<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
PENTON MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
(State of Incorporation) (I.R.S. Employer Identification No.)
1100 Superior Avenue, Cleveland, OH 44114
(Address of Principal Executive Offices) (Zip Code)
216/696-7000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 12, 1999).
Common Stock 31,314,277
<PAGE> 2
PENTON MEDIA, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Income -
For the Three and Nine Months Ended
September 30, 1999 and 1998 3
Consolidated Balance Sheet -
As of September 30, 1999 and December 31, 1998 4 - 5
Consolidated Statement of Cash Flows -
For the Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 14
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15 - 25
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk 25
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 26
</TABLE>
2
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 70,054 $ 52,800 $ 212,810 $ 164,471
--------- --------- --------- ---------
OPERATING EXPENSES:
Editorial, production and
circulation 32,392 24,635 91,645 74,806
Selling, general and
administrative 30,360 21,266 86,278 67,036
Depreciation and amortization 7,910 2,160 22,336 6,316
--------- --------- --------- ---------
70,662 48,061 200,259 148,158
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (608) 4,739 12,551 16,313
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense (4,602) (811) (17,198) (2,164)
Gain on sale of investments 5,906 -- 5,906 --
Miscellaneous, net (278) (9) 178 76
--------- --------- --------- ---------
1,026 (820) (11,114) (2,088)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM 418 3,919 1,437 14,225
Provision for income taxes 218 1,671 909 5,956
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 200 2,248 528 8,269
Extraordinary item - early
extinguishment of debt (net
of applicable income taxes of
$4,163 and $5,600, respectively) 6,257 -- 8,413 --
--------- --------- --------- ---------
NET INCOME (LOSS) $ (6,057) $ 2,248 $ (7,885) $ 8,269
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Income before
extraordinary item $ 0.01 $ 0.10 $ 0.02 $ 0.38
Extraordinary item (0.20) -- (0.31) --
--------- --------- --------- ---------
Net income (loss) $ (0.19) $ 0.10 $ (0.29) $ 0.38
========= ========= ========= =========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 31,314 22,268 27,038 21,583
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents$ 9,976 $ 3,953
Accounts and notes receivable, less
allowance for doubtful accounts of
$2,865 and $4,899, respectively 41,948 37,956
Inventories 2,781 2,361
Deferred tax assets 16,897 5,797
Prepayments, deposits and other 12,984 8,086
-------- --------
84,586 58,153
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Buildings 6,170 6,170
Machinery and equipment 76,772 69,730
-------- --------
82,942 75,900
Less: Accumulated depreciation 54,671 47,395
-------- --------
28,271 28,505
Land 426 426
-------- --------
28,697 28,931
-------- --------
OTHER ASSETS:
Goodwill, less accumulated
amortization of $23,650 and $10,129 405,268 340,706
Other intangibles, less accumulated
amortization of $8,829 and $7,828 37,946 46,906
Investments 69,627 4,472
Miscellaneous 306 133
-------- --------
513,147 392,217
-------- --------
$626,430 $479,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility $ 1,937 $ 11,250
Revolving credit facility 17,500 6,000
Notes payable 502 1,000
Accounts payable 8,559 10,823
Income taxes payable -- 8,059
Accrued compensation and benefits 7,564 9,644
Other accrued expenses 10,791 17,522
Unearned income, principally trade
show and conference deposits 44,151 14,564
--------- ---------
91,004 78,862
--------- ---------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility 213,063 288,750
Net deferred pension credits 17,643 18,007
Deferred taxes 30,290 5,313
Other 801 880
--------- ---------
261,797 312,950
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued -- --
Common stock 313 228
Capital in excess of par value 214,382 55,050
Retained earnings 21,815 32,262
Other comprehensive income 37,119 (51)
--------- ---------
273,629 87,489
--------- ---------
$ 626,430 $ 479,301
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net cash provided by operating activities 7,667 16,595
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,417) (4,311)
Acquisitions (43,270) (6,894)
Proceeds from sale of internet.com stock 6,640 --
Investment in internet.com (3,446) --
--------- ---------
Net cash used for investing activities (43,493) (11,205)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility 9,500 38,900
Proceeds from Term B senior debt 15,000 --
Repayment of senior debt facility (98,000) (33,900)
Pay-off of senior debt (231,691) --
Proceeds from new senior debt 235,000 --
Repayment of note payable (1,000) --
Payment of finance fees (3,032) --
Advances to parent company -- (4,785)
Proceeds from equity offering, net 118,417 --
Dividends paid (2,306) (683)
--------- ---------
Net cash provided by (used for)
financing activities 41,888 (468)
--------- ---------
Effect of exchange rate changes on cash (39) (68)
--------- ---------
Net increase in cash and equivalents 6,023 4,854
Cash and equivalents at beginning of period 3,953 2,419
--------- ---------
Cash and equivalents at end of period $ 9,976 $ 7,273
========= =========
Supplemental disclosure of non cash investing
and financing activities:
</TABLE>
In conjunction with the acquisition of New Hope, the Company issued 2.1 million
common shares valued at $41.0 million in consideration and assumed net
liabilities of $3.1 million. In addition, the Company marked to market its
investment in internet.com for approximately $61.7 million. The foregoing
transactions did not provide for or require the use of cash.
The accompanying notes are an integral part of these
consolidated financial statements.
6
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in Thousands)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Penton
Media, Inc. (formerly known as Penton Publishing, Inc.) and its subsidiaries
("Penton" or the "Company"). The Company was a wholly owned subsidiary of
Pittway Corporation ("Pittway" or "Parent Company") until August 7, 1998, when
it was spun off as a separate entity.
The accompanying unaudited interim consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
In the opinion of management, the interim consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
interim periods. The results of operations for the interim periods are not
necessarily indicative of the results of operations to be expected for the full
year.
Certain reclassifications of previously reported financial information
were made to conform to the 1999 presentation.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 - SPINOFF FROM PITTWAY AND SUBSEQUENT ACQUISITIONS
Prior to August 7, 1998, Penton was a wholly owned subsidiary of
Pittway Corporation. On August 7, 1998, Pittway distributed 100% of the
Company's common stock on a share-for-share basis to holders of Pittway stock.
Immediately after the spinoff, the Company entered into an agreement
(the "Combination Agreement") and completed the acquisition of Donohue/Meehan
Publishing Company ("DM Publishing"). DM Publishing was acquired for $7.0
million in cash, 6.767% (1,541,638 shares) of the Company's stock to be
outstanding immediately after the acquisition and up to an additional $4.0
million in cash based on DM Publishing's pre-tax income for the years 1998 and
1999, of which $2.0 million was earned in 1998. The Company also has agreed to
make a contingent cash payment to the extent, if any, that the shares issued in
the acquisition have an average aggregate market value of less than $29.0
million during either of two 30-day periods in the year 2000. The contingent
payment is subject to certain limitations as to any of such shares sold prior to
the payment. A portion of the contingent payment may be made with common stock
rather than cash under certain conditions. Based on the Company's stock price at
September 30, 1999, approximately $4.0 million would be due for the contingent
acquisition shares.
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 $33.1 million is being amortized over 40 years.
In addition to the acquisition of DM Publishing, the Company, pursuant
to an Agreement and Plan of Merger, completed its cash tender offer for all of
the outstanding shares of Mecklermedia Corporation ("Mecklermedia") on November
24, 1998. In connection with the acquisition, each Mecklermedia shareholder
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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 8). The
transaction was accounted for as a purchase and, accordingly, the operating
results of Mecklermedia have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $244.5 million is being amortized over periods ranging from 20 to
40 years.
In February 1999, the Company acquired the assets of MFG Publishing,
Inc., ("MFG") of Beverly, MA, for a total purchase price of up to $2.5 million,
of which $0.8 million was paid in cash and the remaining $1.7 million is
contingent upon future earnings through the year 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $0.4 million is being amortized over 40 years. MFG is a leading
information provider to the enterprise resource planning segment of the
manufacturing technology industry.
In May 1999, the Company completed the acquisition of Jon Peddie
Associates ("Jon Peddie") of Tiburon, CA., for $1.3 million in cash and future
contingent payments of up to $3.0 million tied to future earnings through the
year 2001. The excess of the aggregate purchase price over the fair market value
of net assets acquired of approximately $1.2 million is being amortized over 40
years. Jon Peddie is an information company that conducts research, publishes
market studies and special reports and provides consulting services to the
digital media, semiconductor and electronics industries.
In May 1999, pursuant to an Asset Purchase Agreement, the Company
acquired substantially all of the assets of New Hope Communications Inc. ("New
Hope"). In full consideration for the transfer of the assets, the Company agreed
to pay a total purchase price of up to $97.0 million for New Hope. The purchase
price was comprised of: (i) $41.0 million in cash and $41.0 million (2,102,564
shares) of Company stock, both of which were paid at the closing, and (ii) a
contingent payment of up to $15.0 million to be paid half in cash and half in
stock, if earned, based on the performance of New Hope for the fiscal years
1999, 2000 and 2001. The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $75.4 million is being
amortized over periods ranging from 20 to 40 years.
In August 1999, the Company completed the acquisition of Multimedia
Week for $0.2 million in cash. Multimedia Week is a newsletter which covers the
business of multimedia.
NOTE 3 - OFFERING
In May, 1999 the Company completed a 6,500,000 common share offering of
which 6,250,000 of the shares were offered by the Company and 250,000 were
offered by existing stockholders. The underwriters also exercised their option
to purchase an additional 180,000 shares from Penton and 795,000 shares from
existing stockholders to cover over-allotments. The Company received net
proceeds of approximately $118.4 million which was used to repay debt and for
general corporate purposes, including the acquisition of New Hope. The Company
did not receive any proceeds from the shares sold by the selling stockholders.
NOTE 4 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating data is
presented for the nine months ended September 30, 1999 as if each of the
following transactions had occurred on January 1, 1999: (i) the acquisition of
MFG in February 1999; (ii) the addition of $15 million in term B loans in April
1999; (iii) the sale by Penton of 6,430,000 common shares in May 1999; (iv) the
acquisition of New Hope in May 1999; and (v) the refinancing of debt in
September 1999.
The following unaudited supplemental pro forma operating data is
presented for the nine months ended September 30, 1998 as if each of the
following transactions had occurred on January 1, 1998: (i) the acquisition of
DM Publishing in August 1998; (ii) the issuance of 1,541,638 shares of common
stock for the acquisition of
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DM Publishing (iii) the acquisition of Mecklermedia in November 1998; (iv) the
sale of an 80.1% interest in internet.com to Alan M. Meckler in November 1998;
(v) the acquisition of MFG in February 1999; (vi) the addition of $15 million in
term B loans in April 1999; (vii) the sale by Penton of 6,430,000 common shares
in May 1999; (viii) the acquisition of New Hope in May 1999; and (ix) the
refinancing of debt in September 1999.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Dollars in Thousands, Except Per Share Data)
1999 1998
---------- --------
<S> <C> <C>
Pro forma revenues $ 228,992 $232,878
========== ========
Pro forma income before extraordinary item $ 5,548 $ 1,152
========== ========
Pro forma net income (loss) applicable
to common shareholders $ (2,865) $ 1,152
========== ========
Per share data:
Earnings per common share - basic and diluted:
Income before extraordinary item $ 0.18 $ 0.04
Extraordinary item (0.27) --
---------- --------
Net income (loss) $ (0.09) $ 0.04
========== ========
</TABLE>
The 1999 and 1998 pro forma information above does not include the
operations of Jon Peddie and Multimedia Week, as the impact of these
transactions are immaterial to such information.
NOTE 5 - INVESTMENTS
In November 1998, the Company entered into a joint venture agreement
with Alan M. Meckler, Mecklermedia's founder, with respect to the limited
liability company internet.com, which was part of Mecklermedia. Internet.com LLC
("internet.com") is a network of Web sites that provides news, analysis and
information resources for Internet professionals. As part of the Company's
acquisition of Mecklermedia in November 1998, the Company sold 80.1% of
internet.com to Mr. Meckler.
In April 1999, the Company made an additional equity contribution of
$0.4 million to retain its pro rata ownership share of internet.com., and, in
June 1999, the Company paid $3.0 million to exercise its warrant to increase its
ownership interest in internet.com from 19.0% to 27.4%.
On June 23, 1999, internet.com completed its initial public offering at
$14.0 per share and Penton was issued 5,483,383 shares, retaining a 23.4%
interest. As the Company has little ability to exercise significant influence
over internet.com, it records its investment utilizing accounting for marketable
investments and accordingly, the Company marks to market its investment. At
September 30, 1999, the Company has marked to market its investment by
approximately $61.7 million and recorded a corresponding increase to long-term
deferred taxes of $25.0 million and other comprehensive income of $37.5 million.
In July 1999, the Company sold 510,000 shares of internet.com stock as
part of internet.com's Initial Public Offering over-allotment option and reduced
its ownership interest to 21.25%. The Company received cash of $6.6 million, net
of expenses, and recognized a gain of $5.9 million.
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NOTE 6 - RELATIONSHIP AND TRANSACTIONS WITH PITTWAY
Included in the 1998 consolidated statements of income is an allocation
of corporate expenses related to services provided to the Company by Pittway.
Certain of the Company's employees participated in Pittway's 1990 Stock Awards
Plan, for which Pittway has allocated costs to the Company totaling $1.3 million
for the nine months ended September 30, 1998. No Stock Award costs were
allocated for the three months ended September 30, 1998. Other allocated costs
from Pittway to the Company totaled $0.1 million for the nine months ended
September 30, 1998. No other costs were allocated for the three months ended
September 30, 1998.
NOTE 7 - INVENTORIES
The LIFO reserve balance of $0.7 million at September 30, 1999 and $0.4
million at December 31, 1998, represent the excess of current replacement cost
over the LIFO value of inventory, which consists principally of raw materials.
NOTE 8 - DEBT
Senior Secured Credit Facility:
On September 1, 1999, the Company entered into a credit agreement with
several banks under which it may borrow up to $340.0 million. The agreement
provides for a revolving credit facility of up to $125.0 million, a long-term
loan of $140.0 million ("Term Loan A") and a long-term loan of $75.0 million
("Term Loan B"). The proceeds of this new facility will be used for working
capital and general corporate purposes, including to repay the Company's debt
outstanding under its former $325 million credit facility, and to finance
permitted acquisitions and investments. In the third quarter, the Company
recognized a non-cash extraordinary charge of approximately $6.3 million ($0.20
per share) relating to the write-off of unamortized deferred finance costs
associated with the former credit facility.
The credit facility is collateralized by all tangible and intangible
assets of the Company including the equity interests in all of the Guarantors
and not less than 65% of the equity interests of any of the Company's foreign
subsidiaries. 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, and cash dividends. At September 30, 1999, the Company was in compliance
with all loan covenants.
The revolving credit facility bears interest, at the Company's option,
at either the Alternative Base Rate ("ABR"), defined as the higher of the
Administrative Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at
LIBOR, plus a rate margin ranging from 0.25% to 2.125% based on the Company's
consolidated leverage ratio, as defined. Up to the full amount of the revolving
credit facility may be borrowed, repaid and reborrowed until maturity on August
31, 2006, however, the revolving credit facility commitment shall be reduced as
of September 30, 2003 by 7.5% per quarter until September 30, 2005, at which
time it will be reduced by 10% per quarter until maturity. The Company may also,
prior to the first anniversary of the credit facility, request an increase in
the revolving credit facility by an amount not to exceed $60.0 million. At
September 30, 1999, $17.5 million was outstanding under the revolving credit
facility with interest rates ranging from 6.94% to 8.5%. The Company has agreed
to pay a commitment fee ranging from 0.375% to 0.50%, based on the Company's
consolidated leverage ratio, on the average unused portion of the revolving
credit facility commitment. At September 30, 1999, $107.5 million was available
under the facility.
The Term Loan A bears interest, at the Company's option, at either the
ABR rate, as defined, or at LIBOR, plus a rate margin ranging from 0.25% to
2.125% based on the Company's consolidated leverage ratio, as defined. Interest
on ABR loans is payable quarterly in arrears while interest on LIBOR loans is
payable in arrears at the end of each applicable interest period not to exceed
three months. At September 30, 1999, the rate
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in effect was 6.94%. The loan, which requires quarterly principal payments
starting in September 2000, will mature on August 31, 2006. At September 30,
1999, $140.0 million was outstanding under Term Loan A.
The Term Loan B bears interest, at the Company's option, at either the
ABR rate, as defined, or at LIBOR, plus a rate margin ranging from 0.5% to 2.5%
based on the Company's consolidated leverage ratio, as defined. Interest on ABR
loans is payable quarterly in arrears while interest on LIBOR loans is payable
in arrears at the end of each applicable interest period not to exceed three
months. At September 30, 1999, the rate in effect was 7.44%. The loan, which
requires quarterly principal payments of approximately $0.2 million starting in
September 2000, and a balloon payment at maturity, will mature on August 31,
2007. At September 30, 1999, $75.0 million was outstanding under the Term Loan
B.
In May 1999, the Company recognized a non-cash extraordinary charge of
approximately $2.2 million ($0.08 per share), net of approximately $1.4 million
in taxes, for the write-off of unamortized deferred finance costs upon the
extinguishment of part of the outstanding former senior debt with the proceeds
from the 6,430,000 share common stock offering.
Note Payable:
The short-term note payable at December 31, 1998 of $1.0 million
represented foreign indebtedness, was denominated in British pounds and bore
interest at the Company's foreign borrowing rate (8.2% at December 31, 1998).
The note, plus accrued interest, was paid off in early January 1999.
In connection with the acquisition of New Hope, the Company issued a
note, bearing interest at 4.9%, payable in the amount of $0.5 million to New
Hope's Chief Executive Officer and primary shareholder. The note, plus accrued
interest, was paid off in October 1999.
NOTE 9 - FINANCIAL INSTRUMENTS
In connection with the refinancing of the Company's debt in September
1999, the Company has entered into two interest rate caps, an interest rate
collar, and a swap agreement, with several financial institutions, as required
under the senior secured credit facility. The notional amounts of the interest
rate agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The net cash paid for the
interest rate caps, collar and swap of approximately $0.2 million has been
deferred and will be amortized over the life of the Term Loan A and Term Loan B
loans.
At September 30, 1999, the Company had the following interest rate
instruments in effect that provide protection on the three month LIBOR rate upon
which the Company's variable rate Term Loan A and Term Loan B are based (actual
rate paid is LIBOR plus the respective margin):
<TABLE>
<CAPTION>
Notional
Amount Rate Period
<S> <C> <C> <C>
Interest Rate Caps $53,750 8.50% 10/99-2/02
Interest Rate Swap $17,916 5.95% 10/99-1/02
Interest Rate Collar $35,832 6.00% to7.5% 10/99-1/02
Interest Rate Cap $25,500 8.50% 2/99-2/01
</TABLE>
The swap agreements which were required under the former credit
facility were unwound and proceeds of approximately $0.2 million were charged
against interest expense.
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NOTE 10 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands) for the three and nine months ended September
30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) available to common
stockholders $ (6,057) $ 2,248 $ (7,885) $ 8,269
======== ======== ======== ========
Denominator: (Number of shares)
Basic - average shares outstanding 31,314 22,268 27,038 21,583
Effect of dilutive securities:
Stock options -- -- -- --
-------- -------- -------- --------
Diluted - average shares outstanding 31,314 22,268 27,038 21,583
======== ======== ======== ========
</TABLE>
Due to the net loss for the three and nine month periods ended
September 30, 1999, any potential common stock equivalents would have been
antidilutive. Accordingly, they were excluded from the calculation of diluted
earnings per share. In 1998, potential common stock equivalents were excluded as
they were not dilutive.
NOTE 11 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive
Income", effective for the fiscal years beginning after December 15, 1997. FAS
130 requires that the Company report comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income
represents the change in stockholders' equity during the period from non-owner
sources.
Total comprehensive income for the nine months ended September 30, 1999
and 1998 was $29.3 million and $8.2 million, respectively.
Activity in Stockholders' Equity is as follows (dollar amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Current Capital in Other
Comprehensive Common Excess of Retained Comprehensive
Income Stock Par Value Earnings Income Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 228 $ 55,050 $ 32,262 $ (51) $ 87,489
Dividends (2,562) (2,562)
Common stock offering 64 118,353 118,417
Issuance of New Hope shares 21 40,979 41,000
Comprehensive Income:
Net income (loss) $ (7,885) (7,885) (7,885)
Unrealized gain on securities
reported at fair value 37,466 37,466 37,466
Foreign currency translation
adjustment (296) (296) (296)
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1999 $ 29,285 $ 313 $ 214,382 $ 21,815 $ 37,119 $ 273,629
========= ========= ========= ========= ========= =========
</TABLE>
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NOTE 12 - SEGMENT INFORMATION
The Company has three reportable segments: Media Services, Printing and
Direct Mail. The segments are based on the Company's internal organization and
are managed separately due to inherent differences in the nature of these
businesses.
The Media Services segment serves specific industries and broad markets
with integrated product offerings including trade magazines, trade shows and
conferences, directories, direct mail lists and a variety of other products and
services. Revenues of this segment are generated primarily from magazine
advertising and trade show booth rentals. The Printing segment prints magazines,
catalogs, brochures and direct mail pieces for the Media Services segment and
outside commercial customers. The Direct Mail segment serves primarily the
pharmaceutical and business services markets with the ability to design,
produce, print, and mail direct mail marketing campaigns. (unaudited; dollars in
thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total segment revenues:
Media Services:
Publishing & Other $ 52,239 $ 43,907 $ 149,212 $ 133,253
Trade shows & conferences 12,196 2,439 46,534 12,356
--------- --------- --------- ---------
64,435 46,346 195,746 145,609
Printing 9,337 10,060 27,560 30,141
Direct Mail 2,943 3,602 9,002 10,045
Less: intersegment revenues: (6,661) (7,208) (19,498) (21,324)
--------- --------- --------- ---------
$ 70,054 $ 52,800 $ 212,810 $ 164,471
========= ========= ========= =========
Operating Income:
Media Services:
Publishing & Other $ 9,594 $ 8,776 $ 25,936 $ 26,869
Trade shows & conferences (5,190) (1,379) (1,067) (384)
--------- --------- --------- ---------
4,404 7,397 24,869 26,485
--------- --------- --------- ---------
Printing 625 53 1,797 533
Direct Mail (279) (22) (360) (334)
Corporate (previously in Media Services) (5,358) (2,689) (13,755) (10,371)
--------- --------- --------- ---------
$ (608) $ 4,739 $ 12,551 $ 16,313
========= ========= ========= =========
</TABLE>
For the three and nine months ended September 30, 1999, the Company has
disclosed the major components of the Media Services segment because of the
significant increase in the trade show and conference component of this segment.
The three and nine months ended September 30, 1998 components of the Media
Services segment have been restated for comparison purposes.
13
<PAGE> 14
NOTE 13 - SUBSEQUENT EVENTS
In October 1999, the Company acquired all of the outstanding stock of
Stardust.com and simultaneously purchased the net assets of Stardust
Technologies Inc, both of Campbell, CA, for a combined purchase price of $4.0
million in cash and future contingent payments of up to $5.0 million tied to
future earnings through the year 2002. Stardust is an internationally respected
knowledge services company that facilitates collaboration between Internet
technology standards bodies, technology product vendors and the IT user
community to speed market adoption of next-generation Internet technologies.
In February 1999, the Company announced its intentions to sell its
Penton Press division, located in Berea, OH, so that it could focus on its core
media business. The Company expects to sign a definitive purchase agreement in
the near term and close on the transaction by the end of the year.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited consolidated financial statements and the notes thereto.
Impact of Acquisitions
The Company was spun off from Pittway Corporation ("Pittway") and
acquired Donohue/Meehan Publishing Company ("DM Publishing") in August 1998;
acquired Mecklermedia Corporation ("Mecklermedia") in November 1998; MFG
Publishing Inc. ("MFG") in February 1999; Jon Peddie Associates ("Jon Peddie")
in May 1999; New Hope Communications Inc. ("New Hope") in May 1999, and
Multimedia Week in August 1999. As the Company acquires additional companies,
its sales mix, market focus, cost structure, operating leverage and the
seasonality of the business may change significantly. Consequently, the
Company's historical and future results of operations reflect and will reflect
the impact of acquisitions, and period-to-period comparisons may not be
meaningful in certain respects. Historical information for companies subsequent
to their acquisition may include integration and other costs that are not
expected to continue in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
REVENUES
Total revenues, after elimination of intersegment sales, increased
$17.3 million, or 32.7%, from $52.8 million to $70.1 million.
Media Services revenues increased $18.1 million, or 39.0%, to $64.4
million. Advertising revenues from Penton's publishing operations accounted for
$8.3 million of the increase, due primarily to the following: (i) the addition
of Modern Baking, Convenience Store Decisions and Baking Management, which were
part of the DM Publishing acquisition in August 1998; (ii) the addition of
Boardwatch magazine and Internet World magazine, which were part of the
Mecklermedia acquisition in November 1998; (iii) ) the addition of Delicious!,
Expansion Management, Health & Nutrition Breakthroughs, Natural Foods
Merchandiser, and Nutrition Science News magazines, which were part of the New
Hope acquisition in May 1999; (iv) the addition of Mid-Range ERP magazine which
was part of the MFG acquisition in February 1999, and (v) the stronger
performances quarter to quarter in core magazines, including the following: IW
Growing Companies, Machine Design, Contracting Business, Embedded Systems
Development and HPAC Engineering. These core increases were offset by some lower
revenues when compared with the same period in the prior year including:
American Machinist, Electronic Design and Air Transport World. Trade show and
conference revenues increased $9.8 million, or 400.0%, to 12.2 million. The
increase was due to the inclusion of Leisure Industry Week, which was held in
the fourth quarter of 1998, and to the first-time inclusion of the Mecklermedia
trade shows.
Printing revenues decreased $0.7 million, or 7.2%, bringing total
segment revenue to $9.3 million. Sales to external customers decreased $0.2
million, or 6.2%, to $2.7 million, while intercompany sales decreased $0.5
million, or 7.6%, to $6.6 million.
Direct Mail revenues decreased $0.6 million, or 18.3%, when compared
with the same prior year period, bringing total segment revenue to $3.0 million.
15
<PAGE> 16
OPERATING EXPENSES
Operating expenses for Penton, after elimination of intersegment
charges, increased $22.6 million, or 47.0%, from $48.1 million in 1998 to $70.7
million in 1999. As a percentage of revenues, operating costs increased from
91.0% in 1998 to 100.9% in 1999. The increase in operating expenses as a
percentage of revenues for the quarter was due primarily to higher period costs
associated with Mecklermedia and New Hope, the increase in depreciation and
amortization related to these acquisitions, and the change in Penton's goodwill
amortization policy for acquired trade shows, which reduced the write-off period
for goodwill from 40 years to 20 years.
Editorial, Production and Circulation
Total editorial, production and circulation expenses, after elimination
of intersegment charges, grew to $32.4 million in 1999 compared with $24.6
million in 1998, representing an increase of $7.8 million, or 31.5%. As a
percentage of revenues, editorial, production and circulation expenses decreased
from 46.7% in 1998 to 46.2% in 1999. The decrease was due primarily to the
acquisition of DM Publishing in August 1998 and higher margins earned on the
Leisure Industry Week trade show, which was held in September 1999. In 1998, the
Leisure Industry Week tradeshow was held in the fourth quarter.
Media Services editorial, production and circulation expenses grew $8.3
million, or 39.7%, due to the DM Publishing acquisition in August 1998, which
accounted for $0.3 million of the increase, the Mecklermedia acquisition in
November 1998, which accounted for an additional $5.1 million in costs, and the
New Hope acquisition in May 1999, which accounted for $2.2 of the increase.
Costs related to the Company's core publishing operations decreased due to
advertising slowdowns primarily in the electronics and computer markets.
Editorial, production and circulation expenses for the Printing segment
decreased $0.2 million, or 13.7%, while costs related to the Direct Mail segment
decreased $0.3 million, or 16.6%, when compared with the same period in the
prior year.
Selling, General, and Administrative
Total selling, general, and administrative expenses grew $9.1 million,
or 42.8%, to $30.4 million. As a percentage of revenues, selling, general and
administrative expenses increased from 40.3% in 1998 to 43.3% in 1999. The
increase as a percentage of revenues was due largely to period costs associated
with the trade show acquisitions.
Media Services selling, general, and administrative expenses increased
$6.3 million, or 37.0%. The increase was due to the Mecklermedia acquisition in
November 1998, which accounted for an additional $3.4 million in costs, and the
acquisition of New Hope in May 1999, which contributed $2.2 million of
additional costs. Costs related to the Company's core publishing operations
decreased for the three months ended September 30, 1999 when compared with the
same period in the prior year due to the advertising slowdown in the electronics
and computer markets.
Selling, general, and administrative expenses of the Printing segment
increased $0.1 million while expenses for the Direct Mail segment remained even
when compared with the prior year.
Depreciation and Amortization
Depreciation and amortization increased $5.7 million, or 266.2%, to
$7.9 million. The higher expense was primarily the result of the amortization of
intangible assets associated with the DM Publishing acquisition in August 1998
of approximately $0.1 million, the Mecklermedia acquisition in November 1998 of
approximately $4.2 million; and the New Hope acquisition in May 1999 of
approximately $1.1 million. In addition, the increase was due to the change in
Penton's goodwill amortization policy for acquired trade shows effective with
the fourth
16
<PAGE> 17
quarter of 1998. The Company reduced the write-off period from 40 years to 20
years. These increases were offset by slight decreases in amortization and
depreciation at both the Printing and Direct Mail segments when compared to the
same prior year period.
OPERATING INCOME
Overall, the Company's operating income for the three months decreased
$5.3 million, or 112.8%, to a loss of $0.6 million from income of $4.7 million
in the prior year. Operating income as a percentage of revenue decreased from
9.0% in 1998 to a negative 0.9% in 1999, due primarily to period costs
associated with acquired trade shows and the increase in depreciation and
amortization associated with those acquisitions.
Media Services operating income decreased $3.0 million, or 40.5%.
Operating income from Penton's trade show and conference operations decreased
$3.8 million due to period costs associated with Mecklermedia which was acquired
in November 1998, and period costs associated with New Hope, which was acquired
in May 1999. Publishing operating income increased $0.8 million, or 9.3%, due to
additional titles acquired with the acquisition of Mecklermedia, New Hope, MFG,
and Jon Peddie. Publishing increases from acquired magazines were off-set by
advertising slowdowns primarily in the electronics and computer markets.
Operating income of the Printing segment increased $0.6 million to $0.6
million for the three months ended September 30, 1999 when compared with the
same prior year period.
Direct Mail operating income decreased $0.3 million to a loss of $0.3
million for the three months ended September 30, 1999 when compared with the
same period in the prior year.
INTEREST EXPENSE
Interest expense increased $3.8 million to $4.6 million due to
additional borrowings used to finance the DM Publishing acquisition in August
1998; the Mecklermedia acquisition in November 1998, the MFG acquisition in
February 1999, and the Jon Peddie acquisition in May 1999.
EFFECTIVE TAX RATES
The effective tax rates were 52.2% and 42.6%, for the third quarters of
1999 and 1998, respectively. The Company's acquisition of DM Publishing in
August 1998 and Mecklermedia in November 1998 resulted in the recording of
goodwill. The amortization of such goodwill is recognized for financial
statement purposes but not deductible for tax purposes due to the structure of
these two purchase transactions. Accordingly, the Company's effective tax rate
has increased. The increase was offset by the gain on investment recognized in
the quarter, which was taxed at 40%.
EXTRAORDINARY ITEM
The extraordinary item, which aggregated $6.3 million, net of $4.2
million in taxes, for the three months ended September 30, 1999, related to the
write-off of unamortized deferred finance costs associated with the senior debt
that was refinanced in September 1999.
GAIN ON SALE OF INVESTMENTS
In July 1999, the Company sold 510,000 shares of internet.com stock and
recognized a gain of approximately $5.9 million.
17
<PAGE> 18
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
REVENUES
Total revenues, after elimination of intersegment sales, increased
$48.3 million, or 29.4%, from $164.5 million to $212.8 million.
Media Services revenues increased $50.1 million, or 34.4%, to $195.7
million. Advertising revenues from Penton's publishing operations accounted for
$16.0 million of the increase, due primarily to the following: (i) the addition
of Baking Management, Convenience Store Decisions and Modern Baking magazines,
which were part of the DM Publishing acquisition in August 1998; (ii) the
addition of Boardwatch magazine and Internet World magazine, which were part of
the Mecklermedia acquisition in November 1998; (iii) the addition of Delicious!,
Expansion Management, Natural Foods Merchandiser, Health and Nutrition
Breakthroughs, and Nutrition Science News magazines, which were part of the New
Hope acquisition in May 1999; (iv) the addition of Mid-Range ERP magazine, which
was part of the MFG acquisition in February 1999; (v) the addition of IW Growing
Companies, the first issue of which was not published until the second quarter
of 1998, (vi) increased revenues year-over-year in the Company's core magazines,
such as Contracting Business, Foundry Management and Technology and Embedded
Systems Development. These increases were offset by (i) lower revenues from
Electronic Design as compared with the same period in the prior year due to a
slowdown in the electronics market; (ii) the absence of the Fluid Power Handbook
& Directory, which was published in 1998, and is published every other year; and
(iii) lower revenues from Industry Week and New Equipment Digest as compared
with the same period in the prior year. Trade show and conference revenues
increased $34.1 million, or 276.6%, to $46.5 million. Approximately $27.9
million of the increase was due to the first-time inclusion of the operations of
Mecklermedia and the inclusion of Leisure Industry Week, which was held in the
third quarter of 1999 compared with the fourth quarter of 1998. In addition,
increases were due to the A/E/C Systems UK Show, the A/E/C GEO Expo, and the
Metalmecanica show, all of which were held for the first time in 1999 and
year-over-year revenue increases for the Supply Chain Expo, Service Management
Europe, and Wireless Symposium/Portable by Design Conference & Exhibition.
Printing revenues decreased $2.6 million, or 8.6%, bringing total
segment revenue to $27.6 million. Sales to external customers decreased $0.8
million or 8.6% to $8.1 million, while intercompany sales decreased $1.8
million, or 8.6%, to $19.7 million.
Direct Mail revenues decreased $1.0 million or 10.4% over the same
prior-year period.
OPERATING EXPENSES
Operating expenses for Penton, after elimination of intersegment
charges, increased $52.1 million, or 35.2%, from $148.2 million in 1998 to
$200.3 million in 1999. As a percentage of revenues, operating costs increased
from 90.1% in 1998 to 94.1% in 1999. The increase in percentage was due
primarily to the increase in depreciation and amortization related to the
acquisitions in the second half of 1998 and the first half of 1999 and to the
change in Penton's goodwill amortization policy for acquired trade shows which
reduced the write-off period from 40 years to 20 years. In addition, the
increase in operating expenses as a percentage of revenues was effected by
increased period costs associated with the acquired trade shows.
Editorial, Production and Circulation
Total editorial, production and circulation expenses, after elimination
of intersegment charges, grew to $91.6 million in 1999 compared with $74.8
million in 1998, representing an increase of $16.8 million, or 22.5%. As a
percentage of revenues, editorial, production and circulation expenses decreased
from 45.5% in 1998 to 43.1% in 1999. The decrease was due largely to the
acquisition of DM Publishing in August 1998; higher margins
18
<PAGE> 19
earned from the Mecklermedia trade shows, which were acquired in November 1998,
and to production improvements.
Media Services editorial, production and circulation expenses grew
$17.6 million, or 27.2%, due to the DM Publishing acquisition in August 1998,
which accounted for $1.6 million of the increase; the Mecklermedia acquisition
in November 1998, which accounted for an additional $14.0 million in costs; and
the New Hope acquisition in May 1999, which accounted for an additional $3.0
million in costs. These costs were offset by costs related to the biennial Fluid
Power Handbook and Directory, which was published in 1998, but were not incurred
in 1999 because the directory is published every other year. In addition, costs
related to the Company's core publishing operations were down due to advertising
slowdowns primarily in the electronics and computer markets.
Editorial, production and circulation expenses for the Printing segment
remained constant with the same prior-year period, while costs related to the
Direct Mail segment decreased $0.8 million, or 12.9%. These decreases were due
to lower sales volume and cost cutting measures implemented by the Company.
Selling, General, and Administrative
Total selling, general, and administrative expenses grew $19.2 million,
or 28.7%, to $86.3 million. As a percentage of revenues, selling, general and
administrative expenses decreased from 40.8% in 1998 to 40.5% in 1999. The
improvement in percentage of revenue was largely due to the addition of trade
shows and conferences to the Company's product mix.
Media Services selling, general, and administrative expenses increased
$16.1 million, or 30.9%. The increase was due to the DM Publishing acquisition
in August 1998, which accounted for $1.4 million of the increase; the
Mecklermedia acquisition in November 1998, which accounted for an additional
$12.9 million in costs; and the acquisition of New Hope in May 1999, which
contributed $3.1 of additional costs. Costs related to the biennial Fluid Power
Handbook and Directory, which was published in 1998, were not incurred in 1999
because the directory is published every other year. In addition, costs related
to the Company's core publishing operations decreased due to advertising
slowdowns primarily in the electronics and computer markets.
Selling, general, and administrative expenses of the Printing and
Direct Mail segments each decreased $0.1 million when compared with the prior
year.
Depreciation and Amortization
Depreciation and amortization increased $16.0 million, or 253.6%, to
$22.3 million. The higher expense was primarily the result of the amortization
of intangible assets associated with the DM Publishing acquisition in August
1998, of approximately $0.7 million; the Mecklermedia acquisition in November
1998, of approximately $12.6 million; and the New Hope acquisition in May 1999,
of approximately $1.4 million. In addition, the increase was due to the change
in Penton's goodwill amortization policy for acquired trade shows effective with
the fourth quarter of 1998. The Company reduced the write-off period from 40
years to 20 years. In addition, the acquisitions of MFG in February 1999 and Jon
Peddie in May 1999 contributed to the increase.
OPERATING INCOME
Overall, the Company's operating income for the nine months decreased
$3.8 million, or 23.1%, to $12.6 million from $16.3 million in the prior year.
Operating income as a percentage of revenue decreased from 9.9% to 5.9%, due
primarily to the increase in depreciation and amortization associated with the
Company's acquisitions.
Media Services operating income decreased $1.6 million, or 6.1%.
Operating income from Penton's trade show and conference operations decreased
$0.7 million due to period costs associated with the Mecklermedia and
19
<PAGE> 20
New Hope acquisitions. Publishing operating income decreased $0.9 million, or
3.5%, due primarily to advertising slowdowns primarily in the electronics and
computer markets.
Operating income of the Printing segment increased $1.3 million to $1.8
million for the first nine months of 1999 compared with $0.5 million in the
prior year.
Direct Mail operating income remained consistent with the prior year's
reporting of an operating loss of $0.4 million.
INTEREST EXPENSE
Interest expense increased $15.0 million to $17.2 million due to
additional borrowings used to finance the DM Publishing acquisition in August
1998; the Mecklermedia acquisition in November 1998; the MFG acquisition in
February 1999, and the Jon Peddie acquisition in May 1999.
EFFECTIVE TAX RATES
The effective tax rates were 63.3% and 41.8% for the nine months ended
September 30, 1999 and 1998, respectively. The Company's acquisition of DM
Publishing in August 1998 and Mecklermedia in November 1998 resulted in the
recording of goodwill. The amortization of such goodwill is recognized for
financial statement purposes but not deductible for tax purposes due to the
structure of these two purchase transactions. Accordingly, the Company's
effective tax rate has increased. The increase was somewhat offset by the gain
on investment recognized in July 1999, which was taxed at 40%.
EXTRAORDINARY ITEM
The extraordinary item, which aggregated $8.4 million, net of $5.6
million in taxes, for the nine months ended September 30, 1999, related to the
write-off of unamortized deferred finance costs associated with the partial
pay-down of senior debt with the proceeds from the common stock offering
completed in May 1999 and the refinancing of senior debt in September 1999.
GAIN ON SALE OF INVESTMENTS
In July 1999, the Company sold 510,000 shares of internet.com stock and
recognized a gain of approximately $5.9 million.
20
<PAGE> 21
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a widely used and commonly reported standard measure utilized by
analysts and investors in the analysis of the media industry. EBITDA is not a
measure of performance under GAAP because it excludes those items listed above
which are significant components in understanding and evaluating the Company's
financial performance. However, the following EBITDA information can provide
additional information for determining the ability of the Company to meet its
debt service requirements and for other comparative analyses of the Company's
operating performance relative to other media companies. The Company's
calculation of EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (6,057) $ 2,248 $ (7,885) $ 8,269
Interest expense 4,602 811 17,198 2,164
Gain on sale of investments (5,906) -- (5,906) --
Provision for income taxes 218 1,671 909 5,956
Depreciation and amortization 7,910 2,160 22,336 6,316
Extraordinary item 6,257 -- 8,413 --
Miscellaneous, net 278 9 (178) (76)
-------- -------- -------- --------
EBITDA $ 7,302 $ 6,899 $ 34,887 $ 22,629
======== ======== ======== ========
</TABLE>
For the nine months ended September 30, 1999, the Company's EBITDA
increased $12.3 million, or 54.2%, to $34.9 million from $22.6 million at
September 30, 1998. For the three months ended September 30, 1999, EBITDA
increased $0.4 million, or 5.8%, to $7.3 million from $6.9 million for the same
period in 1998. EBITDA margins decreased to 10.4% for the quarter compared with
13.1% in the same year ago period primarily due to increased period costs
associated with the acquisitions. Margins for the nine months ended September
30, 1999 and 1998 were 16.4% and 13.8%, respectively. The increases were due
primarily to the Mecklermedia Spring Internet World, Internet World UK and
ISPCON Spring trade shows which were held in the second quarter of 1999, and the
Leisure Industry Week trade show. Leisure Industry Week was held in the fourth
quarter in 1998.
The Company's calculation of EBITDA by business segment is as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Media Services
Publishing & other $ 10,960 $ 9,999 $ 30,701 $ 30,144
Trade shows & conferences 717 (1,126) 14,595 422
-------- -------- -------- --------
11,677 8,873 45,296 30,566
Printing 1,137 594 3,333 2,297
Direct Mail (154) 121 13 137
Corporate (previously in Media Services) (5,358) (2,689) (13,755) (10,371)
-------- -------- -------- --------
EBITDA $ 7,302 $ 6,899 $ 34,887 $ 22,629
======== ======== ======== ========
</TABLE>
21
<PAGE> 22
For the three months ended September 30, 1999, EBITDA for the Company's
publishing operations increased $1.0 million, or 9.6%, when compared with the
same prior year period. For the nine months ended September 30, 1999, EBITDA for
the Company's publishing operations increased $0.6 million, when compared with
the same prior year period. EBITDA increases for publishing operations, which
were primarily due to the acquisition of DM Publishing, were offset by
advertising decreases from slowdowns in the electronics and computer markets as
noted above. For the three and nine months ended September 30, 1999, EBITDA for
the Company's trade show and conference operations increased $1.8 million and
$14.2 million, respectively, when compared with the same prior-year period.
These increase's were due primarily to the acquired Mecklermedia trade shows
noted above and the inclusion of the Leisure Industry Week trade show in the
third quarter of 1999 compared with the fourth quarter in 1998.
FOREIGN CURRENCY
The functional currency of the Company's foreign operations is their
local currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. Dollars at the rates of exchange on the balance sheet date;
income and expense are translated at the average rates of exchange prevailing
during the year. There were no significant foreign currency transaction gains or
losses during 1998 or for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, cash flow generated by the Company's operations has been
used to invest in capital assets, to finance acquisitions and to reduce debt.
Excess cash was used to pay dividends to Pittway Corporation, its former parent
company. The Company's principal sources of funds are cash flows from operations
and borrowings under its Revolving Credit Facility. The principal use of funds
consists of payments of principal and interest on its Senior Debt Facility and
capital expenditures. Capital expenditures totaled approximately $3.4 million
for the nine months ended September 30, 1999. At September 30, 1999, the Company
had $107.5 million available under its Revolving Credit Facility. The weighted
average interest rate on total debt was approximately 8.2%.
On September 1, 1999, the Company entered into a credit agreement with
several banks under which it can borrow up to $340.0 million. The agreement
provides for a revolving credit facility of up to $125.0 million, a long-term
loan of $140.0 million (Term Loan A) and a long-term loan of $75.0 million (Term
Loan B). The proceeds of this credit agreement were used to repay Penton's debt
outstanding under the $325.0 million credit facility obtained when the Company
purchased Mecklermedia.
In May, 1999 the Company completed a 6,430,000 common share offering
and received net proceeds of approximately $118.4 million, which were used to
repay senior debt and for general corporate purposes, including the acquisition
of New Hope.
On November 24, 1998, the Company entered into a credit agreement with
several banks under which it could borrow up to $325.0 million. The agreement
provided 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 this credit agreement were used to repay Penton's debt
outstanding under the $75.0 million revolving credit facility obtained at the
spin off date and to purchase Mecklermedia. On March 31, 1999 the Company and
the banks amended this agreement to enable the Company to borrow an additional
$15.0 million as part of the Term Loan B facility. In September 1999, this debt
was refinanced with the current $340.0 million senior debt facility.
On August 7, 1998, the Company entered into a five-year, $75.0 million
unsecured revolving credit agreement. The Company's short-term notes payable
were refinanced with this facility, which was also utilized to finance the cash
portion of the acquisition price of DM Publishing.
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<PAGE> 23
Based upon current and anticipated levels of operations, we believe
that our cash on hand and cash flow from operations, combined with borrowings
available under our credit facilities, will be sufficient to enable us to meet
our current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs.
However, actual capital requirements may change, particularly as a result of any
acquisitions that we may make. Our ability to meet current and anticipated
operating requirements will be dependent upon our future performance, which, in
turn, will be subject to general economic conditions and to financial, business
and other factors, including factors beyond our control. Depending on the
nature, size and timing of future acquisitions, we may be required to raise
additional capital through additional financing arrangements or the issuance of
private or public debt or equity securities of the Company. We cannot assure you
that such additional financing will be available on acceptable terms.
Substantially all of our debt bears interest at floating rates. Therefore, our
liquidity and financial condition is and will continue to be affected by changes
in prevailing interest rates.
SEASONALITY
Historically, the Company has not experienced significant seasonality
in its business. The introduction of trade shows and conferences into the
Company's product mix through the acquisitions of Independent Exhibitions, Ltd.,
and Industrial Shows of America in late 1997, the acquisition of Mecklermedia in
November 1998 and the acquisition of New Hope in May 1999 has changed the
seasonal pattern of revenue and profit, as all four companies have pronounced
seasonal patterns in their businesses. The majority of the trade shows owned by
Industrial Shows of America and Mecklermedia are held in the second and fourth
quarters and, accordingly, the majority of their revenue is recognized in these
quarters. Further, the majority of the Independent Exhibitions, Ltd. shows
historically have been held in the fourth quarter and the New Hope shows have
been held in the first and fourth quarters. Accordingly, the Company anticipates
that these acquisitions will have a positive impact on revenue and profit for
these quarters.
The Company may also experience seasonal fluctuations as trade shows
and conferences held in one period in the current year may be held in a
different period in future years.
INFLATION
The impact of inflation on the Company's results of operations has not
been significant in recent years.
ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Company was required to
adopt this statement in the first quarter of 2000. In June 1999, the SFAB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133 an amendment of SFAB
Statement No 133" ("SFAS 137"). SFAS No. 137 deferred the effective date of SFAS
No. 133 for all fiscal quarters of all fiscal years beginning after June 15,
2000. Even though the Company has entered into an interest rate cap and swap
agreement, Management does not believe these statements will have a material
impact on the Company's business, results of operations or financial condition.
YEAR 2000
General:
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
23
<PAGE> 24
Penton's Year 2000 Project ("Project") is proceeding as scheduled. Some
of our systems and related software are already Year 2000 compliant, however the
Project is designed to bring the remaining software and systems into Year 2000
compliance in time to minimize any significant detrimental effects on
operations. Our Project covers information systems infrastructure, financial and
administrative systems, production and circulation operating systems and
significant vendors and customers.
Project:
The first component of the Project is to identify the internal business
systems and non-information-technology systems of the Company and its operating
subsidiaries that are susceptible to system failures or processing errors as a
result of the Year 2000 issue. This effort is substantially complete with all
business systems identified and priorities established for repair or
replacement. Those systems considered most critical to continuing operations are
being given the highest priority.
The second component of the Project involves the actual remediation and
replacement of the various business systems. The Company and its operating
subsidiaries are using both internal and external resources to complete this
process. Systems ranked highest in priority have either been remediated or
replaced or scheduled for remediation or replacement including the replacement
of the primary general ledger and accounts payable systems with programs from a
national software vendor. The remediation and replacement of internal systems
are on schedule with final testing and certification for readiness estimated to
be completed by October, 1999.
As part of the second component of the Project, significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations after January 1, 2000, have been identified and steps are
being undertaken in an attempt to reasonably ascertain their state of Year 2000
readiness through questionnaires, inquiries and other available means. This
process is progressing according to plan.
Costs:
It is currently estimated that the aggregate incremental cost of the
Company's Project efforts will be approximately $0.6 million to $0.9 million, of
which approximately $0.7 million has been spent. These costs are being expensed
as they are incurred and are being funded through operating cash flow. These
amounts do not include any costs associated with the implementation of
contingency plans, which are in the process of being developed to supplement the
Company's existing Disaster Recovery Plan. The costs associated with the
replacement of computerized systems, hardware or equipment is currently
estimated to be approximately $0.7 million, substantially all of which would be
capitalized, are not included in the above estimates.
Risks:
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, customers, and
the public infrastructure, such as utility companies, the Company is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on the Company's results of operations, liquidity or financial
condition. Our Year 2000 Project is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in particular,
about the Year 2000 compliance and readiness of its material external agents.
The Company believes that, with the implementation of new business systems and
completion of the Project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
The Company's Project readiness program is an ongoing process and the
estimates of costs and completion dates for various components of the Project
readiness program described above are subject to change.
24
<PAGE> 25
Based on the Company's assessment and evaluation of its year 2000 readiness, it
believes that the most reasonably likely worst case scenario includes a
temporary shut-down of Penton's press operation. We estimate that a one-month
stoppage of our publishing operations could lead to a loss of operating income
of about $9.4 million.
FORWARD LOOKING STATEMENTS
This quarterly report, other than historical financial information,
contains forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, that involve a number of risks and uncertainties.
Important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements include pending litigation,
government regulation, competition and technological change, intellectual
property rights, capital spending, international operations, and the Company's
acquisition strategies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relative to the Company's market risk sensitive instruments
is presented under Item 7a of the registrant's Annual Report on Form 10-K for
the year ended December 31, 1998.
INTEREST RATE RISK
Because the Company's obligations under the bank credit agreement bear
interest at floating rates, the Company is sensitive to changes in prevailing
interest rates. The Company uses derivative instruments to manage its long-term
debt interest rate exposure, rather than for trading purposes. A 10% increase or
decrease in market interest rates that effect the Company's interest rate
derivative instruments would not have a material impact on earnings during the
next year.
25
<PAGE> 26
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
February 8, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
April 20, 1999 Item 5. Other Events
May 19, 1999 Item 5. Other Events
June 11, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
August 10, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penton Media, Inc.
--------------------------------------
(Registrant)
By: /s/Joseph G. NeCastro
--------------------------------------
Joseph G. NeCastro
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 15, 1999
26
<PAGE> 27
EXHIBIT INDEX
Exhibit
Number Description of Document
27.1 Financial Data Schedule
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,976
<SECURITIES> 0
<RECEIVABLES> 41,948
<ALLOWANCES> 2,865
<INVENTORY> 2,781
<CURRENT-ASSETS> 84,586
<PP&E> 83,368
<DEPRECIATION> 54,671
<TOTAL-ASSETS> 626,430
<CURRENT-LIABILITIES> 91,004
<BONDS> 233,002
0
0
<COMMON> 313
<OTHER-SE> 273,316
<TOTAL-LIABILITY-AND-EQUITY> 626,430
<SALES> 212,810
<TOTAL-REVENUES> 212,810
<CGS> 91,645
<TOTAL-COSTS> 86,278
<OTHER-EXPENSES> 22,336
<LOSS-PROVISION> 361
<INTEREST-EXPENSE> 17,198
<INCOME-PRETAX> 1,437
<INCOME-TAX> 909
<INCOME-CONTINUING> 528
<DISCONTINUED> 0
<EXTRAORDINARY> 8,413
<CHANGES> 0
<NET-INCOME> (7,885)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
