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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 March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
PENTON MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
-------- -----------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1300 East Ninth Street, Cleveland, 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 by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act.
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (May 7, 2004).
Common Stock: 33,507,320 shares
PENTON MEDIA, INC.
FORM 10-Q
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2004 and December 31, 2003 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2004 and 2003 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2004 and 2003 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Item 4. Controls and Procedures 36
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 37
Signature 38
Exhibit index 39
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS)
March 31, December 31,
2004 2003
-------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 30,450 $ 29,626
Restricted cash 193 -
Accounts receivable, less allowance for doubtful
accounts of $3,282 and $3,703 in 2004 and 2003, respectively 32,812 29,721
Notes receivable 473 571
Inventories 878 875
Prepayments, deposits and other 6,325 4,898
-------- --------
Total current assets 71,131 65,691
-------- --------
Property, plant and equipment:
Land, buildings and improvements 8,493 8,639
Machinery and equipment 47,104 46,450
-------- --------
55,597 55,089
Less: accumulated depreciation 37,775 36,286
-------- --------
17,822 18,803
-------- --------
Other assets:
Goodwill 214,411 214,411
Other intangibles, less accumulated amortization of
$13,813 and $13,189 in 2004 and 2003, respectively 10,346 10,883
Other non-current assets 8,212 9,102
-------- --------
232,969 234,396
-------- --------
$321,922 $318,890
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
March 31, December 31,
2004 2003
--------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 7,898 $ 6,300
Accrued compensation and benefits 9,045 7,158
Other accrued expenses 29,698 19,216
Unearned income, principally trade
show and conference deposits 19,351 24,780
--------- ---------
Total current liabilities 65,992 57,454
--------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 156,946 156,915
Senior subordinated notes, net of discount 171,773 171,698
Net deferred pension credits 10,905 11,040
Other non-current liabilities 8,495 9,163
--------- ---------
348,119 348,816
--------- ---------
Commitments and contingencies
Minority interest 2,460 2,487
Mandatorily redeemable convertible preferred stock, par value $0.01 per share;
50,000 shares authorized, issued and outstanding;
redeemable at $1,000 per share 60,253 55,060
Redeemable common stock, par value $0.01 per share; 4,191
shares issued and outstanding at December 31, 2003 - 2
Stockholders' deficit:
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; 33,496,070 and 33,220,877 shares issued and outstanding
at March 31, 2004 and December 31, 2003, respectively 333 332
Capital in excess of par value 221,343 226,266
Retained deficit (372,656) (367,449)
Notes receivable from officers, less reserve of $7,600 at
December 31, 2003 and March 31, 2004 (1,904) (1,897)
Accumulated other comprehensive loss (2,018) (2,181)
--------- ---------
(154,902) (144,929)
--------- ---------
$ 321,922 $ 318,890
========= =========
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
March 31,
2004 2003
-------- --------
Revenues $ 54,467 $ 54,392
-------- --------
Operating expenses:
Editorial, production and circulation 21,381 22,353
Selling, general and administrative (including $2.4 million of
executive separation costs in 2004) 24,499 23,641
Restructuring and other charges (credits) 868 (84)
Depreciation and amortization 3,016 3,722
-------- --------
49,764 49,632
-------- --------
Operating income 4,703 4,760
Other income (expense):
Interest expense (9,458) (10,338)
Interest income 102 109
Other, net (6) (374)
-------- --------
(9,362) (10,603)
-------- --------
Loss from continuing operations before income taxes (4,659) (5,843)
Provision for income taxes (548) (126)
-------- --------
Loss from continuing operations (5,207) (5,969)
Discontinued operations:
Income from discontinued operations (including
gain on disposal of $1.4 million in 2003), net of taxes - 866
-------- --------
Net loss (5,207) (5,103)
Amortization of deemed dividend and accretion
of preferred stock (5,193) (655)
-------- --------
Net loss applicable to common stockholders $(10,400) $ (5,758)
======== ========
Net loss per common share - basic and diluted:
Loss from continuing operations applicable
to common stockholders $ (0.31) $ (0.20)
Discontinued operations, net of taxes - 0.03
-------- --------
Net loss applicable to common stockholders $ (0.31) $ (0.17)
======== ========
Weighted-average number of shares outstanding:
Basic and diluted 33,536 33,118
======== ========
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)
Three Months Ended
March 31,
2004 2003
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,040 $ 47,265
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (875) (562)
Earnouts paid - (7)
Decrease (increase) in restricted cash (193) 48
Proceeds from sale of Professional Trade Shows group - 3,250
-------- --------
Net cash provided by (used for) investing activities (1,068) 2,729
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior secured credit facility - (4,500)
Decreases in notes receivable 98 1,758
Employee stock purchase plan payments - (32)
Proceeds from repayment of officers loans - 250
Payment of financing costs - (97)
Decrease in book overdrafts (220) (494)
-------- --------
Net cash used for financing activities (122) (3,115)
-------- --------
Effect of exchange rate changes on cash (26) (17)
-------- --------
Net increase in cash and cash equivalents 824 46,862
Cash and cash equivalents at beginning of period 29,626 6,771
-------- --------
Cash and cash equivalents at end of period $ 30,450 $ 53,633
======== ========
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 ("GAAP") 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 GAAP for complete financial statements. However, in the
opinion of management, the interim financial statements reflect all adjustments,
which are of a normal recurring nature, 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, 2003.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2003 financial statements to
conform to the 2004 presentation. These reclassifications did not change
previously reported net income (loss), cash flows or stockholders' deficit.
USE OF ESTIMATES
The preparation of financial statements in accordance with GAAP 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.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Pro
forma information regarding net income (loss) and earnings per share is required
by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure," and has been determined as if Penton had accounted for its employee
stock options under SFAS 123.
The weighted-average fair value of options granted during the first three months
of 2004 and 2003 was $0.84 and $0.32, respectively. The fair value of the
options was estimated on the date of grant using the Black-Scholes
option-pricing model, under the following assumptions:
2004 2003
------- -------
Risk-free interest rate 3.65% 3.62%
Dividend yield 0.00% 0.00%
Expected volatility 136.29% 104.79%
Expected life 7 years 7 years
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair value methodologies consistent with SFAS 123,
Penton's net loss and earnings per share for the three months ended March 31,
2004 and 2003 would have been as follows (in thousands, except per share data):
7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2004 2003
--------- ---------
Net loss applicable to common stockholders:
As reported $ (10,400) $ (5,758)
Add: Compensation expense included in net loss applicable to common
stockholders, net of related tax effects 127 920
Less: Total stock-based compensation expense determined under fair
value based methods for all awards, net of related tax effects....... (360) (1,291)
--------- ---------
Pro forma............................................................... $ (10,633) $ (6,129)
========= =========
Basic and diluted earnings per share:
As reported.......................................................... $ (0.31) $ (0.17)
Pro forma............................................................ $ (0.32) $ (0.19)
NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132-R"). The provisions of this statement do not
change the measurement and recognition provisions of SFAS No. 87, "Employers'
Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS 132-R replaces SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" and adds additional disclosures.
SFAS 132-R is effective for fiscal years ending after December 15, 2003. The
Company adopted SFAS 132-R as of December 31, 2003 and has included all required
disclosures in these consolidated financial statements.
In January 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities" was issued which, among other things, provides guidance on identifying
variable interest entities ("VIE") and determining when assets, liabilities,
non-controlling interests, and operating results of a VIE should be included in
a company's consolidated financial statements, and also requires additional
disclosures by primary beneficiaries and other significant variable interest
holders. In December 2003, the FASB issued a revision of FIN 46 ("FIN 46-R"),
clarifying certain provisions and partially deferring the effective dates. The
Company presently does not hold an interest in a variable interest entity;
therefore, application of FIN 46-R has not affected the Company's financial
statements, results of operations or disclosures.
In March 2004, the Emerging Issues Task Force ("EITF") reached a final consensus
on EITF Issue 03-6, "Participating Securities and the Two-Class Method Under
FASB Statement 128, Earnings Per Share" ("EITF 03-6"). EITF 03-6 addresses the
computation of earnings per share by companies that have issued securities other
than common stock that participate in dividends and earnings of the issuing
entity. EITF 03-6 is effective for the quarter ended June 30, 2004 and requires
the restatement of previously reported earnings per share. The Company does not
expect the adoption of this Issue to have an effect on its earnings per share as
the Company currently uses the two-class method for its participating
securities.
8
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2 - GOODWILL AND OTHER INTANGIBLES
There were no changes in the Company's goodwill for the first three months of
2004. Following is a summary, by business segment, of the balances in goodwill
as of March 31, 2004 (in thousands):
GOODWILL
-----------------------------------------------------
DECEMBER 31, MARCH 31,
2003 ACTIVITY 2004
---------------- -------------- -----------------
Industry $ 36,278 $ - $ 36,278
Technology 67,385 - 67,385
Lifestyle 84,924 - 84,924
Retail 25,824 - 25,824
---------------- -------------- -----------------
Total $ 214,411 $ - $ 214,411
================ ============== =================
At March 31, 2004, other intangibles recorded in the consolidated balance sheets
are comprised of the following (in thousands):
GROSS NET
CARRYING ACCUMULATED BOOK
VALUE AMORTIZATION VALUE
------------ ----------- -----------
Trade names $ 5,277 $ (3,883) $ 1,394
Mailing/exhibitor lists 9,408 (5,087) 4,321
Advertiser relationships 7,200 (3,603) 3,597
Subscriber relationships 2,100 (1,075) 1,025
Noncompete agreements 174 (165) 9
------------ ----------- -----------
Balance at March 31, 2004 $ 24,159 $ (13,813) $ 10,346
============ =========== ===========
Other intangibles are being amortized over 3 to 10 years. Total amortization
expense for the three months ended March 31, 2004 and 2003 were $0.6 million and
$1.1 million, respectively. Amortization expense estimated for these intangibles
for 2004 through 2008 are as follows (in thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
- ------------ ------
2004 $ 2,474
2005 $ 2,441
2006 $ 2,214
2007 $ 1,300
2008 $ 404
NOTE 3 - DISPOSALS
At December 31, 2002, the net assets of our Professional Trade Shows ("PTS")
were classified as held for sale. The sale was completed in January 2003 for
approximately $3.8 million, including an earnout of $0.6 million based on
reaching certain performance objectives in 2003, which were not met. The sale
resulted in a gain of approximately $1.4 million, which was recorded in the
first quarter of 2003. The results of PTS are reported as discontinued
operations for all periods presented. PTS was part of our Industry segment.
9
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Operating results for the discontinued operations for the three months ended
March 31, 2003 are as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
2003
------------------
Revenues $ -
===========
Loss from operations, net of taxes $ (521)
Gain on sale of properties, net of taxes 1,387
-----------
Income from discontinued operations $ 866
===========
NOTE 4 - DEBT
LOAN AND SECURITY AGREEMENT
In August 2003, the Company replaced its senior secured credit facility with a
new four-year loan and security agreement. Pursuant to the terms of the
revolving loan and security agreement, the Company can borrow up to the lesser
of (i) $40.0 million; (ii) 2.5x the Company's last twelve months adjusted EBITDA
measured monthly during the first year, 2.25x during the second year and 2.0x
thereafter; (iii) 40% of the Company's last six months of revenues; or (iv) 25%
of the Company's enterprise value, as determined annually by a third party. The
revolving credit facility bears interest at LIBOR plus 5.0% subject to a LIBOR
minimum of 1.5%. The Company must comply with a quarterly financial covenant
limiting the ratio of maximum bank debt to the last twelve months adjusted
EBITDA to 2.5x through March 31, 2004, 2.25x from June 30, 2004 through March
31, 2005 and 2.0x thereafter. The loan agreement permits the Company to sell
assets of up to $12.0 million in the aggregate during the term or $5.0 million
in any single asset sale; and complete acquisitions of up to $5.0 million per
year. Included in the loan agreement are two stand-by letters of credit of $0.1
million and $0.2 million, respectively, required by two of the Company's
facility leases. The amounts of the letters of credit reduce the availability
under the credit facility. As of March 31, 2004, no amounts were drawn under the
stand-by letters of credit. Costs representing bank fees and other professional
fees of $1.9 million are being amortized over the life of the loan agreement. As
of March 31, 2004, $39.7 million was available under the loan agreement. There
were no amounts outstanding.
The loan and security agreement contains several provisions, which could have a
significant impact as to the classification as well as the acceleration of
payments for borrowings outstanding under the agreement, including the
following: (i) the obligation of the lender to provide any advances under the
loan agreement is subject to no material adverse change events; (ii) reserves
may be established against the borrowing base for sums that the Company is
required to pay, such as taxes and assessments and other types of required
payments, and has failed to pay; (iii) in the event of a default under the loan
agreement, the lender has the right to direct all cash that is deposited in the
Company's lock boxes to be sent to the lender to pay down outstanding
borrowings; (iv) the loan agreement establishes cross-defaults to the Company's
other indebtedness (such as the Senior Secured Notes and Senior Subordinated
Notes) such that a default under the loan agreement could cause a default under
the note agreements and vice versa; however, default-triggering thresholds are
different in the loan agreement and the notes; (v) if the Company is in default
of any material agreement to which it is a party and the counter-party to that
agreement has the right to terminate such agreement as a result of the default,
this constitutes an event of default under the loan agreement. Under the loan
agreement, the lenders reserve the right to deem the notes in default, and in
those limited circumstances, could accelerate payment of the outstanding loan
balances should the Company undergo a material adverse event. Even though the
criteria defining a material adverse event are subjective, the Company does not
believe exercise of the lenders' right is probable nor does it foresee any
material adverse events in 2004. In addition, the Company believes that the note
agreements are long-term in nature. Accordingly, the Company continues to
classify its loans as long term. At March 31, 2004, the Company was in
compliance with all of the above provisions.
SENIOR SECURED CREDIT FACILITY
In January 2003, the Company amended its senior secured credit facility, and as
previously noted, this facility was replaced in August 2003. The amendment
permitted the Company to sell certain properties in excess of the $5.0 million
aggregate limit required by the original amended agreement. In return, the
revolving commitment was ultimately reduced from $40.0
10
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
million to $20.1 million. The reduction of the revolver resulted in the
write-off of unamortized financing fees of $0.9 million. This charge has been
classified as part of interest expense on the consolidated statements of
operations in 2003.
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
semiannually on April 1 and October 1. 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 immaterial
for the three months ended March 31, 2004 and 2003.
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 semiannually on June 15 and December 15. 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 approximately $0.1 million for the three months ended March 31,
2004 and 2003.
INTEREST PAYMENTS
No interest payments were made in the first quarter of 2004 or 2003. At March
31, 2004 and December 31, 2003, interest of $14.6 million and $5.4 million were
accrued for, respectively, and included in other accrued expenses on the balance
sheet.
NOTE 5 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
PREFERRED STOCK LEVERAGE RATIO EVENT OF NON-COMPLIANCE
At March 31, 2004, an event of non-compliance continues to exist under our
Series B Convertible Preferred Stock (the "preferred stock") because the
Company's leverage ratio of 13.2 (defined as debt less cash balances in excess
of $5.0 million plus the liquidation value of the preferred stock and unpaid
dividends divided by adjusted EBITDA) exceeds 7.5. Upon the occurrence of this
event of non-compliance, the 5% per annum dividend rate on the preferred stock
increased by one percentage point as of April 1, June 30, September 28 and
December 27, 2003 and March 26, 2004 to the current maximum rate of 10% per
annum. The conversion price of the preferred stock decreased by $0.76 as of
April 1, June 30, September 28 and December 27, 2003 and March 26, 2004 to its
maximum reduction related to this event of non-compliance of $3.80 per share.
The conversion price is currently $3.81. The conversion price will adjust to
what it would have been absent such event (to the extent of any preferred shares
still outstanding) once the leverage ratio is less than 7.5. Furthermore, the
dividend rate will adjust back to 5% as of the date on which the leverage ratio
is less than 7.5. Under the preferred stock agreement, if the leverage ratio
exceeds 7.5 for four consecutive quarters, the preferred stockholders will have
the right to cause the Company to seek a buyer for all of the assets or issued
and outstanding capital stock of the Company. As of December 31, 2003, the
leverage ratio had exceeded 7.5 for four consecutive quarters giving the
preferred stockholders the right to cause the Company to seek a buyer. If the
Company had been sold on March 31, 2004, the bondholders would have been
entitled to receive $335.8 million and the preferred stockholders would have
been entitled to receive $226.6 million before the common stockholders would
have received any amounts for their common shares. The leverage ratio event of
non-compliance does not represent an event of default or violation under any of
the Company's outstanding notes or the loan agreement. As such, there is no
acceleration of any outstanding indebtedness as a result of this event. In
addition, this event of non-compliance and the resulting consequences have not
resulted in any cash outflow from the Company.
Under the conversion terms of the preferred stock, each holder has a right to
convert dividends into additional shares of common stock. At March 31, 2004, no
dividends have been declared. However, in light of each holder's conversion
right and considering the increase in the dividend rate and the concurrent
reduction of the conversion price as noted above, the Company has recognized a
deemed dividend for the beneficial conversion feature inherent in the
accumulated dividend based on the original commitment date(s). All such accruals
have been reported as an increase in the carrying value of the preferred stock
and a charge to capital in excess of par value in light of the stockholders'
deficit. See Note 17 - Subsequent Events.
11
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6 - COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
REDEEMABLE COMMON STOCK
At December 31, 2003, the Company had classified 4,191 common shares outside of
stockholders' deficit because the redemption of the stock was not within the
control of the Company. Redeemable common stock relates to common stock that may
be subject to rescissionary rights. The purchase of common stock by certain
employees in the Company's 401(k) plan from May 2001 through March 2003 was not
registered under the federal securities laws. As a result, such purchasers of
our common stock during that period may have had the right to rescind their
purchases for an amount equal to the purchase price paid for the shares, plus
interest from the date of purchase. On March 14, 2004, all possible
rescissionary rights expired.
MANAGEMENT STOCK PURCHASE PLAN
For the three months ended March 31, 2004 and 2003, respectively, an immaterial
amount of expense was recognized related to the Management Stock Purchase Plan.
In February 2004, a total of 595 restricted stock units ("RSUs") were granted at
$0.84 per share, which represents 80% of the fair market value of Penton stock
on the date of grant. During the first three months of 2004, 11,217 shares of
the Company's common stock were issued under this plan leaving a balance of
95,770 RSU's outstanding at March 31, 2004.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Stock Options
In February 2004, 473,700 options were granted to certain executives and other
eligible employees at an exercise price of $0.90 per share. During the first
three months of 2004, 17,000 options were exercised. At March 31, 2004,
2,338,380 options are outstanding.
Deferred Shares
For the three months ended March 31, 2004 and 2003, approximately $0.1 million
and $0.9 million, respectively, were recognized as expense related to deferred
shares. In February 2004, 445,000 deferred shares were granted to certain
executives and 400,056 shares of the Company's common stock were issued under
this plan. At March 31, 2004, 445,000 deferred shares remain outstanding.
Performance Shares
For the three months ended March 31, 2004, no compensation expense was
recognized related to performance shares. For the three months ended March 31,
2003, an immaterial amount was credited to compensation expense, which resulted
from the decrease in the Company's stock price. At March 31, 2004, a total of
381,250 performance shares remain outstanding, of which 11,250 shares have been
earned. Performance shares are not issuable until earned.
PERFORMANCE UNITS
In the second quarter of 2003, the Company granted 490,155 performance units to
certain key executives. Subject to the attainment of certain performance goals
over a three-year period from January 1, 2003 through December 31, 2005, each
grantee can earn a cash award in respect to each performance unit. For the three
months ended March 31, 2004, approximately $0.1 million was recognized as
expense related to these performance units.
TREASURY STOCK
In the first quarter 2004, 157,271 shares were returned to the Company by
executives to cover taxes for deferred shares issued during the quarter.
Treasury stock is carried at cost and is recorded as a net decrease in capital
in excess of par value.
12
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7 - EMPLOYEE BENEFIT PLANS
Effective January 1, 2004, the Company's defined benefit plan was amended to
freeze benefit accruals. Beginning in 2004, the Company began providing benefits
by contributing to a new retirement account in the 401(k) Plan, which has been
renamed the Penton Media, Inc. Retirement and Savings Plan ("RSP"). Thus, the
RSP will include the new retirement account and the "old" 401(k) savings
account. There are no changes to the 401(k) savings account as a result of this
change. Beginning in 2004, the Company will make monthly contributions to each
employee's retirement account equal to between 3% and 6% of the employee's
annual salary, based on age and years of service. The Company's contributions
become fully vested once the employee has completed five years of service. The
Company expects to make contributions to the RSP of approximately $1.8 million
in 2004. During the first three months of 2004, contributions of $0.5 million
were made.
Effective January 1, 2004, Penton's supplemental executive retirement plan
("SERP") was amended to freeze benefits. In place of the SERP, the Company will
accrue an amount equal to between 3% and 6% of the participants eligible salary
plus an investment return equal to the Moody's Aa Corporate Bond note. The
accrued percentage is based on each executive's age and years of service.
The following table summarizes the components of our defined benefit pension
expenses and SERP pension expense for the three months ended March 31, 2004 and
2003 (in thousands):
RETIREMENT PLAN SERP
--------------------- --------------------
2004 2003 2004 2003
----- ----- ----- -----
Service cost ................................ - 468 - 18
Interest cost ............................... 612 660 13 13
Expected return on plan assets .............. (721) (751) - -
Amortization of prior service costs ......... - 17 - 7
Amortization of actuarial gain .............. (26) (138) - -
----- ----- ----- -----
Net periodic benefit cost (benefit) ...... $(135) $ 256 $ 13 $ 38
===== ===== ===== =====
The Company previously disclosed in its financial statements for the year ended
December 31, 2003 that it expects to contribute $1.5 million to its defined
benefit plan in 2004. As of March 31, 2004, no contribution has been made.
NOTE 8 - 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 ended March 31, 2004 and 2003 are as follows (in thousands,
except per share amounts):
THREE MONTHS ENDED
MARCH 31,
2004 2003
----------- -----------
Net loss applicable to common stockholders $ (10,400) $ (5,758)
=========== ===========
Number of shares:
Weighted average shares outstanding -
basic and diluted 33,536 33,118
=========== ===========
Per share amount:
Loss applicable to common stockholders -
basic and diluted $ (0.31) $ (0.17)
=========== ===========
Our preferred stock and RSUs are participating securities, 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 and the RSUs as
if the preferred stock and the RSUs had been converted into common stock. EITF
Topic D-95, "Effect of Participating Convertible Securities on the Computation
of Basic Earnings per Share" requires that the participating securities be
included in the computation of basic earnings per share if the effect of
inclusion is dilutive. Vested RSUs and deferred shares are always
13
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
included in the computation of basic earnings per share as they are considered
equivalent to common stock. For participating securities, the Company's
accounting policy requires the use of the two-class method to determine whether
the inclusion of such securities is dilutive. To the extent not included in
basic earnings per share, the redeemable preferred stock and the non-vested RSUs
are considered in the diluted earnings per share calculation under the
"if-converted" method and "treasury stock" method, respectively. At March 31,
2004 and 2003, redeemable preferred stock and non-vested RSUs were excluded from
the calculation of basic earnings per share as the results were anti-dilutive.
Due to the loss from continuing operations for the three months ended March 31,
2004, 2,338,380 stock options, 381,250 performance shares, 445,000 non-vested
deferred shares, 83,882 non-vested RSUs, 50,000 redeemable preferred shares and
1,600,000 warrants were excluded from the calculation of diluted earnings per
share, as the result would have been anti-dilutive. Due to the loss from
continuing operations for the three months ended March 31, 2003, 2,124,305 stock
options, 471,487 performance shares, 538,968 non-vested deferred shares, 120,329
non-vested RSUs, 50,000 redeemable preferred shares, and 1,600,000 warrants were
excluded from the calculation of diluted earnings per share as the result would
have been anti-dilutive.
NOTE 9 - COMPREHENSIVE LOSS
Comprehensive loss represents net loss plus the results of certain stockholders'
equity changes not reflected in the consolidated statements of operations. The
after-tax component of comprehensive loss for the three months ended March 31,
2004 and 2003 are as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
2004 2003
---- ----
Net loss $(5,207) $(5,103)
Other comprehensive loss:
Change in accumulated translation adjustment 164 336
------- -------
Total comprehensive loss $(5,043) $(4,767)
======= =======
NOTE 10 - RELATED PARTY TRANSACTIONS
During the first quarter of 2004, the Company recorded $2.4 million of severance
and other related costs as part of the separation of the Company's Chief
Executive Officer as announced on March 24, 2004. Actual amounts may differ
based on final negotiations of a separation agreement. Accordingly, the Company
may record future adjustments. At March 31, 2004, this amount is included in
accrued compensation and benefits on the accompanying consolidated balance
sheets.
In the first quarter 2004, 157,271 shares were returned to the Company by
executives to cover taxes for deferred shares issued during the quarter.
In December 2003, the Company entered into an agreement with a former employee
to provide trade show and conference services to selected Penton events in 2004
and 2005. Under the agreement, the former employee will receive guaranteed
minimum payments of $0.4 million and $0.7 million in 2004 and 2005,
respectively. In addition, Penton will provide, for an immaterial charge to the
former employee, office space and related office services, including utilities,
computer and office equipment, telephone service, janitorial services and other
typical office services.
At March 31, 2004, Neue Medien Ulm Holdings GmbH ("Neue Medien") owed PM
Germany, a consolidated subsidiary, $0.4 million. This amount is classified on
the consolidated balance sheets as notes receivable. Neue Median and Penton
jointly own PM Germany. The notes are due on demand and bear interest at the
German Federal rate plus 3%, or 4.14% at March 31, 2004.
NOTE 11 - INCOME TAXES
The Company assesses the recoverability of its deferred tax assets in accordance
with the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109").
In the first quarter of 2004 the Company recorded a valuation allowance of $0.4
million against its net foreign deferred tax assets. In recording the valuation
allowance, management considered it more likely than not that all of the foreign
net deferred tax asset would not be realized. As of December 31, 2003 and March
31,
14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2004 the valuation allowance for its net deferred tax assets and net operating
loss carryforwards totaled $55.3 million and $56.8 million, respectively.
In January 2003, the Company received a tax refund of $52.7 million. This amount
is included in net cash provided by operating activities in the condensed
consolidated statements of cash flows.
NOTE 12 - CONTINGENCIES
In connection with the acquisition of Mecklermedia Corporation in 1998, a
lawsuit was brought against the Company on December 1, 1998 by Ariff Alidina
(the "Plaintiff"), a former stockholder of Mecklermedia Corporation, in the
United States Federal District Court in the Southern District of New York for an
unspecified amount, as well as other relief. The Plaintiff had claimed that the
Company violated the federal securities laws by selling Mr. Meckler, a
beneficial owner of approximately 26% of the shares of Mecklermedia, an 80.1%
interest in Jupitermedia Corporation for what the Plaintiff alleges was a
below-market price, thereby giving to Mr. Meckler more consideration for his
common stock in Mecklermedia Corporation than was paid to other stockholders of
Mecklermedia Corporation. On May 16, 2001, the United States District Court for
the Southern District of New York granted the Plaintiff's motion for
certification of a class consisting of all former stockholders of Mecklermedia
who tendered their shares in the tender offer. By letter dated November 3, 2003,
plaintiffs' counsel informed the Court that a settlement had been reached in
this case and that a request for preliminary approval of the settlement will be
submitted to the Court once the settlement papers are finalized. The parties
have submitted papers to the Court and are awaiting its approval of the
settlement. The class settlement fund will consist entirely of insurance
proceeds.
In the normal course of business, Penton is subject to a number of lawsuits and
claims, both actual and potential in nature. While management believes that
resolution of existing claims and lawsuits will not have a material adverse
effect on Penton's financial statements, management is unable to estimate the
magnitude or financial impact of claims and lawsuits that may be filed in the
future.
NOTE 13 - BUSINESS RESTRUCTURING CHARGES
In 2001, 2002, 2003 and the first quarter 2004, the Company implemented a number
of cost reduction initiatives to improve its operating cost structure. The cost
reduction initiatives included workforce reductions, the consolidation and
closure of over 30 facilities, and the cancellation of various contracts. The
costs associated with restructuring activities are included in restructuring and
other charges in the accompanying consolidated statements of operations.
For facilities that the Company no longer occupies, management makes
assumptions, including the number of years a property will be subleased, square
footage, market trends, property location and the price per square foot based on
discussions with realtors and/or parties that have shown interest in the space
and records estimated sublease income accordingly. The Company is actively
attempting to sublease all vacant premises.
Personnel costs include payments for severance, benefits and outplacement
services.
2004 RESTRUCTURING PLAN
Due to the slow recovery in several markets that we serve, the Company recorded
restructuring charges of $0.7 million related primarily to personnel costs in
the first quarter 2004. These costs are associated with the elimination of 21
employees, primarily in the United States. As of March 31, 2004, the elimination
of 16 positions and payments of $0.1 million had been completed.
Activity and liability balances related to the 2004 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER OTHER
PERSONNEL COSTS EXIT COSTS TOTAL
--------------- ---------- -----
Charged to costs and expenses $ 695 $ 37 $ 732
Cash payments (85) (25) (110)
----- ----- -----
Restructuring balance, March 31, 2004 $ 610 $ 12 $ 622
===== ===== =====
15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Payments of severance costs are expected to be completed in the second quarter
2005.
2003 RESTRUCTURING PLAN
In order to meet continued revenue challenges in 2003, the Company implemented a
number of additional expense reduction and restructuring activities. The Company
recorded restructuring charges of $4.7 million in 2003. Included in this amount
is $2.5 million for personnel costs associated with the elimination of 85
positions, primarily in the United States. Furthermore, facility closing costs
of $3.8 million relate primarily to the closure of one floor at the Company's
corporate headquarters and the partial closure of one additional facility. This
charge was offset by $2.3 million of estimated sublease income related to these
facilities. The charge for other exit costs of $0.7 million relates primarily to
equipment lease payments at closed office facilities, the cancellation of
certain contracts, and broker commissions.
Activity and liability balances related to the 2003 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -----
Charged to costs and expenses $ 2,548 $ 1,505 $ 661 $ 4,714
Adjustments 35 (11) - 24
Cash payments (1,105) (500) (233) (1,838)
------- ------- ------- -------
Restructuring balance, December 31, 2003 1,478 994 428 2,900
Adjustments 29 - - 29
Cash payments (774) (102) (105) (981)
------- ------- ------- -------
Restructuring balance, March 31, 2004 $ 733 $ 892 $ 323 $ 1,948
======= ======= ======= =======
Payments of severance costs are expected to be completed by the first quarter
2005. Facility closing costs and other exit costs, which consist of equipment
leases, will be paid over their respective lease terms, which expire at various
dates through 2010.
2002 RESTRUCTURING PLAN
In 2002, the Company announced a number of expense reduction and restructuring
initiatives intended to further improve its operating cost structure. The
actions include costs of $5.1 million related to the closure of nine additional
offices worldwide. These amounts were offset in part by approximately $1.7
million related to our New York, NY and Burlingame, CA offices that we were able
to sublease in 2002. In addition, the Company reduced the workforce by
approximately 316 employees and recorded a liability for other contractual
obligations related primarily to the cancellation of trade show venues, hotel
contracts and service agreements. Adjustments of $1.7 million primarily relate
to rent escalation provisions, which had not been taken into consideration when
the original 2002 liability was recorded.
Activity and liability balances related to the 2002 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -----
Charged to costs and expenses $ 10,344 $ 3,421 $ 1,648 $ 15,413
Adjustments 200 1,705 59 1,964
Cash payments (5,440) (693) (967) (7,100)
-------- -------- -------- --------
Restructuring balance, December 31, 2002 5,104 4,433 740 10,277
Adjustments (45) (604) (92) (741)
Cash payments (4,928) (1,469) (375) (6,772)
-------- -------- -------- --------
Restructuring balance, December 31, 2003 131 2,360 273 2,764
Adjustments 27 - - 27
Cash payments (30) (173) - (203)
-------- -------- -------- --------
Restructuring balance, March 31, 2004 $ 128 $ 2,187 $ 273 $ 2,588
======== ======== ======== ========
16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The balance of severance costs relate to an executive who will be paid through
2007. Other exit costs are expected to be paid in the second half of 2004, and
obligations for the non-cancelable leases will be paid over their respective
lease terms, which expire at various dates through 2010.
In 2002, restructuring charges of $1.0 million were classified as part of
discontinued operations.
2001 RESTRUCTURING PLAN
During 2001, as part of a broad cost reduction initiative, the Company announced
certain expense reduction initiatives, including a reduction in workforce, which
reduced headcount by approximately 400 employees, the closure of more than 20
offices worldwide and other exit costs primarily related to the write-off of
computerized software development costs. Adjustments to other exit costs of
approximately $1.0 million in 2001 and $0.4 million in 2002 primarily relate to
the reversal of certain restructuring initiatives that did not require the level
of spending that had originally been estimated.
Activity and liability balances related to the 2001 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -----
Charged to costs and expenses $ 6,774 $ 8,669 $ 4,364 $ 19,807
Adjustments (23) - (994) (1,017)
Cash payments (4,468) (267) (2,423) (7,158)
-------- -------- -------- --------
Restructuring balance, December 31, 2001 2,283 8,402 947 11,632
Adjustments (135) (459) (422) (1,016)
Cash payments (2,129) (1,590) (250) (3,969)
-------- -------- -------- --------
Restructuring balance, December 31, 2002 19 6,353 275 6,647
Adjustments (8) 598 82 672
Cash payments (11) (1,304) (357) (1,672)
-------- -------- -------- --------
Restructuring balance, December 31, 2003 - 5,647 - 5,647
Adjustments - 2 - 2
Cash payments - (360) - (360)
-------- -------- -------- --------
Restructuring balance, March 31, 2004 $ - $ 5,289 $ - $ 5,289
======== ======== ======== ========
The Company completed the workforce and other exit cost actions in 2003. The
Company expects to pay the obligations for the non-cancelable leases over their
respective lease terms, which expire at various dates through 2013.
ESTIMATED FUTURE PAYMENTS
At March 31, 2004, the Company had an accrued restructuring balance of $10.4
million. We expect to make cash payments during the remainder of 2004 of
approximately $3.4 million, composed of $1.3 million for employee separation
costs, $1.6 million for facility lease obligations and $0.5 million for other
contractual obligations. The balance of severance costs will be paid through
2007, and the balance of facility costs and other exit costs, primarily
long-term leases, are expected to be paid through the end of the respective
lease terms, which extend through 2013.
Amounts due within one year of approximately $3.4 million and $3.7 million at
March 31, 2004 and December 31, 2003, respectively, are classified in other
accrued expenses on the consolidated balance sheets. Amounts due after one year
of approximately $7.0 million and $7.6 million at March 31, 2004 and December
31, 2003, respectively, are included in other non-current liabilities on the
consolidated balance sheets.
17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Restructuring charges, including adjustments, recorded as restructuring and
other charges (credits) on the consolidated statements of operations for the
three months ended March 31, 2004 and 2003 are as follows, by segment:
THREE MONTHS ENDED
MARCH 31,
2004 2003
---- ----
Industry Media $350 $(48)
Technology Media 253 45
Lifestyle Media 3 -
Retail Media 18 -
Corporate 166 (70)
---- ----
Total $790 $(73)
==== ====
Also included in restructuring and other charges (credits) at March 31, 2004 and
2003 are approximately $0.1 million and an immaterial amount related to legal
settlement costs and discontinued operations, respectively.
NOTE 14 - SEGMENT INFORMATION
We view and manage our business along four segments: Industry, Technology,
Lifestyle and Retail, and we group our industry portfolios within each segment.
A senior manager is in charge of each segment, and these senior managers report
directly to the Chief Executive Officer. Our four segments derive their revenues
from publications, trade shows and conferences, and online media products
serving customers in 12 distinct industries.
The executive management team evaluates performance of the segments based on
revenues and adjusted segment EBITDA. As such, in the analysis that follows, we
have used adjusted segment EBITDA, which we define as net income (loss) before
interest, taxes, depreciation and amortization, non-cash compensation,
impairment of assets, restructuring charges, executive separation costs,
provision for loan impairment, discontinued operations, general and
administrative costs, and other non-operating items. General and administrative
costs include functions such as finance, accounting, human resources and
information systems, which cannot reasonably be allocated to each segment.
Assets are not allocated to segments and as such have not been presented.
Summary information by segment for the three months ended March 31, 2004 and
2003, is as follows (in thousands):
INDUSTRY TECHNOLOGY LIFESTYLE RETAIL TOTAL
-------- ---------- --------- ------ -----
2004
Revenues $ 18,388 $ 14,278 $ 17,224 $ 4,577 $ 54,467
Adjusted segment EBITDA $ 3,073 $ 1,049 $ 11,108 $ 527 $ 15,757
2003
Revenues $ 19,362 $ 15,212 $ 15,049 $ 4,769 $ 54,392
Adjusted segment EBITDA $ 3,276 $ 793 $ 9,302 $ 731 $ 14,102
18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. Following is a reconciliation of Penton's total
adjusted segment EBITDA to consolidated net loss (in thousands):
THREE MONTHS ENDED
MARCH 31,
2004 2003
---- ----
Total adjusted segment EBITDA $ 15,757 $ 14,102
Depreciation and amortization (3,016) (3,722)
Restructuring and other charges (868) 84
Executive separation costs (2,354) -
Non cash compensation (122) (921)
Interest expense (9,458) (10,338)
Interest income 102 109
Other, net (6) (374)
General and administrative costs (4,694) (4,783)
-------- --------
Loss from continuing operations before income
taxes (4,659) (5,843)
Provision for income taxes (548) (126)
Discontinued operations - 866
-------- --------
Net loss (5,207) (5,103)
======== ========
NOTE 15 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Portions of the following transactions do not provide or use cash and,
accordingly, are not reflected in the condensed consolidated statements of cash
flows.
For the three months ended March 31, 2004, Penton issued 11,217 shares under the
Management Stock Purchase Plan, 400,056 deferred shares and 17,000 shares under
the stock option plan. In addition, in February 2004, 473,700 stock options, 595
RSUs and 445,000 deferred shares were granted. Furthermore, for the three months
ended March 31, 2004, Penton recorded amortization of deemed dividend and
accretion on preferred stock of $5.2 million.
For the three months ended March 31, 2003, Penton issued 19,050 shares under the
Management Stock Purchase Plan and 30,516 performance shares to several officers
and other key employees. In addition, in February 2003, 618,850 stock options,
99,876 RSUs and 391,360 deferred shares were granted. Furthermore, for the three
months ended March 31, 2003, Penton recorded amortization of deemed dividend and
accretion on preferred stock of $0.7 million.
NOTE 16 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as of
March 31, 2004, and December 31, 2003, and condensed consolidating statements of
operations for the three months ended March 31, 2004 and 2003, and condensed
consolidating statements of cash flows for the three months ended March 31, 2004
and 2003. In the following schedules, "Parent" refers to Penton Media, Inc.,
"Guarantor Subsidiaries" refers to Penton's wholly owned domestic subsidiaries,
and "Non-guarantor Subsidiaries" refers to Penton's foreign subsidiaries.
"Eliminations" represent the adjustments necessary to (a) eliminate intercompany
transactions and (b) eliminate the investments in Penton's subsidiaries.
19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF MARCH 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 28,361 $ 60 $ 2,029 $ - $ 30,450
Restricted cash 193 - - - 193
Accounts receivable, net 19,437 5,650 7,725 - 32,812
Notes receivable - - 473 - 473
Inventories 561 311 6 - 878
Prepayments, deposits and other 2,935 868 2,522 - 6,325
--------- --------- --------- --------- ---------
51,487 6,889 12,755 - 71,131
--------- --------- --------- --------- ---------
Property, plant and equipment, net 13,996 2,409 1,417 - 17,822
Goodwill 122,289 90,755 1,367 - 214,411
Other intangibles, net 4,856 5,240 250 - 10,346
Other non-current assets 8,009 142 61 - 8,212
Investments in subsidiaries (1) (187,405) - - 187,405 -
--------- --------- --------- --------- ---------
(38,255) 98,546 3,095 187,405 250,791
--------- --------- --------- --------- ---------
$ 13,232 $ 105,435 $ 15,850 $ 187,405 $ 321,922
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 29,034 $ 6,546 $ 2,016 $ - $ 37,596
Accrued compensation and benefits 7,587 950 508 - 9,045
Unearned income 7,338 3,932 8,081 - 19,351
--------- --------- --------- --------- ---------
43,959 11,428 10,605 - 65,992
--------- --------- --------- --------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 80,042 76,904 - - 156,946
Senior subordinated notes, net of discount 87,604 84,169 - - 171,773
Net deferred pension credits 10,905 - - - 10,905
Intercompany advances (118,941) 78,723 33,150 7,068 -
Other non-current liabilities 4,312 2,060 2,123 - 8,495
--------- --------- --------- --------- ---------
63,922 241,856 35,273 7,068 348,119
--------- --------- --------- --------- ---------
Commitments and contingencies
Minority interest - - 2,460 - 2,460
Mandatorily redeemable convertible
preferred stock 60,253 - - - 60,253
Stockholders' deficit:
Common stock and capital in excess
of par value 221,676 209,653 16,614 (226,267) 221,676
Retained deficit (372,656) (357,504) (47,104) 404,608 (372,656)
Notes receivable from officers, less
reserve of $7,600 (1,904) - - - (1,904)
Accumulated other comprehensive
income (loss) (2,018) 2 (1,998) 1,996 (2,018)
--------- --------- --------- --------- ---------
(154,902) (147,849) (32,488) 180,337 (154,902)
--------- --------- --------- --------- ---------
$ 13,232 $ 105,435 $ 15,850 $ 187,405 $ 321,922
========= ========= ========= ========= =========
(1) Reflects investments in subsidiaries utilizing the equity method.
20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 27,125 $ 147 $ 2,354 $ - $ 29,626
Accounts receivable, net 19,511 4,901 5,309 - 29,721
Notes receivable - - 571 - 571
Inventories 582 287 6 - 875
Prepayments, deposits and other 2,845 379 1,674 - 4,898
--------- --------- --------- --------- ---------
50,063 5,714 9,914 - 65,691
--------- --------- --------- --------- ---------
Property, plant and equipment, net 14,613 2,656 1,534 - 18,803
Goodwill 122,289 90,755 1,367 - 214,411
Other intangibles, net 5,053 5,639 191 - 10,883
Other non-current assets 8,425 143 534 - 9,102
Investment in subsidiaries (1) (177,677) - - 177,677 -
--------- --------- --------- --------- ---------
(27,297) 99,193 3,626 177,677 253,199
--------- --------- --------- --------- ---------
$ 22,766 $ 104,907 $ 13,540 $ 177,677 $ 318,890
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 17,308 $ 6,506 $ 1,702 $ - $ 25,516
Accrued compensation and benefits 5,838 1,112 208 - 7,158
Unearned income 16,990 3,144 4,646 - 24,780
--------- --------- --------- --------- ---------
40,136 10,762 6,556 - 57,454
--------- --------- --------- --------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 80,027 76,888 - - 156,915
Senior subordinated notes, net of discount 87,566 84,132 - - 171,698
Net deferred pension credits 11,040 - - - 11,040
Intercompany advances (110,837) 71,196 32,736 6,905 -
Other non-current liabilities 4,701 2,250 2,212 - 9,163
--------- --------- --------- --------- ---------
72,497 234,466 34,948 6,905 348,816
--------- --------- --------- --------- ---------
Commitments and contingencies
Minority interest - - 2,487 - 2,487
Mandatorily redeemable convertible
preferred stock 55,060 - - - 55,060
Redeemable common stock 2 - - - 2
Stockholders' equity (deficit):
Common stock and capital in excess
of par value 226,598 209,653 16,614 (226,267) 226,598
Retained deficit (367,449) (349,976) (44,904) 394,880 (367,449)
Notes receivable from officers, less
reserve of $7,600 (1,897) - - - (1,897)
Accumulated other comprehensive
income (loss) (2,181) 2 (2,161) 2,159 (2,181)
--------- --------- --------- --------- ---------
(144,929) (140,321) (30,451) 170,772 (144,929)
--------- --------- --------- --------- ---------
$ 22,766 $ 104,907 $ 13,540 $ 177,677 $ 318,890
========= ========= ========= ========= =========
(1) Reflects investments in subsidiaries utilizing the equity method.
21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 43,577 $ 8,716 $ 2,174 $ - $ 54,467
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation 15,815 4,387 1,179 - 21,381
Selling, general and administrative 15,647 6,437 2,415 - 24,499
Restructuring and other charges 613 237 18 - 868
Depreciation and amortization 2,144 664 208 - 3,016
-------- -------- -------- -------- --------
34,219 11,725 3,820 - 49,764
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) 9,358 (3,009) (1,646) - 4,703
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (4,858) (4,511) (89) - (9,458)
Interest income 86 - 16 - 102
Equity in losses of subsidiaries (9,728) - - 9,728 -
Other, net (3) - (3) - (6)
-------- -------- -------- -------- --------
(14,503) (4,511) (76) 9,728 (9,362)
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,145) (7,520) (1,722) 9,728 (4,659)
Provision for income taxes (62) (8) (478) - (548)
-------- -------- -------- -------- --------
NET LOSS $ (5,207) $ (7,528) $ (2,200) $ 9,728 $ (5,207)
======== ======== ======== ======== ========
22
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 42,112 $ 10,141 $ 2,139 $ - $ 54,392
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation 15,995 5,198 1,160 - 22,353
Selling, general and administrative 13,875 7,172 2,594 - 23,641
Restructuring and other charges (credits) (129) 45 - - (84)
Depreciation and amortization 2,361 955 406 - 3,722
-------- -------- -------- -------- --------
32,102 13,370 4,160 - 49,632
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS): 10,010 (3,229) (2,021) - 4,760
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (5,376) (4,888) (74) - (10,338)
Interest income 109 - - - 109
Equity in losses of subsidiaries (10,401) - - 10,401 -
Other, net (301) (2) (71) - (374)
-------- -------- -------- -------- --------
(15,969) (4,890) (145) 10,401 (10,603)
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,959) (8,119) (2,166) 10,401 (5,843)
Provision for income taxes (70) (5) (51) - (126)
-------- -------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS (6,029) (8,124) (2,217) 10,401 (5,969)
Gain (loss) from discontinued operations 926 - (60) - 866
-------- -------- -------- -------- --------
NET LOSS $ (5,103) $ (8,124) $ (2,277) $ 10,401 $ (5,103)
======== ======== ======== ======== ========
23
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $ 2,513 $ (76) $ (397) $ - $ 2,040
-------- -------- -------- ------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (838) (11) (26) - (875)
Increase in restricted cash (193) - - - (193)
-------- -------- -------- ------------- --------
Net cash used for investing activities (1,031) (11) (26) - (1,068)
-------- -------- -------- ------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decreases in notes receivable - - 98 - 98
Decrease in book overdrafts (220) - - - (220)
-------- -------- -------- ------------- --------
Net cash provided by (used for) financing activities (220) - 98 - (122)
-------- -------- -------- ------------- --------
Effect of exchange rate changes on cash (26) - - - (26)
-------- -------- -------- ------------- --------
Net increase (decrease) in cash and cash equivalents 1,236 (87) (325) - 824
Cash and cash equivalents at beginning of period 27,125 147 2,354 - 29,626
-------- -------- -------- ------------- --------
Cash and cash equivalents at end of period $ 28,361 $ 60 $ 2,029 $ - $ 30,450
======== ======== ======== ============= ========
24
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $ 47,911 $ 221 $ (867) $ - $ 47,265
-------- -------- -------- ------------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (435) (79) (48) - (562)
Earnouts paid - (7) - - (7)
Decrease in restricted cash 13 - 35 - 48
Proceeds from sale of discontinued components 3,250 - - - 3,250
-------- -------- -------- ------------- --------
Net cash provided by (used for) investing activities 2,828 (86) (13) - 2,729
-------- -------- -------- ------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior secured credit facility (4,500) - - - (4,500)
Decreases in notes receivable - - 1,758 - 1,758
Employee stock purchase plan payments (26) - (6) - (32)
Proceeds from repayment of officers loans 250 - - - 250
Decrease in book overdrafts (494) - - - (494)
Payment of financing costs (97) - - - (97)
-------- -------- -------- ------------- --------
Net cash provided by (used for) financing activities (4,867) - 1,752 - (3,115)
-------- -------- -------- ------------- --------
Effect of exchange rate (17) - - - (17)
-------- -------- -------- ------------- --------
Net increase in cash and cash equivalents 45,855 135 872 - 46,862
Cash and cash equivalents at beginning of period 5,165 460 1,146 - 6,771
-------- -------- -------- ------------- --------
Cash and cash equivalents at end of period $ 51,020 $ 595 $ 2,018 $ - $ 53,633
======== ======== ======== ============= ========
25
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 17 - SUBSEQUENT EVENTS
In April 2004, the Board of Directors of the Company agreed to reduce the number
of board members at the next annual meeting of shareholders from eleven members
to eight members. With this reduction, the holders of the preferred stock will
have designated a majority of our Board of Directors. Upon the preferred holders
obtaining a majority, the conversion price of the preferred stock adjusts back
to $7.61.
26
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 results.
Penton considers portions of this information to be forward-looking statements
within the meaning of Section 27A of the Securities 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, the outcome of a search for a new chief executive officer
and the related transition; fluctuations in advertising revenue with general
economic cycles; economic uncertainty exacerbated by potential terrorist attacks
on the United States or the impact of the war with Iraq, and related
geopolitical events; the performance of our natural products industry trade
shows; the seasonality of revenues from trade shows and conferences; our ability
to launch new products that fit strategically with and add value to our
business; our ability to penetrate new markets internationally; increases in
paper and postage costs; the effectiveness of our cost-saving efforts; the
infringement or invalidation of Penton's intellectual property rights; pending
litigation; government regulation; competition; technological change; and
international operations.
Except as expressly required by the federal securities laws, Penton does not
undertake any obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances, or any other reason.
OVERVIEW
We are a diversified 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 provide a range of online
media, including web sites, electronic newsletters and electronic conferences.
Our products serve 12 industries, which we group into four segments:
INDUSTRY TECHNOLOGY
-------- ----------
Manufacturing Internet Technologies
Design/Engineering Enterprise Information Technology
Mechanical Systems/Construction Electronics
Supply Chain
Government/Compliance RETAIL
Aviation ------
Food/Retail
LIFESTYLE Leisure/Hospitality
---------
Natural Products
We believe we have leading media products in most of the industries 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.
Our business is beginning to stabilize as we move into 2004 and there seems to
be a stream of increasingly positive news about the U.S. economy. However, the
business-to-business print advertising market continues to suffer late-cycle
weakness in the early part of 2004. Based on industry information that is
available, it is clear that the trade magazine industry has not yet demonstrated
any real recovery in advertising pages in spite of improving economic conditions
in most sectors. Some of the sectors which are core to Penton's business
continue to record meaningful declines in print advertising pages so far this
year, including software, computers, and manufacturing.
27
The continuing decline in print advertising pages across a broad range of
business-to-business markets appears to be tied to the combination of the
historical lag of advertising recovery and the secular changes that are
occurring in our industry. While it is historically consistent for advertising
recovery to lag the recovery of underlying end-markets, we are likely
experiencing a structural change in how our customers are allocating their
marketing budgets even as their business conditions improve.
While the secular changes vary by market and are not consistently applied across
all sectors, we are witnessing increasing adoption of electronic marketing
programs that include search engine advertising, as well as custom marketing
programs including events and print products. The changing marketing strategies
of our customers continue to impact print advertising budgets in several
sectors.
The adoption of non-traditional media channels seems to be driven by a
combination of sales lead generation goals and marketing accountability in
several markets. Brand building and new product introductions, long the strength
of print advertising programs, are not the primary marketing strategies for many
of our customers at this point in the economic cycle.
In sectors where brands continue to be the primary focus of marketing plans,
such as foodservice and retail, print advertising continues to be the foundation
of marketing programs. As customers in other sectors return to brand building
and introduction of new products, it is likely that print advertising will
recover. However, it is also likely that print advertising recovery will lag the
overall growth in our customers' total marketing budgets.
The secular changes taking place in the business-to-business media industry
drive the Company's strategy of providing a wide range of marketing solutions to
our customers, including e-Media properties, custom marketing programs and
integrated marketing services, in addition to traditional print advertising and
trade show exhibitions.
While e-Media is still a relatively small part of the performance of the
Company, we expect to see accelerated growth of this product line as we
introduce new digital media offerings across all of the Company's markets.
RECENT DEVELOPMENTS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER TO LEAVE COMPANY
On March 24, 2004, the Company announced that its Chairman and Chief Executive
Officer ("CEO"), Thomas L. Kemp, will be leaving the Company later this year. To
serve the Company's best interest and ensure an orderly transition, Mr. Kemp
will remain CEO until his replacement has been named. A national search, led by
a committee of non-management directors, is currently underway.
The Company recorded $2.4 million of severance and other related costs as part
of the separation. Actual amounts may differ based on final negotiations of a
separation agreement; accordingly, the Company may record future adjustments.
PENSION AND SERP FREEZE EFFECTIVE JANUARY 1, 2004
In November 2003, the Company's retirement plan was amended to freeze benefit
accruals effective January 1, 2004. Beginning in 2004, the Company began
providing benefits to a new retirement account in the 401(k) Plan, which has
been renamed the Penton Media, Inc. Retirement and Savings Plan ("RSP"). The RSP
will include the new retirement account and the "old" 401(k) savings account.
Under the new plan, the Company will make monthly contributions to each
employee's retirement account equal to between 3% and 6% of the employee's
annual salary, based on age and years of service. The Company's contributions
become fully vested once the employee completes five years of service. The
Company expects to make contributions to the RSP of approximately $1.8 million
in 2004.
In November 2003, Penton's supplemental executive retirement plan ("SERP") was
amended to freeze benefits effective on January 1, 2004. In place of the SERP,
the Company will accrue an amount equal to between 3% and 6% of each
participant's eligible salary plus an investment return equal to the Moody's Aa
Corporate Bond note. The accrued percentage is based on each executive's age and
years of service.
28
PREFERRED STOCK LEVERAGE RATIO EVENT OF NON-COMPLIANCE
An event of non-compliance continues to exist under our Series B Convertible
Preferred Stock because the Company's leverage ratio of 13.2 at March 31, 2004
(defined as debt less cash balances in excess of $5.0 million plus the
liquidation value of the preferred stock and unpaid dividends divided by
adjusted EBITDA) exceeds 7.5. Upon the occurrence of this event of
non-compliance, the 5% dividend rate on the preferred stock increased by one
percentage point as of April 1, June 30, September 28 and December 27, 2003 and
March 26, 2004 up to the current maximum rate of 10%. The conversion price on
the preferred stock decreased by $0.76 as of April 1, June 30, September 28 and
December 27, 2003 and March 26, 2004 to the maximum reduction related to this
event of non-compliance of $3.80. The conversion price is currently $3.81. The
conversion price will adjust to what it would have been absent such event, to
the extent of any preferred shares still outstanding, once the leverage ratio is
less than 7.5. Furthermore, the dividend rate will adjust back to 5% as of the
date on which the leverage ratio is less than 7.5. Under the preferred stock
agreement, since the leverage ratio has exceeded 7.5 for four consecutive
quarters, the preferred stockholders have the right to cause the Company to seek
a buyer for all of the assets or issued and outstanding capital stock of the
Company. If the Company had been sold on March 31, 2004, the bondholders would
have been entitled to receive $335.8 million and the preferred stockholders
would have been entitled to receive $226.6 million before the common
stockholders would have received any amounts for their common shares. The
leverage ratio event of non-compliance does not represent an event of default or
violation under any of the Company's outstanding notes or the loan agreement. As
such, there will not be an acceleration of any outstanding indebtedness as a
result of this event. In addition, this event of non-compliance and the
resulting consequences do not result in any cash outflow from the Company.
Under the conversion terms of the preferred stock, each holder has a right to
convert dividends into additional shares of common stock. At March 31, 2004, no
dividends had been declared. However, in light of each holder's conversion right
and considering the increase in the dividend rate and the concurrent reduction
of the conversion price as noted above, the Company has recognized a deemed
dividend for the beneficial conversion feature inherent in the accumulated
dividend based on the original commitment date(s). All such accruals have been
reported as an increase in the carrying value of the preferred stock and a
charge to capital in excess of par value since the Company has a stockholders'
deficit.
In April 2004, the Board of Directors of the Company agreed to reduce the number
of board members at the next annual meeting of stockholders from eleven members
to eight members. With this reduction, the holders of the preferred stock will
have designated a majority of our Board of Directors. Upon the preferred holders
obtaining a majority, the conversion price of the preferred stock adjusts back
to $7.61.
RESULTS OF OPERATIONS
REVENUES
Our magazines generate revenues primarily from the sale of advertising space.
Our magazines are primarily controlled circulation and are distributed free of
charge to qualified subscribers in our target industries. Subscribers to
controlled-circulation publications qualify to receive our trade magazines by
verifying their responsibility for specific job functions, including purchasing
authority. We survey our magazine subscribers annually to verify their
continuing qualification. Trade show exhibitors pay a fixed price per square
foot of booth space. In addition, we receive revenues from attendee fees at
trade shows and from exhibitor sponsorships of promotional media. Our
conferences are supported by either attendee registration fees or marketer
sponsorship fees, or a combination of both.
The following table summarizes our revenues for the three months ended March 31,
2004 and 2003 (in millions):
YTD MARCH
2004 2003 CHANGE
---- ---- ------
Revenues.................... $ 54.5 $ 54.4 0.1%
Total revenues increased $0.1 million, or 0.1%, from $54.4 million for the three
months ended March 31, 2003 to $54.5 million for the same period in 2004. The
increase was due primarily to an increase in trade show revenues of $1.5
million, or 10.6%, from $14.6 million for the three months ended March 31, 2003
to $16.1 million for the same 2004 period and an increase in online media
revenues of $0.8 million, or 24.7%, from $3.0 million for the three months ended
March 31, 2003 to $3.8 million for the same 2004 period. These increases were
partially offset by publishing revenue declines of $2.3 million, or 6.1%, from
29
$36.8 million for the three months ended March 31, 2003 to $34.5 million for the
same 2004 period. Included in revenues for 2003 were conference revenues of $0.5
million related to our spring National Convenience Store Advisory Group
Convention ("NCSAG") event, which was not held until April 2004.
The $2.2 million, or 6.1%, decrease in publishing revenues was due primarily to
a decrease in our Industry and Technology segments. Our manufacturing and
design/engineering portfolios accounted for $1.0 million of the decrease, while
our Internet technology and enterprise information technology portfolios
accounted for an additional $1.8 million of the decrease. The remaining sectors
either improved or were flat when compared with the prior year. The absence of
revenues from our Internet World magazine, which was shut-down in the second
quarter of 2003, represented 20% of the total publishing decline. Of the $2.2
million decrease in publishing revenues, nearly $1.8 million related to
advertising. Subscription revenues and list rental revenues also declined in
2004 compared with the first quarter of 2003.
The $1.5 million, or 10.6%, increase in our trade show and conference revenues
was due primarily to the increase of $1.9 million in our Lifestyle segment,
partially offset by a decrease of $0.2 million in our Retail segment. The
improvement in our Lifestyle segment was the result of a highly successful
Natural Products Expo West show held in March 2004 while the decline in our
Retail segment was due to the shift in timing of our NCSAG event which was held
in the first quarter of 2003 but moved to the second quarter of 2004. Exhibitor
revenues, which represent about 77.0% of the first quarter 2004 trade show and
conference revenues, increased approximately $1.1 million, or 10%, due primarily
to increased booth rentals. Sponsorship revenues also improved compared with the
first quarter of 2003, increasing by approximately 35%.
The $0.8 million, or 24.7%, increase in online media revenues was due primarily
to an increase in our Technology segment of $0.7 million and an increase in our
Industry segment of $0.1 million. Most of the increase in online revenues was
due to increases in sponsorship revenues for electronic newsletters and online
events.
EDITORIAL, PRODUCTION AND CIRCULATION
YTD MARCH
2004 2003 CHANGE
---- ---- ------
(In millions)
Editorial, production and circulation.............. $ 21.4 $ 22.4 (4.3)%
Percent of revenues 39.3% 41.1%
Our editorial, production and circulation expenses include personnel costs,
purchased editorial costs, hall rental costs, postage charges, circulation
qualification costs and paper costs. The decrease in editorial, production and
circulation expenses for the first quarter of 2004 compared with the first
quarter of 2003 primarily reflects lower headcount and personnel-related costs,
lower postage costs, and lower paper and printing costs. These decreases were
partially offset by slightly higher online media costs; particularly Web site
development costs, and slightly higher exhibit hall expenses. The decrease also
reflects the elimination of some unprofitable properties in 2003, particularly
Internet World magazine.
SELLING, GENERAL AND ADMINISTRATIVE
YTD MARCH
2004 2003 CHANGE
---- ---- ------
(In millions)
Selling, general and administrative.......................... $ 24.5 $ 23.6 3.6%
Percent of revenues 45.0% 43.5%
Our selling, general and administrative ("SG&A") expenses include personnel
costs, independent sales representative commissions, product marketing, and
facility costs. Our SG&A expenses also include costs of corporate functions,
including accounting, finance, legal, human resources, information systems, and
communications. The increase in SG&A expenses for the first quarter of 2004
compared with the first quarter of 2003 was due primarily to a charge of $2.4
million related to executive separation costs. As previously noted, Penton
announced on March 24, 2004 that Mr. Thomas L. Kemp, chairman and chief
executive officer, will be leaving the company. This increase was partially
offset by lower staff costs, lower facility costs and lower division and
corporate overhead costs as a result of past restructuring efforts.
30
RESTRUCTURING CHARGES
Commencing in 2001 and continuing through the first quarter of 2004, we
implemented a number of cost reduction initiatives to improve our operating cost
structure. For a discussion of activity under our restructuring plans, see Note
13 - Business Restructuring Charges of the notes to consolidated financial
statements.
2004 RESTRUCTURING PLAN
Due to the slow recovery in several markets that we serve, the Company recorded
restructuring charges of $0.7 million related primarily to personnel costs in
the first quarter of 2004. These costs are associated with the elimination of 21
positions, primarily in the United States. As of March 31, 2004, the elimination
of 16 positions and payments of $0.1 million had been completed.
SUMMARY OF RESTRUCTURING ACTIVITIES
The following table summarizes all of the Company's restructuring activity
through March 31, 2004 (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -----
Charges $ 6,774 $ 8,669 $ 4,364 $ 19,807
Adjustments (23) - (994) (1,017)
Cash payments (4,468) (267) (2,423) (7,158)
-------- -------- -------- --------
Accrual at December 31, 2001 2,283 8,402 947 11,632
Charges 10,344 3,421 1,648 15,413
Adjustments 65 1,246 (363) 948
Cash payments (7,569) (2,283) (1,217) (11,069)
-------- -------- -------- --------
Accrual at December 31, 2002 5,123 10,786 1,015 16,924
Charges 2,548 1,505 661 4,714
Adjustments (18) (17) (10) (45)
Cash payments (6,044) (3,273) (965) (10,282)
-------- -------- -------- --------
Accrual at December 31, 2003 1,609 9,001 701 11,311
Charges 695 - 37 732
Adjustments 56 2 - 58
Cash payments (889) (635) (130) (1,654)
-------- -------- -------- --------
Accrual at March 31, 2004 $ 1,471 $ 8,368 $ 608 $ 10,447
======== ======== ======== ========
At March 31, 2004, the Company had an accrued restructuring balance of $10.4
million. We expect to make cash payments through the remainder of 2004 of
approximately $3.4 million, comprised of $1.3 million for employee separation
costs, $1.6 million for lease obligations and $0.5 million for other contractual
obligations. The balance of severance and other exit costs will be paid through
2007, and the balance of facility costs, primarily long-term leases, is expected
to be paid through the end of the respective lease terms, which extend through
2013. Amounts due within one year of approximately $3.4 million and $3.7 million
at March 31, 2004 and December 31, 2003, respectively, are classified in other
accrued expenses on the consolidated balance sheets. Amounts due after one year
of approximately $7.0 million and $7.6 million at March 31, 2004 and December
31, 2003, respectively, are included in other non-current liabilities on the
consolidated balance sheets.
The Company expects to realize sufficient savings from its 2004 restructuring
efforts to recover the employee termination costs by December 31, 2004. Savings
from terminations of contracts and lease costs will be realized over the
estimated lives of the contracts or leases.
31
OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
YTD MARCH
2004 2003 CHANGE
---- ---- ------
(In millions)
Interest expense ............................ $ (9.5) $ (10.3) (8.5)%
Interest income ............................. $ 0.1 $ 0.1 6.4%
Other, net .................................. $ - $ (0.4) n/a
Included in interest expense in the first quarter of 2003 is approximately $0.9
million related to the write-off of unamortized financing fees associated with
the commitment reduction of our credit facility revolver in January 2003 from
$40.0 million to $20.1 million.
EFFECTIVE TAX RATES
The effective tax rates for the three months ended March 31, 2004 and 2003 were
(11.8)% and (2.2)%, respectively. The higher effective tax rate for 2004 is due
to establishing a valuation allowance for the Company's net foreign deferred tax
assets and net operating loss carryforwards not expected to be utilized. The tax
provision for 2004 and 2003 in the consolidated statements of operations relates
to state and foreign taxes.
DISCONTINUED OPERATIONS
Discontinued operations in 2003 include the results of PM Australia, which was
sold in December 2002, and the results of PTS, which was sold in January 2003.
PM Australia was part of our Technology segment, and PTS was part of our
Industry segment.
The $0.9 million of income recognized in 2003 was primarily due to a gain of
approximately $1.4 million associated with the sale of PTS, offset by one month
of operations for PTS, and settlement costs for certain pending lawsuits related
to PM Australia.
SEGMENTS
We manage our business based on four operating segments: Industry, Technology,
Lifestyle and Retail. The segments derive their revenues from publications,
trade shows and conferences, and online media products.
The executive management team evaluates performance of the segments based on
revenues and adjusted segment EBITDA. As such, in the analysis that follows, we
have used adjusted segment EBITDA, which we define as net income (loss) before
interest, taxes, depreciation and amortization, non-cash compensation, executive
separation costs, impairment of assets, restructuring charges, provision for
loan impairment, discontinued operations, general and administrative costs, and
other non-operating items. General and administrative costs include functions
such as finance, accounting, human resources and information systems, which
cannot reasonably be allocated to each segment. See Note 14 - Segment
Information, for a reconciliation of total adjusted segment EBITDA to
consolidated net loss.
32
Financial information by segment for the three months ended March 31, 2004 and
2003, is summarized as follows (in thousands):
ADJUSTED ADJUSTED SEGMENT
REVENUES SEGMENT EBITDA EBITDA MARGIN
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Industry $18,388 $19,362 $ 3,073 $ 3,276 16.7% 16.9%
Technology 14,278 15,212 1,049 793 7.3% 5.2%
Lifestyle 17,224 15,049 11,108 9,302 64.5% 61.8%
Retail 4,577 4,769 527 731 11.5% 15.3%
------- ------- ------- -------
Total $54,467 $54,392 $15,757 $14,102
======= ======= ======= =======
INDUSTRY
Our Industry segment, which represented 33.8% and 35.6% of total Company
revenues for the three months ended March 31, 2004 and 2003, respectively,
serves customers in the manufacturing, design/engineering, mechanical
systems/construction, supply chain, government/compliance and aviation
industries. For the three months ended March 31, 2004, and 2003, 95.7% and
95.9%, respectively, of this segment's revenues were generated from publishing
operations, 0.9% and 1.4% from trade shows and conferences, and 3.4% and 2.7%
from online media products.
Revenues for this segment decreased $1.0 million, or 5.0%, from $19.4 million
for the three months ended March 31, 2003 to $18.4 million for the same period
in 2004. The decrease was due primarily to lower revenues from publishing. Print
advertising in our design/engineering and manufacturing portfolio markets
accounted for nearly all of this decline as these markets continue to be
challenging.
Adjusted segment EBITDA for our Industry portfolio decreased $0.2 million, or
6.2%, from $3.3 million for the three months ended March 31, 2003 to $3.1
million for the same period in 2004. Industry publications decreased $0.5
million, while trade shows and conferences improved $0.1 million and online
media remained flat. Segment general and administrative costs were lower by
approximately $0.2 million, mainly from staff reductions. The decline in
adjusted segment EBITDA margins was due primarily to lower revenues.
TECHNOLOGY
Our Technology segment, which represented 26.2% and 27.9% of total Company
revenues for the three months ended March 31, 2004 and 2003, respectively,
serves customers in the Internet technologies, enterprise information technology
and electronics markets. For the three months ended March 31, 2004 and 2003,
respectively, 65.4% and 71.9% of this segment's revenues were generated from
publishing, 13.1% and 12.2% from trade shows and conferences, and 21.5% and
15.9% from online media products.
Revenues for this segment decreased $0.9 million, or 6.1%, from $15.2 million
for the three months ended March 31, 2003 to $14.3 million for the same period
in 2004. The decrease was due primarily to lower revenues from publishing of
$1.6 million, partially the result of discontinuing Internet World magazine in
the second quarter of 2003. This decrease was offset in part by improved
revenues from online media operations of nearly $0.7 million. Online revenues
continue to improve as customers are increasingly seeking new ways to reach
their target markets and generate sales leads. Trade show and conference
revenues remained flat when compared with the same prior year period.
Adjusted segment EBITDA for our Technology portfolio increased $0.3 million, or
32.3%, from $0.8 million for the three months ended March 31, 2003 to $1.1
million for the same period in 2004. Online media accounted for all of the
improvement as publishing and trade shows and conferences were flat with the
prior year. Prior-year publishing included the results of our Internet World
magazine, which was discontinued in June 2003.
LIFESTYLE
Our Lifestyle segment, which represented 31.6% and 27.7% of total Company
revenues for the three months ended March 31, 2004 and 2003, respectively,
serves customers in the natural products industry. For the three months ended
March 31,
33
2004 and 2003, respectively, 20.2% and 21.3% of this segment's revenues were
generated from publishing and 79.8% and 78.7% from trade shows and conferences.
Revenues for this segment increased $2.2 million, or 14.5%, from $15.0 million
for the three months ended March 31, 2003 to $17.2 million for the same period
in 2004. Trade shows and conferences accounted for $1.9 million of the increases
while publishing accounted for the remainder. First-quarter results were
positively impacted by a highly successful 2004 Natural Products Expo ("NPE")
West show, which experienced growth over last year's event in attendance, number
of exhibitors, and number of floored booths. The success of the 2004 NPE West
show is not only a positive indicator for the 2005 show but also should create a
positive impact on the NPE East event which will take place in October in
Washington, D.C.
Adjusted segment EBITDA for the Lifestyle segment increased $1.8 million, or
19.4%, from $9.3 million for the three months ended March 31, 2003 to $11.1
million for the same period in 2004. Trade shows and conferences accounted for
$1.6 million of the increase while publishing accounted for the remainder.
Adjusted segment EBITDA margins improved from 61.8% for the first quarter of
2003 to 64.5% for the same period in 2004. The improvement was primarily due to
increased revenues and the effect of cost reduction measures taken in 2003.
RETAIL
Our Retail segment, which represented 8.4% and 8.8% of total Company revenues
for the three months ended March 31, 2004 and 2003, respectively, serves
customers in the food/retail and leisure/hospitality sectors. For the three
months ended March 31, 2004 and 2003, respectively, 91.7% and 86.6% of this
segments revenues were generated from publishing, 7.7% and 12.3% from trade
shows and conferences, and 0.6% and 1.1% from online media products.
Revenues for this segment decreased $0.2 million, or 4.0%, from $4.8 million for
the three months ended March 31, 2003, to $4.6 million for the same period in
2004. This decrease was due primarily to a shift in timing of our spring NCSAG
event, which took place in January of 2003 and in April of 2004.
Adjusted segment EBITDA for the Retail segment decreased $0.2 million, or 27.9%,
from $0.7 million for the three months ended March 31, 2003 to $0.5 million for
the same period in 2004. As indicated above, the decrease was due primarily to
the shift in timing of the NCSAG event.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT LIQUIDITY
At March 31, 2004, our principal sources of liquidity are our existing cash
reserves of $30.5 million and available borrowing capacity under our credit
facility of $39.7 million.
Our primary 2004 cash needs will be for working capital, debt service, capital
expenditures, business restructuring charges, and severance and other related
costs expected to be paid upon the departure of our chief executive officer in
2004. Our largest annual cash requirements are for our debt service costs, which
are expected to be approximately $36.9 million in 2004. Capital expenditures in
2004 are expected to be approximately $3.0 million to $3.5 million, while cash
payments in 2004 related to our business restructuring initiatives are expected
to be approximately $3.4 million. Other cash payments expected to be made in
2004 include contributions of approximately $1.5 million to our defined benefit
pension plan and approximately $1.8 million to the new Retirement and Savings
Plan. Cash expenditures related to the departure of Mr. Thomas L. Kemp are
expected to be approximately $2.4 million in 2004.
We have no principal repayment requirements until maturity of our Secured Notes
in October 2007. In addition, we have no bank debt and no maintenance covenants
on our existing bond debt.
We believe that our existing sources of liquidity, along with revenues expected
to be generated from operations, will be sufficient to fund our operations,
anticipated capital expenditures, working capital, and other financing
requirements through at least March 31, 2005. However, we cannot assure you that
this will be the case, and if we continue to incur operating losses and negative
cash flows in the future, we may need to reduce further our operating costs or
obtain alternate sources of financing, or both, to remain in business. Our
ability to meet cash operating requirements depends upon our future performance,
which is subject to general economic conditions and to financial, competitive,
business, and other factors. The Company's ability to
34
return to sustained profitability at acceptable levels will depend on a number
of risk factors, many of which are largely beyond the Company's control. If we
are unable to meet our debt obligations or fund our other liquidity needs,
particularly if the revenue environment continues to deteriorate, 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,
could result in substantial dilution to common stockholders. The redemption
price premiums and board representation rights could negatively impact our
ability to access the equity markets in the future.
The Company has implemented, and continues to implement, various cost-cutting
programs and cash conservation plans, which involve the limitation of capital
expenditures and the control of working capital.
ANALYSIS OF CASH FLOWS
Penton's total cash and cash equivalents was $30.5 million at March 31, 2004,
compared with $29.6 million at December 31, 2003. Cash provided by operating
activities was $2.0 million for the three months ended March 31, 2004, compared
with $47.3 million for the same period in 2003. Operating cash flows for the
three months ended March 31, 2004, reflected a net loss of $5.2 million, offset
by a net increase in working capital items of approximately $2.5 million and
non-cash charges (primarily depreciation and amortization) of approximately $4.8
million. Operating cash flows for the three months ended March 31, 2003,
reflected a net loss of $5.1 million, which was offset by a net working capital
increase of approximately $46.6 million and non-cash charges (primarily
depreciation and amortization) of approximately $5.8 million.
The decrease in operating cash flows for the three months ended March 31, 2004,
compared with the same 2003 period was due primarily to the tax refund received
in January 2003 of approximately $52.7 million.
Investing activities used $1.1 million of cash for the three months ended March
31, 2004 for capital expenditures and restricted cash. Investing activities
provided $2.7 million of cash for the three months ended March 31, 2003,
primarily from proceeds of $3.3 million from the sale of PTS in January 2003.
These proceeds were partially offset by capital expenditures of $0.6 million.
Financing activities used $0.1 million of cash for the three months ended March
31, 2004 primarily for cash overdrafts. This use was partially offset by
proceeds received from notes receivable. Financing activities used $3.1 million
of cash for the three months ended March 31, 2003, due primarily to the
repayment of $4.5 million of our senior secured credit facility and cash
overdrafts. These uses in 2003 were partially offset by net proceeds of $1.8
million received on notes receivable and proceeds of approximately $0.3 million
from the partial repayment of an officer's loan.
RISK FACTORS
Management's concerns remain consistent with and should be read in conjunction
with the Risk Factors section of the Company's Annual Report on Form 10-K for
the year ended December 31, 2003.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 - Basis of Presentation of the notes to the consolidated financial
statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
During the three months ended March 31, 2004, there were no significant new
critical accounting policies or estimates.
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 period.
There were no significant foreign currency transaction gains or losses for the
periods presented.
35
SEASONALITY
We may experience seasonal fluctuations as trade shows and conferences held in
one period in the current year may be held in a different period in future
years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, as they are publicly traded. At March 31, 2004, the fair value of
the Subordinated Notes and the Secured Notes was $127.1 million and $159.3
million, respectively, compared to $116.8 million and $153.0 million,
respectively, at December 31, 2003. The fair value of the notes is determined by
the price investors in the open market are willing to pay. The Company currently
does not manage the fair value risk related to its senior notes.
The table below provides information about the expected cash flows associated
with our long-term debt obligations and their fair value at March 31, 2004 (in
thousands):
EXPECTED MATURITY DATE
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
FAIR
2004 2005 2006 2007 2011 TOTAL VALUE
---- ---- ---- ---- ---- ----- -----
Long-Term Debt:
Senior Subordinated Notes - - - - $175,000 $175,000 $127,112
Interest rate 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 $159,300
Interest rate 11-7/8% 11-7/8% 11-7/8% 11-7/8% 11-7/8% 11-7/8%
During the three months ended March 31, 2004, there were no other significant
changes related to the Company's market risk exposure.
ITEM 4. CONTROLS AND PROCEDURES
As of March 31, 2004, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and CFO, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)).
Based on that evaluation, the Company's management, including the CEO and CFO,
concluded that the Company's disclosure controls and procedures were adequate
and effective as of March 31, 2004 to ensure that material information relating
to the Company would be made known to them by others within the Company,
particularly during the period in which this Form 10-Q was being prepared.
During the period covered by this report on Form 10-Q, there have been no
changes in the Company's internal control over financial reporting that have
materially affected or are likely to materially affect the Company's internal
control over financial reporting.
36
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES
OF EQUITY SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
31.1 Principal executive officer's certification pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Principal financial officer's certification pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) REPORTS ON FORM 8-K
The Registrant has filed or furnished the following
Current Reports on Form 8-K during the period covered
by this report:
DATE OF REPORT ITEMS REPORTED
-------------- --------------
February 26, 2004 Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
Item 12. Results of Operations and Financial
Conditions
March 24, 2004 Item 5. Other Events
March 30, 2004 Item 12. Results of Operations and Financial
Conditions
37
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
Chief Financial Officer
(Duly Authorized Officer
and Principal Financial
Officer)
Date: May 17, 2004
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
31.1 Principal executive officer's certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Principal financial officer's certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
39