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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
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(State of Incorporation) (I.R.S. Employer Identification No.)
1100 SUPERIOR AVENUE, CLEVELAND, OH 44114
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(Address of Principal Executive Offices) (Zip Code)
216/696-7000
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(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 (May 12, 2000).
Common Stock 31,796,447
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PENTON MEDIA, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheet -
As of March 31, 2000 and December 31, 1999 3 - 4
Consolidated Statement of Income -
For the Three Months Ended
March 31, 2000 and 1999 5
Consolidated Statement of Cash Flows -
For the Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 17
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk 17
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 18
Signatures 18
Exhibit Index 19
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $147,123 $30,370
Accounts receivable, less allowance for doubtful
accounts of $2,986 and $3,958 in 2000 and 1999, respectively 42,048 40,199
Inventories 1,049 818
Deferred tax assets 4,454 -
Net current assets of discontinued operations - 4,228
Prepayments, deposits and other 9,451 7,583
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204,125 83,198
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 95 95
Machinery and equipment 48,268 45,243
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48,363 45,338
Less: Accumulated depreciation 31,867 30,252
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16,496 15,086
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OTHER ASSETS:
Goodwill, less accumulated amortization of
$32,355 and $27,399 in 2000 and 1999, respectively 405,989 411,173
Other intangibles, less accumulated amortization of
$10,725 and $9,541 in 2000 and 1999, respectively 39,462 40,063
Investments 130,883 259,859
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576,334 711,095
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$796,955 $809,379
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility $ 5,813 $ 3,875
Accounts payable 11,547 7,499
Income taxes payable 42,956 10,172
Accrued earnouts 2,600 7,447
Accrued compensation and benefits 8,297 8,377
Other accrued expenses 11,550 10,546
Unearned income, principally trade
show and conference deposits 46,049 30,214
Deferred taxes - 39,634
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128,812 117,764
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LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility 209,188 211,125
Net deferred pension credits 16,269 16,269
Deferred taxes 51,987 60,887
Other 815 733
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278,259 289,014
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STOCKHOLDERS' EQUITY:
Preferred stock, none issued - -
Common stock 318 313
Capital in excess of par value 225,528 214,551
Retained earnings 102,357 36,970
Notes receivable officers/directors (9,494) -
Accumulated other comprehensive income 71,175 150,767
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389,884 402,601
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$796,955 $809,379
========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited; Dollars in Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
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<S> <C> <C>
REVENUES $ 75,825 $ 52,518
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OPERATING EXPENSES:
Editorial, production and circulation 30,309 23,750
Selling, general and administrative 34,479 24,807
Depreciation and amortization 7,653 6,598
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72,441 55,155
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OPERATING INCOME (LOSS) 3,384 (2,637)
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OTHER INCOME (EXPENSE):
Interest expense, net (2,735) (6,140)
Gain on sale of investments 110,210 -
Miscellaneous, net (20) (207)
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107,455 (6,347)
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INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 110,839 (8,984)
PROVISION (BENEFIT) FOR INCOME TAXES 44,416 (5,951)
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INCOME (LOSS) FROM CONTINUING OPERATIONS 66,423 (3,033)
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INCOME (LOSS) FROM OPERATIONS OF
DISCONTINUED BUSINESSES, NET (85) 197
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NET INCOME (LOSS) $66,338 $(2,836)
======= ========
EARNINGS PER SHARE - Basic
Income (loss) from continuing operations $ 2.10 $(0.13)
Discontinued operations - 0.01
Net income (loss) $ 2.10 $(0.12)
EARNINGS PER SHARE - Diluted
Income (loss) from continuing operations $ 2.09 $(0.13)
Discontinued operations - 0.01
Net income (loss) $ 2.09 $(0.12)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 31,577 22,782
======= =======
Diluted 31,789 22,782
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Net cash provided by (used for) operating activities $ 13,499 $ (4,888)
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Cash flows from investing activities:
Capital expenditures (3,025) (1,013)
Acquisitions, including earnouts paid (9,977) (751)
Proceeds from sale of Direct Mail segment 4,000 -
Proceeds from sale of internet.com Corporation stock 113,100 -
--------- ---------
Net cash provided by (used for) investing activities 104,098 (1,764)
--------- ---------
Cash flows from financing activities:
Repayment of senior debt facility - (2,813)
Proceeds from senior debt - 13,000
Repayment of note payable - (1,000)
Proceeds from options exercised 138 -
Dividends paid (939) (683)
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Net cash provided by (used for) financing activities (801) 8,504
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Effect of exchange rate changes on cash (43) -
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Net increase in cash and equivalents 116,753 1,852
Cash and equivalents at beginning of period 30,370 3,953
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Cash and equivalents at end of period $ 147,123 $ 5,805
=========== ========
</TABLE>
Supplemental disclosure of non cash investing and financing activities:
In March 2000, Penton issued 52,920 common shares valued at approximately $1.4
million in connection with New Hope's earnout. Penton also issued 400,000 shares
during the quarter to officers and directors. In addition, the Company marked to
market its investment in internet.com Corporation stock by approximately $119.3
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.
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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 Penton 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 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 $0.5 million is being amortized over 15 years. The
assets of Profit.Net, Inc. include BAKERY-NET.com, a Web site 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. 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.
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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. 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
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. 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.
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 during the phase-out period of $0.08 million, net of a tax
benefit of $0.06 million, was required and classified as discontinued operations
in the accompanying financial statements.
At March 31, 1999, the Press segment had operating income of
approximately $0.02 million, net of taxes of $0.02 million. The Direct Mail
segment had an operating loss of approximately $0.005 million, net of a tax
benefit of $0.003 million.
NOTE 4 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating data is
presented for the three months ended March 31, 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; (v) the sale of 510,000 shares of
internet.com Corporation in July 1999; (vi) the refinancing of debt in September
1999; (vii) the acquisition of Stardust.com 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; and (xi) the sale of 2,000,000 shares of internet.com Corporation in
February 2000.
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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 periods presented (in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
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<S> <C>
Pro forma revenues $ 67,213
==========
Pro forma income from continuing operations $ 73
==========
Pro forma net income applicable
to common shareholders $ 270
==========
Per share data:
Earnings per common share - basic and diluted:
Income from continuing operations $ 0.01
Net income $ 0.01
==========
</TABLE>
The 1999 pro forma information above does not include the operations of
Jon Peddie, Multimedia Week or Profit-Net, Inc., as the impact of these
transactions are immaterial to such information.
NOTE 5 - 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.
Penton maintains an 11.8% ownership interest in internet.com, or approximately
3.0 million shares. Penton intends for its investment to be temporary;
accordingly, Penton marks to market its investment in internet.com Corporation.
At March 31, 2000, Penton's investment totaled $124.5 million, including a
cumulative mark to market adjustment of $119.3 million and related adjustment in
long-term deferred taxes of $47.7 million and other comprehensive income of
$71.6 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.
As part of the agreement, Penton purchased 250,000 shares of Cayenta
stock, which is recorded at its historical cost of $6.3 million. The two
companies will also provide each other with reciprocal marketing services for a
two-year period.
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").
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
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certain investments, advances or loans; and restricts substantial asset sales
and cash dividends. At March 31, 2000, Penton was in compliance with all loan
covenants.
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 March
31, 2000, no amounts were 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. At March 31, 2000, $125.0 million was
available under the facility.
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 March 31, 2000, the
rate in effect was 7.5%. The loan, which requires quarterly principal payments
starting in September 2000, will mature on August 31, 2006. At March 31, 2000,
$140.0 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 March 31, 2000, the
rate in effect was 8.0%. 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 March 31, 2000, $75.0 million was outstanding under Term Loan B.
NOTE 7 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands) for the three months ended March 31, 2000 and
1999:
2000 1999
---- ----
Numerator:
Income (loss) from continuing operations
applicable to common shareholders $66,338 $ (2,836)
======= =========
Denominator (Number of shares):
Basic - average shares outstanding 31,577 22,782
Effect of dilutive securities:
Stock options 212 -
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Diluted - average shares outstanding 31,789 22,782
======== ========
Due to the net loss from operations for the three months ended March
31, 1999, any potential common stock equivalents would have been antidilutive.
Accordingly, they were excluded from the calculation of diluted earnings per
share.
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NOTE 8 - COMMON STOCK
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.
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. At March 31, 2000, all
400,000 shares had been issued with a weighted average share price of $23.54 and
an outstanding principal balance of approximately $9.4 million, which is
classified in the shareholders equity section of the balance sheet as notes
receivable from officers and directors.
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. Performance shares are convertible into common stock on a
one-for-one basis and 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.
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 three months ended March 31,
2000 and 1999 was $(13.3) million and $(3.6) million, respectively.
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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 - - - (951) - (951)
Executive loan shares issued - 4 9,412 - - - 9,416
Receivable from officers/directors - - - - (9,494) - (9,494)
Contingent shares issued - 1 1,428 - - - 1,429
Issuance of shares related to
exercise of stock options - - 137 - - - 137
Comprehensive Income:
Net income (loss) 66,338 - - 66,338 - - 66,338
Unrealized gain on securities
reported at fair value (79,482) - - - - (79,482) (79,482)
Foreign currency translation
adjustment (110) - - - - (110) (110)
-------------------------------------------------------------------------------------------
Balance at March 31, 2000 $ (13,254) $ 318 $ 225,528 $102,357 $ (9,494) $ 71,175 $ 389,884
===========================================================================================
</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 reduced the number of segments to one, and therefore there is no
segment information to report.
NOTE 11 - SUBSEQUENT EVENTS
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 Companies joint venture investments.
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.
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RESULTS OF OPERATIONS
REVENUES
Total revenues increased $23.3 million, or 44.4%, from $52.5 million
for the three months ended March 31, 1999 to $75.8 million for the same period
in 2000.
Publishing revenues increased $7.7 million, or 17.1%, from $45.2
million for the three months ended March 31, 1999 to $52.9 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
turn around of Internet World magazine, which more than doubled its revenues for
the three months ended March 31, 2000 when compared with the same prior year
period; (iii) the Fluid Power Handbook & Directory, which was published in 2000
and is published every other year; (iv) increased revenues year-over-year in
Penton's core magazines, such as Electronic Design, Hydraulics & Pneumatics,
American Machinist and EE Product News; and (v) the addition of Supply Chain
Technology News and CLEC Magazine which were published for the first time after
the first quarter of 1999.
Trade show and conference revenues increased $15.2 million, or 210.1%,
from $7.2 million for the three months ended March 31, 1999 to $22.5 million for
the same period in 2000, due primarily to the following: (i) the first-time
inclusion of the Natural Products Expo West trade show, which was part of the
New Hope acquisition completed at the end of May 1999; (ii) the first-time
inclusion of Stardust.com, conferences which where acquired in October 1999;
(iii) the addition of the Internet Everywhere CEO Summit and Enterprise Customer
Management shows which were held for the first time in 2000; and (iv)
significant year-over-year revenue increases from the ISPCON London show, the IW
Singapore show, the IW Canada show and the Wireless/Portable Spring show. 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 $0.4 million, or 543.3%, from $0.1 million for
the three months ended March 31, 1999 to $0.4 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 three months of 2000.
OPERATING EXPENSES:
Operating expenses increased $17.3 million, or 31.3%, from $55.2
million for the three months ended March 31, 1999 to $72.4 million for the same
period in 2000. As a percentage of revenues, operating costs decreased from
105.0% in 1999 to 95.5% in 2000. The improvement in operating expenses as a
percentage of revenues was due primarily to higher margins earned on the New
Hope trade show, offset in part by higher corporate costs and spending on Web
development.
Editorial, Production and Circulation.
Total editorial, production and circulation expenses grew to $30.3
million for the three months ended March 31, 2000 compared with $23.8 million
for the same period in 1999, representing an increase of $6.6 million, or 27.6%.
The increase is primarily due to the acquisition of New Hope in May 1999 and
costs associated with the biennial Fluid Power Handbook & Directory, which was
not published in 1999.
As a percentage of revenues, editorial, production and circulation
expenses decreased from 45.2% in 1999 to 40.0% in 2000. The decrease was due
largely to higher margins earned from the New Hope trade show.
13
<PAGE> 14
Selling, General and Administrative.
Total selling, general and administrative expenses grew $9.7 million,
or 39.0%, from $24.8 million for the three months ended March 31, 1999 to
$34.5 million for the same period in 2000. The increase is primarily due to
the acquisition of New Hope in May 1999, costs associated with the biennial
Fluid Power Handbook & Directory, which was not published in 1999, the timing
of corporate spending and higher executive compensation expense, and increases
in Web development spending.
As a percentage of revenues, selling, general and administrative
expenses decreased from 47.2% in 1999 to 45.5% in 2000. The improvement was due
largely to the addition of new trade shows and conferences to Penton's product
mix.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $1.1 million, or 16.0%, to $7.7
million for the three months ended March 31, 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.com and Nutracon also contributed to the increase.
OPERATING INCOME
Overall, Penton's operating income increased $6.0 million to
$3.4 million for the three months ended March 31, 2000 from a loss of $2.6
million in the prior year. Operating income as a percentage of revenue increased
from a negative 5.0% in 1999 to a positive 4.5% in 2000.
OTHER INCOME (EXPENSE)
Interest expense decreased $3.4 million to $2.7 million for the three
months ended March 31, 2000, due to a lower debt balance outstanding for the
first three months of 2000 when compared with the same prior year period as well
as the significant increase in interest earned on Penton's cash balance.
In February 2000, Penton sold 2,000,000 shares of internet.com
Corporation stock and recognized a pre-tax gain of approximately $110.2 million.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 40.0% and 66.2%
for the three months ended March 31, 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 $110.2
million gain in pre-tax income.
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):
14
<PAGE> 15
Three Months Ended
March 31,
-------------------------
2000 1999
----------- ---------
Net income (loss) $ 66,338 $ (2,836)
Interest expense, net 2,735 6,140
Gain on sale of investments (110,210) -
Provision for income taxes 44,416 (5,951)
Depreciation and amortization 7,653 6,598
Discontinued operation 85 (197)
Miscellaneous, net 20 207
-------- --------
EBITDA $ 11,037 $ 3,961
========= ========
For the three months ended March 31, 2000, the Company's EBITDA
increased $7.1 million, or 178.6%, to $11.0 million from $4.0 million for the
same period in 1999. EBITDA margins increased to 14.6% for the quarter compared
with 7.5% in the same year ago period primarily due to: (i) the acquisition of
New Hope in May 1999; (ii) the turn around in Internet World magazine; and (iii)
the biennial Fluid Power Handbook & Directory, which was not published in 1999,
offset in part by higher corporate spending and Web site development charges.
Penton's calculation of EBITDA for the Media Services segment is as
follows (in thousands):
Three Months Ended
March 31,
---------------------
2000 1999
--------- --------
Media Services segment:
Publishing & other $ 10,764 $ 8,951
Trade shows & conferences 8,946 (446)
Internet (491) (31)
---------- ----------
Subtotal - Media Services 19,219 8,474
Corporate (8,182) (4,513)
---------- ----------
EBITDA $ 11,037 $ 3,961
========== ==========
For the three months ended March 31, 2000, EBITDA for the Company's
publishing operations increased $1.8 million, or 20.3%, when compared with the
same prior year period, primarily due to the addition of the Natural Foods
Merchandiser, Delicious!, Nutrition Science News and Expansion Management
magazines, which were part of the New Hope acquisition in May 1999; the turn
around of Internet World magazine in 2000 when compared with the same prior year
period; and the Fluid Power Handbook & Directory, which was not published in
1999.
For the three months ended March 31, 2000, EBITDA for the Company's
trade show and conference operations increased $9.4 million, when compared with
the same prior-year period. These increases were due primarily to the first-time
inclusion of the Natural Products Expo West trade show, which was part of the
New Hope acquisition completed at the end of May 1999; the first-time inclusion
of Stardust.com conferences, which were acquired in October 1999; the addition
of the Internet Everywhere CEO Summit and Enterprise Customer Management shows
which were held for the first time in 2000; and significant year-over-year
revenue increases from the ISPCON London show, the IW Singapore show, the IW
Canada show and the Wireless/Portable Spring show.
15
<PAGE> 16
For the three months ended March 31, 2000, EBITDA for the Company's
Internet operations decreased from a loss of $0.03 million to a loss of $0.5
million primarily due to the increase in various costs associated with the
development of market-focused Web sites.
For the three months ended March 31, 2000, corporate costs increased
$3.7 million, when compared with the same prior-year period. The increase is
primarily due to the timing of corporate spending 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 during 1999 or for the three months ended March 31, 2000.
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 in 1999 and the first quarter of 2000, the sale of equity
securities and assets.
Cash flow provided by operations for the three months ended March 31,
2000 was $13.4 million, up $18.3 million, from a use of cash of 4.9 million for
the same period in 1999. The increase was attributable to the acquisitions
completed in 1999 and to the effect of non-cash items, including the gain on the
sale of investments in the first quarter of 2000.
Cash from operating activities, along with cash from the sale of
internet.com Corporation stock and the sale of the Printing segment, was used
for capital expenditures, to make acquisitions, to pay earnouts and to pay
dividends to shareholders. Penton's capital expenditures for the three months
ended March 31, 2000 were $3.0 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 headquarters. These expenditures will
be funded from cash on hand, cash flow from operations, and, if necessary,
borrowings under our credit facility.
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 Companies 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 March 31, 2000, Penton had $215.0 million outstanding
under its term loans and $125.0 million available 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
16
<PAGE> 17
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 had 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.
INFLATION
The impact of inflation on Penton's results of operations has not been
significant in recent years.
ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). 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.
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 March
31, 2000, a hypothetical 10% strengthening of the U.S. dollar relative to the
currencies of foreign countries in which Penton operates was not material.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) 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 March 31, 2000, all 400,000 shares had been issued. In
issuing such stock, Penton relied upon the exemption from
registration provided by Section 4(2) under the Securities Act as these
transactions did not involve a public offering.
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
-------------- --------------
None
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: May 15, 2000
18
<PAGE> 19
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
27.1 Financial Data Schedule
19
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<PERIOD-START> JAN-01-2000
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