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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 June 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.
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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 (August 11, 2000).
Common Stock 31,818,279
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet -
As of June 30, 2000 and December 31, 1999
Consolidated Statement of Income -
For the Three and Six Months Ended
June 30, 2000 and 1999
Consolidated Statement of Cash Flows -
For the Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Thousands)
June 30, December 31,
2000 1999
---------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $112,414 $ 30,370
Accounts receivable, less allowance for doubtful
accounts of $5,382 and $3,958 in 2000 and 1999, respectively 49,367 40,199
Inventories 751 818
Deferred tax assets 4,454 --
Net current assets of discontinued operations -- 4,228
Prepayments, deposits and other 9,218 7,583
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176,204 83,198
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land and buildings 95 95
Machinery and equipment 48,566 45,243
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48,661 45,338
Less: Accumulated depreciation 31,704 30,252
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16,957 15,086
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OTHER ASSETS:
Goodwill, less accumulated amortization of
$37,290 and $27,399 in 2000 and 1999, respectively 401,107 411,173
Other intangibles, less accumulated amortization of
$11,840 and $9,541 in 2000 and 1999, respectively 38,347 40,063
Investments 68,334 259,859
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507,788 711,095
-------- --------
$700,949 $809,379
======== ========
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)
June 30, December 31,
2000 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Senior debt facility $ 5,813 $ 3,875
Accounts payable 8,128 7,499
Income taxes payable 7,988 10,172
Accrued earnouts -- 7,447
Accrued compensation and benefits 11,911 8,377
Other accrued expenses 11,036 10,546
Unearned income, principally trade
show and conference deposits 45,969 30,214
Deferred taxes -- 39,634
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90,845 117,764
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LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility 209,187 211,125
Net deferred pension credits 16,269 16,269
Deferred taxes 25,599 60,887
Other 711 733
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251,766 289,014
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STOCKHOLDERS' EQUITY:
Preferred stock, none issued -- --
Common stock 318 313
Capital in excess of par value 226,078 214,551
Retained earnings 110,098 36,970
Notes receivable officers/directors (9,642) --
Accumulated other comprehensive income 31,486 150,767
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358,338 402,601
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$ 700,949 $ 809,379
========= =========
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)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
REVENUES $ 109,058 $ 78,792 $ 184,883 $ 131,310
--------- --------- --------- ---------
OPERATING EXPENSES:
Editorial, production and circulation 34,895 29,260 65,204 53,010
Selling, general and administrative 41,162 28,271 75,641 53,078
Depreciation and amortization 7,376 6,556 15,029 13,154
--------- --------- --------- ---------
83,433 64,087 155,874 119,242
--------- --------- --------- ---------
OPERATING INCOME 25,625 14,705 29,009 12,068
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net (2,441) (6,019) (5,176) (12,159)
Gain on sale of investments -- -- 110,210 --
Impairment of assets (1,051) -- (1,051) --
Miscellaneous, net (424) 232 (444) 25
--------- --------- --------- ---------
(3,916) (5,787) 103,539 (12,134)
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 21,709 8,918 132,548 (66)
PROVISION FOR INCOME TAXES 13,014 6,208 57,430 257
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 8,695 2,710 75,118 (323)
INCOME (LOSS) FROM OPERATIONS OF
DISCONTINUED BUSINESSES, NET -- 454 (85) 651
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 8,695 3,164 75,033 328
EXTRAORDINARY ITEM - EARLY
EXTINGUISHMENT OF DEBT -- (2,156) -- (2,156)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 8,695 $ 1,008 $ 75,033 $ (1,828)
========= ========= ========= =========
EARNINGS PER SHARE - Basic
Income (loss) from continuing operations $ 0.27 $ 0.10 $ 2.36 $ (0.01)
Discontinued operations 0.00 0.02 0.00 0.03
Extraordinary Item 0.00 (0.08) 0.00 (0.09)
Net income (loss) $ 0.27 $ 0.04 $ 2.36 $ (0.07)
EARNINGS PER SHARE - Diluted
Income (loss) from continuing operations $ 0.27 $ 0.10 $ 2.35 $ (0.01)
Discontinued operations 0.00 0.02 (0.01) 0.03
Extraordinary item 0.00 (0.08) 0.00 (0.09)
Net income (loss) $ 0.27 $ 0.04 $ 2.34 $ (0.07)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 31,814 27,018 31,769 24,900
========= ========= ========= =========
Diluted 32,051 27,209 32,006 24,900
========= ========= ========= =========
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited; Dollars in Thousands)
2000 1999
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Net cash used for operating activities $ (10,534) $ (3,191)
--------- ---------
Cash flows from investing activities:
Capital expenditures (5,833) (2,162)
Acquisitions, including earnouts paid (17,372) (43,100)
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 --
--------- ---------
Net cash provided by (used for) investing activities 93,895 (48,708)
--------- ---------
Cash flows from financing activities:
Repayment of senior debt facility -- (84,261)
Proceeds from senior debt -- 15,000
Proceeds from revolving credit facility -- 9,500
Proceeds from equity offering, net -- 118,644
Payment of finance fees -- (1,033)
Repayment of note payable -- (1,000)
Proceeds from options exercised 688 --
Dividends paid (1,906) (1,366)
--------- ---------
Net cash provided by (used for) financing activities (1,218) 55,484
--------- ---------
Effect of exchange rate changes on cash (99) (22)
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Net increase in cash and equivalents 82,044 3,563
Cash and equivalents at beginning of period 30,370 3,953
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Cash and equivalents at end of period $ 112,414 $ 7,516
========= =========
Supplemental disclosure of non cash investing and financing activities:
For the six months ended June 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 $54.2 million.
For the six months ended June 30, 1999, Penton issued 2.1 million common shares
valued at $41.0 million in conjunction with the acquisition of New Hope.
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.
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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 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 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 the 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 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,
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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. 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 for the six months ended June 30, 2000 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.
At June 30, 1999, the Printing segment had operating income of
approximately $0.7 million, net of taxes of $0.5 million. The Direct Mail
segment had an operating loss of approximately $0.05 million, net of a tax
benefit of $0.03 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 June 30, 2000 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 June 30, 2000, Penton's investment totaled $58.5
million, including a cumulative mark to market adjustment of $54.2 million and
related adjustment in long-term deferred taxes of $21.7 million and other
comprehensive income of $32.5 million.
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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.
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 $4.4 million for a 19.9%
stake in the company. The agreement also provides for reciprocal marketing and
other services between the two companies.
NOTE 5 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating data is
presented for the six months ended June 30, 1999 as if each of the following
transactions had occurred on January 1, 1999: (i) the acquisition of MFG 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 period presented (in thousands, except per share data):
Six Months Ended
June 30, 1999
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Pro forma revenues $149,252
========
Pro forma income from continuing operations $ 5,783
========
Pro forma net income applicable
to common shareholders $ 4,278
========
Per share data:
Earnings per common share - basic and diluted:
Income from continuing operations $ 0.18
========
Net income $ 0.13
========
The 1999 pro forma information above does not include the operations of
Jon Peddie, Multimedia Week, Profit-Net, Inc., Leisurehub.com or ComMunic, as
the historical information is immaterial. 2000 pro formas have not been prepared
as 2000 transactions have been 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").
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 June 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 June
30, 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 June 30, 2000, $125.0 million was
available under the facility.
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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 June 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 June 30,
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 June 30, 2000, the
rate in effect was 8.4375%. 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 June 30, 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 and six months ended June
30, 2000 and 1999:
Three Month Period Six Month Period
Ended June 30, Ended June 30,
-------------- --------------
2000 1999 2000 1999
-------- -------- -------- --------
Numerator:
Income (loss) applicable to
common shareholders $ 8,695 $ 1,008 $ 75,033 $ (1,828)
======== ======== ======== ========
Denominator (Number of shares):
Basic - average shares outstanding 31,814 27,018 31,769 24,900
Effect of dilutive securities:
Stock options 197 191 199 --
Restricted stock units 26 -- 26 --
Deferred shares 14 -- 12 --
-------- -------- -------- --------
Diluted - average shares outstanding 32,051 27,209 32,006 24,900
======== ======== ======== ========
Due to the net loss from operations for the six months ended June 30,
1999, any potential common stock equivalents would have been antidilutive.
Accordingly, they were excluded from the calculation of diluted earnings per
share.
NOTE 8 - COMMON STOCK
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
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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, 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 shares. 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 had
been issued with a weighted average share price of $23.54 and an outstanding
balance of approximately $9.6 million (including $0.2 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.
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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 six months ended June 30,
2000 and 1999 was $(44.2) million and $33.8 million, respectively.
Activity in Stockholders' Equity is as follows (dollar amounts in thousands)
Notes Accumulated
Current Capital in Receivable Other
Comprehensive Common Excess of Retained Officers/ Comprehensive
Income Stock Par Value Earnings Directors Income Total
--------------------------------------------------------------------------------------
Balance at December 31, 1999 $ -- $ 313 $ 214,551 $ 36,970 $ -- $ 150,767 $ 402,601
Dividends -- -- -- (1,905) -- (1,905)
Executive loan shares issued -- 4 9,412 -- -- -- 9,416
Receivable from officers/directors -- -- -- -- (9,642) -- (9,642)
Contingent shares issued -- 1 1,428 -- -- -- 1,429
Issuance of shares related to
exercise of stock options -- -- 729 -- -- -- 729
Employee Stock Purchase Plan -- -- (42) -- -- -- (42)
Comprehensive Income:
Net income 75,033 -- -- 75,033 -- -- 75,033
Unrealized gain on securities
reported at fair value (48,792) -- -- -- -- (48,792) (48,792)
Reclassification adjustment
for gain on securities (70,272) -- -- -- -- (70,272) (70,272)
Foreign currency translation
adjustment (217) -- -- -- -- (217) (217)
---------------------------------------------------------------------------------------
Balance at June 30, 2000 $ (44,248) $ 318 $ 226,078 $ 110,098 $ (9,642) $ 31,486 $ 358,338
=======================================================================================
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 July 2000, Penton acquired the assets of National Advisory Group
("NAG") of Jacksonville, Florida for $1.5 million in cash. NAG is a trade group
serving the convenience store and petroleum marketing industry.
In August 2000, Penton acquired the assets of Meko Ltd. of Surrey, UK,
for $0.3 million in cash. Meko Ltd. is a leading provider of newsletters,
comprehensive market studies, and custom information services for the European
computer display market.
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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 JUNE 30, 2000 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
1999
REVENUES
Total revenues increased $30.3 million, or 38.4%, from $78.8 million
for the three months ended June 30, 1999 to $109.1 million for the same period
in 2000.
Publishing revenues increased $4.4 million, or 8.5%, from $51.6 million
for the three months ended June 30, 1999 to $56.0 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 nearly doubled its revenues for
the three months ended June 30, 2000 when compared with the same prior year
period; (iii) increased revenues year-over-year in Penton's core magazines, such
as Electronic Design, American Machinist; Government Product News and EE Product
News; and (iv) the addition of Supply Chain Technology News and CLEC Magazine
which were published for the first time after the second quarter of 1999. These
increases were offset somewhat by the discontinuance of the IW Growing Companies
magazine during the first quarter of 2000.
Trade show and conference revenues increased $25.3 million, or 93.2%,
from $27.1 million for the three months ended June 30, 1999 to $52.4 million for
the same period in 2000, due primarily to the following: (i) the first-time
inclusion of the Natural Products Expo Amsterdam show, which was part of the New
Hope acquisition completed in May 1999; (ii) the first-time inclusion of
Stardust.com conferences which where acquired in October 1999; (iii) the
addition of the IW China show, ABS Technology show and the IW eCRM Spring show
which were all held for the first time in 2000; (iv) the IW Australia show which
was held in the third quarter of 1999 and (v) significant year-over-year revenue
increases from the Internet World Spring, Internet World UK, and ISPCON Spring
shows. These increases were somewhat off-set by the IW Mexico, ISPCON Australia
and IW France shows which were held during the second quarter of 1999 but will
not be held in 2000 until later in the year and the AEC Geo Expo which was held
in 1999 and is held every three years.
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Web revenues increased $0.6 million, or 968.7%, from $0.1 million for
the three months ended June 30, 1999 to $0.7 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 $19.3 million, or 30.2%, from $64.1
million for the three months ended June 30, 1999 to $83.4 million for the same
period in 2000. As a percentage of revenues, operating costs decreased from
81.3% in 1999 to 76.5% 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 $34.9
million for the three months ended June 30, 2000 compared with $29.3 million for
the same period in 1999, representing an increase of $5.6 million, or 19.3%. The
increase is primarily due to the acquisition of New Hope in May 1999 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 37.1% in 1999 to 32.0% 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 $12.9 million,
or 45.6%, from $28.3 million for the three months ended June 30, 1999 to $41.2
million for the same period in 2000. The increase is primarily due to the
acquisition of New Hope in May 1999 and Stardust in October 1999, costs
associated with trade shows held for the first time in 2000, and the timing of
corporate spending and higher executive compensation expense.
As a percentage of revenues, selling, general and administrative
expenses increased from 35.9% in 1999 to 37.7% 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 $0.8 million, or 12.5%, to $7.4
million for the three months ended June 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.com and Nutracon also contributed to the increase.
OPERATING INCOME
Overall, Penton's operating income increased $10.9 million, or 74.3%,
from $14.7 million for the three months ended June 30, 1999 to $25.6 million for
the same period in 2000. Operating income as a percentage of revenue increased
from 18.7% in 1999 to 23.5% in 2000 as a result of the higher trade show margins
discussed above.
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OTHER INCOME (EXPENSE)
Interest expense decreased $3.6 million to $2.4 million for the three
months ended June 30, 2000, compared to the same prior year period, due to a
lower average debt balance outstanding for the three months ending June 30, 2000
when compared with the same prior year period, as well as the significant
increase in interest earned on Penton's cash balance 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 40.0% and 66.2%
for the three months ended June 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 $110.2 million
gain in pre-tax income.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1999
REVENUES
Total revenues increased $53.6 million, or 40.8%, from $131.3 million
for the six months ended June 30, 1999 to $184.9 million for the same period in
2000.
Publishing revenues increased $12.1 million, or 12.5%, from $96.8
million for the six months ended June 30, 1999 to $108.9 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 nearly doubled its revenues for
the six months ended June 30, 2000 when compared with the same prior year
period; (iii) 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; (iv) the Fluid Power Handbook & Directory, which was
published in 2000 and is published every other year; and (v) the addition of
Supply Chain Technology News and CLEC Magazine which were published for the
first time after the second quarter of 1999. These increases were offset
somewhat by the discontinuance of the IW Growing Companies magazine during the
first quarter of 2000.
Trade show and conference revenues increased $40.5 million, or 117.8%,
from $34.3 million for the six months ended June 30, 1999 to $74.8 million for
the same period in 2000, due primarily to the following: (i) the first-time
inclusion of the Natural Products Expo East and Natural Products Expo Amsterdam
shows, which were part of the New Hope acquisition in 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, the IW China
show, the IW eCRM Spring show, the ABS Technology show and the Enterprise
Customer Management Spring show which were held for the first time in 2000; (iv)
the IW Australia and Supply Chain Expo shows which were held in the third
quarter of 1999 and (v) significant year-over-year revenue increases from the
Internet World Spring, Internet World UK, ISPCON Spring, Wireless/Portable
Spring and ISPCON London shows. These increases were somewhat off-set by the IW
Mexico, ISPCON Australia and IW France shows which were held during the
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second quarter of 1999 but will not be held in 2000 until later in the year;
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 $1.0 million, or 756%, from $0.1 million for the
six months ended June 30, 1999 to $1.1 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 $36.6 million, or 30.7%, from $119.2
million for the six months ended June 30, 1999 to $155.9 million for the same
period in 2000. As a percentage of revenues, operating costs decreased from
90.8% in 1999 to 84.3% 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 the first half of 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 $65.2
million for the six months ended June 30, 2000 compared with $53.0 million for
the same period in 1999, representing an increase of $12.2 million, or 23.0%.
The increase is primarily due to the acquisition of New Hope in May 1999 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 40.4% in 1999 to 35.3% 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 $22.6 million,
or 42.5%, from $53.1 million for the six months ended June 30, 1999 to $75.6
million for the same period in 2000. The increase is primarily due to the
acquisition of New Hope in May 1999 and Stardust in October 1999, 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 40.4% in 1999 to 40.9% 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 $1.9 million, or 14.3%, to
$15.0 million for the six months ended June 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.com and Nutracon also contributed to the increase.
OPERATING INCOME
Overall, Penton's operating income increased $16.9 million, or 140.4%,
from $12.1 million for the six months ended June 30, 1999 to $29.0 million for
the same period in 2000. Operating income as a percentage of revenue increased
from 9.2% in 1999 to 15.7% in 2000.
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OTHER INCOME (EXPENSE)
Interest expense decreased $7.0 million to $5.2 million for the six
months ended June 30, 2000, compared to $12.2 million the same prior year
period, due to a lower average debt balance outstanding for the six months
ending June 30, 2000 when compared with the same prior year period as well as
the significant increase in interest earned on Penton's cash balance 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 43.0% and 66.2%
for the six months ended June 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 $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):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income (loss) $ 8,695 $ 1,008 $ 75,033 $ (1,828)
Interest expense, net 2,441 6,019 5,176 12,159
Gain on sale of investments -- -- (110,210) --
Provision for income taxes 13,014 6,208 57,430 257
Depreciation and amortization 7,376 6,556 15,029 13,154
Impairment of assets 1,051 -- 1,051 --
Discontinued operation -- (454) 85 (651)
Extraordinary Item -- 2,156 -- 2,156
Miscellaneous, net 424 (232) 444 (25)
--------- --------- --------- ---------
EBITDA $ 33,001 $ 21,261 $ 44,038 $ 25,222
========= ========= ========= =========
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For the three months ended June 30, 2000, the Company's EBITDA
increased $11.7 million, or 55.2%, to $33.0 million from $21.3 million for the
same period in 1999. For the six months ended June 30, 2000, the Company's
EBITDA increased $18.8 million, or 74.6%, to $44.0 million from $25.2 million
for the same period in 1999. EBITDA margins increased to 30.3% for the quarter
compared with 27.0% in the same year ago period, while margins for the six
months ended June 30, 2000 and 1999 were 23.8% and 19.2%, respectively. The
increases were primarily due to: (i) the acquisition of New Hope in May 1999;
(ii) the turn around in Internet World magazine; and (iii) 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 and Web site development charges.
Penton's calculation of EBITDA by product is as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Publishing & other $ 14,042 $ 11,031 $ 25,086 $ 20,078
Trade shows & conferences 27,709 14,411 36,669 13,996
Internet (1,361) (297) (2,146) (455)
-------- -------- -------- --------
Subtotal 40,390 25,145 59,609 33,619
Corporate (7,389) (3,884) (15,571) (8,397)
-------- -------- -------- --------
EBITDA $ 33,001 $ 21,261 $ 44,038 $ 25,222
======== ======== ======== ========
For the three months ended June 30, 2000, EBITDA for the Company's
publishing operations increased $3.0 million, or 27.3%, when compared with the
same prior year period. For the six months ended June 30, 2000 EBITDA for the
Company's publishing operations increased $5.0 million, or 24.9%, when compared
with the prior year period. EBITDA increases for publishing operations were
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 June 30, 2000, EBITDA for the Company's
trade show and conference operations increased $13.3 million, when compared
with the same prior-year period. For the six months ended June 30, 2000 EBITDA
for the Company's trade show and conference operations increased $22.7 million,
or 162.0%. 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 in May 1999; the first-time inclusion of Stardust.com conferences,
which were acquired in October 1999; the addition of the Internet Everywhere CEO
Summit, IW eCRM Spring, IW China, ABS Technology and Enterprise Customer
Management shows which were held for the first time in 2000; and 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 June 30, 2000, EBITDA for the Company's
Internet operations decreased from a loss of $0.3 million to a loss of $1.4
million, while for the six months ended June 30, 2000, EBITDA for the Company's
Internet operations decreased from a loss of $0.5 million to a loss of $2.1
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 June 30, 2000, corporate costs increased
$3.5 million, when compared with the same prior-year period, while for the six
months ended June 30, 2000, corporate costs increased $7.2 million, when
compared with the same prior-year period. The increases were primarily due to
the timing of corporate
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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 and assets.
Cash flow used by operations for the six months ended June 30, 2000 was
$10.5 million, up $7.3 million, from the same period in 1999. The increase was
attributable to the acquisitions, principally New Hope, completed in the second
quarter of 1999 and to the effect of non-cash items, including the gain on the
sale of internet.com Corporation stock 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 Direct Mail segment, was used
for capital expenditures, to make acquisitions, to pay earnouts and to pay
dividends to shareholders. Penton's capital expenditures for the six months
ended June 30, 2000 were $5.8 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 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 June 30, 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 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
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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 June
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
Other than routine litigation and administrative proceedings arising
in the ordinary course of business, the Company is not presently involved in any
litigation nor, to its knowledge, is any litigation threatened against the
Company or its properties, which is reasonable likely to have a material adverse
effect on the liquidity or results of operations of the Company.
In connection with the acquisition of Mecklermedia Corporation, on
December 1, 1998, a lawsuit was brought against the Company by Ariff Alidina
(the "Plaintiff") a former shareholder of Mecklermedia, in Federal District
court in the Southern District of New York for an unspecified amount, as well as
other relief. The Plaintiff has claimed that the Company violated the federal
securities laws by selling Mr. Meckler, a beneficial owner of approximately 26%
of the shares of Mecklermedia, an 80.1% interest in internet.com Corporation for
what the Plaintiff alleges was a below-market price, thereby giving to Mr.
Meckler more consideration for his common stock in Mecklermedia than was paid to
other stockholders of Mecklermedia. The Company intends to vigorously defend
this suit. In January 2000, the United States District Court for the Southern
District of New York denied class certification for this case. Two other former
shareholders have since moved to intervene as plaintiffs and renewed the motion
for class certification. This motion was also denied by the United States
District Court for the Southern District of New York.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
A copy of the Rights Agreement was filed with the Securities and
Exchange Commission on June 12, 2000 as an Exhibit to a Registration Statement
on Form 8-K. The foregoing is a description of the material terms of the Rights
and is qualified in its entirety be reference to that Registration Statement on
Form 8-K and the Rights Agreement.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
22
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 5, 2000 the Company held its Annual Meeting of Shareholders.
The matters presented to the shareholders for a vote and the vote on such
matters were as follows:
a) Election of Directors:
(i) For a two-year term ending 2002
For Abstain
--- -------
R. Douglas Greene 25,638,424 806,829
(ii) For a three-year term ending 2003
For Abstain
--- -------
Paul W. Brown 26,085,031 360,222
John J. Meehan 26,082,430 362,823
David B. Nussbaum 26,081,570 363,683
Daniel J. Ramella 26,083,966 361,287
William B. Summers 25,641,394 803,859
b) Proposal to approve the Penton Media, Inc. Employee Stock Purchase Plan.
For Against Abstain
--- ------- -------
25,643,395 768,070 33,788
c) Proposal to approve the Penton Media, Inc. Management Stock Purchase Plan.
For Against Abstain
--- ------- -------
24,661,431 1,591,135 192,687
d) Proposal to approve the Penton Media, Inc. Senior Executive Bonus Plan.
For Against Abstain
--- ------- -------
25,515,245 699,042 230,966
e) Proposal to approve the Penton Media, Inc. Senior Executive Loan Program
For Against Abstain
--- ------- -------
22,250,731 3,997,248 196,337
e) Proposal to approve the appointment of the Independent Certified
Accountants of Penton for the fiscal year ending December 31, 2000.
For Against Abstain
--- ------- -------
26,360,852 56,694 27,707
No other matters were submitted to the shareholders for a vote.
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Amended Credit facility, dated April 3, 2000, between Penton
Media, Inc., as borrower, the lenders listed therein, as
lenders, Banc of America Securities, LLC, as syndication
agent, The First National Bank of Chicago, as documentation
agent and The Bank of New York, as administrative agent.
10.2 Restated Employment Agreement, dated June 9, 2000, between
Penton Media, Inc. and James W. Zaremba.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
June 12, 2000 Item 5 - Other Events
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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: August 14, 2000
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EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
10.1 Amended Credit facility, dated April 3, 2000, between Penton
Media, Inc., as borrower, the lenders listed therein, as lenders,
Banc of America Securities, LLC, as syndication agent, The First
National Bank of Chicago, as documentation agent and The Bank of
New York, as administrative agent.
10.2 Restated Employment Agreement, dated June 9, 2000, between Penton
Media, Inc. and James W. Zaremba.
27.1 Financial Data Schedule
26