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Filed Pursuant To Rule 424(b)(4)
Registration No. 333-75555
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PROSPECTUS
MAY 7, 1999
[PENTON LOGO]
PENTON MEDIA, INC.
6,500,000 SHARES OF COMMON STOCK
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PENTON:
- - We are a leading business media company providing industry-focused
publications, trade shows and conferences and Web sites.
- - Penton Media, Inc.
1100 Superior Avenue
Cleveland, Ohio 44114
(216) 696-7000
- - NYSE SYMBOL: PME
THE OFFERING:
- - Penton is offering 6,250,000 of the shares and existing stockholders are
offering 250,000 of the shares.
- - The underwriters have an option to purchase an additional 180,000 shares from
Penton and 795,000 shares from existing stockholders to cover over-
allotments.
- - There is an existing trading market for these shares. The reported last sales
price on May 6, 1999 was $20.00 per share.
- - Penton plans to use the proceeds from the offering to repay debt and for
general corporate purposes, including acquisitions. Penton will not receive
any proceeds from the shares sold by the selling stockholders.
- - Closing: May 12, 1999.
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Per Share Total
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<S> <C> <C>
Public offering price: $ 19.50 $126,750,000
Underwriting fees: $ 0.92 $ 5,980,000
Proceeds to Penton: $ 18.58 $116,125,000
Proceeds to selling stockholders: $ 18.58 $ 4,645,000
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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Joint Book-Running Managers
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
------------------------
BEAR, STEARNS & CO. INC. MERRILL LYNCH & CO.
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
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Smart Media
[graphic]
[graphic from floor of trade show]
In Person
Penton produces 118 trade shows and conferences worldwide, including Internet
World, a leading Internet business and technology event.
In Print
Penton publishes 50 specialized trade magazines that link buyers and sellers in
the industries we serve.
[graphic of trade magazines]
[graphic of page from web site]
Online
Penton offers a broad range of electronic media, including 42 Web sites and
other customized online products.
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................... 1
Risk Factors............................... 8
Use of Proceeds............................ 13
Price Range of Common Stock and Dividend
Policy................................... 13
Capitalization............................. 14
Selected Historical Financial
Information.............................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 25
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PAGE
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Management................................. 39
Principal and Selling Stockholders......... 43
United States Federal Income Tax
Considerations to Non-U.S. Holders....... 46
Underwriting............................... 49
Legal Matters.............................. 51
Experts.................................... 51
Where You Can Find More Information........ 52
Index to Financial Statements.............. F-1
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
business information and the financial statements and related notes that appear
elsewhere in this prospectus and in the documents that we incorporate by
reference into this prospectus. You may obtain the information incorporated by
reference into this prospectus without charge by following the instructions in
the "Where You Can Find More Information" section of this prospectus. Market and
industry data used in this prospectus are based on independent industry
publications, other publicly available information or the good faith belief of
our management. Although we believe that these sources are reliable, the
accuracy and completeness of the information is not guaranteed and has not been
independently verified. Our logo and some of the titles and logos of our
publications and media services referred to in this prospectus are trademarks of
Penton Media, Inc. Each trade name, trademark or service mark of any other
company appearing in this prospectus is the property of its holder. The
information contained in this prospectus assumes that the underwriters do not
exercise the over-allotment option.
PENTON MEDIA
OUR BUSINESS
We are a leading business media company. We provide media products that
deliver proprietary business information to owners, operators, managers and
professionals in the industries we serve. Through these products, we offer
industry suppliers multiple ways to reach their customers and prospects. Our
products include 50 specialized trade magazines, 118 trade shows and
conferences, 42 Web sites and other electronic media products. We have an
experienced management team with an average of 24 years in the media industry.
For the year ended December 31, 1998, our pro forma revenues were $303.8 million
and our pro forma EBITDA was $63.5 million.
We believe we have leading media products in each of the ten industry
sectors we serve. We publish Electronic Design and Machine Design, two of the
top ten trade magazines in the United States in 1997 based on advertising
revenues, according to Advertising Age magazine. We also produce Spring Internet
World, the fastest growing trade show in the United States in 1997 based on net
exhibit space, according to the 1998 Tradeshow Week 200 directory. We are
structured along industry rather than product lines. This enables us to promote
our related group of products, including publications, trade shows and
conferences and Web sites, to our more than 16,000 customers.
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into a leading business media company serving a range of
industrial, service and technology markets. We have successfully introduced many
new products in the industries we serve. We also have acquired six companies
since January 1997, which accounted for $98.4 million in pro forma revenues in
1998. These acquisitions and product launches have diversified our operations
by:
- strengthening our presence in our existing markets;
- providing us entry into new, growing markets;
- expanding our presence in higher-margin trade shows and conferences;
and
- increasing our international product offerings.
In 1998, 66.1% of our pro forma revenues were from publications, 25.6% were from
trade shows and conferences and 8.3% were from other sources.
We became an independent company as a result of our spinoff from Pittway
Corporation in August 1998. Our independence has enabled us to focus on building
our business through acquisitions and internal growth. This offering of our
common stock will help us reduce our debt, providing us with resources to pursue
our growth strategy. This offering will also increase the number of our shares
of common stock available for trading by investors.
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OUR INDUSTRY
The business-to-business communications industry is one of the largest and
fastest growing segments of the media industry. Veronis, Suhler & Associates
reports that our market is larger than radio broadcasting, outdoor media,
consumer book publishing and consumer magazine publishing, based on projected
spending in 1998. In addition, Veronis, Suhler & Associates projects that the
business-to-business communications industry will experience an 8.9% compound
annual growth rate through 2002 and will surpass $26.0 billion in revenue by
2002. Over the same period, Veronis, Suhler & Associates forecasts that business
magazine revenues will grow annually at a rate of 8.0% and trade show revenues
at a rate of 10.1%.
The business-to-business communications industry is highly fragmented.
There are about:
- 1,500 publishing companies, according to the American Business Press;
- 5,000 trade magazine titles, according to Oxbridge Communications; and
- 3,900 trade shows in the United States and Canada produced by more than
2,100 independent companies and industry associations, according to the
1999 Tradeshow Week Data Book and Veronis, Suhler & Associates,
respectively.
OUR PRODUCTS AND SERVICES
Publications. We are one of the largest specialized trade magazine
publishers in the United States, according to the American Business Press. In
1998, our publications represented about $200.7 million of our pro forma
revenues and about $30.9 million of our pro forma EBITDA.
- We publish 50 specialized trade magazines and 32 directories and buyer's
guides.
- 27 of our magazines serve industry segments that are measured by audit
services; of these, 24 are ranked either #1 or #2 in their industry
segment.
- We publish Electronic Design and Machine Design, two of the top ten trade
magazines in the United States in 1997 based on advertising revenues,
according to Advertising Age magazine.
Trade Shows and Conferences. We have significantly expanded our trade show
and conference business in recent years. In 1998, our trade shows and
conferences represented about $77.7 million of our pro forma revenues and about
$29.1 million of our pro forma EBITDA.
- We produce 118 trade shows and conferences worldwide.
- Our revenues from trade shows and conferences increased to 26.0% of our
pro forma revenues in 1998 from 2.8% of revenues in 1996.
- We produce Spring Internet World, the fastest growing trade show in the
United States in 1997 based on net exhibit space, according to the 1998
Tradeshow Week 200 directory.
Electronic Media. With the growing business use of the Internet, we have
expanded our product offerings to include Web sites. These sites offer
proprietary content, targeted advertising, publication subscriber services and
trade show and conference information and registration. Electronic media
products are a growing part of our business and represented less than 1.0% of
our revenues in 1998.
- We produce 42 Web sites that collectively receive about 3.0 million page
views per month.
- We provide editorial content and statistics, directories and product
selection information in electronic format.
Other. We also offer our customers printing and direct mail marketing
services. In 1998, our printing and direct mail marketing services represented
about $25.4 million of our pro forma revenues and about $3.4 million of our pro
forma EBITDA.
- Our printing press produces nearly all of our magazines and about 30
titles for other publishers.
- Our Curtin & Pease/Peneco subsidiary provides direct mail marketing
services and advertising/promotion services primarily to the
pharmaceutical, healthcare and business services markets.
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- On February 11, 1999, we announced plans to explore strategic
alternatives with respect to our printing press that would allow us to
more closely focus on our principal businesses. We had previously
announced similar plans with respect to our direct mail marketing
services.
OUR INDUSTRIES
The ten industries we serve are set forth below.
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% OF 1998
TRADE SHOWS PRO FORMA
INDUSTRY PUBLICATION(S) AND CONFERENCES WEB SITES REVENUE
- ------------------------------ ------------------------- -------------------- ---------------------- ---------
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1. Internet Internet World Internet World iw.com 24%
Boardwatch ISPCON boardwatch.com
2. Design/Engineering Machine Design A/E/C SYSTEMS machinedesign.com 16
Computer-Aided IMET pdem.net
Engineering
3. Electronics Electronic Design Wireless Symposium/ elecdesign.com 16
EE Product News Portable by Design eepn.com
Microwaves & RF wirelessportable.com
4. Manufacturing American Machinist Computers in cimshow.co.uk 14
New Equipment Digest Manufacturing newequipment.com
5. Food/Retail/Hospitality Restaurant Hospitality Kids Marketing lhonline.com 8
Modern Baking Conference
6. Management IndustryWeek IW's Best Plants industryweek.com 6
IW Growing Companies Conferences iwgc.com
7. Supply Chain/Aviation Transportation & Supply Chain Expo atwonline.com 6
Distribution mhesource.com
Air Transport World
8. Government/Compliance Government Product News Champions of Safety gpn-online.com 4
Occupational Hazards Conference ohinteractive.com
9. Mechanical Systems/ Contracting Business HVAC Comfortech contractingbusiness.com 4
Construction Show hpac.com
10. Leisure International 2
Leisure
Industry Week
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OUR GROWTH STRATEGY
Our objective is to be the leading business media company in the industries
we serve. To achieve this objective, we intend to:
- strengthen our market positions by introducing new products and acquiring
related media businesses;
- expand our trade show and conference business;
- acquire leading positions in new, growing markets;
- expand market positions globally; and
- develop Web sites that capture growing Internet business spending.
RECENT DEVELOPMENTS
On March 23, 1999, we entered into a non-binding letter of intent to
acquire a business media company. The letter of intent provides for an aggregate
purchase price of $80.0 million, to be paid at closing half in cash and half in
our common stock, based on the price at which we sell stock in this offering,
and a contingent payment of up to $15.0 million. The contingent payment, if
earned, would be paid out over the three years following the closing of the
acquisition and would be earned if the operations of the business exceed
specified targets in each of these years. We cannot assure you that this
proposed acquisition will be consummated. The transaction is subject to a number
of conditions, including, among others, the satisfactory completion of due
diligence, negotiation of
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definitive documentation, approval by our board of directors, the completion of
this offering and obtaining necessary consents from our lenders and other third
parties.
On November 24, 1998, we acquired Mecklermedia Corporation through a tender
offer for $273.8 million in cash. Mecklermedia is a leading business media
company serving the Internet industry. Mecklermedia produces the Internet World
trade shows and Internet World magazine, targeting Internet professionals, and
the ISPCON conferences and Boardwatch magazine, targeting Internet service
providers. As part of this acquisition, we sold 80.1% of internet.com LLC
("internet.com") to Alan Meckler. Internet.com provides a network of Web sites
for Internet professionals that allows advertisers to target specific Internet
audiences. On April 15, 1999, internet.com filed a registration statement for
its initial public offering. We currently own a 19.0% interest in internet.com.
We also own a warrant to increase our ownership interest to 27.4%. The warrant
will expire upon completion of internet.com's initial public offering, but we
intend to exercise the warrant prior to its expiration. If internet.com
completes its offering, our ownership percentage would decrease.
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THE OFFERING
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Common stock offered by:
Penton Media, Inc.......................... 6,250,000 shares
Selling stockholders....................... 250,000 shares
Total................................... 6,500,000 shares
Common stock to be outstanding
after the offering......................... 29,031,713 shares, based on 22,781,713 shares
outstanding as of March 31, 1999. This does
not include 180,000 shares we will issue if
the underwriters exercise their
over-allotment option, 1,111,650 shares of
our common stock issuable upon vesting of
deferred share awards or exercise of
outstanding options under our various equity
plans and shares of common stock in an
aggregate amount not exceeding $1.3 million
(based on current exchange rates) that may be
issued pursuant to contingent convertible
notes issued in connection with the
acquisition of some of our United Kingdom
trade shows.
Use of proceeds.............................. We intend to use the estimated net proceeds
of about $115.4 million, based on an offering
price of $19.50 per share, that we will
receive from this offering to repay a portion
of our borrowings outstanding under our
existing credit agreement and for general
corporate purposes, including to pay a
portion of the cash consideration for our
proposed acquisition. We will not receive any
of the proceeds from the sale of our common
stock by the selling stockholders.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present our summary financial data. The summary
historical statement of income data for each of the three years in the period
ended December 31, 1998 and the summary balance sheet data as of December 31,
1998 have been derived from our audited consolidated financial statements and
related notes, which appear elsewhere in this prospectus.
You should read the following information together with our historical and
pro forma consolidated financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.
We have presented summary unaudited pro forma statement of income data for
the year ended December 31, 1998. "Pro forma as adjusted" means that we have
presented the data as if we completed the following transactions on January 1,
1998, instead of later in 1998, and everything else had remained the same:
- acquisition of Donohue Meehan Publishing and related issuance of
1,541,638 shares of our common stock;
- acquisition of Mecklermedia Corporation and related borrowings under our
credit agreement;
- sale of an 80.1% interest in internet.com;
- other adjustments to reflect the combined results of Penton as an
independent public company; and
- our sale of 6,250,000 shares of our common stock in this offering, and
the application of the net proceeds, at an offering price of $19.50 per
share, after deducting underwriting discounts and commissions and
estimated offering expenses.
The summary unaudited pro forma statement of income data for the year ended
December 31, 1998 has been derived from our unaudited pro forma consolidated
financial statements and related notes, which appear elsewhere in this
prospectus. This unaudited pro forma financial information is not intended to
project our financial position or results of operations for any future period.
You should also consider the following when reading the summary statement
of income data in the tables below:
- EBITDA is earnings from operations before interest, taxes, depreciation
and amortization.
- EBITDA margin is EBITDA divided by total revenues.
We have included EBITDA because we believe that investors find it to be a
useful tool for measuring a company's ability to generate cash. EBITDA does not
represent cash flow from operations, as defined by generally accepted accounting
principles. In addition, you should not consider EBITDA as a substitute for net
income or net loss, as an indicator of our operating performance or cash flow or
as a measure of liquidity.
We have presented our summary balance sheet data as of December 31, 1998,
as adjusted, as if our offering of 6,250,000 shares of our common stock and the
application of the net proceeds had occurred on December 31, 1998 at an offering
price of $19.50 per share, after deducting underwriting discounts and
commissions and estimated offering expenses.
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<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
PRO FORMA
AS ADJUSTED
1996 1997 1998 1998
-------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF INCOME DATA:
Revenues:
Media services............................... $166,631 $181,109 $207,682 $ 278,398
Printing..................................... 8,869 10,526 11,657 11,657
Direct mail.................................. 13,057 13,296 13,779 13,779
-------- -------- -------- ---------
Total revenues............................ 188,557 204,931 233,118 303,834
Operating expenses............................. 170,058 179,634 206,399 271,294
-------- -------- -------- ---------
Operating income............................... 18,499 25,297 26,719 32,540
Interest expense............................... 34 841 5,558 17,984
Other, net..................................... (17) (1,050) 1,028 (1,517)
Provision for income taxes..................... 7,526 10,632 9,243 12,148
-------- -------- -------- ---------
Net income..................................... $ 10,956 $ 14,874 $ 10,890 $ 3,925
======== ======== ======== =========
Diluted earnings per share..................... $ 0.52 $ 0.70 $ 0.50 $ 0.14
Diluted average shares outstanding............. 21,240 21,240 21,882 28,132
CASH FLOWS AND OTHER DATA:
Cash flows:
Operating.................................... $ 20,507 $ 23,186 $ 25,749 $ 37,380
Investing, includes capital expenditures..... (4,722) (53,192) (271,157) (271,157)
Financing.................................... (15,888) 30,854 246,993 362,343
Capital expenditures, excluding businesses
acquired..................................... 4,822 5,450 5,775 5,775
Depreciation and amortization.................. 5,911 6,551 10,720 30,917
EBITDA:
Media services............................... 21,016 28,757 34,009 60,027
Printing..................................... 3,415 3,763 3,144 3,144
Direct mail.................................. (21) (672) 286 286
-------- -------- -------- ---------
Total EBITDA.............................. 24,410 31,848 37,439 63,457
EBITDA margin.................................. 12.9% 15.5% 16.1% 20.9%
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AS OF DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
Cash........................................................ $ 3,953 $ 41,628
Working capital............................................. (20,709) 16,966
Goodwill and other intangibles.............................. 387,612 387,612
Total assets................................................ 479,301 516,976
Total debt.................................................. 307,000 229,325
Stockholders' equity........................................ 87,489 202,839
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RISK FACTORS
An investment in Penton's common stock involves risk. In addition to the
other information contained or incorporated by reference in this prospectus, you
should carefully consider the following risk factors in deciding whether to
invest in our common stock.
WE DEPEND ON ADVERTISING REVENUES, WHICH DECREASE DURING ECONOMIC DOWNTURNS AND
FLUCTUATE FROM PERIOD TO PERIOD.
For the year ended December 31, 1998, about 70.0% of our revenues came from
advertising. Our advertising revenues fluctuate with general economic cycles.
Any material decline in advertising revenue would have a material adverse effect
on our business, results of operations and financial condition. Historically,
advertising revenues have increased during economic recoveries and decreased
during both general economic downturns and regional economic recessions. In the
event of a general economic downturn or a recession, our advertisers may reduce
their advertising budgets or intensify their attempts to negotiate lower
advertising rates.
Our advertising revenues may fluctuate from period to period based on the
spending patterns of our customers. Many of our large customers may concentrate
their advertising expenditures around major new product launches. We cannot
always know or predict when our large customers intend to launch new products.
We cannot predict any related fluctuation in our advertising revenues.
IF WE ARE UNABLE TO COMPLETE ACQUISITIONS OR INTEGRATE ACQUISITIONS EFFECTIVELY,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We intend to continue to grow in part through acquisitions. We may not be
able to identify suitable candidates or make acquisitions on terms that are
favorable to us. In addition, we may not be able to successfully complete any
acquisitions, including our proposed acquisition of a business media company, or
integrate acquisitions into our existing operations or effectively manage those
businesses once integrated. If we are unable to integrate our recent or future
acquisitions successfully, our business could be adversely affected.
FINANCING OF FUTURE ACQUISITIONS MAY INCREASE OUR DEBT, REDUCE OUR CASH AND
ADVERSELY AFFECT OUR STOCKHOLDERS.
We may finance future acquisitions with internally generated funds, bank
borrowings, public offerings or private placements of debt securities, or
through a combination of these sources. This may have the effect of increasing
our debt and reducing our cash available for other purposes. In addition,
although it is unlikely in the foreseeable future due to tax considerations, we
could issue additional shares of our common stock as consideration for
acquisitions. See "--Contingent Tax Liability Related to the Spin Off of Our
Common Stock by Pittway." If we do, our stockholders may experience dilution.
ACQUISITIONS MAY DIVERT OUR MANAGEMENT'S ATTENTION AWAY FROM RUNNING OUR
COMPANY.
Acquisitions are an important part of our business strategy. Acquisitions
may require substantial attention from, and place substantial additional demands
upon, our senior management. This may divert their attention from our existing
businesses, making it more difficult to manage effectively. In addition,
unanticipated events or liabilities relating to these acquisitions or the
failure to retain key personnel could have a material adverse effect on our
business, results of operations and financial condition.
THE TERMS OF OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO PURSUE OUR GROWTH
STRATEGY.
The terms of our credit agreement impose restrictions on our ability to,
among other things, borrow and make investments, acquire other businesses, and
make capital expenditures and distributions on our capital stock. In addition,
our credit agreement requires us to satisfy specified financial covenants. Our
ability to comply with these provisions depends, in part, on factors over which
we may have no control. These restrictions could adversely affect our ability to
pursue our growth strategy. If we breach any of our financial covenants or fail
to make scheduled payments, our creditors could declare all amounts owed to them
to be immediately due and payable. We may not have available funds sufficient to
repay the amounts declared due and payable, and we may have to sell assets to
repay those amounts. Our credit agreement is secured by substantially all of our
assets, including the stock of our subsidiaries. If we cannot repay all amounts
that we have borrowed under our credit agreement, our lenders could proceed
against our assets.
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THE PROFITABILITY AND SUCCESS OF OUR TRADE SHOWS AND CONFERENCES COULD BE
ADVERSELY AFFECTED IF WE LOSE SCHEDULED DATES AND LOCATIONS OF THOSE EVENTS.
As the trade show and conference industry grows, we increasingly compete
for desirable dates and venues for our trade shows and conferences. As this
competition intensifies, we could lose important engagements. If we lose dates
and venues for events, the profitability and future success of these events
could be adversely affected. Although we generally reserve venues and dates more
than a year in advance, these reservations are not binding until we sign a
contract with a facility operator. These contracts generally hold venues and
dates for only one year. In addition, circumstances beyond our control, like
natural disasters, labor strikes and transportation shutdowns, could present
financial risk to our trade shows and conferences, which could have an adverse
effect on our business, results of operations and financial condition.
A SIGNIFICANT DECLINE IN OUR INTERNET TRADE SHOW AND CONFERENCE BUSINESS COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Going forward, we anticipate that our Internet trade shows and conferences
will produce a significant portion of our cash flow. As a result, a significant
decline in the performance of these trade shows and conferences could adversely
affect our business, results of operations and financial condition.
WE DEPEND ON TRADE SHOW AND CONFERENCE AND PUBLISHING REVENUES, WHICH VARY DUE
TO SEASONALITY.
Our trade shows and conferences and publishing revenues are seasonal. Our
revenue typically reaches its highest level during the second and fourth
quarters of each calendar year. As a result, we could incur a net loss during
the first and third calendar quarters. This is due largely to the timing of our
trade shows and conferences and the general increase in publishing revenue in
the second and fourth quarters.
CONTINGENT TAX LIABILITY RELATED TO THE SPIN OFF OF OUR COMMON STOCK BY PITTWAY.
In connection with the tax-free spin off of our common stock by Pittway to
its stockholders in August of 1998, we agreed not to take any action that would
cause the spin off to be taxable to Pittway under section 355 of the Internal
Revenue Code. We also agreed to indemnify Pittway for any liability suffered by
it if we were to take any action that would cause the spin off to be taxable to
Pittway. The spin off would become taxable to Pittway, on a presumptive basis,
if 50.0% or more of our common stock is acquired during a period that ends two
years from the date of the spin off. Accordingly, our ability to raise capital
or consummate acquisitions through additional issuances of equity securities may
be impaired during this period. We believe that this offering and the major
transactions involving our common stock that have occurred since the spin off
and that to our knowledge are currently contemplated to occur would not trigger
the presumption. If, however, the Internal Revenue Service were to assert that
any future major transactions involving our common stock during the two-year
period resulted in the spin off being taxable to Pittway on a presumptive basis,
we cannot assure you, in light of the lack of specific guidance in this area of
the tax law, that we could successfully rebut the presumption. If any such
liability became due and payable by us to Pittway, the payment of such liability
could have a material adverse effect on our financial condition.
COMPETITION MAY ADVERSELY AFFECT OUR EARNINGS AND RESULTS OF OPERATIONS.
We experience intense competition for our products and services. If we fail
to compete effectively, our earnings and results of operations could be
adversely affected. We compete with several much larger international firms that
operate in many markets and have broad product offerings in publishing and trade
shows and conferences. We compete for readers and advertisers in the publishing
marketplace and for trade show and conference expenditures, sponsorships and
show attendees in the trade show and conference marketplace. Because our
industry is relatively easy to enter, we anticipate that additional competitors,
some of whom may have greater resources than Penton, may enter these markets and
intensify competition.
OUR OVERALL OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS.
We have operations outside the United States. We intend to expand further
into international markets. We have limited experience in developing localized
versions of our publications and trade shows and conferences and
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in marketing and distributing them internationally. In addition, the following
risks in international markets could have a material adverse effect on our
future international operations and, consequently, on our business, results of
operations and financial condition:
- the uncertainty of product acceptance by different cultures;
- the risks of divergent business expectations or cultural incompatibility
inherent in establishing joint ventures with foreign partners;
- difficulties in staffing and managing multi-national operations;
- currency fluctuations;
- general economic and political uncertainties and potential for social
unrest;
- limitations on our ability to enforce legal rights and remedies;
- state-imposed restrictions on the repatriation of funds; and
- potentially adverse tax consequences.
NEW PRODUCT LAUNCHES OR ACQUIRED PRODUCTS MAY REDUCE OUR EARNINGS OR GENERATE
LOSSES.
Our future success will depend in part on our ability to continue offering
new products that successfully gain market acceptance by addressing the needs of
specific audience groups within our targeted industries. Our efforts to
introduce new or integrate acquired products may not be successful or
profitable. The process of internally researching and developing, launching,
gaining acceptance and establishing profitability for a new product, or
assimilating and marketing an acquired product, is both risky and costly. New
products generally incur initial operating losses.
In addition, we have invested in, and intend to continue to invest in, the
development of various Internet products, which are currently generating losses.
The Internet is still in the early stages of development as a commercial medium.
These products may not be successful or profitable.
Costs related to the development of new products are expensed as incurred
and, accordingly, our profitability from year to year may be adversely affected
by the number and timing of new product launches.
ANY INCLUSION OF INTERNET.COM'S RESULTS IN OUR RESULTS OF OPERATIONS COULD
MATERIALLY ADVERSELY AFFECT OUR RESULTS AND FINANCIAL CONDITION.
We currently own a 19.0% interest in internet.com. We also own a warrant to
increase our ownership interest to 27.4%. The warrant will expire upon
completion of internet.com's initial public offering, but we intend to exercise
the warrant prior to its expiration. Internet.com has filed a registration
statement with the SEC for its proposed initial public offering. If internet.com
completes its offering, our ownership percentage would decrease. However, we
believe that after the exercise of the warrant and completion of internet.com's
initial public offering, we will own at least 20.0% of internet.com. If we own
20.0% or more of internet.com, we will be required to include in our results of
operations our proportionate share of internet.com's income or loss.
Internet.com has incurred substantial losses since its inception and expects to
incur losses for the foreseeable future. The inclusion of our proportionate
share of internet.com's losses in our results of operations could materially
adversely affect our future results of operations. Any losses that we would be
required to include in our results of operations would be limited to our
approximately $4.5 million investment in internet.com. If, however, our
ownership interest decreases to less than 20.0%, we would be required to value
our investment at the market price. This would not affect our results of
operations because any changes in market value would be recorded as a component
of stockholders' equity. However, fluctuations in the market price of
internet.com's stock could cause our balance sheet to fluctuate significantly
from period to period.
RELIANCE ON PRINCIPAL VENDORS COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on our principal vendors. Currently, our principal vendors are
paper suppliers and the United States Postal Service. In the event we sell our
printing business, we anticipate that our printing supplier will also become a
principal vendor. If any of our principal vendors discontinues or temporarily
terminates its services and we are
10
<PAGE> 13
unable to find adequate alternatives, we may experience increased prices,
interruptions and delays in services. These factors could adversely affect our
business.
INCREASES IN PAPER OR POSTAGE COSTS WOULD CAUSE OUR EXPENSES TO INCREASE AND MAY
ADVERSELY AFFECT OUR PROFITABILITY.
Paper is a significant expense relating to our print products and direct
mail solicitations, accounting for about 8.1% of our total operating expenses in
1998. Significant increases in paper prices, which have been volatile in recent
years, may have an adverse effect on our business. We do not use forward
contracts and all of our paper supply vendor arrangements provide for price
adjustments on a quarterly basis to reflect then-prevailing market prices.
Postage for magazine distribution and direct mail solicitations is also a
significant expense for us, accounting for about 6.8% of our total operating
expenses in 1998. Significant increases in postage prices may have an adverse
effect on our business. We use the United States Postal Service for domestic
distribution of substantially all of our products and marketing materials.
LOSS OF KEY PERSONNEL COULD IMPAIR OUR SUCCESS.
We benefit from the leadership and experience of our senior management
team, and we depend on their continued services in order to successfully
implement our business strategy. Although we have entered into employment
agreements with Thomas L. Kemp and Daniel J. Ramella and other management
members, they and other key personnel may not remain in our employment. The loss
of key personnel could have a material adverse affect on our business, results
of operations or financial condition.
YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS.
We are in the process of identifying and testing our computer systems,
related software and our non-information technology systems for year 2000
readiness. In addition, we are in the process of working with significant
service providers, vendors, suppliers and customers to ensure year 2000
readiness. We cannot assure you that our systems, or third-party systems on
which we rely, will be year 2000 compliant on time. Any year 2000 compliance
problem of Penton or our significant service providers, vendors, suppliers or
customers could have a material adverse effect on our business, results of
operations and financial condition. In addition, significant uncertainty exists
concerning the potential costs and effects associated with our year 2000
compliance. For a more complete discussion of our year 2000 issues, please see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
TAKEOVER DEFENSE PROVISIONS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
STOCK.
Various provisions of Delaware corporation law and of our corporate
governance documents may inhibit changes in control not approved by our Board of
Directors and may have the effect of depriving stockholders of an opportunity to
receive a premium over the prevailing market price of our common stock in the
event of an attempted hostile takeover. In addition, the existence of these
provisions may adversely affect the market price of our common stock. These
provisions include:
- a classified Board of Directors;
- a prohibition on stockholder action through written consents;
- a requirement that special meetings of stockholders be called only by the
Board of Directors;
- advance notice requirements for stockholder proposals and nominations;
and
- availability of "blank check" preferred stock.
THE INFRINGEMENT OR INVALIDATION OF OUR PROPRIETARY RIGHTS COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.
We regard our copyrights, trademarks, service marks and similar
intellectual property as critical to our success. We rely on copyright and
trademark laws in the United States and other jurisdictions and on
confidentiality agreements with some of our employees and others to protect our
proprietary rights. If any of these rights were infringed or invalidated, our
business could be materially adversely affected. In addition, our
11
<PAGE> 14
business activities could infringe upon the proprietary rights of others, who
could assert infringement claims against us.
We seek to register our trademarks in the United States and elsewhere.
These registrations could be challenged by others or invalidated through
administrative process or litigation. In addition, our confidentiality
agreements with some of our employees or others may not provide adequate
protection of our proprietary rights in the event of unauthorized use or
disclosure of our proprietary information or if our proprietary information
otherwise becomes known, or is independently developed, by competitors.
OWNERSHIP BY SIGNIFICANT STOCKHOLDERS AND SALES OF SUBSTANTIAL AMOUNTS OF OUR
COMMON STOCK MAY ADVERSELY AFFECT THE MARKET FOR OUR COMMON STOCK.
We anticipate that immediately following this offering:
- members of the Harris family will beneficially own in the aggregate about
16.84% of our common stock; and
- Mario J. Gabelli and entities controlled directly or indirectly by Mr.
Gabelli will beneficially own in the aggregate about 14.85% of our common
stock.
These concentrations of voting power may inhibit changes in control of our
company and may adversely affect the market price for our common stock. In
addition, sales of a substantial amount of common stock in the public market, or
the perception that these sales may occur, could adversely affect the market
price of our common stock prevailing from time to time and could impair our
ability to raise additional capital through the sale of our equity securities.
OUR COMMON STOCK HAS A LIMITED TRADING HISTORY.
The average daily trading volume of our common stock since August 1998 was
about 41,000 shares per day. The prices at which our common stock has traded may
not be indicative of the prices that would prevail in a more active market. We
cannot assure you that an active public market for the common stock will develop
or be sustained after the offering or that the public offering price represents
the price at which the common stock will trade in the public market subsequent
to this offering.
OUR FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT BELIEFS.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: A number of statements made in this prospectus are not historical or
current facts, but deal with potential future circumstances and developments.
Those statements are qualified by the inherent risks and uncertainties
surrounding future expectations generally, and also may materially differ from
our actual future experience involving any one or more of these matters and
subject areas. We attempted to identify, in context, some of the factors that we
currently believe may cause future experience and results to differ from our
current expectations regarding the relevant matter or subject area. We have
identified some of these forward-looking statements with words, for example,
"anticipates," "estimates," "believes," "expects," "intends," "may," "will,"
"should" or the negative of those words or other comparable terminology. The
operation and results of our business also may be subject to the effect of other
risks and uncertainties in addition to the relevant qualifying factors
identified elsewhere in this section, including, but not limited to:
- the ability to maintain customer loyalty from both users and advertisers;
- the ability to leverage our existing products and infrastructures;
- the ability to maintain our diverse revenue sources;
- the ability to make strategic acquisitions and efficiently integrate them
into our existing businesses;
- the ability to launch new products and/or services that fit strategically
with and add value to our businesses; and
- the ability to achieve market penetration of new markets both
domestically and internationally.
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<PAGE> 15
USE OF PROCEEDS
Penton estimates the net proceeds from the sale of the 6,250,000 shares of
common stock offered by Penton will be about $115.4 million, at an offering
price of $19.50 per share and after deducting estimated underwriting discounts
and commissions and offering expenses. Penton will not receive any proceeds from
the sale of common stock by the selling stockholders.
We will use the net proceeds of this offering to repay $40.0 million of
indebtedness incurred in connection with the acquisition of Mecklermedia
Corporation under our $175.0 million term loan A and $125.0 million term loan B,
respectively. Term loan A had an interest rate equal to LIBOR plus 2.75%, or
7.79%, at December 31, 1998, and term loan B had an interest rate equal to LIBOR
plus 3.5%, or 8.54%, at December 31, 1998. Term loan A matures in 2005 and term
loan B matures in 2006. On April 1, 1999 we amended our credit agreement to,
among other things, increase term loan B by $15.0 million. The repayment will be
on a pro-rata basis unless any holders of term loan B waive their right to
receive repayment at that time. In this event, amounts with respect to which
repayment is waived will be used to repay term loan A.
Of the remaining net proceeds (approximately $75.4 million), we will use
50.0% to repay additional indebtedness under term loan A and term loan B (on a
pro-rata basis), and 50.0% for working capital and other general corporate
purposes, including, if consummated, $37.7 million to acquire a business media
company, or if not consummated, other possible acquisitions and possible
repayments of amounts borrowed under our $25.0 million revolving credit
facility. If consummated, we expect to pay the remaining cash portion of the
consideration for our proposed acquisition by borrowing under our revolving
credit facility or utilizing net proceeds we may receive as a result of the
underwriters exercising their over-allotment option. Other than the non-binding
letter of intent regarding our proposed acquisition, we have no understandings,
arrangements or agreements regarding acquisitions. Our credit agreement requires
the consent of our lenders for our proposed acquisition of a business media
company. Our revolving credit facility, which matures in 2005, had an interest
rate equal to LIBOR plus 2.75%, or 7.79%, at December 31, 1998. We have used
amounts outstanding under our revolving credit facility for general working
capital purposes and may reborrow any amounts that we repay under the revolving
credit facility.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is traded on the New York Stock Exchange under the symbol
PME. Our common stock commenced trading on August 10, 1998 after we completed
our spinoff from Pittway. The following table sets forth, for the periods
indicated, the high and low sales prices for the common stock as reported on the
New York Stock Exchange.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON
STOCK
---------------
HIGH LOW
------ -----
<S> <C> <C> <C>
Year Ended December 31, 1998:
Third Quarter (from August 10, 1998)...................... $17 $12 7/8
Fourth Quarter............................................ $20 1/4 $12 1/2
Year Ended December 31, 1999:
First Quarter............................................. $22 1/2 $18 1/8
Second Quarter (through May 6, 1999)...................... $27 3/4 $20
</TABLE>
On May 6, 1999, the reported last sales price of our common stock on the
New York Stock Exchange was $20.00 per share.
Our dividend policy is determined by our Board of Directors. We currently
pay quarterly dividends in an amount of $0.03 per share. Any declaration or
payment of dividends in the future will be made by our Board of Directors from
time to time based upon the results of our operations and our financial
condition and such other matters as our Board of Directors considers relevant.
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<PAGE> 16
CAPITALIZATION
The following table presents the capitalization of Penton as of December
31, 1998, based on common stock outstanding on that date of 22,781,713 shares,
on an actual basis and as adjusted to reflect the issuance by Penton of the
6,250,000 shares of common stock offered hereby at an offering price of $19.50
per share, after deducting underwriting discounts and commissions and estimated
offering expenses, and the application of the net proceeds from this offering.
The capitalization information set forth in the table below should be read
together with the more detailed consolidated financial statements and related
notes appearing elsewhere in this prospectus. The shares of common stock to be
outstanding after this offering exclude 180,000 shares we will issue if the
underwriters exercise their over-allotment option, 1,111,650 shares of our
common stock issuable upon vesting of deferred share awards and exercise of
outstanding options under our various equity plans and shares of common stock in
an aggregate amount not exceeding $1.3 million (based on current exchange rates)
that may be issued pursuant to contingent convertible notes issued in connection
with the acquisition of some of our United Kingdom trade shows.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 3,953 $ 41,628
======== ========
Debt:
Revolving credit facility................................. $ 6,000 $ 6,000
Term loan A(1)............................................ 175,000 129,690
Term loan B(1)(2)......................................... 125,000 92,635
Other indebtedness........................................ 1,000 1,000
-------- --------
Total debt............................................. 307,000 229,325
Stockholders' equity:
Preferred stock, par value $0.01 per share; 2,000,000
shares authorized; none issued or outstanding..........
Common stock, par value $0.01 per share; 60,000,000 shares
authorized; 22,781,713 shares issued and outstanding,
29,031,713 as adjusted................................. 228 291
Capital in excess of par value............................ 55,050 170,337
Retained earnings......................................... 32,262 32,262
Other comprehensive income................................ (51) (51)
-------- --------
Total stockholders' equity............................. 87,489 202,839
-------- --------
Total capitalization.............................. $394,489 $432,164
======== ========
</TABLE>
- ---------------
(1) Adjustments assume pro-rata repayment of term loan A and term loan B. See
"Use of Proceeds."
(2) On April 1, 1999 we amended our credit agreement to, among other things,
increase our term loan B by $15.0 million.
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<PAGE> 17
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present our selected financial data. The statement of
income data for each of the three years in the period ended December 31, 1998
and the balance sheet data as of December 31, 1997 and 1998 have been derived
from our audited consolidated financial statements and related notes, which
appear elsewhere in this prospectus. The statement of income data for each of
the two years in the period ended December 31, 1995 and the balance sheet data
as of December 31, 1994, 1995 and 1996 have been derived from our audited
consolidated financial statements and related notes that are not included in
this prospectus.
You should read the following information together with our audited
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.
You should also consider the following when reading the statement of income
data below:
- EBITDA is earnings from operations before interest, taxes, depreciation
and amortization.
- EBITDA margin is EBITDA divided by total revenues.
We have included EBITDA because we believe that investors find it to be a
useful tool for measuring a company's ability to generate cash. EBITDA does not
represent cash flow from operations, as defined by generally accepted accounting
principles. In addition, you should not consider EBITDA as a substitute for net
income or net loss, as an indicator of our operating performance or cash flow or
as a measure of liquidity.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Media services.............................. $146,382 $158,314 $166,631 $181,109 $207,682
Printing.................................... 5,916 8,918 8,869 10,526 11,657
Direct mail................................. 6,986 12,668 13,057 13,296 13,779
-------- -------- -------- -------- --------
Total revenues............................ 159,284 179,900 188,557 204,931 233,118
Operating expenses............................ 148,994 167,953 170,058 179,634 206,399
-------- -------- -------- -------- --------
Operating income.............................. 10,290 11,947 18,499 25,297 26,719
Interest expense.............................. 176 85 34 841 5,558
Other, net.................................... (590) (3,214) (17) (1,050) 1,028
Provision for income taxes.................... 4,642 6,451 7,526 10,632 9,243
-------- -------- -------- -------- --------
Income from continuing operations............. 6,062 8,625 10,956 14,874 10,890
Income from discontinued operations........... 51 (48) -- -- --
-------- -------- -------- -------- --------
Net income.................................... $ 6,113 $ 8,577 $ 10,956 $ 14,874 $ 10,890
======== ======== ======== ======== ========
Diluted earnings per share.................... $ 0.29 $ 0.40 $ 0.52 $ 0.70 $ 0.50
Diluted average shares outstanding............ 21,240 21,240 21,240 21,240 21,882
CASH FLOWS AND OTHER DATA:
Cash flows:
Operating................................... $ 5,329 $ 7,423 $ 20,507 $ 23,186 $ 25,749
Investing, includes capital expenditures.... (5,026) (4,989) (4,722) (53,192) (271,157)
Financing................................... (668) (1,697) (15,888) 30,854 246,993
Capital expenditures, excluding businesses
acquired.................................... 7,593 4,989 4,822 5,450 5,775
Depreciation and amortization................. 5,596 5,772 5,911 6,551 10,720
EBITDA:
Media services.............................. 12,303 12,730 21,016 28,757 34,009
Printing.................................... 2,724 3,597 3,415 3,763 3,144
Direct mail................................. 859 1,392 (21) (672) 286
-------- -------- -------- -------- --------
Total EBITDA.............................. 15,886 17,719 24,410 31,848 37,439
EBITDA margin................................. 10.0% 9.8% 12.9% 15.5% 16.1%
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.......................................... $ 937 $ 1,674 $ 1,571 $ 2,419 $ 3,953
Working capital............................... 12,470 20,670 14,363 (25,316) (20,709)
Goodwill and other intangibles................ 22,784 21,916 21,940 71,822 387,612
Total assets.................................. 111,142 116,494 108,799 156,426 479,301
Total debt.................................... -- -- -- 34,170 307,000
Stockholders' equity.......................... 61,847 70,763 59,151 69,613 87,489
</TABLE>
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<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Set forth below is a discussion and analysis of our financial condition and
results of operations. You should read this discussion and analysis together
with the financial statements and the related notes appearing elsewhere in this
prospectus.
OVERVIEW
We are a leading business media company operating in three business
segments: media services, printing and direct mail marketing. Our media services
segment serves specific targeted industries with integrated product offerings,
including, trade magazines, trade shows and conferences, directories, electronic
media products (including Web sites), custom publishing, research, databases and
information products.
Trade magazine revenues are generated primarily from advertising, which
accounted for 70.0% of total revenue in 1998, 76.1% in 1997 and 77.6% in 1996.
No single advertiser comprised more than 1.2% of our advertising revenue during
1998. Penton's top 10 advertisers accounted for 5.3% of total revenue and its
top 25 customers accounted for less than 8.7% of total revenues in 1998.
Trade show and conference revenues represented 12.0% of total revenues in
1998, 5.3% in 1997 and 2.8% in 1996. Trade show and conference revenues are
derived from exhibition and meeting space sales, registration fees, and
ancillary services which are recognized at the time of the show. Trade show
exhibition space sales are contracted and partial payment is received as far as
one year in advance of the show, although some refunds may occur prior to the
show due to cancellations. For example, 66.0% of budgeted exhibit space at our
1999 Internet World Fall Show was reserved prior to the end of last year's show.
Companies that exhibit at trade shows pay on the basis of the space that their
exhibit occupies. Revenue and related direct event expenses are recognized in
the month in which the event is held. Cash is collected in advance of a trade
show or conference and is recorded on our balance sheet as deferred revenue. We
expect the percentage of total revenues from trade shows and conferences to
increase as a result of the acquisition of Mecklermedia.
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
campaigns. Penton has announced it is exploring strategic alternatives for both
its printing segment and its direct mail segment.
Penton was spun off from Pittway Corporation in August 1998. On November
24, 1998 Penton acquired Mecklermedia, a provider of information about the
Internet through various business media products, for $273.8 million. On August
7, 1998, Penton acquired Donohue Meehan Publishing for $7.0 million in cash,
1,541,638 shares of Penton common stock and a contingent payment of up to $4.0
million based on future earnings of Donohue Meehan Publishing. Donohue Meehan
Publishing publishes three magazines in the baking and convenience store
markets: Modern Baking, Baking Management and Convenience Store Decisions. It
also produces a number of related special editions and directory and show issues
serving the baking and convenience store markets. In 1997, Penton acquired three
trade show companies -- Independent Exhibitions, Ltd, Industrial Shows of
America and A/E/C SYSTEMS International -- for a combined purchase price of
$48.1 million, plus contingent payments of up to $13.5 million based on future
earnings. All of these acquisitions were accounted for using the purchase method
of accounting and, accordingly, the results of the acquired companies are
included in Penton's consolidated statement of income since their respective
dates of acquisition.
We currently own a 19.0% interest in internet.com. We also own a warrant to
increase our ownership interest to 27.4%. The warrant will expire upon
completion of internet.com's initial public offering, but we intend to exercise
the warrant prior to its expiration. Internet.com has filed a registration
statement with the SEC for its proposed initial public offering. If internet.com
completes its offering, our ownership percentage would decrease. However, we
believe that after the exercise of the warrant and completion of internet.com's
initial public offering, we will own at least 20.0% of internet.com. If we own
20.0% or more of internet.com, we will be required to include in our results of
operations our proportionate share of internet.com's income or loss.
Internet.com has incurred substantial losses since its inception and expects to
incur losses for the foreseeable future. The inclusion
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<PAGE> 19
of our proportionate share of internet.com's losses in our results of operations
could materially adversely affect our future results of operations. Any losses
that we would be required to include in our results of operations would be
limited to our approximately $4.5 million investment in internet.com. If,
however, our ownership interest decreases to less than 20.0%, we would be
required to value our investment at the market price. This would not affect our
results of operations because any changes in market value would be recorded as a
component of stockholders' equity. However, fluctuations in the market price of
internet.com's stock could cause our balance sheet to fluctuate significantly
from period to period.
RESULTS OF OPERATIONS
The following table sets forth income statement data of Penton expressed as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Operating expenses:
Editorial, production and circulation..................... 48.6 46.1 43.7
Selling, general and administrative....................... 38.5 38.3 40.3
Depreciation and amortization............................. 3.1 3.2 4.6
----- ----- -----
90.2 87.7 88.5
----- ----- -----
Operating income............................................ 9.8 12.3 11.5
----- ----- -----
Other income (expense):
Interest expense.......................................... -- (0.4) (2.4)
Gain on sale of publications.............................. -- 0.5 --
Writedown on impairment assets............................ -- -- (0.4)
----- ----- -----
0.0 0.1 (2.8)
----- ----- -----
Income before income taxes.................................. 9.8 12.4 8.6
Income taxes:
Current................................................... 3.6 4.8 6.1
Deferred.................................................. 0.4 0.3 (2.2)
----- ----- -----
4.0 5.1 4.0
----- ----- -----
Net income.................................................. 5.8 7.3 4.7
===== ===== =====
</TABLE>
1998 COMPARED TO 1997
REVENUES
Total revenues, after elimination of intersegment sales, increased $28.2
million, or 13.8%, from $204.9 million to $233.1 million.
Media services revenues increased $26.5 million, or 14.6%, to $207.7
million. Advertising revenues from Penton's publishing operations accounted for
$7.1 million of the increase, due primarily to the following: (1) the Donohue
Meehan Publishing Company acquisition in August 1998; (2) two new publications
launched in the first quarter, IW Growing Companies and Embedded Systems
Development; (3) the publication of Hydraulics and Pneumatics' Fluid Power
Handbook and Directory, which is published every other year; and (4) higher
pricing on other advertising business. Trade show and conference revenues
increased $17.2 million to $28.0 million in 1998. About $12.0 million of the
increase in 1998 was due to the first-time inclusion of the operations of
Independent Exhibitions, Ltd. and about $5.0 million of this increase was due to
Industrial Shows of America. Both Independent Exhibitions and Industrial Shows
of America were acquired in December 1997. In addition, 1998 includes an
increase in the Wireless Symposium/Portable by Design Conference and Exhibition
and
17
<PAGE> 20
approximately $0.8 million related to the addition of Mecklermedia in November
1998. The remaining increase in media services revenues of $2.1 million relates
to other initiatives.
Printing revenues from external customers increased $1.2 million, or 12.1%,
to $11.6 million. Intercompany sales decreased $0.3 million, or 1.2%, bringing
total segment revenues to $39.8 million.
Direct mail revenues increased $0.5 million, or 3.6%, to $13.8 million. The
increase was primarily in the segment's printing operations.
OPERATING EXPENSE
Operating expenses for Penton, after elimination of intersegment charges,
increased $26.8 million, or 14.9%, from $179.6 million in 1997 to $206.4 million
in 1998. As a percentage of revenues, operating costs increased from 87.6% in
1997 to 88.5% in 1998. The increase in percentage was due primarily to the
increase in depreciation and amortization related to acquisitions, period costs
related to Mecklermedia Corporation and one-time spin-off and start-up costs.
These increases were offset partially by the first full year of operations of
Independent Exhibitions, Ltd. and Industrial Shows of America.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses, after elimination of intersegment charges, grew to $101.8
million in 1998 compared with $94.6 million in 1997, representing an increase of
$7.2 million, or 7.6%. As a percentage of revenues, editorial, production and
circulation expenses decreased from 46.1% in 1997 to 43.7% in 1998. The decrease
is due largely to the acquisition of Donohue Meehan Publishing in 1998 and to
production improvements.
Media services editorial, production and circulation expenses grew $5.7
million, or 6.9%, due to the inclusion of the Independent Exhibitions and
Industrial Shows of America trade shows acquired in late 1997, which accounted
for $4.7 million of the total production expenses increase. Other expense
increases relate to the acquisition of Donohue Meehan Publishing Company in
August 1998, the acquisition of Mecklermedia Corporation in November 1998 and
the publication of the biennial Fluid Power Handbook and Directory, which was
not published in 1997.
Editorial, production and circulation expenses for the printing segment
increased $1.8 million due to volume-related growth of the total business.
Editorial, production and circulation expenses for the direct mail segment
decreased $0.3 million, or 3.1%, compared with a 3.6% increase in revenue. The
decrease is due largely to productivity improvements.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $15.4 million, or 19.5%, to $93.9 million. As a
percentage of revenues, selling, general and administrative expenses increased
from 38.3% in 1997 to 40.3% in 1998. The increase is due primarily to period
costs related to the acquisition of Mecklermedia Corporation and one-time
spin-off costs.
Media services selling, general and administrative expenses increased $15.5
million, or 21.6%. The increase was due to: (1) expenses of the Independent
Exhibitions, Ltd. and Industrial Shows of America trade shows held in 1998,
which amounted to $4.9 million and $3.7 million; (2) period costs of the newly
acquired Mecklermedia Corporation trade shows (for which revenues will not be
recognized until those trade shows are held in future periods) in the amount of
$1.7 million; (3) costs related to launching two new publications in the first
quarter, IW Growing Companies and Embedded Systems Development; (4) the Donohue
Meehan Publishing Company acquisition in August 1998; (5) one-time spin-off
costs of about $0.4 million; (6) costs related to the biennial Fluid Power
Handbook and Directory; (7) sales volume growth; and (8) higher charges related
to Pittway stock appreciation rights held by Penton employees, which will not
recur. Total costs charged to Penton by Pittway for both 1998 and 1997 were $1.4
million.
Selling, general and administrative expenses of the printing segment were
level with the prior year.
Direct mail selling, general and administrative expenses decreased $0.2
million, or 4%, due primarily to cost-cutting measures implemented in 1998.
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Depreciation and Amortization. Depreciation and amortization increased $4.2
million to $10.7 million. The higher expense was the result primarily of the
amortization of intangible assets associated with the trade shows acquired in
December 1997, the Donohue Meehan Publishing Company acquisition in August 1998,
the Mecklermedia Corporation acquisition in November 1998 and, beginning with
the fourth quarter of 1998, the change in Penton's goodwill amortization policy
for acquired trade shows from 40 years to 20 years, which accounted for $0.3
million of additional amortization in 1998. While this change will negatively
impact the reported earnings per share, it will have no impact on either EBITDA
or after-tax cash flow. The anticipated annual charges for intangibles related
to the Mecklermedia Corporation acquisition in 1999 and future years is $14.5
million.
OPERATING INCOME
Overall, Penton's operating income increased $1.4 million, or 5.6%, to
$26.7 million from $25.3 million in the prior year. Operating income as a
percentage of revenue decreased from 12.3% to 11.5%, due primarily to the
increase in depreciation and amortization associated with Penton's acquisitions.
Media services operating income increased $1.5 million, or 5.5%. This
comprised an increase in publishing of 10.6% to $24.9 million, and a decrease in
trade shows and conferences from $2.5 million to $1.3 million. The increase in
publishing was the result primarily of the acquisition of Donohue Meehan
Publishing Company in 1998. The increase was offset by start-up costs associated
with two magazine launches in 1998, and one-time costs incurred from the spinoff
from Pittway. The decrease in trade shows and conferences was primarily the
result of period costs of the Mecklermedia Corporation acquisition (since all of
1998's shows occurred prior to the acquisition), higher amortization expense
resulting from acquisitions and the change in Penton's amortization policy noted
above.
Operating income of the printing segment decreased $0.7 million, to $0.8
million.
The direct mail segment recorded an operating loss of $0.3 million compared
with the prior year's operating loss of $1.1 million. The improvement was due
largely to the increase in revenue of this segment's printing operations and
lower production costs.
INTEREST EXPENSE
Interest expense increased $4.7 million to $5.6 million due to additional
borrowings used to finance the two trade show company acquisitions in December
1997, the Donohue Meehan Publishing Company acquisition in August 1998 and the
Mecklermedia Corporation acquisition in November 1998.
OTHER
In 1998, Penton wrote down the carrying value of various intangible assets
by $1.0 million. In 1997, Penton recognized a $1.0 million gain on the sale of
Managing Office Technology magazine.
EFFECTIVE TAX RATES
The effective tax rates were 45.9% in 1998 and 41.7% in 1997. Penton's
acquisition of Donohue Meehan Publishing Company in August 1998 and Mecklermedia
Corporation in November 1998 resulted in the recording of goodwill. The
amortization of such goodwill is recognized for financial statement purposes,
but is not deductible for tax purposes due to the structure of the purchase
transactions. Accordingly, Penton's effective tax rate has increased in 1998 and
is expected to increase in 1999 as well, due to the full year effect of the
acquisitions.
1997 COMPARED TO 1996
REVENUES
Total revenues, after elimination of intersegment sales, increased $16.3
million, or 8.7%, from $188.6 million to $204.9 million.
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Media services revenues increased $14.5 million, or 8.7%, to $181.1
million. Revenues from publishing operations accounted for $9.1 million of the
improvement, due primarily to increased advertising revenues. Advertising
revenues grew 7.1%, resulting from a 1.9% growth in page volume and an overall
improvement of 4% in yield per advertising page. In addition, Penton benefitted
from the introduction of four publications launched during 1997. Trade show and
conference revenues increased $5.4 million or 100% to $10.8 million due to the
inclusion of a full year of operations of the A/E/C SYSTEMS International trade
shows, acquired in January 1997.
Revenues from the printing segment increased $1.2 million, or 3.1%, to
$39.0 million. The increase in this segment was due principally to the addition
of several new third-party customers, which accounted for a 19% increase in
outside revenue. The media services segment continued to be the printing
segment's principal customer, accounting for $28.6 million of its revenue in
1997 compared to $29.0 million in 1996.
Direct mail revenues increased $0.2 million, or 1.5%, due to strong
performance from the related printing operation, which experienced a 25%, or
$1.8 million, increase in revenue from outside customers, and growth in its
advertising agency business. However, the increases were offset by a decline in
revenues of the direct marketing medical group. This group's revenues declined
for the second consecutive year as pharmaceutical company customers continued to
shift their focus from direct marketing of pharmaceuticals to consumer oriented
mass media advertising.
OPERATING EXPENSE
Operating expenses for Penton, after elimination of intersegment charges,
increased $9.5 million, or 5.6%, from $170.1 million to $179.6 million. As a
percentage of revenues, operation costs decreased from 90.2% in 1996 to 87.7% in
1997. The improvement was due primarily to productivity improvements, cost
cutting measures and the acquisition of A/E/C SYSTEMS International in January
1997.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses, after elimination of intersegment charges, grew to $94.6
million in 1997 compared with $91.6 million in 1996, representing an increase of
$3.0 million, or 3.2%. As a percent of revenues, editorial, production and
circulation expenses decreased from 48.5% in 1996 to 46.1% in 1997. The decrease
was due primarily to the higher margins of the A/E/C SYSTEMS International trade
shows and lower paper expenses.
Media services editorial, production and circulation expenses increased
$1.5 million, or 1.8%, to $80.4 million, due primarily to additional expenses
related to the inclusion of a full year's operations of A/E/C SYSTEMS
International, new product launches during the year and volume-related growth.
These increases were offset partially by savings resulting from productivity
improvements and lower paper expenses.
Editorial, production and circulation expenses for the printing segment
increased $0.6 million, or 2%, to $3.5 million, which was attributable primarily
to the increase in volume of outside sales.
Editorial, production and circulation expenses for the direct mail segment
increased $0.4 million, or 4.5%, to $9.3 million. The increase was attributable
primarily to the growth of printing and advertising agency group sales volume,
offset by a reduction in expenses attributable to lower sales volume of the
direct marketing medical group.
Selling, General and Administrative Expense. Selling, general and
administrative costs of media services increased $5.3 million, or 8%. The
increase was due principally to an increase in selling expenses resulting from
the growth in revenue, inclusion of a full year's operations of the A/E/C
SYSTEMS International trade shows, and the addition of staff to support new
product launches.
Selling, general and administrative expenses of the printing segment
increased $0.2 million, or 11%, primarily from selling expenses associated with
the increase in sales volume.
Direct mail selling, general and administrative expenses increased $0.4
million as a result of increased selling costs associated with higher sales
volume and an expanded number of customer presentations and related promotion
costs.
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Depreciation and Amortization. Depreciation and amortization increased $0.6
million to $6.5 million. The higher expense was the result primarily of capital
equipment additions and increased amortization of intangible assets associated
with the A/E/C SYSTEMS International trade shows acquired in January 1997.
OPERATING INCOME
Overall, Penton's operating income increased $6.8 million, or 36.7%, to
$25.3 million compared with $18.5 million. Operating income as a percentage of
revenue increased to 12.3% from 9.8%, reflecting the benefits achieved from
increased revenue; favorable shifts in product mix, including the addition of
the A/E/C SYSTEMS International trade shows; and improved productivity.
Media services operating income increased $7.2 million, or 40.6%, to $24.9
million. In 1995, Penton implemented a number of programs to improve
productivity, reduce costs and streamline operations. These efforts continued in
1997, resulting in operating savings. Combined with the favorable impact of
revenue growth, productivity improvement and reduced paper costs, operating
income improved from 10.6% of total media services revenue to 13.7%.
Operating income from the printing segment improved 20.3% to $1.5 million.
The increase was due primarily to higher sales volume coupled with the benefits
of reduced paper costs.
Direct mail operating losses increased $0.6 million to $1.1 million from
$0.5 million, due principally to the decrease in revenue of the direct marketing
medical group and development costs associated with a physicians retraining
program.
OTHER INCOME (EXPENSE)
In 1997, other income (expense) included a $1.0 million gain on the sale of
Managing Office Technology magazine, offset by $0.8 million of interest expense
incurred as a result of borrowings used to finance acquisitions.
EFFECTIVE TAX RATES
The effective tax rates were 41.7% and 40.7% in 1997 and 1996,
respectively. An analysis of Penton's effective tax rate appears in Penton's
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Historically, cash flow generated by our operations has been used to invest
in capital assets, finance acquisitions and reduce debt. Prior to the spinoff,
excess cash was used to pay dividends to Pittway Corporation, our former parent
company.
Cash flow provided by operations in 1998 was $25.7 million, up $2.5 million
from $23.2 million in 1997. The increase in 1998 was due primarily to an
increase in unearned income (primarily advance deposits related to
fourth-quarter trade shows), accounts payable and accrued expenses. Partially
offsetting this increase were lower net income, increases in accounts
receivable, prepayments and deposits.
Cash from operating activities was used for capital expenditures; to make
cash distributions to Pittway, including final settlement of intercompany
balances existing at the spin-off date; and to pay dividends to Penton
stockholders. Penton's capital expenditures for 1996 were $4.8 million, 1997
were $5.5 million and 1998 were $5.8 million. We anticipate that our total
capital expenditures for 1999 will be about $6.5 million, which will be used
primarily to upgrade Penton's information technology systems. We plan to fund
these expenditures from cash flow from operations, and, if necessary, borrowings
under our credit facilities.
On August 7, 1998, Penton entered into a five-year, $75.0 million unsecured
revolving credit agreement. Penton's short-term notes payable were refinanced
with this facility, which was also utilized to finance the cash portion of the
acquisition price of Donohue Meehan Publishing Company. On November 24, 1998,
Penton 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 loan
A) and a long-term loan of $125.0 million (term loan B). The proceeds of this
credit agreement were used to
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repay Penton's debt outstanding under the $75.0 million revolving credit
facility obtained at the spin-off date and to purchase Mecklermedia Corporation.
At December 31, 1998, $306.0 million was outstanding under the credit agreement.
On April 1, 1999, Penton amended its credit agreement to, among other things,
increase term loan B by $15.0 million.
The term loans under our credit agreement amortize quarterly. We must repay
term loan A in aggregate annual amounts of $10.0 million in each of 1999 and
2000, $20.0 million in 2001, $25.0 million in 2002, $30.0 million in 2003, and
$40.0 million in 2004, with the balance payable in 2005. We must repay term loan
B in aggregate annual amounts of $1.4 million in each of 1999 through 2005, with
the balance payable in 2006.
The interest rate for borrowings under the revolving credit facility and
term loan A is, at the option of Penton, LIBOR plus 2.75% or the Base Rate plus
1.75%. After late May 1999, the interest rate for borrowings under the revolving
credit facility and term loan A will become variable, ranging from LIBOR plus
2.75% to 3.00% or the Base Rate plus 1.25% to 2.00%, depending on our debt to
EBITDA ratio. The interest rate for term loan B is, at the option of Penton,
LIBOR plus 3.50% or the Base Rate plus 2.50%.
All of our existing and future domestic subsidiaries have guaranteed or
will guaranty indebtedness incurred under the credit agreement. The credit
agreement also contains customary affirmative and negative covenants, including
but not limited to furnishing information and limitations on other indebtedness,
liens, investments, guarantees, restricted payments, mergers and acquisitions,
sales of assets, capital expenditures, leases, affiliate transactions and
conduct of business. The credit agreement also contains customary financial
covenants, including those relating to: minimum interest coverage, minimum fixed
charge coverage, minimum EBITDA and maximum leverage.
Events of default under the credit agreement include events of default
relating to: (a) nonpayment of interest, principal or fees payable under the
credit facility; (b) nonperformance of covenants; (c) cross-default to other
material agreements and debt of the company and its subsidiaries; (d) bankruptcy
or insolvency; (e) judgments in excess of specified amounts; (f) impairment of
security interests in collateral; (g) invalidity of guarantees; (h) materially
inaccurate or false representations or warranties and (i) change of control.
Based upon current and anticipated levels of operations, including our
plans for consummating and integrating our proposed acquisition, we believe that
our cash on hand and cash flow from operations, combined with borrowings
available under our credit facilities and the net proceeds of this offering,
will be sufficient to enable us to meet our current and anticipated cash
operating requirements, including scheduled interest and principal payments,
capital expenditures, working capital needs and the cash portion of the
consideration for our proposed acquisition, if consummated. However, actual
capital requirements may change, particularly as a result of any other
acquisitions which 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 Penton. We cannot assure you that
such additional financing will be available on acceptable terms. See "Risk
Factors -- Contingent Tax Liability Related to the Spin Off of Our Common Stock
by Pittway." 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.
FOREIGN CURRENCY
The functional currency of Penton's foreign operations acquired in December
1997 is the local currency. Accordingly, assets and liabilities of foreign
operations are translated to United States dollars at the rates of exchange in
effect 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 1997.
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EURO CONVERSION
On January 1, 1999, eleven of the 15 participating countries that are
members of the European Union established a new uniform currency known as the
"Euro." The currency existing prior to such date in the participating countries
will be phased out during the transition period commencing January 1, 1999 and
ending January 1, 2002. During such transition period both the Euro and the
existing currency will be available in the participating countries. Although
Penton generates revenues in some of the participating countries, management
does not anticipate that the introduction and use of the Euro will materially
affect Penton's business, results of operations or financial condition.
SEASONALITY
Historically, Penton has not experienced significant seasonality in its
business. The introduction of trade shows and conferences into Penton's product
mix through the acquisitions of Independent Exhibitions, Ltd. and Industrial
Shows of America in late 1997, and the acquisition of Mecklermedia Corporation
in November 1998, has changed the seasonal pattern of revenue and profit, as all
three companies have pronounced seasonal patterns in their businesses. The
majority of the trade shows owned by Industrial Shows of America and
Mecklermedia Corporation 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. Accordingly, Penton anticipates that these
acquisitions will have a positive impact on revenue and profit for these
quarters.
Penton 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. Cash flow from operations may also fluctuate seasonally
and vary from the results of operations due to the timing of our trade show
deposits collected from exhibitors.
INFLATION
The impact of inflation on Penton'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"). Penton is required to adopt
this statement in the first quarter of 2000. Management does not believe this
statement will have a material impact on Penton's business, results of
operations or financial condition.
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 our 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.
Our year 2000 project is proceeding as scheduled. Some of our systems and
related software are already year 2000 compliant, and our 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.
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PROJECT
The first component of our project is to identify the internal business
systems and non-information technology systems of Penton and our 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 our project involves the actual remediation and
replacement of the various business systems. Penton and our 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. Our objective is to complete substantially all
remediation and replacement of internal systems by July 1999, and to complete
final testing and certification for readiness by the end of the third quarter of
1999.
As part of the second component of our project, significant service
providers, vendors, suppliers and customers that are believed to be critical to
our business operations after January 1, 2000, have been identified and steps
are being taken 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
We currently estimate that the aggregate incremental cost of our efforts
will range from $0.3 million to $0.8 million, of which about $0.2 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 our existing disaster recovery plan.
The costs associated with the replacement of computerized systems, hardware or
equipment is currently estimated to be about $0.5 million, substantially all of
which would be capitalized, and is 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, our normal business activities or operations.
These failures could materially and adversely affect our results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third-party suppliers and customers, we are unable to determine at
this time whether and to what extent the consequences of year 2000 failures will
have a material impact on our results of operations, liquidity or financial
condition. Our year 2000 project is expected to significantly reduce our level
of uncertainty about the year 2000 problem and, in particular, about the year
2000 compliance and readiness of its material external agents. We believe that,
with the implementation of new business systems and completion of our project as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
Our project readiness program is an ongoing process and the estimates of
costs and completion dates for various components of our project readiness
program described above are subject to change. Based on Penton'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. We
estimate that a one-month stoppage of our publishing operations could lead to a
loss of operating income of about $9.4 million.
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BUSINESS
OVERVIEW
Established in 1892, we are a leading provider of proprietary business
information to professionals in ten industries. We provide integrated marketing
solutions to suppliers in our industries through:
- trade publications;
- trade shows and conferences; and
- electronic media, including Web sites.
We produce 50 trade magazines, 118 trade shows and conferences and 42 Web
sites, as well as other electronic media products, serving the following ten
industries:
<TABLE>
<S> <C> <C>
- Internet - Management
- Design/Engineering - Supply Chain/Aviation
- Electronics - Government/Compliance
- Manufacturing - Mechanical Systems/Construction
- Food/Retail/Hospitality - Leisure
</TABLE>
OUR COMPETITIVE STRENGTHS
Market Leadership in Industries Served. Our media products provide
proprietary information to business users who need to stay informed about their
industries. They provide marketers with cost-efficient, highly effective access
to business professionals with purchasing authority. Twenty-seven of our
magazines serve industry segments that are measured by audit services; of these,
24 are ranked either #1 or #2 in their industry segment. We believe our market
leadership creates customer loyalty and makes us less vulnerable to revenue
losses during economic downturns, primarily because marketers tend to
concentrate their spending on top-tier publications and trade shows.
Growth Potential Through Established Positions. We believe we effectively
launch new products and integrate acquisitions by:
- using the industry knowledge and editorial expertise of our staff;
- capitalizing on the brand recognition and reputation of our existing
publications;
- building on our strong relationships with advertisers and readers;
- cross-promoting new or acquired products with our existing
magazines, trade shows and conferences and Web sites that serve the
same industry;
- using our purchasing power and expertise; and
- eliminating redundant marketing, administrative and corporate
expenses.
Diversity of Products, Targeted Industries and Customers. We are diverse in
terms of the products we offer and the industries and customers we serve. None
of our publications, trade shows and conferences or Web sites accounted for more
than 6.4% of our total revenues in 1998. We provide our products in ten diverse
industries. Our top ten customers accounted for only 5.3% of our total revenues
in 1998. Our diversity should provide opportunities for growth and mitigate our
exposure to downturns in any one industry we serve.
Experienced Management Team. Our senior management team has an average of
24 years of experience in the media industry and with increasing revenues and
EBITDA, developing new products, penetrating new markets and identifying,
negotiating, completing and integrating acquisitions.
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OUR GROWTH STRATEGY
We believe we have significant growth potential. We intend to increase our
revenues, cash flows and market share by continuing to:
Strengthen Our Market Positions. We believe we can strengthen our market
positions by:
- capitalizing on our industry expertise to create new products to
serve the needs of our customers;
- completing strategic acquisitions of complementary business media
products and services;
- adding Internet-based products and services to meet the expanding
information and marketing needs of our customers;
- repositioning or eliminating publications and trade shows and
conferences that are not market leaders;
- cross-promoting media products within similar markets; and
- improving the operating efficiency of existing publications and
tradeshows and conferences.
Expand Our Trade Show and Conference Business. We believe that significant
opportunities exist to capitalize on the editorial content and the nationally
recognized brand names of our existing publications to produce new and expand
existing trade shows and conferences. We intend to continue to acquire trade
shows and conferences in the industries we currently serve, such as our 1997
acquisition of A/E/C SYSTEMS International. We believe that increasing the
percentage of revenues generated by trade shows and conferences improves margins
and profitability and mitigates the cyclicality of advertising in slower
economic times.
Acquire Leading Positions in New, Growing Markets. We continuously
evaluate trends in new markets to identify acquisition opportunities in
attractive markets. For example, the acquisition of Mecklermedia Corporation has
provided us with a leadership position in the Internet industry and has expanded
our international media portfolio.
Expand Market Positions Globally. We intend to extend our established
brands into key international markets. In doing so, we hope to broaden our
customer base by capitalizing on our strong brand names. For example, we expect
to add Internet World or ISPCON trade shows in Europe, Asia and the Middle East
in 1999 and 2000.
Develop Web Sites That Capture Growing Internet Business Spending. We
intend to further develop our Web sites to better complement our publications
and trade shows and conferences. We believe that customized information delivery
capabilities, real-time access to customers, commerce opportunities, audience
targeting benefits and cost-efficiency of Internet-based media will be
increasingly attractive to our customers.
OUR INDUSTRY
The business-to-business communications industry is one of the largest and
fastest growing segments of the media industry. According to the Veronis, Suhler
& Associates 1998 Communications Industry Forecast, business-to-business
communications was the sixth fastest growing segment of 17 segments of the
overall communications industry for the period 1992 to 1997, with total spending
growing at a compound annual growth rate of 8.3% during that period. According
to the same source, the business-to-business communications industry is larger
than radio broadcasting, consumer book publishing and consumer magazine
publishing based on projected spending in 1998. This market creates new
opportunities for business media companies to expand their presence as new
markets and technologies develop. Total spending in business-to-business media
was $17.1 billion in 1997 and was estimated to grow 9.7% to $18.8 billion for
1998, according to the Veronis, Suhler & Associates report.
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PUBLISHING
Trade magazines are generally published monthly and provide information
about a specific industry sector. In addition, they are typically circulated
free-of-charge to readers and generate revenues primarily from the sale of
advertising. For advertisers, trade magazines provide highly focused and
targeted audiences of qualified, interested readers and a cost-effective means
to disseminate information about their products. For readers, trade magazines
provide relevant and up-to-date industry specific information.
The trade publishing industry is fragmented. According to industry sources,
there are about 1,500 trade magazine publishing companies that publish about
5,000 titles. According to Veronis, Suhler and Associates, advertising revenue
for business magazines has increased at a compound annual growth rate of 9.6%
from 1994 to 1997 and was estimated to grow 10.5% to $8.9 billion in 1998. In
addition, Veronis, Suhler and Associates forecasts an 8.0% compound annual
growth rate for business magazines from 1997 to 2002.
TRADE SHOWS AND CONFERENCES
Trade shows and conferences enable industry participants to reach targeted
audiences, conduct direct selling efforts, transact business and obtain product
information from exhibits, conferences and workshops. Trade show and conference
attendees include executives, industry analysts, middle-level managers and other
industry professionals. According to the Veronis, Suhler & Associates report,
spending on exhibition space in trade shows and conferences amounted to $7.2
billion in 1997, a 10.8% increase from 1996. In 1997, exhibit square footage
rose 6.7% and attendance increased 6.4% from 1996, according to Veronis, Suhler
& Associates. In addition, according to the same source, revenues from trade
shows are expected to increase at a compound annual growth rate of 10.1% from
1997 to 2002.
For attendees, trade shows and conferences provide an opportunity to survey
market trends, network with industry professionals and create relationships with
new vendors. For exhibitors, trade shows and conferences provide a
cost-effective means to position their company, products and services within an
industry, introduce new products and cultivate relationships with new and
existing customers. In addition, trade shows and conferences enable exhibitors
to measure directly the return on their marketing investment based on actual
sales and sales leads gathered at the event.
The trade show industry is highly fragmented. There are about 3,900 trade
shows in the United States and Canada produced by more than 2,100 independent
companies and industry associations, according to the 1999 Tradeshow Week Data
Book and Veronis, Suhler & Associates, respectively. The top ten trade show
operators are projected to produce 629 of these trade shows in 1999, according
to the 1999 Tradeshow Week Data Book.
ELECTRONIC MEDIA
We believe electronic media products, particularly Web sites, offer a
significant business media opportunity. Industry suppliers use the Internet's
advertising, information, commerce and real-time interaction capabilities to
target their audiences. Business media companies use the Internet to enable
their customers to advertise, conduct online transactions and track user
behavior. Business media providers can capture Internet market share by
providing proprietary content, electronic commerce opportunities, bulletin
boards and magazine subscription and event registration capabilities. According
to Simba Information, Inc., Internet advertising revenues totaled $2.1 billion
in 1998 and are projected to reach $7.1 billion by 2002.
OUR PRODUCTS AND SERVICES
We serve ten specific industries with our trade publications, trade shows
and conferences and other products, including electronic media.
IN PRINT: PUBLICATIONS
Trade Magazines. We are one of the leading publishers of specialized trade
magazines in the United States. According to Advertising Age's annual ranking of
magazines in the United States, we publish two of the ten
27
<PAGE> 30
largest trade magazines, based on 1997 advertising revenues. Our publications
are recognized for the quality of their editorial content. Since 1990, our
magazines have won nearly 600 editorial awards.
We publish 50 trade magazines with a combined circulation of over 3.2
million subscribers worldwide. Our magazines are primarily
controlled-circulation. They are distributed free-of-charge to qualified
subscribers in our targeted industries.
Our magazines generate revenues primarily from the sale of advertising
space. Each of our magazines has its own advertising sales team and rate
structure. Some advertisers may qualify for discounts based on advertising in
multiple magazines.
Subscribers to controlled-circulation magazines qualify to receive our
trade magazines by verifying their responsibility for specific job functions and
their purchasing authority. We survey subscribers to our controlled-circulation
magazines annually to verify their continued qualification.
Circulation information for the majority of our magazines is audited each
year by BPA International, an independent auditor of magazine circulation. These
audits verify that we have accurately identified the number and job
responsibilities of qualified subscribers and that those subscribers are
eligible to receive the relevant magazine according to our established criteria.
In addition, each of our magazines has its own editorial staff, including
writers, designers and production personnel. To preserve the editorial integrity
of each magazine's news reporting and analysis, we seek to maintain separation
between the editorial and sales staffs of each magazine. We believe that our
reputation for objective, fair and credible editorial content contributes
significantly to our success. Fifteen of our magazines have served their
industries for over 50 years.
Our editorial staffs meet frequently with readers of their magazines to
maintain a current understanding of the information needs and interests of those
readers in an effort to serve them more effectively. We devote considerable
resources to the study of trends in our industries and strive to make our
publications the most respected and widely used among our targeted audiences.
Many of our editors and contributors are recognized as experts in their fields
and are regularly contacted by the general press to comment on developments and
trends in their respective markets.
Directories and Buyer's Guides. We also publish 32 directories and buyer's
guides, which are respected sources of buying information for industry decision
makers. We believe that most of the business directories we publish have limited
competition.
IN PERSON: TRADE SHOWS AND CONFERENCES
We produce 118 trade shows and conferences in our ten industry sectors. In
addition to these trade shows and conferences, we maintain licensing agreements
for three trade shows and we produce three trade shows under management
contracts. According to the 1999 Tradeshow Week Data Book, we are the seventh
largest producer of trade shows in the United States.
In the early 1990s we entered the trade show and conference business, and
we have more recently expanded our presence through acquisitions. For example,
the acquisition of Mecklermedia in 1998 added the ISPCON and Internet World
trade shows to our portfolio. According to the 1998 Tradeshow Week 200, our
Spring Internet World trade show was the fastest growing trade show in the
United States in 1997 based on net exhibit space. In 1997, we acquired INDEX, a
United Kingdom-based producer of trade shows; ISOA, which produces industrial
trade shows in the United States and Latin America; and A/E/C SYSTEMS
International, which produces trade shows that feature computer solutions in the
architectural, engineering and construction industries.
Attendees at our trade shows and conferences are professionals and managers
in the industries we serve. Most trade shows include an extensive conference
program, which provides a forum for the exchange and dissemination of
information relevant to the particular event's focus. In addition, most trade
shows have one or more keynote sessions with speakers who are known for their
industry knowledge and expertise. The 1997 and 1998 Internet World trade shows
featured keynote speakers, including Lawrence J. Ellison of Oracle, C. Michael
Armstrong of AT&T, Steve Case of America Online and Robert J. Davis of Lycos.
28
<PAGE> 31
Trade show exhibitors pay a fixed price per square foot of booth space.
Typically, a majority of each trade show's exhibitors commit to booth space
during the current year's show for the following year. In 1998, exhibitor space
fees accounted for 79.3% of Penton's total trade show and conference revenues.
We also earn revenues from attendee fees at trade shows and conferences and
sponsorship and advertising fees from exhibitors.
ONLINE: ELECTRONIC MEDIA
We believe the growth of electronic publishing will provide opportunities
to market existing and develop new editorial content from our publications in
different formats. We currently produce 42 Web sites. We believe that electronic
media offer opportunities to generate additional revenues through increased
advertising, sponsorship sales, user fees and transaction fees from electronic
commerce. Electronic media products are a growing part of our business and
represented less than 1.0% of our revenues in 1998.
OTHER
We also provide ancillary information and marketing services that
complement our principal business media platforms. These services include:
- Market Access & Business Development Services. We provide a variety
of marketing services, including database rentals and research
services. We use information from our subscription and trade show
attendee lists and other available databases to compile detailed
mailing lists for rental by marketers who want to promote their
products and services through direct mail programs.
- Specialized Advertising Services. We collect and forward reader
inquiries to our advertisers. In addition, classified and
recruitment advertising sections in our publications and on our Web
sites provide a cost-efficient medium for reaching prospects who are
ready to buy specialized products and services or who are seeking
career opportunities.
- Custom Communications/Promotion. Penton Custom Publishing produces a
full range of client-specific communications in print and electronic
format, including newsletters, magazines, catalogs, directories and
education and training materials.
- Research. Penton Research Services offers a full range of primary
and secondary research services for advertisers and industry
associates. Primary research is used to develop original statistics
and analysis based on a variety of research methodologies that may
include interviews, surveys and focus groups. Secondary research
makes use of existing information to answer a specific research
need.
- Printing. Penton Press prints substantially all of our publications
and about 30 titles for other publishers. Services provided include
complete electronic and conventional pre-press service, heatset web
offset and multi-color sheet-fed printing, and post-press finishing
and binding services that include sheet cutting, folding insert
tipping, saddle-wire and perfect binding, in-line and off-line
mailing and polybagging. Printing accounted for about 5.0% of our
total revenue in 1998. We are currently considering strategic
alternatives for our printing business.
- Direct Mail Marketing. Curtin & Pease/Peneco, our direct mail
marketing subsidiary, provides direct mail marketing services and
advertising/promotion services primarily to the pharmaceutical,
healthcare and business services markets. Curtin & Pease/Peneco and
its printing division, Feather Fine, accounted for about 5.9% of our
total revenue in 1998. We are currently considering strategic
alternatives for Curtin & Pease/Peneco and Feather Fine.
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<PAGE> 32
OUR TEN INDUSTRY SECTORS
1. INTERNET
The Internet industry sector contributed about 24% of our pro forma media
services revenues in 1998. This industry sector primarily targets service
providers and other professionals in the worldwide Internet business. Some of
our leading brands in this industry sector are Internet World, Boardwatch and
ISPCON. The Internet World trade shows are among the leading events serving the
Internet industry. Boardwatch and ISPCON are among the leading magazines and
events in the Internet service provider market. In the Internet industry sector
we produce two trade magazines, 32 trade shows and conferences and three Web
sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
Boardwatch 22,969 12
Internet World 125,576 41
</TABLE>
TRADE SHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Spring Internet World Internet World Columbia**
Internet World Summer Internet World Egypt**
Internet World Internet World India**
Internet World Australia Internet World Ireland**
Internet World Canada Internet World Israel**
Internet World Expo France Internet World Italy/SMAU**
Internet World UK Spring Internet World Japan**
Internet World Mexico Internet World Norway**
ISPCON Fall Internet World Philippines**
ISPCON Spring Internet World Portugal**
ISPCON Canada Internet World Prague**
ISPCON London Internet World Sweden**
ISPCON Australia Internet World Venezuela**
Internet World Argentina** Enterprise Customer Management (ECM)
Internet World Asia @ Hong Kong** Service Management Europe (SME)
Internet World Asia @ Singapore** RealNetworks Conference & Exhibition***
Internet World Berlin**
WEB SITES
- -------------------------------------------------------------------------------------------------------
www.iw.com www.internet.com**
www.boardwatch.com
</TABLE>
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<PAGE> 33
2. DESIGN/ENGINEERING
The design/engineering industry sector contributed about 16% of our pro
forma media services revenues in 1998. This industry sector targets designers
and engineers of machinery, consumer products, buildings and systems. Some of
our leading brands in this industry sector are A/E/C SYSTEMS and Machine Design.
Machine Design is one of the top ten trade magazines in the United States, based
on advertising revenue in 1997, according to Advertising Age magazine. In the
design/engineering industry sector we produce eight trade magazines, 25 trade
shows and conferences and eight Web sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
A/E/C Computer Solutions 30,000 6
Computer-Aided 55,903 12
Engineering
Design Mart 112,000 5
Hydraulics & Pneumatics 51,934 12
Machine Design 187,134 23
Mechanical Solutions 60,000 4
PT Design 56,364 12
PT/Motion Systems 10,000 6
Distributor
</TABLE>
TRADE SHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
A/E/C SYSTEMS Hydraulics & Pneumatics Show - West
A/E/C SYSTEMS Fall Motion Controls & Sensors Show - Greenville
A/E/C SYSTEMS UK Motion Controls & Sensors Show - Mexico
A/E/C SYSTEMS Mexico Motion Controls & Sensors Show - West
A/E/C SYSTEMS IT @ Con-Expo-Con/Agg Motion Systems North
A/E/C SYSTEMS Japan* PT Design Show - Greenville
A/E/C SYSTEMS SMAU* PT Design Show - Mexico
A/E/C SYSTEMS SMAU CADD* PT Design Show - West
A/E/C Web Expo Motion Systems Technology Week
Penton's International Manufacturing & Motion Systems Technology Week - Mexico
Engineering Technology (IMET) Congress Motion Systems Technology Week - West
EDM/PDM Expo M/TECH
Geo Expo M/TECH West
Hydraulics & Pneumatics Show - Greenville Midrange ERP Expo
Hydraulics & Pneumatics Show - Mexico
WEB SITES
- -------------------------------------------------------------------------------------------------------
www.caenet.com www.pdem.net
www.fpweb.com www.mtechexpo.com
www.machinedesign.com www.aecsystems.com
www.ptdesign.com www.imetcongress.com
</TABLE>
3. ELECTRONICS
The electronics industry sector contributed about 16% of our pro forma
media services revenues in 1998. This industry sector targets engineers who
design electronics used in applications, including small appliances, medical
equipment and sophisticated microwave-RF and wireless communications systems.
Some of our leading brands in this industry sector are EE Product News and
Electronic Design. According to Advertising Age, Electronic Design is one of the
top ten trade magazines in the United States based on advertising revenues in
1997. In the electronics industry sector we produce eight trade magazines, two
trade shows and conferences and five Web sites.
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<PAGE> 34
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
EE Product News 112,048 12
EE Product News China 20,000 4
Electronic Design 167,700 26
Electronic Design China 21,000 12
Microwaves & RF 57,945 12
Penton's Embedded Systems 50,000 9
Development
Wireless Systems Design 50,182 12
Wireless Systems Design 15,000 4
China
</TABLE>
TRADE SHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Wireless Symposium/Portable By Design Conference & Exhibition -- Spring
Wireless Symposium/Portable By Design Conference & Exhibition -- Fall
Wind River Systems Developers Conference***
WEB SITES
- -------------------------------------------------------------------------------------------------------
www.thecircuitboard.com www.wsdmag.com
www.eepn.com www.wirelessportable.com
www.elecdesign.com
</TABLE>
4. MANUFACTURING
The manufacturing industry sector contributed about 14% of our pro forma
media services revenues in 1998. This industry sector targets users at every
level, from the plant floor to the executive offices, in industrial markets
including general manufacturing and metals. Some of our leading brands in this
market are American Machinist and New Equipment Digest. In the manufacturing
sector we produce 12 trade magazines, 29 trade shows and conferences and 13 Web
sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
33 Metalproducing 19,825 12
Advanced Planning & 15,000 4
Scheduling
American Machinist 82,120 12
Flow Manufacturing Report 45,000 2
Forging 5,000 5
Foundry Management & 20,357 12
Technology
Gases & Welding 5,000 6
Distributor
Midrange ERP 40,000 10
New Equipment Digest 206,806 12
Shop Owner 120,000 3
Used Equipment Directory 75,000 12
Welding Design & 41,242 12
Fabrication
</TABLE>
32
<PAGE> 35
<TABLE>
<S> <C>
TRADE SHOWS AND CONFERENCES
- --------------------------------------------------------------------------------------------------------
Pacific Coast Industrial & Machine Tool Show FABFORM
Kentucky Industrial & Manufacturing Technology Show FABFORM Northern California
Flow Forum
Northern Alabama Industrial & Machine Tool Show Industrial Equipment & Maintenance (IEM)
Expo
Reno Industrial & Machine Tool Show/Nevada Facilities Expo Leveraging Your ERP Investment
Metal Components Expo
Tri-Cities Industrial Show Metalmecanica U.S.A.
Tri-State Industrial & Machine Tool Show OEM/AMS Aftermarket Services Symposium
Tulsa Industrial & Machine Tool Show Pre-Owned Production Equipment (PPE)
USA/Mexico Industrial Expo Primary Metals Expo
Virginia Industrial Show Process Forum
Western Pennsylvania Industrial & Machine Tool Show Tooling
APS Summit Total Cost of Ownership (TCO) - Chicago
Computers in Manufacturing (CIM) Total Cost of Ownership (TCO) - Dallas
Customer Relationship Management/Front Office Used Machinery Expo
Cutting Technology Expo
WEB SITES
- --------------------------------------------------------------------------------------------------------
www.33metalproducing.com www.buyused.com
www.penton.com/am www.secondarymarket.com
www.penton.com/forging www.cimshow.co.uk
www.foundrymag.com www.apsmagazine.com
www.machine-tool-selector.com www.flowmanufacturing.com
www.newequipment.com www.mfg-erp.com
www.isoa.com
</TABLE>
5. FOOD/RETAIL/HOSPITALITY
The food/retail/hospitality industry sector contributed about 8% of our pro
forma media services revenues in 1998. This industry sector targets
decision-makers in commercial and institutional foodservice, lodging,
convenience store headquarters and retail and large-volume baking operations.
Some of our leading brands in this sector are Modern Baking and Restaurant
Hospitality. In the food/retail/hospitality sector we produce six trade
magazines, six trade shows and conferences and one Web site.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
Baking Management 9,205 12
Convenience Store 41,749 13
Decisions
Food Management 50,761 12
LH (Lodging Hospitality) 51,071 12
Modern Baking 27,293 13
Restaurant Hospitality 122,859 12
</TABLE>
<TABLE>
<S> <C>
TRADE SHOWS AND CONFERENCES
- -------------------------------------------------------------------------------------------------------
Kids Marketing Conference The Vision Forum -- Chicago
Concepts of Tomorrow Conference The Vision Forum -- New York City
LaBevEx** The Vision Forum -- Dallas
WEB SITES
- -------------------------------------------------------------------------------------------------------
www.lhonline.com
</TABLE>
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<PAGE> 36
6. MANAGEMENT
The management industry sector contributed about 6% of our pro forma media
services revenues in 1998. This industry sector targets managers of
manufacturing and related firms with best practices information to help them
fulfill their visions for business success. Some of our leading brands in this
industry sector are Industry Week and IW Growing Companies. In the management
industry sector we produce two trade magazines, eight trade shows and
conferences and two Web sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- -----------------
<S> <C> <C>
IndustryWeek 238,848 23
IW Growing Companies 210,056 8
</TABLE>
TRADE SHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
100 Best - Managed Companies Executive Summit Driving Auto Industry Excellence
America's Best Plants - Long Beach, CA throughout the Value Chain
America's Best Plants - Chicago IW Growing Companies Awards
America's Best Plants (Awards Program) - Orlando Program & Summit
Best Practices From America's Best Plants Value Chain Conference
</TABLE>
WEB SITES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
www.industryweek.com
www.iwgc.com
</TABLE>
7. SUPPLY CHAIN/AVIATION
The supply chain/aviation industry sector contributed about 6% of our pro
forma media services revenues in 1998. This industry sector targets
decision-makers along the entire supply chain, including material handling
engineers, third-party logistics providers, and those responsible for carrying,
delivering and warehousing the goods, as well as commercial airline executives
worldwide. Some of our leading brands in this industry sector are Material
Handling Engineering, Transportation & Distribution and Air Transport World. In
the supply chain/aviation industry sector we produce six trade magazines, four
trade shows and conferences and three Web sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- -----------------
<S> <C> <C>
Airport Equipment & 20,000 4
Technology
Air Transport World 44,753 12
Air Transport World China 15,000 4
Material Handling 10,200 4
Business
Material Handling 95,641 13
Engineering
Transportation & 71,667 12
Distribution
</TABLE>
TRADESHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
PITOT: The Powered Industrial Truck Operator Training Conference - Chicago
PITOT: The Powered Industrial Truck Operator Training Conference - Pittsburgh
Supply Chain Expo
The Warehousing Technology & Distribution Show
WEB SITES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
www.atwonline.com www.mhesource.com
www.tdsupplychain.com
</TABLE>
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<PAGE> 37
8. GOVERNMENT/COMPLIANCE
The government/compliance industry sector contributed about 4% of our pro
forma media services revenues in 1998. This industry sector targets government
buyers and professionals who manage industrial safety, occupational health and
environmental compliance. Some of our leading brands in this industry sector are
Government Product News and Occupational Hazards. We produce Web sites that
provide best practices and the latest news related to these areas. In the
government/compliance industry sector we produce three trade magazines, one
conference and four Web sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
Government Procurement 17,631 4
Government Product News 85,042 12
Occupational Hazards 65,901 12
</TABLE>
TRADESHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Champions of Safety Conference
</TABLE>
WEB SITES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
www.govgroup-online.com www.grpo-online.com
www.gpn-online.com www.ohinteractive.com
</TABLE>
9. MECHANICAL SYSTEMS/CONSTRUCTION
The mechanical systems/construction industry sector contributed about 4% of
our pro forma media services revenues in 1998. This industry sector targets
people who design, build and install mechanical systems focusing on heating and
ventilation. Some of our leading brands in this industry sector are Contracting
Business and Heating/Piping/Air Conditioning. In the mechanical
systems/construction industry sector we produce three trade magazines, seven
trade shows and conferences and three Web sites.
PUBLICATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLES CIRCULATION ANNUAL FREQUENCY
------ ----------- ----------------
<S> <C> <C>
Contracting Business 52,398 12
Heating/Piping/Air 53,755 12
Conditioning
Energy & Environmental 37,500 4
Management
</TABLE>
TRADESHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Build USA Construction Maryland Show
Build USA Fall HVAC Comfortech Show
Computers for Contractors AHR/Mexico Show**
Construction Los Angeles
</TABLE>
WEB SITES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
www.contractingbusiness.com www.e-e-m.com
www.hpac.com
</TABLE>
10. LEISURE
The leisure industry sector contributed about 2% of our pro forma media
services revenues in 1998. This industry sector targets key professionals
managing parks, golf courses, sports grounds, leisure attractions, and
facilities for fitness, health and hospitality in the United Kingdom. Our
leading brands in this industry sector are International Leisure Industry Week
and Leisure Hospitality. In the leisure industry sector we produce four trade
shows and conferences.
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<PAGE> 38
TRADESHOWS AND CONFERENCES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
International Leisure Industry Week Parks & Attractions
Fitness, Health & Sport SALTEX Show***
Leisure Hospitality
</TABLE>
- ---------------
* Licensed Penton event
** Joint venture
*** Produced under management contract
COMPETITION
We experience intense competition for our products and services. We compete
with several much larger international firms that operate in many markets and
have broad product offerings in publishing and trade shows and conferences. We
compete for readers and advertisers in the publishing marketplace. We also
compete for trade show and conference expenditures and venues, sponsorships and
show attendees in the trade show and conference marketplace. Because our
industry is relatively easy to enter, additional competitors may enter these
markets and intensify competition.
Our publications generally compete on the basis of:
- advertisers' perception of the target audience served by the magazine;
- readers' preference for the publication's content;
- readers' acceptance of the publication's authoritative position in its
markets;
- editorial quality;
- quantity and quality of circulation;
- readers' response to advertisers' products and services;
- the strength of complementary products serving the same niche;
- the effectiveness of sales and customer service; and
- advertising rates.
Our trade shows and conferences generally compete on the basis of:
- the availability of attractive venues and dates;
- the ability to provide events that meet the needs of particular market
segments;
- the ability to attract qualified attendees; and
- the ability to provide high quality show services, exhibition space and
attractive marketing and sponsorship opportunities.
In addition, in our trade show and conference business, we compete with
many industry associations and, in several countries, the trade show and
conference hall owner and operator may also be a competitor.
CUSTOMERS
We have over 16,000 customers. None of our customers accounted for more
than 1.2% of our total revenues in 1998. Our top ten customers, who accounted
for only 5.3% of our total revenues in 1998, were:
<TABLE>
<S> <C>
AT&T Intel
Autodesk, Inc. Linear Technology Corporation
Compaq Computer Corporation Microsoft
Hewlett Packard Company Motorola, Inc.
IBM Corporation--Commercial Desktop Texas Instruments
</TABLE>
PRODUCTION AND DISTRIBUTION
We print nearly all of our own magazines and about 30 outside titles at our
printing facility in Berea, Ohio. If additional printing capacity is needed, we
believe that outside printing services are readily available at competitive
prices.
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<PAGE> 39
The principal raw material used in our print publications is paper. We
believe that our existing arrangements providing for the supply of paper are
adequate and that, in any event, alternative sources are available. Paper costs
accounted for about 8.1% of our total operating costs for the year ended
December 31, 1998. Paper prices are affected by a variety of factors, including
demand, capacity, pulp supply and general economic conditions.
On February 11, 1999, we announced that we are exploring strategic
alternatives for our printing facility.
Substantially all of our publications and direct mail promotions within the
continental United States are delivered by the United States Postal Service.
Postage costs also represent a significant expense, accounting for about 6.8% of
our total operating costs and expenses for the year ended December 31, 1998.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
We regard our copyrights, trademarks, service marks and similar
intellectual property as critical to our success and rely upon copyright and
trademark laws, as well as confidentiality agreements with our employees and
others, to protect our rights. We pursue the registration of our material
trademarks in the United States and, depending upon use, in other countries.
Effective trademark and copyright protection may not be available in every
country in which our publications and services are available.
We may be subject to claims of alleged infringement of our trademarks or
our licensees of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. We do not believe
that these legal proceedings or claims are likely to have, individually or in
the aggregate, a material adverse effect on our business, financial condition or
results of operations.
ENVIRONMENTAL MATTERS
We are subject to various federal, state and local environmental laws and
regulations that (1) govern activities and operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous or toxic wastes, or (2) impose
liability for the costs of cleaning up, and damages resulting from, sites of
past spills, disposals, or other releases of hazardous or toxic substances or
wastes.
From time to time, current or historical operations at our properties may
result or may have resulted in noncompliance with or liability for cleanup
pursuant to these environmental laws. In that regard, we have been identified as
a potentially responsible party by the United States Environmental Protection
Agency, at an off-site location owned by an unrelated third party, pursuant to
the federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended. We do not believe that our liability for this matter, or
compliance with or liability pursuant to these environmental laws generally,
will have a material effect on our capital expenditures, earnings or competitive
position.
LEGAL PROCEEDINGS
A former shareholder of Mecklermedia, Ariff Alidina, filed suit against us
in the Federal District Court in the Southern District of New York for an
unspecified amount, as well as other relief. In addition, the plaintiff
indicated that he seeks to represent a class of former Mecklermedia
shareholders. The plaintiff claims that we violated the federal securities laws
by selling Mr. Meckler an 80.1% interest in internet.com for what the plaintiff
alleges was a below-market price, thereby purportedly giving to Mr. Meckler more
consideration for his common stock in Mecklermedia than was paid to other
stockholders of Mecklermedia during the tender offer. The defendants filed a
motion to dismiss, which the court indicated orally on April 9, 1999 will be
denied. We filed our answer to the complaint on April 30, 1999. We believe we
have meritorious defenses to this action and intend to vigorously defend it. We
cannot assure you, however, that the outcome of this suit will be favorable to
us or that it will not have a material adverse effect on our business, financial
condition or results of operations.
EMPLOYEES
On December 31, 1998, we employed about 1,450 persons, primarily located in
the United States. None of our employees is represented by a labor union, and we
consider our relations with our employees to be good.
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<PAGE> 40
PROPERTIES
Our principal properties and their general characteristics are as follows:
<TABLE>
<CAPTION>
LEASE APPROXIMATE
LOCATION PRINCIPAL USE EXPIRATION SQUARE FEET
-------- ------------- ---------- -----------
<S> <C> <C> <C>
Cleveland, Ohio General Offices 2000 186,000
Cleveland, Ohio Warehousing 2001 28,000
Berea, Ohio Printing/Warehousing Owned 138,000
New York, New York Sales Offices 2000 10,000
Dunedin, Florida General Offices 2000 13,000
Safety Harbor, Florida Warehousing 1999 18,000
Tampa, Florida Printing 2000 15,000
Tampa, Florida General Offices/Warehousing 1999 19,000
Hasbrouck Heights, New Jersey General Offices 2001 25,000
Westport, Connecticut General Offices 1999 18,700
</TABLE>
Other smaller properties include 17 sales and/or editorial offices under
leases expiring through 2013 located in major cities throughout the United
States and in the United Kingdom. We believe our facilities are adequate for our
present needs.
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<PAGE> 41
MANAGEMENT
The directors, executive officers and other key employees of Penton, and
their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
King W. Harris............................ 55 Chairman of the Board and Director
Thomas L. Kemp............................ 47 Chief Executive Officer and Director
Daniel J. Ramella......................... 47 President, Chief Operating Officer and
Director
Joseph G. NeCastro........................ 42 Chief Financial Officer and Treasurer
James D. Atherton......................... 63 Group President
David B. Nussbaum......................... 41 Executive Vice President and Group
President
James W. Zaremba.......................... 58 Group President
Preston L. Vice........................... 50 Senior Vice President
Charles T. Griesemer...................... 47 Vice President/Controller
William C. Donohue........................ 54 Director
Anthony Downs............................. 68 Director
William J. Friend......................... 35 Director
Joan W. Harris............................ 68 Director
John J. Meehan............................ 51 Director
Don E. Schultz............................ 65 Director
Edward J. Schwartz........................ 57 Director
Richard B. Swank.......................... 67 Director
</TABLE>
King W. Harris has served as a Director of Penton since May 1987 and as
Non-executive Chairman of the Board of Penton since May 1998. Since 1987, Mr.
Harris has served as President, Chief Executive Officer and Director of Pittway
Corporation, a manufacturer and distributor of alarm and other security
products. Mr. Harris currently serves as Non-executive Chairman of the Board and
Director of Aptar Group, Inc., a specialty packaging components manufacturer.
Thomas L. Kemp has served as a Director and as Chief Executive Officer of
Penton since September 1996. Mr. Kemp also served as Chairman of the Board of
Penton from September 1996 to May 1998. Mr. Kemp's publishing career spans more
than 25 years. He spent 22 years with San Francisco based Miller Freeman, Inc.,
and was Miller Freeman's President and Chief Operating Officer in 1996, when he
left that company to join Penton. From 1994 to 1996, Mr. Kemp was Miller
Freeman's Executive Vice President and Chief Operating Officer. He also held a
series of executive, publishing management and sales positions with Miller
Freeman subsequent to joining that company in 1974. Mr. Kemp is a Director and
Treasurer of Business Publications Audit International. He is a Director of the
Business Press Educational Foundation and a former Director of American Business
Press and the Association of Medical Publishers. Mr. Kemp is a frequent speaker
at media industry conferences and events. In 1998, Mr. Kemp was named Business
Publishing's "Person of the Year" by min magazine.
Daniel J. Ramella has served as a Director of Penton since July 1990. He
has served as President and Chief Operating Officer since 1990, and has worked
for Penton for more than 22 years. Mr. Ramella was Senior Vice President,
Publishing from 1989 to 1990, and Vice President, Foodservice Group from 1987 to
1989. He was publisher of Restaurant Hospitality magazine from 1985 to 1987. Mr.
Ramella held management positions with Production Engineering magazine between
1977 and 1985. Before joining Penton in 1977, he was a Senior Audit Manager for
Arthur Andersen & Co. He is a Director, Secretary and Executive Committee Member
of American Business Press and has served as a Director of the Business Press
Educational Foundation. He is a former Director, Treasurer and Executive
Committee member of Business Publications Audit International.
39
<PAGE> 42
Joseph G. NeCastro has served as Chief Financial Officer and Treasurer of
Penton since June 1998. Before joining Penton, Mr. NeCastro spent five years
with Reader's Digest Association, Inc. He was Vice President, Finance for
Reader's Digest USA from 1995 until 1998, Corporate Controller in 1994 and 1995,
and held other corporate financial management positions with that company in
1993 and 1994. Mr. NeCastro was Vice President and Treasurer of U.S. News &
World Report between 1990 and 1993, and Director of Finance from 1987 to 1990.
He held senior business development and finance positions with MCI
Communications Corporation between 1983 and 1987 before moving into the
publishing industry.
James D. Atherton is Group President of the Mechanical
Systems/Construction, Government/Compliance, Management, Supply Chain/Aviation,
Industrial Shows of America Groups and Ancillary Products Groups. He has worked
in business publishing at Penton for 46 years. Mr. Atherton was Group President
of Penton's Inside Sales and Electronics Groups from 1991 to 1995. From 1989 to
1991, he was Senior Vice President of Publishing, and from 1984 to 1989, he was
Publishing Vice President of New Equipment Digest and Material Handling
Engineering magazines. From 1981 to 1984, he was Vice President of New Equipment
Digest, and from 1975 to 1981, he was publisher of that magazine.
David B. Nussbaum has served as Executive Vice President and Group
President of Penton since September 1998. He oversees the Electronics, Used
Equipment and Internet Groups, as well as the Independent Exhibitions, Ltd.
subsidiary. Before joining Penton, Mr. Nussbaum served as Senior Vice President
of the New York Division of Miller Freeman, Inc. from 1995 to August 1998 and as
Vice President from 1994 to 1995. He has worked in the business media industry
for 19 years.
James W. Zaremba is Group President of the Design/Engineering,
Foods/Hospitality and Manufacturing, and A/E/C SYSTEMS. He has spent most of his
31-year business-to-business publishing career with Penton. From 1993 to 1995,
he was Group President of the Design/Engineering and Custom Communications
Groups, and from 1991 to 1993, he was Group President of the Design/Engineering
Group. He was Group Vice President of the Design/Engineering Group from 1989 to
1991. From 1988 to 1989, he was Publisher of Machine Design magazine, and from
1983 to 1988, he was Publisher of PT Design magazine.
Preston L. Vice has served as Secretary of Penton since July 1998 and as
Senior Vice President of Publishing Services since 1989. Mr. Vice has 20 years
of business-to-business publishing experience and 29 years of accounting and
finance experience. He was Penton's Vice President of Finance from 1982 to 1989,
and Director of Finance from 1979 to 1982. Mr. Vice transferred to Penton from
Pittway Corporation in 1979. Previous to his tenure at Pittway he was with
Coopers & Lybrand.
Charles T. Griesemer has served as Vice President/Controller of Penton
since July 1998 and as Vice President of Finance since he joined Penton in 1989.
In the preceding 16 years, he held finance positions at Thermos Company, Anchor
Swan Corporation Inc., Pittway Corporation and Coopers & Lybrand.
William C. Donohue has served as a Director of Penton since 1998. Since
January 1987 Mr. Donohue has served as President of Donohue/Meehan Publishing
Company, a business publishing company and a subsidiary of Penton. Mr. Donohue
started his 26-year business publishing career in 1973 selling advertising for
Woodall Publishing. He was vice president and group publisher of Gorman
Publishing's Bakery Production & Marketing and Prepared Foods magazines from
1976 to 1986 before forming Donohue/Meehan Publishing Company in 1987.
Anthony Downs has served as a Director of Penton since June 1998. Since
1977, Mr. Downs has served as a Senior Fellow of the Brookings Institution, a
non-profit social policy research center, and as a consultant. Mr. Downs
currently serves as a Director of Pittway Corporation, Bedford Property
Investors, Inc., a real estate investment trust, Essex Property Trust, Inc., a
real estate investment trust, General Growth Properties, Inc., a real estate
investment trust, Massachusetts Mutual Life Insurance Corporation, an insurance
company, National Housing Partnership Foundation, a low-income housing operator
and NAACP Legal and Educational Defense Fund, Inc., an organization for the
advancement of minority interests.
William J. Friend has served as a Director of Penton since June 1998. Since
August 1996, Mr. Friend has served as Assistant to the President/Strategic
Planning Manager of Pittway Corporation. From April 1994 to July 1996 he served
as national Sales Manager of Xetron, a division of Pittway Corporation. From
August 1992
40
<PAGE> 43
to March 1994 he served as an Engineering Product Manager of System Sensor, a
division of Pittway Corporation.
Joan W. Harris has served as a Director of Penton since June 1998. Ms.
Harris has served as President of the Harris Foundation, a private charitable
foundation, since January 1993. From 1990 to 1997 Ms. Harris served as President
of the Chicago Music and Dance Theater, Commissioner for Cultural Affairs for
the City of Chicago, chairperson of the Illinois Arts Alliance and Director of
National Public Radio.
John J. Meehan has served as a Director of Penton since August 1998. Since
January 1987 Mr. Meehan has served as Executive Vice President of Donohue/Meehan
Publishing Company. Mr. Meehan started his 27-year career in
business-to-business publishing at the former Chilton Publishing, where he held
marketing and sales management positions with the company's electronics
publications from 1972 to 1977. From 1977 to 1986, he was Publisher of Gorman
Publishing's Bakery Production & Marketing and Prepared Foods magazines. He was
Group Publishing Director for Tompson Publishing in New York from 1986 to 1987
before forming Donohue/Meehan Publishing Company in 1987.
Don E. Schultz has served as a Director of Penton since June 1998. Mr.
Schultz currently serves as President of Agora, Inc., an integrated marketing
communications consulting firm. He is a professor of Integrated Marketing
Communications at the Medill School of Journalism at Northwestern University.
Mr. Schultz serves as a Senior Partner of Targetbase Marketing International and
the Targetbase Institute. Mr. Schultz also serves as Director of Insignia
Systems, Inc., an in-store promotional materials company.
Edward J. Schwartz has served as a Director of Penton since June 1998.
Since 1989, Mr. Schwartz has served as Vice President of Pittway Corporation.
Richard B. Swank has served as a Director of Penton since June 1998. Mr.
Swank is currently retired. Prior to his retirement, Mr. Swank served as
Chairman and Chief Executive Officer, from April 1990 to December 1994, and as a
Director from April 1990 to May 1996, of Advanstar Communications, Inc., a
magazine publishing, exhibition and marketing services enterprise. Mr. Swank
currently serves as a director of The Dialog Corporation plc, an online
information and data provider.
EXECUTIVE COMPENSATION
The following table sets forth 1998 compensation information for our Chief
Executive Officer and President and Chief Operating Officer.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
--------------------------------
1998 NUMBER OF SHARES
COMPENSATION RESTRICTED OF COMMON STOCK
-------------------- STOCK UNDERLYING
SALARY BONUS AWARDS OPTIONS
-------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Thomas L. Kemp............................ $450,000 $320,500 $60,000 60,000
Chief Executive Officer
Daniel J. Ramella......................... 350,000 229,000 50,000 46,000
President and Chief Operating Officer
</TABLE>
The restricted stock awards generally have three-year deferral periods,
subject to acceleration upon the occurrence of certain events, and the values
set forth below are as of the date of grant. As of December 31, 1998, these were
the only deferred shares awarded to Mr. Kemp and Mr. Ramella. The stock options
granted are not immediately vested. One-third of these options vest one year
from the date of grant and two-thirds vest two years from the date of grant with
the remainder becoming fully vested three years from the date of grant. These
options are granted at the fair market value on the date of the grant.
EMPLOYMENT AGREEMENTS
During 1998, employment agreements between Penton and each of Messrs. Kemp
and Ramella provided for minimum annual salaries of $400,000 and $330,000,
respectively, supplementary insurance coverage and participation in Penton's
supplemental executive retirement plan. Mr. Kemp's agreement also provided for
the
41
<PAGE> 44
payment of accrued but unvested pension plan and defined contribution plan
benefits in the event of termination of employment prior to full vesting.
Under the terms of his employment agreement, Mr. Kemp was entitled to
surrender to Pittway for cancellation immediately prior to our spin off from
Pittway all non-qualified options to purchase Pittway stock under the Pittway
1990 stock awards plan held by him and to receive from Penton at the close of
business on the date of our spin off non-qualified options to purchase shares of
our common stock under our equity incentive plan having an exercise price equal
to the then fair market value of our common stock and having exercisability
provisions corresponding to and an aggregate value equal to that of the
surrendered options to purchase Pittway stock. Mr. Kemp exercised one-third of
his options to purchase Pittway stock prior to our spin off from Pittway and
surrendered his remaining options to purchase Pittway stock for 47,655 options
to purchase Penton common stock under our equity incentive plan. The value of
these Penton options was equal to the value of the Pittway options Mr. Kemp
surrendered. In addition, Mr. Kemp's employment agreement provided that he was
to receive, at the close of business on the date of the spin off, a
non-qualified option to purchase shares of our common stock under our equity
incentive plan having an exercise price equal to the then fair market value of
our common stock and a value of $400,000. Mr. Kemp waived this right under his
employment agreement in consideration for receiving, in connection with and
subject to completion of the spin off, an option to purchase 60,000 shares of
our common stock at an exercise price per share equal to the average closing
price of our common stock for the five trading day period ending on the eighth
trading day after the date of our spin off.
In lieu of portions of bonuses otherwise payable in cash in 1998, Mr. Kemp
and Mr. Ramella were awarded, 3,698 and 3,082 deferred shares under our equity
incentive plan.
In 1999, our Compensation Committee approved restated employment agreements
with Messrs. Kemp and Ramella. The agreements provide for minimum annual
salaries of $470,000 for Mr. Kemp and $365,000 for Mr. Ramella and supplementary
insurance coverage and participation in Penton's supplemental executive
retirement plan. These agreements also provide for annual bonuses based on
specific company goals, standard executive benefits packages and eligibility to
receive options under our various equity plans. The agreements are for terms
currently expiring December 31, 2001 and renew automatically at the end of each
year for an additional year (or until age 65, if earlier) unless either party
elects otherwise. In addition, each of the agreements may be terminated by the
executive on 120 days notice. Each agreement includes non-competition,
non-solicitation and confidentiality obligations on the part of the executive,
which survive its termination.
The agreements also provide that in the event the executive's employment is
terminated by us (other than for "cause" (as defined in the agreements) or by
reason of his death, disability or retirement) or by the executive for "good
reason" (as defined in the agreements) during the two years following a "change
in control," the executive will be entitled to receive certain severance
benefits. These benefits include:
- any accrued but unpaid salary and expense reimbursement;
- salary (as in effect at the time of termination or, if higher, as in
effect as of the most recent extension of the employment period) for
a period of three years following the date of his termination after
a change in control;
- target bonus for the year in which the termination occurs or, if
higher, the executive's target bonus for the preceding year or the
year in which the change in control occurs; and
- if the executive's employment is terminated after July 1 of the
then-current year, a pro-rated portion of the executive's target
bonus for the year in which the termination occurs or, if higher, a
pro-rated portion of the executive's target bonus for the preceding
year or the year in which the change in control occurs.
Benefits under these agreements are subject to an overall limitation
designed to assure that payments will not constitute "excess golden parachute
payments" under federal income tax law.
42
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Penton with respect to
the beneficial ownership of its common stock (1) as of March 25, 1999 and (2)
immediately following this offering by:
- the persons known by Penton to be the beneficial owners of more than 5%
of the outstanding shares of common stock,
- each director of Penton,
- all directors and executive officers of Penton as a group, and
- each selling stockholder.
Except where otherwise indicated, the mailing address of each of the
stockholders named in the table is: c/o Penton Media, Inc., 1100 Superior
Avenue, Cleveland, Ohio 44114-2543. See "-- Relationships of Selling
Stockholders to Penton."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO THIS OFFERING(1) AFTER THIS OFFERING(1)
------------------------- -----------------------
NAME NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---- ----------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Mario J. Gabelli, et al.(3)................. 4,311,203 18.92% 0 4,311,203 14.85%
One Corporate Center
Rye, New York 10580
William Harris Investors, Inc.(4)........... 2,948,514 12.94 144,000 2,804,514 9.66
2 North LaSalle Street
Suite 400
Chicago, Illinois 60602
Janus Capital Corporation(5)................ 1,583,489 6.95 0 1,583,489 5.45
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Current Harris Group(6)..................... 5,138,673 22.56 250,000 4,888,673 16.84
Joan W. Harris(6)(7)........................ 28,000 * 0 28,000 *
King Harris(2)(6)(8)(12).................... 1,301,572 5.71 53,000 1,248,572 4.30
William J. Friend(6)(9)..................... 71,755 * 0 71,755 *
William C. Donohue(2)....................... 770,819 3.38 0 770,819 2.66
John J. Meehan.............................. 770,819 3.38 0 770,819 2.66
Anthony Downs............................... 10,839 * 0 10,839 *
Thomas L. Kemp.............................. 5,835 * 0 5,835 *
Daniel J. Ramella(10)....................... 59,548 * 0 59,548 *
Don E. Schultz.............................. 0 * 0 0 *
Edward J. Schwartz.......................... 18,144 * 0 18,144 *
Richard B. Swank............................ 2,500 * 0 2,500 *
All Directors and Executive Officers as a
Group (17 persons)(2)(11)................. 2,974,574 13.06 53,000 2,912,574 10.03
Dromara Investors L.P.(4)(12)............... 201,148 * 22,890 178,258 *
Irving B. Harris Revocable Trust(4)(12)..... 346,485 1.52 17,876 328,609 *
William W. Harris Trust(4)(12).............. 409,290 1.80 26,547 382,743 1.32
Cottage Investments L.P.(4)(12)............. 173,364 * 19,528 153,836 *
June H. Barrows(4)(12)...................... 320,334 1.41 0 320,334 1.10
Katherine P. Harris Trust, dated January 18,
1991(6)(12)............................... 274,713 1.21 53,000 221,713 *
Toni H. Paul(6)(12)......................... 249,123 * 53,000 196,123 *
John B. Harris Fund under the R. Neison
Harris Trust of 1954 for King William W.
Harris(12)................................ 146,194 * 0 146,194 *
Robert Barrows(4)(12)....................... 105,893 * 5,173 100,720 *
Donna E. Barrows(4)(12)..................... 96,721 * 4,725 91,996 *
Mary Ann Wark(4)(12)........................ 80,792 * 3,947 76,845 *
Harris Foundation(4)(12).................... 151,202 * 7,802 143,400 *
Pam F. Szokol Fund under the R. Neison
Harris Trust of 1954 for Katherine P.
Harris(6)(12)............................. 48,085 * 0 48,085 *
Patricia Rosbrow(4)(12)..................... 45,096 * 2,437 42,659 *
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO THIS OFFERING(1) AFTER THIS OFFERING(1)
------------------------- -----------------------
NAME NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---- ----------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Pam F. Szokol Trust, dated February 18,
1993(6)(12)............................... 39,539 * 0 39,539 *
Daniel H. Meyer Investment Trust(4)(12)..... 39,393 * 1,924 37,469 *
Allen H. Paul Fund under the R. Neison
Harris Trust of 1954, for Toni L.
Harris(6)(12)............................. 39,045 * 0 39,045 *
Charles H. Paul Fund under the R. Neison
Harris Trust of 1954, for Toni L.
Harris(6)(12)............................. 39,045 * 0 39,045 *
Kelly L. Paul Fund under the R. Neison
Harris Trust of 1954, for Toni L.
Harris(6)(12)............................. 39,045 * 0 39,045 *
Laurie B. Paul Fund under the R. Neison
Harris Trust of 1954, for Toni L.
Harris(6)(12)............................. 39,045 * 0 39,045 *
Thomas Meyer Trust(4)(12)................... 35,425 * 1,731 33,694 *
VHP Trust dated November 19, 1976 fbo James
Polsky(4)(12)............................. 31,318 * 1,530 29,788 *
VHP Trust dated November 19, 1976 fbo George
Polsky(4)(12)............................. 28,963 * 1,415 27,548 *
VHP Trust dated November 19, 1976 fbo
Charles Polsky(4)(12)..................... 27,299 * 1,334 25,965 *
Nancy Meyer Trust(4)(12).................... 25,932 * 1,267 24,665
VHP Trust dated November 19, 1976 fbo Jean
Polsky(4)(12)............................. 24,217 * 1,395 22,822 *
Rosetta W. Harris Charitable Lead Trust
A(4)(12).................................. 23,900 * 1,167 22,733 *
Rosetta W. Harris Charitable Lead Trust
B(4)(12).................................. 23,900 * 1,167 22,733 *
Rosetta W. Harris Charitable Lead Trust
C(4)(12).................................. 23,900 * 1,167 22,733 *
Estate of Sidney Barrows(4)(12)............. 23,061 * 16,775 6,286 *
Trust f/b/o John B. Harris under the Bette
D. Harris Grandchildren's Trust, dated
January 13, 1959(6)(12)................... 20,626 * 0 20,626 *
Irving Harris Foundation(4)(12)............. 18,000 * 3 17,997 *
John B. Harris 1988 Trust(6)(12)............ 15,349 * 0 15,349 *
Trust f/b/o Alan H. Paul under the Toni L.
Harris Trust for Children, dated December
15, 1976(6)(12)........................... 12,266 * 0 12,266 *
Trust f/b/o Charles H. Paul under the Toni
L. Harris Trust for Children, dated
December 15, 1976(6)(12).................. 12,266 * 0 12,266 *
Trust f/b/o Kelly L. Paul under the Toni L.
Harris Trust for Children, dated December
15, 1976(6)(12)........................... 12,266 * 0 12,266 *
Trust f/b/o Laurie B. Paul under the Toni L.
Harris Trust for Children, dated December
15, 1976(6)(12)........................... 12,266 * 0 12,266 *
Jack Polsky Investment Trust(4)(12)......... 8,688 * 1,966 6,722 *
Trust f/b/o Alan H. Paul under the Bette D.
Harris Grandchildren's Trust, dated
January 13, 1959(6)(12)................... 5,868 * 0 5,868 *
Trust f/b/o Laurie B. Paul under the Bette
D. Harris Grandchildren's Trust, dated
January 13, 1959(6)(12)................... 5,868 * 0 5,868 *
Trust f/b/o Charles H. Paul under the Bette
D. Harris Grandchildren's Trust, dated
January 13, 1959(6)(12)................... 5,867 * 0 5,867 *
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO THIS OFFERING(1) AFTER THIS OFFERING(1)
------------------------- -----------------------
NAME NUMBER PERCENT OFFERED(2) NUMBER PERCENT
---- ----------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Trust f/b/o Kelly L. Paul under the Bette D.
Harris Grandchildren's Trust, dated
January 13, 1959(6)(12)................... 5,867 * 0 5,867 *
King W. Harris as custodian for Charles H.
Paul(6)(12)............................... 5,651 * 0 5,651 *
King W. Harris as custodian for Kelly L.
Paul(6)(12)............................... 5,455 * 0 5,455 *
Trust uwo fbo William Barrows(4)(12)........ 4,792 * 234 4,558 *
</TABLE>
- ---------------
* Less than one percent
(1) Except as otherwise indicated below, beneficial ownership means the sole
power to vote and dispose of shares.
(2) Amounts reflected in the above table assume no exercise of the
underwriter's over-allotment option. 53,000 shares, which Mr. King Harris
is deemed to beneficially own because he has power to vote these shares,
are being sold in the offering. If the over-allotment option is exercised
in full, certain members of the Current Harris Group and William Harris
Investors, Inc., as identified individually, will sell an additional
795,000 shares in the aggregate, including 238,172 shares over which Mr.
Harris has sole or shared power to vote.
(3) The information as to Mario J. Gabelli and entities controlled directly or
indirectly by Mr. Gabelli is derived from Schedule 13D/A as filed with the
Commission on March 17, 1999. Such statement discloses that
- Mr. Gabelli is the chief investment officer for most of the entities
signing such statements and is deemed to have beneficial ownership of
the shares beneficially owned by all such entities,
- Mr. Gabelli and such entities do not admit that they constitute a group
within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations thereunder, and
- with respect to Penton common stock, Mr. Gabelli and such entities have
the sole power to vote and dispose of all the shares of which they are
beneficial owners unless the aggregate voting interest of all such
entities exceeds 25% of Penton's total voting interest or other special
circumstances exist, in which case the proxy voting committees of
certain of such entities would have the sole power to vote certain
shares of Penton common stock except 99,683 shares of Penton's common
stock as to which they have no voting power.
(4) The information as to William Harris Investors, Inc. ("WHI") is derived
from Schedule 13G as filed with the Commission on February 18, 1999 and
additional information provided by members of WHI. Such statement, together
with information furnished to Penton separately by WHI, disclose that
- WHI, an investment adviser registered under the Investment Advisers Act
of 1940, holds all its shares of Penton common stock on behalf, and in
terminable discretionary accounts, of Joan W. Harris and certain other
members of the "Harris Group,"
- WHI shares voting power with such persons, and has sole dispositive
power, with respect to all such shares,
- Irving B. Harris and his children are the sole voting stockholders of
WHI, and
- Irving B. Harris is the Chairman of WHI.
Certain members of WHI, as identified individually in the table, are
selling shares in the offering.
(5) The information as to Janus Capital Corporation ("Janus") is derived from
Schedule 13G as filed with the Commission on February 12, 1999. Such
statement discloses that
- Thomas H. Bailey is President and Chairman of the Board of Janus, owns
approximately 12.2% of Janus and may be deemed to exercise control over
Janus,
- Janus is deemed to have beneficial ownership of all its shares of Penton
common stock,
- Janus and Mr. Bailey share voting and dispositive power with respect to
such shares,
45
<PAGE> 48
- all such shares are held by managed portfolios to which Janus is an
investment advisor or sub-advisor, and
- Mr. Bailey disclaims beneficial ownership of such shares.
(6) The information as to the Current Harris Group (as defined below), Joan W.
Harris, King Harris, and William J. Friend is derived in part from Schedule
13D as filed with the Commission on August 12, 1998, statements required to
be filed by such named persons pursuant to Section 16(a) of the Securities
Exchange Act of 1934 and additional information provided by members of the
"Harris Group". Such statements were filed on behalf of such named persons
as well as those other persons and entities who are currently members of
the "Harris Group" beneficially owning, directly or indirectly, shares of
Penton common stock (the "Current Harris Group"). Such statements disclose
that, because of the relationships among members of the Current Harris
Group, such persons may be deemed to be a group within the meaning of
Section 13(d) of the Exchange Act and the rules and regulations thereunder.
The "Harris Group" means Messrs. Irving B. Harris, Neison Harris, King
Harris, William W. Harris, and June Barrows, and their respective spouses,
descendants and spouses of descendants, trustees of trusts established for
the benefit of such persons, and executors of estates of such persons. Joan
W. Harris is the spouse of Irving B. Harris and the aunt of King Harris.
King Harris is the uncle of William J. Friend. The aggregate number of
outstanding shares which may be deemed to be beneficially owned by the
Current Harris Group includes all the shares shown in this table for WHI,
Joan W. Harris, King Harris, and William J. Friend. The total excludes
duplication of shares within such group. Certain members of the Current
Harris Group, as identified individually in the table, are selling shares
in the offering. See footnote (2).
(7) Consists of 28,000 shares held by WHI for the account of Joan W. Harris. As
set forth in note (3), the voting power of the shares held by WHI is shared
by WHI with the respective persons for whose account they are held and WHI
has sole dispositive power with respect to such shares.
(8) Mr. King Harris shares the power to vote and dispose of 949,266 such
shares.
(9) Mr. Friend shares the power to vote and dispose of 70,826 such shares.
(10) Mr. Ramella shares the power to vote and dispose of 58,886 such shares.
(11) Includes 878,440 shares as to which voting power will be shared other than
with directors and officers of Penton. See footnote (2).
(12) In the event the underwriters exercise their over-allotment option, these
selling stockholders may collectively sell up to an additional 795,000
shares of common stock.
RELATIONSHIPS OF SELLING STOCKHOLDERS TO PENTON
Mr. King Harris, who is deemed to be selling shares of common stock in the
offering, is a director of Penton. See "Management." Mr. Harris is also an
executive officer of Pittway Corporation.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS
The following summary describes the principal United States federal income
tax consequences of the purchase, ownership and disposition of Penton common
stock by a holder that, for United States federal income tax purposes, is not a
"U.S. Holder" (as defined below) (a "Non-U.S. Holder"). This summary is based on
the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations ("Regulations"), changes to any of which subsequent to the
date of this Prospectus may affect the tax consequences described herein,
possibly with retroactive effect. This summary discusses only Penton common
stock held as a capital asset within the meaning of Section 1221 of the Code. It
does not discuss all of the tax consequences that may be relevant to a Holder in
light of its particular circumstances or to holders subject to special rules,
such as certain financial institutions, tax-exempt organizations, insurance
companies, dealers in securities or foreign currencies, persons holding our
common stock as part of a hedging, conversion, or straddle transaction, or
holders whose functional currency is not the United States dollar. Persons
considering the purchase of our common stock should consult their tax
46
<PAGE> 49
advisors with regard to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of our
common stock that is, for United States federal income tax purposes, (i) a
citizen or individual resident of the United States, (ii) a corporation (or
other entity treated as a corporation) or partnership created in or under the
laws of the United States or of any State thereof, (iii) an estate the income of
which is subject to United States federal income taxation regardless of its
source; or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust (including certain trusts in existence on August 20, 1996 and treated as
United States persons prior to such date that timely elected to continue to be
treated as United States persons).
TAXATION OF DIVIDENDS
In general, Non-U.S. Holders will be subject to United States income
taxation on dividends paid, or deemed paid, by Penton on its common stock. With
respect to Non-U.S. Holders that are not engaged in a United States trade or
business, dividends paid by Penton to such Non-U.S. Holders will be subject to
United States withholding tax at a 30 percent rate (unless reduced by an
applicable income tax treaty). If the receipt of a dividend by a Non-U.S. Holder
is effectively connected with the conduct of a trade or business in the United
States by the Non-U.S. Holder, the dividend will be subject to United States
federal income tax imposed on net income on the same basis that applies to
United States holders generally (and, with respect to corporate holders and
under certain circumstances, the branch profits tax).
SALE, REDEMPTION OR OTHER DISPOSITION OF THE STOCK
Except as provided below, a Non-U.S. Holder generally will not be subject
to United States federal income or withholding tax with respect to gain
recognized on the sale or other disposition of our common stock, unless (i) the
gain is effectively connected with the conduct of a United States trade or
business by such Non-U.S. Holder or (ii) such Non-U.S. Holder is an individual
who is present in the United States for 183 or more days during the taxable year
of the disposition and certain other requirements are met.
If proceeds from the disposition of our common stock are effectively
connected with the conduct of a United States trade or business by the Non-U.S.
Holder (or the Non-U.S. Holder is otherwise subject to United States federal
income taxation on a net income basis), such Non-U.S. Holder generally will be
subject to the rules that apply to U.S. holders generally (and, with respect to
corporate holders and under certain circumstances, the branch profits tax) but
will not be subject to United States federal withholding tax (subject to any
modification provided under an applicable income tax treaty).
UNITED STATES FEDERAL ESTATE TAXES
Common stock owned or treated as owned by an individual who is not a
citizen or resident (as specially defined for United States federal estate tax
purposes) of the United States on the date of death will be included in such
individual's estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, Penton must report annually to the United States Internal
Revenue Service and to each Non-U.S. Holder the amount of dividends paid to such
holder, and the tax withheld on such dividends, regardless of whether any tax
has actually been withheld. This information may also be made available to the
tax authorities of a country in which the Non-U.S. Holder resides.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of our common stock that provides the appropriate certification of
foreign status. Payments by a United States office of a broker of the proceeds
of a disposition of our common stock generally will not be subject to backup
withholding if the Non-U.S. Holder certifies it is a Non-U.S. Holder under
penalties of perjury or otherwise establishes an exemption. Information
reporting requirements (but not backup withholding) will also apply to a payment
of the proceeds of the disposition of our common stock by or through a foreign
office of a United States broker or a foreign broker that is a related person,
unless the Non-U.S. Holder certifies to the broker under penalties of perjury as
to its name, address and status as a foreign person or the holder otherwise
establishes an exemption.
47
<PAGE> 50
The United States Treasury Department has promulgated final regulations
regarding the withholding and information reporting rules discussed above. In
general, such regulations do not significantly alter the substantive withholding
and information reporting requirements but unify current certification
procedures and forms and clarify reliance standards. The final regulations are
generally effective for payments made after December 31, 1999, subject to
certain transition rules.
48
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated May 7, 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.,
Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Representatives"), have severally agreed to purchase from Penton and the
selling stockholders the number of shares set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS: OF SHARES
------------- ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,464,000
Salomon Smith Barney Inc.................................... 1,464,000
Bear, Stearns & Co. Inc. ................................... 975,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................... 975,000
BT Alex. Brown Incorporated................................. 80,000
CIBC World Markets.......................................... 80,000
Credit Suisse First Boston Corporation...................... 80,000
A.G. Edwards & Sons, Inc. .................................. 80,000
ING Baring Furman Selz LLC.................................. 80,000
Lazard Freres & Co. LLC..................................... 80,000
Lehman Brothers Inc. ....................................... 80,000
J.P.Morgan Securities Inc. ................................. 80,000
Morgan Stanley & Co. Incorporated........................... 80,000
Wasserstein Perella Securities, Inc. ....................... 80,000
Gabelli & Company, Inc. .................................... 80,000
William Blair & Company, L.L.C. ............................ 53,000
Fahnestock & Co. Inc. ...................................... 53,000
Fifth Third Securities, Inc. ............................... 53,000
Gerard Klauer Mattison & Co., Inc. ......................... 53,000
Gruntal & Co., L.L.C. ...................................... 53,000
Hoak Breedlove Wesneski & Co. .............................. 53,000
Janney Montgomery Scott Inc. ............................... 53,000
Jefferies & Company......................................... 53,000
Legg Mason Wood Walker, Incorporated........................ 53,000
McDonald Investments Inc., a KeyCorp Company................ 53,000
Pennsylvania Merchant Group................................. 53,000
Raymond James & Associates, Inc............................. 53,000
The Robinson-Humphrey Company, LLC.......................... 53,000
Sands Brothers & Co., LTD. ................................. 53,000
---------
Total.................................................. 6,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of specific legal matters by their counsel and
to specific other conditions. Except for those shares covered by the
over-allotment option, the underwriters are obligated to purchase and accept
delivery of all the shares if they purchase any of the shares. The over-
allotment option is discussed below.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to some dealers at the public offering price
less a concession not in excess of $.56 per share. The underwriters may allow,
and these dealers may re-allow, a concession not in excess of $.10 per share on
sales to some other dealers. After the initial offering of the shares to the
public, the underwriters may change the public offering price and these
concessions.
49
<PAGE> 52
An electronic prospectus is available on the Web site maintained by
DLJdirect Inc., a selected dealer and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation. The underwriters have agreed to allocate a
limited number of shares to them for sale to their brokerage account holders.
Penton and the selling stockholders have granted the underwriters an
option, exercisable for 30 days from the date of the underwriting agreement, to
purchase up to 975,000 additional shares at the public offering price less the
underwriting fees. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with this offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to specific conditions, to purchase a number of additional
shares about proportionate to that underwriter's initial purchase commitment.
Penton and the selling stockholders have agreed to indemnify the
underwriters against some civil liabilities, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make in respect of any of those liabilities.
Penton, each of the selling stockholders and the executive officers and
directors of Penton have agreed that, for a period of 90 days from the date of
this prospectus, they will not, subject to some exceptions, without the prior
written joint consent of Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Smith Barney Inc. (1) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock; or (2) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any common stock (regardless of
whether any of the transactions described in clause (1) or (2) is to be settled
by the delivery of common stock or other securities, in cash or otherwise). In
addition, for a 90 day period Penton has agreed not to file any registration
statement with respect to, and each of its executive officers, directors and
some stockholders of Penton (including the selling stockholders) has agreed not
to make any demand for, or exercise any right with respect to, the registration
of any shares of common stock or any securities convertible into or exercisable
for common stock without the prior written joint consent of Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc.
Donaldson, Lufkin & Jenrette Securities Corporation has performed
investment banking and advisory services for us from time to time for which it
has received customary fees and reimbursement of expenses. An affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation acted as syndication agent
for the credit agreement. Because more than 10% of the net proceeds of this
offering may be paid to a member of the National Association of Securities
Dealers, Inc. (the "NASD") or a person affiliated or associated with a member,
the offering is being conducted in compliance with Rule 2710(c)(8) of the NASD
conduct rules. Penton will use a portion of the net proceeds it receives in this
offering to repay outstanding indebtedness under the credit agreement. The
Representatives may, from time to time, engage in transactions with and perform
services for us in the ordinary course of their business.
Other than in the United States, no action has been taken by Penton, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisement in connection with the offer and sale
of any of these shares be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the applicable rules and
regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction where that
would not be permitted or legal.
In connection with this offering, some underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. These
50
<PAGE> 53
activities may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
LEGAL MATTERS
Legal matters in connection with the offering described in this prospectus
will be passed upon for Penton Media, Inc. by Jones, Day, Reavis & Pogue,
Cleveland, Ohio. Legal matters in connection with this offering will be passed
upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California.
EXPERTS
The financial statements of Penton Media, Inc. (formerly Penton Publishing,
Inc. and, prior to August 7, 1998, a wholly-owned subsidiary of Pittway
Corporation) as of December 31, 1998 and 1997 and for each of the three years in
the period ended December 31, 1998, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The audited financial statements of Mecklermedia Corporation as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 incorporated by reference in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
51
<PAGE> 54
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
We file reports, proxy statements, and other information with the
Securities and Exchange Commission. These reports, proxy statements and other
information can be read and copied at the Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the Public Reference Room. The
Commission maintains an internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission, including Penton. In
addition, our common stock is listed on the New York Stock Exchange and our
reports and other information can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
INCORPORATION BY REFERENCE
The Commission allows us to "incorporate by reference" the documents that
we file with the Commission. This means that we can disclose information to you
by referring you to those documents. Any information we incorporate in this
manner is considered part of this prospectus except to the extent updated and
superseded by information contained in this prospectus. Some information we file
with the Commission after the date of this prospectus and until this offering is
completed will automatically update and supersede the information contained in
this prospectus.
We incorporate by reference the following documents that we have filed with
the Commission and any filings that we will make with the Commission in the
future under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 until this offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Current Report on Form 8-K dated and filed on April 20, 1999;
- Current Report on Form 8-K dated November 24, 1998 and filed on December
9, 1998, as amended by Amendment No. 1 thereto on Form 8-K/A filed on
February 8, 1999; and
- Registration Statement on Form 8-A/A, filed on March 30, 1999.
We will provide without charge, upon written or oral request, a copy of any
or all of the documents which are incorporated by reference into this
prospectus. Requests should be directed to: Penton Media, Inc., Attention: Mary
Abood, Director of Corporate Communications, 1100 Superior Avenue, Cleveland,
Ohio 44114, telephone number: (216) 696-7000.
52
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Consolidated Financial Statements (Unaudited):
Introduction to Unaudited Pro Forma Consolidated Financial
Statements............................................. F-2
Unaudited Pro Forma Consolidated Statement of Income for
the year ended December 31, 1998....................... F-3
Unaudited Pro Forma Consolidated Balance Sheet at December
31, 1998............................................... F-4
Notes to Unaudited Pro Forma Consolidated Financial
Statements............................................. F-5
Consolidated Financial Statements (Audited):
Report of Independent Accountants......................... F-7
Consolidated Statements of Income for the years ended
December 31, 1996, 1997, and 1998...................... F-8
Consolidated Balance Sheets at December 31, 1997 and
1998................................................... F-9
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997, and 1998...................... F-10
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997, and 1998.......... F-11
Notes to Consolidated Financial Statements................ F-12
</TABLE>
F-1
<PAGE> 56
INTRODUCTION TO
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statement of income reflects
adjustments to Penton's historical consolidated statement of income for the year
ended December 31, 1998, to give effect to:
- The acquisition of Donohue Meehan Publishing Company, which was completed
on August 7, 1998, and the related issuance of 1,541,638 shares of common
stock, as if both had occurred on January 1, 1998;
- The acquisition of Mecklermedia Corporation on November 24, 1998, as if
it had occurred on January 1, 1998;
- The sale of an 80.1% equity interest in internet.com to Alan M. Meckler
as if it occurred on January 1, 1998;
- Other adjustments required to reflect the combined results of operations
of Penton as an independent public company; and
- The sale by Penton of 6,250,000 common shares in this offering, and the
application of the net proceeds, at an offering price of $19.50 per
share, after deducting underwriting discounts and commissions and
estimated offering expenses.
The Donohue Meehan and Mecklermedia Corporation acquisitions are treated as
purchase transactions and, as such, the purchase price allocations are
preliminary in nature and are subject to change within the twelve months
following each acquisition based on refinements as actual data becomes
available. The unaudited pro forma consolidated statements of income are not
necessarily indicative of what the actual results of operations of Penton would
have been assuming the transactions had been completed as set forth above, nor
do they purport to represent Penton's results of operations for future periods.
The following unaudited pro forma consolidated balance sheet reflects
adjustments to Penton's historical consolidated balance sheet at December 31,
1998 to give effect to this offering.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements and related notes of
Penton.
F-2
<PAGE> 57
PENTON MEDIA, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------------------------
DONOHUE
MEEHAN
PENTON 1/1/98- MECKLERMEDIA PRO FORMA PRO FORMA OFFERING PRO FORMA
HISTORICAL 8/7/98 1/1/98-9/30/98 ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ---------- -------------- ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $233,118 $5,892 $63,217 $ 970(a) $303,834 $ $303,834
4,181(b)
(3,544)(c)
-------- ------ ------- -------- --------
Operating Expenses:
Editorial, production
and circulation.... 101,793 1,748 34,029 727(a) 137,254 137,254
1,028(b)
(2,071)(c)
Selling, general and
administrative..... 93,886 1,690 10,004 160(a) 103,123 103,123
397(b)
(2,502)(c)
900(d)
(1,412)(e)
Depreciation and
amortization....... 10,720 50 3,933 (505)(c) 30,917 30,917
473(f)
14,174(g)
2,072(h)
-------- ------ ------- -------- --------
206,399 3,488 47,966 271,294 271,294
-------- ------ ------- -------- --------
Operating income..... 26,719 2,404 15,251 32,540 32,540
Other income
(expense):
Interest expense..... (5,558) (15) -- (341)(i) (24,278) 6,294(m) (17,984)
(24,278)(j)
5,914(k)
Miscellaneous, net... (1,028) 37 2,502 6(b) 1,517 1,517
-------- ------ ------- -------- --------
(6,586) 22 2,502 (22,761) (16,467)
-------- ------ ------- -------- --------
Income before
taxes.............. 20,133 2,426 17,753 9,779 16,073
Provision for
(benefit from)
income taxes....... 9,243 -- 6,795 (6,367)(l) 9,671 2,477(n) 12,148
-------- ------ ------- -------- --------
Net income........... $ 10,890 $2,426 $10,958 $ 108 $ 3,925
======== ====== ======= ======== ========
Per share data:
Earnings per
share -- basic and
diluted:
Net income........... $ 0.50 $ 0.14
======== ========
Average number of
shares
outstanding........ 21,882 28,132(o)
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
F-3
<PAGE> 58
PENTON MEDIA, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------
OFFERING
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 3,953 37,675(p) $ 41,628
Accounts and notes receivable, net.................... 37,956 37,956
Inventories........................................... 2,361 2,361
Deferred tax assets................................... 5,797 5,797
Prepayments, deposits and other....................... 8,086 8,086
-------- --------
Total current assets............................... 58,153 95,828
-------- --------
Property, plant and equipment, net...................... 28,931 28,931
Other assets:
Goodwill, net......................................... 340,706 340,706
Other intangibles, net................................ 46,906 46,906
Investment in joint venture........................... 4,472 4,472
Other................................................. 133 133
-------- --------
Total assets....................................... 392,217 392,217
-------- --------
$479,301 $516,976
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior debt facility.................................. $ 11,250 $ 11,250
Revolving credit facility............................. 6,000 6,000
Notes payable......................................... 1,000 1,000
Accounts payable...................................... 10,823 10,823
Income taxes payable.................................. 8,059 8,059
Accrued compensation and benefits..................... 9,644 9,644
Other accrued expenses................................ 17,522 17,522
Unearned income....................................... 14,564 14,564
-------- --------
Total current liabilities.......................... 78,862 78,862
-------- --------
Long-term liabilities and deferred credits:
Senior debt facility.................................. 288,750 (77,675)(q) 211,075
Net deferred pension credits.......................... 18,007 18,007
Deferred taxes........................................ 5,313 5,313
Other................................................. 880 880
-------- --------
Total liabilities.................................. 312,950 235,275
-------- --------
Stockholders' equity
Preferred stock....................................... -- --
Common stock.......................................... 228 63(r) 291
Capital in excess of par value........................ 55,050 115,287(r) 170,337
Retained earnings..................................... 32,262 32,262
Other comprehensive income............................ (51) (51)
-------- --------
Total stockholders' equity......................... 87,489 202,839
-------- --------
Total liabilities and stockholders' equity....... $479,301 $516,976
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
consolidated financial statements.
F-4
<PAGE> 59
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. PRO FORMA ADJUSTMENTS
Statement of income adjustments:
(a) Mecklermedia acquired Boardwatch on May 15, 1998. Reflects the operations of
Boardwatch from January 1, 1998 to May 15, 1998.
(b) Mecklermedia acquired One, Inc. on May 15, 1998. Reflects the operations of
One, Inc. from January 1, 1998 to May 15, 1998.
(c) Penton sold 80.1% of internet.com on November 24, 1998. Eliminates the
operations of internet.com from January 1, 1998 to November 24, 1998.
(d) Penton was spun off from Pittway Corporation on August 7, 1998. Reflects
estimated additional costs as if Penton had been an independent public
company from January 1, 1998 to August 7, 1998.
(e) Penton was spun off from Pittway Corporation on August 7, 1998. Eliminates
non-recurring Pittway allocated costs, including Pittway stock appreciation
rights held by Penton employees, from January 1, 1998 to August 7, 1998.
(f) Penton acquired Donohue Meehan on August 7, 1998. Reflects incremental
amortization of intangible assets resulting from the acquisition of Donohue
Meehan as if Penton owned Donohue Meehan from January 1, 1998 to August 7,
1998. Goodwill has been amortized over a period of 40 years and other
intangibles have been amortized over periods ranging from 3-15 years.
(g) Penton acquired Mecklermedia on November 24, 1998. Reflects incremental
amortization of intangible assets resulting from the acquisition of
Mecklermedia as if Penton owned Mecklermedia from January 1, 1998 to
November 24, 1998. Goodwill, based on preliminary purchase price allocation,
has been amortized over a period of 20 years and other intangibles have been
amortized over periods ranging from 3-15 years.
(h) The $300 million credit agreement became effective on November 24, 1998.
Reflects incremental amortization of financing fees incurred with the $300
million credit agreement as if it had been effective from January 1, 1998 to
November 24, 1998. Amounts are being amortized over a seven-year period, the
life of the agreement.
(i) Penton acquired Donohue Meehan on August 7, 1998. Reflects incremental
interest expense on debt incurred to fund cash portion of purchase price as
if Penton owned Donohue Meehan from January 1, 1998 to August 7, 1998.
(j) The $300 million credit agreement became effective on November 24, 1998.
Reflects incremental interest expense on the $300 million credit agreement
as if it had been effective from January 1, 1998 to November 24, 1998. The
interest rate used reflects the rates charged at December 31, 1998 of 7.79%
for the $175 million term loan A and 8.54% for the $125 million term loan B.
(k) Reflects elimination of interest expense on all debt repaid with proceeds
from the $300 million credit agreement.
(l) Reflects the incremental provision for federal income taxes on the acquired
companies previously taxed as subchapter S corporations or limited liability
companies as well as federal and state income taxes related to the pro forma
income statement adjustments noted above.
2. OFFERING ADJUSTMENTS
Statement of income adjustments:
(m) Reflects the elimination of interest expense on amounts outstanding under
the credit agreement repaid with proceeds from the offering. The interest
rate used reflects the weighted average of the rates charged at December 31,
1998 of 7.79% for the $175 million term loan A and 8.54% for the $125
million term loan B.
F-5
<PAGE> 60
(n) Reflects the incremental provision for federal and state income taxes
related to the offering adjustments.
(o) Reflects the issuance of 6,250,000 primary shares of common stock.
Balance sheet adjustments:
(p) Reflects proceeds received from the issuance of 6,250,000 primary shares of
common stock for working capital and other general corporate purposes.
(q) Reflects the repayment of amounts outstanding under the credit agreement
with a portion of the net proceeds from the offering.
(r) Reflects the proceeds from the issuance of 6,250,000 primary shares of
common stock, net of estimated offering costs. Offering costs primarily
consist of underwriting discounts and commissions, accounting fees, legal
fees and printing expenses.
3. EARNINGS PER SHARE
Pro forma earnings per share is calculated by dividing net income by the
average number of shares outstanding during the period. The average number of
shares outstanding during the period is calculated as follows:
<TABLE>
<S> <C>
Pro Forma Basic and Diluted:
Average number of shares outstanding........................ 21,882
======
Pro Forma Basic and Diluted As Adjusted:
Average number of shares outstanding........................ 21,882
Adjustment for shares issued in offering.................... 6,250
------
28,132
======
</TABLE>
F-6
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF PENTON MEDIA, INC.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Penton
Media, Inc. (formerly Penton Publishing, Inc., and, prior to August 7, 1998, a
wholly-owned subsidiary of Pittway Corporation) and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Penton Media Inc.'s management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
February 10, 1999
F-7
<PAGE> 62
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES................................................... $188,557 $204,931 $233,118
-------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation.................... 91,581 94,560 101,793
Selling, general and administrative...................... 72,566 78,523 93,886
Depreciation and amortization............................ 5,911 6,551 10,720
-------- -------- --------
170,058 179,634 206,399
-------- -------- --------
Operating income........................................... 18,499 25,297 26,719
-------- -------- --------
Other income (expense):
Interest expense......................................... (34) (841) (5,558)
Gain on sale of publications............................. -- 1,040 --
Writedown on impairment of assets........................ -- -- (1,000)
Miscellaneous, net....................................... 17 10 (28)
-------- -------- --------
(17) 209 (6,586)
-------- -------- --------
Income before income taxes................................. 18,482 25,506 20,133
-------- -------- --------
INCOME TAXES:
Current.................................................. 6,733 9,754 14,336
Deferred................................................. 793 878 (5,093)
-------- -------- --------
7,526 10,632 9,243
-------- -------- --------
Net income................................................. $ 10,956 $ 14,874 $ 10,890
-------- -------- --------
Per share data:
Earnings per common share -- basic and diluted:
Net income............................................... $ .52 $ .70 $ .50
Average number of shares outstanding....................... 21,240 21,240 21,882
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 63
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,419 $ 3,953
Accounts and notes receivable, less allowance for doubtful
accounts of $2,406 and $4,899 in 1997 and 1998,
respectively........................................... 29,363 37,956
Inventories............................................... 2,429 2,361
Deferred tax assets....................................... 2,851 5,797
Prepayments, deposits and other........................... 3,886 8,086
-------- --------
40,948 58,153
-------- --------
Property, plant and equipment, at cost:
Buildings................................................. 6,168 6,170
Machinery and equipment................................... 60,493 69,730
-------- --------
66,661 75,900
Less: accumulated depreciation............................ 39,845 47,395
-------- --------
26,816 28,505
-------- --------
Land...................................................... 426 426
-------- --------
27,242 28,931
-------- --------
Other assets:
Goodwill, less accumulated amortization of $6,192 and
$10,129 in 1997 and 1998, respectively................. 65,460 340,706
Other intangibles, less accumulated amortization of $5,443
and $7,828 in 1997 and 1998, respectively.............. 6,362 46,906
Deferred tax assets....................................... 4,067 --
Investment in joint venture............................... -- 4,472
Due from parent company................................... 12,212 --
Other..................................................... 135 133
-------- --------
88,236 392,217
-------- --------
$156,426 $479,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior debt facility...................................... $ -- $ 11,250
Revolving credit facility................................. -- 6,000
Notes payable............................................. 34,170 1,000
Accounts payable.......................................... 9,427 10,823
Income taxes payable...................................... -- 8,059
Accrued compensation and benefits......................... 9,081 9,644
Other accrued expenses.................................... 8,383 17,522
Unearned income, principally trade show and conference
deposits............................................... 5,203 14,564
-------- --------
66,264 78,862
-------- --------
Long-term liabilities and deferred credits:
Senior debt facility...................................... -- 288,750
Net deferred pension credits.............................. 19,592 18,007
Deferred taxes............................................ -- 5,313
Other..................................................... 957 880
-------- --------
20,549 312,950
-------- --------
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized; none
issued................................................. -- --
Common stock, $.01 par value, 60,000,000 shares
authorized; 21,240,000 and 22,781,713 shares issued and
outstanding at December 31, 1997, and 1998,
respectively........................................... 212 228
Capital in excess of par value............................ 29,630 55,050
Retained earnings......................................... 39,771 32,262
Other comprehensive income................................ -- (51)
-------- --------
69,613 87,489
-------- --------
$156,426 $479,301
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 64
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
--------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 10,956 $14,874 $ 10,890
Adjustments to reconcile income from operations to net
cash provided by operating activities:
Depreciation and amortization.......................... 5,911 6,551 10,720
Deferred income taxes.................................. 793 878 (5,093)
Retirement and deferred compensation plans............. (2,032) (2,000) (1,584)
Provision for losses on accounts receivable............ 948 662 282
Writedown on impairment of assets...................... -- -- 1,000
Gain on sale of publications........................... -- (1,040) --
Changes in assets and liabilities, excluding effects
from acquisitions and dispositions:
Accounts and notes receivable........................ (2,313) 1,261 (1,960)
Inventories.......................................... 37 931 284
Prepayments and deposits............................. 94 630 (1,481)
Accounts payable and accrued expenses................ 5,952 1,584 10,170
Unearned income...................................... 687 (552) 2,421
Other changes, net................................... (526) (593) 100
--------- ------- --------
Net cash provided by continuing operations........ 20,507 23,186 25,749
--------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, excluding businesses acquired....... (4,822) (5,450) (5,775)
Net assets of businesses acquired, net of cash............ (900) (48,733) (283,382)
Proceeds from sale of internet.com........................ -- -- 18,000
Proceeds from sale of publications........................ 1,000 991 --
--------- ------- --------
Net cash used by investing activities............. (4,722) (53,192) (271,157)
--------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt facility........................ -- -- 300,000
Proceeds from revolving credit facility................... -- -- 6,000
Payment of financing costs................................ -- -- (14,754)
Increase in notes payable................................. -- 48,342 --
Prepayments of notes payable.............................. -- (14,000) (38,066)
Dividends to parent company............................... (22,567) (4,412) (4,820)
Dividends to shareholders................................. -- -- (1,367)
Advances from parent company.............................. 6,679 924 --
--------- ------- --------
Net cash provided (used) by financing
activities...................................... (15,888) 30,854 246,993
--------- ------- --------
Effect of exchange rate..................................... -- -- (51)
--------- ------- --------
Net (decrease) increase in cash............................. (103) 848 1,534
Cash at beginning of period................................. 1,674 1,571 2,419
--------- ------- --------
Cash at end of period....................................... $ 1,571 $ 2,419 $ 3,953
========= ======= ========
Supplemental cash flow disclosure:
Interest paid............................................. $ 35 $ 841 $ 5,545
========= ======= ========
Income taxes paid......................................... $ 8,823 $10,759 $ 10,026
========= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 65
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN OTHER
PREFERRED COMMON STOCK EXCESS OF COMPREHENSIVE RETAINED
SHARES SHARES PAR VALUE PAR VALUE INCOME EARNINGS
--------- ------- --------- ---------- ------------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1995.... -- 21,240 $212 $29,630 $ -- $40,920
---- ------- ---- ------- ---- -------
Net income.................... 10,956
Dividends..................... (22,567)
---- ------- ---- ------- ---- -------
Balance -- December 31, 1996.... -- 21,240 212 29,630 -- 29,309
---- ------- ---- ------- ---- -------
Net income.................... 14,874
Dividends..................... (4,412)
---- ------- ---- ------- ---- -------
Balance -- December 31, 1997.... -- 21,240 212 29,630 -- 39,771
---- ------- ---- ------- ---- -------
Net income.................... 10,890
Dividends..................... (1,367)
Issuance of common stock with
Donohue/Meehan Publishing
combination................ 1,542 16 25,420
Dividend to Pittway........... (17,032)
Cumulative foreign currency
translation................ (51)
---- ------- ---- ------- ---- -------
Balance -- December 31, 1998.... -- 22,782 $228 $55,050 $(51) $32,262
==== ======= ==== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE> 66
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Penton Media, Inc., formerly known as Penton Publishing, Inc. ("Penton" or
the "Company") is a business media company that publishes magazines and
electronic media, produces trade shows and conferences, and provides marketing
and business development products and services, including direct mail lists,
research and custom publishing. Penton serves the design/engineering;
electronics; Internet; food/retail/hospitality; government/compliance; leisure;
management; manufacturing; mechanical systems/construction; and supply
chain/aviation markets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Penton and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs included in
inventories are raw materials, direct labor and manufacturing overhead. Cost of
substantially all of the paper and ink stock is determined by using the last-in,
first-out (LIFO) method, while the remaining inventories are valued primarily
using the average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company records
depreciation, using the straight-line method, in amounts sufficient to write off
the cost of depreciable assets over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment.............................. 3-5 years
Furniture, fixtures and equipment............... 3-10 years
Buildings....................................... 18-40 years
Leasehold improvements.......................... Estimated useful lives or lease term, whichever
is shorter
</TABLE>
Depreciation expense amounted to approximately $5.0 million, $5.3 million
and $6.2 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
Maintenance and repair expenditures are charged to appropriate expense
accounts in the period incurred; replacements, renewals and betterments are
capitalized. Upon sale or other disposition of property, the cost and
accumulated depreciation of such properties are eliminated from the accounts and
the gains or losses thereon are reflected in results of operations.
INTANGIBLE ASSETS
Goodwill, trademarks and trade names acquired in purchase transactions are
amortized using the straight-line method over periods ranging from 20 to 40
years.
Other intangibles acquired in purchase transactions or developed
internally, consisting of non-compete agreements, customer mailing lists,
exhibitor lists, and patents and copyrights, are being amortized using the
straight-line method over their estimated useful lives ranging from 3 to 15
years.
F-12
<PAGE> 67
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense amounted to approximately $0.9 million, $1.3 million
and $4.6 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
When conditions warrant, the Company reviews the carrying value of its
intangible assets and property and equipment to determine whether an impairment
may exist. The Company considers relevant cash flow, estimated future operating
trends and other available information in assessing whether the carrying value
of these assets can be recovered. In December 1998, the Company wrote down the
carrying value of various intangible assets by $1.0 million, determined using
the expected future cash flows generated from, and market value of, the various
ventures.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in other
intangible assets in the accompanying balance sheet and are amortized over the
terms of the related debt agreements; such amortization is reflected as
amortization expense in the consolidated statements of income.
REVENUE RECOGNITION
Advertising revenues from the Company's trade magazines are recognized in
the month the publications are mailed. Revenues from trade shows and conferences
are recognized in the month the events are held. Licensing revenues are
recognized on a straight-line basis over the term of the license agreements.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed primarily as incurred. These
costs amounted to $9.3 million, $8.4 million and $12.4 million in 1996, 1997 and
1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach, which
requires the recognition of deferred tax assets and deferred tax liabilities for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
For periods prior to and including the date of the spinoff (see Note 2),
the results of the Company were included in Pittway Corporation's consolidated
United States federal income tax returns. The provision for income taxes
included in the consolidated statements of income represented an allocated share
of Pittway's tax expense. The allocated share approximated the tax expense that
would have been incurred on a separate return basis. The liability for income
taxes payable at December 31, 1997, was recorded by Pittway.
Pursuant to the Combination Agreement (see Note 2), the Company is required
to indemnify Pittway for any additional federal, state, local and foreign income
tax liabilities with respect to all periods prior to and including the date of
the spinoff. All consolidated federal income tax returns of Pittway have been
audited by the Internal Revenue Service through 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-13
<PAGE> 68
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign operations is the local
currency. Accordingly, assets and liabilities of foreign operations are
translated to United States dollars at the rates of exchange in effect on the
balance sheet at December 31, 1998; income and expense are translated at the
average rates of exchange prevailing during the year. There were no transaction
gains or losses in 1997 and 1998.
NET INCOME PER SHARE
The weighted average number of common shares outstanding is adjusted for
common stock equivalents when they are dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.
CHANGE IN ACCOUNTING ESTIMATE
Effective October 1, 1998, the Company changed its estimated useful life on
goodwill associated with trade show acquisitions from 40 to 20 years. The change
decreased 1998 net income by $0.3 million, or $0.01 per share. The estimated
effect of the change on future years will be to decrease income by $1.2 million.
The change was made to better reflect the estimated useful life of goodwill and
to be consistent with prevalent industry practice.
NEW ACCOUNTING STANDARDS
The Company does not believe any recently issued accounting standards will
have a material impact on its financial condition or results of operations.
NOTE 2 -- SPINOFF FROM PITTWAY AND SUBSEQUENT ACQUISITION
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 1999. 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.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
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
F-14
<PAGE> 69
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("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 (see Note 6). 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.
During 1997, the Company acquired one foreign and two domestic trade show
companies for $45.6 million in cash and $2.5 million of notes payable to the
sellers. The acquisitions also include future contingent payments up to $13.5
million tied to future earnings of the acquired companies through the year 2000,
of which $0.7 million and $2.4 million were earned in 1997 and 1998,
respectively.
In 1997, the Company also sold one publication for $1.0 million and the
assumption of certain liabilities.
All the aforementioned acquisitions were accounted for as purchase
transactions. These operations have been included in the consolidated financial
statements from their respective dates of acquisition or to the dates of
disposition.
The following unaudited supplemental pro forma information is presented to
reflect the effects of the issuance of common stock pursuant to the spinoff from
Pittway and the DM Publishing acquisition, the Mecklermedia acquisition, and the
1997 acquisitions and dispositions, as if all such transactions had occurred on
January 1, 1997.
The pro forma financial information is presented for informational purposes
only, and may not be indicative of what actual results of operations would have
been had the acquisitions occurred as indicated; nor does it purport to
represent the results of the operations for future periods. (Dollars in
thousands.)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
1997 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
Pro forma revenues.......................................... $276,671 $303,834
Pro forma operating income.................................. 15,591 32,540
Pro forma net income applicable to common shareholders...... (3,288) 108
Pro forma net income applicable to common shareholders:
Basic and diluted...................................... $ (0.15) $ 0.00
======== ========
</TABLE>
NOTE 4 -- INVENTORIES
The LIFO reserve balances of $0.5 million and $0.4 million at December 31,
1997, and 1998, respectively, represent the excess of current replacement cost
over the LIFO value of inventory, which consists principally of raw materials.
NOTE 5 -- EQUITY INVESTMENTS IN JOINT VENTURES
Penton, in November 1998, entered into a joint venture agreement with Alan
M. Meckler, Mecklermedia's founder, with respect to the limited liability
company internet.com. Internet.com is a network of Web sites that provides news,
analysis and information resources for Internet professionals. Penton sold an
80.1% equity interest in internet.com to Mr. Meckler for $18.0 million,
retaining 19.9% of the equity and warrants to acquire up to a 29.9% interest. At
December 31, 1998, the Company's investment in internet.com was $4.5 million.
Internet.com and Penton also entered into various agreements relating to the
exchange of services between the two companies.
F-15
<PAGE> 70
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- 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 December 31, 1998, the Company was in compliance with all loan
covenants.
The revolving loan facility includes a revolving loan and a 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 December 31, 1998, the rate on the revolving loan was 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 December 31, 1998,
no amounts were drawn on the swing loan facility.
The Company has agreed to pay a commitment fee of 0.50% on the unused
portion of the revolving loan facility commitment. At December 31, 1998, $19
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 December 31, 1998, the rate in effect was 7.79%. The
loan, which requires quarterly principal payments of $2.5 million starting in
March 1999, will mature on June 30, 2005. At December 31, 1998, $175.0 million
was outstanding under the Term A Loan.
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 December 31, 1998, the rate in effect was 8.54%. The loan, which
requires quarterly principal payments of $0.3 million starting on March 31,
1999, and a balloon payment at maturity, will mature on May 31, 2005. At
December 31, 1998, $125.0 million was outstanding under the Term B Loan.
As of December 31, 1998, the scheduled principal payments of the Term A
Loan and Term B Loan for the next five years and thereafter are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1999............................................ $ 11,250
2000............................................ 11,250
2001............................................ 21,250
2002............................................ 26,250
2003............................................ 31,250
Thereafter...................................... 198,750
--------
$300,000
========
</TABLE>
F-16
<PAGE> 71
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The credit agreement requires the Company to hedge not less than 50% of the
Term A Loan outstanding with a fixed interest rate agreement for a term of not
less than two years.
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.
The Company's short-term notes payable at December 31, 1997, included $29.2
million of foreign indebtedness denominated in British pounds and bearing
interest at 8.1%, and $5.0 million of domestic indebtedness at 6%. Concurrent
with the spinoff from Pittway, $27.8 million of foreign debt, including accrued
interest and the $5.0 million domestic debt, was refinanced with the $75.0
million revolving credit facility.
There are no compensating balance or commitment fee requirements associated
with these short-term borrowings.
NOTE 7 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of accounts and notes receivable, accounts payable,
accrued expenses and notes payable approximates fair value because of the short
maturity of these instruments.
The carrying amount of the Company's borrowing under its senior debt
facility and revolving credit facility approximates fair value because such
borrowings are at variable rates. The Company may, from time to time, enter into
interest rate hedge agreements to manage interest costs and risks associated
with changing interest rates.
NOTE 8 -- INCOME TAXES
<TABLE>
<CAPTION>
SOURCE OF INCOME (LOSS) BEFORE TAX EXPENSE: 1996 1997 1998
------------------------------------------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States domestic...................................... $ 18,482 $25,759 $19,864
Foreign..................................................... -- (253) 269
-------- ------- -------
$ 18,482 $25,506 $20,133
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PROVISION FOR INCOME TAXES: 1996 1997 1998
--------------------------- ------ ------- -------
<S> <C> <C> <C>
Current -
Federal................................................... $5,541 $ 8,124 $11,214
State and local........................................... 1,192 1,630 2,389
Foreign................................................... -- -- 733
------ ------- -------
6,733 9,754 14,336
------ ------- -------
Deferred -
Federal................................................... 711 851 (4,348)
State and local........................................... 82 98 (816)
Foreign................................................... -- (71) 71
------ ------- -------
793 878 (5,093)
------ ------- -------
$7,526 $10,632 $ 9,243
====== ======= =======
</TABLE>
F-17
<PAGE> 72
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the actual income tax provision and the tax
provision computed by applying the statutory federal income tax rate of 35% to
income before income taxes is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Income tax at statutory rate................................ $6,469 $ 8,927 $7,047
Tax effect of:
State income taxes, net of federal benefit................ 818 1,123 1,023
Non-deductible expenses, principally goodwill
amortization........................................... 513 582 1,173
Other items, net.......................................... (274) -- --
------ ------- ------
Actual income tax provision................................. $7,526 $10,632 $9,243
====== ======= ======
Effective income tax rate................................... 40.7% 41.7% 45.9%
====== ======= ======
</TABLE>
The components of deferred tax assets and liabilities at December 31, 1997,
and 1998 follows:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Deferred tax assets -
Deferred pension credits.................................. $ 7,651 $ 7,087
Accrued vacation.......................................... 1,159 1,335
Bad debts................................................. 805 2,541
Reserves recorded for financial reporting purposes........ 826 1,735
Inventory capitalization.................................. 29 164
Other..................................................... 252 379
-------- -------
Total deferred tax assets......................... 10,722 13,241
-------- -------
Deferred tax liabilities -
Depreciation.............................................. (3,640) (3,312)
Amortization.............................................. (164) (9,249)
Trade show expenses....................................... (196)
-------- -------
Total deferred tax liabilities.................... (3,804) (12,757)
-------- -------
Net deferred tax asset...................................... $ 6,918 $ 484
======== =======
</TABLE>
These balances are allocated between "Current assets" and "Other assets" or
"Long-term liabilities" in the accompanying balance sheet.
NOTE 9 -- RETIREMENT PLAN
The Company has various non-contributory retirement plans covering
substantially all current and former domestic employees. Retirement benefits for
employees in foreign countries are generally provided by national statutory
programs. Benefits for domestic employees are based on years of service and
annual compensation as defined by each plan. All employees received credit for
their years of service in the Pittway plan. Prior to 1995, Pittway allocated net
pension plan income credits to the Company based upon the assets of a previously
separate Company plan, which was merged into the Pittway plan in 1991. At the
time the plans were merged, the amount of the Company's plan assets exceeded its
projected benefit obligation and, by 1995, such excess ("Funding Excess") had
increased and had become substantially disproportionate to the Funding Excess
for the remainder of the Pittway plan. As a result, for the years 1996 and 1997,
Pittway limited the allocation of net pension income credits to the Company to
$1.5 million per year.
As provided in the Combination Agreement, Pittway transferred $45.0 million
of its plan assets ("Allocated Assets"), including approximately $10.5 million
of Funding Excess as of December 31, 1997, to the new Penton
F-18
<PAGE> 73
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plan. The amount of Allocated Assets was determined by Pittway as the estimated
proportion of total Pittway plan assets that would result in the elimination of
the Funding Excess for the Company in the same future year as such elimination
for the remainder of the Pittway plan based on historical rates of service cost
increases and return on plan assets.
The "Net deferred pension credits" in the consolidated balance sheet at
December 31, 1997, includes deferred investment gains of $29.5 million, which
Pittway allocated to the Company on a basis consistent with the above-mentioned
limitation on previous net pension plan income credits.
The reconciliation of the funded status of the Company's portion of the
plan follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1............................. $ 32,150 $ 34,539
Service cost........................................... 1,767 1,684
Interest cost.......................................... 2,226 2,488
Benefits paid.......................................... (2,273) (3,944)
Actuarial loss......................................... 669 7,603
-------- --------
Benefit obligation, December 31........................... $ 34,539 $ 42,370
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1...................... $ 39,473 $ 45,000
Actual return on plan assets........................... 7,800 (3,256)
Benefits paid.......................................... (2,273) (3,944)
-------- --------
Fair value of plan assets, December 31.................... $ 45,000 $ 37,800
======== ========
FUNDED STATUS OF THE PLAN
Projected benefit obligation (in excess of) less than fair
value of assets as of December 31...................... $ 10,461 $ (4,570)
Unrecognized actuarial (gain) loss........................ (29,500) (13,368)
Unrecognized prior service cost........................... 1,969 1,612
Unamortized net transition asset.......................... (2,522) (1,681)
-------- --------
Net deferred pension credits.............................. $(19,592) $(18,007)
======== ========
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
Prepaid benefit cost...................................... $ -- $ --
Accrued benefit liability................................. (19,592) (18,007)
Additional minimum liability.............................. -- --
Intangible assets......................................... -- --
Accumulated other comprehensive income.................... -- --
-------- --------
Net amount recognized at end of year...................... $(19,592) $(18,007)
======== ========
ASSUMPTIONS AS OF DECEMBER 31
Discount rate............................................. 7% 7%
Expected return on plan assets............................ 7% 9%
Weighted-average salary increase rate..................... 5% 5%
</TABLE>
F-19
<PAGE> 74
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPONENTS OF NET PERIODIC PENSION COST
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net periodic cost Service cost.............................. $ 1,672 $ 1,767 $ 1,684
Interest cost............................................. 2,173 2,226 2,488
Expected return on assets................................. (2,555) (2,684) (3,065)
Amortization of:
Transition asset....................................... (841) (841) (841)
Prior service cost..................................... 357 357 357
Actuarial (gain) loss.................................. (2,306) (2,325) (2,207)
------- ------- -------
Net pension income.......................................... $(1,500) $(1,500) $(1,584)
======= ======= =======
ASSUMPTIONS
Discount rate............................................. 7% 7% 7%
Expected return on plan assets............................ 7% 7% 7%
Weighted-average salary increase rate..................... 5% 5% 5%
</TABLE>
NOTE 10 -- BENEFIT PLANS
STOCK OPTION AND OTHER EQUITY-BASED PLANS
Effective August 1998, the Company established a stock option plan under
which the Company may issue qualified incentive stock options to key employees,
including officers, up to an aggregate of 2,500,000 shares of common stock.
Awards may be issued in the form of options to purchase shares of common stock,
stock appreciation rights ("SARs"), restricted shares, deferred shares,
performance shares and performance units. In 1998, 700,452 shares were granted
under the Equity and Incentive Plan, of which 686,055 were stock options and
14,397 were deferred shares. Options granted under the plan generally become
exercisable in the year after the date of grant as to one-third of the optioned
shares, with the remaining options being exercisable over the following two-year
period. Included in the stock options issued during 1998 are 47,655
non-qualified shares, which represent the conversion of the Chief Executive
Officer's non-qualified Pittway options for an equal value of Penton options.
These options vest 50% in 1999 and 50% in 2000. As of December 31, 1998, no
shares were exercisable. The option price of all options granted was $16.23.
As noted above, 14,397 deferred shares were issued in 1998. These shares
become vested between one and three years. The Board of Directors of the Company
may authorize the payment of dividend equivalents on such shares on a current,
deferred or contingent basis, either in cash or additional shares of common
stock. At December 31, 1998, no such authorization had been made.
In addition to the stock option plan described above, the Company granted
options for a total of 69,000 shares to its directors who are not employees of
the Company. Such options were granted at the fair market value on the date of
grant. Options with respect to 13,000 shares were exercisable immediately after
grant, and options with respect to the remaining 56,000 shares become
exercisable one year after the date of grant as to one-fourth of the 56,000
shares, with the remaining options being exercisable over the following
three-year period. The option price at the date of grant was $16.23.
F-20
<PAGE> 75
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the stock option activity described above (in
thousands):
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
--------------------------------
EMPLOYEES DIRECTORS PRICE
--------- --------- ------
<S> <C> <C> <C>
Balance, December 31, 1997........................... -- -- --
Granted.............................................. 686 69 $16.23
Exercised............................................ -- -- --
Canceled............................................. (5) -- $16.23
--- --
Balance, December 31, 1998........................... 681 69
=== ==
</TABLE>
The following table summarizes information about stock options at December
31, 1998 (in thousands).
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- -------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$16.23................... 750 9.9 years $16.23 13 $16.23
=== ========= ====== == ======
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model, with the following assumptions used for
grants in 1998: risk-free interest rate of 5.4%; expected lives ranging from 8.0
to 10.0 years; expected dividend rate of 0.3%; and expected volatility of 70.6%.
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock option plans. Accordingly, no compensation expense has
been recognized for its stock option plans. If compensation expense had been
determined in accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," net income would have been
reduced by $0.9 million in 1998 and basic and diluted earnings per share would
have been reduced by $0.04.
401(k) PLAN
Effective September 1, 1998, the Company adopted a 401(k) defined
contribution plan ("Plan") covering substantially all of the officers and
employees of the Company. The Combination Agreement provided for a transfer of
assets and liabilities attributable to Penton employees in the Pittway 401(k)
plan to be transferred to this Plan. The Plan permits participants to defer up
to a maximum of 15% of their compensation. The Company will match 50% of an
employee's contributions up to a maximum of 6% of an employee's annual
compensation. The employees' contribution and the Company's matching
contribution vest immediately. The Company's contribution to the Plan for the
year ended December 31, 1998, was $0.4 million. The 401(k) plan was fully funded
at December 31, 1998.
SERP
Two executive officers participate in the Company's supplemental executive
retirement plan, which is not tax-qualified. At December 31, 1998, the estimated
annual benefit payable under the plan upon retirement at age 65 was $0.1 million
for both participants, assuming a life expectancy of 80 years and a discount
rate of 7%. At December 31, 1998, $0.03 million was accrued related to this
future obligation, and $0.02 million of expense was recognized in 1998,
representing service costs and interest.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain office space and equipment under non-cancelable
operating leases. Some of the leases contain renewal options and certain
equipment leases include options to purchase during or at the end of
F-21
<PAGE> 76
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the lease term. The following is a schedule of approximate future annual minimum
rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1998 (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -------
<S> <C>
1999................................................ $ 7,696
2000................................................ 3,899
2001................................................ 1,654
2002................................................ 809
2003................................................ 286
-------
Total............................................. $14,344
=======
</TABLE>
For the years ended December 31, 1996, 1997 and 1998, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by the Company was approximately $6.3 million, $6.6 million and $6.5
million, respectively.
The Company has employment agreements with six key employees for terms of
two years, and the ability to extend for additional one-year periods.
In connection with the acquisition of Mecklermedia, a lawsuit was brought
against the Company by a former shareholder of Mecklermedia for an unspecified
amount, as well as other relief. The plaintiff is claiming that the Company
violated the federal securities laws by selling Mr. Meckler an 80.1% interest in
Internet.com for what the plaintiff alleges was a below-market price, thereby
giving to Mr. Meckler more consideration for his common stock in Mecklermedia
than was paid to the other stockholders of Mecklermedia. The Company believes
that the allegations are without merit and has filed a motion to dismiss the
lawsuit, which is pending.
The Company in the normal course of business is subject to a number of
lawsuits and claims, both actual and potential in nature. While management
believes that resolution of existing claims and lawsuits will not have a
material adverse effect on the Company's financial statements, management is
unable to estimate the magnitude of financial impact of claims and lawsuits that
may be filed in the future.
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Combination Agreement provides for Pittway to assist Penton in
preparing its tax returns for 1998 and to assist in other tax matters for fees
to be negotiated.
Included in the consolidated statements of income is an allocation of
corporate expenses related to services provided for the Company by Pittway. This
allocation was based on an estimate of the incremental corporate expenses
related to the Company's operations for the periods presented and, in the
opinion of management, has been made on a reasonable basis. However, the
allocation is not necessarily indicative of the level of expenses that might
have been incurred had the Company been a separate company. The aggregate
allocated costs totaled $0.3 million, $0.4 million and $0.3 million for the
years ended 1996, 1997 and 1998, respectively. The Company's employees also
participated in Pittway's pension plan (see Note 9). Certain of the Company's
employees participated in Pittway's 1990 Stock Awards Plan, for which Pittway
has allocated costs to the Company totaling $1.1 million, $1.0 million and $1.2
million in 1996, 1997 and 1998, respectively.
Other transactions between the Company and Pittway, consisting principally
of taxes and other reimbursable expenses paid by Pittway, have been reflected in
the historical financial statements as though on a stand-alone basis, except
that no interest income or expense has been allocated on intercompany balances.
Pittway utilized a centralized cash management system. Under this system,
cash generated by Penton in excess of its cash requirements (including cash
requirements for Penton's income taxes and other reimbursable expenses paid by
Pittway) was transferred to Pittway and reflected as "Due from parent company"
in the balance
F-22
<PAGE> 77
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sheet. This account was reduced by dividends declared by the Company. In August
1998, a final non-cash dividend of $12.2 million was made to Pittway to settle
the "Due from parent company" account.
NOTE 13 -- CAPITAL STOCK
Pursuant to the spinoff (see Note 2), the Company amended its certificate
of incorporation on June 4, 1998, to authorize capital stock consisting of 60
million shares of common stock, par value $0.01 per share, and 2 million shares
of preferred stock, par value $0.01 per share. Immediately thereafter, the
Company recapitalized the 1,000 shares of $1 par value common stock outstanding
into 21,240,000 shares of common stock. An amount of $211 was transferred from
capital in excess of par value to common stock. The financial statements and
related notes have been restated to reflect this recapitalization retroactively.
In connection with the DM Publishing acquisition (see Note 2), 1,541,638
shares were issued as partial consideration.
NOTE 14 -- EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which requires the replacement of primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively. SFAS 128 also
requires restatement of previously reported earnings per share information for
certain periods presented in the accompanying statement of income to ensure
consistency with currently reported amounts.
Computations of basic and diluted earnings per share for the years ended
December 31, 1996, 1997 and 1998 are shown in Table 1.
Options to purchase 750,055 shares of common stock at $16.23 per share were
outstanding at December 31, 1998, but were not included in the computation of
diluted earnings per share because the average market value of the options was
below the exercise price.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER SHARE
TABLE 1 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------------------ ----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders............ $10,956 21,240 $0.52
Effect of dilutive securities:
Stock options and warrants.......................... -- --
------- ------ -----
Diluted earnings per share
Net income available to common stockholders............ $10,956 21,240 $0.52
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders............ $14,874 21,240 $0.70
Effect of dilutive securities:
Stock options and warrants.......................... -- --
------- ------ -----
Diluted earnings per share
Net income available to common stockholders............ $14,874 21,240 $0.70
======= ====== =====
</TABLE>
F-23
<PAGE> 78
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share
Net income available to common stockholders............ $10,890 21,882 $0.50
Effect of dilutive securities:
Stock options and warrants.......................... -- --
------- ------ -----
Diluted earnings per share
Net income available to common stockholders............ $10,890 21,882 $0.50
======= ====== =====
</TABLE>
NOTE 15 -- SEGMENT INFORMATION
As indicated in Table 2 below, 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. Within the Media Services
segment, operating segments serving differing industries were combined due to
the similarity of their economic characteristics and other factors.
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. The $1.0 million
impairment charge relates principally to this segment.
Intersegment revenues are made at approximate arm's-length prices. The
Company evaluates performance based on operating income. Segment assets are
those assets that are specifically identified with the reportable segments in
which operations are conducted. Non-current assets at December 31, 1997, and
1998 included $30.0 million and $31.7 million, respectively, identified with
operations in the United Kingdom, substantially all of which are intangible
assets, with the remaining assets identified with domestic operations.
Non-current assets at December 31, 1996, were domestic. Export sales were not
material and no single customer accounted for 10% or more of sales.
F-24
<PAGE> 79
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
TABLE 2 (IN THOUSANDS) 1996 1997 1998
---------------------- -------- -------- --------
<S> <C> <C> <C>
Total segment revenues:
Media Services........................................... $166,631 $181,109 $207,682
Printing................................................. 37,933 39,092 39,883
Direct Mail.............................................. 13,173 13,370 13,779
-------- -------- --------
217,737 233,571 261,344
Less intersegment revenues:
Printing................................................. 29,064 28,566 28,226
Direct Mail.............................................. 116 74 --
-------- -------- --------
$188,557 $204,931 $233,118
======== ======== ========
Operating income:
Media Services........................................... $ 17,681 $ 24,854 $ 26,217
Printing................................................. 1,270 1,534 820
Direct Mail.............................................. (452) (1,091) (318)
-------- -------- --------
$ 18,499 $ 25,297 $ 26,719
======== ======== ========
Depreciation and amortization:
Media Services........................................... $ 3,335 $ 3,903 $ 7,792
Printing................................................. 2,145 2,229 2,324
Direct Mail.............................................. 431 419 604
-------- -------- --------
$ 5,911 $ 6,551 $ 10,720
======== ======== ========
Total assets:
Media Services........................................... $ 79,652 $130,123 $455,944
Printing................................................. 18,681 17,823 16,373
Direct Mail.............................................. 10,466 8,480 6,984
-------- -------- --------
$108,799 $156,426 $479,301
======== ======== ========
Capital expenditures:
Media Services........................................... $ 3,339 $ 3,741 $ 3,996
Printing................................................. 948 1,406 1,396
Direct Mail.............................................. 535 303 383
-------- -------- --------
$ 4,822 $ 5,450 $ 5,775
======== ======== ========
</TABLE>
NOTE 16 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In connection with the DM Publishing acquisition, 1,541,638 shares of
common stock were issued as consideration for the acquisition.
In August 1998, a final non-cash dividend of $12.2 million was made to
Pittway to settle the "Due from parent company" account.
The foregoing transactions did not provide or use cash and, accordingly,
are not reflected in the statement of cash flows.
NOTE 17 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 1997, and
1998 are as follows (in thousands, except per share amounts):
F-25
<PAGE> 80
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 QUARTERS
---------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- ------- --------
<C> <C> <C> <S> <C> <C>
Revenues............................... $48,666 $54,054 $50,729 $51,482 $204,931
Operating income....................... 4,857 8,545 5,708 6,187 25,297
Net income............................. 2,718 4,875 3,218 4,063(b) 14,874
Basic and diluted net income per
share................................ .13 .23 .15 .19 .70
</TABLE>
<TABLE>
<CAPTION>
1998 QUARTERS
---------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................... $52,485 $59,186 $52,800 $68,647 $233,118
Operating income....................... 4,665 6,909 4,739 10,406 26,719
Net income............................. 2,340 3,681 2,248 2,621(a) 10,890
Basic and diluted net income per
share................................ .11 .17 .10 .12 .50
</TABLE>
- ---------------
(a) Includes $0.6 million after-tax writedown, or $0.03 per share, on impairment
of assets.
(b) Includes $0.6 million after-tax gain, or $0.03 per share, on sale of a
magazine.
F-26
<PAGE> 81
[GRAPHIC FROM FLOOR OF TRADE SHOW]
OUR INDUSTRIES
The ten industries we serve with a sample of our products are set forth below.
<TABLE>
<CAPTION>
TRADE SHOWS
INDUSTRY PUBLICATIONS & CONFERENCES WEB SITES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Internet Internet World Internet World iw.com
Boardwatch ISPCON boardwatch.com
Machine Design A/E/C SYSTEMS machinedesign.com
2. Design/Engineering Computer-Aided IMET pdem.net
Engineering
3. Electronics Electronic Design Wireless Symposium/ elecdesign.com
EE Product News Portable by Design eepn.com
Microwaves & RF wirelessportable.com
4. Manufacturing American Machinist Computers in cimshow.co.uk
New Equipment Digest Manufacturing newequipment.com
5. Food/Retail/ Restaurant Kids Marketing lhonline.com
Hospitality Hospitality Conference
Modern Baking
6. Management Industry Week IW's Best Plants industryweek.com
IW Growing Companies Conferences iwgc.com
7. Supply Transportation & Supply Chain Expo atwonline.com
Chain/Aviation Distribution mhesource.com
Air Transport World
8. Government/ Government Product Champions of Safety gpn-online.com
Compliance News Conference ohinteractive.com
Occupational Hazards
9. Mechanical Contracting Business HVAC Comfortech Show contractingbusiness.com
Systems/ Computers for hpac.com
Construction Contractors
10. Leisure International Leisure
Industry Week
</TABLE>
[LOGO] Penton
Smart Media.
<PAGE> 82
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
May 7, 1999
PENTON MEDIA, INC.
[PENTON LOGO]
6,500,000 SHARES OF COMMON STOCK
--------------------------------
PROSPECTUS
--------------------------------
Joint Book-Running Managers
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
------------------------
BEAR, STEARNS & CO. INC. MERRILL LYNCH & CO.
------------------------
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell those securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus or any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
- --------------------------------------------------------------------------------