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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
---------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
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PENTON MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
1300 East Ninth Street, Cleveland, OH 44114
-------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
216-696-7000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (August 12, 2002).
Common Stock: 32,451,740 shares
PENTON MEDIA, INC.
FORM 10-Q
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 30
Item 3. Quantitative and Qualitative Disclosure About Market Risk 49
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of security holders 51
Item 6. Exhibits and Reports on Form 8-K 53
Signature 55
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
June 30, December 31,
2002 2001
---------- -----------
ASSETS (unaudited)
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 22,589 $ 20,191
Accounts and notes receivable, less allowance for doubtful
accounts of $8,948 and $10,976 in 2002 and 2001, respectively 45,211 56,452
Income taxes receivable 10,464 14,750
Inventories 698 1,351
Deferred tax assets 6,645 6,645
Prepayments, deposits and other 10,624 7,854
---------- -----------
96,231 107,243
---------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements 8,864 8,846
Machinery and equipment 62,352 62,056
---------- -----------
71,216 70,902
Less: accumulated depreciation 43,850 40,726
---------- -----------
27,366 30,176
---------- -----------
OTHER ASSETS:
Goodwill, less accumulated amortization of
$76,517 in 2002 and 2001, respectively 494,347 493,141
Other intangibles, less accumulated amortization of
$25,203 and $21,384 in 2002 and 2001, respectively 58,273 56,800
Deferred tax assets 8,006 7,468
Investments - 5,649
---------- -----------
560,626 563,058
---------- -----------
$ 684,223 $ 700,477
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
June 30, December 31,
2002 2001
---------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior secured credit facility $ - $ 16,489
Note payable - 2,804
Accounts payable 7,978 12,094
Income taxes payable 2,826 3,674
Accrued earnouts 5,565 6,572
Accrued compensation and benefits 13,869 12,411
Other accrued expenses 29,928 24,705
Unearned income, principally trade
show and conference deposits 25,782 36,939
---------- -----------
85,948 115,688
---------- -----------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior secured credit facility - 164,098
Senior secured notes, net of discount 156,743 -
Senior subordinated notes, net of discount 171,296 180,957
Note payable 417 417
Net deferred pension credits 14,765 15,140
Other 3,514 3,647
---------- -----------
346,735 364,259
---------- -----------
Mandatorily redeemable convertible preferred stock, par value $0.01
per share; 50,000 shares authorized, issued and outstanding;
redeemable at $1,000 per share 44,861 -
---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share; 1,950,000 shares
authorized; none issued or outstanding - -
Common stock, par value $0.01 per share; 155,000,000 shares
authorized; 31,867,825 shares at June 30, 2002 (net of 52,332
treasury shares) and 31,895,621 shares at December 31, 2001
issued and outstanding 318 319
Capital in excess of par value 228,263 227,245
Retained earnings (deficit) (9,567) 6,724
Notes receivable officers/directors (9,703) (10,824)
Accumulated other comprehensive loss (2,632) (2,934)
---------- -----------
206,679 220,530
---------- -----------
$ 684,223 $ 700,477
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------- ------ ------- --------
REVENUES $ 66,009 $ 106,777 $ 129,184 $ 219,470
------------ ------------ ----------- -----------
OPERATING EXPENSES:
Editorial, production and circulation 28,804 43,171 54,657 84,012
Selling, general and administrative 33,259 47,692 65,906 99,636
Restructuring charge 7,769 - 7,506 5,567
Impairment of assets 136 - 136 -
Depreciation and amortization 5,684 11,135 10,140 22,714
------------ ------------ ----------- -----------
75,652 101,998 138,345 211,929
------------ ------------ ----------- -----------
OPERATING INCOME (LOSS) (9,643) 4,779 (9,161) 7,541
------------ ------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (9,646) (6,611) (18,920) (13,069)
Interest income 242 362 460 819
Gain on sale of investments - - 1,491 -
Miscellaneous, net (202) (1,501) (341) (1,450)
------------ ------------ ----------- -----------
(9,606) (7,750) (17,310) (13,700)
------------ ------------ ----------- -----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (19,249) (2,971) (26,471) (6,159)
PROVISION (BENEFIT) FOR INCOME TAXES (7,191) 2,512 (10,014) 602
----------- ------------ ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (12,058) (5,483) (16,457) (6,761)
EXTRAORDINARY ITEM, net of taxes - - 166 -
------------ ------------ ----------- -----------
NET LOSS (12,058) (5,483) (16,291) (6,761)
AMORTIZATION OF DEEMED DIVIDEND AND
ACCRETION OF PREFERRED STOCK (44,498) - (44,861) -
------------ ------------ ----------- -----------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $ (56,556) $ (5,483) $ (61,152) $ (6,761)
============ ============ =========== ===========
NET LOSS PER COMMON SHARE - Basic and diluted
Loss from operations $ (1.77) $ (0.17) $ (1.91) $ (0.21)
Extraordinary item, net of taxes - - - -
------------ ------------ ----------- -----------
Net loss per common share $ (1.77) $ (0.17) $ (1.91) $ (0.21)
============ ============ =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic and Diluted 32,033 31,930 32,018 31,904
============ ============ =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED; DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
2002 2001
--------- -----------
Net cash used for operating activities $ (2,408) $ (15,016)
---------- -----------
Cash flows from investing activities:
Capital expenditures (1,773) (5,448)
Acquisitions, including earnouts paid, net of cash acquired (1,486) (20,260)
Proceeds from sale of INT Media Group, Inc. common stock 5,801 -
---------- -----------
Net cash provided by (used for) investing activities 2,542 (25,708)
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock
and warrants, net of issue costs 46,111 -
Proceeds from issuance of senior subordinated notes - 180,836
Proceeds from issuance of senior secured notes 156,717 -
Purchase of $10.0 million of senior subordinated notes (8,375) -
Repayment of senior secured credit facility (180,587) (139,875)
Proceeds from senior secured credit facility - 45,000
Payment of short term note payable (2,804) -
Payments for employee stock purchase plan (376) (139)
Proceeds from deferred shares and options exercised - 1,049
Payment of financing fees (9,189) (85)
Proceeds from repayment of officers/directors loans 703 -
Dividends paid - (1,912)
---------- -----------
Net cash provided by financing activities 2,200 84,874
---------- -----------
Effect of exchange rate changes on cash 64 (86)
---------- -----------
Net increase in cash and cash equivalents 2,398 44,064
Cash and cash equivalents at beginning of period 20,191 11,605
---------- -----------
Cash and cash equivalents at end of period $ 22,589 $ 55,669
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
6
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
These financial statements have been prepared by management in accordance with
generally accepted accounting principles for interim financial information and
the applicable rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, the interim financial statements reflect
all adjustments necessary for a fair presentation of the results of the periods
presented. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying unaudited interim consolidated financial statements should be
read together with the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements to
conform to the 2002 presentation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
NOTE 2 - GOODWILL AND OTHER INTANGIBLES
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer are to be amortized, but instead tested for impairment,
at least annually. SFAS 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and be reviewed for impairment pursuant to the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
The Company adopted SFAS 142 effective January 1, 2002. Pursuant to SFAS 142,
the Company no longer amortizes goodwill. All other intangibles are considered
to have definite lives, which have been reassessed by the Company as of January
1, 2002. Penton completed its initial assessment of goodwill impairment in the
second quarter of 2002. The assessment indicates that there is the potential for
a goodwill impairment charge related to certain of the Company's technology
properties, which have an aggregate goodwill net book value of $337.0 million.
Preliminary valuations show that the carrying value of these technology
properties is in excess of their fair value by a range of approximately $140.0
million to approximately $160.0 million. These technology properties are part of
our Technology Media segment. Consequently, there is the possibility for a
material, non-cash impairment charge in the fourth quarter of 2002. Once final
measurement of the goodwill impairment has been completed, the charge will be
recorded as the cumulative effect of an accounting change as of January 1, 2002.
The Company expects to complete the impairment measurement process in the fourth
quarter of 2002.
The following pro forma financial information compares the Company's net loss
for the three months and six months ended June 30, 2002 and 2001, respectively,
had the provisions of SFAS 142 been applied on January 1, 2001 (amounts in
thousands, except per share data):
7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- ---------
Net loss $ (12,058) $ (5,483) $ (16,291) $ (6,761)
Goodwill amortization, net of tax - 4,675 - 8,364
----------- ----------- ----------- ------------
Adjusted net income (loss) (12,058) (808) (16,291) 1,603
Amortization of deemed dividend and accretion of
preferred stock (44,498) - (44,861) -
----------- ----------- ----------- ------------
Adjusted net income (loss) applicable to
common stockholders $ (56,556) $ (808) $ (61,152) $ 1,603
=========== =========== =========== ============
Basic and diluted earnings per share:
Reported net loss $ (0.38) $ (0.17) $ (0.51) $ (0.21)
Goodwill amortization, net of tax - 0.14 - 0.26
Amortization of deemed dividend and accretion (1.39) - (1.40) -
----------- ----------- ----------- ------------
Adjusted net income (loss) applicable to
common stockholders $ (1.77) $ (0.03) $ (1.91) $ 0.05
=========== =========== =========== ============
Weighted-average shares outstanding:
Basic 32,033 31,930 32,018 31,904
=========== =========== =========== ============
Diluted 32,033 31,930 32,018 31,975
=========== =========== =========== ============
Identifiable intangible assets, exclusive of goodwill, as of June 30, 2002, are
recorded in Other Intangibles in the Consolidated Balance Sheets and are
comprised of:
GROSS NET
CARRYING ACCUMULATED BOOK
VALUE AMORTIZATION VALUE
-------- ------------ --------
Trade names $ 14,240 $ (4,930) $ 9,310
Mailing/exhibitor lists 40,204 (12,997) 27,207
Advertiser relationships 7,200 (1,804) 5,396
Acquisition costs 5,053 (2,545) 2,508
Subscriber relationships 2,100 (357) 1,743
Sponsor relationships 2,112 (792) 1,320
Noncompete agreements 1,436 (1,004) 432
------------ ------------ -----------
Balance at June 30, 2002 $ 72,345 $ (24,429) $ 47,916
============ ============ ===========
Total amortization expense for identifiable intangible assets was $5.8 million
and $3.4 million for the six months ended June 30, 2002 and 2001, respectively.
Amortization expense for these intangibles is estimated for the current year and
each of the five succeeding years as follows:
8
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ------
2002 $ 10,679
2003 $ 8,992
2004 $ 6,244
2005 $ 5,332
2006 $ 4,861
2007 $ 3,744
NOTE 3 - ACQUISITIONS
2001 ACQUISITIONS
In 2001, Penton acquired nine companies for an aggregate purchase price of
approximately $9.7 million in cash and $3.5 million in promissory notes, with
potential contingent consideration of up to $4.8 million based on the
achievement of specified business targets through 2003. The excess of the
aggregate purchase price over the fair market value of net assets acquired was
approximately $11.5 million.
At June 30, 2002, Penton had $5.6 million accrued for contingent consideration.
Of the amount accrued, approximately $1.5 million is payable in shares of common
stock with the balance payable in cash. Subsequent to June 30, 2002, the Company
issued the shares of common stock and paid $4.1 million in cash to settle its
contingent liability. Cash of $1.2 million was paid in the first half of 2002
for contingent considerations.
At June 30, 2002, the remaining maximum potential liability for future
contingent consideration is approximately $56.5 million. Contingent
considerations are payable based on achieving specified performance goals, such
as reaching certain revenue or EBITDA levels. The earnout period for $37.2
million of the total contingent consideration expires at December 31, 2002;
$15.4 million expires at January 31, 2003; and $3.9 million expires at December
31, 2003. Contingent payments earned are recorded as additional goodwill,
pursuant to the provisions of EITF 95-8, "Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination," and tested for impairment under SFAS 142.
NOTE 4 - INVESTMENTS
In January 2002, Penton sold its remaining 11.8% ownership interest, or
2,973,383 shares, in INT Media Group, Inc. for approximately $5.8 million in
cash, and recognized a gain of approximately $1.5 million.
NOTE 5 - DEBT
SENIOR SECURED NOTES
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes (the
"Secured Notes") due in 2007. Interest is payable on the Secured Notes
semi-annually on April 1 and October 1. The Secured Notes are fully and
unconditionally, jointly and severally guaranteed on a senior basis by all of
the assets of Penton's domestic subsidiaries, which are 100% owned by the
Company, and also the stock of certain subsidiaries. Condensed consolidating
financial information is presented in Note 13--Guarantor and Non-Guarantor
Subsidiaries. Penton may redeem the Secured Notes, in whole or in part, during
the periods October 1, 2005 through September 30, 2006 and October 1, 2006 and
thereafter at redemption prices of 105.9375% and 100.0000% of the principal
amount, respectively, together with accrued and unpaid interest. In addition, at
any time prior to October 1, 2005, up to 35% of the aggregate principal amount
of the Secured Notes may be redeemed at Penton's option, within 90
9
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
days of certain public equity offerings of its common stock, at a redemption
price equal to 111.875% of the principal amount, together with accrued and
unpaid interest.
The Secured Notes were offered at a discount of $0.8 million, which is being
amortized, using the interest method, over the term of the Secured Notes.
Amortization of the discount was $0.03 million for the six months ended June 30,
2002. Costs representing underwriting fees and other professional fees of $6.6
million are being amortized, using the effective interest method, over the term
of the Secured Notes. Net proceeds of $150.1 million were used to pay down $83.6
million of Penton's term loan A facility and $49.0 million of its term loan B
facility, and to repurchase $10.0 million of the Company's 10 3/8% senior
subordinated notes for $8.3 million. The remaining net proceeds of $9.2 million
were used for general corporate purposes. The Secured Notes rank senior in right
to all of Penton's subordinated indebtedness, including the 10 3/8% senior
subordinated notes due in 2011, and equal in right of payment with all of the
Company's other senior indebtedness, which is approximately $0.4 million at June
30, 2002. The Secured Notes contain covenants that will, among other things,
limit the Company's ability to pay dividends, incur additional debt, sell
assets, and enter into mergers or consolidations. Our ability to obtain
dividends from our subsidiaries is only restricted if we are in default under
our debt arrangement or if we have exceeded our limitation of additional
indebtedness, as specified in such agreement.
SENIOR SUBORDINATED NOTES
In June 2001, Penton issued $185.0 million of 10 3/8% senior subordinated notes
(the "Subordinated Notes") due in 2011. Interest is payable on the Subordinated
Notes semi-annually on June 15 and December 15. The Subordinated Notes are fully
and unconditionally, jointly and severally guaranteed, on a senior subordinated
basis, by the assets of the Company's 100% owned domestic subsidiaries.
Condensed consolidating financial information is presented in Note 13--Guarantor
and Non-Guarantor Subsidiaries. The notes may be redeemed in whole or in part on
or after June 15, 2006. In addition, the Company may redeem up to 35% of the
aggregate principal amount of the Subordinated Notes before June 15, 2004 with
the proceeds of certain equity offerings. The Subordinated Notes were offered at
a discount of $4.2 million, which is being amortized using the interest method,
over the term of the Subordinated Notes. Amortization of the discount was $0.1
million for the six months ended June 30, 2002. Costs representing underwriting
fees and other professional fees of $1.7 million are being amortized over the
term of the Subordinated Notes. Net proceeds of $180.2 million were used to pay
down $136.0 million under the revolving credit facility, $12.8 million of term
loan A and $7.2 million of term loan B. The remaining net proceeds of $24.2
million were used for general corporate purposes. The Subordinated Notes are
unsecured senior subordinated obligations of the Company, subordinated in right
of payment to all existing and future senior indebtedness of the Company,
including the credit facility. The Subordinated Notes contain covenants that
will, among other things, restrict the Company's ability to borrow money, pay
dividends on or repurchase capital stock, make investments, sell assets, and
enter into mergers or consolidations. Our ability to obtain dividends from our
subsidiaries is only restricted if we are in default under our debt arrangement
or if we have exceeded our limitation of additional indebtedness, as specified
in such agreement.
In March 2002, the Company repurchased $10.0 million of the Subordinated Notes
with $8.7 million of the proceeds from the Secured Note offering, resulting in
an extraordinary gain of $0.8 million ($0.03 per diluted share), net of $0.6
million in taxes.
SENIOR SECURED CREDIT FACILITY
In March 2002, Penton amended and restated its senior credit facility and repaid
in full its term loan A and term loan B facilities from the proceeds received
from the sale of preferred shares (see Note 6 - Redeemable Convertible Preferred
Stock), proceeds received from the sale of INT Media Group, Inc. common stock
(see Note 4 - Investments), cash on hand from a tax refund of approximately
$12.2 million, and the issuance of $157.5 million in Secured Notes as mentioned
above. The amended and restated credit agreement provides for a revolving credit
facility of up to a maximum of $40.0 million. Availability under the revolving
credit facility is determined by a
10
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
borrowing base that is limited to 80% of eligible receivables. In order to
access the revolver, Penton must not have more than $7.5 million of cash and
cash equivalents available, must be in compliance with the loan documents and
must submit a borrowing base certificate immediately prior to each extension of
credit showing compliance with the borrowing base. Penton is required to
pay-down the revolver in the event that it has loans outstanding in excess of
the borrowing base, or it has more than $7.5 million in cash and cash
equivalents at the end of any month. The amended and restated credit facility
has no financial covenants. In connection with the amendment and restatement of
the credit facility, the interest rate on the revolving credit facility was
increased. In addition, further restrictions were placed on Penton's ability to
make certain restricted payments, to make capital expenditures in excess of
certain amounts, to incur additional debt and contingent obligations, to make
acquisitions and investments, and to sell assets.
The revolving credit facility bears interest, at Penton's option, at either The
Bank of New York's prime rate or at LIBOR, plus, in each case, an additional
margin ranging from 2.75% to 4.25% based on Penton's consolidated leverage
ratio, defined as the ratio of total debt to total adjusted EBITDA. At June 30,
2002, based upon the calculation of the borrowing base, $23.0 million was
available under the revolving credit facility, however, no amounts were
outstanding. The commitment under the revolving credit facility decreases by 15%
in 2003, 30% in 2004, 35% in 2005 and 20% in 2006. 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.
The repayment of the term loans resulted in an extraordinary charge of $0.7
million ($0.02 per diluted share), net of $0.5 million in taxes, relating to the
write-off of unamortized deferred finance costs.
Cash paid for interest for the six months ended June 30, 2002 and 2001 was $11.3
million and $9.0 million, respectively.
NOTE PAYABLE
The note payable at June 30, 2002 represents indebtedness resulting from the
acquisition of Hillgate Communications Ltd. in February 2001. In May 2002, loan
note A in the amount of $2.8 million was paid in full. Loan note B in the amount
of $0.4 million bears interest at 0.5% and matures in July 2004. However, the
holders of loan note B have the option to demand payment anytime after April 30,
2004.
NOTE 6 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 19, 2002, the Company issued 40,000 shares of its Series B Convertible
Preferred Stock, par value $0.01 per share (the "preferred stock"), and warrants
(the "warrants") to purchase 1,280,000 shares of Penton's common stock, par
value $0.01 per share, for $40.0 million in a private placement to institutional
investors and affiliated entities. On March 28, 2002, the Company issued an
additional 10,000 shares of preferred stock, par value $0.01 per share, and
warrants to purchase an additional 320,000 shares of Penton's common stock, par
value $0.01 per share, for $10.0 million to the same group of investors. The net
proceeds from the sale of the preferred stock and warrants were used to repay
the term loan indebtedness under Penton's senior credit facility (see Note 5 -
Debt).
The net proceeds of $46.1 million from the issuance of the preferred stock and
warrants, net of issue costs of $3.8 million, were allocated to the preferred
stock and warrants based on the relative fair values of each security as of the
respective commitment dates noted above. Approximately $4.0 million of the net
proceeds were allocated to the warrants and were recorded in additional paid in
capital resulting in a discount to the preferred stock. The fair value of the
warrants were determined using the Black-Scholes pricing model.
The balance of the net proceeds, of approximately $42.1 million, were allocated
to the preferred stock, which because of the mandatory redemption date and other
redemption provisions, were classified outside of permanent equity. Pursuant to
the provisions of EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently
11
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
Adjustable Conversion Ratios" and EITF 00-27, "Application of Issue
98-5 to Certain Convertible Instruments," the entire amount of $42.1 million was
initially recorded as a beneficial conversion feature in Capital in Excess of
Par Value resulting in an additional discount to the preferred stock. The amount
of the beneficial conversion feature was determined pursuant to Issue 2 of EITF
00-27. As such, the most beneficial "accounting conversion price" at the issue
date of the preferred shares was compared to the closing market price of the
stock on that date and the intrinsic spread was multiplied by the number of most
beneficial shares that the preferred shares can be converted into. This
beneficial conversion feature was being recognized, using the interest method,
as a deemed dividend to the preferred stockholders and an increase in the
carrying value of the preferred stock from the issuance date to the 10 year
mandatory redemption date.
The preferred stock was also initially being accreted to its maximum redemption
amount possible pursuant to Topic D-98, "Classification and Measurement of
Redeemable Securities" using the interest method from the issuance date to the
10 year mandatory redemption date.
In April 2002, the Company reached an agreement with the preferred stockholders
to eliminate the scheduled ten year redemption date of the preferred stock and
on May 31, 2002, the stockholders approved an amendment to remove the scheduled
redemption feature. In exchange for removing the scheduled redemption date, the
Company agreed to grant the holders of the preferred stock the right to require
Penton to seek a buyer for substantially all of our assets or issued and
outstanding capital stock beginning on March 19, 2008. The Company sought the
amendment to eliminate the requirement to accrete the preferred stock to the
maximum possible redemption amount by such date. However, it did not seek to
eliminate the preferred stockholders' right to require the Company to redeem the
security upon the occurrence of certain contingent events, including a change in
control or liquidation, dissolution or winding up of Penton. To the extent that
redemption of the preferred stock becomes probable in the future pursuant to a
contingent redemption provision of the preferred stock, accretion to the maximum
redemption amount will be required at such time.
Prior to the stockholders approval to remove the scheduled redemption date, the
Company was required to accrete a portion of the maximum redemption amount. For
the six months ended June 30, 2002, approximately $2.2 million was accreted,
using the interest method. In addition, certain features of the preferred stock
had to be accounted for as embedded derivatives, which required mark to market
accounting that could have potentially resulted in significant swings in net
income and earnings per share. The preferred shares agreement has a number of
conversion and redemption provisions which represented derivatives under FAS
No. 133, prior to the elimination of the mandatory redemption date. The Company
determined that certain of these derivatives do not qualify for scope exemption
and are not clearly and closely related to the host contract. As such these
embedded derivatives are required to be bifurcated and recorded at fair value.
The fair value of these derivatives were calculated using the Black Scholes
methodology.
As a result of stockholder approval on May 31, 2002, accretion is no longer
required and the $42.1 million of unamortized beneficial conversion feature was
recognized immediately as a charge to capital in excess of par and as a
reduction of income available to common stockholders in the Consolidated
Statements of Operations. In addition, mark to market accounting for the
embedded derivatives is no longer required subsequent to May 31, 2002. Pursuant
to FAS 133 "Accounting for Derivative Instruments and Hedging Activities", the
elimination of the mandatory redemption feature made the preferred shares
agreement more akin to an equity instrument than a debt instrument.
Consequently, the embedded derivatives noted above, which related to the
conversion or redemption options, either qualified for a scope exemption or did
not constitute a derivative pursuant to FAS 133. Therefore, the elimination of
the mandatory redemption feature also eliminated the requirement to mark to
market these derivatives.
The elimination of the mandatory redemption date does not alter the mezzanine
classification of the preferred shares in the balance sheet, because of the
existence of other redemption provisions in the preferred shares agreement, such
as the optional redemption in the event of a change in control by the holder of
the preferred shares. Dividends on the preferred stock will continue to be
accrued and will be reflected as a reduction in earnings per share available to
common stockholders.
12
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The following is a description of the material terms of the preferred stock and
warrants reflecting the effects of the stockholder approval of the transaction
and the elimination of the mandatory redemption date:
Liquidation Preference
The preferred stock has preferences over the common stock in the event of
liquidation, dissolution, winding up, or change in control. Upon the occurrence
of any such event, the preferred stockholder will be entitled to be paid in
cash, subject to the satisfaction of Penton's obligations under the indentures
governing our 10 3/8% Senior Subordinated Notes and 11 7/8% Senior Secured
Notes.
The initial liquidation value of the preferred stock is $1,000 per share. If the
preferred stock is not converted or redeemed prior to March 19, 2008, the
liquidation value will increase to $4,570 per share. The liquidation preference
is the liquidation value plus accrued and unpaid dividends.
Dividends
From the date of issuance until March 19, 2008, the dividends on the preferred
stock will accrue daily on the sum of the then-applicable liquidation preference
and the accrued dividends thereon at an annual rate of 5% per annum. From and
after March 19, 2008, the dividends will accrue solely from and including such
date at a rate of 15% per annum. At June 30, 2002, preferred dividends of $0.7
million were accrued for ($0.02 per diluted share).
Dividends are payable semi-annually in cash only if declared by Penton's board
of directors and approved by holders of no less than 75% of the preferred stock
then outstanding. The provisions of Penton's debt instruments limit its ability
to pay dividends in cash, and the Company has no present intention to either
declare or pay cash dividends on the preferred stock.
Upon the occurrence of certain triggering events, the dividend rate increases by
one percentage point, with additional one-percentage-point increases per quarter
up to a maximum increase of five percentage points.
Conversion Provisions
Each share of preferred stock is convertible, at any time, subject to certain
restrictions, at the holder's and Penton's option, into a number of shares of
Penton's common stock, computed by multiplying the number of shares of preferred
stock to be converted by the liquidation value, plus accrued but unpaid
dividends, divided by the conversion price. The conversion price for the
preferred stock initially will be $7.61 per share, subject to certain
anti-dilution adjustments. Among others, the restrictions include the market
price of the common shares being equal to or greater than the applicable share
minimum noted below.
Company's Redemption Provisions
The Company can redeem the preferred stock at any time, in whole or in part, at
a cash redemption price equal to the product of the number of shares of common
stock into which the preferred shares can be converted, without actually
requiring such conversion, and the greater of the volume weighted-average
closing share price of Penton's common stock for the preceding 30 trading days,
or the applicable minimum share price derived from the following schedule (as
may be adjusted for stock splits and similar transactions):
If being redeemed prior to the third anniversary $15.18
If being redeemed after the third, but before the fourth anniversary $17.51
If being redeemed after the fourth, but before the fifth anniversary $19.31
If being redeemed after the fifth, but before the sixth anniversary $23.26
13
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
Holder's Redemption Provisions
The preferred stockholders' have the right to require the Company to redeem the
security upon the occurrence of certain contingent events, including a change in
control or liquidation, dissolution or winding up of Penton.
Conversion Prices
The initial conversion price is $7.61 per share (subject to certain
anti-dilution adjustments) until the sixth anniversary of issuance, at which
time the price may be adjusted to the lesser of (a) the conversion price in
effect on the sixth anniversary, or (b) the greater of 90% of the market price
of the Company's common stock on the conversion date or $4.50.
If Penton fails to comply with specific covenants contained in the purchase
agreement, the conversion price of the preferred stock will be reduced by $0.76
(adjusted for stock splits and similar transactions) until such failure is no
longer in existence, every 90 days the conversion price shall be reduced by
$0.76 up to a maximum reduction of $3.80 (adjusted for stock splits and similar
transactions). The conversion price will adjust to what it would have been
absent such breach (to the extent of any shares of preferred stock still
outstanding) once the breach is cured. No such reduction to the conversion price
will be made at any time that representatives of the investors constitute a
majority of the board of directors. In addition, if Penton's leverage ratio (as
defined in the purchase agreement) exceeds 7.5 to 1.0 for any quarterly period
beginning on December 31, 2002, and such leverage ratio remains in excess of 7.5
to 1.0 for a period of 90 days, the conversion price of the preferred stock will
be reduced by $0.76 (adjusted for stock splits and similar transactions).
Thereafter, until the leverage ratio reduces below 7.5 to 1.0, every 90 days the
conversion price will be reduced by another $0.76 (adjusted for stock splits and
similar transactions), subject to a maximum reduction not to exceed $3.80
(adjusted for stock splits and similar transactions). The conversion price will
adjust to what it would have been absent such event (to the extent of any shares
of preferred stock still outstanding) once the leverage ratio reduces below 7.5
to 1.0. No such reduction to the conversion price will be made at any time that
representatives of the investors constitute a majority of the board of
directors.
Board Representation
The preferred stock entitles the holders thereof initially to three board seats.
However, at such time as the holders of preferred stock cease to hold shares of
preferred stock having an aggregate liquidation preference of at least $25
million, they will lose the right to appoint the director for one of these board
seats. On March 19, 2008, the holders of a majority of the preferred stock then
outstanding, if any, will be entitled to appoint one less than a minimum
majority of the board of directors. At such time as the holders of preferred
stock cease to hold shares of preferred stock having an aggregate liquidation
preference of at least $10 million, and such holders' beneficial ownership of
Penton's preferred stock and common stock constitutes less than 5% of the
aggregate voting power of the Company's voting securities, the holders of
preferred stock will no longer have the right to appoint any directors to the
board of directors.
In addition, upon the occurrence of certain triggering events, the holders of a
majority of the preferred stock may appoint a minimum majority of Penton's board
of directors. At such time as the holders of preferred stock cease to hold
shares of preferred stock having an aggregate liquidation preference of at least
$10 million and such holders' beneficial ownership of Penton's preferred stock
and common stock constitutes less than 5% of the aggregate voting power of the
Company's voting securities, the holders of preferred stock will no longer have
the right to appoint additional directors upon these events.
Penton has also granted the holders of the preferred stock the right to have
representatives attend meetings of the board of directors after such time as
they are no longer entitled to appoint any members to the board of directors and
until such time as they no longer own any preferred stock, warrants or shares of
common stock issued upon conversion of the preferred stock and exercise of the
warrants.
14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
Voting Rights
The holders of the preferred stock are entitled to vote on all matters submitted
to a vote of Penton's stockholders, voting as a single class with the common
stockholders on an as-converted basis. In addition, Penton may not, without the
affirmative vote of the holders of not less than 75% of the preferred stock then
outstanding, declare and pay dividends, impact the existing classes of capital
stock, and increase the size of the board, among other conditions.
Covenants
The terms of the preferred stock have several financial and non-financial
covenants. As of June 30, 2002, Penton was in compliance with all such
covenants.
Sales Rights
The terms of the preferred stock require that Penton maintain a leverage ratio,
defined as debt less cash balances in excess of $5.0 million plus the accreted
value of the preferred stock, to EBITDA of 7.5 to 1.0 for the 12 month period
ending on the last day of December, March, June, and September of each year
beginning with the period ending on December 31, 2002. If Penton is in violation
of this covenant for four consecutive fiscal quarters, then the holders of a
majority of the preferred stock have the right to cause the Company to seek a
buyer for all of its assets or all of its issued and outstanding capital stock.
The holders of preferred stock will not have this right if their representatives
constitute a majority of the board of directors.
In exchange for removing the scheduled redemption date, the Company agreed to
grant the holders of the preferred stock the right to require us to seek a buyer
for substantially all of our assets or issued and outstanding capital stock
beginning on March 19, 2008. The holders of the preferred stock will not have
this right if less than 3,500 shares of preferred stock (as adjusted for stock
splits and similar transactions) are then outstanding.
Warrants
The initial exercise price of the warrants is $7.61 per share. The warrants are
subject to anti-dilution and other adjustments that mirror those applicable to
the preferred stock. The warrants are immediately exercisable and expire 10
years after issuance.
15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 7 - EARNINGS PER SHARE
Earnings per share have been computed pursuant to the provisions of SFAS No.
128, "Earnings Per Share." Computations of basic and diluted earnings per share
for the three months and six months ended June 30, 2002 and 2001 are as follows
(in thousands, except per share amounts):
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Net loss applicable to common stockholders $ (56,556) $ (5,483) $ (61,152) $ (6,761)
============ =========== ========== ==========
Number of shares:
Weighted average shares outstanding -
basic and diluted 32,033 31,930 32,018 31,904
============ =========== =========== ==========
Per share amount:
Loss from operations - basic and diluted $ (1.77) $ (0.17) $ (1.91) $ (0.21)
============ =========== =========== ==========
The preferred stock is a participating security, such that in the event a
dividend is declared or paid on the common stock, the Company must
simultaneously declare and pay a dividend on the preferred stock as if the
preferred stock had been converted into common stock. Topic D-95, "Effect of
Participating Convertible Securities on the Computation of Basic Earnings per
Share" requires that the preferred stock be included in the computation of basic
earnings per share if the effect of inclusion is dilutive. The Company's
accounting policy requires the use of the two-class method for its participating
securities for earnings per share calculations. For the six months ended June
30, 2002, preferred stock was excluded from the calculation of basic earnings
per share as the result was not dilutive. The preferred stock has been
considered in the diluted earnings per share calculation under the
"if-converted" method.
Due to the net loss applicable to common stockholders for the six months ended
June 30, 2002 and 2001, 2,669,655 stock options, 665,272 performance shares,
824,879 deferred shares, 59,340 restricted stock units, 527,951 contingent
shares, 1,600,000 warrants and 50,000 redeemable preferred shares were excluded
from the calculation of diluted earnings per share, as the result would have
been anti-dilutive.
NOTE 8 - COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
In May 2002, the stockholders approved an amendment to increase the number of
authorized shares from 60 million to 155 million.
STOCKHOLDERS RIGHTS AGREEMENT
The Company has a Stockholders Rights Agreement (the "Rights Agreement") to
protect stockholders rights in the event of a proposed takeover of the Company.
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% 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
16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
shares of Penton common stock. Under this option, Penton would issue one share
of common stock for each right, subject to adjustment in certain circumstances.
The Penton board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or amended by the
Penton board. In March 2002, the Rights Agreement was amended by the board of
directors to permit the sale of convertible preferred stock (see Note 6 -
Redeemable Convertible Preferred Stock) and in July 2002, the Rights Agreement
was amended by the board of directors to change the expiration date of the
rights under the Rights Agreement to be effective at the close of business at
Penton's 2003 annual meeting of stockholders, unless the Rights Agreement is
approved by the stockholders at such annual meeting. (see Note 16 - Subsequent
Events). The Rights Agreement has no impact on the consolidated financial
statements or earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan which allows employees the
opportunity to purchase shares of Penton at a discount. 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 to the appropriate sections of the Internal Revenue
Service Codes.
MANAGEMENT STOCK PURCHASE PLAN
The Company has 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. The discount is
recorded as compensation expense over the minimum vesting period, of which,
$0.04 million and $0.07 million, respectively were recognized as expense for the
six months ended June 30, 2002 and 2001. In February 2002 and 2001, 21,976 and
31,942 RSUs were granted at a fair market value of $7.38 and $25.10 per share,
respectively. At June 30, 2002, 59,340 RSUs were outstanding. During the first
six months of 2002, 15,436 shares of the Company's common stock were issued
under this plan.
EXECUTIVE LOAN PROGRAM
The Company has an 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 full recourse notes. In December 2001, the
loan notes were amended to cease interest from being charged as well as to
extend the maturity date from the fifth anniversary of the first loan date to
six months following the seventh anniversary of the first loan date. No payments
are required until maturity, at which time all outstanding amounts are due.
At June 30, 2002, the outstanding loan balance under the Executive Loan Program
was approximately $9.7 million (including $1.0 million of accrued interest).
During the second quarter of 2002, executive loans of $1.1 million (including
$0.1 million of accrued interest) were repaid. The loan balance is classified in
the Stockholders' Equity section of the Consolidated Balance Sheets as Notes
Receivable Officers/Directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
In May 2001, the stockholders approved an amendment to increase the number of
shares of common stock reserved for issuance under the 1998 Equity and
Performance Incentive Plan from 2.5 million shares to 5.5 million shares.
17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
STOCK OPTIONS
The Company has stock option plans under which employees and directors may be
granted options to purchase shares of the Company's common stock. In May 2001,
the stockholders approved an amendment to increase the number of shares of
common stock reserved for issuance under the 1998 Director Stock Option Plan
from 100,000 shares to 250,000 shares.
As of June 30, 2002, 2,669,655 stock options were outstanding under the 1998
Equity and Performance Incentive Plan and the 1998 Director Stock Option Plan.
Options granted under the plans 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. Option grants do not have any
associated compensation charge, as all grants are issued at fair market value.
In July 2002, Penton filed a Tender Offer Statement related to the exchange by
eligible employees of outstanding options to purchase shares of Penton's common
stock issued under the Penton Media, Inc. 1998 Equity and Performance Incentive
Plan (the "Option Plan") with exercise prices greater than or equal to $16.225
per share for new options to purchase shares of common stock to be issued under
the Option Plan ("New Options"). New Options will be granted on or promptly
after the first business day that is at least six months and one day after the
eligible options tendered pursuant to the offer are cancelled. The exercise
price of the New Options shall be the fair value of our common stock on the
grant date. Each eligible employee will receive a New Option to acquire one
share of Penton's common stock for every two shares of Penton's common stock
subject to an eligible option. The offer to exchange options under the Tender
Offer expires on August 22, 2002, unless the period is extended. (See
Note 16 - Subsequent Events).
DEFERRED SHARES
The Company's long-term incentive plan also provides for the award of deferred
shares. At June 30, 2002, 824,879 deferred shares were outstanding. Of the
shares outstanding at June 30, 2002, 768,630 shares vest one-fourth on each
three-month anniversary following the date of grant, 47,553 shares vest on the
third anniversary of the grant date and the remaining 8,696 shares vest at the
rate of 20% per year over a five-year period from date of grant. In the first
six months of 2002, 9,100 fully vested deferred shares were issued for common
stock of Penton. Compensation expense is being recognized over the related
vesting period based on the fair value of the shares on the date of grant. For
the six months ended June 30, 2002 and 2001, approximately $1.8 million and $0.2
million, respectively, were charged to expense under this plan.
PERFORMANCE SHARES
In February 2002, the board of directors approved a grant of 495,000 performance
shares to certain key executives, subject to the attainment of certain
performance goals over a three-year period from January 1, 2002 through December
31, 2004. Each grantee is eligible to receive between 50% and 150% of the
granted shares. At June 30, 665,272 performance shares are outstanding.
Performance shares are not issuable until earned. Compensation expense for
performance shares is recorded over the performance period based on an estimate
at the end of each reporting period. The estimate takes into account the
probable number of shares that will be earned by the grantee and the share price
of our common stock at the end of the performance period. For the six months
ended June 30, 2002 and 2001, approximately $(0.2) million and $1.2 million,
respectively, were charged (credited) to expense for these shares. No
performance shares have been issued pursuant to the plan during the six months
ended June 30, 2002.
18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
TREASURY STOCK
In the second quarter 2002, one executive returned 52,332 shares to the Company
to pay down a portion of his executive loan balance. These treasury stock were
recorded at $0.4 million as a decrease in additional paid in capital.
NOTE 9 - COMPREHENSIVE LOSS
Total comprehensive loss for the three months and six months ended June 30, 2002
and 2001 was $12.1 million, $5.0 million, $16.0 million and $13.1 million,
respectively.
NOTES ACCUMULATED
CAPITAL IN RETAINED RECEIVABLE OTHER
COMMON EXCESS OF EARNINGS OFFICERS/ COMPREHENSIVE
STOCK PAR VALUE (DEFICIT) DIRECTORS INCOME/(LOSS) TOTAL
--------------------------------------------------------------------------
Balance at December 31, 2001 $ 319 $ 227,245 $ 6,724 $ (10,824) $ (2,934) $ 220,530
-------- --------- -------- ---------- ---------- -----------
Comprehensive loss:
Net loss - - (16,291) - - (16,291)
Other comprehensive loss:
Reclassification adjustment
for realized gain on
securities sold - - - - (808) (808)
Reclassification adjustment
of net loss on cash flow
hedge discontinuation - - - - 1,438 1,438
Foreign currency translation
adjustment - - - - (328) (328)
--------
Comprehensive loss (15,989)
--------
Issuance of common stock:
Deferred shares and stock options - 533 - 31 - 564
Employee stock purchase plan - (376) - - - (376)
Repayment of executive loans - - - 703 - 703
Purchase of treasury stock (1) (386) - 387 - -
Issuance of 50,000 shares of preferred
Stock and subsequent recognition of
Warrants issued with preferred stock - 4,003 - - - 4,003
Amortization of deemed dividend and
accretion of preferred stock - (2,756) - - - (2,756)
--------- --------- --------- ---------- ---------- -----------
Balance at June 30, 2002 $ 318 $ 228,263 $ (9,567) $ (9,703) $ (2,632) $ 206,679
========= ========= ========= ========== ========== ===========
NOTE 10 - HEDGING ACTIVITIES
RISK MANAGEMENT
In the ordinary course of business, the Company is exposed to fluctuations in
interest rates and foreign currency rates. The Company maintains assets and
operations in Europe and Asia, and as a result, may be exposed to fluctuations
in currency rates relative to these markets. Penton, however, does not manage
this risk using derivative instruments.
The Company was exposed to interest rate risk due to the variable interest rates
of its senior secured credit facility. In March 2002, the Company paid down term
loans A and B of the credit facility with certain debt and equity offerings (see
Note 5 - Debt). As a result, at June 30, 2002, the Company has no
variable-interest rate debt outstanding.
The Company is also exposed to changes in the fair value of its fixed-rate
senior secured notes and senior subordinated notes. As of June 30, 2002, the
Company did not manage this risk using derivative instruments.
19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
CASH FLOW HEDGES
In March 2002, the Company discontinued hedge accounting for its cash flow
hedges as the Company paid down its outstanding variable rate debt. The entire
net deferred loss on cash flow hedges of $1.4 million recorded in Other
Comprehensive Income was reclassified to earnings.
Management has decided to continue to hold the derivative instruments until
their maturity, and will carry the derivatives at their fair market value on the
balance sheet, recognizing changes in the fair value in current period earnings.
As of June 30, 2002, the Company recognized a net loss of $1.1 million related
to such derivative instruments.
At June 30, 2002, the Company had the following interest rate instruments in
effect (in thousands):
NOTIONAL FIXED
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 $17,916 5.95% 9/99-10/02
Interest rate cap $26,875 8.50% 10/99-10/02
At June 30, 2002, the interest rate instruments had a negative fair value of
$1.7 million, which is recorded as a liability in Other Accrued Expenses on the
Consolidated Balance Sheet.
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 other counter-parties as they are major
financial institutions. The weighted average implied forward variable interest
rate is approximately 6.19% for 2002.
NOTE 11 - RESTRUCTURING CHARGES
SECOND QUARTER 2002 CHARGE
In the second quarter 2002, Penton recorded a restructuring charge of $7.8
million ($4.7 million after tax, or $0.15 per diluted share). The charge
included $4.4 million of employee termination benefits related to a reduction of
128 positions, including 112 U.S. employees, with the remainder primarily in the
U.K. Employee termination benefits include payments for severance, costs of
outplacement services and continued benefits.
In addition to termination benefits, the second quarter charge included $2.7
million related to exit costs associated with the closing of five existing
office locations under long term leases expiring through 2010 and $0.6 million
related to other contractual obligations. Charges for other contractual
obligations include costs associated with the cancellation of a trade show
venue.
FIRST QUARTER 2002 CHARGE
The restructuring charge credit of $0.3 million ($0.2 million after tax, or $0.1
per diluted share) as of March 31, 2002, comprises approximately $1.3 million of
additional employee termination benefits accrued in the first quarter of 2002,
offset by the reversal of approximately $1.6 million related to lease reserves
established in the third quarter of 2001 for Penton's New York, NY and
Burlingame, CA, offices, for long-term leases which the Company was able to
sublease. Personnel costs of $1.4 million are associated with the elimination of
approximately 50 positions in the U.S. Personnel costs include payments for
severance, costs of outplacement
20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
services and a provision for continued benefits to personnel. The New York and
Burlingame office closure costs totaling $3.4 million were charged in the second
half of 2001. At that time, no assumptions for subleases were made by the
Company, due to the inherent limitations in estimating the future trends of the
real estate marketplace, the economic conditions present in New York City at the
time, and the remote probability of a successful sublease. However, in March
2002, due to continuing efforts by the Company, it finalized a contract to
sublease its New York office space for the remainder of the lease term, or
approximately 7.25 years. In addition, in April 2002, Penton subleased its
Burlingame office for the remainder of the lease term, or approximately 3.8
years. Penton remains ultimately responsible for the payment of both of these
leases.
2001 CHARGE
In February 2001, Penton announced a restructuring program with the intent of
discontinuing certain Internet operations that had not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. The charge of
$5.6 million ($3.3 million after tax, or $0.10 per share on a diluted basis)
included the write-off of capitalized software development costs associated with
the discontinuance of the industry exchange component of New Hope Natural
Media's Healthwell.com; personnel costs, including the reduction of
approximately 60 employees at Healthwell.com as well as a reduction of workforce
related to a number of other Internet initiatives throughout Penton; and exit
costs associated with existing office spaces under lease and other contractual
obligations. In the third-quarter of 2001, the Company determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated. Based on the Company's third-quarter
estimates, approximately $1.0 million was reversed from the first-quarter charge
and the total amount of the charge was adjusted to $4.6 million ($2.7 million
after tax, or $0.09 per share on a basic and diluted basis). The remaining costs
incurred in connection with the first-quarter restructuring plan have been paid.
In the second half of 2001, the Company implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the business environment. Restructuring charges of $9.5 million ($5.7
million after tax, or $0.18 per share on a diluted basis), net of the $1.0
million reversal noted above in the third quarter and $3.7 million ($2.3 million
after tax, or $0.07 per share on a diluted basis) in the fourth quarter resulted
primarily from strategic decisions to restructure a number of businesses and
support departments, including reducing Penton's overhead infrastructure by
consolidating and closing several branch offices, centralizing information
technology and outsourcing certain corporate functions. Of the total charges,
$4.7 million relates to employee termination benefits for the elimination of
nearly 340 positions, of which 294 terminations and $2.7 million in payments had
been completed by year end. Approximately 84% of the positions eliminated or to
be eliminated are in the U.S., with the remaining positions predominantly in the
United Kingdom and Germany. The remaining $8.5 million of the restructuring
charges relates to the closing of more than 20 Penton offices worldwide, and
includes costs associated with existing office spaces under lease and other
contractual obligations.
The following table summarizes the restructuring and impairment charges, the
amounts paid and the ending accrual balances for the period ended June 30, 2002
(in thousands):
FIRST SECOND
ACCRUAL QUARTER QUARTER CASH ACCRUAL
12/31/01 CHARGES CHARGES PAYMENTS 6/30/02
-------------- -------------- -------------- --------------- ------------
DESCRIPTION
Severance, outplacement and
other personnel costs $ 2,115 $ 1,382 $ 4,437 $ (4,215) $ 3,719
Facility closing costs 9,134 (1,645) 2,722 (1,342) 8,869
Other exit costs 383 - 610 (295) 698
-------------- -------------- -------------- --------------- ------------
Total $ 11,632 $ (263) $ 7,769 $ (5,852) $ 13,286
============== ============== ============== =============== ============
21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
The majority of the severance costs are expected to be paid by the end of
September 2002, while the balance of facility costs, which include long-term
leases, is expected to be paid through 2013.
NOTE 12 - SEGMENT INFORMATION
Penton has four segments which derive their revenues from the production of
trade shows, publications and online media products, including Web sites serving
customers in 12 distinct industry sectors. Penton measures segment profitability
using adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) before
interest, taxes, depreciation and amortization, non-cash compensation and
unusual items. Adjusted EBITDA for segments also excludes corporate-level costs.
Corporate-level costs include costs for centralized functions, such as finance,
accounting and information systems, which are not allocated to each segment.
Summary information by segment for the six months ended June 30, 2002 and 2001
is as follows (in thousands):
INDUSTRY TECHNOLOGY LIFESTYLE
MEDIA MEDIA MEDIA OTHER TOTAL
----- ----- ----- ----- -----
2002
Revenues $ 49,210 $ 52,273 $ 18,755 $ 8,946 $ 129,184
Adjusted EBITDA $ 7,595 $ 2,040 $ 7,927 $ 2,278 $ 19,840
2001
Revenues $ 68,622 $ 123,361 $ 18,140 $ 9,347 $ 219,470
Adjusted EBITDA $ 12,676 $ 28,655 $ 7,776 $ 1,998 $ 51,105
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated loss before income taxes and
extraordinary item (in thousands):
SIX MONTHS ENDED JUNE 30,
2002 2001
---- ----
Total segment adjusted EBITDA $ 19,840 $ 51,105
Depreciation and amortization (10,140) (22,714)
Restructuring charge (7,506) (5,567)
Impairment of assets (136) -
Non-cash compensation (1,544) (1,445)
Gain on sale of investments 1,491 -
Interest expense (18,920) (13,069)
Interest income 460 819
Miscellaneous, net (341) (1,450)
Corporate costs (9,675) (13,838)
-------------- ------------
Consolidated loss before income taxes
and extraordinary item $ (26,471) $ (6,159)
============== ============
NOTE 13 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as of
June 30, 2002 and December 31, 2001, and condensed consolidating statements of
operations and condensed consolidating statements of cash flows for the six
months ended June 30, 2002 and 2001. In the following schedules, "Parent" refers
to the combined balances of Penton Media, Inc., "Guarantor Subsidiaries" refers
to Penton's wholly owned domestic subsidiaries and "Non-guarantor Subsidiaries"
refers to Penton's foreign subsidiaries. "Eliminations" represents
22
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
the adjustments necessary to (a) eliminate intercompany transactions and (b)
eliminate the investments in Penton's subsidiaries.
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 18,581 $ 286 $ 3,722 $ - $ 22,589
Accounts and notes receivable, net 147,355 (7,265) (12,879) (82,000) 45,211
Income taxes receivable 10,464 - - - 10,464
Inventories 374 316 8 - 698
Deferred tax asset 4,716 1,962 (33) - 6,645
Prepayments, deposits and other 2,758 2,796 5,070 - 10,624
------------- ------------- ------------- ------------- -------------
184,248 (1,905) (4,112) (82,000) 96,231
------------- ------------- ------------- ------------- -------------
Property, plant and equipment, net 20,090 4,764 2,512 - 27,366
Goodwill, net 123,645 333,181 37,521 - 494,347
Other intangibles, net 19,621 36,691 1,961 - 58,273
Deferred tax asset 6,961 1,045 - - 8,006
Investments 221,902 146,303 - (368,205) -
------------- ------------- ------------- ------------- -------------
392,219 521,984 41,994 (368,205) 587,992
------------- ------------- ------------- ------------- -------------
$ 576,467 $ 520,079 $ 37,882 $ (450,205) $ 684,223
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,032 $ 16 $ 930 $ - $ 7,978
Income taxes payable 887 1,764 175 - 2,826
Accrued earnouts 1,547 - 4,018 - 5,565
Accrued compensation and benefits 11,772 1,253 844 - 13,869
Other Accrued Expenses 30,527 (5,788) 5,189 - 29,928
Unearned income 10,903 9,815 5,064 - 25,782
------------- ------------- ------------- ------------- -------------
62,668 7,060 16,220 - 85,948
------------- ------------- ------------- ------------- -------------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 92,477 64,266 - - 156,743
Senior subordinated notes, net of discount 101,064 70,232 - - 171,296
Note payable 82,000 - 417 (82,000) 417
Net deferred pension credits 14,765 - - - 14,765
Deferred tax liability (9,501) 9,501 - - -
Intercompany advances (57,382) 44,967 12,415 - -
Other 1,905 397 1,212 - 3,514
------------- ------------- ------------- ------------- -------------
225,328 189,363 14,044 (82,000) 346,735
------------- ------------- ------------- ------------- -------------
Mandatorily redeemable convertible
preferred stock 44,861 - - - 44,861
------------- ------------- ------------- ------------- -------------
Stockholders' equity:
Common stock 219,355 350,020 16,614 (357,408) 228,581
Retained earnings (deficit) 34,168 (26,364) (6,574) (10,797) (9,567)
Notes receivable officers/directors (9,703) - - - (9,703)
Accumulated other comprehensive loss (210) - (2,422) - (2,632)
------------- ------------- ------------- ------------- -------------
243,610 323,656 7,618 (368,205) 206,679
------------- ------------- ------------- ------------- -------------
$ 576,467 $ 520,079 $ 37,882 $ (450,205) $ 684,223
============= ============= ============= ============= =============
23
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 13-- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 14,518 $ 1,993 $ 3,680 $ - $ 20,191
Accounts and notes receivable, net 32,973 93,247 12,232 (82,000) 56,452
Income tax receivable 14,750 - - - 14,750
Inventories 1,090 248 13 - 1,351
Deferred tax asset 4,683 1,962 - - 6,645
Prepayments, deposits and other 3,893 3,961 - - 7,854
------------- ------------- ------------- ------------- -------------
71,907 101,411 15,925 (82,000) 107,243
------------- ------------- ------------- ------------- -------------
Property, plant and equipment, net 22,563 4,694 2,919 - 30,176
Goodwill, net 124,828 331,570 36,743 - 493,141
Other intangibles, net 13,624 40,684 2,492 - 56,800
Deferred tax asset 16,462 (8,994) - - 7,468
Investment in subsidiaries 221,915 146,235 - (368,150) -
Investments - 5,649 - - 5,649
------------- ------------- ------------- ------------- -------------
399,392 519,838 42,154 (368,150) 593,234
------------- ------------- ------------- ------------- -------------
$ 471,299 $ 621,249 $ 58,079 $ (450,150) $ 700,477
============= ============= ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured credit facility $ 16,489 $ - $ - $ - $ 16,489
Note payable - - 2,804 - 2,804
Accounts payable and accrued expenses 38,969 (1,580) 9,656 - 47,045
Accrued compensation and benefits 10,562 1,226 623 - 12,411
Unearned income 15,339 16,723 4,877 - 36,939
------------- ------------- ------------- ------------- -------------
81,359 16,369 17,960 - 115,688
------------- ------------- ------------- ------------- -------------
Long-term liabilities and deferred credits:
Senior secured credit facility 164,098 - - - 164,098
Senior subordinated notes, net of discount 180,957 - - - 180,957
Note payable 82,000 - 417 (82,000) 417
Net deferred pension credits 15,140 - - - 15,140
Intercompany advances (310,773) 266,714 44,059 - -
Other 2,097 384 1,166 - 3,647
------------- ------------- ------------- ------------- -------------
133,519 267,098 45,642 (82,000) 364,259
------------- ------------- ------------- ------------- -------------
Stockholders' equity:
Common stock 227,564 355,888 1,465 (357,353) 227,564
Retained earnings (deficit) 41,251 (18,914) (4,816) (10,797) 6,724
Notes receivable officers/directors (10,824) - - - (10,824)
Accumulated other comprehensive income (loss) (1,570) 808 (2,172) - (2,934)
----------- ------------- ------------- ------------- -------------
256,421 337,782 (5,523) (368,150) 220,530
------------- ------------- ------------- ------------- -------------
$ 471,299 $ 621,249 $ 58,079 $ (450,150) $ 700,477
============= ============= ============= ============= =============
24
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 13-- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
REVENUES $ 83,977 $ 33,896 $ 11,311 $ - $ 129,184
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES
Editorial, production and circulation 35,268 14,936 4,453 - 54,657
Selling, general and administrative 38,675 20,011 7,220 - 65,906
Restructuring charges 6,047 317 1,142 - 7,506
Impairment of assets - - 136 - 136
Depreciation and amortization 4,688 4,706 746 - 10,140
------------- ------------- ------------- ------------- -------------
84,678 39,970 13,697 - 138,345
------------- ------------- ------------- ------------- -------------
OPERATING LOSS (701) (6,074) (2,386) - (9,161)
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (11,100) (7,713) (107) - (18,920)
Interest income (1,015) 1,516 (41) - 460
Gain on sale of investments 1,491 - - - 1,491
Miscellaneous, net (363) - 22 - (341)
------------- ------------- ------------- ------------- -------------
(10,987) (6,197) (126) - (17,310)
------------- ------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (11,688) (12,271) (2,512) - (26,471)
BENEFIT FOR INCOME TAXES (4,438) (4,822) (754) - (10,014)
-------------- ------------- ------------- ------------- -------------
LOSS BEFORE EXTRAORDINARY ITEM (7,250) (7,449) (1,758) - (16,457)
EXTRAORDINARY ITEM, NET OF TAXES 166 - - - 166
-------------- ------------- ------------- ------------- -------------
NET LOSS $ (7,084) $ (7,449) $ (1,758) $ - $ (16,291)
============== ============= ============= ============= =============
25
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 13-- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
REVENUES $ 112,931 $ 77,899 $ 28,640 $ - $ 219,470
------------- ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Editorial, production and circulation 47,698 26,791 9,523 - 84,012
Selling, general and administrative 56,233 31,668 11,735 - 99,636
Restructuring charges 5,567 - - - 5,567
Depreciation and amortization 19,356 3,055 303 - 22,714
------------- ------------- ------------- ------------- -------------
128,854 61,514 21,561 - 211,929
------------- ------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) (15,923) 16,385 7,079 - 7,541
-------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (12,907) (62) (100) - (13,069)
Interest income (1,721) 2,633 (93) 819
Gain on sale of investments - - - - -
Miscellaneous, net (216) - (1,234) - (1,450)
-------------- ------------- -------------- ------------- --------------
(14,844) 2,571 (1,427) - (13,700)
-------------- ------------- --------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (30,767) 18,956 5,652 - (6,159)
PROVISION (BENEFIT) FOR INCOME TAXES (3,062) 1,910 1,754 - 602
-------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (27,705) $ 17,046 $ 3,898 $ - $ (6,761)
============== ============= ============= ============= ==============
26
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 13-- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2002
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ 1,086 $ (7,393) $ 3,899 $ - $ (2,408)
------------- ------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,412) (91) (270) - (1,773)
Acquisitions, including earnouts paid,
net of cash acquired (687) (24) (775) - (1,486)
Proceeds from sale of INT Media Group,
Inc. stock - 5,801 - - 5,801
------------- ------------- ------------- ------------- -------------
Net cash provided by (used for)
investing activities (2,099) 5,686 (1,045) - 2,542
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily
redeemable convertible preferred stock 46,111 - - - 46,111
Proceeds from senior secured notes 156,717 - - - 156,717
Purchase of senior subordinated notes (8,375) - - - (8,375)
Repayment of senior credit facility (180,587) - - - (180,587)
Payment of short term note payable - - (2,804) - (2,804)
Employee stock purchase plan (368) - (8) - (376)
Proceeds from repayment of officers/directors loans 703 - - - 703
Payment of financing costs (9,189) - - - (9,189)
------------- ------------- ------------- ------------- -------------
Net cash provided by (used for)
financing activities 5,012 - (2,812) - 2,200
------------- ------------- ------------- ------------- -------------
Effect of exchange rate 64 - - - 64
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and
equivalents 4,063 (1,707) 42 - 2,398
Cash and equivalents at beginning of period 14,518 1,993 3,680 - 20,191
------------- ------------- ------------- ------------- -------------
Cash and equivalents at end of period $ 18,581 $ 286 $ 3,722 $ - $ 22,589
============= ============= ============= ============= =============
27
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
NOTE 13-- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ (24,565) $ 1,348 $ 7,158 $ 1,043 $ (15,016)
------------- ------------- ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,187) (1,727) (1,534) - (5,448)
Acquisitions, including earnouts paid,
net of cash acquired (14,839) (2,442) (2,979) - (20,260)
------------- ------------- ------------- ------------- -------------
Net cash used for investing activities (17,026) (4,169) (4,513) - (25,708)
------------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes 180,836 - - - 180,836
Proceeds from senior debt facility 45,000 - - - 45,000
Repayment of senior debt facility (139,875) - - - (139,875)
Employee stock purchase plan payments (139) - - - (139)
Proceeds from deferred shares and options
exercised 1,049 - - - 1,049
Payment of financing costs (85) - - - (85)
Dividends paid (1,912) - - - (1,912)
------------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities 84,874 - - - 84,874
------------- ------------- ------------- ------------- -------------
Effect of exchange rate (86) - - - (86)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and 43,197 (2,821) 2,645 1,043 44,064
equivalents
Cash and equivalents at beginning of period - 8,678 3,970 (1,043) 11,605
------------- ------------- ------------- ------------- -------------
Cash and equivalents at end of period $ 43,197 $ 5,857 $ 6,615 $ - $ 55,669
============= ============= ============= ============= =============
28
NOTE 14 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The following transactions did not provide for or require the use of cash and,
accordingly, are not reflected in the Consolidated Statements of Cash Flows.
For the six months ended June 30, 2002, Penton issued 15,436 common shares under
the Management Stock Purchase Plan, and 9,100 shares under the Deferred Shares
Plan to several officers and other key employees. In addition, one executive
returned 52,332 shares to the Company to pay down a portion of his executive
loan balance. The returned shares were recorded as treasury stock. Furthermore,
in the second quarter 2002, Penton recorded amortization of deemed dividend and
accretion on preferred stock of $44.9 million.
For the six months ended June 30, 2001, Penton marked to market its investment
in INT Media Group, Inc. stock by approximately $7.6 million, and declared
dividends of $1.0 million. In addition, Penton acquired Hillgate Communications
Ltd. for approximately $4.1 million, of which $3.5 million was in the form of
notes payable.
NOTE 15 - INCOME TAXES
As of June 30, 2002, the Company has a net deferred tax asset balance of $14.7
million. Realization of the net deferred balance is dependent on generating
sufficient taxable income in the U.S. Although realization is not assured, the
Company believes that it is more likely than not that the net deferred tax asset
will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if current estimates of
the timing and amount of future taxable income are significantly revised.
NOTE 16 - SUBSEQUENT EVENTS
On July 26, 2002, Penton filed a Tender Offer Statement to exchange options to
purchase shares of Penton's common stock issued under the Penton Media, Inc.
1998 Equity and Performance Incentive Plan (the "Option Plan") with exercise
prices greater than or equal to $16.225 per share for new options to purchase
shares of common stock to be issued under the Option Plan ("New Options"). New
Options will be granted on or promptly after the first business day that is at
least six months and one day after the eligible options tendered pursuant to the
offer are cancelled. The exercise price of the New Options shall be the fair
value of our common stock on the grant date. Each eligible employee will receive
a New Option to acquire one share of Penton's common stock for every two shares
of Penton's common stock subject to an eligible option. The offer to exchange
options under the Tender Offer expires on August 22, 2002, unless the period is
extended.
Effective July 31, 2002, Penton's Rights Agreement was amended by the board of
directors to change the expiration date of the rights under the Rights Agreement
to be effective at the close of business at Penton's 2003 annual meeting of
stockholders, unless the Rights Agreement is approved by the stockholders at
such annual meeting.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto. Historical results and percentage
relationships set forth in the consolidated financial statements, including
trends that might appear, should not be taken as indicative of future
operations. Penton considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933 and Section 21E of the Securities Exchange Act of 1934, both as amended,
with respect to expectations for future periods. Although Penton believes that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects," "seeks," "estimates" and similar expressions are intended to identify
forward-looking statements. A number of important factors could cause Penton's
results to differ materially from those indicated by such forward-looking
statements, including, among other factors, pending litigation, government
regulation, competition, technological change, intellectual property rights,
capital spending, international operations and Penton's acquisition and Internet
strategies.
OVERVIEW
We believe we are a leading, global 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 as part of their sales and marketing efforts. We publish specialized
trade magazines, produce trade shows and conferences, and maintain Web
businesses, including electronic newsletters. Our products serve 12 industry
sectors, which we group into four segments:
INDUSTRY MEDIA TECHNOLOGY MEDIA
-------------- ----------------
Manufacturing Internet/Broadband
Design/Engineering Information Technology
Mechanical Systems/Construction Electronics
Supply Chain
Government/Compliance OTHER MEDIA
Aviation -----------
Food/Retail
Leisure/Hospitality
LIFESTYLE MEDIA
---------------
Natural Products
We believe we have leading media products in each of the industry sectors we
serve. We are structured along segment and industry lines rather than by product
lines. This enables us to promote our related group of products, including
publications, trade shows and conferences, and online media products, to our
customers.
RECENT DEVELOPMENTS
FINANCING
On March 19, 2002, the Company issued 40,000 shares of its Series B Convertible
Preferred Stock, par value $0.01 per share (the "preferred stock"), and warrants
(the "warrants") to purchase 1,280,000 shares of Penton's common stock, par
value $0.01 per share, for $40.0 million in a private placement to institutional
investors and affiliated entities. On March 28, 2002, the Company issued an
additional 10,000 shares of preferred stock, par value $0.01 per share, and
warrants to purchase an additional 320,000 shares of Penton's common stock, par
value $0.01 per share, for $10.0 million to the same group of investors. The net
proceeds from the sale of the
30
preferred stock and warrants were used to repay the term loan indebtedness under
our senior credit facility. (See Note 5 - Debt)
A copy of the amended and restated Series B Convertible Preferred Stock and
Warrant Purchase Agreement and the Certificate of Designations (as amended on
June 4, 2002 on Form S-3/A) and Form of Warrants Agreement were filed with the
Securities and Exchange Commission on March 19, 2002 as exhibits to a Current
Report on Form 8-K. The following is a description of the material terms of the
preferred stock and warrants, and is qualified in its entirety by reference to
that Current Report on Form 8-K and the applicable agreements. Significant terms
of the new preferred stock are as follows:
- Holders of the preferred shares will have a liquidation preference
over holders of common stock.
- The initial liquidation value per share will be $1,000. If the
preferred stock is not converted or redeemed prior to the sixth
anniversary of the date of issuance, the liquidation value will
increase to $4,570 per share.
- Dividends accrue at an annual rate of 5% per annum. After the sixth
anniversary, dividends accrue at an annual rate of 15%. Upon certain
triggering events, the dividend rate may increase by one percentage
point per quarter up to a maximum increase of five percentage points.
- The dividends are payable semi-annually in cash only if declared by
our board of directors and approved by holders of no less than 75% of
the convertible preferred stock then outstanding. The provisions of
our debt instruments limit our ability to pay dividends in cash.
Currently we have no intention to pay dividends in cash.
- Shares of preferred stock will be convertible at any time at each
investor's option into a number of shares of our common stock equal to
the liquidation value plus accrued but unpaid dividends, divided by
the conversion price. The conversion price will initially be $7.61,
and is subject to certain anti-dilution and other adjustments. Subject
to certain restrictions, we have the option to convert the preferred
stock at any time.
- If we fail to comply with specific covenants contained in the purchase
agreement, the conversion price will be reduced by $0.76 (adjusted for
stock splits and similar transactions). Until such failure is no
longer in existence, every 90 days the conversion price shall be
reduced by $0.76 up to a maximum reduction of $3.80 (adjusted for
stock splits and similar transactions). The conversion price will
adjust to what it would have been, absent such breach, once the breach
is cured.
- We may redeem the preferred stock at any time, in whole or in part,
provided that the redemption price is equivalent to the amount the
holders would receive on an as-converted basis using a trailing 30-day
period and subject to certain minimum share prices based on the year
redeemed.
- The preferred stock initially entitles the holders to three seats on
our board of directors. Upon the occurrence of certain triggering
events, the holders may appoint up to one less than a minimum majority
of our board of directors or a minimum majority upon the occurrence of
certain events of bankruptcy or insolvency. See the further discussion
of these triggering events in the "Risk Factors" section of the
Company's Annual Report on Form 10-K for the year ended December 31,
2001.
- The holders of the convertible preferred stock are entitled to vote on
all matters submitted to a vote of our common stockholders.
- We have registered the common stock issuable upon conversion of the
convertible preferred stock and exercise of the warrants.
- The terms of the convertible preferred stock subject us to various
covenants, which among other things, limits our ability to sell
assets, make any restricted payments or restricted investments, enter
into various agreements and grant certain options.
- Warrants were issued to purchase an aggregate of 1.6 million shares of
our common stock at an initial exercise price of $7.61 per share,
subject to certain anti-dilution and other adjustments that mirror
those applicable to the convertible preferred stock. The warrants are
immediately exercisable and expire 10 years after issuance.
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes (the
"Secured Notes") due 2007. Interest is payable on the Secured Notes
semi-annually on April 1 and October 1. The Secured Notes are fully and
unconditionally, jointly and severally, guaranteed on a senior basis by all of
our domestic subsidiaries, which
31
are 100% owned by the Company. We may redeem the Secured Notes, in whole or in
part, during the periods October 1, 2005 through September 30, 2006 and October
1, 2006 and thereafter at redemption prices of 105.9375% and 100.0000% of the
principal amount, respectively, together with accrued and unpaid interest. In
addition, at any time prior to October 1, 2005, up to 35% of the aggregate
principal amount of the Secured Notes may be redeemed at our option, within 90
days of certain public equity offerings of our common stock, at a redemption
price equal to 111.875% of the principal amount, together with accrued and
unpaid interest.
The Secured Notes were offered at a discount of $0.8 million, which is being
amortized, using the interest method, over the term of the Secured Notes. Net
proceeds of $150.1 million were used to pay down $83.6 million of our term loan
A facility, and $49.0 million of our term loan B facility, and to repurchase
$10.0 million of our 10 3/8% senior subordinated notes for $8.3 million. The
remaining net proceeds of $9.2 million were used for general corporate purposes.
The Secured Notes rank senior in right to all of our subordinated indebtedness,
including our 10 3/8% senior subordinated notes due in 2011, and equal in right
of payment with all of our other senior indebtedness, which is approximately
$0.4 million at June 30, 2002. The Secured Notes contain covenants that will,
among other things, limit the Company's ability to pay dividends, incur
additional debt, sell assets, and enter into mergers or consolidations. Our
ability to obtain dividends from our subsidiaries is only restricted if we are
in default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In March 2002, Penton amended and restated its senior credit facility and repaid
in full term loan A and term loan B facilities from the proceeds received from
the sale of preferred shares (see Note 6 - Redeemable Convertible Preferred
Stock), proceeds received from the sale of INT Media Group, Inc. common stock
(see Note 4 - Investments), cash on hand from a tax refund of approximately
$12.2 million, and the issuance of $157.5 million in Secured Notes as mentioned
above. The amended and restated credit agreement provides for a revolving credit
facility of up to a maximum amount of $40.0 million. Availability under the
revolving credit facility is determined by a borrowing base that is limited to
80% of eligible receivables. In order to access the revolver, Penton must not
have more than $7.5 million of cash and cash equivalents available, must be in
compliance with the loan documents and must submit a borrowing base certificate
immediately prior to each extension of credit showing compliance with the
borrowing base. Penton is required to prepay the revolver in the event that it
has loans outstanding in excess of the borrowing base, or it has more than $7.5
million in cash and cash equivalents at the end of any month. The amended and
restated credit facility has no financial covenants. In connection with the
amendment and restatement of the credit facility, the interest rate on the
revolving credit facility was increased. In addition, further restrictions were
placed on Penton's ability to made certain restricted payments, to make capital
expenditures in excess of certain amounts, to incur additional debt and
contingent obligations, to make acquisitions and investments, and to sell
assets.
EXPENSE REDUCTION INITIATIVES
We have implemented a number of expense reduction and restructuring initiatives
to more closely align our cost structure with the current business environment.
The cost reduction initiatives included workforce reductions, elimination of
unprofitable properties, the shutdown or consolidation of certain facilities.
Results for the first half of 2002 show some of the benefits of our aggressive
cost reduction programs implemented in 2001 and the first half of 2002. Specific
actions taken are as follows:
- We reduced staffing through terminations.
- We imposed a company-wide hiring freeze, as well as a salary freeze
for higher-paid employees.
- We shut down or consolidated more than 25 offices worldwide.
- We reduced benefit costs by increasing employee contributions for
health care, temporarily suspending the company match for our defined
contribution plan, and eliminating year-end discretionary bonuses.
- We eliminated unprofitable properties, including various magazines,
more than 20 events and nearly 20 Web sites.
- We restructured various under-performing events by either eliminating
these events or by co-locating with other events and realigning
management structures.
32
- We reduced the production cost of various under-performing magazines
through process improvements, automation of pre-press work, new
printing and paper supply contracts, and selective reduction in
frequency and circulation levels.
- We commenced a plan to centralize all information technology and
accounting services.
- We effectively outsourced various corporate and division functions.
In the analysis that follows, we have used adjusted EBITDA, which we define as
net income (loss) before interest, taxes, depreciation and amortization,
non-cash compensation and unusual items, as the primary measure of profitability
in evaluating our operations. We believe that investors find adjusted EBITDA to
be a useful tool for measuring a company's ability to generate cash. Adjusted
EBITDA does not represent cash flow from operations, as defined by generally
accepted accounting principles, and is not calculated in the same way by all
companies. In addition, you should not consider adjusted EBITDA a substitute for
net income or net loss, or as an indicator of our operating performance or cash
flow, or as a measure of liquidity. Adjusted EBITDA margin is calculated by
dividing adjusted EBITDA by total revenues.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2001
TOTAL COMPANY
Our revenues, net loss, net loss applicable to common stockholder, diluted
earnings per share, adjusted EBITDA, and adjusted EBITDA margins for the three
months ended June 30, 2002 and 2001 are as follows:
2002 2001 VARIANCE
---- ---- --------
Revenues $ 66,009 $ 106,777 $ (40,768)
=========== =========== ===========
Net loss $ (12,058) $ (5,483) $ (6,575)
=========== =========== ===========
Net loss applicable to
common stockholders $ (56,556) $ (5,483) $ (51,073)
=========== =========== ===========
Net loss per common share - diluted $ (1.77) $ (0.17)
=========== ===========
Adjusted EBITDA $ 5,135 $ 16,594 $ (11,459)
=========== =========== ===========
Adjusted EBITDA margins 7.8% 15.5%
=========== ===========
Operating results for the three months ended June 30, 2002 were impacted by the
downturn in the U.S. economy and, to a lesser extent, by the slowing of
economies throughout Europe and Asia. The weakness in the economy we experienced
in the fourth quarter of 2001 has carried over into the first half of 2002. Our
media properties serving the technology markets, including information
technology, Internet/broadband, and telecommunications, continued to show a
downward trend. Although some of our manufacturing media products also
experienced declines, products serving the natural products, food/retail,
government/compliance, and mechanical systems/construction markets performed
well.
Our revenues decreased $40.8 million, or 38.2%, from $106.8 million for the
three months ended June 30, 2001 to $66.0 million for the same period in 2002.
The decrease was due primarily to: (i) a decrease in publishing revenues of
$15.1 million, or 25.8%, from $58.4 million for the three months ended June 30,
2001 to $43.3 million for the same period in 2002; and (ii) a decrease in trade
show and conference revenues of $25.8 million, or 57.2%, from $45.1 million for
the three months ended June 30, 2001 to $19.3 million for the same period in
2002. Results for the second quarter of 2002 were impacted by the timing of our
Internet World Spring and CRM trade shows, which took
33
place in the second quarter of 2002 but were held in the first quarter of 2001.
Adjusting for the timing shift of these two events, revenues for the second
quarter declined by $60.7 million when compared with the same period in 2001.
Weak performance in our global portfolio of Internet/broadband trade shows held
during the quarter represented 51.1% of our total revenue decline.
We reported a net loss for the three months ended June 30, 2002 of $12.1
million. These results reflect the elimination of the amortization of goodwill
pursuant to our adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. If the
Company had adopted the accounting change at the beginning of 2001, we would
have reported a loss of $0.8 million, or $0.03 per diluted share, compared with
a net loss of $5.5 million, or $0.17 per diluted share. Unusual items in the net
loss for the second quarter of 2002 included: (i) a restructuring charge of $7.8
million (or $0.15 per diluted share after tax) related to staff reductions and
office closings; and (ii) the impairment of assets of $0.1 million associated
with the abandonment of an investment in France. There were no unusual items in
the second quarter of 2001.
The net loss applicable to common stockholders of $56.6 million, or $1.77 per
diluted share, for the three months ended June 30, 2002, includes a $44.5
million ($1.39 per diluted share) non-cash one-time charge, which was the result
of stockholder approval on May 31, 2002, to remove the 10-year mandatory
redemption date on the preferred stock. Subsequent to the approval, the Company
ceased accretion on the preferred stock and was required to recognize the
unamortized beneficial conversion feature of the stock immediately as a charge
to capital in excess of par value.
Total adjusted EBITDA decreased $11.5 million, or 69.1%, from $16.6 million for
the three months ended June 30, 2001 to $5.1 million for the same period in
2002. Adjusted EBITDA margins decreased from 15.5% for the second quarter of
2001 to 7.8% for the same period in 2002. The decrease in both our adjusted
EBITDA and adjusted EBITDA margins were primarily due to the decrease in our
trade show and conference operations of $13.9 million, or 86.7%, from $16.0
million in the second quarter of 2001 to $2.1 million for the same period in
2002. Margins for trade shows and conferences decreased from 67.7% in the second
quarter of 2001 to 20.4% for the same period in 2002. Weak performance in our
global portfolio of Internet/broadband trade shows held during the quarter
represented 107.3% of the decrease in the Company's adjusted EBITDA. These
decreases were somewhat offset by a decrease in general and administrative costs
of $1.8 million, or 24.9%, from $7.0 million in the second quarter of 2001 to
$5.2 million for the same period in 2002. As noted previously, results for the
quarter were impacted by the shift in the timing of the Internet World Spring
and CRM trade shows. Adjusting for this shift of trade show timing, total
adjusted EBITDA declined by $26.7 million for the three months ended June 30,
2002 compared to the same prior year period.
A reconciliation of our net loss to our total adjusted EBITDA for the three
months ended June 30, 2002 and 2001, is as follows (in thousands):
2002 2001
---- ----
Net loss $ (12,058) $ (5,483)
Interest expense 9,646 6,611
Interest income (242) (362)
Restructuring charge 7,769 -
Impairment of assets 136 -
Non-cash compensation 1,189 680
Provision (benefit) for income taxes (7,191) 2,512
Depreciation and amortization 5,684 11,135
Miscellaneous, net 202 1,501
------------ ------------
Adjusted EBITDA $ 5,135 $ 16,594
============ ============
34
OPERATING EXPENSES
Operating expenses decreased $26.3 million, or 25.8%, from $102.0 million for
the three months ended June 30, 2001 to $75.7 million for the same period in
2002. As a percentage of revenues, after excluding restructuring, impairment of
asset, and depreciation and amortization charges, operating costs increased from
85.1% in 2001 to 94.0% in 2002. The increase in operating expenses as a
percentage of revenues was primarily due to the $40.8 million decline in
revenues, which is attributed to the impact of the economy on our business,
offset partially by reduced costs of $28.8 million attributable to cost cutting
and restructuring activities implemented by the Company. Operating expenses for
the second quarter of 2002 included approximately $1.7 million associated with
the Internet World Spring and CRM shows which were held in March of 2001 and in
April of 2002.
Editorial, Production and Circulation
Editorial, production and circulation expenses decreased to $28.8 million for
the three months ended June 30, 2002, compared to $43.2 million for the same
period in 2001, representing a decrease of $14.4 million, or 33.3%. The decrease
was due to our expense reduction initiatives, including eliminating unprofitable
properties, reducing production costs through process improvements and selective
reductions in frequency and circulation levels, the outsourcing of various
functions throughout the organization, and the effects of staff reductions made
in the second half of 2001 and first half of 2002.
As a percentage of revenues, editorial, production and circulation expenses
increased from 40.4% in the second quarter of 2001 to 43.6% in the same period
of 2002. The increase was due to the general decrease in revenues across all of
our products.
Selling, General and Administrative
Selling, general and administrative expenses declined $14.4 million, or 30.3%,
from $47.7 million for the three months ended June 30, 2001 to $33.3 million for
the same period in 2002, primarily due to cost savings associated with office
closings and staff reductions realized from the restructuring actions taken in
2001 and 2002. The decrease was partially offset by costs of approximately $1.2
million associated with the Internet World Spring and CRM shows which were held
in second quarter of 2002 and the first quarter of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 44.7% in 2001 to 50.4% in 2002. The increase was primarily due to
lower revenues realized across all of our products.
Restructuring Charge
The restructuring charge of $7.8 million ($4.7 million after tax, or $0.15 per
diluted share) was comprised of approximately $4.4 million of employee
termination benefits costs, as well as exit costs associated with five office
closings and $0.6 million related to other contractual obligations. See Note 11
- - Restructuring Charges for information on related cash payments. Additional
details concerning the principal components of the second quarter 2002 charge
are as follows:
- - Personnel costs of $4.4 million are associated with the elimination of
approximately 128 positions, of which 112 are in the U.S., with the
remainder primarily in the U.K. Personnel costs include payments for
severance, costs of outplacement services and a provision for continued
health benefits.
- - The Company downsized or closed an additional five offices with leases
expiring through 2010.
- - Other contractual obligations include costs associated with the
cancellation of a trade show venue.
35
Depreciation and Amortization
Depreciation and amortization declined $5.4 million, or 49.0%, from $11.1
million for the three months ended June 30, 2001 to $5.7 million for the three
months ended June 30, 2002. Lower amortization expense was due to the adoption
of SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002.
OPERATING INCOME (LOSS)
Overall, Penton's operating income (loss) decreased $14.4 million, from income
of $4.8 million for the three months ended June 30, 2001, to a loss of $9.6
million for the same period in 2002. Operating income (loss) as a percentage of
revenue decreased from 4.5% in 2001 to (14.6)% in 2002.
OTHER INCOME (EXPENSE)
Interest expense increased $3.0 million from $6.6 million for the three months
ended June 30, 2001, to $9.6 million for the three months ended June 30, 2002.
The increase was primarily due to a higher average debt balance during the
second quarter of 2002 when compared with the same period in 2001 as well as an
increase in the average interest rates of our debt from approximately 8.0% in
2001 to 12.0% in 2002.
EFFECTIVE TAX RATES
The effective tax rates were (84.6)% and 37.4% for the three months ended June
30, 2001 and 2002, respectively. The related decrease in the effective tax rate
year over year was primarily due to the effect of the accounting change for
goodwill amortization, effective January 1, 2002.
SEGMENTS
We manage our business based on four operating segments: Industry Media,
Technology Media, Lifestyle Media and Other Media. All four segments derive
their revenues from the production of publications, trade shows and conferences,
and online media products, and serve customers in 12 industry sectors. Adjusted
EBITDA for segments is calculated as previously defined except that segment
adjusted EBITDA also excludes corporate-level costs. Corporate-level costs
include costs for centralized functions, such as finance, accounting and
information systems, which are not allocated to each segment. See Note 12 -
Segment Information, for a reconciliation of segment total adjusted EBITDA to
consolidated net loss before taxes and extraordinary item. Financial information
by segment for the three months ended June 30, 2002 and 2001 is summarized in
the following table (in thousands):
ADJUSTED EBITDA
REVENUE ADJUSTED EBITDA MARGINS
2002 2001 2002 2001 2002 2001
-------- -------- -------- -------- ------ ------
Industry Media $ 26,173 $ 37,240 $ 4,398 $ 7,635 16.8% 20.5%
Technology Media 31,190 61,522 4,098 13,880 13.1% 22.6%
Lifestyle Media 4,285 3,711 (767) (608) (17.9)% (16.4)%
Other Media 4,361 4,304 1,252 883 28.7% 20.5%
-------- -------- -------- ---------
Total $ 66,009 $106,777 $ 8,981 $ 21,790
======== ======== ======== ========
Industry Media
Our Industry Media segment, which represented 39.7% of total Company revenues in
the second quarter of 2002, serves customers in the manufacturing,
design/engineering, mechanical systems/construction, government/compliance,
supply chain and aviation industries. Total revenues for this segment for the
three months ended June 30, 2002, decreased $11.0 million, or 29.7%, from $37.2
million in 2001 to $26.2 million in 2002. The decrease was primarily due to
lower revenues from publications of $7.3 million and lower revenues
36
from trade shows and conferences of $3.5 million when comparing the second
quarter of 2002 to the same period in 2001. The decrease in publication revenues
was primarily due to revenue declines in products serving the manufacturing,
design/engineering and supply chain sectors, which were impacted by the downturn
in the U.S. economy. Most significantly affected were, IndustryWeek, Machine
Design, American Machinist, New Equipment Digest, Transportation & Distribution,
Computer Aided Engineering and Material Handling Management magazines which
accounted for approximately $4.6 million of the decrease. The decrease in trade
show and conference revenues was primarily due to products serving the
manufacturing, construction and supply chain sectors which accounted for
approximately $3.6 million of the decrease. The decrease of approximately $1.0
million in the supply chain sector was due to the move of the Supply Chain &
Logistics Conference and Expo from the second quarter of 2001 to the third
quarter of 2002.
Total adjusted EBITDA for the Industry Media segment decreased $3.2 million, or
42.4%, from $7.6 million for the three months ended June 30, 2001, to $4.4
million during the same period in 2002. Publications accounted for $2.5 million
of the decrease while trade shows and conferences accounted for $1.6 million of
the decrease. Adjusted EBITDA for the segment's online media portfolio increased
$0.1 million for the three months ended June 30, 2002, when compared with the
same period in 2001. General and administrative and facility costs decreased by
0.7 million as a result of headcount reductions and office closings. Adjusted
EBITDA margins decreased from 20.5% in 2001 to 16.8% in 2002. The decrease in
adjusted EBITDA and adjusted EBITDA margins was primarily due to declines in the
aforementioned magazines and trade shows.
Technology Media
Our Technology Media segment, which represented 47.3% of total company revenues
in the second quarter of 2002, serves customers in the electronics, information
technology and Internet/broadband markets. Total revenues for this segment
decreased $30.3 million, or 49.3%, from $61.5 million for the three months ended
June 30, 2001 to $31.2 million for the same period in 2002. The decrease was
primarily due to lower revenues from publications of $7.6 million and lower
revenues from trade shows and conferences of $22.9 million. Publications such as
Electronic Design, EE Product News, Windows & .Net Magazine, Internet World and
Boardwatch magazines were the most significantly impacted and accounted for
approximately $5.0 million of the decrease. Trade show revenues in our
Internet/broadband sector accounted for $20.9 million of the total decrease with
our Service Networks Spring, Internet World UK and Streaming Media West shows
accounting for $15.8 million of the sector decrease. Online revenues increased
$0.3 million from $2.5 million for the three months ended June 30, 2001 to $2.8
million in the same 2002 period.
Total adjusted EBITDA for the Technology Media segment decreased $9.8 million,
or 70.5%, from $13.9 million for the three months ended June 30, 2001 to $4.1
million for the same period in 2002. Publications accounted for approximately
$0.3 million of the decrease while trade shows and conferences accounted for
$12.9 million of the decrease. Adjusted EBITDA for the segment's online media
portfolio increased $1.5 million for the three months ended June 30, 2002, when
compared with the same period in 2001. General and administrative and facility
costs decreased by approximately $2.0 million as a result of headcount
reductions and office closings. Adjusted EBITDA declines in our trade show and
conference business mirrored declining revenue trends.
Lifestyle Media
Our Lifestyle Media segment, which represented 6.5% of total-company revenues in
the second quarter of 2002, serves customers in the natural products industry
sector. Total revenues for this segment increased by $0.6 million, or 15.5%,
from $3.7 million for the three months ended June 30, 2001 to $4.3 million for
the same period in 2002. An increase in trade show revenues accounted for all of
the increase in revenues for this segment as publication and online media
revenues were flat when compared with the same prior-year period. The increase
in trade show revenues was primarily due to the successful launch of Natural
Products Expo Asia, which was staged during May in Hong Kong.
37
Total adjusted EBITDA for Lifestyle Media decreased $0.2 million, or 26.2%, from
a loss of $0.6 million for the three months ended June 30, 2001, to a loss of
$0.8 million for the same period in 2002 due primarily to the launch previously
noted. Adjusted EBITDA margin losses decreased from 16.4% in 2001 to 17.9% in
2002.
Other Media
Our Other Media segment, which represented 6.6% of total-company revenues for
the second quarter of 2002, serves customers in the food/retail and
leisure/hospitality sectors. Total revenues for this segment increased $0.1
million, or 1.3%, from $4.3 million for the three months ended June 30, 2001 to
$4.4 million for the comparable period in 2002. No individual properties
increased or decreased significantly between comparable quarters.
Total adjusted EBITDA for Other Media increased $0.4 million, or 41.8%, from
$0.9 million for the three months ended June 30, 2001, to $1.3 million for the
same 2002 period due primarily to cost reduction efforts.
PRODUCTS
We publish specialized trade magazines, produce trade shows and conferences, and
maintain a variety of online media products, including Web businesses and
electronic newsletters. Adjusted EBITDA for products is calculated as previously
defined, except that product adjusted EBITDA also excludes general and
administrative costs. General and administrative costs include corporate-level
costs, as defined previously under Segments, and other general and
administrative costs related to product offerings, which are not allocated. Our
calculation of adjusted EBITDA by product for the three months ended June 30,
2002 and 2001 is as follows (in thousands):
2002 2001
---------- --------
Publishing $ 7,217 $ 8,563
Trade shows & conferences 2,119 15,956
Online media 1,045 (943)
--------- ---------
Subtotal 10,381 23,576
General and administrative (5,246) (6,982)
---------- ---------
Adjusted EBITDA $ 5,135 $ 16,594
========== =========
For the three months ended June 30, 2002, adjusted EBITDA for the Company's
publishing operations decreased $1.3 million, or 15.7%, when compared with the
same prior-year period. Adjusted EBITDA for publications was primarily affected
by declines of approximately $2.5 million from our Windows & .Net, American
Machinist, Electronic Design, Machine Design, and EE Product News magazines.
These declines were somewhat offset by approximately $1.2 million related to
adjusted EBITDA improvements from our Internet World magazine and the
discontinuation in 2001 of our Streaming Media magazine.
For the three months ended June 30, 2002, adjusted EBITDA for the Company's
trade show and conference operations decreased $13.8 million, or 86.7%, when
compared with the same prior year period. Quarter-on-quarter comparisons were
affected by the change in the timing of the Internet World Spring and CRM trade
shows. Adjusting for the timing change, trade shows and conference adjusted
EBITDA decreased by $29.1 million. The decline was due primarily to the
significant drop in revenues in our Internet/broadband market, with our Service
Networks Spring, Internet World UK and Streaming Media West shows being the most
significantly impacted.
Adjusted EBITDA for the Company's online media operations increased from a loss
of $1.0 million for the three months ended June 30, 2001, to income of $1.0
million for the same period in 2002. The improvement was due primarily to the
elimination of unprofitable online media properties in 2001 and revenue growth.
38
For the three months ended June 30, 2002, general and administrative costs
decreased $1.7 million, when compared with the same prior-year period. The
decrease is primarily due to staff reductions and other cost cutting efforts
implemented in the second half of 2001 and in the first half of 2002.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001
TOTAL COMPANY
Our revenues, net loss, net loss applicable to common stockholders, diluted
earnings per share, adjusted EBITDA, and adjusted EBITDA margins for the six
months ended June 30, 2002 and 2001 are as follows:
2002 2001 VARIANCE
---- ---- --------
Revenues $ 129,184 $ 219,470 $ (90,286)
============ =========== ===========
Net loss $ (16,291) $ (6,761) $ (9,530)
============ =========== ===========
Net loss applicable to
common stockholders $ (61,152) $ (6,761) $ (54,391)
============ =========== ===========
Net loss per common share - diluted $ (1.91) $ (0.21)
============ ===========
Adjusted EBITDA $ 10,165 $ 37,267 $ (27,102)
============ =========== ===========
Adjusted EBITDA margins 7.9% 17.0%
============ ===========
Operating results for the six months ended June 30, 2002 were impacted by the
downturn in the U.S. economy and, to a lesser extent, by the slowing of
economies throughout Europe and Asia. The weakness in the economy we experienced
in the fourth quarter of 2001 carried over into the first half of 2002. Our
media properties serving the technology markets, including information
technology, Internet/broadband, and telecommunications, continued to show a
downward trend. Although some of our manufacturing media products also
experienced declines, products serving the natural products, food/retail,
government/compliance, and mechanical systems/construction markets performed
well.
Our revenues decreased $90.3 million, or 41.1%, from $219.5 million for the six
months ended June 30, 2001 to $129.2 million for the same period in 2002. The
decrease was due primarily to: (i) a decrease in publishing revenues of $30.7
million, or 26.6%, from $115.6 million for the six months ended June 30, 2001 to
$84.9 million for the same period in 2002; (ii) a decrease in trade show and
conference revenues of $59.3 million, or 60.9%, from $97.4 million for the six
months ended June 30, 2001 to $38.1 million for the same period in 2002; and
(iii) a decrease in online media revenues of $0.2 million, from $6.5 million for
the six months ended June 30, 2001 to $6.3 million for the same period in 2002.
Weak performance in our global portfolio of Internet/broadband trade shows held
during the year represented 58.3% of the total revenue decline. Significant
declines were also experienced in our electronics, information technology and
manufacturing markets, which accounted for approximately $22.9 million, or 25.4%
of the decline.
We reported a net loss for the six months ended June 30, 2002 of $16.3 million
compared with a net loss of $6.8 million for the same period in 2001. The 2002
results reflect the elimination of the amortization of goodwill pursuant to our
adoption of Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002. The first-half 2001
net loss, adjusted as if the Company had adopted the accounting change at the
beginning of 2001, would have been income of $1.6 million. Unusual items in the
first half of 2002 included: (i) a restructuring charge of $7.5 million (or
$0.14 per diluted share after tax) related to staff reductions and additional
office closings, which were partially offset by the sublease of two offices, for
which reserves were previously established; (ii) the impairment of assets of
$0.1 million associated with the abandonment of an
39
investment in France; (iii) a pretax gain of $1.5 million ($0.03 per diluted
share after tax) on our sale of INT Media Group, Inc. common stock; and (iv) an
extraordinary item of $0.2 million (less than $0.01 per diluted share after tax)
related to a gain on the repurchase of $10.0 million of senior subordinated
notes, partially offset by the write-off of unamortized finance fees associated
with the refinancing of our senior credit facility. Unusual items in the first
half of 2001 included a restructuring charge of $5.6 million (or $0.10 per
diluted share after tax) related to the discontinuation of certain online media
properties.
The net loss applicable to common stockholders of $61.2 million, or $1.91 per
diluted share, for the six months ended June 30, 2002, includes a $44.9 million
($1.40 per diluted share) non-cash one-time charge, which was the result of
stockholder approval on May 31, 2002, to remove the 10-year mandatory redemption
date on the preferred stock. Subsequent to this approval, the Company ceased
accretion on the preferred stock and was required to recognize the unamortized
beneficial conversion feature of the stock immediately as a charge to capital in
excess of par value.
Total adjusted EBITDA decreased $27.1 million, or 72.7%, from $37.3 million for
the six months ended June 30, 2001 to $10.2 million for the same period in 2002.
Adjusted EBITDA margins decreased from 17.0% in the first half of 2001 to 7.9%
for the same period in 2002. The decrease in both our adjusted EBITDA and
adjusted EBITDA margins was primarily due to the decrease in our trade show and
conference operations of $32.6 million, or 79.0%, from $41.3 million in the
first half of 2001 to $8.7 million for the same period in 2002. Margins for
trade shows and conferences decreased from 42.4% in the first half of 2001 to
22.8% for the same period in 2002. Weak performance in our global portfolio of
Internet/broadband trade shows held in 2002 represented 115.6% of the decrease
in the Company's adjusted EBITDA. These decreases were somewhat offset by a
decrease in general and administrative costs of $4.9 million, or 27.5%, from
$17.5 million in the first half of 2001 to $12.6 million for the same period in
2002.
A reconciliation of our net loss to our adjusted EBITDA for the six months ended
June 30, 2002 and 2001 is as follows (in thousands):
2002 2001
---- ----
Net loss $ (16,291) $ (6,761)
Interest expense 18,920 13,069
Interest income (460) (819)
Gain on sale of investments (1,491) -
Restructuring charge 7,506 5,567
Impairment of assets 136 -
Non-cash compensation 1,544 1,445
Provision (benefit) for income taxes (10,014) 602
Depreciation and amortization 10,140 22,714
Extraordinary item (166) -
Miscellaneous, net 341 1,450
------------ --------------
Adjusted EBITDA $ 10,165 $ 37,267
============ ==============
OPERATING EXPENSES
Operating expenses decreased $73.6 million, or 34.7%, from $211.9 million for
the six months ended June 30, 2001 to $138.3 million for the same period in
2002. As a percentage of revenues, after excluding restructuring, impairment of
asset, and depreciation and amortization charges, operating costs increased from
83.7% in 2001 to 93.3% in 2002. The increase in operating expenses as a
percentage of revenues was primarily due to the $90.3 million decline in
revenues, which is attributable to the impact of the economy on our business,
partially offset by the effects from cost reduction initiatives and
restructuring activities through the first six months of 2002, of $63.1 million.
40
Editorial, Production and Circulation
Editorial, production and circulation expenses decreased to $54.7 million for
the six months ended June 30, 2002, compared to $84.0 million for the same
period in 2001, representing a decrease of $29.3 million, or 34.9%. The decrease
was due to the effects of our expense reduction initiatives, including
eliminating unprofitable properties, reducing production costs through process
improvements and selective reduction in frequency and circulation levels, the
outsourcing of various functions throughout the organization, and the effects of
staff reductions made in the second half of 2001 and first half of 2002.
As a percentage of revenues, editorial, production and circulation expenses
increased from 38.3% in the first half of 2001 to 42.3% in the same period of
2002. The increase was due to the general decrease in revenues across all of our
products, particularly our Internet/broadband trade shows.
Selling, General and Administrative
Selling, general and administrative expenses declined $33.7 million, or 33.9%,
from $99.6 million for the six months ended June 30, 2001 to $65.9 million for
the same period in 2002. The decrease was primarily due to cost savings
associated with office closings and staff reductions realized from the
restructuring actions taken in 2001 and 2002.
As a percentage of revenues, selling, general and administrative expenses
increased from 45.4% in 2001 to 51.0% in 2002. The increase was primarily due to
lower revenues realized across all of our products, particularly our
Internet/broadband trade shows.
Restructuring Charge
The restructuring charge of $7.5 million ($4.5 million after tax, or $0.14 per
diluted share) for the six months ended June 30, 2002 was comprised of
approximately $5.8 million of employee termination costs and $1.1 million
related to exit costs associated with office space under long-term leases and
$0.6 million related to other contractual obligations. See Note 11 -
Restructuring Charges for information on related cash payments. Additional
detail concerning the principal components of the first-half 2002 charge is as
follows:
- - Personnel costs of $5.8 million are associated with the elimination of
approximately 177 positions, of which 161 are from U.S., with the remainder
primarily in the U.K. Personnel costs include payments for severance, costs
of outplacement services and a provision for continued health benefits.
- - In 2002, the Company closed or downsized an additional five offices
representing approximately $2.7 million in charges. These amounts were
offset in part by the reversal of approximately $1.6 million related to
lease reserves of $3.4 million recorded in the second half of 2001 for our
New York, NY and Burlingame, CA, offices for long-term leases we were able
to sublease. At that time, no assumptions for subleases were made by the
Company due to the inherent limitations in estimating the future trends of
the real estate marketplace, the economic conditions present in New York
City at the time, and the remote probability of a successful sublease.
However, in March 2002, due to continuing efforts by the Company, we
finalized a contract to sublease our New York office space for the
remainder of the lease term or approximately 7.3 years. In addition, in
April 2002, we subleased our Burlingame office for the remainder of the
lease term, or approximately 3.8 years. Penton remains ultimately
responsible for both of these leases.
Depreciation and Amortization
Depreciation and amortization declined $12.6 million, or 55.4%, from $22.7
million for the six months ended June 30, 2001 to $10.1 million for the six
months ended June 30, 2002. Lower amortization expense was due to the adoption
of SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002.
41
OPERATING INCOME (LOSS)
Overall, Penton's operating income (loss) decreased $16.7 million, from income
of $7.5 million for the six months ended June 30, 2001, to a loss of $9.2
million for the same period in 2002. Operating income (loss) as a percentage of
revenue decreased from 3.4% in 2001 to (7.1)% in 2002.
OTHER INCOME (EXPENSE)
Interest expense increased $5.8 million from $13.1 million for the six months
ended June 30, 2001, to $18.9 million for the six months ended June 30, 2002.
The increase was primarily due to a higher average debt balance during the first
half of 2002 when compared with the same period in 2001 as well as an increase
in the average interest rates of our debt from approximately 8.0% in 2001 to
12.0% in 2002.
In January 2002, Penton sold its remaining 11.8% ownership interest in INT Media
for $5.8 million and recognized a $1.5 million gain from its sale.
EXTRAORDINARY ITEM, NET
The extraordinary item for the six months ended June 30, 2002, of $0.2 million
consisted of two separate items, which net to a gain. In March 2002, we
purchased $10.0 million face value of our 10 3/8% senior subordinated notes at
prevailing market prices, resulting in a gain of $1.4 million ($0.8 million net
of taxes). This gain was offset by the write-off of unamortized deferred finance
costs of approximately $1.1 million ($0.7 million, net of taxes) associated with
the payoff of our term loan A and term loan B facilities, which also occurred in
March 2002.
EFFECTIVE TAX RATES
The effective tax rates were (9.8)% and 37.8% for the six months ended June 30,
2001 and 2002, respectively. The related decrease in the effective tax rate year
over year was primarily due to the effect of the accounting change for goodwill
amortization, effective January 1, 2002.
SEGMENTS
We manage our business based on four operating segments: Industry Media,
Technology Media, Lifestyle Media and Other Media. All four segments derive
their revenues from the production of publications, trade shows and conferences,
and online media products, and serve customers in 12 industry sectors. Adjusted
EBITDA for segments is calculated as previously defined except that segment
adjusted EBITDA also excludes corporate-level costs. Corporate-level costs
include costs for centralized functions, such as finance, accounting and
information systems, which are not allocated to each segment. See Note 12 -
Segment Information, for a reconciliation of segment total adjusted EBITDA to
consolidated loss before taxes and extraordinary item.
Financial information by segment for the six months ended June 30, 2002 and 2001
is summarized in the following table (in thousands):
ADJUSTED EBITDA
REVENUE ADJUSTED EBITDA MARGINS
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Industry Media $ 49,210 $ 68,622 $ 7,595 $ 12,676 15.4% 18.5%
Technology Media 52,273 123,361 2,040 28,655 3.9% 23.2%
Lifestyle Media 18,755 18,140 7,927 7,776 42.3% 42.9%
Other Media 8,946 9,347 2,278 1,998 25.5% 21.4%
-------- -------- -------- --------
Total $129,184 $219,470 $ 19,840 $ 51,105
======== ======== ======== ========
42
Industry Media
Our Industry Media segment, which represented 38.1% of total company revenues in
the first half of 2002, serves customers in the manufacturing,
design/engineering, mechanical systems/construction, government/compliance,
supply chain and aviation industries. Total revenues for this segment for the
six months ended June 30, 2002, decreased $19.4 million, or 28.3%, from $68.6
million in 2001 to $49.2 million in 2002. The decrease was primarily due to
lower revenues from publications of $14.7 million when comparing the first half
of 2001 to the same period in 2002, and lower revenues from trade shows and
conferences of $4.1 million when comparing the first half of 2001 to the same
period in 2002. The decrease in publication revenues was primarily due to
revenue declines in products serving the design/engineering, supply chain and
manufacturing sectors, which were impacted by the downturn in the U.S. economy.
Most significantly impacted were, IndustryWeek, Machine Design, American
Machinist, New Equipment Digest, Transportation & Distribution, Computer Aided
Engineering and Material Handling Management magazines which accounted for
approximately $9.3 million of the decrease. Of the decrease in trade show and
conference revenues, approximately $3.4 million of the decrease was due to
revenue declines in products serving our manufacturing and construction sectors.
Total adjusted EBITDA for the Industry Media segment decreased $5.1 million, or
40.1%, from $12.7 million for the six months ended June 30, 2001, to $7.6
million during the same period in 2002. Publications accounted for $5.3 million
of the decrease, while trade shows and conferences accounted for $1.8 million of
the decrease. Adjusted EBITDA for the segment's online media portfolio increased
$0.2 million for the six months ended June 30, 2002, when compared with the same
period in 2001. Also, general and administrative and facility costs decreased by
$1.8 million as a result of headcount reductions and office closures. Adjusted
EBITDA margins decreased from 18.5% in 2001 to 15.4% in 2002. The decrease in
adjusted EBITDA and margins was primarily due to declines in the aforementioned
magazines and trade shows.
Technology Media
Our Technology Media segment, which represented 40.5% of total company revenues
in the first half of 2002, serves customers in the electronics, information
technology and Internet/broadband markets. Total revenues for this segment
decreased $71.1 million, or 57.6%, from $123.4 million for the six months ended
June 30, 2001 to $52.3 million for the same period in 2002. The decrease was
primarily due to lower revenues from publications of $15.5 million and lower
revenues from trade shows and conferences of $55.8 million. Publications such as
Electronic Design, EE Product News, Windows & .Net Magazine, Internet World and
Boardwatch magazines were the most significantly impacted and accounted for
approximately $11.7 million of the decrease. Trade show revenues in our
Internet/broadband sector accounted for $52.6 million of the total decrease in
trade show revenues with our Internet World Spring, Service Networks Spring,
Internet World Berlin, Internet World UK and Streaming Media West shows
accounting for 36.1 million of the sector decrease. Online revenues increased
$0.3 million from $4.9 million for the six months ended June 30, 2001 to $5.2
million in the same 2002 period.
Total adjusted EBITDA for the Technology Media segment decreased $26.7 million,
or 92.9%, from $28.7 million for the six months ended June 30, 2001 to $2.0
million for the same period in 2002. Publications accounted for approximately
$0.3 million of the decrease, while trade shows and conferences accounted for
$32.5 million of the decrease. Adjusted EBITDA for the segment's online media
portfolio increased $1.9 million for the six months ended June 30, 2002, when
compared with the same period in 2001. General and administrative and facility
costs decreased by $4.2 million as a result of headcount reductions and office
closings. The adjusted EBITDA decline for trade shows and conferences mirrored
revenue declining trends.
Lifestyle Media
Our Lifestyle Media segment, which represented 14.5% of total-company revenues
in the first half of 2002, serves customers in our natural products industry
sector. Total revenues for this segment increased by $0.7 million, or 3.4%, from
$18.1 million for the six months ended June 30, 2001 to $18.8 million for the
same period in 2002. Increase in trade show revenues accounted for all of the
increase in revenues for this segment as publication and
43
online media revenues were flat when compared with the same prior-year period.
The slight increase of $0.7 million in trade show revenues was primarily due to
the move of the Nutracon event from the third quarter in 2001 to the first
quarter in 2002, and the successful launch of Natural Products Expo Asia, which
was staged during May 2002 in Hong Kong.
Total adjusted EBITDA for Lifestyle Media increased $0.1 million, or 1.9%, from
$7.8 million for the six months ended June 30, 2001, to $7.9 million for the
same period in 2002. Adjusted EBITDA margins decreased from 42.9% in 2001 to
42.3% in 2002 due to the aforementioned factors.
Other Media
Our Other Media segment, which represented 6.9% of total-company revenues for
the first half of 2002, serves customers in the food/retail and
leisure/hospitality sectors. Total revenues for this segment decreased $0.4
million, or 4.3%, from $9.3 million for the six months ended June 30, 2001 to
$8.9 million for the comparable period in 2002. The decrease was due primarily
modest year-over-year revenue declines for Lodging Hospitality and Convenience
Store Decisions magazines and the discontinuation of our Leisure Hospitality
conference due to the economic slowdown.
Total adjusted EBITDA for Other Media increased $0.3 million, or 14.0%, from
$2.0 million for the six months ended June 30, 2001, to $2.3 million for the
same 2002 period primarily due to cost reduction efforts.
PRODUCTS
We publish specialized trade magazines, produce trade shows and conferences, and
maintain a variety of online media products, including Web businesses and
electronic newsletters. Adjusted EBITDA for products is calculated as previously
defined, except that product adjusted EBITDA also excludes general and
administrative costs. General and administrative costs include corporate-level
costs, as defined previously under Segments, and other general and
administrative costs related to product offerings, which are not allocated. Our
calculation of adjusted EBITDA by product for the six months ended June 30, 2002
and 2001 is as follows (in thousands):
2002 2001
-------- --------
Publishing $ 12,775 $ 15,332
Trade shows & conferences 8,669 41,316
Online media 1,368 (1,930)
-------- --------
Subtotal 22,812 54,718
General and administrative (12,647) (17,451)
-------- --------
Adjusted EBITDA $ 10,165 $ 37,267
======== ========
For the six months ended June 30, 2002, adjusted EBITDA for the Company's
publishing operations decreased $2.6 million, or 16.7%, when compared with the
same prior-year period. Adjusted EBITDA for publications was primarily affected
by declines of approximately $5.1 million from magazines such as Windows & .Net,
Machine Design, American Machinist, Electronic Design and EE Product News. These
declines were somewhat offset by approximately $2.5 million related to adjusted
EBITDA improvements from our Internet World magazine and the discontinuation of
our Streaming Media magazine and IW Asia magazine which both reported a loss in
2001.
For the six months ended June 30, 2002, adjusted EBITDA for the Company's trade
show and conference operations decreased $32.6 million, or 79.0%, when compared
with the same prior-year period. The decline was due primarily to the
significant drop in revenues in our Internet/broadband market, with our Internet
World Spring, Service Networks Spring, Internet World UK and Streaming Media
West shows being the most significantly impacted.
44
Adjusted EBITDA for the Company's online media operations increased from a loss
of $1.9 million for the six months ended June 30, 2001, to income of $1.4
million for the same period in 2002. The improvement was due primarily to the
elimination of unprofitable online media properties in 2001 and revenue growth.
For the six months ended June 30, 2002, general and administrative costs
decreased $4.8 million, when compared with the same prior year-period. The
decrease is primarily due to staff reduction and other cost-cutting efforts
implemented in the second half of 2001 and in the first half of 2002.
FOREIGN CURRENCY
The functional currency of our foreign operations is their local currency.
Accordingly, assets and liabilities of foreign operations are translated to U.S.
dollars at the rates of exchange on the balance sheet date; income and expense
are translated at the average rates of exchange prevailing during the year.
There were no significant foreign currency transaction gains or losses for the
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, we financed our operations primarily with cash
generated from operating activities, borrowings under our senior credit
facility, proceeds from the issuance of senior notes, and proceeds from the sale
of investments and issuance of preferred shares.
Cash used for operating activities was $2.4 million and $15.0 million for the
six months ended June 30, 2002 and 2001, respectively. Operating cash flows for
the six months ended June 30, 2002, reflected a net loss of $16.3 million,
offset by a net working capital decrease of approximately $3.4 million and
non-cash charges (primarily depreciation and amortization) of approximately
$17.2 million. Operating cash flows for the six months ended June 30, 2001
reflect a net loss of $6.8 million, offset by a net working capital decrease of
approximately $37.0 million and non-cash charges (primarily depreciation and
amortization and restructuring charges) of approximately $28.8 million.
The increase in operating cash flows for the six months ended June 30, 2002,
compared with the same 2001 period was due primarily to decreases in working
capital items. The most significant working capital changes in 2002 were
attributable to accounts receivable, income taxes receivable, accounts payable
and accrued expenses. The accounts receivable decrease reflects lower first-half
sales in 2002 compared with 2001 and the timing of payments received. The change
in the receivable for income taxes reflects the receipt of an income tax refund
of $12.2 million in the first quarter of 2002. The decrease in accounts payable
and accrued expenses was due primarily to the timing of vendor and other
payments, which can fluctuate based on when particular trade shows are held.
Investing activities provided $2.5 million of cash for the six months ended June
30, 2002, and included proceeds of $5.8 million from the sale of approximately
3.0 million shares of INT Media Group, Inc. common stock. These proceeds were
partially offset by capital expenditures and earnout payments. Investing
activities used $25.7 million of cash for the six months ended June 30, 2001,
primarily due to nine acquisitions completed during the period, earnout payments
and capital expenditures.
Financing activities provided $2.2 million of cash for the six months ended June
30, 2002, due to the issuance of our 11 7/8% senior secured notes and the sale
of 50,000 shares of Series B mandatorily redeemable convertible preferred stock
to an investor group led by ABRY Mezzanine Partners, L.P. These proceeds were
primarily offset by the paydown of the balance of our senior secured credit
facility; the purchase of $10.0 million face value of our 10 3/8% senior
subordinated notes at prevailing market prices; the payment of financing fees
associated with the amendment to our senior credit facility and the issuance of
our senior secured notes, and the payment of the short-term portion of our note
payable. Financing activities provided $84.9 million for the six months ended
June 30, 2001, primarily from borrowings under our revolving credit facility and
proceeds from the issuance of our senior subordinated notes, offset partially by
debt repayments and dividends paid to stockholders.
45
On September 1, 1999, we entered into a $340.0 million credit agreement with
several banks. The agreement provided for a revolving credit facility of up to
$125.0 million, a term loan A of $140.0 million and a term loan B of $75.0
million. In October 2000, we amended our credit facility to give us the ability
to increase our term loan A facility, term loan B facility and/or revolving
credit facility up to an aggregate of $100.0 million prior to September 30,
2001. At that time, we increased the commitment under the revolving credit
facility by $60.0 million to $185.0 million. The remaining $40.0 million could
not be requested on more than three separate occasions, and any increase had to
take place by September 30, 2001. We did not exercise this option. As described
in the following paragraphs, we amended our credit facility and paid off our
term A and term B loans in the first quarter of 2002.
In June 2001, we issued $185.0 million of 10 3/8% senior subordinated notes (the
"Subordinated Notes") due June 15, 2011. Interest on the notes is payable
semi-annually, on June 15 and December 15 of each year. The Subordinated Notes
are fully and unconditionally, jointly and severally guaranteed, on a senior
subordinated basis, by the assets of our domestic subsidiaries which are 100%
owned by the Company, and may be redeemed, in whole or in part, on or after June
15, 2006. In addition, we may redeem up to 35% of the aggregate principal amount
of the Subordinated Notes before June 15, 2004, with the proceeds of certain
equity offerings. The Subordinated Notes, which were offered at a discount of
$4.2 million, are being amortized using the interest method, over the term of
the Subordinated Notes. Costs representing underwriting fees and other
professional fees of approximately $1.7 million are being amortized over the
term of the Subordinated Notes. The net proceeds of $180.2 million were used to
pay down the $136.0 million outstanding balance of the revolving credit
facility, $12.8 million of the term loan A facility and $7.2 million of the term
loan B facility. The remaining proceeds were used for general corporate
purposes. The Subordinated Notes are our unsecured senior subordinated
obligations, subordinated in right of payment to all existing and future senior
indebtedness, including the senior secured credit facility and the 11 7/8%
senior secured notes discussed below. The Subordinated Notes are jointly and
severally irrevocably and unconditionally guaranteed on a senior subordinated
basis by each of our present and future domestic subsidiaries. The indenture
governing the Subordinated Notes contain covenants that, among other things,
restrict our and our subsidiaries' ability to borrow money; pay dividends on or
repurchase capital stock; make certain investments; enter into agreements that
restrict our subsidiaries from paying dividends or other distributions, making
loans or otherwise transferring assets to us or to any other subsidiaries;
create liens on assets; engage in transactions with affiliates; sell assets,
including capital stock of our subsidiaries; and merge, consolidate or sell all
or substantially all or our assets and the assets of our subsidiaries. Our
ability to obtain dividends from our subsidiaries is only restricted if we are
in default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In January 2002, we received $5.8 million in net proceeds from the sale of our
remaining investment in INT Media Group, Inc. common stock.
In March 2002, we entered into an agreement with a group of investors led by
ABRY Mezzanine Partners, L.P. to sell 50,000 shares of Series B Convertible
Preferred Stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. We received gross proceeds of $40.0 million from the sale of
40,000 shares of preferred stock and warrants to purchase 1,280,000 shares of
our common stock on March 19, 2002 and gross proceeds of $10.0 million from the
sale of 10,000 shares of preferred stock and warrants to purchase 320,000 shares
of our common stock on March 28, 2002 (See Note 6 - Mandatorily Redeemable
Convertible Preferred Stock). Net proceeds from the sale of the preferred stock,
along with the net proceeds from our recent sale of our INT Media Group, Inc.
common stock, and cash on hand from our tax refund were used to repay $48.0
million of amounts outstanding under our term loans.
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes (the
"Secured Notes") due in 2007. Interest is payable on the Secured Notes
semi-annually on April 1 and October 1. The Secured Notes are fully and
unconditionally, jointly and severally guaranteed on a senior basis by all of
our domestic subsidiaries which are 100% owned by the Company and also the stock
of certain subsidiaries. We may redeem the Secured Notes, in whole or in part,
during the periods October 1, 2005 through September 30, 2006 and October 1,
2006 and thereafter at redemption prices of 105.9375% and 100.0000% of the
principal amount, respectively, together with accrued and unpaid interest to the
46
date of redemption. In addition, at any time prior to October 1, 2005, upon
certain public equity offerings of our common stock, up to 35% of the aggregate
principal amount of the Secured Notes may be redeemed at our option, within 90
days of such public equity offering, with cash proceeds from the offering at a
redemption price equal to 111.875% of the principal amount, together with
accrued and unpaid interest to the date of redemption.
The Secured Notes were offered at a discount of $0.8 million, which is being
amortized, using the interest method, over the term of the Secured Notes. Costs
representing underwriting fees and other professional fees of $6.6 million are
being amortized over the term of the Secured Notes. Net proceeds of $150.1
million were used to pay down $83.6 million of term loan A and $49.0 million of
term loan B, and net proceeds of $8.3 million were used to repurchase $10.0
million of our Subordinated Notes. The remaining net proceeds of $9.2 million
were used for general corporate purposes. The Secured Notes rank senior in right
to all of our senior subordinated indebtedness, including our Subordinated
Notes, and equal in right of payment with all of our other senior indebtedness,
which is approximately $0.4 million at June 30, 2002. The guarantees are senior
secured obligations of each of our subsidiary guarantors and rank senior in
right of payment to all subordinated indebtedness of the subsidiary guarantors,
including the guarantees of our 10 3/8% Subordinated Notes, and equal in right
of payment with all of our senior indebtedness. The notes and guarantees are
secured by a lien on substantially all of our assets and those of our subsidiary
guarantors, other than specified excluded assets. Excluded assets consist of,
among other things, the capital stock of Duke Communications International, Inc.
and Internet World Media, Inc., the capital stock of our foreign subsidiaries
directly owned by us or the subsidiary guarantors which exceed 65% of the
outstanding capital stock or equity interest of such foreign subsidiaries, and
all of the capital of our other foreign subsidiaries. The indenture governing
the Secured Notes contain covenants that, among other things, restrict our and
our subsidiaries' ability to borrow money; pay dividends on or repurchase
capital stock; make certain investments; enter into agreements that restrict our
subsidiaries from paying dividends or other distributions, making loans or
otherwise transferring assets to us or to any other subsidiaries; create liens
on assets; engage in transactions with affiliates; sell assets, including
capital stock of our subsidiaries; and merge, consolidate or sell all or
substantially all or our assets and the assets of our subsidiaries. Our ability
to obtain dividends from our subsidiaries is only restricted if we are in
default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In March 2002, we amended and restated our senior credit facility and repaid our
term loan A facility and our term loan B facility under our senior credit
facility from the proceeds received from the sale of preferred shares and the
issuance of $157.5 million in senior notes, as noted above. The amended and
restated facility provides for a revolving credit facility of up to a maximum
amount of $40.0 million. Availability under the revolving credit facility is
determined by a borrowing base that is limited to 80% of eligible receivables.
In order to access the revolver, Penton must not have more than $7.5 million of
cash and cash equivalents available, must be in compliance with the loan
documents and must submit a borrowing base certificate immediately prior to each
extension of credit showing compliance with the borrowing base. Penton is
required to prepay the revolver in the event that it has loans outstanding in
excess of the borrowing base, or it has more than $7.5 million in cash and cash
equivalents available at the end of any month. The commitment under the amended
and restated credit facility decreases by 15% in 2003, 30% in 2004, 35% in 2005
and 20% in 2006. The amended and restated credit facility has no financial
covenants. In connection with the amendment and restatement of the credit
facility, the interest rate on the revolving credit facility was increased. In
addition, further restrictions were placed on Penton's ability to make certain
restricted payments, to make capital expenditures in excess of certain amounts,
to incur additional debt and contingent obligations, to make acquisitions and
investments, and to sell assets. At June 30, 2002, $23.0 million was available
under the revolving credit facility; however, no amounts were outstanding.
The extinguishment of the term loans resulted in a non-cash extraordinary charge
of $0.7 million, net of $0.5 million in taxes ($0.02 per diluted share after
tax), relating to the write-off of unamortized deferred finance costs.
We anticipate adequate liquidity for operations and expect to meet all interest
payment obligations on our bonds. We have no principal repayment requirements
until maturity of our Senior Secured notes in October 2007. In addition, we have
no bank debt and no maintenance covenants on our existing bond debt. Penton does
have access to an asset-based, maintenance-free revolver of up to $40.0 million,
which is currently undrawn. Based on current estimates of
47
our net loss for 2002, we expect to receive a tax refund of approximately $12
million to $16 million in the first quarter of 2003. Our ability to meet current
and anticipated operating requirements will depend upon our future performance,
which, in turn, will be subject to general economic conditions and to financial,
competitive, business and other factors, including factors beyond our control.
If we are unable to meet our debt obligations or fund our other liquidity needs,
we may be required to raise additional capital through additional financing
arrangements or the issuance of private or public debt or equity securities. We
cannot assure you that such additional financing will be available at acceptable
terms. In addition, the terms of our convertible preferred stock and warrants
issued, including the conversion price, dividend and liquidation adjustment
provisions that could result in substantial dilution to stockholders, the
redemption price premiums and board representation rights, could negatively
impact our ability to access the equity markets in the future.
SEASONALITY
The majority of our trade shows and conferences are held in the second and
fourth quarters and, accordingly, the majority of revenue is recognized in these
quarters. Penton may also experience seasonal fluctuations as trade shows and
conferences held in one period in the current year may be held in a different
period in future years.
INFLATION
The impact of inflation on our results of operations has not been significant in
recent years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Deferred Tax Asset Valuation:
In the second quarter of 2002, the Company performed a detailed analysis of our
valuation allowance for our deferred tax assets of $14.7 million, in accordance
with Company policy. Our analysis included reviewing the future profitability of
the Company as well as the Company's ability to carryback losses, and have
determined that no valuation allowance is required at this time. We will
continue to monitor our deferred taxes throughout the remainder of the year to
determine if an allowance is required. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if current
estimates of the timing and amount of future taxable income during the
carryforward period are significantly revised.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS No. 142 presumes that goodwill and certain intangible assets
have indefinite useful lives. Accordingly, goodwill and certain intangibles will
not be amortized but rather will be tested at least annually for impairment.
SFAS No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Penton adopted this statement
effective January 1, 2002. (See Note 2 - Goodwill and Other Intangibles.)
In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and
64, Amendment of SFAS 13, and Technical Corrections as of April 2002". The
provisions of this Statement related to the rescission of SFAS
48
No. 4 are effective for fiscal years beginning after May 15, 2002, while
provisions related to SFAS No. 13 are effective for transactions occurring after
May 15, 2002, and all remaining provisions of this Statement shall be effective
for financial statements issued on or after May 15, 2002. This Statement
eliminates SFAS No. 4, as a result, gains and losses from extinguishment of debt
should be classified as extraordinary items if they meet the criteria of APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". This Statement also eliminates SFAS No. 44,
which was established to provide accounting requirements for effects of
transition for provisions of the Motor Carrier Act of 1980. The deregulation of
intrastate operating rights and transition to the provisions of those laws being
complete has necessitated the rescission of SFAS No. 44. This Statement also
eliminates the need to have SFAS 64, which was an amendment to SFAS 4 and has
been rescinded with this Statement. Lastly, this Statement amends SFAS 13,
requiring leases modifications that have economic effects similar to
sale-leaseback transactions to be accounted for in the same manner as
sales-leaseback transactions. The Company is currently in the process of
evaluating this Statement and does not expect the adoption of this Statement to
have a material impact on its financial statements and results of operations.
In June 2002, the FASB issued SFAS No. 146 "Accounting for costs associated with
exit or disposal activities." This statement addresses financial accounting and
reporting for costs associated with exit or disposal activities. This statement
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)". This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred as opposed to recognizing
the liability at the date of an entity's commitment to an exit plan. This
Statement is effective for exit or disposal activities that are initiated after
December 31, 2002. The Company is currently in the process of evaluating this
Statement but does not expect its adoption to have a material impact on its
financial statements or results of operations.
EURO CONVERSION
On January 1, 2002, the introduction of the single European currency, the euro,
was completed with the launch of euro bank notes and coins as legal currency
within 12 of the 15 member states of the European Union. Businesses in
participating countries will conduct transactions in the euro and must convert
their financial records and reports to be euro based. Although we generate
revenues in some of the participating countries, the conversion to the euro did
not have a material effect on our results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange and interest rates. We do not
enter into financial instruments for trading or speculative purposes.
Our cash and cash equivalents are not subject to significant interest rate risk
due to the short maturities of these instruments. As of June 30, 2002, the
carrying value of our cash and cash equivalents approximates fair value.
Our long-term debt consists of senior notes with interest at fixed rates.
Consequently, we do not have significant interest rate risk exposure related to
our long-term debt. However, the fair value of our senior notes fluctuates with
the market.
During the first quarter, we discontinued hedge accounting of our interest rate
swap and cap agreements as we paid down our variable rate borrowings. At June
30, 2002, we continue to hold these derivative instruments, which are scheduled
to mature in the fourth quarter 2002. The derivative instruments are recorded at
fair value. Due to the short time period to maturity, we do not believe that the
Company is exposed to significant interest rate risk. As of June 30, 2002, the
notional amount of our derivatives is $107.4 million with average fixed rates of
approximately 6.9% and we expected the average variable rate for 2002 to be
approximately 6.2%. (See Note 10 - Hedging Activities.)
49
The following table shows the carrying amounts and fair values of our cash and
cash equivalents, long-term debt and derivative instruments as of June 30, 2002
(in thousands):
CARRYING FAIR
VALUE VALUE
----- -----
Cash and cash equivalents $ 22,589 $ 22,589
Senior subordinated notes $ 171,296 $ 106,750
Senior secured notes $ 156,743 $ 135,450
Derivative instruments $ 1,694 $ 1,694
The table below provides information about the expected cash flows associated
with our long-term debt obligations (in thousands):
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
EXPECTED MATURITY DATE
---------------------------------------------------------------------------------------
FAIR
2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
Long-Term Debt:
Senior Subordinated Notes - - - - - $175,000 $175,000 $106,750
Average interest rate 10 3/8% 10 3/8% 10 3/8% 10 3/8% 10 3/8% 10 3/8% 10 3/8%
Senior Secured Notes - - - - - $157,500 $157,500 $135,450
Average interest rate 11 7/8% 11 7/8% 11 7/8% 11 7/8% 11 7/8% 11 7/8% 11 7/8%
We maintain assets and operations in the United Kingdom and in various other
countries. As a result, we may be exposed to fluctuations in currency rates
relative to these markets. At June 30, 2002, a hypothetical 10% strengthening or
weakening of the U.S. dollar relative to the currencies of foreign countries in
which we operate would have resulted in an immaterial impact on our financial
results.
50
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 1, 2002, the Company issued 527,951 shares of common stock to
R. Douglas Greene, a Director of the Company, as part of the final
contingent payment required for the acquisition of New Hope in 1999.
The issuance of these shares was exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of that act.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 31, 2002 the Company held its Annual Meeting of Stockholders.
The matters presented to the stockholders for a vote and the vote on
such matters were as follows:
a) Election of directors for a three-year term expiring in 2004.
For Abstain
--- -------
Daniel C. Budde 6,378,874 0
Peni A. Garber 6,378,874 0
Hannah C. Stone 6,378,874 0
R. Douglas Greene 25,212,702 8,642,084
b) Proposal to ratify the appointment of PricewaterhouseCoopers
LLP as the independent accountants for the fiscal year ending
December 31, 2002.
For Against Abstain
--- ------- -------
28,314,143 548,275 4,992,368
c) Proposal for the approval of the issuance of Common stock upon
conversion of Preferred stock and exercise of warrants.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
18,651,082 186,094 4,965,988 3,672,748
d) Proposal to amend Penton's Restated Certificate of
Incorporation to increase the number of authorized shares of
Common stock to 155 million.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
23,565,976 1,649,749 4,966,313 3,672,748
51
e) Proposal to amend Penton's Restated Certificate of
Incorporation to remove the provision limiting the number of
Directors to thirteen.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
24,920,285 285,559 4,976,193 3,672,749
f) Proposal to amend Penton's Restated Certificate of
Incorporation to permit holders of Preferred stock to (a) call
special meetings of the holders of Preferred stock and (b) act
by unanimous written consent.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
24,936,325 252,738 4,992,976 3,672,747
g) Proposal to permit employees to surrender outstanding stock
options for new stock options.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
20,395,007 13,407,810 51,969 --
h) Proposal by GAMCO Investors, Inc.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
16,474,146 13,151,721 556,171 3,672,748
i) Proposal to amend the terms of Penton's outstanding Preferred
stock to remove the scheduled redemption date.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
22,771,517 1,037,637 5,282,036 4,763,596
No other matters were submitted to the shareholders for a
vote.
ITEM 5. OTHER INFORMATION
None
52
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 Restated Certificate of Incorporation of the Registrant, filed herein.
3.2 Amended Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred
Stock of Registrant (filed as Exhibit 3.1 to the Company's Form S-3/A on June 4, 2002, and
incorporated herein by reference).
3.3 Amended and Restated Bylaws of the Registrant, filed herein.
4.1 Indenture, dated as of March 28, 2002, by and among Penton Media, Inc., the Subsidiary Guarantors named
therein and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to the Company's Form S-4 on
June 26, 2002, and incorporated herein by reference).
4.2 Registration Rights Agreement, dated as of March 28, 2002, by and among Penton Media, Inc., the Guarantors
named therein and Credit Suisse First Boston Corporation (filed as Exhibit 4.2 to the Company's Form S-4
on June 26, 2002, and incorporated herein by reference).
4.3 Pledge and Security Agreement, dated as of March 28, 2002, by and among Penton Media, Inc., the Subsidiary
Guarantors named therein and U.S. Bank National Association, as Trustee (filed as Exhibit 4.3 to the
Company's Form S-4 on June 26, 2002, and incorporated herein by reference).
4.4 Intercreditor Agreement, dated as of March 28, 2002, by and between U.S. Bank National Association and The
Bank of New York (filed as Exhibit 4.4 to the Company's Form S-4 on June 26, 2002, and incorporated herein
by reference).
4.5 Form of Warrant to purchase common stock of Registrant (filed as Exhibit 4.1 to the Company's Form 8-K on
March 19, 2002, and incorporated herein by reference).
4.6 Amendment No. 1, dated as of March 18, 2002, to the Rights Agreement, by and between Registrant and
National City Bank, as successor Rights Agent (filed as Exhibit 4.2 to the Company's Form 8-K on March 19,
2002, and incorporated herein by reference).
4.7 Amendment No. 2, dated as of July 31, 2002, to the Rights Agreement, by and between Registrant and
National City Bank, as successor rights agent (filed as Exhibit 4.1 to the Company's Form 8-A/A on August
1, 2002, and incorporated herein by reference).
10.1 Amended and Restated Series B Convertible Preferred Stock and Warrant Purchase Agreement (filed as Exhibit
10.1 to the Company's Form 8-K on March 19, 2002, and incorporated herein by reference).
10.2 Amendment No. 1 to the Amended and Restated Series B Convertible Preferred Stock and Warrant Purchase
Agreement (filed as Exhibit 10.3 to the Company's Form S-3/A on June 4, 2002, and incorporated herein by
reference).
10.3 Registration Rights Agreement (filed as Exhibit 10.2 to the Company's Form 8-K on March 19, 2002, and
incorporated herein by reference).
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
March 11, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 13, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 19, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
53
March 22, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 28, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
May 3, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
July 26, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
August 9, 2002 Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
54
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penton Media, Inc.
(Registrant)
By: /s/ PRESTON L. VICE
--------------------------------------------
Preston L. Vice
Interim Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 14, 2002
55
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
3.1 Restated Certificate of Incorporation of the Registrant, filed herein.
3.2 Amended Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock of
Registrant (filed as Exhibit 3.1 to the Company's Form S-3/A on June 4, 2002, and incorporated herein by
reference).
3.3 Amended and Restated Bylaws of the Registrant, filed herein.
4.1 Indenture, dated as of March 28, 2002, by and among Penton Media, Inc., the Subsidiary Guarantors named
therein and U.S. Bank National Association, as Trustee (filed as Exhibit 4.1 to the Company's Form S-4 on
June 26, 2002, and incorporated herein by reference).
4.2 Registration Rights Agreement, dated as of March 28, 2002, by and among Penton Media, Inc., the Guarantors
named therein and Credit Suisse First Boston Corporation (filed as Exhibit 4.2 to the Company's Form S-4
on June 26, 2002, and incorporated herein by reference).
4.3 Pledge and Security Agreement, dated as of March 28, 2002, by and among Penton Media, Inc., the Subsidiary
Guarantors named therein and U.S. Bank National Association, as Trustee (filed as Exhibit 4.3 to the
Company's Form S-4 on June 26, 2002, and incorporated herein by reference).
4.4 Intercreditor Agreement, dated as of March 28, 2002, by and between U.S. Bank National Association and The
Bank of New York (filed as Exhibit 4.4 to the Company's Form S-4 on June 26, 2002, and incorporated herein
by reference).
4.5 Form of Warrant to purchase common stock of Registrant (filed as Exhibit 4.1 to the Company's Form
8-K on March 19, 2002, and incorporated herein by reference).
4.6 Amendment No. 1, dated as of March 18, 2002, to the Rights Agreement, by and between Registrant and
National City Bank, as successor Rights Agent (filed as Exhibit 4.2 to the Company's Form 8-K on March 19,
2002, and incorporated herein by reference).
4.7 Amendment No. 2, dated as of July 31, 2002, to the Rights Agreement, by and between Registrant and
National City Bank, as successor rights agent (filed as Exhibit 4.1 to the Company's Form 8-A/A on August
1, 2002, and incorporated herein by reference).
10.1 Amended and Restated Series B Convertible Preferred Stock and Warrant Purchase Agreement (filed as Exhibit
10.1 to the Company's Form 8-K on March 19, 2002, and incorporated herein by reference).
10.2 Amendment No. 1 to the Amended and Restated Series B Convertible Preferred Stock and Warrant Purchase
Agreement (filed as Exhibit 10.3 to the Company's Form S-3/A on June 4, 2002, and incorporated herein by
reference).
10.3 Registration Rights Agreement (filed as Exhibit 10.2 to the Company's Form 8-K on March 19, 2002, and
incorporated herein by reference).
56