Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 1-14337
PENTON MEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2875386
- ---------------------------------------------- ----------------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1300 EAST NINTH STREET, CLEVELAND, OHIO 44114
---------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
216-696-7000
---------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
--------------- ---------------------------------------
COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
Aggregate market value of common stock held by non-affiliates as of March
23, 2001 at a closing price of $13.70 per share as reported by the New York
Stock Exchange was approximately $318,173,280. Shares of common stock held by
each officer and director, their respective spouses, and by each person who owns
or may be deemed to own 10% or more of the outstanding common stock have been
excluded because such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
31,908,480 COMMON SHARES OUTSTANDING AS OF MARCH 23, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the annual meeting of
shareholders to be held on May 4, 2001 are incorporated by reference into Part
III of this report.
PENTON MEDIA, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplemental Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
2
3
PART I
ITEM 1. BUSINESS.
OVERVIEW
We are a leading business-to-business media company. We provide media
products that deliver proprietary business information to owners, operators,
managers and professionals in the industries we serve. Through these products,
we offer industry suppliers multiple ways to reach their customers and
prospects. We publish 62 trade magazines, produce 185 trade shows and
conferences and maintain 139 Web sites and other electronic media products
serving the following twelve industries:
- Internet/Broadband - Information Technology
- Design/Engineering - Supply Chain
- Electronics - Aviation
- Manufacturing - Government/Compliance
- Natural Products - Mechanical Systems/Construction
- Food/Retail - Leisure/Hospitality
We believe we have leading media products in each of the industry sectors
we serve. We are structured along industry rather than product lines. This
enables us to promote our related group of products, including publications,
trade shows and conferences and Web sites, to our more than 20,000 customers.
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into a leading, integrated business-to-business media company
serving a range of industrial, service and technology markets. We became an
independent company, incorporated in the State of Delaware, as a result of our
spinoff from Pittway Corporation in August 1998. Our independence has enabled us
to focus on building our business through acquisitions and internal growth. We
have acquired numerous companies since the spinoff. We also have launched
several new media properties. These initiatives have helped us:
- Strengthen our presence in our existing markets;
- Provide us with strong market positions in new, growing markets;
- Expand our presence in higher-margin trade shows and conferences;
and
- Increase our international product offerings.
OUR GROWTH STRATEGY
We believe we have significant growth potential. We intend to increase our
revenues, cash flows and market share by continuing to:
Strengthen Our Market Positions. We believe we can strengthen our market
positions by:
- capitalizing on our industry expertise to create new products to
serve the needs of our customers;
- completing strategic acquisitions of complementary business media
products and services;
- adding Internet-based products and services to meet the expanding
information and marketing needs of our customers;
- repositioning or eliminating publications and trade shows and
conferences that are not market leaders;
- cross-promoting media products within similar markets; and
- improving the operating efficiency of existing publications and
trade shows and conferences.
Expand Our Trade Show and Conference Business. We believe that significant
opportunities exist to capitalize on the editorial content and the nationally
recognized brand names of our existing publications to produce new and expand
existing trade shows and conferences. We intend to continue to acquire trade
shows
3
4
and conferences in the industries we currently serve, such as our 2000
acquisition of the Streaming Media trade shows. We believe that increasing the
percentage of revenues generated by trade shows and conferences improves margins
and profitability and mitigates the cyclicality of advertising in slower
economic times.
Acquire Leading Positions in New, Growing Markets. We continuously
evaluate trends in new markets to identify acquisition opportunities in
attractive markets. For example, the acquisition of Duke Communications has
provided us with a leadership position in the Windows 2000 and AS/400 operating
systems markets.
Expand Market Positions Globally. We intend to extend our established
brands into key international markets. In doing so, we hope to broaden our
customer base by capitalizing on our strong brand names. For example, we added
additional Internet World and ISPCON trade shows in Europe, Asia and the Middle
East in 2000, and expect to continue that trend in 2001.
Develop Web Sites That Capture Growing Internet Business Spending. We
intend to further develop our Web media portfolio to better complement our
publications and trade shows and conferences. We believe that customized
information delivery capabilities, real-time access to customers, commerce
opportunities, audience targeting and global reach benefits, and, the cost
efficiency of Internet-based media will be increasingly attractive to our
customers.
OUR PRODUCTS AND SERVICES
We serve specific industry sectors with our business publications, our
trade shows and conferences and our Web sites and electronic media products.
IN PRINT: PUBLICATIONS
Trade Magazines. We publish specialized trade magazines in the United
States. According to Advertising Age's annual ranking of magazines in the United
States, Penton publishes two of the ten largest business-to-business magazines,
based on advertising revenues. Eighty-three percent of Penton's audited
magazines hold the leading or number-two market share positions in their fields.
Our publications are widely recognized for the quality of our editorial content.
Since 1990, our magazines have won nearly 600 editorial awards.
We publish 62 trade magazines with a combined circulation of over 4.0
million subscribers worldwide. Our magazines are primarily
controlled-circulation. They are distributed free-of-charge to qualified
subscribers in our targeted industries.
Our publications generate revenues primarily from the sale of advertising
space. Subscribers to controlled-circulation publications qualify to receive our
magazines by verifying their responsibility for specific job functions,
including purchasing authority. We survey subscribers to our
controlled-circulation magazines annually to verify their continued
qualification.
Circulation information for the majority of our publications is audited
each year by BPA International, an independent auditor of magazine circulation.
These audits verify that we have accurately identified the number and job
responsibilities of qualified subscribers and that those subscribers are
eligible to receive the relevant publication according to our established
criteria.
Each of our publications has its own advertising sales team and rate
structure. Some advertisers may qualify for discounts based on advertising in
multiple publications. We enable marketers to be more cost efficient in their
advertising purchases by providing a single source for integrated products.
In addition, each of our publications has its own editorial staff,
including writers, designers and production personnel. To preserve the editorial
integrity of each publication's news reporting and analysis, we seek to maintain
separation between the editorial and sales staffs of each publications. We
believe that our reputation for objective, fair and credible editorial content
contributes significantly to our success. Fifteen of our publications have
served their industries for over 50 years.
4
5
Our editorial staffs meet frequently with readers of their publications to
maintain a current understanding of the information needs and interests of those
readers in an effort to serve them more effectively. We devote considerable
resources to the study of trends in our industries and strive to make our
publications the most widely used among our targeted audiences. Many of our
editors and contributors are recognized as experts in their fields and are
regularly contacted by the general press to comment on developments and trends
in their respective markets.
Directories and Buyer's Guides. We also publish about 20 directories and
buyer's guides, which are respected sources of buying information for industry
decision makers. Most of the business directories we publish have limited
competition.
IN PERSON: TRADE SHOWS AND CONFERENCES
We produce 185 trade shows and conferences in our twelve industry sectors
which annually attract more than a million attendees with significant buying and
specifying responsibility. In addition to these events, we maintain licensing
agreements for eight trade shows and we produce one trade show under a
management contract.
In the early 1990s, we entered the trade show and conference business and
have more recently expanded our presence through acquisitions. For example, the
acquisition of Streaming Media in September 2000 added the Streaming Media
Europe and West trade shows to our portfolio, while the acquisition of New Hope
in 1999 added the Natural Products Expo East and West trade shows. In addition,
we have expanded our global presence. In 2000, we acquired 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.
Attendees at our trade shows and conferences are professionals and managers
in the industries we serve. Most trade shows include an extensive conference
program, which provides a forum for the exchange and dissemination of
information relevant to the particular event's focus. In addition, most trade
shows have one or more "keynote" sessions with speakers who are known for their
industry knowledge and expertise.
Trade show exhibitors pay a set price per square foot of booth space.
Typically, a majority of each trade show's exhibitors commit to booth space
during that year's show for the following year. In addition, Penton receives
revenues from attendee fees at trade shows and conferences.
ONLINE: WEB SITES AND ELECTRONIC MEDIA
We currently maintain 139 Web sites serving numerous market segments. We
believe that the Internet presents us with significant growth potential. We have
been developing a broad range of market-focused Web sites that include features
for valued information exchange within targeted business communities. These
sites incorporate state-of-the-art Web technologies and leverage the inherent
assets of Penton's existing media products: the brand recognition of our
magazines and trade shows; our editorial content; and our customer and product
databases. We believe we have a competitive advantage in the online business
because of our established customer relationships in the markets we serve, the
industry expertise of our staff, and the opportunities we have to promote our
Web sites to targeted audiences through our magazines and trade shows. Our sites
include major industry-focused portals as well as a unique set of online trade
shows.
Penton's online portfolio also includes 59 electronic newsletters. These
products provide timely and focused information to highly targeted professionals
and typically are sponsored by advertisers interested in delivering marketing
information to our targeted subscribers.
5
6
OTHER
We also provide ancillary information services that complement our
principal business media platforms. These services include:
- Market Access & Business Development Services. We provide a variety
of marketing services, including database rentals. We use
information from our subscription lists and other available
databases to compile detailed mailing lists for rental by marketers
who want to promote their products and services through direct mail
programs. We offer these services to our customers to help them
reach their targeted audience.
- Specialized Advertising Services. We collect and forward reader
inquiries to our advertisers. In addition, classified advertising
sections in our publications and on our Web sites provide a cost-
efficient medium for reaching prospects who are ready to buy
specialized products and services. Also, recruitment advertising
provides an effective way to reach qualified professionals seeking
career opportunities.
- Custom Communications/Promotion. We produce a range of
client-specific communications services for print, electronic media
and the Internet, including newsletters, magazines, catalogs,
directories, education and training materials, and other support
materials.
RECENT DEVELOPMENTS
During 2000, Penton continued its strategic acquisition program. The
Company completed the following eight transactions:
- In November 2000, Penton acquired the assets of Group Computing, a
magazine and online resource serving Lotus professionals.
- In September 2000, Penton acquired the stock of Duke Communications
International ("Duke"), a leading integrated media company serving
the Windows 2000 and AS/400 operating systems markets.
- In September 2000, Penton acquired the assets of Professional Trade
Shows ("PTS"). PTS produces 50 regional trade shows for the plant
engineering and maintenance, material handling, buildings and
facilities maintenance, design engineering, and machine tool
industries.
- In September 2000, Penton acquired the stock of Streaming Media,
Inc., a leading integrated media company serving the streaming media
market.
- In August 2000, Penton acquired the stock of Meko Ltd. ("Meko") of
Surrey, UK, a provider of newsletters, comprehensive market studies,
and custom information services for the European computer display
market.
- In July 2000, Penton acquired the assets of National Advisory Group
("NAG"), a trade group serving the convenience store and petroleum
marketing industry.
- In May 2000, Penton purchased 50% of the outstanding stock of a
German Corporation, ComMunic GmbH, which produces trade shows,
conferences and business publications in Germany and its German
speaking neighboring countries. ComMunic serves the Internet,
telecommunications and other growing technology markets.
- In February 2000, Penton acquired the assets of Profit.Net, Inc.
which includes bakery-net.com, a Web site for the commercial baking
market.
The aggregate purchase price of these acquisitions was approximately $185.8
million, excluding future contingent consideration of up to $85.1 million based
on the acquired companies' ability to meet or exceed certain performance goals.
All of these transactions have been accounted for under the purchase method of
accounting.
6
7
In February 2000, we sold 2.0 million shares of common stock of
internet.com Corporation in a secondary offering at a price of $60.00 per share
for net proceeds of $113.1 million. internet.com Corporation provides a network
of Web sites for Internet professionals that allow advertisers to target
specific Internet audiences. We currently own about 3.0 million shares of
internet.com Corporation shares.
CUSTOMERS
We have over 20,000 customers. None of our customers accounted for more
than 0.6% of our total revenues in 2000. Our top ten customers accounted for
approximately 3.4% of our total revenues in 2000.
COMPETITION
We experience intense competition for our products and services. We compete
with several much larger international companies that operate in many markets
and have broad product offerings in publishing and trade shows and conferences.
We compete for readers and advertisers in the publishing marketplace, which is
fragmented. According to industry sources, there are about 1,500 trade magazine
publishing companies that publish about 5,000 titles. We also compete for
venues, sponsorships, exhibitors and show attendees in the trade show and
conference marketplace. This market is also highly fragmented. There are about
3,900 trade shows in the United States and Canada produced by more than 2,100
independent companies and industry associations, according to industry sources.
Because our industry is relatively easy to enter, additional competitors may
enter these markets.
Our publications generally compete on the basis of:
- advertisers' perception of the target audience served by the
magazine;
- readers' preference of the target audience served by the magazine;
- readers' acceptance of the publication's authoritative position in
its markets;
- editorial quality;
- quantity and quality of circulation;
- readers' response to advertisers' products and services;
- the strength of complementary products serving the same niche;
- the effectiveness of sales and customer service; and
- advertising rates.
Our trade shows and conferences generally compete on the basis of:
- the availability of attractive venues and dates;
- the ability to provide events that meet the needs of particular
market segments;
- the ability to attract qualified attendees; and
- the ability to provide high quality show services, exhibition space
and attractive marketing and sponsorship opportunities.
In addition, in our trade show and conference business, we compete with
many industry associations and, in several countries, the trade show and
conference hall owner and operator may also be a competitor.
DOMESTIC AND FOREIGN REVENUES AND ASSETS
Domestic revenues of our products and services comprised 89.7%, 92.2% and
92.3% of total revenues for the fiscal years ended December 31, 2000, 1999 and
1998, respectively. Foreign revenues totaled 10.3%, 7.8% and 7.7% of our
revenues for the fiscal years ended December 31, 2000, 1999 and 1998,
respectively. In 2000, 1999 and 1998, 37.4%, 73.0% and 92.8%, respectively, of
these foreign revenues were to customers in the
7
8
United Kingdom. Substantially all of the United Kingdom revenues were generated
by Independent Exhibitions, Ltd. (INDEX), a subsidiary of Penton located in the
United Kingdom.
See Note 17 of the Notes to Consolidated Financial Statements included
herein for a description of the Company's assets located in the United States
and in the United Kingdom.
PRODUCTION AND DISTRIBUTION
In November 1999, we sold our printing facility in Berea, Ohio to R. R.
Donnelley & Sons Company for approximately $31.0 million and signed a seven-year
service contract providing for the printing of a majority of our 62 specialized
business magazines. If additional printing capacity is needed, we believe that
additional printing services are readily available at competitive prices.
The principal raw material used in our print publications is paper. We
believe that the existing arrangements providing for the supply of paper are
adequate and that, in any event, alternative sources are available. Paper costs
accounted for about 4.3%, 4.9% and 8.1% of our total operating costs for the
years ended December 31, 2000, 1999 and 1998, respectively. Paper prices are
affected by a variety of factors, including demand, capacity, pulp supply and
general economic conditions.
Substantially all of our publications are delivered by the United States
Postal Service within the continental United States. Postage costs also
represent a significant expense, accounting for about 4.9%, 6.3% and 6.8% of our
total operating costs and expenses for the years ended December 31, 2000, 1999
and 1998, respectively.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
We regard our copyrights, trademarks, service marks and similar
intellectual property as critical to our success and rely upon copyright and
trademark laws, as well as confidentiality agreements with our employees and
others, to protect our rights. We pursue the registration of our material
trademarks in the United States and, depending upon use, in other countries.
Effective trademark and copyright protection may not be available in every
country in which our publications and services are available.
We may be subject to claims of alleged infringement of our trademarks or
our licensees of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. We do not believe
that these legal proceedings or claims are likely to have, individually or in
the aggregate, a material adverse effect on our business, financial condition or
results of operations.
SEASONALITY
For a discussion of seasonality, see Item 7 of this Annual Report on form
10-K "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
ENVIRONMENTAL MATTERS
We are subject to various federal, state and local environmental laws and
regulations that (1) govern activities and operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous or toxic wastes, or (2) impose
liability for the costs of cleaning up, and damages resulting from sites of past
spills, disposals, or other releases of hazardous or toxic substances.
EMPLOYEES
On December 31, 2000, we employed about 1,750 persons, primarily located in
the United States. None of our employees are represented by a labor union, and
we consider our relations with our employees to be good.
8
9
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS
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
strategies.
RISK FACTORS
The following are factors that may affect our actual operating results and
could cause results to differ materially from those in any forward-looking
statements. There may be other factors, and new risk factors may emerge in the
future. You should carefully consider the following information.
We Depend on Advertising Revenues, Which Decrease During Economic Downturns
and Fluctuate from Period to Period.
For the years ended December 31, 2000, 1999 and 1998 about 50.6%, 60.4% and
78.6% of our revenues came from advertising. Our advertising revenues fluctuate
with general economic cycles. Any material decline in advertising revenue would
have a material adverse effect on our business, results of operations and
financial condition. Historically, advertising revenues have increased during
economic recoveries and decreased during both general economic downturns and
regional economic recessions. In the event of a general economic downturn or a
recession, our advertisers may reduce their advertising budgets or intensify
their attempts to negotiate lower advertising rates.
Our advertising revenues may fluctuate from period to period based on the
spending patterns of our customers. Many of our large customers may concentrate
their advertising expenditures around major new product launches. We cannot
always know or predict when our large customers intend to launch new products.
We cannot predict any related fluctuation in our advertising revenues.
If We Are Unable to Complete Acquisitions or Integrate Acquisitions
Effectively, Our Business Could Be Adversely Affected.
We intend to continue to grow in part through acquisitions. We may not be
able to identify suitable candidates or make acquisitions on terms that are
favorable to us. In addition, we may not be able to successfully complete some
acquisitions or integrate acquisitions into our existing operations or
effectively manage those businesses once integrated. If we are unable to
integrate our recent or future acquisitions successfully, our business could be
adversely affected.
Financing of Future Acquisitions May Increase Our Debt, Reduce Our Cash and
Adversely Affect our Shareholders.
We may finance future acquisitions with internally generated funds, bank
borrowings, public offerings or private placements of debt securities, or
through a combination of these sources. This may have the effect of increasing
our debt and reducing our cash available for other purposes. In addition, we
could issue additional shares of our common stock as consideration for
acquisitions. If we do, our shareholders may experience dilution.
9
10
Acquisitions May Divert Our Management's Attention Away From Running Our
Company.
Acquisitions are an important part of our business strategy. Acquisitions
may require substantial attention from, and place substantial additional demands
upon, our senior management. This may divert their attention from our existing
businesses, making it more difficult to manage effectively. In addition,
unanticipated events or liabilities relating to these acquisitions or the
failure to retain key personnel could have a material adverse effect on our
business, results of operations and financial condition.
The Terms of Our Indebtedness May Restrict Our Ability to Pursue Our Growth
Strategy.
The terms of our credit agreement impose restrictions on our ability to,
among other things, borrow and make investments, acquire other businesses, and
make capital expenditures and distributions on our capital stock. In addition,
our credit agreement requires us to satisfy specified financial covenants. Our
ability to comply with these provisions depends, in part, on factors over which
we may have no control. These restrictions could adversely affect our ability to
pursue our growth strategy. If we breach any of our financial covenants or fail
to make scheduled payments, our creditors could declare all amounts owed to them
to be immediately due and payable. We may not have available funds sufficient to
repay the amounts declared due and payable, and we may have to sell assets to
repay those amounts. Our credit agreement is secured by substantially all of our
assets, including the stock of our subsidiaries. If we cannot repay all amounts
that we have borrowed under our credit agreement, our lenders could proceed
against our assets.
The Profitability and Success of Our Trade Shows and Conferences Could Be
Adversely Affected if We Lose Scheduled Dates and Locations of Those Events.
For the years ended December 31, 2000, 1999 and 1998 about 27.6%, 22.2% and
10.7% of our revenues came from booth rentals. As the trade show and conference
industry grows, we increasingly compete for desirable dates and venues for our
trade shows and conferences. As this competition intensifies, we could lose
important engagements. If we lose dates and venues for events, the profitability
and future success of these events could be adversely affected. Although we
generally reserve venues and dates more than a year in advance, these
reservations are not binding until we sign a contract with the facility
operator. These contracts generally hold venues and dates for only one year. In
addition, we may desire to increase the size of our trade shows and conferences
to take advantage of increasing demand in the future. If we are unable to secure
larger venues with suitable exhibit space to accommodate this demand, the growth
of our trade show and conference business could be adversely affected. Moreover,
circumstances beyond our control, like natural disasters, labor strikes and
transportation shutdowns, could present financial risk to our trade shows and
conferences, which could have an adverse effect on our business, results of
operations and financial condition.
A Significant Decline in Our Internet/Broadband Trade Show and Conference
Business Could Adversely Affect Our Results of Operations.
Our Internet/Broadband trade shows and conferences produce a significant
portion of our cash flow. As a result, a significant decline in the performance
of these trade shows and conferences could adversely affect our business,
results of operations and financial condition.
We Depend on Trade Show and Conference and Publishing Revenues, Which Vary Due
to Seasonality.
Our trade shows and conferences and publishing revenues are seasonal. Our
revenue typically reaches its highest level during the second and fourth
quarters of each calendar year. As a result, we could incur a net loss during
the first and third calendar quarters. This is due largely to the timing of our
trade shows and conferences and the general increase in publishing revenue in
the second and fourth quarters.
Competition May Adversely Affect Our Earnings and Results of Operations.
We experience intense competition for our products and services. If we fail
to compete effectively, our earnings and results of operations could be
adversely affected. We compete with several much larger international companies
that operate in many markets and have broad product offerings in publishing and
10
11
trade shows and conferences. We compete for readers and advertisers in the
publishing marketplace, and for trade show and conference venues, sponsorships,
exhibitors, and show attendees. Because our industry is relatively easy to
enter, we anticipate that additional competitors, some of whom may have greater
resources than Penton, may enter these markets and intensify competition.
Our Overall Operations May be Adversely Affected by Risks Associated with
International Operations.
We have operations outside the United States. We intend to expand further
into international markets. We have limited experience in developing localized
versions of our publications and trade shows and conferences and in marketing
and distributing them internationally. In addition, the following risks in the
international markets could have a material adverse effect on our future
international operations and, consequently, on our business, results of
operations and financial condition:
- the uncertainty of the product acceptance by different cultures;
- the risks of divergent business expectations or cultural
incompatibility inherent in establishing joint ventures with foreign
partners;
- difficulties in staffing and managing multi-national operations;
- currency fluctuations;
- general economic and political uncertainties and potential for
social unrest;
- limitations on our ability to enforce legal rights and remedies;
- state-imposed restrictions on the repatriation of funds; and
- potentially adverse tax consequences.
New Product Launches or Acquired Products May Reduce Our Earnings or Generate
Losses.
Our future success will depend in part on our ability to continue offering
new products that successfully gain market acceptance by addressing the needs of
specific audience groups within our targeted industries. Our efforts to
introduce new or integrate acquired products may not be successful or
profitable. The process of internally researching and developing, launching,
gaining acceptance and establishing profitability for a new product, or
assimilating and marketing an acquired product, is both risky and costly. New
products generally incur initial operating losses.
In addition, we have invested in, and intend to continue to invest in, the
development of various Internet media products, which are currently generating
losses. The Internet is still in the early stages of development as a commercial
medium. These products may not be successful or profitable.
Costs related to the development of new products are expensed as incurred
and, accordingly, our profitability from year to year may be adversely affected
by the number and timing of new product launches.
Reliance on Principal Vendors Could Adversely Affect Our Business.
We rely on our principal vendors. Currently, our principal vendors are
paper suppliers, the United States Postal Service and our printing supplier. If
any of our principal vendors discontinues or temporarily terminates its services
and we are unable to find adequate alternatives, we may experience increased
prices, interruptions and delays in services. These factors could adversely
affect our business.
Increases in Paper or Postage Costs Would Cause Our Expenses to Increase and
May Adversely Affect Our Profitability.
Paper is a significant expense relating to our print products, accounting
for about 4.3% of our total operating expenses in 2000. Significant increases in
paper prices, which have been volatile in recent years, may have an adverse
effect on our business. We do not use forward contracts and all of our paper
supply vendor arrangements provide for price adjustments on a quarterly basis to
reflect then-prevailing market prices.
11
12
Postage for magazine distribution and direct mail solicitations is also a
significant expense for us, accounting for about 4.9% of our total operating
expenses in 2000. Significant increases in postage prices may have an adverse
effect on our business. We use the United States Postal Service for domestic
distribution of substantially all of our products and marketing materials.
Loss of Key Personnel Could Impair Our Success.
We benefit from the leadership and experience of our senior management
team, and we depend on their continued services in order to successfully
implement our business strategy. Although we have entered into employment
agreements with Thomas L. Kemp, Daniel J. Ramella and other management members,
they and other key personnel may not remain in our employment. The loss of key
personnel could have a material adverse affect on our business, results of
operation or financial condition.
Takeover Defense Provisions May Adversely Affect the Market Price of Our
Common Stock.
Various provisions of Delaware corporation law and of our corporate
governance documents may inhibit changes in control not approved by our Board of
Directors and may have the effect of depriving shareholders of an opportunity to
receive a premium over the prevailing market price of our common stock in the
event of an attempted hostile takeover. In addition, the existence of these
provisions may adversely affect the market price of our common stock. These
provisions include:
- a classified Board of Directors;
- a prohibition on shareholder action through written consents;
- a requirement that special meetings of shareholders be called only
by the Board of Directors;
- advance notice requirements for shareholder proposals and
nomination; and
- availability of "blank check" preferred stock.
We also have a shareholder rights plan that provides for, among other
things, distributions to our shareholders upon an actual or prospective change
in control of our Company. The plan has an anti-takeover effect because a
distribution under the plan may cause a substantial dilution to a person or
group that attempts to acquire a substantial number of our shares without
approval of our Board of Directors.
The Infringement or Invalidation of Our Proprietary Rights Could Have An
Adverse Effect On Our Business.
We regard our copyrights and trademarks, including our Internet domain
names, service marks and similar intellectual property, as critical to our
success. We rely on copyright and trademark laws in the United States and other
jurisdictions and on confidentiality agreements with some of our employees and
others to protect our proprietary rights. If any of these rights were infringed
or invalidated, our business could be adversely affected. In addition, our
business activities could infringe upon the proprietary rights of others, who
could assert infringement claims against us. We could face costly litigation if
we are forced to defend these claims. If we are unsuccessful in doing so, our
business could be adversely affected.
We seek to register our trademarks in the United States and elsewhere.
These registrations could be challenged by others or invalidated through
administrative process or litigation. In addition, our confidentiality
agreements with some of our employees or others may not provide adequate
protection of our proprietary rights in the event of unauthorized use or
disclosure of our proprietary information or if our proprietary information
otherwise becomes known, or is independently developed, by competitors.
Ownership by Significant Shareholders and Sales of Substantial Amounts of Our
Common Stock May Adversely Affect the Market for Our Common Stock.
R. Douglas Greene and Mario J. Gabelli, and entities controlled directly or
indirectly by Mr. Gabelli, own a significant amount of our common stock.
12
13
These concentrations of voting power may inhibit changes in control of our
Company and may adversely affect the market price for our common stock. In
addition, sales of a substantial amount of common stock in the public market, or
the perception that these sales may occur, could adversely affect the market
price of our common stock prevailing from time to time and could impair our
ability to raise additional capital through the sale of our equity securities.
ITEM 2. PROPERTIES.
The Company's principal properties and their general characteristics are as
follows:
LEASE APPROXIMATE
LOCATION PRINCIPAL USE EXPIRATION SQUARE FEET
- -------- ------------- ---------- -----------
Cleveland, Ohio......................................... General Offices 2010 151,740
Cleveland, Ohio......................................... Warehousing 2001 28,000
Hasbrouck Heights, New Jersey........................... General Offices 2001 25,000
Darien, Connecticut..................................... General Offices 2009 18,200
New York, New York...................................... Sales Offices 2009 10,000
Boulder, Colorado....................................... General Offices 2006 29,000
Golden, Colorado........................................ Sales Offices 2001 10,850
Isleworth, Middlesex UK................................. General Offices 2014 7,600
Los Gatos, California................................... General Offices 2005 5,300
Fremont, California..................................... General Offices 2005 13,500
San Francisco, California............................... General Offices 2003 10,000
Loveland, Colorado...................................... Warehousing 2002 15,400
Loveland, Colorado...................................... General Offices 2005 35,650
In 2000, the Company signed a 10-year lease agreement and relocated its
corporate headquarters. Other smaller properties include 34 sales and/or
editorial offices under leases expiring through 2013 located in major cities
throughout the United States and the United Kingdom. We believe our facilities
are adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS.
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 Corporation, 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 Corporation than was paid to other shareholders of Mecklermedia
Corporation. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 2000.
13
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Our common stock is traded on the New York Stock Exchange under the symbol
PME. The following table sets forth, for the periods indicated, the high and low
sales prices from the common stock as reported on the New York Stock Exchange.
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
Year Ended December 31, 2000:
First Quarter............................................ $27.81 $21.25
Second Quarter........................................... 36.00 22.19
Third Quarter............................................ 36.38 26.13
Fourth Quarter........................................... 32.00 22.00
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
Year Ended December 31, 1999:
First Quarter............................................ $22.50 $18.13
Second Quarter........................................... 29.63 19.50
Third Quarter............................................ 24.25 12.63
Fourth Quarter........................................... 24.75 14.75
The Company had approximately 699 record holders of its common stock on
March 23, 2001.
Our dividend policy is determined by our Board of Directors. We currently
pay quarterly dividends in an amount of $0.03 per share and we have made
quarterly payments of $0.03 for the past two fiscal years. Any decision to pay
dividends in the future will depend on business decisions that will be made by
our Board of Directors from time to time based upon the results of our
operations and financial condition and such other matters as our Board of
Directors considers relevant.
In January 2000, the Company established an Executive Loan Program to issue
stock to six key executives to purchase an aggregate of up to 400,000 shares of
Penton common stock at fair market value, in exchange for recourse notes. All
400,000 shares were issued in 2000. In October 2000, the Board of Directors
approved the addition of another key executive to the Executive Loan Program.
This executive is permitted to purchase up to an aggregate of $1.0 million in
Penton common stock at fair market value, in exchange for a recourse note, of
which 10,000 shares have been issued in 2000. 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.
In June 2000, 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.
14
15
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 in June 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 by reference to that Registration Statement on Form
8-K and the Rights Agreement.
In May 1999, Penton acquired the assets of New Hope for, among other
consideration, 2,102,564 shares of Penton common stock. In March 2000, Penton
made a contingent payment to New Hope, in part, with 52,920 shares of Penton
common stock. In August 1998, Penton acquired the outstanding stock of Donohue/
Meehan Publishing Company ("DM Publishing") for, among other consideration,
1,541,638 shares of Penton common stock. In making such payments, 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. SELECTED FINANCIAL DATA.
The following table presents our selected financial data. The statement of
income data for each of the three years in the period ended December 31, 2000
and the balance sheet data as of December 31, 2000 and 1999 have been derived
from our audited consolidated financial statements and related notes, which
appear elsewhere in this Form 10-K. The statement of income data for each of the
two years in the period ended December 31, 1997 and the balance sheet data as of
December 31, 1996, 1997 and 1998 have been derived from our audited consolidated
financial statements and related notes that are not included in this Form 10-K.
You should read the following information together with our audited
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere herein.
You should also consider the following when reading the statement of income
data:
- All historical amounts have been restated to reflect the
classification of our former Printing segment and Direct Mail
segment as discontinued.
- Penton defines adjusted EBITDA as net income before interest, taxes,
depreciation and amortization, and nonrecurring items. Adjusted
EBITDA is often used to analyze and compare companies on the basis
of operating performance and cash flow. However, adjusted EBITDA is
not adjusted for all non-cash expenses or for working capital,
capital expenditures and other investment requirements. Adjusted
EBITDA should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally
accepted accounting principles. Adjusted EBITDA is not a measure of
performance under GAAP because it excludes those items listed above
that are significant components in understanding and evaluating
Penton's financial performance. Not all companies calculate adjusted
EBITDA in the same manner, and adjusted EBITDA as presented may not
be comparable to similarly titled measures presented by other
companies.
- Operating income equals revenues less operating expenses. See
Consolidated Statements of Income included elsewhere herein.
- Cash flows from investing activities include capital expenditures
and acquisitions.
- Refer to Item 7, Management's Discussion and Analysis for an
overview of items that affect comparability of the financial data in
this five year summary.
15
16
CONSOLIDATED COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996
- --------------------------------- --------- -------- --------- -------- --------
OPERATING RESULTS
Revenues........................................ $ 404,571 $300,824 $ 207,682 $181,109 $166,631
Operating income................................ 54,711 39,390 26,218 24,854 17,681
Income from continuing operations............... 79,675 7,930 11,186 14,612 10,475
Income (loss) from discontinued operations...... -- 33 (296) 262 481
Gain (loss) on sale of discontinued
operations................................... (85) 8,660 -- -- --
Extraordinary item -- early extinguishment of
debt......................................... -- (8,413) -- -- --
Net income...................................... 79,590 8,210 10,890 14,874 10,956
Earnings per common share -- basic:
Income from continuing operations............ 2.51 0.28 0.51 0.69 0.49
Discontinued operations...................... -- 0.31 (0.01) 0.01 0.03
Extraordinary item........................... -- (0.30) -- -- --
Net income................................... 2.51 0.29 0.50 0.70 0.52
Weighted average number of common shares..... 31,730 28,108 21,882 21,240 21,240
Earnings per common share -- diluted:
Income from continuing operations............ 2.49 0.28 0.51 0.69 0.49
Discontinued operations...................... -- 0.31 (0.01) 0.01 0.03
Extraordinary item........................... -- (0.30) -- -- --
Net income................................... 2.49 0.29 0.50 0.70 0.52
Weighted average number of common shares..... 32,010 28,209 21,882 21,240 21,240
Dividends per common share...................... 0.12 0.12 0.06 -- --
CASH FLOWS AND OTHER DATA
Cash flows
Operating.................................... $ 9,240 $ 34,357 $ 25,749 $ 23,186 $ 20,507
Investing.................................... (111,168) (27,770) (271,157) (53,192) (4,722)
Financing.................................... 83,306 19,879 246,993 30,854 (15,888)
Capital expenditures............................ 27,272 5,884 5,775 5,450 4,822
Depreciation and amortization................... 33,431 27,918 7,791 3,903 3,335
Adjusted EBITDA................................. 91,288 67,308 34,009 28,757 21,016
AT PERIOD END
Total assets of continuing operations........... $ 781,757 $805,151 $ 479,301 $156,426 $108,799
Investment in discontinued operations........... -- 4,228 -- -- --
Total assets.................................... 781,757 809,379 479,301 156,426 108,799
Goodwill and other intangibles.................. 628,748 451,236 387,612 71,822 21,940
Total debt...................................... 302,125 215,000 307,000 34,170 --
Shareholders' equity............................ 336,569 402,601 87,489 69,613 59,151
16
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Set forth below is a discussion and analysis of the Company's financial
condition and results of operations. Such discussion should be read in
conjunction with the consolidated financial statements, the notes thereto and
the comparative summary of selected financial data appearing elsewhere in this
report. Historical results and percentage relationships set forth in the
consolidated financial statements, including trends that might appear, should
not be taken as indicative of future operations.
OVERVIEW
Penton was spun off from Pittway Corporation ("Pittway") and acquired DM
Publishing in August 1998; then acquired Internet World Media, Inc. ("IWM") in
November 1998; MFG in February 1999; Jon Peddie in May 1999; New Hope in May
1999; Multimedia Week in August 1999; Stardust.com in October 1999; Nutracon in
December 1999; BAKERY-NET.com in February 2000; ComMunic in May 2000; National
Advisory Group in July 2000; Meko, Ltd. in July 2000; Duke Communications in
September 2000; Professional Trade Shows in September 2000; and Streaming Media
in September 2000. As Penton acquires additional companies, its sales mix,
market focus, cost structure, operating leverage and the seasonality of its
business may change significantly. Consequently, Penton's historical and future
results of operations reflect and will reflect the impact of acquisitions, and
period-to-period comparisons may not be meaningful in certain respects.
Historical information for companies subsequent to their acquisition may include
integration and other costs that are not expected to continue in the future.
In November 1999, Penton completed the sale of its Printing segment to R.R.
Donnelley & Sons Company for approximately $31.0 million. Penton recorded a gain
on the sale of $15.5 million ($9.3 million, or $0.33 per share, after tax). Also
in the fourth quarter of 1999, Penton signed a letter of intent to sell its
Direct Mail segment for approximately $4.0 million. This decision resulted in a
loss in 1999 estimated at $0.7 million, including a $0.06 million provision for
operating losses during the phase-out period. During the first quarter of 2000,
Penton completed the sale of the net assets of its Direct Mail segment for $4.0
million in cash. An additional operating loss through the date of sale of $0.08
million, net of a tax benefit of $0.06 million, was recorded. Operating results
and net assets for the Printing and Direct Mail segments have been reflected as
discontinued operations in the accompanying financial statements. Net income for
the Printing segment was $0.3 million and $0.5 million in 1999 and 1998,
respectively ($0.01 and $0.02 per share), on revenues of $10.4 million and $11.7
million, respectively. Net losses for the Direct Mail segment were $0.3 million
and $0.8 million in 1999 and 1998, respectively ($0.01 and $0.04 per share), on
revenues of $12.2 million and $13.8 million, respectively.
17
18
RESULTS OF OPERATIONS
The following table sets forth income statement data of the Company
expressed as a percentage of revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- -----
Operating Expenses:
Editorial, production and circulation..................... 36.3% 38.9% 41.5%
Selling, general and administrative....................... 41.1% 38.8% 42.2%
Impairment of Internet assets............................. 0.5% -- --
Impairment of other assets................................ 0.3% -- --
Depreciation and amortization............................. 8.3% 9.2% 3.7%
----- ----- -----
86.5% 86.9% 87.4%
----- ----- -----
Operating Income............................................ 13.5% 13.1% 12.6%
----- ----- -----
Other Income (expenses):
Interest expense, net of interest earned.................. (3.5)% (7.0)% (2.7)%
Gain on sale of investments............................... 27.2% 2.0% --
Writedown of Internet investments......................... (2.3)% -- --
Miscellaneous, net........................................ -- (0.1)% --
----- ----- -----
21.4% (5.1)% (2.7)%
----- ----- -----
Income from continuing operations before income taxes....... 34.9% 8.0% 9.9%
Provision for income taxes.................................. 15.2% 5.4% 4.5%
----- ----- -----
Income from continuing operations........................... 19.7% 2.6% 5.4%
Discontinued operations..................................... -- 2.9% (0.2)%
----- ----- -----
Income before extraordinary item............................ 19.7% 5.5% 5.2%
Extraordinary item -- early extinguishment of debt.......... -- (2.8)% --
----- ----- -----
Net income.................................................. 19.7% 2.7% 5.2%
===== ===== =====
2000 COMPARED WITH 1999
Revenues
Total revenues increased $103.7 million, or 34.5%, from $300.8 million in
1999 to $404.6 million in 2000.
Publishing revenues increased $27.6 million, or 13.7%, from $202.5 million
in 1999 to $230.1 million in 2000, due primarily to the following: (i) the
addition of Windows 2000 Magazine and the NEWS/400 and Business Finance
magazines, which were part of the Duke acquisition in September 2000; (ii) a
full year of revenues from Natural Foods Merchandiser, Delicious Living!,
Nutrition Science News and Expansion Management magazines, which were part of
the New Hope acquisition in May 1999; (iii) the turnaround of Internet World
magazine, whose revenues increased almost 50% in 2000 compared with 1999; (iv)
increased revenues year-over-year in Penton's core magazines, such as Electronic
Design, American Machinist, Boardwatch, Food Management, Government Product News
and EE Product News; and (v) the Fluid Power Handbook & Directory, which was
published in 2000 and is published every other year. These increases were
somewhat offset by the discontinuance of the IW Growing Companies magazine
during the first quarter of 2000 and lower revenues from various other core
magazines compared with the prior year.
Trade show and conference revenues increased $71.0 million, or 72.9%, from
$97.4 million in 1999 to $168.4 million in 2000, due primarily to the following:
(i) the first-time inclusion of the Streaming Media
18
19
Europe and Streaming Media East shows, which were part of the Streaming Media
acquisition in September 2000; (ii) the first-time inclusion of certain PTS
trade shows, which were acquired in September 2000; (iii) the first-time
inclusion of the Natural Products Expo West show, which was part of the New Hope
acquisition in May 1999, and the launch of the Natural Products Expo Amsterdam
show, which was held for the first time in 2000; (iv) the first-time inclusion
of Stardust conferences, which were acquired in October 1999; (v) the first-time
inclusion of the Nutracon conference, which was acquired in December 1999; (vi)
the addition of the Internet Everywhere CEO Summit, the Internet World China
show, the eCRM Spring show, the CLEC Expo Fall show and the Advanced Building
Systems Technology Conference & Expo show, which were held for the first time in
2000; (vii) significant year-over-year revenue increases from the Internet World
Spring, Internet World UK, ISPCON Spring, Internet World Fall, Wireless/Portable
Symposium & Exhibition and ISPCON London shows. These increases were somewhat
offset by lower year-over-year revenues from the Service Management Europe show,
the Supply Chain Expo and the Internet World Summer show, and the absence of the
CONEXPO show, which was held in 1999 and is held every three years.
Internet revenue increased $5.1 million from $0.9 million in 1999 to $6.0
million in 2000, due primarily to the addition of Duke's Internet sites in
September 2000, a number of new Web sites introduced in 2000 and a full year of
operations from the Web sites introduced in 1999.
Operating Expenses
Operating expenses increased $88.5 million, or 33.8%, from $261.4 million
in 1999 to $349.9 million in 2000. As a percentage of revenues, operating costs
decreased from 86.9% in 1999 to 86.5% in 2000. The improvement in operating
expenses as a percentage of revenues was due primarily to higher margins earned
on acquired trade shows that were held for the first time in 2000 and the
continued change in the Company's product mix toward higher-margin trade shows.
These improvements were offset by an increase in depreciation and amortization
related to acquisitions and the impairment of Internet and other assets.
Editorial, Production and Circulation
Total editorial, production and circulation expenses grew to $147.0 million
in 2000 compared with $116.9 million in 1999, representing an increase of $30.1
million, or 25.7%. The increase was due primarily to a full year of operations
for the acquisitions completed during 1999, including New Hope, Stardust and
Nutracon, as well as the acquisitions of PTS, Streaming Media and Duke in
September 2000. Increases were also due to costs associated with trade shows
held for the first time in 2000, such as the Internet Everywhere CEO Summit and
the CLEC Expo Fall show, as well as costs related to the biennial Fluid Power
Handbook & Directory, which was published in 2000 and not in 1999.
As a percentage of revenues, editorial, production and circulation expenses
decreased from 38.9% in 1999 to 36.3% 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 $49.7 million, or
42.6%, from $116.6 million in 1999 to $166.3 million in 2000. The increase was
due primarily to the acquisitions of New Hope in May 1999, Stardust in October
1999 and Nutracon in December 1999, as well as the acquisitions of PTS, Duke and
Streaming Media in September 2000; costs associated with trade shows held for
the first time in 2000; costs related to the biennial Fluid Power Handbook &
Directory, which was published in 2000 and not in 1999, and higher executive
compensation expense.
As a percentage of revenues, selling, general and administrative expenses
increased from 38.8% in 1999 to 41.1% in 2000. The increase was due largely to
higher Web development spending, costs associated with the corporate
headquarters move and higher executive compensation expenses.
19
20
Impairment of Internet Assets
The Company wrote off $2.1 million of impaired assets related to certain
internally funded Internet media initiatives. The Company is adjusting its
portfolio of Internet media products to focus on those that are demonstrating
good revenue potential, customer acceptance and near-term opportunity for
profit. The Company expects to take approximately $5.0 million in restructuring
charges in the first quarter of 2001 as a result of these actions.
Impairment of Other Assets
Based upon the Company's review of the 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 in 2000 to write down
the carrying value of certain leasehold improvements, furniture and fixtures,
and computer equipment to fair value.
Depreciation and Amortization
Depreciation and amortization increased $5.5 million, or 19.7%, from $27.9
million in 1999 to $33.4 million in 2000. The higher expense was primarily the
result of the amortization of intangible assets from the PTS, Duke and Streaming
Media acquisitions in September 2000 and a full year of depreciation and
amortization from the acquisitions completed in 1999, including New Hope, which
was acquired in May 1999.
Operating Income
Overall, Penton's operating income increased $15.3 million, or 38.9%, from
$39.4 million in 1999 to $54.7 million in 2000. Operating income as a percentage
of revenue increased from 13.1% in 1999 to 13.5% in 2000.
Other Income (Expense)
Interest expense decreased $7.0 million to $14.1 million due to a lower
average debt balance outstanding in 2000 when compared with 1999, as well as the
significant increase in interest earned in 2000 on the cash received from the
sale of internet.com Corporation stock.
In February 2000, Penton sold 2.0 million shares of internet.com
Corporation stock as part of a 3.75 million-share secondary offering. Penton
received cash of $113.1 million and recognized a pre-tax gain of approximately
$110.2 million. In July 1999, Penton sold approximately 0.5 million shares of
internet.com Corporation stock and recognized a pre-tax gain of approximately
$5.9 million.
In 2000, the Company invested $6.3 million in Cayenta Inc., a total service
provider of end-to-end e-commerce systems, and $3.4 million in Leisurehub.com,
an online B2B trading community for the global leisure industry. During 2000,
the Company determined that its investments in these Internet-related companies
had suffered declines in value that were other than temporary. As a result, the
Company recognized losses totaling $9.5 million, reducing its investment in
Cayenta Inc. and Leisurehub.com to zero.
Effective Tax Rates
The effective tax rates from continuing operations were 43.6% and 67.0% for
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 stock
in 2000. The sale resulted in a pretax gain of $110.2 million ($66.1 million net
of tax).
20
21
1999 COMPARED WITH 1998
Revenues
Total revenues increased $93.1 million, or 44.8%, from $207.7 million in
1998 to $300.8 million in 1999.
Publishing revenues increased $22.8 million, or 13.2%, from $179.7 million
in 1998 to $202.5 million in 1999, due primarily to the following: (i) the
addition of Baking Management, Modern Baking and Convenience Store Decisions
magazines, which were part of the DM Publishing acquisition in August 1998; (ii)
the addition of Boardwatch magazine and Internet World magazine, which were part
of the IWM acquisition in November 1998; (iii) the addition of Natural Foods
Merchandiser, Delicious Living!, Health and Nutrition Breakthroughs, Nutrition
Science News and Expansion Management magazines, which were part of the New Hope
acquisition in May 1999; (iv) the addition of Midrange Enterprise magazine,
which was part of the MFG acquisition in February 1999; (v) the addition of IW
Growing Companies, the first issue of which was not published until the second
quarter of 1998; and (vi) increased revenues year-over-year in Penton's core
magazines, such as Contracting Business, Machine Design, Foundry Management and
Technology, Government PROcurement and Penton's Embedded Systems Development.
These increases were offset by (i) lower revenues from Electronic Design
magazine compared with the same period in the prior year, due to a slowdown in
the electronics market; (ii) the absence of the Fluid Power Handbook &
Directory, which was published in 1998, and is published every other year; and
(iii) lower revenues from various other core magazines compared with the same
period in the prior year.
Trade show and conference revenues increased $69.5 million, or 248.6%, from
$28.0 million in 1998 to $97.4 million in 1999, due primarily to the following:
(i) the first-time inclusion of IWM, which was acquired in late November 1998
and which added the Fall and Spring Internet World trade shows as well as the
ISPCON trade shows; (ii) the first-time inclusion of New Hope, which was
acquired at the end of May 1999 and includes the Natural Products Expo East and
West trade shows; (iii) the addition of A/E/C Systems UK Show, A/E/C GEO Expo
and the Metalmecanica USA show, all of which were held for the first time in
1999; and (iv) significant year-over-year revenue increases for the Supply Chain
Expo, Service Management Europe and Wireless Portable/Symposium & Exhibition
Conference.
Operating Expenses
Operating expenses increased $80.0 million, or 44.1%, from $181.5 million
in 1998 to $261.4 million in 1999. As a percentage of revenues, operating costs
decreased from 87.4% in 1998 to 86.9% in 1999. The improvement in operating
expenses as a percentage of revenues was due primarily to higher margins earned
on acquired trade shows that were held for the first time in 1999. These
improvements were offset by the increase in depreciation and amortization
related to the acquisitions and to the change in Penton's goodwill amortization
policy for acquired trade shows, which reduced the write-off period from 40
years to 20 years.
Editorial, Production and Circulation
Total editorial, production and circulation expenses grew to $116.9 million
in 1999 compared with $86.1 million in 1998, representing an increase of $30.8
million, or 35.8%. Approximately $29.4 million of the increase was due to the DM
Publishing acquisition in August 1998, the IWM acquisition in November 1998 and
the New Hope acquisition in May 1999. These increases in costs were offset by
the absence of costs related to the biennial Fluid Power Handbook & Directory,
which was published in 1998, but not in 1999. In addition, costs related to
Penton's core publishing operations were down due to advertising slowdowns,
primarily in the electronics and computer markets.
As a percentage of revenues, editorial, production and circulation expenses
decreased from 41.5% in 1998 to 38.9% in 1999. The decrease was due largely to
DM Publishing magazines, higher margins earned from the IWM and New Hope trade
shows and production improvements.
21
22
Selling, General and Administrative
Total selling, general and administrative expenses grew $29.0 million, or
33.1%, from $87.6 million in 1998 to $116.6 million in 1999. Approximately $27.2
million of the increase was due to the DM Publishing acquisition in August 1998,
the IWM acquisition in November 1998 and the acquisition of New Hope in May
1999. Costs related to the biennial Fluid Power Handbook & Directory, which was
published in 1998, were not incurred in 1999. In addition, costs related to
Penton's core publishing operations decreased due to advertising slowdowns,
primarily in the electronics and computer markets.
As a percentage of revenues, selling, general and administrative expenses
decreased from 42.2% in 1998 to 38.8% in 1999. 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 $20.1 million, or 258.3%, to $27.9
million. The higher expense was the result primarily of the amortization of
intangible assets of approximately $0.6 million associated with the DM
Publishing acquisition in August 1998; of approximately $15.9 million from the
IWM acquisition in November 1998; and approximately $2.5 million from the New
Hope acquisition in May 1999. In addition, the increase was due to the change in
Penton's goodwill amortization policy for acquired trade shows, effective with
the fourth quarter of 1998. Penton reduced the write-off period from 40 years to
20 years. The acquisitions of MFG, Jon Peddie, Multimedia Week, Stardust.com and
Nutracon also contributed to the increase.
Operating Income
Overall, Penton's operating income increased $13.2 million, or 50.2%, to
$39.4 million in 1999 from $26.2 million in the prior year. Operating income as
a percentage of revenue increased from 12.6% in 1998 to 13.1% in 1999.
Other Income (Expense)
Interest expense increased $15.6 million to $21.1 million, due to
additional borrowings used to finance Penton's acquisition strategy since its
spinoff in August 1998.
In July 1999, Penton sold approximately 0.5 million shares of internet.com
Corporation stock and recognized a pre-tax gain of approximately $5.9 million
($3.5 million net of tax).
Effective Tax Rates
The effective tax rates from continuing operations were 67.0% and 45.8% in
1999 and 1998, respectively. Penton's acquisition of Independent Exhibitions,
Ltd. (INDEX) in December 1997, DM Publishing in August 1998 and IWM in November
1998 resulted in the recording of goodwill. The amortization of goodwill for
these transactions is recognized for financial statement purposes, but is not
deductible for tax purposes due to the structure of the purchase transactions.
Accordingly, Penton's effective tax rate increased from 1998 due to the
full-year effect of the acquisitions.
Extraordinary Item
The extraordinary item in 1999, which aggregated $8.4 million, net of $5.6
million in taxes, relates to the write-off of unamortized deferred finance costs
associated with the partial paydown of senior debt with the proceeds from the
common stock offering completed in May 1999 and the refinancing of senior debt
in September 1999.
22
23
ADJUSTED EBITDA
Net income before interest, taxes, depreciation and amortization, and
nonrecurring items ("Adjusted EBITDA") is a widely used and commonly reported
standard measure utilized by analysts and investors in the analysis of the media
industry. Adjusted EBITDA is not a measure of performance under GAAP because it
excludes those items listed above that are significant components in
understanding and evaluating Penton's financial performance. However, the
following adjusted EBITDA information can be helpful in determining Penton's
ability to meet its debt service requirements and in comparative analyses of
operating performance relative to other media companies. Penton's calculation of
adjusted EBITDA is as follows (in thousands):
YEARS ENDED
DECEMBER 31,
--------------------
2000 1999
--------- -------
Net income.................................................. $ 79,590 $ 8,210
Interest expense, net of interest earned.................... 14,133 21,131
Gain on sale of investments................................. (110,210) (5,906)
Provision for income taxes.................................. 61,559 16,065
Impairment of Internet assets............................... 2,095 --
Depreciation and amortization............................... 33,431 27,918
Writedown of Internet investments........................... 9,490 --
Impairment of other assets.................................. 1,051 --
Extraordinary item, net of taxes............................ -- 8,413
Discontinued operations, net of taxes....................... 85 (8,693)
Miscellaneous, net.......................................... 64 170
--------- -------
Adjusted EBITDA........................................... $ 91,288 $67,308
========= =======
Penton's adjusted EBITDA increased $24.0 million, or 35.6%, from $67.3
million in 1999 to $91.3 million in 2000. EBITDA margins increased from 22.4% in
1999 to 22.6% in 2000. The increases were due primarily to: (i) the acquisitions
of PTS, Duke and Streaming Media in September 2000; (ii) a full year of
operations from New Hope, Stardust and Nutracon, which were all acquired in
1999; (iii) the turnaround in Internet World magazine; and (iv) significant
year-over-year revenue increases from the Internet World Spring, Internet World
UK, ISPCON Spring, Internet World Fall and ISPCON London shows, offset in part
by higher corporate spending, higher period costs and Web site development
charges.
Penton's calculation of adjusted EBITDA by product is as follows (in
thousands):
YEARS ENDED
DECEMBER 31,
------------------
2000 1999
------- -------
Publishing and other................................... $51,269 $46,170
Trade shows and conferences............................ 78,846 43,133
Internet............................................... (6,790) (510)
Corporate.............................................. (32,037) (21,485)
------- -------
Adjusted EBITDA........................................... $91,288 $67,308
======= =======
Adjusted EBITDA for Penton's publishing operations increased $5.1 million,
or 11.0%, from $46.2 million in 1999 to $51.3 million in 2000. Adjusted EBITDA
increases for publishing operations were due primarily to: (i) the addition of
Natural Foods Merchandiser, Delicious Living!, Nutrition Science News and
Expansion Management magazines, which were part of the New Hope acquisition in
May 1999; (ii) the addition of the Windows 2000 Magazine and NEWS/400 and
Business Finance magazines, which were part of the Duke acquisition in September
2000; (iii) the turnaround of Internet World magazine in 2000 when compared with
the same prior-year period; and (iv) the Fluid Power Handbook & Directory, which
was not published in 1999.
23
24
Adjusted EBITDA for Penton's trade show and conference operations increased
$35.7 million, or 82.8%, from $43.1 million in 1999 to $78.8 million in 2000.
These increases were due primarily to: (i) the first-time inclusion of the PTS
and Streaming Media trade shows held in the fourth quarter of 2000, which were
acquired in September 2000; (ii) the first-time inclusion of the Natural
Products Expo West trade show, which was part of the New Hope acquisition in May
1999; (iii) the first-time inclusion of Stardust conferences, which were
acquired in October 1999; (iv) the addition of the Nutracon conference, which
was acquired in December 1999; (v) the addition of the Internet Everywhere CEO
Summit, eCRM Expo Spring, Internet World China and Advance Building Systems
Technology Conference & Expo shows, which were held for the first time in 2000;
and (vi) significant year-over-year revenue increases from the Internet World
Spring, Internet World UK, ISPCON Spring and ISPCON London shows.
Adjusted EBITDA for Penton's Internet operations decreased $6.3 million
from a loss of $0.5 million in 1999 to a loss of $6.8 million in 2000. These
decreases were due primarily to the increase in various costs associated with
the development of market-focused Web sites.
Corporate costs increased $10.6 million from $21.5 million in 1999 to $32.0
million in 2000. The increases were due primarily to costs associated with
acquisitions and to higher executive compensation expense.
FOREIGN CURRENCY
The functional currency of Penton's foreign operations is the 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 in 2000 or 1999.
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 provided by operating activities was $9.2 million, $34.4 million and
$25.7 million for the years ended December 31, 2000, 1999 and 1998,
respectively. Operating cash flows for 2000 reflect the Company's net income of
$79.6 million offset by a net working capital decrease of approximately $2.8
million and non-cash charges (depreciation and amortization, gain on sale of
investments, writedowns and impairments, and other) of approximately $67.6
million.
The decrease in operating cash flows in 2000 compared to 1999 was due
primarily to an increase in operating income of $15.3 million offset by changes
in working capital items and to increases in income tax payments required in
2000. These payments were largely attributable to the increase in operating
income and the $110.2 million gain realized in 2000 from the sale of
internet.com Corporation stock. The most significant working capital changes in
2000 were attributable to accounts receivable, and accounts payable and accrued
expenses. The accounts receivable increase reflects higher fourth quarter sales
in 2000 compared with 1999 and the timing of payments received. The increase in
accounts payable and accrued expenses is due primarily to timing of vendor and
other payments. The increase in 1999 compared to 1998 was due primarily to an
increase in operating income of $13.2 million offset somewhat by a net decrease
in working capital items, the most significant of which were accounts payable
and accrued expenses, and unearned income.
Investing activities used $111.2 million in 2000, primarily for
acquisitions and investments (including Streaming Media, PTS, Duke, Cayenta and
Leisurehub) and earnouts paid during the year, as well as capital expenditures.
The increase in capital expenditures was due primarily to the move of the
Company's corporate headquarters and the Company's continued investment in
Internet related technologies. These uses were partially offset from proceeds
from the sale of 2.0 million shares of internet.com Corporation stock and
proceeds from the sale of the Direct Mail segment. Investing activities used
$27.8 million in 1999, primarily for acquisitions (including New Hope) and
capital expenditures, partially offset by proceeds from the sale of the Printing
segment and the sale of approximately 0.5 million shares of internet.com
Corporation stock.
24
25
Investing activities used $271.2 million in 1998, primarily for acquisitions
(including Mecklermedia and DM Publishing) and capital expenditures, offset
partially by the sale of an 80.1% interest in internet.com LLC.
Financing activities provided $83.3 million in 2000, primarily from
borrowings under the Company's revolving credit facility offset partially by
debt repayments and dividends paid to shareholders. Financing activities
provided $19.9 million in 1999, primarily from net proceeds from an equity
offering and proceeds from a new $340.0 million Credit Facility offset partially
by the repayment of the $325.0 million Credit Facility, financing fees
associated with the new debt facility and dividends paid to shareholders.
Financing activities provided $247.0 million in 1998, primarily from proceeds
from the $325.0 million Credit Facility offset partially by the repayment of
notes payable, financing fees, payments to the Company's former parent and
dividends paid to shareholders.
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 provided 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 Internet World Media, Inc. ("IWM"). At December 31, 2000, Penton had
$211.1 million outstanding under its term loans and $34.0 million available
under its revolving credit facility. See Note 7 -- Debt for additional
information.
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 October 22, 2000, Penton amended its Credit Agreement to give the
Company the option to increase, in the aggregate, its Term Loan A, Term Loan B
and/or its Revolver by $100.0 million. The Term Loans and the Revolver cannot be
increased on more than three separate occasions and any increase must take place
by September 30, 2001.
In May 1999, Penton completed a 6.5 million common share offering and
received net proceeds of approximately $118.4 million, which were used to repay
senior debt and for general corporate purposes, including the acquisition of New
Hope.
Based upon current and anticipated levels of operations, management
believes that cash on hand and cash flow from operations, combined with
borrowings available under Penton's credit facilities, will be sufficient to
enable Penton to meet current and anticipated cash operating requirements,
including scheduled interest and principal payments, capital expenditures and
working capital needs. However, actual capital requirements may change,
particularly as a result of any acquisitions that Penton may make. Penton's
ability to meet current and anticipated operating requirements will depend upon
its future performance, which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond Penton's control. Depending on the nature, size and timing of future
acquisitions, Penton may be required to raise additional capital through
additional financing arrangements or the issuance of private or public debt or
equity securities. Management cannot assure that such additional financing will
be available at acceptable terms. Substantially all of Penton's debt bears
interest at floating rates. Therefore, Penton's liquidity and financial
condition are, and will continue to be, affected by changes in prevailing
interest rates.
SEASONALITY
The introduction of trade shows and conferences into Penton's product mix
through the acquisition of INDEX and ISOA in late 1997, the acquisition of IWM
in November 1998, the acquisition of New Hope in May 1999 and the acquisition of
Streaming Media in September 2000 has changed the seasonal pattern of revenue
and profit because all five companies have pronounced seasonal patterns in their
businesses. The majority of the trade shows of ISOA, Streaming Media and IWM are
held in the second and fourth quarters and, accordingly, the majority of their
revenue is recognized in these quarters. Furthermore, the majority of the INDEX
shows historically have been held in the fourth quarter, and the New Hope shows
have been held in the first and third or fourth quarters. Accordingly, these
acquisitions have had and will have a positive impact on revenue and profit for
these quarters.
25
26
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Penton was required
to adopt this statement in the first quarter of 2000. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138 "Accounting for Certain Derivative and Certain Hedging Activities -- an
Amendment of FASB Statement No. 133" (SFAS 138). Penton is required to adopt
this statement effective January 1, 2000. Even though Penton has entered into
interest rate cap, collar and swap agreements, management does not believe that
these statements, when adopted, will have a material impact on Penton's
business, results of operations or financial condition.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provided guidance on applying existing generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company adopted SAB 101 during the fourth quarter of 2000. The adoption of SAB
101 did not have a material effect on the Company.
EURO CONVERSION
On January 1, 1999, 11 of the 15 participating countries that are members
of the European Union established a new uniform currency known as the euro. The
currency existing prior to such date in the participating countries will be
phased out during the transition period commencing January 1, 1999, and ending
January 1, 2002. During this transition period, both the euro and the existing
currency will be available in the participating countries. Although Penton
generates revenues in some of the participating countries, management does not
anticipate that the introduction and use of the euro will materially affect
Penton's business, results of operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 interest rate derivative agreements and, at a minimum, hedges 50%
of the current outstanding term loans maintained as 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. See Note
8 -- Fair Value of Financial Instruments.
Penton maintains assets and operations in Europe and Asia, and as a result,
may be exposed to cost increases relative to the markets in which it sells. For
2000, a hypothetical 10% strengthening of the U.S. dollar relative to the
currencies of foreign countries in which Penton operates created only an
immaterial impact on its financial results.
26
27
PENTON MEDIA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
FINANCIAL STATEMENTS:
Report of Independent Accountants........................... 28
Consolidated Balance Sheets at December 31, 2000 and 1999... 29
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998.......................... 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... 32
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998.............. 33
Notes to Consolidated Financial Statements.................. 34
FINANCIAL STATEMENT SCHEDULE:
Consolidated Financial Statement Schedule II -- Valuation
and Qualifying Accounts................................... 57
All other schedules have been omitted because the required information is
not present, or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
27
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Penton Media, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Penton Media, Inc. (formerly Penton Publishing, Inc. and, prior to
August 7, 1998, a wholly owned subsidiary of Pittway Corporation) and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers, LLP
Cleveland, Ohio
February 7, 2001
28
29
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,605 $ 30,370
Accounts and notes receivable, less allowance for doubtful
accounts of $3,863 and $3,958, respectively............ 70,059 40,199
Inventories............................................... 798 818
Deferred tax assets....................................... 5,562 --
Prepayments, deposits and other........................... 11,763 7,583
Net investment in discontinued operations................. -- 4,228
-------- --------
Total current assets.............................. 99,787 83,198
-------- --------
Property, plant and equipment, at cost:
Land, buildings and improvements.......................... 8,205 3,730
Machinery and equipment................................... 63,998 41,608
-------- --------
72,203 45,338
Less: accumulated depreciation............................ 36,706 30,252
-------- --------
35,497 15,086
-------- --------
Other assets:
Goodwill, less accumulated amortization of $49,142 and
$27,399 in 2000 and 1999, respectively................. 574,626 411,173
Other intangibles, less accumulated amortization of
$14,901 and $9,541 in 2000 and 1999, respectively...... 54,122 40,063
Investments............................................... 17,725 259,859
-------- --------
646,473 711,095
-------- --------
$781,757 $809,379
======== ========
29
30
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
DECEMBER 31,
----------------------
2000 1999
--------- ---------
(DOLLARS IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Senior debt facility...................................... $ 11,250 $ 3,875
Accounts payable.......................................... 12,054 6,397
Income taxes payable...................................... 3,260 10,172
Accrued earnouts.......................................... 14,704 7,447
Accrued compensation and benefits......................... 18,485 8,599
Other accrued expenses.................................... 15,024 11,426
Deferred tax liability.................................... -- 39,634
Unearned income, principally trade show and conference
deposits............................................... 55,772 30,214
-------- --------
Total current liabilities......................... 130,549 117,764
-------- --------
Long-term liabilities and deferred credits:
Revolving credit facility................................. 91,000 --
Senior debt facility...................................... 199,875 211,125
Net deferred pension credits.............................. 15,395 16,269
Deferred taxes............................................ 5,978 60,887
Other..................................................... 2,391 733
-------- --------
314,639 289,014
-------- --------
Shareholders' equity:
Preferred stock, 2,000,000 shares authorized; none
issued................................................. -- --
Common stock, $0.01 par value, 60,000,000 shares
authorized; 31,836,316 and 31,325,896 shares issued and
outstanding at December 31, 2000, and 1999,
respectively........................................... 318 313
Notes receivable officers/directors....................... (10,207) --
Capital in excess of par value............................ 226,446 214,551
Retained earnings......................................... 112,745 36,970
Accumulated other comprehensive income.................... 7,267 150,767
-------- --------
336,569 402,601
-------- --------
$781,757 $809,379
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
30
31
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues.................................................. $404,571 $300,824 $207,682
-------- -------- --------
Operating expenses:
Editorial, production and circulation................... 147,012 116,924 86,091
Selling, general and administrative..................... 166,271 116,592 87,582
Impairment of Internet assets........................... 2,095 -- --
Impairment of other assets.............................. 1,051 -- --
Depreciation and amortization........................... 33,431 27,918 7,791
-------- -------- --------
349,860 261,434 181,464
-------- -------- --------
Operating income.......................................... 54,711 39,390 26,218
Other income (expense):
Interest expense, net of interest earned................ (14,133) (21,131) (5,545)
Gain on sale of investments............................. 110,210 5,906 --
Writedown of Internet investments....................... (9,490) -- --
Miscellaneous, net...................................... (64) (170) (45)
-------- -------- --------
86,523 (15,395) (5,590)
-------- -------- --------
Income from continuing operations before income taxes..... 141,234 23,995 20,628
Provision for income taxes................................ 61,559 16,065 9,442
-------- -------- --------
Income from continuing operations......................... 79,675 7,930 11,186
Discontinued operations:
Income (loss) from discontinued operations (less
applicable income taxes (benefit) of $34, and $(199)
in 1999 and 1998, respectively)...................... -- 33 (296)
Gain (loss) on sale of discontinued operations,
including provision of $60 in 1999 for operating
losses during phaseout period (less applicable income
taxes (benefit) of $(57) and $5,771, in 2000 and
1999, respectively).................................. (85) 8,660 --
-------- -------- --------
(85) 8,693 (296)
Income before extraordinary item.......................... 79,590 16,623 10,890
Extraordinary item -- early extinguishment of debt (net of
income taxes of $5,600)................................. -- (8,413) --
-------- -------- --------
Net income................................................ $ 79,590 $ 8,210 $ 10,890
======== ======== ========
Earnings per common share -- basic:
Income from continuing operations....................... $ 2.51 $ 0.28 $ 0.51
Discontinued operations................................. -- 0.31 (0.01)
Extraordinary item...................................... -- (0.30) --
-------- -------- --------
Net income.............................................. $ 2.51 $ 0.29 $ 0.50
======== ======== ========
Earnings per common share -- diluted:
Income from continuing operations....................... $ 2.49 $ 0.28 $ 0.51
Discontinued operations................................. -- 0.31 (0.01)
Extraordinary item...................................... -- (0.30) --
-------- -------- --------
Net income.............................................. $ 2.49 $ 0.29 $ 0.50
======== ======== ========
Weighted average number of shares outstanding:
Basic................................................... 31,730 28,108 21,882
======== ======== ========
Diluted................................................. 32,010 28,209 21,882
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
32
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- --------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 79,590 $ 8,210 $ 10,890
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 33,431 27,918 7,791
Gain on sale of investments............................. (110,210) (5,906) --
Loss (gain) from discontinued operations................ 85 (8,693) 296
Extraordinary loss on extinguishment of debt............ -- 8,413 --
Deferred income taxes................................... (4,379) (363) (5,093)
Retirement and deferred compensation plans.............. (875) (1,182) (1,584)
Provision for losses on accounts receivable............. 1,714 943 282
Impairment of assets.................................... 1,051 -- --
Impairment of Internet assets........................... 2,095 -- --
Writedown of Internet investments....................... 9,490 -- --
Changes in assets and liabilities, excluding effects from
acquisitions and dispositions:
Accounts and notes receivable......................... (22,817) (3,470) (1,960)
Inventories........................................... 403 (389) 284
Prepayments and deposits.............................. 1,295 869 (1,481)
Accounts payable and accrued expenses................. 7,531 (5,444) 10,170
Unearned income....................................... 12,894 12,325 2,421
Other changes, net.................................... (2,058) 1,126 3,733
--------- --------- --------
Net cash provided by operating activities.......... 9,240 34,357 25,749
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (27,272) (5,884) (5,775)
Acquisitions and investments, net of cash acquired........ (200,996) (57,415) (283,382)
Proceeds from sale of internet.com stock and interests.... 113,100 6,640 18,000
Net proceeds from sale of discontinued operations......... 4,000 28,889 --
--------- --------- --------
Net cash used for investing activities............. (111,168) (27,770) (271,157)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from $325 million senior debt facility........... -- 24,500 306,000
Repayment of $325 million senior debt facility............ -- (330,500) --
Proceeds from $340 million senior debt facility........... 91,000 235,000 --
Repayment of $340 million senior debt facility............ (3,875) (20,000) --
Payment of notes payable.................................. -- (1,000) (38,066)
Payment of financing costs................................ (283) (3,461) (14,754)
Advances to parent company................................ -- -- (4,820)
Proceeds from equity offering, net........................ -- 118,416 --
Employee stock purchase plan.............................. (209) -- --
Proceeds from deferred shares and options exercised....... 473 170 --
Dividends paid............................................ (3,800) (3,246) (1,367)
--------- --------- --------
Net cash provided by financing activities.......... 83,306 19,879 246,993
--------- --------- --------
Effect of exchange rate changes on cash..................... (143) (49) (51)
--------- --------- --------
Net increase (decrease) in cash and equivalents.... (18,765) 26,417 1,534
Cash and equivalents at beginning of period................. 30,370 3,953 2,419
--------- --------- --------
Cash and equivalents at end of period....................... $ 11,605 $ 30,370 $ 3,953
========= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
32
33
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON CAPITAL IN NOTES OTHER
STOCK EXCESS OF RECEIVABLE COMPREHENSIVE
PREFERRED COMMON PAR PAR RETAINED OFFICERS/ INCOME
SHARES SHARES VALUE VALUE EARNINGS DIRECTORS (LOSS) TOTAL
--------- ------ ------ ---------- -------- ---------- ------------- --------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1997....... -- 21,240 $212 $ 29,630 $ 39,771 -- -- $ 69,613
------- ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net income....................... -- -- -- -- 10,890 -- -- 10,890
Other comprehensive income:
Foreign currency
translation
adjustments............. -- -- -- -- -- -- (51) (51)
--------
Comprehensive income............. -- -- -- -- -- -- -- 10,839
--------
Dividends.......................... -- -- -- -- (1,367) -- -- (1,367)
Issuance of common stock:
In connection with
acquisitions................... -- 1,542 16 25,420 -- -- -- 25,436
Dividends to Pittway............... -- -- -- -- (17,032) -- -- (17,032)
------- ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 1998....... -- 22,782 $228 $ 55,050 $ 32,262 -- $ (51) $ 87,489
------- ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net income....................... -- -- -- -- 8,210 -- -- 8,210
Other comprehensive income:
Foreign currency translation
adjustments.................. -- -- -- -- -- -- (787) (787)
Unrealized gain on securities
reported at fair value....... -- -- -- -- -- -- 151,605 151,605
--------
Comprehensive income............. -- -- -- -- -- -- -- 159,028
--------
Dividends.......................... -- -- -- -- (3,502) -- -- (3,502)
Issuance of common stock:
Stock offering................... -- 6,430 64 118,352 -- -- -- 118,416
In connection with
acquisitions................... -- 2,103 21 40,979 -- -- -- 41,000
Exercise of deferred shares and
stock options.................. -- 11 -- 170 -- -- -- 170
------- ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 1999....... -- 31,326 $313 $214,551 $ 36,970 -- $150,767 $402,601
------- ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net Income....................... -- -- -- -- 79,590 -- -- 79,590
Other comprehensive income:
Unrealized loss on securities
reported at fair value....... -- -- -- -- -- -- (73,323) (73,323)
Reclassification adjustment for
gain on securities........... -- -- -- -- -- -- (70,272) (70,272)
Foreign currency translation
adjustment................... -- -- -- -- -- -- 95 95
--------
Comprehensive income............. (63,910)
--------
Dividends.......................... -- -- -- -- (3,815) -- -- (3,815)
Issuance of common stock:
Executive loan program........... -- 410 4 9,662 -- -- -- 9,666
Contingent shares................ -- 52 1 1,428 -- -- -- 1,429
Exercise of stock options........ -- 48 -- 1,014 -- -- -- 1,014
Employee stock purchase plan..... -- -- -- (209) -- -- -- (209)
Receivable from
officers/directors............... -- -- -- -- -- (10,207) -- (10,207)
------- ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 2000....... -- 31,836 $318 $226,446 $112,745 $(10,207) $ 7,267 $336,569
======= ====== ==== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
33
34
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Penton Media, Inc., ("Penton") is a leading diversified
business-to-business media company that produces market focused magazines, Web
sites, trade shows and conferences. Penton's integrated media portfolio serves
the following market sectors: Internet/broadband; information technology;
electronics; design/engineering; natural products; food/retail;
government/compliance; leisure/hospitality; manufacturing; mechanical
systems/construction; supply chain and aviation.
Prior to August 7, 1998, Penton was a wholly owned subsidiary of Pittway
Corporation. On August 7, 1998, Pittway distributed 100% of Penton's common
stock on a share-for-share basis to holders of Pittway stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Penton and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. All acquisitions have been accounted for under the purchase
method of accounting and are included in the consolidated financial statements
from their respective dates of acquisition. The consolidated financial
statements also include the accounts of all companies more than 50% owned where
the Company exercises control.
Investments in companies in which Penton has significant influence, but
less than a controlling voting interest, are accounted for under the equity
method. Investments in companies in which Penton does not have a controlling
interest, or an ownership and voting interest so large as to exert significant
influence, are accounted for at market value if the investments are publicly
traded. Unrealized gain/(loss) on investments accounted for at market value are
reported net-of-tax as a component of accumulated other comprehensive
income(loss) until the investment is sold, at which time the realized
gain/(loss) is included in earnings as the Company considers these investments
to be available for sale. If the investment is not publicly traded, then the
investment is accounted for at cost.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include primarily cash on hand and short-term
investments. Short-term investments that have an original maturity of three
months or less are considered cash equivalents. All investments in debt
securities that have an original maturity of three months or less are considered
to be held to maturity. Short-term securities are carried at amortized cost,
which approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Penton's inventory
consists of paper stock, which is valued using the last-in, first-out (LIFO)
method. The LIFO reserve balances are $0.1 million and $0.3 million at December
31, 2000, and 1999, respectively.
34
35
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Penton records
depreciation using the straight-line method over the following estimated useful
lives:
Computer equipment and software...................... 3-5 years
Furniture, fixtures and equipment.................... 3-10 years
Building............................................. 18-40 years
Leasehold improvements............................... Estimated useful lives or lease term,
whichever is shorter
Depreciation expense amounted to approximately $6.9 million, $4.9 million
and $3.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Maintenance and repair expenditures are charged to appropriate expense
accounts in the period incurred; replacements, renewals and betterments are
capitalized. Upon sale or other disposition of property, the cost and
accumulated depreciation of such properties are eliminated from the accounts,
and the gains or losses thereon are reflected in operations.
INTANGIBLE ASSETS
Goodwill, trademarks and trade names identified in purchase transactions
are amortized using the straight-line method over periods ranging from 15 to 40
years. Effective October 1, 1998, Penton changed its estimated useful life on
goodwill associated with trade show acquisitions from 40 years to 20 years. The
change decreased 1998 net income by $0.3 million, or $0.01 per share. The change
was made to better reflect the estimated useful life of goodwill and to be
consistent with prevalent industry practice.
Other intangibles developed internally or acquired in purchase
transactions, consisting of non-compete agreements, customer mailing lists,
exhibitor lists, patents and copyrights, are being amortized using the
straight-line method over their estimated useful lives, ranging from 3 to 15
years.
Amortization expense amounted to approximately $26.6 million, $23.0 million
and $4.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors events or changes in circumstances that
could indicate that the carrying amount of long-lived assets, including goodwill
and intangible assets, may not be recoverable. Long-lived assets held for use
are reviewed for impairment by comparing estimated undiscounted cash flows over
remaining useful lives to net book value. When impairment is indicated for a
long-lived asset held for use, the amount of impairment loss is the excess of
net book value over fair value. Assets to be disposed of are recorded at the
lower of the carrying amount or fair value less cost of disposal. The Company
evaluates the recoverability of goodwill by estimating the future discounted
cash flows of the businesses to which the goodwill relates. At December 31,
2000, the Company recorded impairment charges related to certain assets, as
discussed in Note 16.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in "Other
intangibles" in the accompanying Consolidated Balance Sheets, and are amortized
over the terms of the related indebtedness.
35
36
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTEREST RATE SWAP AGREEMENTS
Penton's interest rate swap agreements are designated and effective as
modifications to existing debt obligations to reduce the impact of changes in
the interest rates on its floating-rate borrowings and, accordingly, are
accounted for using the settlement method of accounting. The differentials to be
paid or received under the interest rate swap agreements are accrued as interest
rates change and are recognized as adjustments to interest expense. Penton
considers swap terms, including the reference rate, payment and maturity dates,
and the notional amount, in determining if an interest rate swap agreement is
effective at modifying an existing debt obligation. If the criteria for
designation are no longer met or the underlying instrument matures or is
extinguished, Penton accounts for outstanding swap agreements at fair market
value, and any resulting gain or loss is recognized. Any gains or losses upon
early termination of the agreements are deferred and amortized over the shorter
of the remaining life of the hedged existing debt obligation or the original
life of the interest rate swap agreement.
At December 31, 2000 and 1999, the effects of swap transactions were
immaterial and recorded in interest expense. There were no swap agreements in
effect at December 31, 1998.
REVENUE RECOGNITION
Advertising revenues from Penton's trade magazines are recognized in the
month the publications are mailed. Amounts received in advance of trade shows
and conferences are deferred until the month the events are held. As such,
revenues from trade shows and conferences are recognized in the month the events
are held. Web site revenues, which include primarily advertising revenues, are
recognized on a straight-line basis over the contract term. Licensing revenues
are recognized on a straight-line basis over the term of the license agreement.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $26.1 million, $18.2 million and $12.4 million in 2000, 1999 and
1998, respectively.
INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of Penton'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 at December 31, 2000, and
1999; income and expense are translated at the average rates of exchange
prevailing during the applicable year. There were no significant foreign
currency gains or losses in 2000, 1999 or 1998. The effects of translation are
included in "Accumulated other comprehensive income" in shareholders' equity.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per share assumes the exercise of
all options which are dilutive, whether exercisable or not.
36
37
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Penton was required
to adopt this statement in the first quarter of 2000. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138 "Accounting for Certain Derivative and Certain Hedging Activities -- an
Amendment of FASB Statement No 133" (SFAS 138). Penton is required to adopt this
statement effective January 1, 2000. Even though Penton has entered into
interest rate cap, collar and swap agreements, management does not believe that
these statements, when adopted, will have a material impact on Penton's
business, results of operations or financial condition.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provided guidance on applying existing generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company adopted SAB 101 during the fourth quarter of 2000. The adoption of SAB
101 did not have a material effect on the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 presentation.
NOTE 3 -- ACQUISITIONS
2000 ACQUISITIONS
In November 2000, Penton acquired the stock of Group Computing 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 20 years. Group Computing serves Lotus professionals through its magazine
and online resources.
In September 2000, Penton acquired the stock of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.3 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the Windows 2000 and AS/400 operating systems markets.
In September 2000, Penton acquired the assets of Professional Trade Shows
("PTS") for $17.0 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $16.1 million
is being amortized over 20 years. PTS produces 50 regional trade shows for the
plant engineering and maintenance, material handling, buildings and facilities
maintenance, design engineering, and machine tool industries.
In September 2000, Penton acquired the stock of Streaming Media, Inc., for
$65.0 million in cash plus contingent consideration of up to $35 million based
on the achievement of specified business targets in 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $62.9 million is being amortized over periods ranging from 15 to
20 years. Streaming Media, Inc. is a leading integrated media company serving
the streaming media market.
37
38
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 2000, Penton acquired the stock of Meko Ltd. ("Meko") of Surrey,
UK, for $0.3 million in cash. The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $0.3 million is
being amortized over 20 years. Meko Ltd. is a provider of newsletters,
comprehensive market studies, and custom information services for the European
computer display market.
In July 2000, Penton acquired the assets of National Advisory Group ("NAG")
for $1.5 million in cash. The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately $1.4 million is being
amortized over 20 years. NAG is a trade group serving the convenience store and
petroleum marketing industry through its business development services and its
conferences.
In May 2000, Penton purchased 50% of the outstanding stock of a German
Corporation, ComMunic GmbH, which produces trade shows, conferences and business
publications in Germany and its German speaking neighboring countries. ComMunic
serves the Internet, telecommunications and other growing technology markets.
Penton paid approximately $1.4 million in cash with the potential for future
contingent payments in 2000 and 2001 tied to future earnings. At December 31,
2000, Penton accrued contingent payments of approximately $2.9 million.
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 5 years. The
assets of Profit.Net, Inc. include bakery-net.com, a Web site for the commercial
baking market. At December 31, 2000, Penton accrued contingent payments of $0.1
million.
1999 ACQUISITIONS
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 among Internet
technology standards bodies, technology product vendors and the IT user
community to speed market adoption of next-generation Internet technologies. At
December 31, 2000, Penton accrued contingent payments of approximately $1.7
million.
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.
In May 1999, Penton acquired substantially all of 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. 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,
38
39
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
magazines and Web sites. At December 31, 2000 and 1999, Penton accrued
contingent payments of approximately $10.1 million and $2.3 million,
respectively. The 2000 contingent payment was paid all in cash.
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. At December 31,
1999, Penton accrued $1.0 million for the 1999 contingent payout. No amounts
were accrued for 2000. 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.
1998 ACQUISITIONS
In November 1998, Penton completed a cash tender offer for all the
outstanding shares of Mecklermedia Corporation ("Mecklermedia"). Each
Mecklermedia shareholder received $29.00 in cash for each share of common stock
held. The total value of the transaction was $273.8 million, funded with the net
proceeds from Penton's credit facility. Simultaneous with the completed
transaction, Penton sold an 80.1% equity interest in internet.com Corporation to
Alan M. Meckler for $18.0 million (see Note 6) and renamed Mecklermedia Internet
World Media, Inc ("IWM"). The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately $244.0 million is
being amortized over periods ranging from 20 to 40 years. Penton increased its
goodwill by $1.5 million in 1999 as a result of resolving certain contingencies
existing at the date of acquisition. IWM is a business media company serving the
Internet market through publications, trade shows and conferences, and Web
sites.
In August 1998, Penton completed the acquisition of DM Publishing for $7.0
million in cash, 1,541,638 shares of Penton common stock and an additional $3.0
million in cash based on DM Publishing's pre-tax income for the years 1998 and
1999. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $31.3 million is being amortized over 40
years.
NOTE 4 -- DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss through the date of sale of $0.08 million, net of a tax benefit
of $0.06 million, was recorded and classified as loss on sale of discontinued
operations in the accompanying financial statements for the year ended December
31, 2000. This was in addition to the $0.06 million that was accrued in 1999.
39
40
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results for the discontinued Direct Mail segment for 1999 and
1998 are as follows (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
---------- ----------
Revenues.................................................... $12,199 $13,779
------- -------
Loss before income tax benefit.............................. (464) (1,316)
Benefit for income taxes.................................... (186) (527)
------- -------
Loss from discontinued operations........................... $ (278) $ (789)
======= =======
On November 30, 1999, Penton sold its Printing segment, realizing cash
proceeds of $31.0 million. The sale resulted in a gain of $9.3 million, net of
$6.2 million in income taxes. Operating results of the discontinued Printing
segment for 1999 and 1998 are as follows (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------
1999 1998
---------- ----------
Revenues.................................................... $10,424 $11,657
------- -------
Income before income tax expense............................ 531 821
Provision for income taxes.................................. 220 328
------- -------
Income from discontinued operations......................... $ 311 $ 493
======= =======
NOTE 5 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the years ended
December 31, 2000 and 1999, assumes that the 1999 and 2000 acquisitions occurred
as of the beginning of the respective periods, after giving effect to certain
adjustments, including the amortization of intangible assets, interest expense
on acquisition debt, offering proceeds used directly for acquisitions and
related income tax effects. The pro forma information excludes the effects of
synergies and cost reduction initiatives directly related to all acquisitions.
These actions have already commenced and are expected to continue in the year
2001.
40
41
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
YEARS ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
Pro forma revenues.......................................... $449,366 $376,205
======== ========
Pro forma income (loss) from continuing operations.......... $ 72,710 $ (1,093)
======== ========
Pro forma net income (loss) applicable to common
shareholders.............................................. $ 72,625 $ (813)
======== ========
Per share data:
Earnings per common share -- basic:
Income (loss) from continuing operations.................. $ 2.29 $ (0.04)
Discontinued operations................................... -- 0.31
Extraordinary item........................................ -- (0.30)
-------- --------
Net income (loss)......................................... $ 2.29 $ (0.03)
======== ========
Earnings per common share -- diluted:
Income (loss) from continuing operations.................. $ 2.27 $ (0.04)
Discontinued operations................................... -- 0.31
Extraordinary item........................................ -- (0.30)
-------- --------
Net income (loss)......................................... $ 2.27 $ (0.03)
======== ========
The pro forma information above does not include the operations of Jon
Peddie and Multimedia Week, which were acquired in 1999, and Profit.Net, Inc.
and ComMunic, which were acquired in 2000, as the historical information is
immaterial.
NOTE 6 -- INVESTMENTS
In November 1998, Penton entered into a joint venture agreement with Mr.
Meckler, formerly associated with Mecklermedia, with respect to internet.com,
LLC. As part of the acquisition of Mecklermedia, Penton sold 80.1% of its
interest in internet.com, LLC to Mr. Meckler; other ownership interests were
contributed to internet.com, LLC management such that Penton's ownership
interest decreased to 19.0%. In April and June 1999, Penton contributed $0.4
million in cash and exercised a warrant for $3.0 million in cash, respectively,
increasing its ownership interest from 19.0% to 27.4%.
In June 1999, internet.com, LLC converted into a corporation and completed
its initial public offering at $14.00 per share. At that time, Penton received
5,483,383 shares in exchange for its interest in internet.com, LLC, retaining a
23.4% ownership interest. In July 1999, Penton sold 510,000 shares of
internet.com Corporation stock as part of internet.com Corporation's initial
public offering over-allotment option, which reduced Penton's ownership interest
to 21.25%. Penton received cash of $6.6 million, net of expenses, and recognized
a gain of $5.9 million. 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. At December 31, 2000, Penton maintains an 11.8% ownership
interest, representing approximately 3.0 million shares, in internet.com
Corporation.
Prior to the sale of its shares in February 2000, Penton did not have
significant influence over the operating affairs of internet.com Corporation and
intended for its investment to be temporary; accordingly, Penton marked to
market its investment in internet.com Corporation and continues to mark its
investment to market as it is an available for sale security. At December 31,
2000, the fair market value of Penton's
41
42
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investment totaled $17.7 million, including a cumulative mark to market
adjustment of $13.4 million and related adjustment in long-term deferred taxes
of $5.3 million and other comprehensive income of $8.0 million.
NOTE 7 -- DEBT
SENIOR SECURED CREDIT FACILITY
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 December 31, 2000, Penton was in compliance with all loan
covenants.
In October 2000, Penton amended its Credit Agreement to give the Company
the option to increase, in the aggregate, its Term Loan A, Term Loan B and/or
its Revolver by $100.0 million. The Term Loans and the Revolver cannot be
increased on more than three separate occasions and any increase must take place
by September 30, 2001.
In April 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. At December 31, 2000, $91.0 million was
outstanding under the revolving credit facility. Penton has agreed to pay a
commitment fee ranging from 0.375% to 0.50%, based on Penton's consolidated
leverage ratio, on the average unused portion of the revolving credit facility
commitment.
Term Loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At December 31, 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 December
31, 2000, $136.5 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 December 31, 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 December 31, 2000, $74.6 million was outstanding under Term Loan B.
42
43
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2000, the scheduled principal payments of the Term A and
B loans for the next five years and thereafter are as follows (in thousands):
YEAR AMOUNT
- ---- --------
2001........................................................ $ 11,250
2002........................................................ 18,250
2003........................................................ 25,250
2004........................................................ 32,250
2005........................................................ 35,750
Thereafter.................................................. 88,375
--------
$211,125
========
In the third quarter of 1999, Penton recognized a non-cash extraordinary
charge of approximately $6.3 million ($0.20 per share), net of $4.2 million in
taxes, relating to the write-off of unamortized deferred finance costs
associated with the former credit facility. In May 1999, Penton recognized a
non-cash extraordinary charge of approximately $2.1 million ($0.08 per share),
net of approximately $1.4 million in taxes, for the write-off of unamortized
deferred finance costs upon the extinguishment of part of the outstanding former
senior debt with the proceeds from the 6.5 million share common stock offering
completed in May 1999.
The Credit Agreement requires Penton to hedge not less than 50% of the term
loans outstanding for a period of at least three years (see Note 8).
Cash paid for interest for 2000, 1999 and 1998, was $19.5 million, $19.9
million and $5.5 million, respectively. Included in interest expense in the
Consolidated Statements of Income are $3.6 million, $0.9 million and $0.01
million of interest income for 2000, 1999 and 1998, respectively.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued expenses approximate fair value due to
the short maturity of these instruments. The fair values of certain investments
are determined using quoted market prices for those securities. The carrying
amount of long-term debt approximates fair value, as the effective rates for
these instruments are comparable to market rates at year-end.
At December 31, 2000, Penton had the following interest rate instruments in
effect that provide protection on the three-month LIBOR rate upon which Penton's
variable-rate term loans are based (actual rate paid is LIBOR plus the
respective margin) (in thousands):
NOTIONAL
AMOUNT RATE PERIOD
-------- ---- -----------
Interest rate swap.......................................... $26,875 6.22% 1/00-10/02
Interest rate swap.......................................... $35,832 6.77% 5/00-11/02
Interest rate swap.......................................... $25,000 7.09% 6/00-12/01
Interest rate swap.......................................... $17,916 5.95% 9/99-10/02
Interest rate cap........................................... $26,875 8.50% 10/99-10/02
Interest rate cap........................................... $28,500 8.50% 2/99-2/01
At December 31, 2000 and 1999, the interest rate instruments, had fair
values of $(1.2) million and $0.4 million, respectively. The Company is exposed
to credit loss in the event of non-performance by the other parties to the
interest rate swap agreements. However, the Company does not anticipate
non-performance by the counter-parties as they are major financial institutions.
The Company controls the credit risk of its interest rate swap agreements
through credit approvals, limits and monitoring procedures.
43
44
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The source of income (loss) on continuing operations before income tax
expense consists of (in thousands):
2000 1999 1998
-------- ------- -------
U.S. domestic........................ $135,164 $23,021 $20,359
Foreign.............................. 6,070 974 269
-------- ------- -------
$141,234 $23,995 $20,628
======== ======= =======
The provision for income taxes (benefits) on continuing operations in the
consolidated statements of income is as follows (in thousands):
2000 1999 1998
------- ------- -------
Current --
Federal............................. $51,052 $12,797 $11,379
State and local..................... 12,828 2,837 2,423
Foreign............................. 2,058 794 733
------- ------- -------
65,938 16,428 14,535
------- ------- -------
Deferred --
Federal............................. (3,814) (301) (4,348)
State and local..................... (565) (62) (816)
Foreign............................. -- -- 71
------- ------- -------
(4,379) (363) (5,093)
------- ------- -------
$61,559 $16,065 $ 9,442
======= ======= =======
The consolidated provision for income taxes comprises the following (in
thousands):
2000 1999 1998
------- ------- ------
Provision for income taxes from continuing
operations:.................................... $61,559 $16,065 $9,442
Provision for income taxes (benefit) from
discontinued operations:....................... (57) 5,805 (199)
Provision for income (benefit) from extraordinary
item:.......................................... -- (5,600) --
------- ------- ------
Consolidated tax provision....................... $61,502 $16,270 $9,243
======= ======= ======
The difference between the actual income tax provision on continuing
operations and the tax provision computed by applying the statutory federal
income tax rate of 35% to income before income taxes is as follows (in
thousands):
2000 1999 1998
------- ------- ------
Income tax at statutory rate..................... $49,432 $ 8,398 $7,220
Tax effect of:
State income taxes, net of federal benefit..... 7,766 1,804 1,049
Non-deductible goodwill........................ 5,104 4,830 --
Non-deductible expenses........................ 259 548 1,173
Other items, net............................... (1,002) 485 --
------- ------- ------
Actual income tax provision...................... $61,559 $16,065 $9,442
======= ======= ======
Effective income tax rate........................ 43.6% 67.0% 45.8%
======= ======= ======
44
45
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities at December 31, 2000,
1999 and 1998 is as follows (in thousands):
2000 1999 1998
-------- --------- --------
Deferred tax assets --
Deferred pension credits.................. $ 6,100 $ 6,532 $ 7,087
Accrued vacation.......................... 889 989 1,335
Bad debts................................. 1,963 1,551 2,541
Reserves recorded for financial reporting
purposes............................... 3,420 2,107 1,735
Inventory capitalization.................. 270 158 164
Investment writedown...................... 3,821 -- --
Branch net operating losses............... 1,133 452 --
Other..................................... 13 30 379
-------- --------- --------
Total deferred tax assets......... 17,609 11,819 13,241
-------- --------- --------
Deferred tax liabilities --
Mark to market adjustment for
securities............................. (5,340) (101,070) --
Depreciation.............................. (896) (1,366) (3,312)
Amortization.............................. (10,265) (9,209) (9,249)
Trade show expenses....................... (954) (668) (196)
Other..................................... (570) (27) --
-------- --------- --------
Total deferred tax liabilities.... (18,025) (112,340) (12,757)
-------- --------- --------
Net deferred tax asset (liability).......... $ (416) $(100,521) $ 484
======== ========= ========
These balances are allocated between "Current assets" and "Long-term
liabilities" in the accompanying Consolidated Balance Sheets.
The net change from the net deferred liability as of December 31, 2000, and
the net deferred liability as of December 31, 1999, is primarily the result of
the mark to market adjustment for investments, with such change having a balance
sheet impact only.
For 2000, 1999, and 1998, cash paid for income taxes was $71.6 million,
$13.9 million and $10.0 million, respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Penton has various non-contributory retirement plans covering substantially
all current and former domestic employees. Retirement benefits for employees in
foreign countries generally are provided by national statutory programs.
Benefits for domestic employees are based on years of service and annual
compensation as defined by each plan.
45
46
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the plan and amounts
recognized in the Consolidated Balance Sheets (in thousands):
2000 1999
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1......................... $ 37,433 $ 42,370
Service cost....................................... 1,889 2,107
Interest cost...................................... 3,089 2,666
Benefits paid...................................... (5,236) (2,947)
Actuarial (gain) loss.............................. 3,555 (6,099)
Plan amendments.................................... 604 91
Curtailments....................................... -- (755)
-------- --------
Benefit obligation, December 31....................... $ 41,334 $ 37,433
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1.................. $ 40,908 $ 37,800
Actual return on plan assets....................... 10,100 6,055
Benefits paid...................................... (5,236) (2,947)
-------- --------
Fair value of plan assets, December 31................ $ 45,772 $ 40,908
======== ========
FUNDED STATUS OF THE PLAN
Projected benefit obligation (in excess of) less than
fair value of assets, December 31.................. $ 4,503 $ 3,475
Unrecognized actuarial gain........................... (20,795) (19,926)
Unrecognized prior service cost....................... 897 1,022
Unrecognized net transition asset..................... -- (840)
-------- --------
Net deferred pension credits.......................... $(15,395) $(16,269)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Accrued benefit cost.................................. $(15,395) $(16,269)
Additional minimum liability.......................... (297) --
Intangible assets..................................... 297 --
-------- --------
Net amount recognized, December 31.................... $(15,395) $(16,269)
======== ========
ASSUMPTIONS AS OF DECEMBER 31
Discount rate
Pre-Retirement..................................... 7.50% 8.00%
Post-Retirement.................................... 6.50% 7.00%
Expected return on plan assets........................ 9.00% 9.00%
Weighted-average salary increase rate................. 5.00% 5.00%
46
47
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the components of pension expense for the
years ended December 31, (in thousands, except for percentages):
2000 1999 1998
------- ------- -------
NET PERIODIC COST
Service cost.................................. $ 1,889 $ 2,107 $ 1,684
Interest cost................................. 3,089 2,666 2,488
Expected return on assets..................... (3,737) (3,782) (3,065)
Amortization of:
Transition asset........................... (840) (841) (841)
Prior service cost......................... 169 346 357
Actuarial (gain) loss...................... (1,445) (1,678) (2,207)
------- ------- -------
Net pension expense (income).................... $ (875) $(1,182) $(1,584)
------- ------- -------
Related to Printing segment:
Cost of special termination benefits.......... -- 91 --
Curtailment gain.............................. -- (647) --
------- ------- -------
Total net periodic pension cost
(benefit)........................... $ (875) $(1,738) $(1,584)
======= ======= =======
ASSUMPTIONS AS TO PERIODIC PENSION COST
Discount rate
Pre-Retirement............................. 8.00% 7.75% 7.00%
Post-Retirement............................ 7.00% 6.75% 7.00%
Expected return on plan assets................ 9.00% 9.00% 7.00%
Weighted-average salary increase rate......... 5.00% 5.00% 5.00%
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In February 2000, the Board of Directors approved the addition of 10 key
employees to participate in Penton's supplemental executive retirement plan
("SERP") in addition to the two executives already participating in the plan.
The projected benefit obligation and accumulated benefit obligation, for the
SERP plan, which has an accumulated benefit obligation in excess of plan assets,
were $0.8 million and $0.5 million, respectively, as of December 31, 2000.
Amounts in 1999 were immaterial. The SERP plan is an unfunded, non-qualified
plan, and hence has no plan assets.
401(K) PLAN
Effective September 1, 1998, the Company adopted the Penton Media, Inc.
Retirement Savings Plan (the "401(k) Plan") covering substantially all domestic
officers and employees. The 401(k) Plan permits participants to defer up to a
maximum of 15% of their compensation. Penton matches 50% of the employee's
contributions up to a maximum of 6% of the employee's annual compensation. The
employee's contribution and Penton's matching contribution vest immediately.
Penton's contributions to the 401(k) Plan for the years ended December 31, 2000,
1999, and 1998 were $1.7 million, $1.5 million and $0.4 million, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Penton leases certain office space and equipment under non-cancelable
operating leases. Some of the leases contain renewal options, and certain
equipment leases include options to purchase during or at the end of the lease
term. Following is a schedule of approximate annual future minimum rental
payments required
47
48
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of December 31, 2000 (in thousands):
YEARS ENDING
DECEMBER 31,
- ------------
2001........................................................ $ 8,257
2002........................................................ 7,544
2003........................................................ 6,731
2004........................................................ 5,992
2005........................................................ 5,549
Thereafter.................................................. 19,801
-------
$53,874
=======
On January 5, 2000, Penton signed a 10-year lease agreement to relocate its
corporate headquarters. The lease begins on December 1, 2000, with annual
minimum rental payments for 2001, 2002, 2003, 2004 and thereafter of $2.5
million, $2.6 million, $2.6 million, $2.6 million and $16.6 million,
respectively. The lease provides that Penton pay taxes, maintenance, insurance
and certain other operating expenses applicable to the premises. Penton has an
option to extend this lease for two terms of five years each.
Future minimum lease payments under capital leases are as follows (in
thousands):
YEARS ENDING
DECEMBER 31,
- ------------
2001........................................................ $101
2002........................................................ 57
2003 and Thereafter......................................... 17
Less: amount representing interest.......................... (17)
----
Present value of net minimum lease payments................. 158
Less: current portion....................................... (73)
----
Long-term obligations (included in other long-term
liabilities).............................................. $ 85
====
For the years ended December 31, 2000, 1999, and 1998, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by Penton was approximately $8.4 million, $7.5 million and $6.3
million, respectively.
In connection with the acquisition of Mecklermedia, a lawsuit was brought
against Penton by a former shareholder of Mecklermedia for an unspecified
amount, as well as other relief. The plaintiff is claiming that Penton violated
federal securities laws by selling Mr. Meckler an 80.1% interest in
internet.com, LLC for what the plaintiff alleges was a below-market price,
thereby giving to Mr. Meckler more consideration for his common stock in
Mecklermedia than was paid to the other shareholders of Mecklermedia. Penton
believes that the allegations are without merit and intends to contest them
vigorously. 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.
In the normal course of business, Penton is subject to a number of lawsuits
and claims, both actual and potential in nature. While management believes that
resolution of existing claims and lawsuits will not have a
48
49
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
material adverse effect on Penton's financial statements, management is unable
to estimate the magnitude or financial impact of claims and lawsuits that may be
filed in the future.
NOTE 12 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
In connection with the spinoff (see Note 1), Penton amended its Certificate
of Incorporation in June 1998, to authorize capital stock consisting of
60,000,000 shares of common stock, par value $0.01 per share, and 2,000,000
shares of preferred stock, par value $0.01 per share. Immediately thereafter,
Penton issued 21,240,000 shares of common stock in replacement of the 1,000
shares of $1 par value stock previously outstanding. An amount of $0.2 million
was transferred from capital in excess of par value to common stock. The
financial statements and related notes have been restated to reflect this
re-capitalization retroactively. Penton's transfer agent and registrar for
preferred and common shares is Computershare Investor Services LLC.
STOCK OFFERINGS
In September 2000, Penton arranged a secondary offering in which existing
shareholders, other than management, offered 3,638,320 shares of common stock at
a price of $30.00 per share. The Company did not receive any proceeds from this
offering.
In May 1999, Penton completed a 6,500,000 common share offering. Penton
offered 6,250,000 of the shares and existing shareholders offered 250,000
shares. The underwriters exercised their option to purchase an additional
180,000 shares from Penton and 795,000 shares from existing shareholders to
cover over-allotments. Penton received net proceeds of approximately $118.4
million, which were used to repay debt, finance the acquisition of New Hope and
for general corporate purposes. Penton did not receive any proceeds from the
shares sold by the selling shareholders.
SHAREHOLDER RIGHTS AGREEMENT
In June 2000, the Company adopted a Shareholder Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with the Company's 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 the Company's 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 the Company's common stock.
Under this option, the Company 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. The Rights Agreement has no impact on the financial statements or
earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, the Company established 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 allows employees to purchase common stock at 85% of the lower of the
market price at the beginning or end of each quarter. This plan was deemed to be
non-compensatory pursuant
49
50
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the appropriate sections of the Internal Revenue Service Codes. As of
December 31, 2000, 38,002 shares were purchased by employees under this plan.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, the Company established 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 (of no less than two years) selected by the participant, or upon
termination of employment. In February 2001 and 2000, respectively, 31,942 RSUs
and 25,507 RSUs were granted at a fair market value of $25.10 and $25.94 per
share. As of December 31, 2000, 25,507 RSUs were outstanding. The discount is
recorded as compensation expense over the vesting period.
EXECUTIVE LOAN PROGRAM
In January 2000, the Company established the Executive Loan Program, which
allowed Penton to issue an aggregate of up to 400,000 shares of Penton common
stock at fair market value to six key executives, in exchange for recourse
notes. In addition, on October 27, 2000, the Board of Directors authorized one
additional executive to borrow up to $1.0 million under the Executive Loan
Program for the purchase of Penton stock at fair value in exchange for a
recourse note. All 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 December 31, 2000, 410,000 shares had been
issued under the Executive Loan Program and the outstanding loan balance was
approximately $10.2 million (including $0.5 million of accrued interest), which
is classified in the shareholders' equity section of the balance sheet as notes
receivable from officers and directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Effective August 1998, Penton established the Equity and Performance
Incentive Plan, a stock plan under which Penton may issue non-qualified stock
options and other awards to key employees, including officers, up to an
aggregate of 2,500,000 shares of common stock. Awards may be issued in the form
of options to purchase shares of common stock, stock appreciation rights
("SARs"), restricted shares, deferred shares, performance shares and performance
units.
In 2000 and 1999, 719,654 shares and 405,749 shares, respectively, were
granted under the Equity and Performance Incentive Plan, of which 548,600 and
349,500, respectively, were stock options; 0 and 56,249, respectively, were
deferred shares; and 171,054 and 0, respectively, were performance shares.
Stock Options
Options granted under the plan generally vest equally over three years from
the date of grant. However, most options granted are not exercisable until the
third anniversary. All options granted pursuant to the plan will expire no later
than 10 years from the date the option was granted.
50
51
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a summary of Penton's stock option activity
and related information for the years ended 1998, 1999 and 2000 (in thousands,
except per share amounts):
NUMBER OF OPTIONS
----------------------
EMPLOYEES DIRECTORS WEIGHTED AVERAGE
--------- --------- ----------------
Granted................................ 686 69 $16.23
Exercised.............................. -- -- --
Canceled............................... (5) -- $16.23
----- --
Balance, December 31, 1998............. 681 69
----- --
Granted................................ 349 -- $21.50
Exercised.............................. (4) -- $16.23
Canceled............................... (65) -- $17.70
----- --
Balance, December 31, 1999............. 961 69
----- --
Granted................................ 519 30 $22.72
Exercised.............................. (37) (8) $17.63
Canceled............................... (70) -- $20.51
----- --
Balance, December 31, 2000............. 1,373 91
===== ==
The following table summarizes information about stock options outstanding
at December 31, 2000 (in thousands, except number of years and per share
amounts):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- OPTIONS WEIGHTED-
NUMBER REMAINING AVERAGE EXERCISABLE AT AVERAGE
OF CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE OPTIONS LIFE PRICE 2000 PRICE
- -------------- ------- ----------- --------- -------------- ---------
$29.19 ... 20 9.8 years $29.19 -- --
$27.75 ... 16 9.4 years $27.75 -- --
$22.94 ... 484 9.2 years $22.94 -- --
$21.50 ... 298 8.1 years $21.50 -- --
$16.23 ... 646 7.5 years $16.23 85 $16.23
Deferred Shares
As noted above, 56,249 deferred shares were granted in 1999. Of these
shares, 47,553 shares vest on the third anniversary of the grant date, while the
remaining 8,696 shares vest at the rate of 20% per year over a five-year period
from date of grant. Compensation expense is being recognized over the related
vesting period based on the fair value of the shares at the date of grant.
During 2000 and 1999, approximately $0.4 million and $0.08 million,
respectively, were charged to expense for these shares. The Board of Directors
may authorize the payment of dividend equivalents on such shares on a current,
deferred or contingent basis, either in cash or in additional shares of common
stock. At December 31, 2000, no such authorization had been made.
51
52
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Shares
As noted above, during 2000, the Board of Directors approved grants for an
aggregate of 171,054 performance shares to several key executives. Subject to
the attainment of certain performance goals over a three-year period, from
January 1, 2000 through December 31, 2002, each grantee is eligible to receive
up to 150% of the granted shares. Performance shares are not issuable until
earned. Compensation expense related to these shares is recorded over the
performance period.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Penton accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and not the fair
value method as provided by Financial Accounting Standard 123, "Accounting and
Disclosure of Stock-Based Compensation" ("FAS 123"). Penton's Equity and
Incentive Plan requires options to be granted at the market price on Penton's
common stock on the date the options are granted and, as a result, under APB 25,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if Penton had accounted for its
employee stock options under the fair value method of FAS 123. The weighted
average fair value of options granted in 2000, 1999 and 1998 was $10.95, $5.07
and $3.70 respectively. For purposes of the pro forma presentation, the fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model, under the following assumptions for 2000,
1999 and 1998:
2000 1999 1998
------- ------- -------
Risk-free interest rate................. 5.06% 6.20% 5.40%
Dividend yields......................... 0.40% 0.50% 0.30%
Expected volatility..................... 55.93% 61.25% 70.60%
Expected life........................... 4 years 4 years 4 years
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair values of the options granted at the grant dates,
consistent with FAS 123, Penton's net income and earnings per share would have
been as follows (dollars in thousands, except per share data):
2000 1999 1998
------- ------ -------
Net income applicable to common shareholders
As reported............................................... $79,590 $8,210 $10,890
Pro forma................................................. $77,406 $6,238 $10,007
Basic earnings per share
As reported............................................... $ 2.51 $ 0.29 $ 0.50
Pro forma................................................. $ 2.44 $ 0.22 $ 0.46
Diluted earnings per share
As reported............................................... $ 2.49 $ 0.29 $ 0.50
Pro forma................................................. $ 2.42 $ 0.22 $ 0.46
NOTE 13 -- RELATED-PARTY TRANSACTIONS
Included in the Consolidated Statement of Income for 1998 is an allocation
of corporate expenses related to services provided for Penton by Pittway. This
allocation was based on an estimate of the incremental corporate expenses
related to Penton's operations for the period presented, and, in the opinion of
management, has been made on a reasonable basis. However, the allocation is not
necessarily indicative of the level of expenses that might have been incurred
had Penton been a separate company. The aggregate allocated costs
52
53
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
totaled $0.02 million for 1998. Penton's employees also participated in
Pittway's pension plan. Certain Penton employees participated in Pittway's 1990
stock awards plan, for which Pittway allocated costs to Penton totaling $1.2
million in 1998.
Other transactions between Penton and Pittway, consisting principally of
taxes and other reimbursable expenses paid by Pittway, have been reflected in
the 1998 financial statements as though on a stand-alone basis, except that no
interest income or expense has been allocated on intercompany balances.
Pittway utilized a centralized cash management system. Under this system,
cash generated by Penton in excess of its cash requirements (including cash
requirements for Penton's income taxes and other reimbursable expenses paid by
Pittway) was transferred to Pittway. In August 1998, a final non-cash dividend
of $12.2 million was made to Pittway.
NOTE 14 -- EARNINGS PER SHARE
Earnings per share ("EPS") have been computed pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Computations of basic and diluted earnings per share for the years ended
December 31, 2000, 1999 and 1998 are as follows (in thousands, except per share
amounts):
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Income from continuing operations applicable to common
shareholders.............................................. $79,675 $ 7,930 $11,186
======= ======= =======
Number of shares:
Basic -- average shares outstanding......................... 31,730 28,108 21,882
Effect of dilutive securities:
Stock options............................................. 280 71 --
Deferred shares........................................... -- 3 --
Contingent shares......................................... -- 27 --
------- ------- -------
Diluted -- average shares outstanding....................... 32,010 28,209 21,882
======= ======= =======
Per share amount:
Income from continuing operations
Basic..................................................... $ 2.51 $ 0.28 $ 0.51
Diluted................................................... $ 2.49 $ 0.28 $ 0.51
Options to purchase 750,055 shares of common stock at $16.23 per share were
outstanding at December 31, 1998, but were not included in the computation of
diluted earnings per share because the options would have been anti-dilutive.
NOTE 15 -- COMPREHENSIVE INCOME
Comprehensive income, which is displayed in the Consolidated Statements of
Shareholders' Equity, represents net income plus the results of certain
shareholder equity changes not reflected in the Consolidated Statements of
Income.
53
54
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The after-tax components of other comprehensive income (loss) are as
follows:
2000 1999 1998
-------- -------- -------
Net income.................................................. $ 79,590 $ 8,210 $10,890
Change in unrealized gain (loss) on securities reported at
fair value, net of tax of $29.3 million and $60.6 million
in 2000 and 1999, respectively............................ (73,323) 151,605 --
Reclassification adjustment for gain on sale of securities,
net of tax of $28.1 million in 2000....................... (70,272) -- --
Change in accumulated translation adjustments............... 95 (787) (51)
-------- -------- -------
Comprehensive income...................................... $(63,910) $159,028 $10,839
======== ======== =======
NOTE 16 -- BUSINESS RESTRUCTURING AND OTHER CHARGES
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 the
agreement, Penton purchased 250,000 shares of Cayenta stock, which was recorded
at its historical cost of $6.3 million due to the Company's inability to exert
significant influence over Cayenta.
In June 2000, Penton entered into a strategic investment and partnership
agreement with LeisureHub.com, an online B2B trading community for the global
leisure industry. Penton paid approximately $3.4 million for a 19.9% stake in
the company. As Penton has the ability to exercise significant influence over
LeisureHub.com, the Company accounts for its investment using the equity method
of accounting.
During the fourth quarter of 2000, the Company determined that its
investments in Cayenta and Leisurehub.com had suffered declines in value that
were other than temporary. The decision was based on current market conditions,
economic outlook and the future viability of these companies. As a result, the
Company recognized losses totaling $9.5 million and reduced its investment in
Cayenta Inc., and Leisurehub.com to zero.
The Company wrote off $2.1 million of impaired assets related to certain
internally funded Internet media initiatives. The Company is adjusting its
portfolio of Internet media products to focus on those that are demonstrating
revenue growth, customer acceptance and near-term opportunity for profit. The
impaired assets related to certain abandoned projects. The Company expects to
take approximately $5.0 million in restructuring charges in the first quarter of
2001 as a result of these actions.
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 approximately a $1.0 million non-cash
charge in 2000 to write down the carrying value of certain leasehold
improvements, furniture and fixtures, and computer equipment to fair value.
NOTE 17 -- SEGMENT INFORMATION
Historically, Penton had three reportable segments: Media Services,
Printing and Direct Mail. As discussed in Note 4, due to the sale of the
Printing and Direct Mail segments, Penton currently has only one segment. The
Media Services segment serves specific industries with integrated product
offerings.
54
55
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues by product offerings are as follows for the years ended December
31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
-------- -------- --------
Publishing and other....................................... $230,120 $202,472 $179,729
Trade shows and conferences................................ 168,436 97,444 27,953
Internet................................................... 6,015 908 --
-------- -------- --------
$404,571 $300,824 $207,682
======== ======== ========
Domestic revenues of our products and services comprised $362.9 million,
$277.3 million and $191.7 million of total revenues for the years ended December
31, 2000, 1999 and 1998, respectively. Foreign revenues totaled $41.7 million,
$23.5 million and $16.0 million of our revenues for the years ended December 31,
2000, 1999 and 1998, respectively, of which $15.6 million, $17.8 million and
$12.0 million, respectively, were from the United Kingdom. No single customer
accounted for 10% or more of sales during 2000, 1999, and 1998.
Long-lived assets at December 31, 2000, 1999 and 1998 include $36.4
million, $31.3 million and $31.7 million, respectively, identified with foreign
operations, substantially all of which are intangible assets, with the remaining
assets identified with domestic operations. Long-lived assets from the United
Kingdom comprise $29.8 million, $31.2 million and $31.7 million of these foreign
assets.
NOTE 18 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
INVESTING ACTIVITIES
Penton assumed liabilities of approximately $21.0 million, $5.6 million and
$5.1 million in connection with acquisitions completed in 2000, 1999 and 1998,
respectively. In conjunction with the acquisition of New Hope in May 1999,
Penton issued 2.1 million common shares valued at $41.0 million as
consideration.
In 2000 and 1999, Penton marked to market its investment in internet.com
Corporation stock by approximately $13.4 million and $252.7 million
respectively.
At December 31, 1999, Penton had $4.2 million of net investment in
discontinued operations for the Direct Mail segment and a related non-cash loss
of $0.7 million.
FINANCING ACTIVITIES
At December 31, 2000, 1999 and 1998, dividends of $1.0 million, $0.9
million and $0.7 million, respectively, were declared and not paid.
In August 1998, a final non-cash dividend of $12.2 million was made to
Pittway. In addition, 1,541,638 shares of common stock were issued in
conjunction with the DM publishing acquisition.
The foregoing transactions do not provide or use cash and, accordingly, are
not reflected in the statements of cash flows.
55
56
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2000 and
1999 are shown below (dollars in thousands, except per share amounts):
2000 QUARTERS
--------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- -------- ------- -------- --------
Revenues.................................. $75,825 $109,058 $76,720 $142,968 $404,571
Operating income (loss)................... 3,384 24,574(b) (714) 27,467(c) 54,711
Income (loss) from continuing
operations.............................. 66,423(a) 8,695 (1,244) 5,801(d) 79,675
Discontinued operations................... (85) -- -- -- (85)
Net income (loss)......................... 66,338 8,695 (1,244) 5,801 79,590
Earnings per share (basic):
Income (loss) from continuing
operations........................... 2.10 0.27 (0.04) 0.18 2.51
Discontinued operations................. -- -- -- -- --
Net income (loss)....................... 2.10 0.27 (0.04) 0.18 2.51
Earnings per share (diluted):
Income (loss) from continuing
operations........................... 2.09 0.27 (0.04) 0.18 2.49
Discontinued operations................. -- -- -- -- --
Net income (loss)....................... 2.09 0.27 (0.04) 0.18 2.49
1999 QUARTERS
-------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- -------- --------
Revenues................................... $52,518 $78,792 $64,435 $105,079 $300,824
Operating income (loss).................... (2,637) 14,705 (953) 28,275 39,390
Income (loss) from continuing operations... (3,033) 2,710 (5)(e) 8,258 7,930
Discontinued operations.................... 197 454 205 7,837 8,693(f)
Extraordinary item -- extinguishment of
debt..................................... -- (2,156) (6,257) -- (8,413)
Net income (loss).......................... (2,836) 1,008 (6,057) 16,095 8,210
Earnings per share (basic and diluted):
Income (loss) from continuing
operations............................ (0.13) 0.10 -- 0.26 0.28
Discontinued operations.................. 0.01 0.02 0.01 0.25 0.31
Extraordinary item....................... -- (0.08) (0.20) -- (0.30)
Net income (loss)........................ (0.12) 0.04 (0.19) 0.51 0.29
Income per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each quarter, and the sum of
the quarters may not necessarily be equal to the full year income per share
amount.
- ---------------
(a) Includes $110.2 million, or $2.08 per dilutive share, gain on sale of 2.0
million shares of internet.com Corporation stock.
(b) Includes $1.0 million, or $0.02 per dilutive share, impairment of assets.
(c) Includes $2.1 million, or $0.04 per dilutive share, impairment of Internet
assets.
(d) Includes $9.5 million, or $0.18 per dilutive share, writedown of Internet
investments.
(e) Includes $5.9 million, or $0.11 per dilutive share, gain on sale of 0.5
million shares of internet.com stock.
(f) Includes gain on disposal of the Printing segment of $9.3 million, net of
tax, and loss on disposal of Direct Mail segment of $0.7 million, net of
tax.
56
57
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, 1998
BALANCE AT BALANCE AT
BEGINNING CHARGE TO END
OF YEAR EXPENSES OTHER(A) DEDUCTIONS OF YEAR
---------- --------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
2000 -- Allowance for
doubtful accounts........... $3,958 $1,714 $ -- $(1,809) $3,863
1999 -- Allowance for
doubtful accounts........... $4,899 $ 943 -- $(1,884) $3,958
1998 -- Allowance for
doubtful accounts........... $2,406 $ 282 $3,102 $ (891) $4,899
- ---------------
(a) Acquisition date balances of acquired companies.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
57
58
PART III
Information required to be furnished in this part of the Form 10-K has been
omitted because the Registrant will file with the Securities and Exchange
Commission a definitive proxy statement pursuant to Regulation 14A under the
Securities Exchange Act of 1934 not later than April 30, 2001.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the headings "Election of Directors,"
"Board of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Registrant's Proxy Statement for the
annual meeting of shareholders to be held on May 4, 2001, is incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the headings "Compensation," "Compensation
Committee Interlocks and Insider Participation," "Compensation Committee Report
on Executive Compensation," and "Performance Graph" in the Registrant's Proxy
Statement for the annual meeting of shareholders to be held on May 4, 2001, is
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's Proxy Statement for the
annual meeting of shareholders to be held on May 4, 2001, is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the headings "Certain Transactions" in the
Registrant's Proxy Statement for the annual meeting of shareholders to be held
on May 4, 2001, is incorporated herein by reference.
58
59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report.
1. Financial statements: The following documents are filed as part of
this report.
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Income for the years ended December 31,
2000, 1999 and 1998.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule: The following financial statement
schedule of Penton Media, Inc. is filed as part of this Report and
should be read in conjunction with the Consolidated Financial
Statements of Penton Media, Inc.
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
(b) Reports on Form 8-K
DATE OF REPORT ITEMS REPORTED
-------------- --------------
June 12, 2000................................ Item 5. Other Events
Item 7. Financial Information and Exhibits
September 15, 2000........................... Item 5. Other Events
Item 7. Financial Information and Exhibits
September 28, 2000........................... Item 5. Other Events
Item 7. Financial Information and Exhibits
September 29, 2000........................... Item 2. Acquisition of Assets
Item 7. Financial Information and Exhibits
October 3, 2000.............................. Item 5. Other Events
Item 7. Financial Information and Exhibits
(c) Exhibits: The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this Report.
59
60
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2.1 Asset Purchase Agreement, dated as of May 18, 1999, by and
among Penton Media, Inc., New Hope Communications, Inc. and
R. Douglas Greene (filed as Exhibit 2.0 to the Company's
Form 8-K/A on August 10, 1999 and incorporated herein by
reference). The Registrant agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon
request.
2.2 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., D-M Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue, and John J. Meehan (filed as Exhibit 2.1 to the
Company's Registration Statement No. 33-56877 and
incorporated herein by reference). The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement No. 333-56877 on Form S-1, dated August 5, 1998,
and incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Registrant, filed
herewith.
4.1 Rights Agreement, dated as of June 9, 2000, between Penton
Media, Inc. and Harris Trust and Savings Bank, as Rights
Agent, including a Form of Certificate of Designation of
Series A Junior Participating Preferred Stock as Exhibit A
thereto, a Form of Right Certificate as Exhibit B thereto
and a Summary of Rights to Purchase Preferred Stock as
Exhibit C thereto (filed as Exhibit 4.1 to the Company's
Form 8-K on June 12, 2000, and incorporated herein by
reference).
10.1 Credit Facility, dated September 1, 1999, 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
(filed as Exhibit 10.1 to the Company's Form 10-K on March
30, 2000 and incorporated herein by reference).
10.2 Amendment to 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
(filed as Exhibit 10.1 to the Company's Form 10-Q on August
14, 20000 and incorporated herein by reference).
10.3 Amendment to Credit Facility, dated October 22, 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, filed herewith.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.4 Penton Media, Inc. Retirement Savings Plan (filed as Exhibit
4.3 to the Company's Form S-8 on August 27, 1998, and
incorporated herein by reference).
10.5 Penton Media, Inc. Management Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on March 21, 2000, and
incorporated herein by reference).
10.6 Penton Media, Inc. Employee Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on November 17, 1999
and incorporated herein by reference).
10.7 Penton Media, Inc. Amended 1998 Director Stock Option Plan,
filed herewith.
10.8 Penton Media, Inc. Amended 1998 Equity and Performance
Incentive Plan, filed herewith.
10.9 Penton Media, Inc. Retirement Plan (filed as Exhibit 10.9 to
the Company's Registration Statement No. 333-56877 and
incorporated herein by reference).
10.10 Penton Media, Inc. Senior Executive Bonus Plan (filed as
Exhibit 10.8 to the Company's Form 10-K on March 30, 2000
and incorporated herein by reference).
10.11 Penton Media, Inc. Supplemental Executive Retirement Plan
(As Amended and Restated Effective as of January 1, 2000
(filed as Exhibit 10.9 to the Company's Form 10-K on March
30, 2000 and incorporated herein by reference).
60
61
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
10.12 Employment Agreement, dated July 16, 1998, between Penton
Media, Inc. and David Nussbaum (file as Exhibit 10.4 to the
Company's Form 10-Q on November 16, 1998 and incorporated
herein by reference).
10.13 Restated Employment Agreement, dated February 5, 1999,
between Penton Media, Inc. and Thomas Kemp (filed as Exhibit
10.13 to the Company's Form 10-K on March 31, 1999 and
incorporated herein by reference).
10.14 Restated Employment Agreement, dated February 10, 1999,
between Penton Media, Inc. and Daniel J. Ramella (filed as
Exhibit 10.14 to the Company's Form 10-K on March 31, 1999
and incorporated herein by reference).
10.15 Restated Employment Agreement, dated June 9, 2000, between
Penton Media, Inc. and James W. Zaremba (filed as Exhibit
10.2 to the Company's Form 10-Q on August 14, 2000 and
incorporated herein by reference).
10.16 Employment Agreement, dated August 24, 1999, between Penton
Media, Inc. and Joseph G. NeCastro (filed as Exhibit 10.16
to the Company's Form 10-K on March 30, 2000 and
incorporated herein by reference).
10.17 Employment Agreement, dated August 24, 1999, between Penton
Media, Inc. and Preston L. Vice (filed as Exhibit 10.17 to
the Company's Form 10-K on March 30, 2000 and incorporated
herein by reference).
10.18 Employment Agreement, dated October 15, 2000, between Penton
Media, Inc. and Darrell Denny, filed herewith.
21. Subsidiaries of Penton Media, Inc.
23. Consent of the Independent Accountants.
24. Powers of Attorneys.
61
62
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
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.
By: /s/ JOSEPH G. NECASTRO
------------------------------------
Name: Joseph G. NeCastro
Title: Chief Financial Officer and
Treasurer
Dated: March 29, 2001
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 29, 2001.
SIGNATURE TITLE
- --------- -----
/s/ THOMAS L. KEMP Chairman and Chief Executive Officer and
- -------------------------------------------- Director (Principal Executive Officer)
Thomas L. Kemp
/s/ JOSEPH G. NECASTRO Chief Financial Officer and Treasurer
- -------------------------------------------- (Principal Financial Officer)
Joseph G. NeCastro
/s/ JOCELYN A. BRADFORD Vice President and Controller
- --------------------------------------------
Jocelyn A. Bradford
/s/ * Director
- --------------------------------------------
Anthony Downs
/s/ * Director
- --------------------------------------------
William J. Friend
/s/ * Director
- --------------------------------------------
Paul W. Brown
/s/ * Director
- --------------------------------------------
King Harris
/s/ * Director
- --------------------------------------------
Daniel J. Ramella
/s/ * Director
- --------------------------------------------
Edward J. Schwartz
/s/ * Director
- --------------------------------------------
Don E. Schultz
/s/ * Director
- --------------------------------------------
Richard B. Swank
/s/ * Director
- --------------------------------------------
William B. Summers
62
63
SIGNATURE TITLE
- --------- -----
/s/ * Director
- --------------------------------------------
John J. Meehan
/s/ * Director
- --------------------------------------------
R. Douglas Greene
/s/ * Director
- --------------------------------------------
David B. Nussbaum
- ---------------
* The undersigned, by signing his name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to a Power of Attorney executed on behalf of the
above named officers and directors of Penton Media, Inc. and files herewith as
Exhibit 24 on behalf of Penton Media, Inc. and each such person.
March 29, 2001
By: /s/ JOSEPH G. NECASTRO
--------------------------------------------------------
Joseph G. NeCastro
Attorney-in-Fact
63
64
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2.1 Asset Purchase Agreement, dated as of May 18, 1999, by and
among Penton Media, Inc., New Hope Communications, Inc. and
R. Douglas Greene (filed as Exhibit 2.0 to the Company's
Form 8-K/A on August 10, 1999 and incorporated herein by
reference). The Registrant agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon
request.
2.2 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., D-M Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue, and John J. Meehan (filed as Exhibit 2.1 to the
Company's Registration Statement No. 33-56877 and
incorporated herein by reference). The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement No. 333-56877 on Form S-1, dated August 5, 1998,
and incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Registrant, filed
herewith.
4.1 Rights Agreement, dated as of June 9, 2000, between Penton
Media, Inc. and Harris Trust and Savings Bank, as Rights
Agent, including a Form of Certificate of Designation of
Series A Junior Participating Preferred Stock as Exhibit A
thereto, a Form of Right Certificate as Exhibit B thereto
and a Summary of Rights to Purchase Preferred Stock as
Exhibit C thereto (filed as Exhibit 4.1 to the Company's
Form 8-K on June 12, 2000, and incorporated herein by
reference).
10.1 Credit Facility, dated September 1, 1999, 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
(filed as Exhibit 10.1 to the Company's Form 10-K on March
30, 2000 and incorporated herein by reference).
10.2 Amendment to 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
(filed as Exhibit 10.1 to the Company's Form 10-Q on August
14, 20000 and incorporated herein by reference).
10.3 Amendment to Credit Facility, dated October 22, 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,
filed herewith.
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.4 Penton Media, Inc. Retirement Savings Plan (filed as Exhibit
4.3 to the Company's Form S-8 on August 27, 1998, and
incorporated herein by reference).
10.5 Penton Media, Inc. Management Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on March 21, 2000, and
incorporated herein by reference).
10.6 Penton Media, Inc. Employee Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on November 17, 1999
and incorporated herein by reference).
10.7 Penton Media, Inc. Amended 1998 Director Stock Option Plan,
filed herewith.
10.8 Penton Media, Inc. Amended 1998 Equity and Performance
Incentive Plan, filed herewith.
10.9 Penton Media, Inc. Retirement Plan (filed as Exhibit 10.9 to
the Company's Registration Statement No. 333-56877 and
incorporated herein by reference).
10.10 Penton Media, Inc. Senior Executive Bonus Plan (filed as
Exhibit 10.8 to the Company's Form 10-K on March 30, 2000
and incorporated herein by reference).
64
65
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
10.11 Penton Media, Inc. Supplemental Executive Retirement Plan
(As Amended and Restated Effective as of January 1, 2000
(filed as Exhibit 10.9 to the Company's Form 10-K on March
30, 2000 and incorporated herein by reference).
10.12 Employment Agreement, dated July 16, 1998, between Penton
Media, Inc. and David Nussbaum (file as Exhibit 10.4 to the
Company's Form 10-Q on November 16, 1998 and incorporated
herein by reference).
10.13 Restated Employment Agreement, dated February 5, 1999,
between Penton Media, Inc. and Thomas Kemp (filed as Exhibit
10.13 to the Company's Form 10-K on March 31, 1999 and
incorporated herein by reference).
10.14 Restated Employment Agreement, dated February 10, 1999,
between Penton Media, Inc. and Daniel J. Ramella (filed as
Exhibit 10.14 to the Company's Form 10-K on March 31, 1999
and incorporated herein by reference).
10.15 Restated Employment Agreement, dated June 9, 2000, between
Penton Media, Inc. and James W. Zaremba (filed as Exhibit
10.2 to the Company's Form 10-Q on August 14, 2000 and
incorporated herein by reference).
10.16 Employment Agreement, dated August 24, 1999, between Penton
Media, Inc. and Joseph G. NeCastro (filed as Exhibit 10.16
to the Company's Form 10-K on March 30, 2000 and
incorporated herein by reference).
10.17 Employment Agreement, dated August 24, 1999, between Penton
Media, Inc. and Preston L. Vice (filed as Exhibit 10.17 to
the Company's Form 10-K on March 30, 2000 and incorporated
herein by reference).
10.18 Employment Agreement, dated October 15, 2000, between Penton
Media, Inc. and Darrell Denny, filed herewith.
21. Subsidiaries of Penton Media, Inc.
23. Consent of the Independent Accountants.
24. Powers of Attorneys.
65