financial and
administrative systems, production and circulation operating systems and
significant vendors and customers.
Project:
The first component of the Project is to identify the internal business
systems and non-information-technology systems of the Company and its operating
subsidiaries that are susceptible to system failures or processing errors as a
result of the Year 2000 issue. This effort is substantially complete with all
business systems identified and priorities established for repair or
replacement. Those systems considered most critical to continuing operations are
being given the highest priority.
The second component of the Project involves the actual remediation and
replacement of the various business systems. The Company and its operating
subsidiaries are using both internal and external resources to complete this
process. Systems ranked highest in priority have either been remediated or
replaced or scheduled for remediation or replacement including the replacement
of the primary general ledger and accounts payable systems with programs from a
national software vendor. The remediation and replacement of internal systems
are on schedule with final testing and certification for readiness estimated to
be completed by October, 1999.
As part of the second component of the Project, significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations after January 1, 2000, have been identified and steps are
being undertaken in an attempt to reasonably ascertain their state of Year 2000
readiness through questionnaires, inquiries and other available means. This
process is progressing according to plan.
Costs:
It is currently estimated that the aggregate incremental cost of the
Company's Project efforts will be approximately $0.5 million to $0.8 million, of
which approximately $0.5 million has been spent. These costs are being expensed
as they are incurred and are being funded through operating cash flow. These
amounts do not include any costs associated with the implementation of
contingency plans, which are in the process of being developed to supplement the
Company's existing Disaster Recovery Plan. The costs associated with the
replacement of computerized systems, hardware or equipment is currently
estimated to be approximately $0.7 million, substantially all of which would be
capitalized, are not included in the above estimates.
Risks:
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the
22
<PAGE> 23
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers, customers, and the public infrastructure,
such as utility companies, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
the Company's results of operations, liquidity or financial condition. Our Year
2000 Project is expected to significantly reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of its material external agents. The Company believes
that, with the implementation of new business systems and completion of the
Project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
The Company's Project readiness program is an ongoing process and the
estimates of costs and completion dates for various components of the Project
readiness program described above are subject to change. Based on the Company's
assessment and evaluation of its year 2000 readiness, it believes that the most
reasonably likely worst case scenario includes a temporary shut-down of Penton's
press operation. We estimate that a one-month stoppage of our publishing
operations could lead to a loss of operating income of about $9.4 million.
FORWARD LOOKING STATEMENTS
This quarterly report, other than historical financial information,
contains forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, that involve a number of risks and uncertainties.
Important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements include pending litigation,
government regulation, competition and technological change, intellectual
property rights, capital spending, international operations, and the Company's
acquisition strategies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relative to the Company's market risk sensitive instruments
is presented under Item 7a of the registrant's Annual Report on Form 10-K for
the year ended December 31, 1998.
INTEREST RATE RISK
Because the Company's obligations under the bank credit agreement bear
interest at floating rates, the Company is sensitive to changes in prevailing
interest rates. The Company uses derivative instruments to manage its long-term
debt interest rate exposure, rather than for trading purposes. A 10% increase or
decrease in market interest rates that effect the Company's interest rate
derivative instruments would not have a material impact on earnings during the
next year.
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
February 8, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
April 20, 1999 Item 5. Other Events
May 18,1999 Item 5. Other Events
June 11, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
August 10, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
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.
Penton Media, Inc.
-----------------------------------
(Registrant)
By: /s/ Joseph G. NeCastro
-----------------------------------
Joseph G. NeCastro
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 16, 1999
24
<PAGE> 25
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
27.1 Financial Date Schedule
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,516
<SECURITIES> 0
<RECEIVABLES> 42,855
<ALLOWANCES> 5,651
<INVENTORY> 2,289
<CURRENT-ASSETS> 69,894
<PP&E> 81,688
<DEPRECIATION> 52,843
<TOTAL-ASSETS> 622,565
<CURRENT-LIABILITIES> 72,525
<BONDS> 246,240
0
0
<COMMON> 313
<OTHER-SE> 278,967
<TOTAL-LIABILITY-AND-EQUITY> 622,656
<SALES> 142,756
<TOTAL-REVENUES> 142,756
<CGS> 59,253
<TOTAL-COSTS> 55,918
<OTHER-EXPENSES> 14,426
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 12,596
<INCOME-PRETAX> 1,019
<INCOME-TAX> 691
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 2,156
<CHANGES> 0
<NET-INCOME> (1,828)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
