<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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
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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 13, 2000).
Common Stock 31,821,112
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet -
As of September 30, 2000 and December 31, 1999 2-3
Consolidated Statement of Income -
For the Three and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Statement of Cash Flows -
For the Nine Months Ended September 30,
2000 and 1999 5
Notes to Consolidated Financial Statements 6-13
<PAGE> 3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 10,720 $ 30,370
Accounts receivable, less allowance
for doubtful accounts of $6,325 and
$3,958 in 2000 and 1999, respectively 55,210 40,199
Inventories 1,751 818
Deferred tax asset 4,454 -
Net current assets of discontinued operations - 4,228
Prepayments, deposits and other 17,667 7,583
-------- --------
89,802 83,198
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 95 95
Machinery and equipment 57,983 45,243
-------- --------
58,078 45,338
Less: Accumulated depreciation 33,140 30,252
-------- --------
24,938 15,086
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$42,482 and $27,399 in 2000 and 1999,
respectively 582,526 411,173
Other intangibles, less accumulated
amortization of $12,932 and $9,541 in
2000 and 1999, respectively 39,623 40,063
Investments 101,742 259,859
-------- --------
723,891 711,095
-------- --------
$838,631 $809,379
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 4
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
September 30, December 31,
2000 1999
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Senior debt facility $ 9,500 $ 3,875
Accounts payable 12,718 7,499
Income taxes payable - 10,172
Accrued earnouts - 7,447
Accrued compensation and benefits 14,493 8,377
Other accrued expenses 20,322 10,546
Unearned income, principally trade
show and conference deposits 66,595 30,214
Deferred tax liability - 39,634
-------- --------
123,628 117,764
-------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility 80,000 -
Senior debt facility 203,562 211,125
Net deferred pension credits 15,670 16,269
Deferred tax liability 38,979 60,887
Other 771 733
-------- --------
338,982 289,014
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued - -
Common stock 318 313
Capital in excess of par value 225,822 214,551
Retained earnings 107,900 36,970
Notes receivable officers/directors (9,792) -
Accumulated other comprehensive income 51,773 150,767
-------- --------
376,021 402,601
-------- --------
$838,631 $809,379
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 5
PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; Dollars and Shares in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 76,720 $ 64,435 $ 261,603 $ 195,745
--------- --------- ---------- ---------
OPERATING EXPENSES:
Editorial, production and circulation 33,427 29,327 98,631 82,337
Selling, general and administrative 36,156 28,788 111,797 81,866
Depreciation and amortization 7,851 7,273 22,880 20,427
--------- --------- ---------- ---------
77,434 65,388 233,308 184,630
--------- --------- ---------- ---------
OPERATING INCOME (LOSS) (714) (953) 28,295 11,115
--------- --------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net (3,129) (4,808) (8,305) (16,967)
Gain on sale of investments - 5,906 110,210 5,906
Impairment of assets - - (1,051) -
Miscellaneous, net 87 (69) (357) (44)
--------- --------- ---------- ---------
(3,042) 1,029 100,497 (11,105)
--------- --------- ---------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (3,756) 76 128,792 10
PROVISION (BENEFIT) FOR INCOME TAXES (2,512) 81 54,918 338
--------- --------- ---------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,244) (5) 73,874 (328)
INCOME (LOSS) FROM OPERATIONS OF
DISCONTINUED BUSINESSES, NET - 205 (85) 856
--------- --------- ---------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,244) 200 73,789 528
EXTRAORDINARY ITEM - EARLY
EXTINGUISHMENT OF DEBT - (6,257) - (8,413)
--------- --------- ---------- ---------
NET INCOME (LOSS) $ (1,244) $ (6,057) $ 73,789 $ (7,885)
========= ========= ========== =========
EARNINGS PER SHARE - Basic
Income (loss) from continuing operations $ (0.04) $ 0.00 $ 2.33 $ (0.01)
Discontinued operations $ 0.00 $ 0.01 $ 0.00 $ 0.03
Extraordinary Item $ 0.00 $ (0.20) $ 0.00 $ (0.31)
Net income (loss) $ (0.04) $ (0.19) $ 2.33 $ (0.29)
EARNINGS PER SHARE - Diluted
Income (loss) from continuing operations $ (0.04) $ 0.00 $ 2.30 $ (0.01)
Discontinued operations $ 0.00 $ 0.01 $ 0.00 $ 0.03
Extraordinary item $ 0.00 $ (0.20) $ 0.00 $ (0.31)
Net income (loss) $ (0.04) $ (0.19) $ 2.30 $ (0.29)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 31,819 31,314 31,730 27,038
====== ====== ====== ======
Diluted 31,819 31,314 32,014 27,038
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 6
PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,2000 AND 1999
(Unaudited; Dollars in Thousands)
2000 1999
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 73,789 $ (7,885)
Adjustments to reconcile income from
operations to net cash provided by
operating activities:
Depreciation and amortization 22,880 20,427
Gain on sale of investments (110,210) (5,906)
Loss on sale of Direct Mail segment 85 856
Extraordinary loss on extinguishment of debt - 8,413
Deferred income taxes - (7,875)
Retirement and deferred compensation plans (600) (365)
Provision for losses on accounts receivable 1,575 361
Writedown on impairment of assets 1,051 -
Changes in assets and liabilities,
excluding effects from acquisitions and
dispositions:
Accounts receivable (5,746) (1,359)
Inventories (538) (420)
Prepayment and deposits (5,170) (4,651)
Accounts payable and accrued expenses 12,522 (17,952)
Accrued income taxes (9,648) (8,059)
Unearned income 23,925 29,587
Other changes (221) 2,495
--------- ---------
Net cash provided by operating activities 3,694 7,667
--------- ---------
Cash flows from investing activities:
Capital expenditures (12,379) (3,417)
Acquisitions, including earnouts paid (203,422) (43,270)
Proceeds from sale of Direct Mail segment 4,000 -
Investment in internet.com Corporation stock - (3,446)
Proceeds from sale of internet.com Corporation
stock 113,100 6,640
--------- ---------
Net cash used for investing activities (98,701) (43,493)
--------- ---------
Cash flows from financing activities:
Repayment of $325 million senior debt facility - (98,000)
Pay-off of $325 million senior debt facility - (231,691)
Proceeds from $325 million senior debt facility - 15,000
Proceeds from $340 million senior debt facility - 235,000
Repayment of $340 million senior debt facility (1,937) -
Proceeds from revolving credit facility 80,000 9,500
Proceeds from equity offering, net - 118,417
Payment of finance fees - (3,032)
Repayment of note payable - (1,000)
Employee stock purchase plan payments (348) -
Proceeds from options exercised 779 -
Dividends paid (2,861) (2,306)
--------- ---------
Net cash provided by financing activities 75,633 41,888
--------- ---------
Effect of exchange rate changes on cash (276) (39)
--------- ---------
Net increase in cash and cash equivalents (19,650) 6,023
Cash and cash equivalents at beginning of
period 30,370 3,953
--------- ---------
Cash and cash equivalents at end of period $ 10,720 $ 9,976
========= =========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
For the nine months ended September 30, 2000, Penton issued 52,920 common shares
valued at approximately $1.4 million in connection with New Hope's earnout;
issued 400,000 shares to officers and directors, and marked to market its
investment in internet.com Corporation stock by approximately $47.8 million in
2000.
For the nine months ended September 30, 1999, Penton issued 2.1 million common
shares valued at $41.0 million in conjunction with the acquisition of New Hope.
In addition, the Company marked to market its investment in internet.com
Corporation stock by approximately $61.7 million.
The foregoing transactions did not provide for or require the use of cash and,
accordingly, are not reflected in the statements of cash flows.
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in Thousands)
NOTE 1 - NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
These financial statements have been prepared by management in accordance
with generally accepted accounting principles for interim financial information
and the applicable rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, the interim financial
statements reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results of the periods
presented. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
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, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements
to conform to the 2000 presentation.
USE OF ESTIMATES
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 - ACQUISITIONS
In September 2000, Penton acquired the assets of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.9 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the AS/400 and Windows 2000 operating systems markets and other
technology operating platform markets.
In September 2000, Penton acquired the assets of Professional Trade Shows
("PTS") for $17.0 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $16.1 million
is being amortized over 20 years. PTS produces 50 regional trade shows for the
plant engineering and maintenance, material handling, buildings and facilities
maintenance, design engineering, and machine tool industries.
In September 2000, Penton acquired the stock of Streaming Media, Inc., for
$65.0 million in cash plus contingent consideration of up to $35 million based
on the achievement of specified business targets in 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $60.6 million is being amortized over periods ranging from 15 to
20 years. Streaming Media, Inc., is a leading integrated media company serving
the streaming media market.
6
<PAGE> 8
In August 2000, Penton acquired the assets of Meko Ltd. ("MEKO") of
Surrey, UK, for $0.3 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $0.3 million
is being amortized over periods ranging from 20 to 40 years. Meko Ltd. is a
leading provider of newsletters, comprehensive market studies, and custom
information services for the European computer display market.
In July 2000, Penton acquired the assets of National Advisory Group
("NAG") for $1.5 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $1.4 million
is being amortized over 20 years. NAG is a trade group serving the convenience
store and petroleum marketing industry.
In May 2000, Penton purchased 50% of the outstanding stock of a German
Corporation, trading under the name of ComMunic, which produces trade shows,
conferences and business publications in Germany and its German speaking
neighboring countries, serving the Internet, telecommunications and other
growing technology markets. Penton paid approximately $1.4 million for a 50%
interest in the joint venture with the potential for future contingent payments
in 2000 and 2001 tied to future earnings.
In February 2000, Penton acquired the assets of Profit.Net, Inc. for $0.4
million in cash and contingent payments of up to $0.1 million in 2000. 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 15 years. The
assets of Profit.Net, Inc. include BAKERY-NET.com, a Website for the commercial
baking market.
In December 1999, Penton completed the acquisition of the assets of
Nutracon for $3.1 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $3.1 million
is being amortized over 20 years. Nutracon is a conference serving the
functional foods/nutraceutical market.
In October 1999, Penton acquired all the outstanding stock of Stardust.com
and simultaneously purchased the net assets of Stardust Technologies Inc.
(collectively "Stardust"), 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 of
Stardust through the year 2002. The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $3.7 million is
being amortized over 20 years. Stardust, through its Web portal site,
conferences, forums and newsletters, 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 August 1999, Penton completed the asset acquisition of Multimedia Week
for $0.2 million in cash. The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately $0.2 million is being
amortized over 40 years. Multimedia Week is a weekly publication that features
IPOs and venture capital tracking, in-depth product and technology spotlights,
information about new and emerging technologies, and market data.
In May 1999, Penton acquired substantially all the assets of New Hope. In
full consideration for the transfer of the assets, Penton agreed to pay a total
purchase price of up to $97.0 million for New Hope. The purchase price comprised
$41.0 million in cash and $41.0 million (2,102,564 shares) in common stock which
were paid and issued at the closing. New Hope is eligible to earn a contingent
payment of up to $15.0 million to be paid half in cash and half in common stock,
based on New Hope's performance for the fiscal years 1999, 2000 and 2001. In
March 2000, Penton paid approximately $1.4 million in cash and issued 52,920
shares of common stock with a fair market value of approximately $1.4 million in
contingent consideration for 1999. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $78.2 million
is being amortized over periods ranging from 20 to 40 years. New Hope is a
leading business media company serving the natural products industry through
trade shows, conferences, magazines and Web sites.
In May 1999, Penton completed the acquisition of Jon Peddie Associates
("Jon Peddie") for $1.3 million in cash and contingent payments of up to $3.0
million tied to future earnings of Jon Peddie through the year 2001.
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<PAGE> 9
The excess of the aggregate purchase price over the fair market value of net
assets acquired of approximately $1.0 million is being amortized over 40 years.
Jon Peddie is an information company that conducts research, publishes market
studies and special reports, and provides consulting services to the
electronics, semiconductor and digital media industries.
In February 1999, Penton acquired the assets of MFG Publishing, Inc.
("MFG") 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 earnings
through the year 2001. The excess of the aggregate purchase price over the fair
market value of net assets acquired of approximately $0.6 million is being
amortized over 40 years. MFG provides information to the enterprise resource
planning segment of the manufacturing technology industry.
NOTE 3 - DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss through the date of sale of $0.08 million, net of a tax benefit
of $0.06 million, was recorded and classified as discontinued operations in the
accompanying financial statements for the nine months ended September 30, 2000.
For the nine months ended September 30, 1999, the Printing segment, which
was sold on November 30, 1999, had operating income of approximately $1.1
million, net of taxes of $0.7 million. The Direct Mail segment had an operating
loss of approximately $0.2 million, net of a tax benefit of $0.1 million.
For the three months ended September 30, 1999, the Printing segment had
operating income of approximately $0.4 million, net of taxes of $0.3 million.
The Direct Mail segment had an operating loss of approximately $0.2 million, net
of a tax benefit of $0.1 million.
NOTE 4 - INVESTMENTS
In February 2000, Penton sold 2.0 million shares of internet.com
Corporation stock as part of a 3.75 million-share offering. Penton received cash
of $113.1 million and recognized a pre-tax gain of approximately $110.2 million.
As of September 30, 2000, Penton maintains an 11.8% ownership interest,
representing approximately 3.0 million shares, in internet.com Corporation. As
Penton does not have the ability to exercise significant influence, the Company
marks to market its investment in internet.com Corporation. At September 30,
2000, Penton's investment totaled $92.0 million, including a cumulative mark to
market adjustment in 2000, of $47.8 million and related adjustment in long-term
deferred taxes of $19.1 million and other comprehensive income of $28.7 million.
In March 2000, Penton entered into a strategic alliance agreement with
Cayenta, Inc. ("Cayenta"), a subsidiary of the Titan Corporation. Cayenta is a
total service provider of end-to-end, e-commerce systems. As part of its
alliance with Penton, Cayenta will initially develop and host the e-commerce
systems for Penton's Healthwell.com Web site, a B2B exchange site for the
natural products industry. Development work and hosting of other Penton vertical
portal sites is expected to follow the Healthwell.com project. The two companies
will also provide each other with reciprocal marketing services for a two-year
period. As part of the agreement, Penton purchased 250,000 shares of Cayenta
stock, which is recorded at its historical cost of $6.3 million due to the
Company's inability to exert significant influence over Cayenta.
In June 2000, Penton entered into a strategic investment and partnership
agreement with LeisureHub.com, the online B2B trading community for the global
leisure industry. Penton paid approximately $3.4 million for a 19.9% stake in
the company. The agreement also provides for reciprocal marketing and other
services between the two companies. As Penton has the ability to exercise
significant influence over LeisureHub.com, the Company accounts for its
investment using the equity method of accounting.
8
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NOTE 5 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating data is presented
for the nine months ended September 30, 2000 as if each of the following
transactions had occurred on January 1, 2000: (i) the sale of 2.0 million shares
of internet.com Corporation in February 2000; (ii) the acquisition of NAG
in July 2000; (iii) the acquisition of Meko in August 2000; (iv) the acquisition
of Duke in September 2000; (v) the acquisition of PTS in September 2000, and
(vi) the acquisition of Streaming Media in September 2000.
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 6.4 million common shares in May 1999; (iv) the
acquisition of New Hope in May 1999; (v) the sale of 0.5 million shares of
internet.com Corporation in July 1999; (vi) the refinancing of debt in September
1999; (vii) the acquisition of Stardust in October 1999; (viii) the sale of
the Printing segment in November 1999; (ix) the acquisition of Nutracon in
December 1999; (x) the discontinuation of the Direct Mail segment in December
1999; (xi) the sale of 2.0 million shares of internet.com Corporation in
February 2000; (xii) the acquisition of NAG in July 2000; (xiii) the acquisition
of Meko in August 2000; (xiv) the acquisition of Duke in September 2000; (xv)
the acquisition of PTS in September 2000, and (xvi) the acquisition of Streaming
Media in September 2000.
The pro forma information is presented for information purposes only and
is not necessarily indicative of the results of operations that actually would
have been achieved had these transactions been consummated at the beginning of
the period presented (in thousands, except per share data):
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Pro forma revenues $ 306,398 $ 252,876
========= ==========
Pro forma income (loss) from
continuing operations $ 67,294 $ (3,152)
========= ==========
Pro forma net income (loss)
applicable to common
shareholders $ 67,209 $ (10,709)
========= ==========
Per share data:
Earnings per common
share - basic:
Income (loss) from continuing
operations $ 2.12 $ (0.10)
========= ==========
Net income (loss) $ 2.12 $ (0.34)
========= ==========
Earnings per common
share - diluted:
Income (loss) from continuing
operations $ 2.10 $ (0.10)
========= ==========
Net income (loss) $ 2.10 $ (0.34)
========= ==========
The pro forma information above does not include the operations of Jon
Peddie and Multimedia Week which were acquired in 1999, and Profit.Net, Inc.,
Leisurehub.com and ComMunic which were acquired in 2000, as the historical
information is immaterial.
NOTE 6 - DEBT
Penton maintains 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").
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<PAGE> 11
The credit facility is collateralized by all tangible and intangible
assets of Penton, including the equity interests in all of its U.S. subsidiaries
and not less than 65% of the equity interests of any of its foreign
subsidiaries. Under the terms of the agreement, Penton is required to maintain
certain financial ratios and other financial conditions. The agreement also
prohibits Penton from incurring certain additional indebtedness; limits certain
investments, advances or loans; and restricts substantial asset sales and cash
dividends. At September 30, 2000, Penton was in compliance with all loan
covenants.
On April 3, 2000, Penton amended its Credit Agreement to give the Company
the flexibility to sell assets of up to $30.0 million and the ability to
monetize the Company's joint venture investments.
The revolving credit facility bears interest, at Penton'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 Penton'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. Penton 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, 2000, $80 million was outstanding under the revolving credit
facility. Penton has agreed to pay a commitment fee ranging from 0.375% to
0.50%, based on Penton's consolidated leverage ratio, on the average unused
portion of the revolving credit facility commitment.
Term Loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. 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, 2000,
the rate in effect was 7.9375%. The loan, which requires quarterly principal
payments starting in September 2000, will mature on August 31, 2006. At
September 30, 2000, $138.3 million was outstanding under Term Loan A.
Term Loan B bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.5% to 2.50%, based on Penton's
consolidated leverage ratio. 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, 2000,
the rate in effect was 8.3750%. The loan requires quarterly principal payments
of approximately $0.2 million starting in September 2000, and four balloon
payments of $17.6 million beginning in September 2006, and will mature on August
31, 2007. At September 30, 2000, $74.8 million was outstanding under Term
Loan B.
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NOTE 7- NET INCOME PER COMMON SHARE
The following table sets forth the reconciliation of basic and diluted
earnings per share (in thousands) for the three months and nine months ended
September 30, 2000 and 1999:
Three Month Period Nine Month Period
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
------- ------ ------ ------
Numerator:
Income (loss) applicable
to common shareholders $ (1,244) $ (6,057) $73,789 $ (7,885)
======== ======== ======= ========
Denominator (Number of
shares):
Basic - average shares
outstanding 31,819 31,314 31,730 27,038
Effect of dilutive securities:
Stock options - - 284 -
Restricted stock units - - - -
Deferred shares - - - -
-------- -------- ------- --------
Diluted - average shares
outstanding 31,819 31,314 32,014 27,038
======== ======== ======= ========
Due to the net loss from operations for the three months ended September
30, 2000 and 1999 and for the nine months 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.
NOTE 8 - COMMON STOCK
In September 2000, Penton completed a common share offering in which
existing stockholders, other than management, offered 3,638,320 shares of common
stock at a price of $30.00 per share. The Company did not receive any proceeds
from this offering.
On June 9, 2000, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Under the plan, the
rights will initially trade together with Penton Media, Inc. common stock and
will not be exercisable. In the absence of further board action the rights
generally will become exercisable and allow the holder to acquire Penton Media,
Inc. common stock at a discounted price if any person or group acquires 20
percent or more of the outstanding shares of the Company's common stock. Rights
held by the persons who exceed the applicable threshold will be void. Under
certain circumstances, the rights will entitle the holder to buy shares in an
acquiring entity at a discounted price.
The plan also includes an exchange option. In general, after the rights
become exercisable, the Penton board may, at its option, effect an exchange of
part or all of the rights, other than rights that have become void, for shares
of Penton Media, Inc. common stock. Under this option, Penton Media, Inc. would
issue one share of common stock for each right, subject to adjustment in certain
circumstances.
The Penton board may, at its option, redeem all rights for $0.01 per
right, generally at any time prior to the rights becoming exercisable. The
rights will expire June 27, 2010, unless earlier redeemed, exchanged or amended
by the Penton board.
In June 2000, the Board of Directors approved a grant of 20,000
performance shares to two key executives. Subject to the attainment of certain
performance goals over a three-year period, from January 1, 2000
11
<PAGE> 13
through December 31, 2002, the grantee is eligible to receive between 10% and
150% of the granted shares. Performance shares are not issuable until earned.
In February 2000, the Board of Directors approved a grant of 136,054
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2000, through
December 31, 2002. For 99,000 of the shares, the grantee is eligible to receive
between 50% and 150% of the granted shared. Performance shares are not issuable
until earned.
In February 2000, the Board of Directors approved the addition of 10 key
employees to participate in Penton's supplemental executive retirement plan.
On January 14, 2000, the Board of Directors approved an Executive Loan
Program, which allows Penton to issue stock to six key executives to purchase an
aggregate of up to 400,000 shares of Penton common stock at the then fair market
value, in exchange for recourse notes. The notes bear interest compounded
semiannually, at a rate equal to the applicable interest rate as published by
the Internal Revenue Service, and mature on or before the fifth anniversary of
the first loan date. No principal or interest payments are required until
maturity, at which time all outstanding amounts are due. All 400,000 shares have
been issued at fair market value. At September 30, 2000, the outstanding loan
balance was approximately $9.8 million (including $0.4 million of accrued
interest), which is classified in the shareholders' equity section of the
balance sheet as notes receivable from officers and directors.
Penton's Board of Directors approved a plan to establish an Employee Stock
Purchase Plan, with the intent of aligning the interests of Penton's employees
and its shareholders by allowing employees the opportunity to purchase shares of
Penton. The plan, which was effective January 1, 2000, allows employees to
purchase common stock at 85% of the lower of the market price at the beginning
or end of each quarter.
Penton's Board of Directors approved a plan, effective January 1, 2000, to
establish a Management Stock Purchase Plan for designated officers and other key
employees. Participants in the plan may elect to receive restricted stock units
("RSUs") in lieu of a designated portion of up to 100% of their annual incentive
bonus. Each RSU represents the right to receive one share of Penton common
stock. RSUs are granted at a 20% discount from fair market value on the date
awarded. RSUs vest two years after the date of grant and are settled in shares
of common stock after a period of deferral selected by the participant, or upon
termination of employment. On February 15, 2000, 25,507 RSUs were granted at a
fair market value of $25.94 per share.
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 were used to repay debt and for
general corporate purposes, including the acquisition of New Hope.
12
<PAGE> 14
NOTE 9 - COMPREHENSIVE INCOME
Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive
Income," 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 (loss) for the nine months ended September 30,
2000 and 1999 was $(25.2) million and $29.2 million, respectively.
Activity in Stockholders' Equity is as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
Notes Accumulated
Current Capital in Receivable Other
Comprehensive Common Excess of Retained Officers/ Comprehensive
Income Stock Par Value Earnings Directors Income Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ - $313 $214,551 $ 36,970 $ - $ 150,767 $402,601
Dividends - - - (2,859) - - (2,859)
Executive loan shares issued - 4 9,412 - - - 9,416
Receivable from officers/directors - - - - (9,792) - (9,792)
Contingent shares issued - 1 1,428 - - - 1,429
Issuance of shares related to
exercise of stock options - - 779 - - - 779
Employee Stock Purchase Plan - - (348) - - - (348)
Comprehensive Income:
Net income 73,789 - - 73,789 - - 73,789
Unrealized gain(loss) on
securities reported at
fair value (28,722) - - - - (28,722) (28,722)
Reclassification adjustment
for gain on securities (70,272) - - - - (70,272) (70,272)
---------------------------------------------------------------------------------------
Balance at September 30, 2000 $ (25,205) $318 $225,822 $107,900 $ (9,792) $ 51,773 $376,021
=======================================================================================
</TABLE>
NOTE 10 - SEGMENT INFORMATION
Penton adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in 1998. As previously reported, Penton's business
units had been aggregated into three reportable segments: Media Services,
Printing, and Direct Mail. The sale of the Printing and Direct Mail segments has
eliminated all segments except for the Media Services segment. Accordingly, the
Company now operates in only one segment.
Note 11 - SUBSEQUENT EVENTS
In October 2000, the Company amended its Credit Agreement to give the
Company the ability to increase its Term Loan A, Term Loan B and/or Revolver up
to an aggregate of $100.0 million. The Term loans and the Revolver cannot be
increased on more than three separate occasions and the increase must take place
by September 30, 2001.
13
<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
consolidated financial statements and the notes thereto. Historical results and
percentage relationships set forth in the consolidated financial statements,
including trends which might appear, should not be taken as indicative of future
operations. Penton considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933 and Section 21E of the Securities Exchange Act of 1934, both as amended,
with respect to Penton's expectations for future periods. Although Penton
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. A number of important factors could cause
Penton's results to differ materially from those indicated by such
forward-looking statements, including, among other factors, pending litigation,
government regulation, competition, technological change, intellectual property
rights, capital spending, international operations and Penton's acquisition and
Internet strategies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Total revenues increased $12.3 million, or 19.1%, from $64.4 million for
the three months ended September 30, 1999 to $76.7 million for the same period
in 2000.
Publishing revenues increased $2.4 million, or 4.6%, from $52.1 million
for the three months ended September 30,1999 to $54.5 million in the same period
in 2000, due primarily to the following: (i) the addition of the Windows 2000
Magazine and the NEWS/400 and Business Finance magazines, which were part of the
Duke acquisition in September 2000; (ii) increased revenues year-over-year in
Penton's core magazines, such as Electronic Design, American Machinist, Air
Transport World and EE Product News; (iii) the turn around of Internet World
magazine, and (iv) the successful launches of Supply Chain Technology News and
CLEC Magazine. These increases were offset somewhat by the discontinuance of the
IW Growing Companies magazine during the first quarter of 2000 and the move of
the publication of two directory issues to the fourth quarter of 2000.
Trade show and conference revenues increased $9.1 million, or 75.0%, from
$12.2 million for the three months ended September 30, 1999 to $21.3 million for
the same period in 2000, due primarily to the following: (i) the Natural
Products Expo East show which was held in the fourth quarter of 1999 and the
third quarter of 2000; (ii) the first-time inclusion of Stardust conferences
which where acquired in October 1999; (iii) the first-time inclusion of the
Nutracon trade show which was acquired in December 1999; (iv) the successful
launches of CLECExpo and Internet World shows in Korea and Thailand; and (v)
strong year-over-year results from International Leisure Industry Week in the
United Kingdom. These increases were somewhat off-set by the Supply Chain Expo
show which was held in the third quarter of 1999, and in the second quarter this
year.
Web revenues increased $0.8 million, or 616.1%, from $0.1 million for the
three months ended September 30, 1999 to $0.9 million for the same period in
2000, due primarily to the addition of a number of new Web sites in the second
half of 1999 and first half of 2000.
14
<PAGE> 16
OPERATING EXPENSES:
Operating expenses increased $12.0 million, or 18.4%, from $65.4 million
for the three months ended September 30, 1999 to $77.4 million for the same
period in 2000. As a percentage of revenues, operating costs decreased from
101.5% in 1999 to 100.9% in 2000. The improvement in operating expenses as a
percentage of revenues was due primarily to higher margins earned from the trade
shows held during the quarter, offset in part by higher corporate costs and
spending on Web development.
Editorial, Production and Circulation.
Total editorial, production and circulation expenses grew to $33.4 million
for the three months ended September 30, 2000 compared with $29.3 million for
the same period in 1999, representing an increase of $4.1 million, or 14.0%. The
increase is primarily due to the acquisitions of Stardust in October 1999,
Nutracon in December 1999, and Duke in September 2000, as well as costs
associated with the Natural Products Expo East trade show which was held in the
fourth quarter of 1999 compared with the third quarter of 2000.
As a percentage of revenues, editorial, production and circulation
expenses decreased from 45.5% in 1999 to 43.6% in 2000. The decrease was due
largely to higher margins earned from trade shows held during the quarter.
Selling, General and Administrative.
Total selling, general and administrative expenses grew $7.4 million, or
25.6%, from $28.8 million for the three months ended September 30, 1999 to $36.2
million for the same period in 2000. The increase is primarily due to the
acquisitions of Stardust in October 1999, Nutracon in December 1999, and Duke in
September 2000, as well as costs associated with the Natural Products Expo East
trade show which was held in the fourth quarter of 1999 and in the third quarter
of 2000, and the timing of corporate spending and higher executive compensation
expense.
As a percentage of revenues, selling, general and administrative expenses
increased from 44.7% in 1999 to 47.1% in 2000. The increase was due largely to
the timing of corporate spending and to higher executive compensation expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $0.6 million, or 7.9%, to $7.9
million for the three months ended September 30, 2000. The higher expense was
the result primarily of the amortization of intangible assets from acquisitions
and increased depreciation associated with capital expenditures.
OPERATING INCOME (LOSS)
Overall, Penton's operating loss decreased $0.3 million, or 25.1%, from a
loss of $1.0 million for the three months ended September 30, 1999 to a loss of
$0.7 million for the same period in 2000. Operating income (loss) as a
percentage of revenue improved from a negative 1.5% in 1999 to a negative 0.9%
in 2000 as a result of higher trade show margins as discussed above.
15
<PAGE> 17
OTHER INCOME (EXPENSE)
Interest expense decreased $1.7 million to $3.1 million for the three
months ended September 30, 2000, compared with $4.8 million for the same prior
year period, due to a lower average debt balance outstanding for the three
months ending September 30, 2000 when compared with the same prior year period,
as well as the significant increase in interest earned during the third quarter
of 2000.
In July 1999, Penton sold 510,000 shares of internet.com Corporation stock
and recognized a pre-tax gain of approximately $5.9 million.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 55.0% and 63.3%
for the three months ended September 30, 2000 and 1999, respectively. The
decrease in the effective tax rate is due to Penton's sale of a portion of its
investment in internet.com Corporation. The sale resulted in the recognition of
a gain of $110.2 million in pre-tax income.
EXTRAORDINARY ITEM
The extraordinary item in 1999, which aggregated $6.3 million, net of $4.2
million in taxes, relates to the write-off of unamortized deferred finance costs
associated with the refinancing of senior debt in September 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Total revenues increased $65.9 million, or 33.6%, from $195.7 million for
the nine months ended September 30, 1999 to $261.6 million for the same period
in 2000.
Publishing revenues increased $14.5 million, or 9.7%, from $149.0 million
for the nine months ended September 30, 1999 to $163.4 million in the same
period in 2000, due primarily to the following: (i) the addition of Natural
Foods Merchandiser, Delicious!, Nutrition Science News and Expansion Management
magazines, which were part of the New Hope acquisition in May 1999; (ii) the
addition of the Windows 2000 Magazine, and the NEWS/400 and Business Finance
magazines, which were part of the Duke acquisition in September 2000; (iii) the
turn around of Internet World magazine, whose revenues increased over 60% for
the nine months ended September 30, 2000 when compared with the same prior year
period; (iv) increased revenues year-over-year in Penton's core magazines, such
as Electronic Design, American Machinist, Food Management, Government Product
News and EE Product News; (v) the Fluid Power Handbook & Directory, which was
published in 2000 and is published every other year; and (vi) the successful
launches of Supply Chain Technology News and CLEC Magazine. These increases were
somewhat offset by the discontinuance of the IW Growing Companies magazine
during the first quarter of 2000.
Trade show and conference revenues increased $49.6 million, or 106.6%,
from $46.5 million for the nine months ended September 30, 1999 to $96.2 million
for the same period in 2000, due primarily to the following: (i) the first-time
inclusion of the Natural Products Expo West and Natural Products Expo Amsterdam
shows, which were part of the New Hope acquisition in May 1999; (ii) the
first-time inclusion of Stardust conferences which where acquired in October
1999; (iii) the first-time inclusion of the Nutracon trade show which was
acquired in December 1999; (iv) the addition of the Internet Everywhere CEO
Summit, the Internet World China show, the eCRM Expo Spring show and the ABS
Technology show which were held for the first time in 2000; (v) the Natural
Products Expo East trade show which was held in the third quarter this year
versus the fourth quarter of 1999; (vi) significant year-over-year revenue
increases from the Internet World Spring, Internet World UK,
16
<PAGE> 18
ISPCON Spring, Wireless/Portable by Design and ISPCON London shows. These
increases were somewhat off-set by lower year-over-year revenues from the
Service Management Europe show and the absence of the CONEXPO show which was
held in 1999 and is held every three years.
Web revenues increased $1.7 million, or 688.8%, from $0.3 million for the
nine months ended September 30, 1999 to $2.0 million for the same period in
2000, due primarily to the addition of a number of new Web sites in the second
half of 1999 and first half of 2000.
OPERATING EXPENSES:
Operating expenses increased $48.7 million, or 26.4%, from $184.6 million
for the nine months ended September 30, 1999 to $233.3 million for the same
period in 2000. As a percentage of revenues, operating costs decreased from
94.3% in 1999 to 89.2% in 2000. The improvement in operating expenses as a
percentage of revenues were due primarily to higher margins earned from the
trade shows held during 2000, offset in part by higher corporate costs and
spending on Web development.
Editorial, Production and Circulation.
Total editorial, production and circulation expenses grew to $98.6 million
for the nine months ended September 30, 2000 compared with $82.3 million for the
same period in 1999, representing an increase of $16.3 million, or 19.8%. The
increase is primarily due to a full nine months of operations for the
acquisitions completed during 1999, including New Hope, Stardust, and Nutracon,
as well as the acquisition of Duke in September 2000, and costs associated with
new trade shows held for the first time in 2000.
As a percentage of revenues, editorial, production and circulation
expenses decreased from 42.1% in 1999 to 37.7% in 2000. The decrease was due
largely to higher margins earned from trade shows.
Selling, General and Administrative.
Total selling, general and administrative expenses grew $29.9 million, or
36.6%, from $81.9 million for the nine months ended September 30, 1999 to $111.8
million for the same period in 2000. The increase is primarily due to the
acquisitions of New Hope in May 1999, Nutracon in December 1999, and Stardust in
October 1999; as well as, the acquisition of Duke in September 2000; costs
associated with trade shows held for the first time in 2000; the timing of
corporate spending; and higher executive compensation expense.
As a percentage of revenues, selling, general and administrative expenses
increased from 41.8% in 1999 to 42.7% in 2000. The increase was due largely to
the timing of corporate spending and to higher executive compensation expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $2.5 million, or 12.0%, to $22.9
million for the nine months ended September 30, 2000. The higher expense was the
result primarily of the amortization of intangible assets from the New Hope
acquisition in May 1999. The acquisitions of Jon Peddie, Multimedia Week,
Stardust, Nutracon, NAG and Duke also contributed to the increase.
17
<PAGE> 19
OPERATING INCOME
Overall, Penton's operating income increased $17.2 million, or 154.6%,
from $11.1 million for the nine months ended September 30,1999 to $28.3 million
for the same period in 2000. Operating income as a percentage of revenue
increased from 5.7% in 1999 to 10.8% in 2000 as a result of higher trade show
margins as discussed above.
OTHER INCOME (EXPENSE)
Interest expense decreased $8.7 million to $8.3 million for the nine
months ended September 30, 2000, compared to $17.0 million the same prior year
period, due to a lower average debt balance outstanding for the nine months
ending September 30, 2000 when compared with the same prior year period as well
as the significant increase in interest earned in 2000.
In February 2000, Penton sold 2.0 million shares of internet.com
Corporation stock and recognized a pre-tax gain of approximately $110.2
million.
In accordance with the Company's review of impairment of long-lived assets
in accordance with Statement of Financial Accounting Standards No.121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company recorded a $1.0 million non-cash charge to write
down the carrying value of certain leasehold improvements, furniture and
fixtures, and computer equipment to fair value.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 55.0% and 63.3%
for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in the effective tax rate is due to Penton's sale of a portion of its
investment in internet.com Corporation. The sale resulted in the gain of $110.2
million ($66.1 million net of tax) in pre-tax income.
EXTRAORDINARY ITEM
The extraordinary item in 1999, which aggregated $8.4 million, net of $5.6
million in taxes, relates to the write-off of unamortized deferred finance costs
associated with the partial paydown of senior debt with the proceeds from the
common stock offering completed in May 1999 and the refinancing of senior debt
in September 1999.
ADJUSTED EBITDA
Earnings before interest, taxes, depreciation and amortization, and other
one-time non-recurring items ("adjusted EBITDA") is a widely used and commonly
reported standard measure utilized by analysts and investors in the analysis of
the media industry. Adjusted 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 adjusted 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 adjusted EBITDA is as
follows (in thousands):
18
<PAGE> 20
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,244) $ (6,057) $ 73,789 $ (7,885)
Interest expense, net 3,129 4,808 8,305 16,967
Gain on sale of investments - (5,906) (110,210) (5,906)
Provision (benefit) for income taxes (2,512) 81 54,918 338
Depreciation and amortization 7,851 7,273 22,880 20,427
Impairment of assets - - 1,051 -
Discontinued operations - (205) 85 (856)
Extraordinary item - 6,257 - 8,413
Miscellaneous, net (87) 69 357 44
-------- ------- --------- --------
Adjusted EBITDA $ 7,137 $ 6,320 $ 51,175 $ 31,542
======== ======= ========= ========
</TABLE>
For the three months ended September 30, 2000, the Company's adjusted
EBITDA increased $0.8 million, or 12.9%, to $7.1 million from $6.3 million for
the same period in 1999. The increase is primarily due to the Natural Products
Expo East trade show which was held in the fourth quarter of 1999 and in the
third quarter of 2000 offset in part by higher corporate spending, higher period
costs and Web site development charges. Adjusted EBITDA margins decreased to
9.3% for the quarter compared with 9.8% in the same year ago period primarily
due to the increase in period costs associated with acquired trade shows.
For the nine months ended September 30, 2000, the Company's adjusted
EBITDA increased $19.6 million, or 62.2%, to $51.2 million from $31.5 million
for the same period in 1999. Adjusted EBITDA margins increased to 19.6% for the
nine months ended September 30, 2000 compared with 16.1% in the same year ago
period. The increases were primarily due to: (i) the acquisition of New Hope in
May 1999; (ii) the turn around in Internet World magazine; (iii) the Natural
Products Expo East trade show which was held in the fourth quarter of 1999 and
in the third quarter of 2000, and (iv) significant year-over-year revenue
increases from the Spring Internet World, Internet World UK, ISPCON Spring, and
ISPCON London shows, offset in part by higher corporate spending, higher period
costs and Web site development charges.
Penton's calculation of EBITDA by product is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2000 1999 2000 1999
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Publishing & other $ 12,233 $ 11,227 $ 37,319 $31,305
Trade shows & conferences 4,782 843 41,451 14,839
Internet (1,812) (393) (3,958) (848)
-------- -------- ------- --------
Subtotal 15,203 11,677 74,812 45,296
Corporate (8,066) (5,357) (23,637) (13,754)
------- -------- ------- -------
Adjusted EBITDA $ 7,137 $ 6,320 $ 51,175 $31,542
======== ======== ======== =======
</TABLE>
For the three months ended September 2000, adjusted EBITDA for the
Company's publishing operations increased $1.0 million, or 9.0%, when compared
with the same prior year period. For the nine months ended September 30,2000
adjusted EBITDA for the Company's publishing operations increased $6.0 million,
or 19.2%,
19
<PAGE> 21
when compared with the prior-year period. Adjusted EBITDA increases for
publishing operations were primarily due to: (i) the addition of the Natural
Foods Merchandise, Delicious!, Nutrition Science News and Expansion Management
magazines, which were part of the New Hope acquisition in May 1999; (ii) the
addition of the Windows 2000 Magazine and the NEWS/400 and Business Finance
magazines, which were part of the Duke acquisition in September 2000; (iii) the
turn around of Internet World magazine in 2000 when compared with the same
prior-year period; and (iv) the Fluid Power Handbook & Directory, which was not
published in 1999.
For the three months ended September 30, 2000, EBITDA for the Company's
trade show and conference operations increased $4.0 million, when compared with
the same prior-year period. For the nine months ended September 30, 2000,
adjusted EBITDA for the Company's trade show and conference operations increased
$26.6 million, or 179.3%. These increases were due primarily to: (i) the
first-time inclusion of the Natural Products Expo West trade show, which was
part of the New Hope acquisition in May 1999; (ii) the first-time inclusion of
Stardust conferences, which were acquired in October 1999; (iii) the addition of
the Nutracon trade show which was acquired in December 1999; (iv) the addition
of the Internet Everywhere CEO Summit, eCRM Expo Spring, Internet World China,
and ABS Technology shows which were held for the first time in 2000; (v) the
Natural Products Expo East trade show which was held in the fourth quarter of
1999 and in the third quarter of 2000; and (v) significant year-over-year
revenue increases from the Internet World Spring, Internet World UK, ISPCON
Spring, and ISPCON London shows.
For the three months ended September 30, 2000, adjusted EBITDA for the
Company's Internet operations decreased from a loss of $0.4 million to a loss of
$1.8 million, while for the nine months ended September 30, 2000, adjusted
EBITDA for the Company's Internet operations decreased from a loss of $0.8
million to a loss of $4.0 million. These decreases were primarily due to the
increase in various costs associated with the development of market-focused Web
sites.
For the three months ended September 30, 2000, corporate costs increased
$2.7 million, when compared with the same prior-year period, while for the nine
months ended September 30, 2000, corporate costs increased $9.9 million, when
compared with the same prior-year period. The increases were primarily due to
the timing of corporate spending, costs associated with acquisitions, and to
higher executive compensation expense.
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 for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, Penton financed its operations primarily
through cash generated from operating activities, borrowings under its credit
facilities, and the sale of equity securities, investments, and assets.
Cash flow provided by operations for the nine months ended September 30,
2000 was $3.7 million, down from $7.7 million, from the same period in 1999. The
decrease was primarily due to the effect of non-cash items, including the gain
on the sale of internet.com Corporation stock in the first quarter of 2000 and
the extraordinary loss on extinguishment of debt in 1999. Cash flows provided by
the change in assets and liabilities increased $15.5 million for the nine months
ended September 30, 2000 compared to the same period in 1999.
Cash from operating activities, along with cash from the sale of
internet.com Corporation stock, proceeds from the revolving credit facility, and
the sale of the Direct Mail segment, were used for capital expenditures, to make
acquisitions, to pay earnouts and to pay dividends to shareholders. Penton's
capital expenditures for the nine months ended September 30, 2000 were $12.4
million. The Company anticipates that total capital expenditures for 2000 will
be about $18.3 million, which will be used primarily to relocate Penton's
corporate
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headquarters. These expenditures will be funded from cash on hand, cash flow
from operations, and, if necessary, borrowings under our credit facility.
In October 2000, the Company amended its Credit Agreement to give the
Company the ability to increase its Term Loan A, Term Loan B and/or Revolver up
to an aggregate of $100.0 million. The Term loans and the Revolver cannot be
increased on more than three separate occasions and the increase must take place
by September 30, 2001.
On April 3, 2000, Penton amended its Credit Agreement to give the Company
the flexibility to sell assets of up to $30.0 million and the ability to
monetize the Company's joint venture investments.
On September 1, 1999, Penton 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 Penton
purchased IWM. At September 30, 2000, Penton had $213.1 million outstanding
under its term loans and $80.0 million outstanding under its revolving credit
facility.
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
spinoff 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.
Based upon current and anticipated levels of operations, management
believes that cash on hand and cash flow from operations, combined with
borrowings available under Penton's credit facilities, will be sufficient to
enable Penton to meet 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 Penton may make. Penton's
ability to meet current and anticipated operating requirements will depend upon
its future performance, which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond Penton's control. Depending on the nature, size and timing of future
acquisitions, Penton may be required to raise additional capital through
additional financing arrangements or the issuance of private or public debt or
equity securities. Management cannot assure that such additional financing will
be available at acceptable terms. Substantially all of Penton's debt bears
interest at floating rates. Therefore, Penton's liquidity and financial
condition are, and will continue to be, affected by changes in prevailing
interest rates.
SEASONALITY
The introduction of trade shows and conferences into Penton's product mix
through the acquisition of INDEX and ISOA in late 1997, the acquisition of IWM
in November 1998 and the acquisition of New Hope in May 1999 has changed the
seasonal pattern of revenue and profit because all four companies have
pronounced seasonal patterns in their businesses. The majority of the trade
shows owned by ISOA and IWM are held in the second and fourth quarters and,
accordingly, the majority of their revenue is recognized in these quarters.
Furthermore, the majority of the INDEX shows historically have been held in the
fourth quarter, and the New Hope shows have been held in the first and third or
fourth quarters. Accordingly, these acquisitions have had and will have a
positive impact on revenue and profit for these quarters.
Penton also may 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.
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INFLATION
The impact of inflation on Penton's results of operations has not been
significant in recent years.
NEW ACCOUNTING PRONOUNCEMENTS
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 SFAS
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. Management does not believe these statements will have a material impact
on the Company's business, results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. Penton
does not enter into derivatives or other financial instruments for trading or
speculative purposes.
In the normal course of business, Penton manages fluctuations in interest
rates through swap agreements to hedge up to 50% of its floating rate
borrowings. Penton's objective in managing this exposure is to reduce
fluctuations in earnings and cash flows associated with changes in interest
rates.
Penton maintains assets and operations in Europe, and as a result, may be
exposed to cost increases relative to the markets in which it sells. At
September 30, 2000, a hypothetical 10% strengthening of the U.S. dollar relative
to the currencies of foreign countries in which Penton operates was not
material.
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Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
DATE OF REPORT ITEMS REPORTED
September 15, 2000 Item 5. Other Events
Item 7. Financial Information and Exhibits
September 28, 2000 Item 5. Other Events
Item 7. Financial Information and Exhibits
September 29, 2000 Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
October 3, 2000 Item 5. Other Events
Item 7. Financial Information and Exhibits
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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 14, 2000
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
27.1 Financial Data Schedule
25
