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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NUMBER 1-14337
PENTON MEDIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2875386
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1300 EAST NINTH STREET, CLEVELAND, OHIO 44114
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
216-696-7000
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of common stock held by non-affiliates as of
March 12, 2002 at a closing price of $8.41 per share as reported by the New York
Stock Exchange was approximately $134,596,634. Shares of common stock held by
each officer and director, their respective spouses, and by each person who owns
or may be deemed to own 10% or more of the outstanding common stock have been
excluded because such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
31,910,325 COMMON SHARES OUTSTANDING AS OF MARCH 12, 2002
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 3, 2002 are incorporated by reference into Part
III of this report.
PENTON MEDIA, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
2
PART I
ITEM 1. BUSINESS.
OVERVIEW
We believe we are a leading, global business-to-business media company. We
provide media products that deliver proprietary business information to owners,
operators, managers and professionals in the industries we serve. Through these
products, we offer industry suppliers multiple ways to reach their customers and
prospects as part of their sales and marketing efforts. We publish 65
specialized trade magazines, produce 135 trade shows and conferences, and
maintain 30 Web businesses and more than 80 electronic newsletters. Our products
serve 12 industry sectors, which we group into four segments:
INDUSTRY MEDIA TECHNOLOGY MEDIA
Manufacturing Internet/Broadband
Design/Engineering Information Technology
Mechanical Systems/Construction Electronics
Supply Chain
Government/Compliance OTHER MEDIA
Aviation Food/Retail
Leisure/Hospitality
LIFESTYLE MEDIA
Natural Products
We believe we have leading media products in each of the industry sectors
we serve. We are structured along segment and industry lines rather than by
product lines. This enables us to promote our related group of products,
including publications, trade shows and conferences, and online media products,
to our more than 20,000 customers.
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into a leading, integrated business-to-business media company
serving a range of industrial, technology and retail markets. We became an
independent company, incorporated in the State of Delaware, as a result of our
spinoff from Pittway Corporation in August 1998. Our independence has enabled us
to focus on building our business through acquisitions and internal growth. We
have acquired 25 companies since the spinoff. We also have launched several new
media properties. These initiatives have helped us:
- Strengthen our presence in our existing markets;
- Achieve strong market positions in new, growing markets;
- Expand our presence in higher-margin trade shows and conferences;
and
- Increase our international product offerings.
OUR BUSINESS STRATEGY
Due to the difficult business environment, we have shifted our business
strategy from accelerating growth to improving our profitability. In 2001, we
experienced declines in our revenues and adjusted EBITDA due to the negative
factors affecting our industry generally. These declines were most significant
in the third and fourth quarters. Adjusted EBITDA is defined in "Management's
Discussion and Analysis of Financial Conditions and Results of Operations."
Reduce Fixed Costs. Our cost structure was created to support the
approximately 25% compounded annual revenue growth we experienced between 1996
and 2000. In the second half of 2001, we implemented a number of cost reduction
initiatives in an effort to align our cost structure with a more uncertain
business environment. These efforts included eliminating nearly 340 positions
from our workforce, freezing salaries and hiring, shutting down and
consolidating more than 20 facilities worldwide, reducing capital spending,
centralizing all information technology services, reducing employee benefit
expenses, and effectively outsourcing certain corporate and
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division functions. In 2002, we are continuing to evaluate similar opportunities
for cost reduction. We believe our cost reduction efforts will enable us to
increase our operating income and our adjusted EBITDA for the year ended
December 31, 2002 compared with the-prior year period, even if revenues remain
flat or decline modestly in 2002.
Restructure Product Portfolio. In an effort to improve the profitability
of our publications, trade shows and conferences, and online media products, we
aggressively restructured our product portfolio in the second half of 2001. This
restructuring effort involved eliminating unprofitable products, including seven
magazines, more than 20 trade shows and conferences, and nearly 20 Web sites;
reducing the magazine production costs of certain of our trade magazines; and
co-locating certain of our events. We reduced magazine production costs through
process improvements, automation of pre-press work, new printing and paper
supply contracts, and selective reductions in frequency and circulation levels.
In 2002, we are continuing to evaluate each of our products to determine whether
additional properties should be eliminated or restructured. We believe these
restructuring efforts will improve the adjusted EBITDA of our individual
products without reducing their usefulness to our customers.
Pursue Low-Risk, High-Return Growth Strategy. Due to the uncertain
business environment, we intend to grow our business by launching new products
that require minimal capital investment and by exporting our successful domestic
products to other global markets. We launch new products by capitalizing on our
existing knowledge base to identify growth segments within the market sectors we
currently serve, using our proprietary databases to identify buyers and sellers
within those markets, and leveraging our existing sales and marketing
infrastructure to generate revenue without investing significant incremental
capital. Our publication launches require a modest capital investment, but
typically generate positive adjusted EBITDA, before shared expenses, within two
to three years. Our trade show and conference launches require minimal capital
investment and typically generate positive adjusted EBITDA, before general and
administrative expenses (as more fully described in Management's Discussion and
Analysis of Financial Condition and Results of Operations), in the first year
because we leverage our existing trade show infrastructure and incubate new
trade shows or conferences within our existing events. We continue to monitor
the profitability of our launches to determine whether they should be eliminated
or restructured. In 2002, we expect to launch more than 20 new products
targeting growth market sectors such as military electronics, home networking,
nanotechnology and information systems security.
We also intend to grow our business by extending our established domestic
brands into key international markets. By utilizing this strategy, we increased
our international revenue at a compound annual growth rate of approximately 41%
from 1998 to 2001. In 2001, we launched Streaming Media events in Germany and
Japan.
OUR PRODUCTS AND SERVICES
Our four segments derive their revenues from in-print publications,
in-person trade shows and conferences, and online Web sites and electronic
newsletters to customers in our twelve distinct industry sectors. Content of our
Industry Media publications, trade shows and conferences, and online media
products are geared to customers in our aviation, design/engineering,
government/compliance, manufacturing, mechanical systems/construction, and
supply chain industries sectors. Content of our Technology Media publications,
trade shows and conferences, and online media products are geared to customers
in our electronics, information technology, and Internet/ Broadband industry
sectors. Content of our Lifestyle Media publications, trade shows and
conferences, and online media products are geared to customers in our natural
products industry, and the content of our Other Media publications, trade shows
and conferences, and online media products are geared to customers in our
food/retail and leisure/hospitality industry markets.
See Note 16 -- Segment Information, of the Notes to Consolidated Financial
Statements included herein for a discussion of the revenues from external
customers, adjusted EBITDA and total assets of each of our segments.
IN PRINT: PUBLICATIONS
Trade Magazines. We publish specialized trade magazines in the United
States. According to Advertising Age's June 2001 annual ranking of magazines in
the United States, we publish four of the 50 largest trade magazines, based on
advertising revenues. About 79% of our 34 audited magazines, 27 hold the #1 or
#2 market
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share position in their target markets, based on number of advertising pages.
Our publications are recognized for the quality of their editorial content;
since 1990, our magazines have won more than 700 editorial awards. We publish 65
trade magazines with a combined circulation of more than 3.7 million subscribers
worldwide. Our magazines generate revenues primarily from the sale of
advertising space. Our magazines are primarily controlled circulation. They 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 continued qualification.
Circulation information for the majority of our publications is audited
each year by BPA International, an independent auditor of magazine circulation.
These audits verify that we have accurately identified the number and job
responsibilities of qualified subscribers and that those subscribers are
eligible to receive the relevant publication according to our established
criteria.
Each of our publications has its own advertising sales team and rate
structure. Some advertisers may qualify for discounts based on advertising in
multiple publications. We enable marketers to be more cost efficient in their
advertising purchases by providing a single source for integrated products.
In addition, each of our publications has its own editorial staff. To
preserve the editorial integrity of each publication's news reporting and
analysis, we seek to maintain separation between the editorial and sales staffs
of each publication. We believe that our reputation for objective, fair and
credible editorial content contributes significantly to our success. Fifteen of
our publications have served their industries for more than 50 years.
Our editorial staffs meet frequently with readers of their publications to
maintain a current understanding of the information needs and interests of those
readers, in an effort to serve them more effectively. We devote considerable
resources to the study of trends in our industries and strive to make our
publications the most widely used among our targeted audiences. Many of our
editors and contributors are recognized as experts in their fields and are
regularly contacted by the general press to comment on developments and trends
in their respective markets.
Directories and Buyers' Guides. We also publish nine industry directories
as well as buyers' guides, which are respected sources of buying information for
industry decision makers. Most of the business directories we publish have
limited competition.
IN PERSON: TRADE SHOWS AND CONFERENCES
We produce 135 trade shows and conferences, which annually attract nearly a
half-million attendees with significant buying and specifying responsibility. In
addition to these events, we maintain licensing agreements for 10 trade shows
and we produce one trade show under a management contract.
In the early 1990s, we entered the trade show and conferences business, and
have more recently expanded our presence through acquisitions. For example, the
acquisition of Streaming Media in September 2000 added the Streaming Media East,
West and Europe trade shows to our portfolio, while the acquisition of New Hope
in 1999 added the Natural Products Expo East and West trade shows. In addition,
we have expanded our global presence. In 2000, we acquired ComMunic, which
produces trade shows, conferences and business publications in Germany and its
German-speaking neighboring countries, serving the Internet, telecommunications
and other growing technology markets.
Attendees at our trade shows and conferences are professionals and managers
in the industries we serve. Most trade shows include an extensive conference
program, which provides a forum for the exchange and dissemination of
information relevant to the particular event's focus. In addition, most trade
shows have one or more "keynote" sessions with speakers who are known for their
industry knowledge and expertise.
Trade show exhibitors pay a fixed price per square foot of booth space. In
addition, we receive revenues from attendee fees at trade shows and conferences
and from exhibitor sponsorships of promotional media.
5
ONLINE: WEB SITES AND ELECTRONIC NEWSLETTERS
We currently maintain 30 Web businesses, which comprise dozens of
market-specific Web sites, serving numerous market segments. Our online
portfolio also includes more than 80 electronic newsletters. These electronic
newsletters provide timely and focused information to highly targeted
professionals, and typically are sponsored by advertisers interested in
delivering marketing information to our targeted subscribers. We believe we have
a competitive advantage in the online business because of our established
customer relationships in the markets we serve, the industry expertise of our
staff, and the opportunities we have to promote our Web sites and electronic
newsletters to targeted audiences through our magazines and trade shows.
OTHER
We also provide ancillary information services that complement our
principal business media platforms. These services include:
- Market Access and Business Development. We provide a variety of
marketing services, including database rentals. We use information
from our subscription lists and other available databases to compile
detailed mailing lists for rental by marketers who want to promote
their products and services through direct mail programs. We offer
these services to our customers to help them reach their targeted
audiences.
- Specialized Advertising. We collect and forward reader inquiries to
our advertisers. In addition, classified advertising sections in our
publications and on our Web sites provide a cost-efficient medium for
reaching prospects who are ready to buy specialized products and
services. Also, recruitment advertising provides an effective way to
reach qualified professionals seeking career opportunities.
- Custom Communications. We produce a range of client-specific
communications services, including newsletters, magazines, catalogs,
directories, education and training materials, and other support
materials.
RECENT DEVELOPMENTS
In January 2002, we sold our remaining 11.8% ownership interest in INT
Media Group, Inc. for approximately $5.8 million.
On March 10, 2002, we entered into an agreement, which we subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. Pursuant to this agreement, we received gross proceeds of
$40.0 million from the sale of 40,000 shares of preferred stock and warrants to
purchase 1.28 million shares of our common stock on March 19, 2002. We expect to
close the remaining $10.0 million within 30 days of the initial closing. A copy
of the amended and restated Series B Convertible Preferred Stock and Warrant
Purchase Agreement and the Certificate of Designations and Form of Warrants
agreements were filed with the Securities and Exchange Commission on March 19,
2002 as exhibits to a Current Report on Form 8-K. The following is a description
of the material terms of the preferred stock and warrants and is qualified in
its entirety by reference to that Current Report on Form 8-K and the applicable
agreements. Significant terms of the new preferred stock are as follows:
- Holders of the preferred shares will have a liquidation preference
over holders of common stock.
- The initial liquidation value per share will be $1,000. If the
preferred stock is not converted or redeemed prior to the sixth
anniversary of the date of issuance, the liquidation value will
increase to $4,570 per share if stockholder approval has been obtained
on certain matters. If the stockholder approval has not been obtained,
the liquidation value will increase to $9,140 per share.
- Dividends accrue at an annual rate of 7% from issuance until year six
unless stockholder approval is obtained on certain matters, at which
time the rate will decrease to 5% per annum. If the stockholder
approval is obtained within six months of the date of issuance, the
rate will decrease retroactive to
6
the date of issuance. After the sixth anniversary, dividends accrue at
an annual rate of 15%. Upon certain triggering events, the dividend
rate may increase by one percentage point per quarter up to a maximum
increase of five percentage points.
- The dividends are payable semi-annually in cash only if declared by
our board of directors and approved by no less than 75% of the
convertible preferred stock then outstanding. The provisions of our
debt instruments limit our ability to pay dividends in cash, and we
have no present intention to pay dividends in cash.
- Shares of preferred stock will be convertible at any time at each
investor's option into a number of shares of our common stock equal to
the liquidation value plus accrued but unpaid dividends, divided by
the conversion price. The conversion price will initially be $7.61,
and is subject to certain anti-dilution and other adjustments. Subject
to certain restrictions, we have the option to convert the preferred
stock at any time.
- If stockholder approval of certain matters is not obtained by June 28,
2002, the conversion price will automatically be reduced by 20%.
Thereafter, until such approval is obtained, every 90 days the
conversion price will be reduced by 20% of the conversion price then
in effect. In no event will the conversion price reduction related to
the failure to timely obtain stockholder approval exceed 50% of the
conversion price that would have been in effect had we obtained
stockholder approval. Upon our receipt of the stockholder approval,
the conversion price will be readjusted as if no adjustments had
occurred for failure to timely obtain stockholder approval.
- If we fail to comply with specific covenants contained in the purchase
agreement, the conversion price will be reduced by $0.76 (adjusted for
stock splits and similar transactions). The conversion price will
readjust to what it would have been absent such breach once the breach
is cured.
- We may redeem the preferred stock at any time, in whole or in part,
provided that the redemption price is equivalent to the amount the
holders would receive on an as-converted basis using a trailing 30-day
period and subject to certain minimum share prices based on the year
redeemed.
- The preferred stock initially entitles the holders to three seats on
our board of directors. Upon the occurrence of certain triggering
events, the holders may appoint up to one less than a minimum majority
of our board of directors or a minimum majority upon the occurrence of
certain events of bankruptcy or insolvency. See further discussion of
these triggering events in "Risk Factors".
- The holders of the convertible preferred stock are entitled to vote on
all matters submitted to a vote of our common stockholders.
- We have agreed to register the common stock issuable upon conversion
of the convertible preferred stock and exercise of the warrants within
45 days after closing and use our best efforts to have the
registration statement declared effective within 90 days.
- The terms of the convertible preferred stock subject us to various
covenants, which among other things, limits our ability to sell
assets, make any restricted payments or restricted investments, enter
into various agreements and grant certain options.
- Warrants will be issued to purchase an additional 0.32 million shares
of our common stock. All warrants will have an initial exercise price
of $7.61 per share, subject to certain anti-dilution and other
adjustments that mirror those applicable to the convertible preferred
stock. The warrants are immediately exercisable and expire 10 years
after issuance.
- We are currently studying the accounting for this transaction,
including the provisions of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
Net proceeds from the sale of the preferred stock, along with the net
proceeds of $5.8 million from our recent sale of our INT Media Group, Inc.
common stock and cash on hand from our $12.2 million tax refund, will be used to
repay $48.0 million of amounts outstanding under our term loans.
7
On March 19, 2002, simultaneously with the payment described above, we also
amended our credit facility. If we were required to file our compliance
certificate prior to the amendment of the credit facility, we would not have
been in compliance with our financial covenants. The amended and restated
facility provides, among other things, the following:
- The revolving credit facility was permanently reduced to $40.0 million
from $185.0 million.
- We were relieved of our financial covenants at December 31, 2001 and
March 31, 2002.
- Revised financial covenant requirements after March 31, 2002 have been
established. For example, our leverage ratio and fixed charge ratio
covenants are not applicable until after June 30, 2003 and September
30, 2003, respectively.
- The revolver is limited to $15.0 million until the leverage ratio is
less than 5.0x or the term loans have been prepaid in full. An
additional $10.0 million will become available in the event that not
less than $10.0 million is raised from an equity issuance and the
proceeds are used to prepay the term loans. Upon receipt of the
second-quarter compliance certificate, an additional $5.0 million will
become available.
- In order to access the revolver, the Company must not have more than
$7.5 million of cash and cash equivalents available and must be in
compliance with the loan documents.
- The amendment also increased the interest rate on the revolver as well
as the term A and term B loans, places additional restrictions on
certain payments, limits additional debt and contingent obligations,
requires additional collateral, limits additional acquisitions and
investments, limits our ability to sell assets and limits capital
expenditures.
- Upon repayment of all amounts outstanding under our existing senior
credit facility, all financial covenants under the facility will cease
to apply.
CUSTOMERS
We have more than 20,000 customers. None of our customers accounted for
more than 0.6% of our total revenues in 2001. Our top 10 customers accounted for
approximately 3.1% of our total revenues in 2001.
COMPETITION
We experience intense competition for our products and services. We compete
with several much larger international companies that operate in many markets
and have broad product offerings in publishing and trade shows and conferences.
We compete for readers and advertisers in the publishing marketplace, which is
fragmented. According to industry sources, in June 2001, there were about 1,500
publishing companies and 5,200 trade magazine titles. We also compete for
venues, sponsorships, exhibitors and show attendees in the trade show and
conference marketplace. This market is also highly fragmented. In June 2001,
there were about 3,000 trade shows in the United States and Canada produced by
about 1,500 independent companies and industry associations, according to
industry sources. Because our industry is relatively easy to enter, additional
competitors may enter these markets.
Our publications generally compete on the basis of:
- editorial quality;
- quantity and quality of circulation;
- the strength of complementary products serving the same niche;
- the effectiveness of sales and customer service; and
- advertising rates.
8
Our trade shows and conferences generally compete on the basis of:
- the availability of attractive venues and dates;
- the ability to provide events that meet the needs of particular market
segments;
- the ability to attract qualified attendees; and
- the ability to provide high-quality show services, exhibition space,
and attractive marketing and sponsorship opportunities.
In addition, in our trade show and conference business, we compete with
many industry associations and, in several countries, the trade show and
conference hall owner and operator may also be a competitor.
DOMESTIC AND FOREIGN REVENUES AND ASSETS
Domestic revenues of our products and services comprised 87.0%, 89.7% and
92.2% of total revenues for the fiscal years ended December 31, 2001, 2000 and
1999, respectively. Foreign revenues totaled 13.0%, 10.3% and 7.8% of our
revenues for the fiscal years ended December 31, 2001, 2000 and 1999,
respectively. In 2001, 2000 and 1999, 65.6%, 59.3% and 73.0%, respectively, of
these foreign revenues were to customers in the United Kingdom. Substantially
all of the United Kingdom revenues were generated by Penton Media (Holdings)
Limited, a subsidiary of Penton located in the United Kingdom.
See Note 16 -- Segment Information, of the Notes to Consolidated Financial
Statements included herein for a description of the Company's assets located in
the United States and in the United Kingdom.
PRODUCTION AND DISTRIBUTION
In November 1999, we sold our printing facility in Berea, Ohio, to R. R.
Donnelley & Sons Company for approximately $31.0 million and signed a seven-year
service contract providing for the printing of a majority of our 65 specialized
trade magazines. If additional printing capacity is needed, we believe that
additional printing services are readily available at competitive prices.
The principal raw material used in our print publications is paper. We
believe that the existing arrangements providing for the supply of paper are
adequate and that, in any event, alternative sources are available. Paper costs
accounted for about 3.5%, 4.3% and 4.9% of our total operating costs, excluding
unusual items (as more fully described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations"), for the years ended December
31, 2001, 2000 and 1999, respectively. Paper prices are affected by a variety of
factors, including demand, capacity, pulp supply and general economic
conditions.
Substantially all of our publications are delivered by the United States
Postal Service within the continental United States. Postage costs represent a
significant expense, accounting for about 5.0%, 4.9% and 6.3% of our total
operating costs, excluding unusual items, for the years ended December 31, 2001,
2000 and 1999, respectively.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
We regard our copyrights, trademarks, service marks and similar
intellectual property as critical to our success and rely upon copyright and
trademark laws, as well as confidentiality agreements with our employees and
others, to protect our rights. We pursue the registration of our material
trademarks in the United States and, depending upon use, in other countries.
Effective trademark and copyright protection may not be available in every
country in which our publications and services are available.
We may be subject to claims of alleged infringement of our trademarks, or
our licenses of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. We do not believe
that these legal proceedings or claims are likely to have, individually or in
the aggregate, a material adverse effect on our business, financial condition or
results of operations.
9
SEASONALITY
For a discussion of seasonality, see Item 7 of this Annual Report on Form
10-K "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
ENVIRONMENTAL MATTERS
We are subject to various federal, state and local environmental laws and
regulations that (1) govern activities and operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous or toxic wastes, or (2) impose
liability for the costs of cleaning up, and damages resulting from sites of past
spills, disposals, or other releases of hazardous or toxic substances. We do not
believe that these matters will have a material impact on our consolidated
financial position, results of operations or cash flows.
EMPLOYEES
On December 31, 2001, we employed about 1,450 people, primarily located in
the United States. None of our employees are represented by a labor union, and
we consider our relations with our employees to be good.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS
A number of statements contained in this report are not historical or
current facts, but deal with potential future circumstances and developments.
Those statements are qualified by the inherent risks and uncertainties
surrounding future expectations generally, and also may materially differ from
our actual future experience involving any one or more of these matters and
subject areas. We attempted to identify, in context, some of the factors that we
currently believe may cause future experience and results to differ from our
current expectations regarding the relevant matter of subject area. We have
identified some of these forward-looking statements with words such as
"anticipates," "estimates," "believes," "expects," "intends," "may," "will,"
"should" or the negative of those words or other comparable terminology. The
operation and results of our business also may be subject to the effect of other
risks and uncertainties, including but not limited to:
- economic uncertainty, exacerbated by terrorist attacks on United
States;
- the performance of our Internet/Broadband industry sector;
- fluctuations in advertising revenue with general economic cycles;
- the effectiveness of our cost saving efforts;
- the seasonality of revenue from trade shows and conferences;
- our ability to penetrate new markets internationally;
- our ability to launch new products that fit strategically with and add
value to our business;
- the infringement of invalidation of our intellectual property rights;
and
- increases in paper and postage costs.
RISK FACTORS
The following are factors that may affect our actual operating results and
could cause results to differ materially from those in any forward-looking
statements. In addition to the other information contained or incorporated by
reference in this document, you should carefully consider the following risk
factors.
We have a significant amount of debt.
At December 31, 2001, we had total indebtedness of approximately $364.8
million, excluding approximately $4.0 million of original issue discount on our
10 3/8% senior subordinated notes.
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The level of our indebtedness could have important consequences, including:
- limiting cash flow available for general corporate purposes, including
capital expenditures and acquisitions, because a substantial portion
of our cash flow from operations must be dedicated to servicing our
debt;
- limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions;
- making us more vulnerable in the event of a further downturn in
general economic conditions or in our business;
- limiting our flexibility in reacting to competitive and other changes
in our industry and economic conditions generally; and
- exposing us to risks inherent in interest rate fluctuations because
some of our borrowings will be at variable rates of interest, which
could result in higher interest expense in the event of increases in
interest rates.
- our current debt levels have subjected us to the risk described above.
If new debt is added to our current debt levels, the impact of these
substantial risks will intensify.
We may not be able to service our debt.
Our ability to pay or to refinance our indebtedness will depend upon our
future operating performance, which will be affected by general economic,
financial, competitive, business and other factors beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated revenue growth and cost-saving
efforts will be realized on schedule or at all, or that future borrowings will
be available to us under our credit facility or otherwise in amounts sufficient
to enable us to service our debt obligations, to pay our indebtedness at
maturity or otherwise, or to fund our other liquidity needs. If we are unable to
meet our debt obligations or fund our other liquidity needs, we may need to
further restructure or refinance our indebtedness, sell assets or seek
additional equity capital. We cannot assure you that we will be able to
accomplish those actions on satisfactory terms, if at all, which could cause us
to default on our obligations and impair our liquidity. Our ability to
restructure or refinance will depend on the capital markets and our financial
condition at such time. Any refinancing of our debt could be at higher interest
rates and may require us to comply with more onerous covenants, which could
further restrict our business operations. In addition, the terms of the
convertible preferred stock and warrants to purchase common stock, including the
conversion price, dividend, and liquidation preference adjustment provisions
that could result in substantial dilution to stockholders, the redemption price
premiums, and board representation rights, could negatively impact our ability
to access the equity markets in the future.
Because a significant portion of our operations currently is conducted
through our subsidiaries, our ability to pay our indebtedness, is also dependent
on the cash flows of our subsidiaries and the distribution of those cash flows
to us, or upon loans or other payments of funds by our subsidiaries to us. The
ability of our subsidiaries to make distributions or other payments to us will
depend upon their operating results and applicable laws and any contractual
restrictions contained in the instruments governing their indebtedness. If money
generated by our subsidiaries is not available to us, our ability to repay our
indebtedness may be adversely affected.
The terms of our debt instruments and preferred stock impose financial and
operating restrictions.
The indenture governing our 10 3/8% senior subordinated notes, our credit
facility, and our new convertible preferred stock contain restrictive covenants
that limit our ability to engage in a variety of transactions, including
incurring or guaranteeing additional indebtedness, making investments, creating
liens on our assets, transferring or selling our assets, paying dividends, or
engaging in mergers, acquisitions, or consolidations. The terms of our credit
facility prohibit us from voluntarily prepaying certain indebtedness.
11
A breach of any of the covenants or other provisions in our debt
instruments could result in a default thereunder. Upon the occurrence of an
event of default under our credit facility, the lenders could elect to declare
all amounts outstanding thereunder to be immediately due and payable and
terminate all commitments to extend further credit, which would adversely affect
our ability to fund our operations. An acceleration of the amounts due under our
credit facility would cause us to be in default under the indenture governing
our 10 3/8% senior subordinated notes, enabling acceleration of amounts
outstanding. If we are unable to repay any accelerated amounts under the credit
facility, the respective lenders could proceed against the collateral granted to
them to secure that indebtedness. If the lenders under our credit facility
accelerate the repayment of borrowings, we cannot assure you that we will have
sufficient assets to repay all of our indebtedness.
We may lose control of our board.
The preferred stock entitles the holders thereof initially to three board
seats. On March 19, 2008, the holders of a majority of the preferred stock then
outstanding, if any, will be entitled to appoint one less than a minimum
majority of the board of directors. However, at such time as the holders of
preferred stock cease to hold shares of preferred stock having an aggregate
liquidation preference of at least $25.0 million, they will lose the right to
appoint the director for one of these three board seats. At such time as the
holders of preferred stock cease to hold shares of preferred stock having an
aggregate liquidation preference of at least $10.0 million and such holder's
beneficial ownership of our preferred stock and common stock constitutes less
than 5% of the aggregate voting power of our voting securities, the holders of
preferred stock will no longer have the right to appoint any directors to the
Board of Directors.
Upon the occurrence of the following triggering event, the holders of a
majority of the preferred stock may appoint a minimum majority of our board of
directors:
- We initiate or consent to proceedings under any applicable bankruptcy,
insolvency, composition, or other similar laws or make a conveyance or
assignment for the benefit of our creditors generally or any holders
of any lien takes possession of, or a receiver, administrator, or
other similar officer is appointed for, all or substantially all of
our properties, assets or revenues and is not discharged within 90
days.
Upon the following additional triggering events, the holders of a majority
of the preferred stock may appoint one less than a minimum majority of the board
of directors:
- Failure to pay the liquidation preference or any cash dividends, to
the extent declared, when due; and,
- Failure to comply with specified covenants and obligations contained
in the preferred stock certificate of designations or purchase
agreement.
Upon the following additional triggering events, the holders of a majority
of the preferred stock may nominate two additional members to our board of
directors and, if such triggering events have not been cured or waived prior to
the end of the next succeeding quarter, may appoint one less than a minimum
majority of our board of directors:
- Failure to comply with the other covenants and obligations contained
in the preferred stock certificate of designations or purchase
agreement and such failure is not cured within 90 days;
- Any representation or warranty in the preferred stock purchase
agreement is proven to be false or incorrect in any material respect;
and,
- Any default that results in the acceleration of indebtedness, where
the principal amount of such indebtedness, when added to the principal
amount of all other indebtedness then in default, exceeds $5.0 million
or final judgments for the payment of money aggregating more than $1.0
million (net of insurance proceeds) are entered against us and are not
discharged, dismissed, or stayed pending appeal within 90 days after
entry.
At such time as the holders of preferred stock cease to hold shares of
preferred stock having an aggregate liquidation preference of at least $10.0
million and such holders' beneficial ownership of our preferred stock and
12
common stock constitutes less than 5% of the aggregate voting power of our
voting securities, the holders of preferred stock will no longer have the right
to appoint additional directors upon these events.
Trade show and conference attendance declined significantly in 2001 as a
result of the slowdown of economies in the United States, Europe and Asia and
the September 11, 2001 terrorist attacks, and a continued decline would have a
further material adverse effect on our business, results of operations and
financial condition.
Prior to the attacks on the United States on September 11, 2001, bookings
for most of our events scheduled for the third and fourth quarters of 2001 were
running well behind 2000 bookings, primarily due to the slowdown of economies in
the United States, Europe and Asia. For 2001, our trade shows and conferences
revenue decreased $19.2 million and trade shows and conferences adjusted EBITDA,
before general and administrative costs, decreased $26.3 million from prior-year
levels. Because our trade shows and conferences business typically generates
higher margins than our other businesses, decreases in trade shows and
conferences revenues result in a disproportionate decrease in our total adjusted
EBITDA than do revenue decreases in our other businesses. Because we had strong
attendance at our trade shows and conference in the first half of 2001
(particularly our Internet World Spring show) and expect lower attendance in
2002, we anticipate that our adjusted EBITDA for the first half of 2002 will be
lower than the prior-year period.
On September 11, 2001, the United States was attacked by terrorists using
hijacked commercial airplanes. Since September 11, 2001, there has been a
decline in air travel due to, among other things, the public's general
reluctance to travel and fears regarding additional acts of terrorism, as well
as reduced operations by airlines due to, among other things, decreased demands
for air travel, new security directives and increased costs. The magnitude and
duration of these effects are unknown, but our trade shows and conferences have
been negatively affected. We believe the September attacks caused as much as an
additional 10% to 15% reduction in fourth-quarter revenues for the completed
events. Continued negative market conditions due to the weakened U.S. economy,
the September 11, 2001 terrorist attacks, any future occurrences of similar
terrorist activities or threats of such activities, and actions by the United
States and other countries that perpetuate a climate of war could cause more
disruption of our trade shows and conferences. If attendance decreases further,
our business, results of operations and financial condition would be materially
adversely affected.
Our Internet/Broadband business has significantly declined, and a continued
decline would have a further material adverse effect on our business, results
of operations and financial condition.
In 2001, our Internet/Broadband industry sector produced 29% of our
revenue, compared with 36% in 2000. Prior to the events of September 11, 2001,
we were experiencing a general decline in this sector as a result of both the
failure of many Internet-based companies and the general U.S. economic decline.
Some of our customers went out of business or chose not to participate in our
trade shows and conferences as part of a general trend toward decreased
information technology spending. For example, we saw a significant decrease in
revenue from our high-margin Internet World Spring trade show, and we saw a
general decline in revenues from our technology magazines, especially Internet
Worldmagazine. These trends were exacerbated by the events of September 11,
2001. Following these events, we were forced to reschedule our Internet World
Fall trade show, and we experienced further reduced attendance levels. Because
this industry sector has typically represented a significant portion of our
business and generated high margins, declines in the Internet/Broadband industry
sector have a more significant impact on our total adjusted EBITDA than declines
in our other industry sectors. A continued decline in the performance of these
product offerings or a decline in our other product offerings in this sector, or
our inability to regain customers lost in 2001, would materially adversely
affect our business, results of operations and financial condition.
We depend on advertising revenues, which decrease during economic downturns
and fluctuate from period to period.
For the year ended December 31, 2001, about 47.6% of our revenue came from
advertising. Our advertising revenues fluctuate with general economic cycles,
and any material decline in these revenues would have a material adverse effect
on our business, results of operations and financial condition. Historically,
advertising
13
revenues have increased during economic recoveries and decreased during both
general economic downturns and regional economic recessions. In a general
economic downturn or a recession, advertisers reduce their advertising budgets,
intensify their attempts to negotiate lower advertising rates and pay
outstanding invoices more slowly. We are experiencing some of these effects. Our
advertising revenues were significantly lower in 2001 compared with 2000.
If the U.S. economy worsens, the cost-saving efforts we implemented may not be
sufficient to achieve the benefits we expect.
In 2001, we experienced a significant decline in revenue and adjusted
EBITDA, primarily due to weak economic conditions, which were exacerbated by the
terrorist attacks of September 11, 2001. This decline was more severe in the
second half of the year. We cannot predict if or when the economy or our
revenues and adjusted EBITDA will improve. We have taken a number of steps
designed to improve our profits and margins despite decreased revenue. We have
restructured a number of our businesses and support departments and reduced
overhead infrastructure by consolidating and closing several offices,
centralizing information technology services and outsourcing certain corporate
functions. As a result, we recorded special charges to our income of $87.5
million in 2001. If the U.S. economy worsens or additional terrorist attacks
occur, our revenues will likely continue to decline. Decreases in our revenues
cause disproportionately greater decreases in our adjusted EBITDA. Accordingly,
if revenues decline beyond our expectations, the cost-saving efforts we
implemented in the second half of 2001 will likely not achieve the benefits we
expect. We may be forced to take additional cost-saving steps that could result
in additional charges and otherwise materially adversely affect our business.
The profitability and success of our trade shows and conferences could be
adversely affected if we are unable to obtain desirable dates and locations or
are unable to increase the size of our events.
In 2001, about 40.1% of our revenue came from trade shows and conferences.
As the trade shows and conferences industry grows, we increasingly compete for
desirable dates and venues for our trade shows and conferences. As this
competition intensifies, we may be unable to schedule important engagements. If
we are unable to obtain desirable dates and venues for events, the profitability
and future success of these events could be adversely affected. Although we
generally reserve venues and dates more than one year in advance, these
reservations are not binding until we sign a contract with a facility operator.
These contracts generally hold venues and dates for only one year. In addition,
we may desire to increase the size of our trade shows and conferences to take
advantage of increasing demand in the future. If we are unable to secure larger
venues with suitable exhibit space to accommodate this demand, the growth of our
trade shows and conferences business could be adversely affected.
Our trade shows and conferences and publishing revenues vary due to the
movement of annual event or publication mailing dates and timing of our
customers' product launches.
Our trade shows and conferences and publishing revenues are seasonal, due
primarily to the timing of our large trade shows and conferences and publication
of our large industry directories. Because event revenues are recognized when a
particular event is held, and publication revenues are recognized in the month
publications are mailed, we may also experience fluctuations in quarterly
revenues based on the movement of annual events or mailing dates from one
quarter to another. In 2001, about 30.3% of our total revenue was generated
during the first quarter, about 28.7% during the second, about 16.6% during the
third and about 24.4% of our revenue was generated during the fourth quarter.
Our trade shows and conferences revenues may fluctuate from period to
period based on the spending patterns of our customers. Many of our large
customers concentrate their trade show participation around major product
launches. Because we cannot always know or predict when our large customers
intend to launch new products, it is difficult to anticipate any related
fluctuations in our trade shows and conferences revenues.
14
Loss of key personnel could impair our success.
We benefit from the leadership and experience of our senior management
team, and we depend on its continuing services to successfully implement our
business strategy. Although we have entered into employment agreements with
Thomas L. Kemp, Daniel J. Ramella and other management members, they and other
key personnel may not remain in our employment. The loss of key personnel could
have a material adverse effect on our business, results of operations and
financial condition. We do not maintain "key person" life insurance with respect
to our senior management team.
Competition may adversely affect our earnings and results of operations.
We experience intense competition for our products and services. If we fail
to compete effectively, our earnings and results of operations could be
adversely affected. We compete for readers and advertisers in the publishing
marketplace and for trade show and conference venues, sponsorships, exhibitors
and show attendees. Because our industry is relatively easy to enter, we
anticipate that additional competitors, some of whom may have greater resources
than we do, may enter these markets and intensify competition.
Our overall operations may be adversely affected by risks associated with
international operations.
We have operations outside the United States and we intend to expand
further into international markets. The following risks in international markets
could have a material adverse effect on our future international operations and,
consequently, on our business, results of operations and financial condition:
- the uncertainty of product acceptance by different cultures;
- the risks of divergent business expectations or cultural
incompatibility inherent in establishing joint ventures with foreign
partners;
- difficulties in staffing and managing multi-national operations;
- currency fluctuations;
- general economic and political uncertainties and potential for social
unrest;
- limitations on our ability to enforce legal rights and remedies;
- reduced protection for intellectual property rights in some countries;
- state-imposed restrictions on the repatriation of funds; and
- potentially adverse tax consequences.
New product launches or acquired products may reduce our earnings or generate
losses.
Our future success will depend in part on our ability to continue offering
new products and services that successfully gain market acceptance by addressing
the needs of specific audience groups within our targeted industries. Our
efforts to introduce new or integrate acquired products may not be successful or
profitable. The process of internally researching and developing, launching,
gaining acceptance and establishing profitability for a new product or service,
or assimilating and marketing an acquired product, is both risky and costly. New
products generally incur initial operating losses.
In addition, we have invested in, and intend to continue to invest in, the
development of various online media products and services, which are currently
generating losses. The Internet is still not proved as a profitable commercial
medium. These products and services may not be successful or profitable. In
2001, we wrote off $1.7 million of assets related to online media initiatives.
Costs related to the development of new products and services are expensed
as incurred and, accordingly, our profitability from year to year may be
adversely affected by the number and timing of new product launches.
15
The infringement or invalidation of our proprietary rights could have an
adverse effect on our business.
We regard our copyrights and trademarks, including our Internet domain
names, service marks and similar intellectual property, as critical to our
success. We rely on copyright and trademark laws in the United States and other
jurisdictions and on confidentiality agreements with some of our employees and
others to protect our proprietary rights. If any of these rights were infringed
or invalidated, our business could be adversely affected. In addition, our
business activities could infringe upon the proprietary rights of others, who
could assert infringement claims against us. If we are forced to defend against
any such claims, whether they are with or without merit or are determined in our
favor, then we may face costly litigation, diversion of technical and management
personnel, or product and service delays. As a result of such a dispute, we
might have to develop non-infringing technology or enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all. If there is a successful claim
of infringement against us and we are unable to develop non-infringing
technology or enter into royalty or licensing agreements on a timely basis, our
business could be adversely affected.
We seek to register our trademarks in the United States and elsewhere.
These registrations could be challenged by others or invalidated through
administrative process or litigation. In addition, our confidentiality
agreements with some of our employees or others may not provide adequate
protection of our proprietary rights in the event of unauthorized use or
disclosure of our proprietary information or if our proprietary information
otherwise becomes known, or is independently developed, by competitors.
Reliance on principal vendors could adversely affect our business.
We rely on our principal vendors and their ability or willingness to sell
products to us on favorable price and other terms. Many factors outside our
control may harm these relationships and the ability or willingness of these
vendors to sell these products to us on such terms. Currently, our principal
vendors are paper suppliers, the United States Postal Service and printing
suppliers. If any of our principal vendors discontinues or temporarily
terminates its services and we are unable to find adequate alternatives, we may
experience increased prices, interruptions and delays in services. These factors
could adversely affect our business.
Increases in paper or postage costs could cause our expenses to increase and
may adversely affect our business.
Paper and postage are necessary expenses relating to our print products,
magazine distribution and direct mail solicitations. In 2001, these expenses
accounted for approximately 3.5% and 5.0%, respectively, of our total operating
expenses, excluding unusual items. Significant increases in paper prices, which
have been volatile in recent years, or in postage prices may have an adverse
effect on our business. We do not use forward contracts and all of our paper
supply vendor arrangements provide for price adjustments on a quarterly basis to
reflect then-prevailing market prices. We use the United States Postal Service
for domestic distribution of substantially all of our magazines and marketing
materials.
We have a contingent tax liability related to the spinoff of our common stock
by Pittway.
In connection with the tax-free spinoff of our common stock by Pittway to
its stockholders in August 1998, we agreed not to take any action that would
cause the spinoff to be taxable to Pittway under Section 355 of the Internal
Revenue Code, and to indemnify Pittway for any liability suffered by it in that
event. The spinoff would be taxable to Pittway if, as part of a plan or series
of related transactions, as determined under a facts and circumstances test, one
or more persons, acting independently or in concert, have acquired 50.0% or more
of our common stock. Since August 1998, our common stock has been involved in a
number of transactions. Because of the open-ended nature of the facts and
circumstances test, we believe, but we cannot assure you, that the Internal
Revenue Service could not successfully assert that one or more transactions
involving our common stock were part of a plan or series of related transactions
that has caused the spinoff to be taxable to Pittway. If the spinoff were
taxable to Pittway, our payment to Pittway under our indemnity agreement could
have a material adverse effect on our financial condition.
16
ITEM 2. PROPERTIES.
The Company's principal properties and their general characteristics are as
follows:
LEASE APPROXIMATE
LOCATION PRINCIPAL USE EXPIRATION SQUARE FEET
-------- --------------- ---------- ------------
Cleveland, Ohio....................................... General Offices 2010 151,740
Cleveland, Ohio....................................... Warehousing 2004 28,000
Hasbrouck Heights, New Jersey......................... General Offices 2003 25,000
Darien, Connecticut................................... General Offices 2009 18,200
Boulder, Colorado..................................... General Offices 2006 29,000
Golden, Colorado...................................... Sales Offices 2003 10,850
Isleworth, Middlesex UK............................... General Offices 2014 7,600
Fremont, California................................... General Offices 2005 13,500
San Francisco, California............................. General Offices 2003 10,000
Loveland, Colorado.................................... Warehousing 2002 15,400
Loveland, Colorado.................................... General Offices 2005 35,650
As part of our cost-reduction measures undertaken in 2001, we closed over
20 offices, primarily in the United States, with lease terms expiring through
2013. We are currently attempting to sublease these properties.
Other smaller properties include 20 sales and/or general offices under
leases expiring through 2014, located in cities throughout the United States and
the United Kingdom. We believe our facilities are adequate for our present
needs.
ITEM 3. LEGAL PROCEEDINGS.
In connection with the acquisition of Mecklermedia Corporation, on December
1, 1998, a lawsuit was brought against the Company by Ariff Alidina (the
"Plaintiff"), a former 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 has claimed that the
Company violated the federal securities laws by selling Mr. Meckler, a
beneficial owner of approximately 26% of the shares of Mecklermedia, an 80.1%
interest in INT Media Group, Inc. 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. On October 17, 2001, the District
Court denied the Company's motion for a summary judgment. The Company intends to
vigorously defend this suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is traded on the New York Stock Exchange under the symbol
PME. The following table sets forth, for the periods indicated, the high and low
sales prices for the common stock as reported on the New York Stock Exchange.
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
Year Ended December 31, 2001:
First Quarter............................................ $27.10 $12.48
Second Quarter........................................... 21.01 13.58
Third Quarter............................................ 17.80 3.55
Fourth Quarter........................................... 8.15 3.25
PRICE RANGE OF
COMMON STOCK
----------------
HIGH LOW
------ ------
Year Ended December 31, 2000:
First Quarter............................................ $27.81 $21.25
Second Quarter........................................... 36.00 22.19
Third Quarter............................................ 36.38 26.13
Fourth Quarter........................................... 32.00 22.00
The Company had approximately 999 record holders of its common stock on
February 28, 2002.
Our dividend policy is determined by our board of directors. In July 2001,
a decision was made by our board of directors to discontinue the payment of
dividends. We paid quarterly dividends for the first half of 2001 in the amount
of $0.03 per share, and we made quarterly payments of $0.03 per share for the
past two fiscal years. Any decision to pay dividends in the future will depend
on business decisions that will be made by our board of directors from time to
time based upon the results of our operations and financial condition and such
other matters as our board of directors considers relevant. The terms of our
outstanding convertible preferred stock, however, limit the payment of dividends
on the common stock until all accrued dividends have been paid on the
convertible preferred stock. We may not pay accrued dividends on the convertible
preferred stock unless approved by the holders of not less than 75% of the then
outstanding shares of convertible preferred stock.
On March 10, 2002, we entered into an agreement, which we subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. On March 19, 2002, we issued 40,000 shares of the new series
of convertible preferred stock and warrants to purchase 1.28 million shares of
our common stock for gross proceeds of $40.0 million. The sale was made in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933 and Regulation D promulgated thereunder, as this
transaction did not involve a public offering. See "Item 1, Business - Recent
Developments" for a description of the terms of conversion of the convertible
preferred stock and the terms of exercise of the warrants. The agreement
regarding the convertible preferred stock provides that we will file a shelf
registration statement with the Securities and Exchange Commission covering the
common stock issued or issuable upon conversion of the preferred stock and
exercise of the warrants within 45 days.
In January 2000, the Company established an Executive Loan Program to
enable key executives to purchase an aggregate of up to 400,000 shares of Penton
common stock at fair market value, in exchange for recourse notes. All 400,000
shares were issued in 2000. In issuing such stock, Penton relied upon the
exemption from registration provided by Section 4(2) under the Securities Act,
as these transactions did not involve a public offering.
18
In June 2000, the Company adopted a Stockholder Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with Penton Media, Inc. common stock and will not be exercisable. In the absence
of further board action, the rights generally will become exercisable and allow
the holder to acquire Penton Media, Inc. common stock at a discounted price if
any person or group acquires 20% or more of the outstanding shares of the
Company's common stock. Rights held by the persons who exceed the applicable
threshold will be void. Under certain circumstances, the rights will entitle the
holder to buy shares in an acquiring entity at a discounted price.
The plan also includes an exchange option. In general, after the rights
become exercisable, the Penton board may, at its option, effect an exchange of
part or all of the rights, other than rights that have become void, for shares
of Penton Media, Inc. common stock. Under this option, Penton Media, Inc. would
issue one share of common stock for each right, subject to adjustment in certain
circumstances.
The Penton board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or amended by the
Penton board.
A copy of the Rights Agreement was filed with the Securities and Exchange
Commission in June 2000 as an Exhibit to a Registration Statement on Form 8-A.
The foregoing is a description of the material terms of the rights, and is
qualified in its entirety by reference to that Registration Statement on Form
8-A, as amended and the Rights Agreement.
The Rights Agreement was amended by the board to permit the sale of the
convertible preferred stock and warrants to purchase common stock to an investor
group led by ABRY Mezzanine Partners, L.P.
In May 1999, Penton acquired the assets of New Hope for, among other
consideration, 2,102,564 shares of Penton common stock. In March 2000, Penton
made part of a contingent payment to New Hope with 52,920 shares of Penton
common stock. In August 1998, Penton acquired the outstanding stock of
Donohue/Meehan Publishing Company for, among other consideration, 1,541,638
shares of Penton common stock. In making such payments, Penton relied upon the
exemption from registration provided by Section 4(2) under the Securities Act,
as these transactions did not involve a public offering.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents our selected financial data. The operating
data for each of the three years in the period ended December 31, 2001 and the
balance sheet data as of December 31, 2001 and 2000 have been derived from our
audited consolidated financial statements and related notes, which appear
elsewhere in this Form 10-K. The operating data for each of the two years in the
period ended December 31, 1998 and the balance sheet data as of December 31,
1997, 1998 and 1999 have been derived from our audited consolidated financial
statements and related notes that are not included in this Form 10-K.
You should read the following information together with our audited
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere herein.
You should also consider the following when reading the statement of
operations data:
- All historical amounts have been restated to reflect the
classification of our former Printing segment and Direct Mail
segment as discontinued operations.
- Penton defines adjusted EBITDA as net income before interest, taxes,
depreciation and amortization, and unusual items, as more fully
described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Adjusted EBITDA is often used
to analyze and compare companies on the basis of operating
performance and cash flow. Adjusted EBITDA should not be considered
in isolation or as a substitute for measures of performance prepared
in accordance with generally accepted accounting principles.
Adjusted EBITDA is not a measure of performance under GAAP because
it excludes those items listed above that are significant components
in understanding and evaluating Penton's financial performance. Not
all companies calculate adjusted EBITDA in the
19
same manner, and adjusted EBITDA as presented may not be comparable
to similarly titled measures presented by other companies.
- Operating income (loss) equals revenues less operating expenses. See
Consolidated Statements of Income included elsewhere herein.
- Cash flows from investing activities include capital expenditures
and acquisitions.
- Refer to Item 7, "Management's Discussion and Analysis," for an
overview of items that affect comparability of the financial data in
this five-year summary.
20
CONSOLIDATED COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
(DOLLARS AND SHARES IN THOUSANDS, ----------------------------------------------------------
EXCEPT PER SHARE DATA) 2001 2000 1999 1998 1997
--------------------------------- --------- -------- --------- -------- --------
OPERATING RESULTS
Revenues........................................ $ 371,552 $404,571 $ 300,824 $207,682 $181,109
Operating income (loss)......................... (93,578) 54,711 39,390 26,218 24,854
Income (loss) from continuing operations........ (104,107) 79,675 7,930 11,186 14,612
Income (loss) from discontinued operations...... -- -- 33 (296) 262
Gain (loss) on sale of discontinued
operations................................... -- (85) 8,660 -- --
Extraordinary item -- early extinguishment of
debt......................................... -- -- (8,413) -- --
Net income (loss)............................... (104,107) 79,590 8,210 10,890 14,874
Earnings per common share -- basic:
Income (loss) from continuing operations..... (3.26) 2.51 0.28 0.51 0.69
Discontinued operations...................... -- -- 0.31 (0.01) 0.01
Extraordinary item........................... -- -- (0.30) -- --
Net income (loss)............................ (3.26) 2.51 0.29 0.50 0.70
Weighted average number of common shares..... 31,917 31,730 28,108 21,882 21,240
Earnings per common share -- diluted:
Income (loss) from continuing operations..... (3.26) 2.49 0.28 0.51 0.69
Discontinued operations...................... -- -- 0.31 (0.01) 0.01
Extraordinary item........................... -- -- (0.30) -- --
Net income (loss)............................ (3.26) 2.49 0.29 0.50 0.70
Weighted average number of common shares..... 31,917 32,010 28,209 21,882 21,240
Dividends per common share...................... 0.06 0.12 0.12 0.06 --
CASH FLOWS AND OTHER DATA
Cash flows
Operating.................................... $ (20,343) $ 9,240 $ 34,357 $ 25,749 $ 23,186
Investing.................................... (27,455) (111,168) (27,770) (271,157) (53,192)
Financing.................................... 56,326 83,306 19,879 246,993 30,854
Capital expenditures............................ (7,602) 27,272 5,884 5,775 5,450
Depreciation and amortization................... 45,492 33,431 27,918 7,791 3,903
Adjusted EBITDA................................. 40,269 91,288 67,308 34,009 28,757
AT PERIOD END
Total assets of continuing operations........... $ 700,477 $781,757 $ 805,151 $479,301 $156,426
Investment in discontinued operations........... -- -- 4,228 -- --
Total assets.................................... 700,477 781,757 809,379 479,301 156,426
Goodwill and other intangibles.................. 549,941 628,748 451,236 387,612 71,822
Total debt...................................... 364,765 302,125 215,000 307,000 34,170
Stockholders' equity............................ 220,530 336,569 402,601 87,489 69,613
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Set forth below is a discussion and analysis of our financial condition and
results of operations. You should read this discussion and analysis together
with the consolidated financial statements and the related notes thereto and the
comparative summary of selected financial data appearing elsewhere in this
report. Historical results and percentage relationships set forth in the
consolidated financial statements, including trends that might appear, should
not be taken as indicative of future operations.
OVERVIEW
We were spun off from Pittway Corporation and acquired Donohue Meehan
Publishing in August 1998; we then acquired Mecklermedia Corporation, now known
as Internet World Media, in November 1998; MFG Publishing, Inc. in February
1999; Jon Peddie Associates in May 1999; New Hope Communications, Inc. in May
1999; Multimedia Week in August 1999; Stardust.com in October 1999; Nutracon in
December 1999; Profit.Net, Inc. in February 2000; ComMunic in May 2000; National
Advisory Group in July 2000; Meko, Ltd. in July 2000; Duke Communications
International, Inc. in September 2000; Professional Trade Shows, Inc. in
September 2000; Streaming Media, Inc. in September 2000; Group Computing in
November 2000; 2000Tutor.com in February 2001; Functional Foods & Nutraceuticals
in February 2001; Nutritional Business International, LLC in February 2001;
Hillgate Communications Ltd. in February 2001; Tech Conferences, Incorporated in
March 2001; Contractor Magazine and Expo Instalaciones Para la Construccion in
April 2001; DWR Media Pty Ltd., in May 2001; and Wireless Developer Conference
in June 2001. If we acquire additional companies, our sales mix, market focus,
cost structure, operating leverage and the seasonality of our business may
change significantly. Consequently, our historical and future results of
operations reflect and will reflect the impact of acquisitions, and
period-to-period comparisons may not be meaningful in certain respects.
Historical information for companies subsequent to their acquisition may include
integration and other costs that are not expected to continue in the future.
In November 1999, we completed the sale of our Printing segment to R.R.
Donnelley & Sons Company for approximately $31.0 million. We recorded a gain on
the sale of $15.5 million ($9.3 million, or $0.33 per share, after tax). Also in
the fourth quarter of 1999, we signed a letter of intent to sell our Direct Mail
segment for approximately $4.0 million. This decision resulted in a loss in 1999
estimated at $0.7 million, including a $0.06 million provision for operating
losses during the phase-out period. During the first quarter of 2000, we
completed the sale of the net assets of our Direct Mail segment for $4.0 million
in cash. An additional operating loss through the date of sale of $0.08 million,
net of a tax benefit of $0.06 million, was recorded. Operating results and net
assets for the Printing and Direct Mail segments have been reflected as
discontinued operations in the accompanying financial statements. Net income for
the Printing segment was $0.3 million and $0.5 million in 1999 and 1998,
respectively ($0.01 and $0.02 per share), on revenues of $10.4 million and $11.7
million, respectively. Net losses for the Direct Mail segment were $0.3 million
and $0.8 million in 1999 and 1998, respectively ($0.01 and $0.04 per share), on
revenues of $12.2 million and $13.8 million, respectively.
The business-to-business media industry experienced severe declines in 2001
as companies reduced their overall marketing expenditures in response to the
global economic slowdown. While most publishers began to experience declines in
the third quarter of the year, technology-focused publishers realized declines
starting in the beginning of 2001. Advertising pages were down nearly 34% over
2000, according to Technology Advertising & Branding Report. The September 11
terrorist attacks exacerbated the downturn in the business-to-business media
industry, intensifying the business declines in the latter part of the year. In
2001, business-to-business magazines serving the industry sectors analyzed in
Business Information Network, experienced a year-over-year decline in
advertising spending of over 20%. In addition, trade show and conference
producers experienced significant declines in exhibition sales and attendance as
travel fears and economic and political uncertainty adversely impacted
customers' marketing, education and travel spending. According to Tradeshow
Week, trade shows held in the fourth quarter of 2001 experienced the most severe
declines ever recorded in the 29-year history of the publication's quarterly
analysis, as attendance was down 20.4% over fourth quarter 2000 levels and the
number of exhibitors was down 6.8% over the same period.
22
RECENT DEVELOPMENTS
Financing
On March 10, 2002, we entered into an agreement which we subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. Pursuant to this agreement, we received gross proceeds of
$40.0 million from the sale of 40,000 shares of preferred stock and warrants to
purchase 1.28 million shares of our common stock on March 19, 2002. We expect to
close the remaining $10.0 million within 30 days of the initial closing. A copy
of the amended and restated Series B Convertible Preferred Stock and Warrant
Purchase Agreement and the Certificate of Designations and Form of Warrants
agreements were filed with the Securities and Exchange Commission on March 19,
2002 as exhibits to a Current Report on Form 8-K. The following is a description
of the material terms of the preferred stock and warrants and is qualified in
its entirety by reference to that Current Report on Form 8-K and the applicable
agreements. Significant terms of the new preferred stock are as follows:
- Holders of the preferred shares will have a liquidation preference
over holders of common stock.
- The initial liquidation value per share will be $1,000. If the
preferred stock is not converted or redeemed prior to the sixth
anniversary of the date of issuance, the liquidation value will
increase to $4,570 per share if stockholder approval has been
obtained on certain matters. If the stockholder approval has not
been obtained, the liquidation value will increase to $9,140 per
share.
- Dividends accrue at an annual rate of 7% from issuance until year
six unless stockholder approval is obtained on certain matters, at
which time the rate will decrease to 5% per annum. If the
stockholder approval is obtained within six months of the date of
issuance, the rate will decrease retroactive to the date of
issuance. After the sixth anniversary, dividends accrue at an annual
rate of 15%. Upon certain triggering events, the dividend rate may
increase by one percentage point per quarter up to a maximum
increase of five percentage points.
- The dividends are payable semi-annually in cash only if declared by
our board of directors and approved by no less than 75% of the
convertible preferred stock then outstanding. The provisions of our
debt instruments limit our ability to pay dividends in cash, and we
have no present intention to pay dividends in cash.
- Shares of preferred stock will be convertible at any time at each
investor's option into a number of shares of our common stock equal
to the liquidation value plus accrued but unpaid dividends, divided
by the conversion price. The conversion price will initially be
$7.61, and is subject to certain anti-dilution and other
adjustments. Subject to certain restrictions, we have the option to
convert the preferred stock at any time.
- If stockholder approval of certain matters is not obtained by June
28, 2002, the conversion price will automatically be reduced by 20%.
Thereafter, until such approval is obtained, every 90 days the
conversion price will be reduced by 20% of the conversion price then
in effect. In no event will the conversion price reduction related
to the failure to timely obtain stockholder approval exceed 50% of
the conversion price that would have been in effect had we obtained
stockholder approval. Upon our receipt of the stockholder approval,
the conversion price will be readjusted as if no adjustments had
occurred for failure to timely obtain stockholder approval.
- If we fail to comply with specific covenants contained in the
purchase agreement, the conversion price will be reduced by $0.76
(adjusted for stock splits and similar transactions). The conversion
price will readjust to what it would have been absent such breach
once the breach is cured.
- We may redeem the preferred stock at any time, in whole or in part,
provided that the redemption price is equivalent to the amount the
holders would receive on an as-converted basis using a trailing
30-day period and subject to certain minimum share prices based on
the year redeemed.
23
- The preferred stock initially entitles the holders to three seats on
our board of directors. Upon the occurrence of certain triggering
events, the holders may appoint up to one less than a minimum
majority of our board of directors or a minimum majority upon the
occurrence of certain events of bankruptcy or insolvency. See
further discussion of these triggering events in "Risk Factors".
- The holders of the convertible preferred stock are entitled to vote
on all matters submitted to a vote of our common stockholders.
- We have agreed to register the common stock issuable upon conversion
of the convertible preferred stock and exercise of the warrants
within 45 days after closing and use our best efforts to have the
registration statement declared effective within 90 days.
- The terms of the convertible preferred stock subject us to various
covenants, which among other things, limits our ability to sell
assets, make any restricted payments or restricted investments,
enter into various agreements and grant certain options.
- Warrants will be issued to purchase an additional 0.32 million
shares of our common stock. All warrants will have an initial
exercise price of $7.61 per share, subject to certain anti-dilution
and other adjustments that mirror those applicable to the
convertible preferred stock. The warrants are immediately
exercisable and expire 10 years after issuance.
- We are currently studying the accounting for this transaction,
including the provisions of Financial Accounting Standard No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
Net proceeds from the sale of the preferred stock, along with the net
proceeds of $5.8 million from our recent sale of our INT Media Group, Inc.
common stock and cash on hand from our $12.2 million tax refund, will be used to
repay $48.0 million of amounts outstanding under our term loans.
On March 19, 2002, simultaneously with the payment discussed above, we also
amended our credit facility. If we were required to file our compliance
certificate prior to the amendment of the credit facility, we would not have
been in compliance with some of our financial covenants. The amended and
restated facility provides, among other things, the following:
- The revolving credit facility was permanently reduced to $40.0
million from $185.0 million.
- We were relieved of our financial covenants at December 31, 2001
and March 31, 2002.
- Revised financial covenant requirements after March 31, 2002 have
been established. For example, our leverage ratio and fixed
charge ratio covenants are not applicable until after June 30,
2003 and September 30, 2003, respectively.
- The revolver is limited to $15.0 million until the leverage ratio
is less than 5.0x or the term loans have been prepaid in full. An
additional $10.0 million will become available in the event that
not less than $10.0 million is raised from an equity issuance and
the proceeds are used to prepay the term loans. Upon receipt of
the second-quarter compliance certificate, an additional $5.0
million will become available.
- In order to access the revolver, the Company must not have more
than $7.5 million of cash and cash equivalents available and must
be in compliance with the loan documents.
- The amendment also increased the interest rate on the revolver as
well as the term A and term B loans, places additional
restrictions on certain payments, limits additional debt and
contingent obligations, requires additional collateral, limits
additional acquisitions and investments, limits our ability to
sell assets and limits capital expenditures.
Expense Reduction and Restructuring Initiatives
In 2001, we implemented a number of expense reduction and restructuring
initiatives to more closely align our cost structure with the current business
environment. The cost reduction initiatives included workforce reductions,
elimination of unprofitable properties, significant reductions in capital
spending, the shutdown and
24
consolidation of certain facilities and other cost reductions. Specific actions
taken, most of which occurred in the second half of 2001, are as follows:
- We reduced staffing by nearly 400 positions through terminations.
- We imposed a company-wide hiring freeze, as well as a salary freeze
for higher-paid employees, until we return to profitability.
- We shut down and consolidated more than 20 offices worldwide.
- We reduced benefit costs by increasing employee contributions for
health care and temporarily suspending the company match for our
defined contribution plan, and we eliminated year-end discretionary
bonuses.
- We eliminated unprofitable properties, including seven magazines,
more than 20 events and nearly 20 Web sites.
- We reduced the production cost of various under-performing magazines
through process improvements, automation of pre-press work, new
printing and paper supply contracts, and selective reduction in
frequency and circulation levels.
- We restructured various under-performing events by either
eliminating these events or by co-locating with other events and
realigning management structures.
- We implemented a plan to centralize all information technology
services.
- We effectively outsourced various corporate and division functions.
As part of the expense reduction and restructuring initiatives, we recorded
a restructuring charge in 2001 of approximately $18.8 million. The majority of
the charge relate to office closings costs, such as future lease obligations,
and employee severance costs.
Impairment of Assets
In connection with an ongoing review of our portfolio of businesses and in
conjunction with our policy to continually monitor events or changes in
circumstances that would indicate that the carrying amount of our long-lived
assets, including goodwill and intangible assets, may not be recoverable, we
recorded asset and goodwill impairment charges of $69.6 million in 2001. This
charge primarily consists of the following:
- Goodwill and other intangibles of $66.4 million were written down to
estimated fair value.
- We recognized asset impairments of $1.7 million on various Web sites
that were shut down during the year.
- Circulation software costs of $0.9 million were written off subsequent
to a management decision to discontinue the development of the
software and to outsource that function.
SEGMENTS
During 2001, we began to view and manage our business differently than we
had in the past. Our new approach involves dividing our business into four media
segments; Technology, Industry, Lifestyle and Other, and grouping our industry
sectors within each segment. During 2001, we put a senior manager in charge of
each segment. These senior managers report directly to the Chief Executive
Officer and President and Chief Operating Officer. We have included segment
information in our discussion of our financial condition and results of
operations for 2000 on the same basis as 2001. It was not practicable to obtain
similar segment information for 1999 as a result of refinements made to our
accounting systems and procedures beginning in 2000. See further discussion in
Note 16 -- Segment Information.
25
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data expressed
as a percentage of revenues for the periods indicated:
YEAR ENDED DECEMBER 31,
-------------------------
2001 2000 1999
----- ----- -----
Revenues.................................................... 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Editorial, production and circulation..................... 41.3% 36.3% 38.9%
Selling, general and administrative....................... 47.9% 41.1% 38.8%
Impairment of Internet assets............................. -- 0.5% --
Impairment of other assets................................ 18.7% 0.3% --
Restructuring charge...................................... 5.1% -- --
Depreciation and amortization............................. 12.2% 8.3% 9.2%
----- ----- -----
125.2% 86.5% 86.9%
----- ----- -----
Operating income (loss)..................................... (25.2)% 13.5% 13.1%
----- ----- -----
Other income (expense):
Interest expense, net of interest earned.................. (7.7)% (3.5)% (7.0)%
Gain on sale of investments............................... - 27.2% 2.0%
Writedown of Internet investments......................... 0.2% (2.3)% --
Miscellaneous, net........................................ (0.7)% -- (0.1)%
----- ----- -----
(8.2)% 21.4% (5.1)%
----- ----- -----
Income (loss) from continuing operations before income
taxes..................................................... (33.4)% 34.9% 8.0%
Benefit (provision) for income taxes........................ 5.4% (15.2)% (5.4)%
----- ----- -----
Income (loss) from continuing operations.................... (28.0)% 19.7% 2.6%
Discontinued operations..................................... -- -- 2.9%
----- ----- -----
Income (loss) before extraordinary item..................... (28.0)% 19.7% 5.5%
Extraordinary item -- early extinguishment of debt.......... -- -- (2.8)%
----- ----- -----
Net income (loss)........................................... (28.0)% 19.7% 2.7%
===== ===== =====
COMPARISON OF 2001 AND 2000
TOTAL COMPANY
In the analysis that follows, we have used adjusted EBITDA, which we define
as net income before interest, taxes, depreciation and amortization, and unusual
items, as the primary measure of profitability in evaluating our operations and
we believe that investors find it to be a useful tool for measuring a company's
ability to generate cash. Adjusted EBITDA does not represent cash flow from
operations, as defined by generally accepted accounting principles, and is not
calculated in the same way by all companies. In addition, you should not
consider adjusted EBITDA a substitute for net income or net loss, or as an
indicator of our operating performance or cash flow, or as a measure of
liquidity. Adjusted EBITDA margin equals adjusted EBITDA divided by total
revenues.
Our definition of adjusted EBITDA is principally calculated in the same
manner as EBITDA under our credit facility, except that the loan covenant EBITDA
is on a rolling four-quarter basis and allows for the shift in
26
timing of events between quarters. Our revenues, net income (loss), adjusted
EBITDA, diluted earnings per share and adjusted EBITDA margins for the years
ended December 31, 2001 and 2000 were as follows:
2001 2000 CHANGE
--------- -------- ---------
Revenues........................................ $ 371,552 $404,571 $ (33,019)
Net income (loss)............................... $(104,107) $ 79,590 $(183,697)
Adjusted EBITDA................................. $ 40,269 $ 91,288 $ (51,019)
Earnings per common share -- diluted............ $ (3.26) $ 2.49
EBITDA margins.................................. 10.8% 22.6%
Operating results for the year ended December 31, 2001 were severely
impacted by the downturn in the U.S. economy and, to a lesser extent, by the
slowing of economies throughout Europe and Asia. In particular, results for the
fourth quarter of 2001, during which four of our largest trade shows took place,
were also adversely impacted by reductions in customers travel and marketing
spending following the terrorist attacks of September 11, 2001. Our technology
and manufacturing media portfolios, particularly trade shows and publishing
properties serving the Internet/Broadband sector, experienced the deepest
business decline throughout 2001, particularly in the second half of the year.
Our revenues decreased $33.0 million, or 8.2%, from $404.6 million in 2000
to $371.6 million in 2001. The decrease was due primarily to a decrease in
publishing revenues of $19.9 million, or 8.6%, from $230.1 million in 2000 to
$210.2 million in 2001, as well as a decrease in trade show and conference
revenues of $19.2 million, or 11.4%, from $168.4 million in 2000 to $149.2
million in 2001. These decreases were offset in part by an increase in online
media revenue of $6.1 million, from $6.0 million in 2000 to $12.1 million in
2001.
We reported a net loss for 2001 of $104.1 million, or $(3.26) per diluted
share, compared with income of $79.6 million, or $2.49 per diluted share, in
2000. Excluding unusual items, our net loss was $32.2 million, or $(1.01) per
diluted share, in 2001, compared with income of $21.2 million, or $0.66 per
diluted share, in 2000. Unusual items in 2001 included restructuring charges of
$18.8 million (or $0.35 per diluted share after tax) related to the
discontinuation of certain unprofitable media properties, staff reductions and
facility closings, and non-cash charges of $69.6 million (or $1.31 per diluted
share after tax) related primarily to goodwill writedowns. Unusual items in 2000
included a pre-tax gain of $110.2 million ($2.07 per diluted share after tax) on
our sale of INT Media Group Inc. common stock and investment writedowns and
asset impairments of $12.6 million ($0.24 per diluted share after tax).
Total adjusted EBITDA decreased $51.0 million, or 55.9%, from $91.3 million
in 2000 to $40.3 million in 2001. Adjusted EBITDA margins decreased from 22.6%
in 2000 to 10.8% in 2001. The decrease in both our adjusted EBITDA and adjusted
EBITDA margins was due primarily to a decrease in the adjusted EBITDA for our
publishing operations of $25.0 million, or 48.7%, from $51.3 million in 2000 to
$26.3 million in 2001; a decrease in the adjusted EBITDA for our trade show and
conference operations of $26.3 million, or 33.4%, from $78.8 million in 2000 to
$52.5 million in 2001; and an increase in our general and administrative costs
of $3.2 million, from $32.0 million in 2000 to $35.3 million in 2001. The
decreases in the adjusted EBITDA were somewhat offset by an increase in the
adjusted EBITDA for our online media operations of $3.5 million, from a loss of
$6.8 million in 2000 to a loss of $3.3 million in 2001.
27
A reconciliation of our net income (loss) to our total adjusted EBITDA is
as follows (in thousands):
YEAR ENDED
DECEMBER 31,
---------------------
2001 2000
--------- ---------
Net income (loss)........................................... $(104,107) $ 79,590
Interest expense, net of interest earned.................... 28,721 14,133
Gain on sale of investments................................. -- (110,210)
Restructuring charge........................................ 18,790 --
Provision (benefit) for income taxes........................ (20,207) 61,559
Impairment of Internet assets............................... -- 2,095
Depreciation and amortization............................... 45,492 33,431
Writedown of Internet investments........................... (824) 9,490
Impairment of other assets.................................. 69,565 1,051
Discontinued operations, net of taxes....................... -- 85
Miscellaneous, net.......................................... 2,839 64
--------- ---------
Adjusted EBITDA........................................... $ 40,269 $ 91,288
========= =========
OPERATING EXPENSES
Editorial, Production and Circulation
Total editorial, production and circulation expenses grew to $153.4 million
in 2001 compared with $147.0 million in 2000, representing an increase of $6.4
million, or 4.3%. The increase was due primarily to a full year of operations
for the acquisitions completed in 2000, including Professional Trade Shows,
Streaming Media, Duke and ComMunic, as well as the acquisitions completed in
2001, including Hillgate and DWR. These increases were somewhat offset by the
shutdown of our Healthwell.com exchange in February 2002, and our decision not
to hold Internet World Summer and Internet World Canada shows in 2001.
Editorial, production and circulation expenses increased as a percentage of
revenues from 36.3% in 2000 to 41.3% in 2001. The increase was due largely to
lower revenues for both magazines and trade shows.
Selling, General and Administrative
Total selling, general and administrative expenses grew $11.6 million, or
7.0%, from $166.3 million in 2000 to $177.9 million in 2001, primarily due to
higher selling costs. During the first half of 2001, our spending on marketing
and selling increased at a higher rate for trade shows than in the previous
year. General and administrative costs increased due to the impact of
Professional Trade Shows, Duke and Streaming Media acquisitions in September
2000 and higher health benefit costs.
Selling, general and administrative expenses increased as a percentage of
revenues from 41.1% in 2000 to 47.9% in 2001. The increase was due largely to
lower revenues for both magazines and trade shows.
Impairment of Assets
Triggered by the continued decline in the economy and the negative impact
of the September 11, 2001 events which further weakened an already deteriorating
business climate, we recorded asset and goodwill impairment charges of $69.6
million ($41.7 million after tax, or $1.31 per diluted share) in the second half
of 2001. In addition to goodwill writedowns of $66.4 million, the remaining
charge primarily represents assets of $1.7 million related to various Web sites
that were shut down and $0.9 million related to abandoned circulation software
costs.
Asset impairment charges of $9.7 million in the third quarter included the
writedown of goodwill by $7.1 million on five small acquisitions; $1.7 million
for various Web sites that were shut down; and $0.9 million
28
of abandoned circulation software costs. Asset impairment charges of $59.6
million in the fourth quarter included primarily the writedown of goodwill
related to eight acquisitions.
In December 2000, we wrote off $2.1 million of impaired assets related to
certain internally funded Internet media initiatives. The impaired assets
related to certain abandoned projects. In addition, we recorded approximately a
$1.0 million non-cash charge in 2000 to write down the carrying value of certain
leasehold improvements, furniture and fixtures, and computer equipment to fair
value.
Restructuring Charge
In the second half of 2001, we implemented a number of expense reduction
and restructuring initiatives to more closely align our cost structure with the
current business environment. As a result, in the third quarter, we recorded
restructuring charges of $9.5 million ($5.7 million after tax, or $0.18 per
share on a diluted basis) and in the fourth quarter, we recorded restructuring
charges of $3.7 million ($2.3 million after tax, or $0.07 per share on a diluted
basis).
The restructuring charge resulted primarily from strategic decisions to
restructure a number of businesses and support departments, including reducing
our overhead infrastructure by consolidating and closing several branch offices,
centralizing information technology and outsourcing certain corporate functions.
Of the total charges, $4.7 million related to employee termination benefits and
the remaining $8.5 million related to non-cancelable obligations under
continuing contracts. See Note 15 - Business Restructuring and Other Charges for
additional information on related cash payments. The following sets forth
additional detail concerning the principal components of the charge:
- Personnel costs of $4.7 million are associated primarily with the
elimination of nearly 340 positions, of which 294 positions and
payments of $2.7 million were completed at year end. Approximately 84%
of the positions eliminated or to be eliminated are in the U.S., with
the remaining positions predominantly in the United Kingdom and
Germany. Personnel costs include payments for severance, outplacement
services and a provision for continued benefits to personnel.
- Office closure costs of $8.5 million relate to the closure of over 20
Penton offices worldwide and include costs associated with existing
office spaces under lease.
In February 2001, we announced a restructuring program with the intent of
discontinuing online media operations that have not demonstrated revenue growth,
customer acceptance and near-term opportunity for profit. The charge of $5.6
million ($3.3 million after tax, or $0.10 per share on a basic and diluted
basis) included the write-off of capitalized software development costs
associated with the discontinuance of the industry exchange component of New
Hope Natural Media's Healthwell.com; personnel costs, including the reduction in
workforce of approximately 60 employees at Healthwell.com, and a reduction in
workforce related to a number of other Internet initiatives throughout Penton;
and exit costs associated with existing office spaces under lease and other
contractual obligations. In the third quarter of 2001, we determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated and approximately $1.0 million was reversed.
The majority of the remaining costs incurred in connection with the
first-quarter restructuring plan have been paid.
Depreciation and Amortization
Depreciation and amortization increased $12.1 million, or 36.1%, from $33.4
million in 2000 to $45.5 million in 2001. The higher expense was primarily the
result of a full year of amortization of goodwill and other intangibles
associated with PTS, Duke and Streaming Media, which were all acquired in
September of 2000, as well as increased depreciation associated with capital
expenditures related to the corporate headquarters relocation in the fourth
quarter of 2000.
29
Other Income (Expense)
Interest expense increased $14.6 million to $28.7 million due to a higher
average debt balance outstanding in 2001 compared with 2000, as well as a
significant decrease in interest earned on available cash in 2001 compared with
2000. The increase was somewhat offset by lower overall interest rates in 2001
compared with 2000.
In February 2000, Penton sold 2.0 million shares of INT Media Group Inc.
common stock as part of a 3.75 million-share secondary offering. Penton received
cash of $113.1 million and recognized a pre-tax gain of approximately $110.2
million. In July 1999, Penton sold approximately 0.5 million shares of INT Media
Group Inc. common stock and recognized a pre-tax gain of approximately $5.9
million.
In 2000, the Company invested $6.3 million in Cayenta Inc., a total service
provider of end-to-end e-commerce systems, and $3.4 million in Leisurehub.com,
an online business-to-business trading community for the global leisure
industry. During 2000, the Company determined that its investments in these
Internet-related companies had suffered declines in value that were other than
temporary. As a result, the Company recognized losses totaling $9.5 million,
reducing its investment in Cayenta Inc. and Leisurehub.com to zero. In 2001, we
received partial liquidation proceeds from LeisureHub of $0.8 million.
Miscellaneous net expense increased to $2.8 million in 2001, due primarily
to minority equity interests and various professional fees related to
unsuccessful potential acquisitions that were written off during the year.
Effective Tax Rates
The effective tax rates from continuing operations were a benefit of 16.3%
and provision of 43.6% for 2001 and 2000, respectively. The decrease in our
effective tax rate is due primarily to our writedown of non-deductible goodwill
in 2001.
SEGMENTS
We manage our business based on four operating segments: Technology Media,
Industry Media, Lifestyle Media and Other Media. All four segments derive their
revenues from the production of publications, trade shows and conferences, and
online media products, and serve customers in 12 industry sectors. Adjusted
EBITDA for segments is calculated as previously defined except that segment
adjusted EBITDA also excludes corporate level costs. Corporate level costs
include costs for centralized functions, such as finance, accounting and
information systems, which cannot be reasonably allocated to each segment. See
Note 16 -- Segment Information, for a reconciliation of segment total adjusted
EBITDA to consolidated income (loss) before taxes. Financial information by
segment for 2001 and 2000 is summarized in the following table (in thousands):
REVENUE ADJUSTED EBITDA MARGINS
------------------- ------------------ -----------
2001 2000 2001 2000 2001 2000
-------- -------- ------- -------- ---- ----
Industry Media....................... $124,331 $142,245 $17,443 $ 28,739 14.0% 20.2%
Technology Media..................... 196,928 205,380 34,513 69,652 17.5% 33.9%
Lifestyle Media...................... 29,893 30,121 9,814 7,495 32.8% 24.9%
Other Media.......................... 20,400 26,825 4,775 7,526 23.4% 28.1%
-------- -------- ------- --------
Total.............................. $371,552 $404,571 $66,545 $113,412
======== ======== ======= ========
Industry Media
Our Industry Media segment serves customers in the manufacturing,
design/engineering, mechanical systems/construction, government/compliance,
supply chain and aviation industries. Total revenues for the Industry Media
segment decreased $17.9 million, or 12.6%, from $142.2 million in 2000 to $124.3
million in 2001. The decrease was due primarily to year-over-year declines
across much of the segment's portfolio, which was primarily affected by the
slowing economy, with IndustryWeek, Machine Design, American Machinist, New
Equipment Digest, Contracting Business and Material Handling Managementmagazines
showing the largest revenue decreases. These declines were somewhat offset by:
(i) revenue generated by Medical Design News
30
magazine, which we launched during the year; (ii) added revenues from Contractor
magazine, which we acquired in the second quarter of the year; (iii) the first
full year of results of Professional Trade Shows, which was acquired in
September 2000, and (iv) year-on-year revenue growth in the segment's online
media business.
Total adjusted EBITDA for Industry Media decreased $11.3 million, or 39.3%,
from $28.7 million in 2000 to $17.4 million in 2001. Adjusted EBITDA margins
decreased from 20.2% in 2000 to 14.0% in 2001. The decrease in adjusted EBITDA
was due primarily to declines in the aforementioned magazines, and to declines
in the Computers in Manufacturing and A/E/C SYSTEMS trade shows. The Industry
Media segment's online media portfolio experienced a modest decline in 2001
compared with 2000.
Technology Media
Our Technology Media segment serves customers in the electronics,
information technology and Internet/ Broadband industry sectors. Total revenues
for Technology Media decreased $8.5 million, or 4.1%, from $205.4 million in
2000 to $196.9 million in 2001. The decrease was due primarily to declines in
our Internet World Spring, ISPCON Spring, Streaming Media West and Internet
World Fall trade shows, which were caused by the slowdown in the U.S. economy
and the events of September 11, 2001. Revenue declines were offset in part by:
(i) added results of the Streaming Media and ComMunic trade show properties,
which were acquired in 2000; (ii) added results of Duke publications and online
media products, which were acquired in 2000; (iii) several events launched in
the year and (iv) added results of the Wireless Developer Conference, which was
acquired in 2001.
Total adjusted EBITDA for Technology Media decreased $35.1 million, or
50.4%, from $69.7 million in 2000 to $34.5 million in 2001. Adjusted EBITDA
margins decreased from 33.9% in 2000 to 17.5% in 2001. Adjusted EBITDA declines
mirrored revenue trends for Technology Media publishing, trade shows and
conferences and online media products. Overall, 2001 results were severely
impacted by the decline in the technology market and the events of September 11,
2001. The Internet World Fall show, originally scheduled for early October at
the Jacob K. Javits Convention Center in New York City, had to be rescheduled to
December, which impacted attendance. Other fourth-quarter shows were impacted by
the slowdown in travel and fear of additional attacks.
Lifestyle Media
Our Lifestyle Media segment serves customers in the natural products
industry sector. Total revenues for Lifestyle Media decreased $0.2 million, or
0.8%, from $30.1 million in 2000 to $29.9 million in 2001. Lifestyle Media
incurred revenue declines in its publishing and online media products, which
were offset in part by increases from trade show events and added properties.
Revenues from The Natural Foods Merchandiser, New Product Review and Nutrition
Science News declined year-over-year. These declines were offset in part by the
added results from Nutrition Business Journal, which we acquired in February
2001. Trade show and conference revenues grew compared with 2000 for Natural
Products Expo West and Natural Products Expo Europe; however, revenues for NHM
Expo East, held in early October in Washington, D.C., were impacted by travel
slowdowns and fear of additional attacks after the events of September 11, 2001.
Total adjusted EBITDA for Lifestyle Media increased $2.3 million, or 30.9%,
from $7.5 million in 2000 to $9.8 million in 2001. Adjusted EBITDA margins
increased from 24.9% in 2000 to 32.8% in 2001. The increase was due primarily to
the shutdown in 2001 of the Healthwell.com industry exchange.
Other Media
Our Other Media segment serves customers in the food/retail and
leisure/hospitality industry sectors. Total revenues for Other Media decreased
$6.4 million, or 24.0%, from $26.8 million in 2000 to $20.4 million in 2001. The
decrease was due primarily to year-over-year declines for Convenience Store
Decisions, Restaurant Hospitality and Lodging Hospitality magazines and for the
International Leisure Industry Week show caused primarily by the slow down in
the global economy.
31
Total adjusted EBITDA for Other Media decreased $2.8 million, or 36.6%,
from $7.5 million in 2000 to $4.8 million in 2001. Adjusted EBITDA declines
followed revenue declines for the publications noted. Results of the
International Leisure Industry Week show held in October 2001 were impacted by
the economic slowdown in European markets and travel concerns caused by the
September 11 terrorist attacks.
PRODUCTS
We publish 65 specialized trade magazines, produce 135 trade shows and
conferences, and maintain a variety of online media products, including 30 Web
businesses and more than 80 electronic newsletters, which serve each of the
industries in our four business segments. Adjusted EBITDA for products is
calculated as previously defined except that product adjusted EBITDA also
excludes general and administrative costs. General and administrative costs
include corporate level costs (as defined above) and other general and
administrative costs related to product offerings which cannot be reasonably
allocated. Our calculation of adjusted EBITDA by product is as follows (in
thousands):
YEAR ENDED
DECEMBER 31,
-----------------
2001 2000
------- -------
Publishing................................................ $26,280 $51,269
Trade shows and conferences............................... 52,523 78,846
Online media.............................................. (3,264) (6,790)
General and administrative................................ (35,270) (32,037)
------- -------
Adjusted EBITDA........................................ $40,269 $91,288
======= =======
Adjusted EBITDA for our publishing operations decreased $25.0 million, or
48.7%, from $51.3 million in 2000 to $26.3 million in 2001. Adjusted EBITDA
decreases for our publishing operations were due primarily to the general
slowdown in the U.S. economy, which most heavily impacted magazines in our
technology, electronics and manufacturing sectors. The largest decrease was in
our high-margin Internet World magazine. Declines were offset partially by the
addition of Windows 2000 Magazine, iSeries NEWS magazine and other Duke
Communications International ("Duke") titles, which were part of our acquisition
of Duke in September 2000.
Adjusted EBITDA for our trade show and conference operations decreased
$26.3 million, or 33.4%, from $78.8 million in 2000 to $52.5 million in 2001.
The decrease was due primarily to the decline in our technology sector in 2001
and the events of September 11, 2001, which exacerbated an already difficult
business environment. Our Internet World Fall show, which has historically been
our biggest show of the year, was originally scheduled to be held at the Jacob
K. Javits Convention Center in New York City in early October, but had to be
rescheduled to December because of the events of September 11, 2001. Other shows
held during the fourth quarter of 2001 were also impacted by the slowdown in
travel and fear of additional attacks. These declines were offset partially by:
(i) added results of acquired properties, including Streaming Media West and
Professional Trade Shows, Inc. ("PTS") regional events; (ii) successful
launches, including Internet World Wireless East, ASPCON London, Streaming Media
events in Berlin, Hong Kong and Tokyo, and m-Commerce World; and (iii)
year-on-year growth of other events, including Internet World UK, Service
Management Europe, ISPCON London, Natural Products Expo West and Natural
Products Expo Europe.
Adjusted EBITDA for our online media operations increased $3.5 million,
from a loss of $6.8 million in 2000 to a loss of $3.3 million in 2001. These
increases were due primarily to the addition of the online media business of
Duke, which was acquired in September 2000.
Our general and administrative costs increased $3.2 million, from $32.0
million in 2000 to $35.3 million in 2001. The increases were due primarily to
higher compensation expense, a significant increase in health care costs and
acquisitions completed during 2000 and 2001.
32
COMPARISON OF 2000 AND 1999
REVENUES
Total revenues increased $103.7 million, or 34.5%, from $300.8 million in
1999 to $404.6 million in 2000.
Publishing revenues increased $27.6 million, or 13.7%, from $202.5 million
in 1999 to $230.1 million in 2000, due primarily to the following: (i) the
addition of Windows 2000 Magazine and NEWS/400 and Business Finance magazines,
which were part of the Duke acquisition in September 2000; (ii) a full year of
revenues from The Natural Foods Merchandiser, Delicious Living, Nutrition
Science News and Expansion Management magazines, which were part of the New Hope
acquisition in May 1999; (iii) the turnaround of Internet World magazine, whose
revenues increased almost 50% in 2000 compared with 1999; (iv) increased
revenues year over year in our core magazines, such as Electronic Design,
American Machinist, Boardwatch, Food Management, Government Product News and EE
Product News; and (v) the Fluid Power Handbook & Directory, which was published
in 2000 but not in 1999. These increases were somewhat offset by the
discontinuance of the IW Growing Companies magazine during the first quarter of
2000 and lower revenues from various other core magazines compared with the
prior year.
Trade show and conference revenues increased $71.0 million, or 72.9%, from
$97.4 million in 1999 to $168.4 million in 2000, due primarily to the following:
(i) the first-time inclusion of the Streaming Media Europe and Streaming Media
East shows, which were part of the Streaming Media acquisition in September
2000; (ii) the first-time inclusion of certain PTS trade shows, which were
acquired in September 2000; (iii) the first-time inclusion of the Natural
Products Expo West show, which was part of the New Hope acquisition in May 1999,
and the launch of the Natural Products Expo Amsterdam show, which was held for
the first time in 2000; (iv) the first-time inclusion of Stardust conferences,
which were acquired in October 1999; (v) the first-time inclusion of the
Nutracon conference, which was acquired in December 1999; (vi) the addition of
the Internet Everywhere CEO Summit, the Internet World China show, the eCRM
Spring show, the CLEC Expo Fall show and the Advanced Building Systems
Technology Conference & Expo show, which were held for the first time in 2000;
(vii) significant year-over-year revenue increases from the Internet World
Spring, Internet World UK, ISPCON Spring, Internet World Fall, Wireless/Portable
Symposium & Exhibition and ISPCON London shows. These increases were somewhat
offset by lower year-over-year revenues from the Service Management Europe show,
the Supply Chain Expo and the Internet World Summer show, and the absence of the
CONEXPO show, which was held in 1999 and is held every three years.
Online media revenue increased $5.1 million, from $0.9 million in 1999 to
$6.0 million in 2000, due primarily to the addition of Duke's Internet sites in
September 2000, a number of new Web sites introduced in 2000 and a full year of
operations from the Web sites introduced in 1999.
OPERATING EXPENSES
Operating expenses increased $88.5 million, or 33.8%, from $261.4 million
in 1999 to $349.9 million in 2000. As a percentage of revenues, operating costs
decreased from 86.9% in 1999 to 86.5% in 2000. The improvement in operating
expenses as a percentage of revenues was due primarily to higher margins earned
on acquired trade shows that were held for the first time in 2000 and the
continued change in our product mix toward higher-margin trade shows. These
improvements were offset by an increase in depreciation and amortization related
to acquisitions and the impairment of Internet and other assets.
Editorial, Production and Circulation
Total editorial, production and circulation expenses grew to $147.0 million
in 2000 compared with $116.9 million in 1999, representing an increase of $30.1
million, or 25.7%. The increase was due primarily to a full year of operations
for the acquisitions completed during 1999, including New Hope, Stardust and
Nutracon, as well as the acquisitions of Professional Trade Shows, Streaming
Media and Duke in September 2000. Increases were also due to costs associated
with trade shows held for the first time in 2000, such as the Internet
Everywhere CEO Summit and the CLEC Expo Fall show, as well as costs related to
the biennial Fluid Power Handbook & Directory, which was published in 2000 and
not in 1999.
33
As a percentage of revenues, editorial, production and circulation expenses
decreased from 38.9% in 1999 to 36.3% in 2000. The decrease was due largely to
higher margins earned from trade shows.
Selling, General and Administrative
Total selling, general and administrative expenses grew $49.7 million, or
42.6%, from $116.6 million in 1999 to $166.3 million in 2000. The increase was
due primarily to the acquisitions of New Hope in May 1999, Stardust in October
1999 and Nutracon in December 1999, as well as the acquisitions of PTS, Duke and
Streaming Media in September 2000; costs associated with trade shows held for
the first time in 2000; costs related to the biennial Fluid Power Handbook &
Directory, which was published in 2000 and not in 1999; and higher executive
compensation expense.
As a percentage of revenues, selling, general and administrative expenses
increased from 38.8% in 1999 to 41.1% in 2000. The increase was due largely to
higher Web development spending, costs associated with the corporate
headquarters move and higher executive compensation expenses.
Impairment of Internet Assets
We wrote off $2.1 million of impaired assets related to certain internally
funded Internet media initiatives. We are adjusting our portfolio of Internet
media products to focus on those that are demonstrating good revenue potential,
customer acceptance and near-term opportunity for profit. We expect to take
approximately $5.0 million in restructuring charges in the first quarter of 2001
as a result of these actions.
Impairment of Other Assets
Based upon our review of the impairment of long-lived assets in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," we
recorded a $1.0 million non-cash charge in 2000 to write down the carrying value
of certain leasehold improvements, furniture and fixtures, and computer
equipment to fair value.
Depreciation and Amortization
Depreciation and amortization increased $5.5 million, or 19.7%, from $27.9
million in 1999 to $33.4 million in 2000. The higher expense was primarily the
result of the amortization of intangible assets from the PTS, Duke and Streaming
Media acquisitions in September 2000 and a full year of depreciation and
amortization from the acquisitions completed in 1999, including New Hope, which
was acquired in May 1999.
OPERATING INCOME
Overall, our operating income increased $15.3 million, or 38.9%, from $39.4
million in 1999 to $54.7 million in 2000. Operating income as a percentage of
revenue increased from 13.1% in 1999 to 13.5% in 2000.
OTHER INCOME (EXPENSE)
Interest expense decreased $7.0 million to $14.1 million due to a lower
average debt balance outstanding in 2000 compared with 1999, as well as the
significant increase in interest earned in 2000 on the cash received from the
sale of internet.com Corporation stock.
In February 2000, we sold 2.0 million shares of INT Media Group Inc. stock
as part of a 3.75 million-share secondary offering. We received cash of $113.1
million and recognized a pre-tax gain of approximately $110.2 million. In July
1999, we sold approximately 0.5 million shares of INT Media Group Inc. stock and
recognized a pre-tax gain of approximately $5.9 million.
In 2000, we invested $6.3 million in Cayenta Inc., a total service provider
of end-to-end e-commerce systems, and $3.4 million in Leisurehub.com, an online
business-to-business trading community for the global leisure industry. During
2000, we determined that our investments in these Internet-related companies had
34
suffered declines in value that were other than temporary. As a result, we
recognized losses totaling $9.5 million, reducing our investment in Cayenta Inc.
and Leisurehub.com to zero.
Effective Tax Rates
The effective tax rates from continuing operations were 43.6% and 67.0% for
2000 and 1999, respectively. The decrease in the effective tax rate was due to
the sale of a portion of our investment in INT Media Group Inc. stock in 2000.
The sale resulted in a pre-tax gain of $110.2 million ($66.1 million net of
tax).
FOREIGN CURRENCY
The functional currency of our foreign operations is their local currency.
Accordingly, assets and liabilities of foreign operations are translated to U.S.
dollars at the rates of exchange on the balance sheet date; income and expense
are translated at the average rates of exchange prevailing during the year.
There were no significant foreign currency transaction gains or losses for the
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, we financed our operations primarily through
cash generated from operating activities, borrowings under our credit
facilities, the issuance of senior subordinated notes, and the sale of
investments, equity securities and assets.
Cash used by operating activities was $20.3 million for the year ended
December 31, 2001. Operating cash flows for 2001 reflect our net loss of $104.1
million and a net working capital decrease of approximately $36.6 million,
offset by non-cash charges (primarily depreciation and amortization, writedowns
and impairments) of approximately $120.4 million. For the years ended December
31, 2000 and 1999, cash provided by operating activities was $9.2 million and
$34.4 million, respectively.
The decrease in operating cash flows in 2001 compared with 2000 was due
primarily to the decrease in operating income by $51.0 million, after excluding
non-cash charges. The most significant working capital changes in 2001 were
attributable to accounts receivable, income taxes receivable, accounts payable,
accrued expenses, and unearned income. The accounts receivable decrease reflects
lower fourth-quarter sales in 2001 compared with 2000 and the timing of payments
received. The receivable for income taxes reflects the losses incurred in 2001
and our ability to carry these losses back to previous years to obtain a refund.
The decrease in accounts payable and accrued expenses was due primarily to the
timing of vendor and other payments, which can fluctuate based on when
particular shows are held, and the decrease in unearned income is due primarily
to the timing of vendor payments and related shows, and the decrease in the
volume of expected business in 2002. The decrease in operating cash flows in
2000 compared with 1999 was due primarily to an increase in operating income of
$15.3 million offset by changes in working capital items and to increases in
income tax payments required in 2000. These payments were attributable largely
to the increase in operating income and the $110.2 million gain realized in 2000
from the sale of INT Media Group Inc. stock. The most significant working
capital changes in 2000 were attributable to accounts receivable, and accounts
payable and accrued expenses. The accounts receivable increase reflected higher
fourth-quarter sales in 2000 compared with 1999 and the timing of payments
received. The increase in accounts payable and accrued expenses was due
primarily to timing of vendor and other payments.
Investing activities used $27.5 million of cash in 2001, primarily for
capital expenditures, several small acquisitions completed during the first half
of the year and required earnout payments. Investing activities used $111.2
million in 2000, primarily for acquisitions and investments (primarily for
Streaming Media, PTS, and Duke) and earnout payments during the year, as well as
capital expenditures. Capital expenditures in 2000 related primarily to the move
of our corporate headquarters and our investment in Internet-related
technologies. Uses in 2000 were partially offset from proceeds from the sale of
2.0 million shares of INT Media Group, Inc. common stock and proceeds from the
sale of our Direct Mail segment. Investing activities used $27.8 million in
1999, primarily for acquisitions (including New Hope) and capital expenditures,
partially offset by proceeds from the sale of our Printing segment and the sale
of approximately 0.5 million shares of INT Media Group, Inc. stock.
35
Financing activities provided $56.3 million in 2001, primarily from the
issuance of our 10 3/8% senior subordinated notes and amounts drawn under our
revolving credit facility. These proceeds were partially offset by required
quarterly principal payments under our term loans, the pay-down of our revolver
balance, additional $20.0 million paydown on our term loans, and the payment of
finance fees and dividends in the first half of the year. Financing activities
provided $83.3 million in 2000, primarily from borrowings under our revolving
credit facility, offset partially by debt repayments and dividends paid to
stockholders. Financing activities provided $19.9 million in 1999, primarily
from net proceeds from an equity offering and proceeds from a new $340.0 million
credit facility, offset partially by the repayment of the $325.0 million credit
facility, financing fees associated with the new debt facility and dividends
paid to stockholders.
The Company had a working capital deficit of $8.4 million at December 31,
2001. We expect that consummation of the sale of the convertible preferred stock
and warrants (as described below) and the subsequent paydown of debt, along with
proceeds from operations, will be sufficient to overcome this deficit.
Set forth below, in tabular form, is information as of December 31, 2001
for the periods indicated concerning our obligations and commitments to make
future payments under long-term obligations (in thousands):
LESS THAN 1 - 3 4 - 5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
-------- --------- -------- ------- --------
Long-Term Debt............................ $368,787 $16,489 $ 87,451 $79,847 $185,000
Capital lease obligation.................. 120 60 60 -- --
Operating leases.......................... 51,608 9,277 20,356 9,302 12,673
Unconditional purchase Obligations........ 38,130 8,370 22,785 6,975 --
-------- ------- -------- ------- --------
Total..................................... $458,645 $34,196 $130,652 $96,124 $197,673
======== ======= ======== ======= ========
In May 1999, we completed the sale of 6.5 million shares of common stock
and received net proceeds of approximately $118.4 million, which were used to
repay senior debt and for general corporate purposes, including the acquisition
of New Hope.
On September 1, 1999, we entered into a $340.0 million credit agreement
with several banks. The agreement provided for a revolving credit facility of up
to $125.0 million, a term loan of $140.0 million and a term loan B of $75.0
million. The proceeds of this credit agreement were used to repay our debt
outstanding under the $325.0 million credit facility obtained when we purchased
Mecklermedia. At December 31, 2001, we had $180.6 million outstanding under our
term loans and $185.0 million available under our revolving credit facility. On
April 3, 2000, we amended our credit facility to give us the flexibility to sell
assets of up to $30.0 million and to monetize our joint venture investments. In
October 2000, we amended our credit facility to give us the ability to increase
our term loan A facility, term loan B facility and/or revolving credit facility
up to an aggregate of $100.0 million prior to September 30, 2001. At that time,
we increased the commitment under the revolving credit facility by $60.0 million
to $185.0 million. The remaining $40.0 million could not be requested on more
than three separate occasions, and any increase had to take place by September
30, 2001. We did not exercise this option. As described in the following
paragraphs, we have entered into an amendment to our credit facility. If we were
required to file our credit facility compliance certificate prior to the
amendment of the credit facility, we would not have been in compliance with our
financial covenants.
In June 2001, we issued $185.0 million of 10 3/8% senior subordinated notes
due June 15, 2011 to qualified institutional buyers pursuant to Rule 144A of the
Securities Act. Interest is payable on the notes semi-annually, on June 15 and
December 15 of each year. The notes are guaranteed, on a senior subordinated
basis, by our domestic subsidiaries, and may be redeemed on or after June 15,
2006. In addition, we may redeem up to 35% of the aggregate principal amount of
the notes before June 15, 2004 with the proceeds of certain equity offerings.
The notes were offered at a discount of $4.2 million to be amortized over the
term of the notes. Amortization of the discount was not material in 2001. Costs
representing underwriting fees and other professional fees of $1.7 million will
be amortized over the term of the notes. Net proceeds of $180.2 million were
used to pay down the $136.0 million outstanding balance of the revolving credit
facility, $12.8 million of the term loan A facility
36
and $7.2 million of the term loan B facility. The remaining proceeds were used
for general corporate purposes. The notes are our unsecured senior subordinated
obligations, subordinated in right of payment to all existing and future senior
indebtedness, including the credit facility. The notes contain covenants that,
among other things, restrict our ability to borrow money, pay dividends on or
repurchase capital stock, make investments, sell assets, or enter into mergers
or consolidations.
In January 2002, we received $5.8 million in net proceeds from the sale of
our remaining investment in INT Media Group, Inc. common stock.
In February 2002, we received a tax refund of approximately $12.2 million.
For federal income tax purposes we were allowed to carry back losses we incurred
in 2001 to previous tax years.
On March 19, 2002, simultaneously with the receipt of $40.0 million of
proceeds from the convertible preferred stock and warrants to purchase common
stock as noted in the next paragraph, we amended our credit facility. As
amended, the credit facility consists of a revolving credit facility with a
maximum availability of $40.0 million. The amendment also eliminates the
financial covenant requirements for December 31, 2001 and March 31, 2002 and
provides revised covenants for the remainder of 2002 and 2003.
On March 10, 2002, we entered into an agreement, which was subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. We received gross proceeds of $40.0 million from the sale of
40,000 shares of preferred stock and warrants to purchase 1.28 million shares of
our common stock on March 19, 2002. We expect to close the remaining $10.0
million within 30 days of the initial closing. Net proceeds from the sale of the
preferred stock, along with the net proceeds of $5.8 million from our recent
sale of our INT Media Group, Inc. common stock and cash on hand from our tax
refund of $12.2 million, were used to repay $48.0 million of amounts outstanding
under our term loans.
Based upon current and anticipated levels of operations, we believe that
cash on hand and cash flow from operations, combined with the borrowing capacity
under our credit facilities, will be sufficient to enable us to meet current and
anticipated cash operating requirements, including scheduled interest and
principal payments, capital expenditures and working capital needs. However,
actual capital requirements may change. Our ability to meet current and
anticipated operating requirements will depend upon our future performance,
which, in turn, will be subject to general economic conditions and to financial,
competitive, business and other factors, including factors beyond our control.
If we are unable to meet our debt obligations or fund our other liquidity needs,
we may be required to raise additional capital through additional financing
arrangements or the issuance of private or public debt or equity securities. We
cannot assure you that such additional financing will be available at acceptable
terms. In addition, the terms of our convertible preferred stock and warrants
issued, including the conversion price, dividend and liquidation adjustments
provisions that could result in substantial dilution to stockholders, the
redemption price premiums and board representation rights, could negatively
impact our ability to access the equity markets in the future.
SEASONALITY
The majority of our trade shows and conferences are held in the second and
fourth quarters and, accordingly, the majority of our revenue is recognized in
these quarters. We may also experience seasonal fluctuations as trade shows and
conferences held in one period in the current year may be held in a different
period in future years.
INFLATION
The impact of inflation on our results of operations has not been
significant in recent years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We
believe the critical accounting policies and areas that require the most
significant judgments and
37
estimates to be used in the preparation of the consolidated financial statements
are allowance for doubtful accounts, asset impairment and income tax accounting.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Our review of our long-lived assets and goodwill and other intangibles
requires us to initially estimate the undiscounted future cash flow of these
assets whenever events or changes in circumstances indicate that the carrying
amount of these assets may not be fully recoverable. If such analysis indicates
that a possible impairment may exist, we are required to then estimate the fair
value of the asset, principally determined either by third-party appraisals,
sales price negotiations or estimated discounted future cash flows, which
includes making estimates of the timing of the future cash flows, discount rates
and reflecting varying degrees of perceived risk.
The determination of fair value includes numerous uncertainties, unless a
viable, actively traded market exists for the asset, which is not always the
case. Significant judgments are made concerning future growth rates, interest
and discount rates, terminal values, continued consumer demand for particular
products, and any future effects of governmental regulations or competition. Our
estimated cash flows are based on historical results and transactions adjusted
to reflect the best estimate of future market and operating conditions. If these
estimates or their underlying assumptions change in the future, we may be
required to record additional impairment charges for these assets.
As part of the process of preparing our consolidated financial statements,
we are required to estimate income taxes in each of the jurisdictions in which
we operate. The process involves estimating actual current tax expense along
with assessing temporary differences resulting from differing treatment of items
for book and tax purposes. These timing differences result in deferred tax
assets and liabilities, which are included in our consolidated balance sheet. It
is our policy to record a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized. Increases in the
valuation allowance result in additional expenses to be reflected within the tax
provision in the consolidated statement of operations. Different assumptions as
to the future expected results of our operation could lead to additional
charges.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). We were required to
adopt this statement in the first quarter of 2000. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138, "Accounting for Certain Derivative and Certain Hedging Activities -- an
Amendment of FASB Statement No. 133" ("SFAS 138"). We adopted this statement
effective January 1, 2001. See Note 9 -- Hedging Activities.
In July 2001, the FAS Board issued SFAS No. 141, "Business Combinations."
SFAS No. 141 requires that all business combinations be accounted for under the
purchase method of accounting. In addition, this Statement addresses financial
accounting and reporting for goodwill and other intangible assets acquired in a
business combination at acquisition. The Statement also provides criteria for
the separate recognition of intangible assets acquired in a business
combination. SFAS No. 141 is effective for all business combinations initiated
after June 30, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS No. 142 presumes that goodwill and certain intangible assets
have indefinite useful lives. Accordingly, goodwill and certain intangibles will
not be amortized, but rather will be tested at least annually for impairment.
SFAS No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after
38
December 15, 2001. We anticipate that the adoption of this Statement will lead
to the elimination of approximately $27.4 million of goodwill amortization in
2002. We are currently in the process of evaluating the impact of the other
provisions of this Statement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, there are a number of
changes including the removal of goodwill from its scope. The Statement also
retains the basic provision of ABP Opinion No. 30. However, for long-lived
assets held for sale, this Statement introduces the "components of an entity"
(rather than a segment of a business) approach to determine discontinued
operations. A "component of an entity" has clearly distinguishable operating and
financial reporting practices. We do not expect this Statement to have a
material effect on our consolidated financial position, results of operations or
cash flows.
EURO CONVERSION
On January 1, 2002, the introduction of the single European currency, the
euro, was completed with the launch of euro bank notes and coins as legal
currency within 12 of the 15 member states of the European Union. Businesses in
participating countries will conduct transactions in the euro and must convert
their financial records and reports to be euro based.
Although we generate revenues in some of the participating countries, we do
not anticipate that the conversion to the euro will have a material effect on
our results of operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange and interest rates. We do
not enter into derivatives or other financial instruments for trading or
speculative purposes.
In the normal course of business, we manage fluctuations in interest rates
through interest rate derivative agreements and, at a minimum, hedge 50% of the
current outstanding term loans maintained as floating-rate borrowings. Our
objective in managing this exposure is to reduce fluctuations in earnings and
cash flows associated with changes in interest rates. See Note 8 -- Fair Value
of Financial Instruments.
We maintain assets and operations in Europe and Asia and, as a result, may
be exposed to fluctuations in foreign currency rates relative to the markets in
which we sell. For 2001, a hypothetical 10% strengthening of the U.S. dollar
relative to the currencies of foreign countries in which we operate created only
an immaterial impact on our financial results.
39
PENTON MEDIA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
FINANCIAL STATEMENTS:
Report of Independent Accountants........................... 41
Consolidated Balance Sheets at December 31, 2001 and 2000... 42
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.......................... 44
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.......................... 45
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999.............. 46
Notes to Consolidated Financial Statements.................. 47
FINANCIAL STATEMENT SCHEDULE:
Consolidated Financial Statement Schedule II -- Valuation
and Qualifying Accounts................................... 85
All other schedules have been omitted because the required information is
not present, or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or notes thereto.
40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Penton Media, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Penton Media, Inc. and its subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 8 of the Notes to Consolidated Financial Statements,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
in 2001.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 19, 2002
41
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 20,191 $ 11,605
Accounts and notes receivable, less allowance for doubtful
accounts of $10,976 and $3,863, respectively........... 56,452 70,059
Inventories............................................... 1,351 798
Income taxes receivable................................... 14,750 --
Deferred tax assets....................................... 6,645 5,562
Prepayments, deposits and other........................... 7,854 11,763
-------- --------
Total current assets.............................. 107,243 99,787
-------- --------
Property, plant and equipment:
Land, buildings and improvements.......................... 8,846 8,205
Machinery and equipment................................... 62,056 63,998
-------- --------
70,902 72,203
Less: accumulated depreciation............................ 40,726 36,706
-------- --------
30,176 35,497
-------- --------
Other assets:
Goodwill, less accumulated amortization of $76,517 and
$49,142 in 2001 and 2000, respectively................. 493,141 574,626
Other intangibles, less accumulated amortization of
$21,384 and $14,901 in 2001 and 2000, respectively..... 56,800 54,122
Deferred tax assets....................................... 7,468 --
Investments............................................... 5,649 17,725
-------- --------
563,058 646,473
-------- --------
$700,477 $781,757
======== ========
42
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
DECEMBER 31,
----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured credit facility............................ $ 16,489 $ 11,250
Note payable.............................................. 2,804 --
Accounts payable.......................................... 12,094 12,054
Income taxes payable...................................... 3,674 3,260
Accrued earnouts.......................................... 6,572 14,704
Accrued compensation and benefits......................... 12,411 18,485
Other accrued expenses.................................... 24,705 15,024
Unearned income, principally trade show and conference
deposits............................................... 36,939 55,772
-------- --------
Total current liabilities......................... 115,688 130,549
-------- --------
Long-term liabilities and deferred credits:
Revolving credit facility................................. -- 91,000
Senior secured credit facility............................ 164,098 199,875
Senior subordinated notes, net of discount................ 180,957 --
Note payable.............................................. 417 --
Net deferred pension credits.............................. 15,140 15,241
Deferred taxes............................................ -- 5,978
Other..................................................... 3,647 2,545
-------- --------
364,259 314,639
-------- --------
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized; none
issued................................................. -- --
Common stock, $0.01 par value, 60,000,000 shares
authorized; 31,895,621 and 31,836,316 shares issued and
outstanding at December 31, 2001 and 2000,
respectively........................................... 319 318
Capital in excess of par value............................ 227,245 226,446
Retained earnings......................................... 6,724 112,745
Notes receivable officers/directors....................... (10,824) (10,207)
Accumulated other comprehensive income (loss)............. (2,934) 7,267
-------- --------
220,530 336,569
-------- --------
$700,477 $781,757
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
43
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues.................................................... $ 371,552 $404,571 $300,824
Operating expenses:
Editorial, production and circulation..................... 153,379 147,012 116,924
Selling, general and administrative....................... 177,904 166,271 116,592
Impairment of Internet assets............................. -- 2,095 --
Impairment of other assets................................ 69,565 1,051 --
Restructuring charge...................................... 18,790 -- --
Depreciation and amortization............................. 45,492 33,431 27,918
--------- -------- --------
465,130 349,860 261,434
--------- -------- --------
Operating income (loss)..................................... (93,578) 54,711 39,390
Other income (expense):
Interest expense, net of interest earned.................. (28,721) (14,133) (21,131)
Gain on sale of investments............................... -- 110,210 5,906
Writedown of Internet investments......................... 824 (9,490) --
Miscellaneous, net........................................ (2,839) (64) (170)
--------- -------- --------
(30,736) 86,523 (15,395)
--------- -------- --------
Income (loss) from continuing operations before income
taxes..................................................... (124,314) 141,234 23,995
Provision (benefit) for income taxes........................ (20,207) 61,559 16,065
--------- -------- --------
Income (loss) from continuing operations.................... (104,107) 79,675 7,930
Discontinued operations:
Income (loss) from discontinued operations less applicable
income
taxes of $34 in 1999.................................... -- -- 33
Gain (loss) on sale of discontinued operations, including
provision of $60 in 1999 for operating losses during
phase-out period (less applicable income taxes (benefit)
of $(57) and $5,771, in 2000 and 1999, respectively).... -- (85) 8,660
--------- -------- --------
-- (85) 8,693
--------- -------- --------
Income (loss) before extraordinary item..................... (104,107) 79,590 16,623
Extraordinary item -- early extinguishment of debt (net of
income
taxes of $5,600).......................................... -- -- (8,413)
--------- -------- --------
Net income (loss)........................................... $(104,107) $ 79,590 $ 8,210
========= ======== ========
Earnings per common share -- basic:
Income (loss) from continuing operations.................. $ (3.26) $ 2.51 $ 0.28
Discontinued operations................................... -- -- 0.31
Extraordinary item........................................ -- -- (0.30)
--------- -------- --------
Net income (loss)......................................... $ (3.26) $ 2.51 $ 0.29
========= ======== ========
Earnings per common share -- diluted:
Income (loss) from continuing operations.................. $ (3.26) $ 2.49 $ 0.28
Discontinued operations................................... -- -- 0.31
Extraordinary item........................................ -- -- (0.30)
--------- -------- --------
Net income (loss)......................................... $ (3.26) $ 2.49 $ 0.29
========= ======== ========
Weighted-average number of shares outstanding:
Basic..................................................... 31,917 31,730 28,108
========= ======== ========
Diluted................................................... 31,917 32,010 28,209
========= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
44
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(104,107) $ 79,590 $ 8,210
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 45,492 33,431 27,918
Gain on sale of investments.......................... -- (110,210) (5,906)
Loss (gain) from discontinued operations............. -- 85 (8,693)
Extraordinary loss on extinguishment of debt......... -- -- 8,413
Deferred income taxes................................ (9,773) (4,379) (363)
Retirement and deferred compensation plans........... (102) (875) (1,182)
Provision for losses on accounts receivable.......... 4,372 1,714 943
Non-cash restructuring charge........................ 11,632 -- --
Asset impairments and writedowns..................... 68,741 12,636 --
Changes in assets and liabilities, excluding effects from
acquisitions and dispositions:
Accounts and notes receivable........................ 11,205 (22,817) (3,470)
Income tax receivable................................ (14,750) -- --
Inventories.......................................... (567) 403 (389)
Prepayments and deposits............................. 2,762 1,295 869
Accounts payable and accrued expenses................ (17,696) 7,531 (5,444)
Unearned income...................................... (20,134) 12,894 12,325
Other changes, net................................... 2,582 (2,058) 1,126
--------- --------- ---------
Net cash provided by (used for) operating
activities....................................... (20,343) 9,240 34,357
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (7,602) (27,272) (5,884)
Acquisitions, including earnouts paid, net of cash
acquired................................................ (19,853) (200,996) (57,415)
Proceeds from sale of INT Media Group Inc. stock and
interests............................................... -- 113,100 6,640
Net proceeds from sale of discontinued operations......... -- 4,000 28,889
--------- --------- ---------
Net cash used for investing activities............. (27,455) (111,168) (27,770)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes................... 180,836 -- --
Proceeds from $325 million senior debt facility........... -- -- 24,500
Repayment of $325 million senior debt facility............ -- -- (330,500)
Proceeds from $340 million senior debt facility........... 45,000 91,000 235,000
Repayment of $340 million senior debt facility............ (166,538) (3,875) (20,000)
Payment of notes payable.................................. (201) -- (1,000)
Payment of financing costs................................ (1,657) (283) (3,461)
Proceeds from equity offering, net........................ -- -- 118,416
Employee stock purchase plan.............................. (353) (209) --
Proceeds from deferred shares and options exercised....... 1,153 473 170
Dividends paid............................................ (1,914) (3,800) (3,246)
--------- --------- ---------
Net cash provided by financing activities.......... 56,326 83,306 19,879
--------- --------- ---------
Effect of exchange rate changes on cash..................... 58 (143) (49)
--------- --------- ---------
Net increase (decrease) in cash and equivalents.... 8,586 (18,765) 26,417
Cash and cash equivalents at beginning of period............ 11,605 30,370 3,953
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 20,191 $ 11,605 $ 30,370
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
45
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
CAPITAL IN NOTES OTHER
EXCESS OF RECEIVABLE COMPREHENSIVE
COMMON PAR RETAINED OFFICERS/ INCOME
STOCK VALUE EARNINGS DIRECTORS (LOSS) TOTAL
------ ---------- -------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1998............ $228 $ 55,050 $ 32,262 -- $ (51) $ 87,489
---- -------- -------- -------- -------- ---------
Comprehensive income:
Net income............................ -- -- 8,210 -- -- 8,210
Other comprehensive income (loss):
Foreign currency translation
adjustments....................... -- -- -- -- (787) (787)
Unrealized gain on securities, at
fair value........................ -- -- -- -- 151,605 151,605
---------
Comprehensive income.................. -- -- -- -- -- 159,028
---------
Dividends............................... -- -- (3,502) -- -- (3,502)
Issuance of common stock:
Stock offering........................ 64 118,352 -- -- -- 118,416
In connection with New Hope
acquisition......................... 21 40,979 -- -- -- 41,000
Exercise of deferred shares and stock
options............................. -- 170 -- -- -- 170
---- -------- -------- -------- -------- ---------
Balance at December 31, 1999............ $313 $214,551 $ 36,970 -- $150,767 $ 402,601
---- -------- -------- -------- -------- ---------
Comprehensive income (loss):
Net income............................ -- -- 79,590 -- -- 79,590
Other comprehensive income (loss):
Unrealized loss on securities
reported at fair value............ -- -- -- -- (73,323) (73,323)
Reclassification adjustment for gain
on securities..................... -- -- -- -- (70,272) (70,272)
Foreign currency translation
adjustment........................ -- -- -- -- 95 95
---------
Comprehensive loss.................... (63,910)
---------
Dividends............................... -- -- (3,815) -- -- (3,815)
Issuance of common stock:
Executive loan program................ 4 9,662 -- -- -- 9,666
Contingent shares..................... 1 1,428 -- -- -- 1,429
Exercise of stock options............. -- 1,014 -- -- -- 1,014
Employee stock purchase plan.......... -- (209) -- -- -- (209)
Notes receivable officers/directors..... -- -- -- (10,207) -- (10,207)
---- -------- -------- -------- -------- ---------
Balance at December 31, 2000............ $318 $226,446 $112,745 $(10,207) $ 7,267 $ 336,569
---- -------- -------- -------- -------- ---------
Comprehensive income (loss):
Net loss.............................. -- -- (104,107) -- -- (104,107)
Other comprehensive income (loss):
Unrealized loss on securities, at
fair value........................ -- -- -- -- (7,202) (7,202)
Net loss on cash flow hedges........ -- -- -- -- (1,439) (1,439)
Foreign currency translation
adjustment........................ -- -- -- -- (1,560) (1,560)
---------
Comprehensive loss.................... (114,308)
---------
Dividends............................... -- -- (1,914) -- -- (1,914)
Issuance of common stock:
Exercise of deferred shares and stock
options............................. 1 1,152 -- -- -- 1,153
Employee stock purchase plan.......... -- (353) -- -- -- (353)
Notes receivable officers/directors..... -- -- -- (617) -- (617)
---- -------- -------- -------- -------- ---------
Balance at December 31, 2001............ $319 $227,245 $ 6,724 $(10,824) $ (2,934) $ 220,530
==== ======== ======== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
46
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Penton Media, Inc., ("Penton" or the "Company") is a leading diversified
business-to-business media company that produces market-focused magazines, Web
sites, trade shows and conferences. Penton's integrated media portfolio serves
the following segments comprising of the following market sectors: Industry
Media; design/engineering, government/compliance, manufacturing; mechanical
systems/construction, supply chain and aviation; Technology Media;
Internet/Broadband, information technology and electronics; Lifestyle Media;
natural products; and Other Media; food/retail and leisure/hospitality.
Prior to August 7, 1998, Penton was a wholly owned subsidiary of Pittway
Corporation. On August 7, 1998, Pittway distributed 100% of Penton's common
stock on a share-for-share basis to holders of Pittway stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Penton and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. All acquisitions have been accounted for under the purchase
method of accounting and are included in the consolidated financial statements
from their respective dates of acquisition. The consolidated financial
statements also include the accounts of all companies more than 50% owned where
the Company exercises control.
Investments in companies in which Penton has significant influence, but
less than a controlling voting interest, are accounted for under the equity
method. Investments in companies in which Penton does not have a controlling
interest, or an ownership and voting interest so large as to exert significant
influence, are accounted for at market value if the investments are publicly
traded. Unrealized gain/(loss) on investments accounted for at market value are
reported net of tax as a component of Accumulated Other Comprehensive Income
(loss) until the investment is sold, at which time the realized gain/(loss) is
included in earnings if the Company considers these investments to be available
for sale. If the investment is not publicly traded, then the investment is
accounted for at cost.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include primarily cash on hand and short-term
investments. Short-term investments that have an original maturity of three
months or less are considered cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Penton's inventory
consists of paper stock, which is valued using the last-in, first-out (LIFO)
method. The LIFO reserve balances were $0.1 million at both December 31, 2001
and 2000, respectively.
47
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Penton records
depreciation using the straight-line method over the following estimated useful
lives:
Computer equipment and software........... 3-5 years
Furniture, fixtures and equipment......... 3-10 years
Buildings................................. 18-40 years
Leasehold improvements.................... Estimated useful lives or lease term, whichever
is shorter
Depreciation expense amounted to approximately $9.8 million, $6.9 million
and $4.9 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
Maintenance and repair expenditures are charged to appropriate expense
accounts in the period incurred; replacements, renewals and betterments are
capitalized. Upon sale or other disposition of property, the cost and
accumulated depreciation of such properties are eliminated from the accounts,
and the gains or losses thereon are reflected in operations.
INTANGIBLE ASSETS
Goodwill, trademarks and trade names identified in purchase transactions
are amortized using the straight-line method over periods ranging from 15 to 40
years.
Other intangibles developed internally or acquired in purchase
transactions, consisting of non-compete agreements, customer mailing lists,
exhibitor lists, patents and copyrights, are being amortized using the straight-
line method over their estimated useful lives, ranging from three to 15 years.
Amortization expense amounted to approximately $35.7 million, $26.6 million
and $23.0 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors events or changes in circumstances that
could indicate that the carrying amount of long-lived assets, including goodwill
and intangible assets, may not be recoverable. Long-lived assets held for use
are reviewed for impairment by comparing estimated undiscounted cash flows over
remaining useful lives to net book value. When impairment is indicated for a
long-lived asset held for use, the amount of impairment loss is the excess of
net book value over fair value. Assets to be disposed of are recorded at the
lower of the carrying amount or fair value less cost of disposal. The Company
also evaluates the recoverability of enterprise-level goodwill and intangible
assets by estimating the future discounted cash flows of the businesses to which
the goodwill relates. See Note 15 -- Business Restructuring and Other Charges
for discussion of impairment charges.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in "Other
intangibles" in the accompanying Consolidated Balance Sheets, and are amortized
over the terms of the related indebtedness.
DERIVATIVE FINANCIAL INSTRUMENTS
In January 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS 133"). SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative, and its designation
as a hedge. Derivatives that are not hedges must be adjusted to fair value
through earnings. If a
48
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
derivative qualifies as a hedge under SFAS No. 133, the change in the fair value
of the derivative either offsets the change in fair value of the hedged assets,
liabilities or firm commitments through earnings, or is recognized in Other
Comprehensive Income until the hedged item impacts earnings. The change in a
derivative's fair value related to the ineffective portion of a hedge, if any,
is immediately recognized in earnings.
The Company uses derivatives to manage exposures to changes in the interest
rates on its floating-rate borrowings. The Company's objectives are to reduce
the volatility of earnings and cash flows associated with changes in interest
rates. The Company does not enter into derivative financial instruments for
speculative or trading purposes.
REVENUE RECOGNITION
Advertising revenues from Penton's trade magazines are recognized in the
month the publications are mailed. Amounts received in advance of trade shows
and conferences are deferred and recognized in the month the events are held.
Web site revenues, which include primarily advertising revenues, are recognized
on a straight-line basis over the contract term. Licensing revenues are
recognized as earned.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $27.7 million, $26.1 million and $18.2 million in 2001, 2000 and
1999, respectively.
INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of Penton's foreign operations is their local
currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. dollars at the rates of exchange at December 31, 2001 and
2000; income and expense are translated at the average rates of exchange
prevailing during the applicable year. There were no significant foreign
currency transaction gains or losses in 2001, 2000 or 1999. The effects of
translation are included in Accumulated Other Comprehensive Income in
Stockholders' Equity.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per share assumes the exercise of
all options that are dilutive, whether exercisable or not.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that all business combinations be accounted
for under the purchase method of accounting. In addition, this Statement
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. The Statement also
provides criteria for the separate recognition of intangible assets acquired in
a business combination. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001.
49
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS No. 142 presumes that goodwill and certain intangible assets
have indefinite useful lives. Accordingly, goodwill and certain intangibles will
not be amortized, but rather will be tested at least annually for impairment.
SFAS No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. We anticipate that the adoption
of this Statement will lead to the elimination of approximately $27.4 million of
goodwill amortization in 2002. The Company is in the process of evaluating the
impact of the other provisions of this Statement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, the there are a number
of changes including the removal of goodwill from its scope. The Statement also
retains the basic provision of ABP Opinion No. 30. However, for long-lived
assets held-for-sale, this Statement introduces the "components of an entity"
(rather than a segment of a business) approach to determine discontinued
operations. A "component of an entity" has clearly distinguishable operating and
financial reporting practices. The Company does not expect this Statement to
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 and 1999 financial
statements to conform to the 2001 presentation.
NOTE 3 -- ACQUISITIONS AND DISPOSALS
Acquisitions
During 2001, 2000 and 1999, the Company completed 23 acquisitions that were
accounted for using the purchase method of accounting.
2001 ACQUISITIONS
In May 2001, the Company acquired the assets of Australia-based DWR Media
Pty. Ltd. ("DWR"). DWR publishes several technology-related magazines and
produces Web sites.
In 2001, the Company also completed the acquisition of eight smaller
companies.
2000 ACQUISITIONS
In September 2000, the Company acquired the assets of Duke Communications
International, Inc. ("Duke"). Duke is an integrated media company serving
certain Microsoft and IBM operating system markets.
In September 2000, the Company acquired the stock of Streaming Media, Inc.
("Streaming Media"). Streaming Media is an integrated media company serving the
streaming media market.
In September 2000, the Company acquired the assets of Professional Trade
Shows, Inc. ("PTS"). PTS produces regional trade shows for the plant engineering
and maintenance, material handling, buildings and facilities maintenance, design
engineering and machine tool industries.
In 2000, the Company also completed the acquisition of five smaller
companies.
50
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 ACQUISITIONS
In May 1999, the Company acquired substantially all of the assets of New
Hope. New Hope is a leading business media company serving the natural products
industry through trade shows, conferences, magazines and Web sites.
In 1999, the Company also completed the acquisition of five smaller
companies.
Consideration paid, potential contingent consideration, and goodwill and
other intangibles acquired as part of the acquisitions completed in 2001, 2000
and 1999 are as follows (in thousands, except number of shares):
SHARES OF LOAN MAXIMUM TOTAL GOODWILL
PENTON STOCK NOTES CASH CONTINGENT MAXIMUM & OTHER
ISSUED ISSUED PAID CONSIDERATION CONSIDERATION INTANGIBLES
------------ ------ -------- ------------- ------------- -----------
2001
DWR..................... -- $ -- $ 2,450 $ 1,700 $ 4,150 $ 2,263
Other................... -- 3,500 7,307 3,057 13,864 9,263
2000
Duke.................... -- $ -- $100,000 $50,000 $150,000 $103,280
Streaming Media......... -- -- 65,000 35,000 100,000 62,896
PTS..................... -- -- 17,000 -- 17,000 16,172
Other................... -- -- 3,802 4,439 8,241 3,700
1999
New Hope................ 2,102,564(1) $ -- $ 41,000 $15,000 $ 97,000 $ 78,200
Other................... -- -- 9,370 9,700 19,070 8,268
---------------
(1) Market value of $41.0 million when issued
Goodwill and other intangibles are being amortized over periods ranging
from three to 40 years. At December 31, 2001, 2000 and 1999, Penton accrued $6.6
million, $14.7 million and $9.1 million, respectively, for contingent
consideration. Cash paid for contingent consideration in 2001, 2000 and 1999 was
$12.0 million, $5.8 million and $4.8 million, respectively. Approximately $1.9
million of the amount accrued for earnouts at December 31, 2001 relates to New
Hope, 80% of which is expected to be paid in company stock. In 2000, the Company
issued 52,920 shares of stock for a total value of $1.4 million as part of a
contingent payment related to New Hope.
At December 31, 2001, the remaining maximum potential liability for future
contingent consideration related to the acquisitions above was approximately
$56.5 million. The earnout period for $52.2 million of this amount expires at
December 31, 2002; $0.4 million expires at January 31, 2003; and $3.9 million
expires at December 31, 2003. In addition, if Duke's revenue contingent
consideration does not equal at least $15.0 million at the end of 2002, an
additional year will be added to achieve up to, but not more than, a total
cumulative revenue contingent payment of $15.0 million. At December 31, 2001,
Duke had not earned any of its potential revenue contingent consideration.
Disposals
In March 2000, the Company completed the sale of the net assets of its
Direct Mail segment for $4.0 million in cash. The sale resulted in a loss of
$0.7 million, net of a tax benefit of $0.4 million.
In November 1999, the Company sold its Printing segment, realizing cash
proceeds of $31.0 million. The sale resulted in a gain of $9.3 million, net of
$6.2 million in income taxes.
51
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Operating results for the discontinued segments for 2000 and 1999 are as
follows (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------------
2000 1999
----------- ----------------------
DIRECT MAIL DIRECT MAIL PRINTING
----------- ----------- --------
Revenues............................................. $ -- $12,199 $10,424
===== ======= =======
Income (loss) before income tax provision
(benefit).......................................... $(142) $ (464) $ 531
Provision (benefit) for income taxes................. (57) (186) 220
----- ------- -------
Income (loss) from discontinued operations........... $ (85) $ (278) $ 311
===== ======= =======
NOTE 4 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the year ended
December 31, 2000 assumes that the 2000 acquisitions occurred as of January 1,
2000, after giving effect to certain adjustments, including the amortization of
intangible assets, interest expense on acquisition debt and related income tax
effects. The pro forma information excludes the effects of synergies and cost
reduction initiatives directly related to all acquisitions. Pro forma results
for the year ended December 31, 2001 have not been presented because the impact
of the 2001 acquisitions is immaterial.
The pro forma information is presented for information purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had these transactions been consummated at the beginning of the
period presented:
YEAR ENDED
DECEMBER 31, 2000
-----------------
Pro forma revenues.......................................... $449,366
========
Pro forma income from continuing operations................. $ 72,710
========
Pro forma net income applicable to common stockholders...... $ 72,625
========
Per share data:
Earnings per common share -- basic:
Income from continuing operations......................... $ 2.29
Discontinued operations................................... --
Extraordinary item........................................ --
--------
Net income................................................ $ 2.29
========
Earnings per common share -- diluted:
Income from continuing operations......................... $ 2.27
Discontinued operations................................... --
Extraordinary item........................................ --
--------
Net income................................................ $ 2.27
========
The pro forma information above does not include the operations of
Profit.Net, Inc. and ComMunic, which were acquired in 2000, as the historical
information is immaterial.
NOTE 5 -- INVESTMENTS
In November 1998, Penton entered into a joint venture agreement with Mr.
Meckler, formerly associated with Mecklermedia, with respect to internet.com,
LLC (now known as INT Media Group, Inc.). As part of the acquisition of
Mecklermedia, Penton sold 80.1% of its interest in INT Media Group, Inc. ("INT
Media") to Mr. Meckler; other ownership interests were contributed to INT Media
management such that Penton's
52
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ownership interest decreased to 19.0%. In April and June 1999, Penton
contributed $0.4 million in cash and exercised a warrant for $3.0 million in
cash, respectively, increasing its ownership interest from 19.0% to 27.4%.
In June 1999, INT Media converted into a corporation and completed its
initial public offering at $14.00 per share. At that time, Penton received
5,483,383 shares in exchange for its interest, retaining a 23.4% ownership
interest. In July 1999, Penton sold 510,000 shares as part of an initial public
offering over-allotment option, which reduced Penton's ownership interest to
21.25%. Penton received cash of $6.6 million, net of expenses, and recognized a
gain of $5.9 million.
In February 2000, Penton sold 2.0 million shares of INT Media stock as part
of a 3,750,000-share secondary offering. Penton received cash of $113.1 million
and recognized a pre-tax gain of approximately $110.2 million. At December 31,
2001, Penton maintained an 11.8% ownership interest in INT Media, or 2,973,383
shares. Penton treats its investment as available for sale; accordingly, Penton
marks to market its investment in INT Media. At December 31, 2001, Penton's
investment totaled $5.6 million, including a cumulative mark-to-market
adjustment of $1.3 million and related adjustment in Long-Term Deferred Tax
liability of $0.5 million and Other Comprehensive Income (loss) of $0.8 million.
See Note 20 -- Subsequent Events.
NOTE 6 -- DEBT
SENIOR SUBORDINATED NOTES
In June 2001, Penton issued $185.0 million of 10 3/8% senior subordinated
notes ("the Notes") due 2011 to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933, as amended. Interest is payable on the Notes
semi-annually on June 15 and December 15. The Notes are guaranteed, on a senior
subordinated basis, by the Company's domestic subsidiaries and may be redeemed
on or after June 15, 2006. In addition, the Company may redeem up to 35% of the
aggregate principal amount of the Notes before June 15, 2004 with the proceeds
of certain equity offerings. The Notes were offered at a discount of $4.2
million, which is being amortized, using the interest method, over the term of
the Notes. Amortization of the discount was $0.2 million for the year ended
December 31, 2001. Costs representing underwriting fees and other professional
fees of $1.7 million are being amortized over the term of the Notes. Net
proceeds of $180.2 million were used to pay down $136.0 million under the
revolving credit facility, $12.8 million of term loan A and $7.2 million of term
loan B. The remaining net proceeds of $24.2 million were used for general
corporate purposes. The Notes are unsecured senior subordinated obligations of
the Company, subordinated in right of payment to all existing and future senior
indebtedness of the Company, including the credit facility. The Notes contain
covenants that will, among other things, restrict the Company's ability to
borrow money, pay dividends on or repurchase capital stock, make investments,
sell assets, and enter into mergers or consolidations.
The Company filed a Form S-4 with the Securities and Exchange Commission
with respect to the above Notes, which became effective in November 2001.
SENIOR SECURED CREDIT FACILITY
Penton maintains a credit agreement ("credit facility") with several banks
under which it may borrow up to $340.0 million. The agreement provides for a
revolving credit facility of up to $125.0 million, a long-term loan of $140.0
million ("term loan A") and a long-term loan of $75.0 million ("term loan B").
In October 2000, Penton amended its credit facility to give the Company the
option to increase, in the aggregate, its term loan A, term loan B and/or its
revolver by $100.0 million. The term loans and the revolver could not be
increased on more than three separate occasions, and any increase had to take
place by September 30, 2001. Concurrent with the closing of the amendment, the
Company obtained committed financing in the amount of $60.0 million of the
$100.0 million under the revolver, thereby increasing the total available under
the revolver to $185.0 million. The option to increase term loan A, term loan B
and/or the revolver by an additional $40.0 million by September 30, 2001 was not
exercised by the Company.
53
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The credit facility is collateralized by all tangible and intangible assets
of Penton, including the equity interests in all of its U.S. subsidiaries and
not less than 65% of the equity interests of any of its foreign subsidiaries.
Under the terms of the agreement, Penton is required to maintain certain
financial ratios and other financial conditions. The agreement also prohibits
Penton from incurring certain additional indebtedness; limits certain
investments, advances or loans; and restricts substantial asset sales and cash
dividends.
On March 19, 2002, Penton also amended its credit facility (see Note
20 -- Subsequent Events, for further discussion). If Penton were required to
file its compliance certificate prior to the amendment of the credit facility,
the Company would not have been in compliance with its financial covenants. The
amended and restated facility provides for the following: (i) the revolving
credit facility is permanently reduced to $40.0 million from $185.0 million;
(ii) Penton has been relieved of its financial covenants at December 31, 2001
and March 31, 2002; (iii) Penton obtained revised financial covenant
requirements after March 31, 2002. For example, our leverage ratio and fixed
charge ratio are not applicable until after June 30, 2003 and September 30,
2003, respectively; (iv) the revolver is limited to $15.0 million until the
leverage ratio is less than 5.0x or the term loans have been prepaid in full. An
additional $10.0 million will become available in the event that not less than
$10.0 million is raised from an equity issuance and the proceeds are used to
prepay the term loans. Upon receipt of the second-quarter compliance
certificate, an additional $5.0 million will become available; (v) in order to
access the revolver, the Company must not have more than $7.5 million of cash
and cash equivalents available and must be in compliance with the loan
documents; and (vi) the amendment also increased the interest rate on the
revolver as well as the term A and term B loans, places additional restrictions
on certain payments, limits additional debt and contingent obligations, requires
additional collateral, limits additional acquisitions and investments, limits
our ability to sell assets and limits capital expenditures.
The revolving credit facility bears interest, at Penton's option, at either
the Alternative Base Rate ("ABR"), defined as the higher of the Administrative
Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at LIBOR, plus a
rate margin ranging from 0.25% to 2.125% based on Penton's consolidated leverage
ratio, defined as the ratio of total debt to total adjusted EBITDA. Penton has
agreed to pay a commitment fee ranging from 0.375% to 0.50%, based on Penton's
consolidated leverage ratio, on the average unused portion of the revolving
credit facility commitment.
Term loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At December 31, 2001, the
rate in effect was 4.0625%. The loan, which requires quarterly principal
payments starting in September 2000, will mature on June 30, 2006. Once amounts
are repaid on term loan A, they may not be reborrowed. At December 31, 2001,
$113.8 million was outstanding under term loan A.
Term loan B bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.5% to 2.50%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At December 31, 2001, the
rate in effect was 4.4375%. The loan requires quarterly principal payments of
approximately $0.2 million starting in September 2000, and four balloon payments
of $17.6 million beginning in September 2006, and will mature on June 30, 2007.
Once amounts are repaid on term loan B, they may not be reborrowed. At December
31, 2001, $66.7 million was outstanding under term loan B.
54
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2001, the scheduled principal payments of the term A and
B loans for the next five years and thereafter were as follows (in thousands):
YEAR AMOUNT
---- --------
2002............................................. $ 16,489
2003............................................. 22,813
2004............................................. 29,138
2005............................................. 32,300
2006............................................. 47,998
Thereafter....................................... 31,849
--------
$180,587
========
The credit agreement requires Penton to hedge not less than 50% of the term
loans outstanding for a period of at least three years. (See Note 8 -- Hedging
Activities)
In September 1999, Penton recognized a non-cash extraordinary charge of
approximately $6.3 million, net of $4.2 million in taxes ($0.20 per share),
relating to the write-off of unamortized deferred finance costs associated with
the former credit facility. In May 1999, Penton recognized a non-cash
extraordinary charge of approximately $2.1 million ($0.08 per share), net of
approximately $1.4 million in taxes, for the write-off of unamortized deferred
finance costs upon the extinguishment of part of the outstanding former senior
debt with the proceeds from the 6.5 million-share common stock offering
completed in May 1999.
Cash paid for interest for 2001, 2000 and 1999 was $16.4 million, $19.5
million and $19.9 million, respectively. The drop in interest paid for 2001 was
due to significantly lower prime rates. Included in interest expense in the
Consolidated Statements of Operations are $1.8 million, $5.4 million and $0.4
million of interest income for 2001, 2000 and 1999, respectively.
NOTES PAYABLE
The Company's long-term notes payable at December 31, 2001 of $3.2 million
represents indebtedness resulting from the acquisition of Hillgate in February
2001. Loan note A in the amount of $2.8 million bears interest at 1% and matures
in April 2004. However, the holders of loan note A have the option to demand
payment at any time after April 30, 2002. Loan note B in the amount of $0.4
million bears interest at 0.5% and matures in July 2004. However, the holders of
loan note B have the option to demand payment at any time after April 30, 2004.
Both notes are denominated in British pounds.
NOTE 7 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value disclosures of financial instruments:
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, ACCOUNTS PAYABLE,
ACCRUED EXPENSES AND SENIOR SECURED CREDIT FACILITY
The carrying amounts reported in the Consolidated Balance Sheets for cash
and cash equivalents, accounts and notes receivable, accounts payable and
accrued expenses approximated fair value because of their short maturities. The
carrying amount of the long-term senior secured credit facility approximates
fair value as the effective rates are comparable to market rates at December 31,
2001.
55
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SENIOR SUBORDINATED NOTES
The fair value of the 10 3/8% senior subordinated notes is determined by
reference to quoted market prices. At December 31, 2001, the Company's senior
subordinated notes had a fair value of $104.5 million and a carrying amount of
$181.0 million.
INTEREST RATE SWAPS
At December 31, 2001, the Company had interest rate swaps related to the
Company's variable-rate term loans. The carrying amount of the swaps
approximates fair value. See Note 8 -- Hedging Activities.
NOTE 8 -- HEDGING ACTIVITIES
ADOPTION OF FAS NO. 133
The Company adopted Statement of Financial Accounting Standards No. 133, as
amended, effective January 1, 2001. FAS No. 133 requires that all derivative
instruments be recognized on the balance sheet at fair value. The Company
recorded a $1.4 million, net of tax, cumulative effect adjustment in Other
Comprehensive Income as of January 1, 2001. The transition adjustment recorded
in Other Comprehensive Income will be reclassified to earnings on a quarterly
basis as interest payments occur.
During 2001, the Company had the following activity in Other Comprehensive
Income related to hedging activities, net of tax:
Total cumulative effect of adoption on other comprehensive
income at January 1, 2001................................. $ 1,351
Net change related to hedging transactions during the
year.................................................. 1,246
Net amount reclassified to earnings.................... (1,158)
-------
Net deferred loss on cash flow hedges at December 31,
2001...................................................... $ 1,439
=======
RISK MANAGEMENT
In the ordinary course of business, the Company is exposed to fluctuations
in interest rates and foreign currency rates. The Company maintains assets and
operations in Europe and Asia and, as a result, may be exposed to fluctuations
in foreign currency rates relative to the markets in which it sells; however,
the Company does not manage this risk using derivative instruments. The Company
is exposed to interest rate risk due to the variable interest rate of the credit
facility. The Company maintains an overall interest rate risk-management
strategy that incorporates the use of derivative instruments to minimize
significant unplanned fluctuations in earnings that are caused by interest rate
volatility. Derivative instruments that are used as part of the Company's
interest rate risk-management strategy include primarily interest rate swaps and
caps.
CASH FLOW HEDGES
The Company enters into cash flow hedges to reduce the exposure to interest
rate fluctuations. The Company uses interest rate swaps to convert a portion of
its variable-rate debt to fixed-rate debt. The specific terms and notional
amounts of the swaps are determined based on management's assessment of future
interest rates, the requirements under our credit facility and other factors.
The Company purchases interest rate caps and swaps to minimize its exposure to
volatility in LIBOR. Fixed-rate debt, after the effects of interest rate swaps
and caps have been considered, is maintained at a level that is greater than 50%
of the total Company debt.
56
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, the Company had the following interest rate
instruments in effect:
NOTIONAL
AMOUNT RATE PERIOD
-------- ---- -----------
Interest rate swap...................................... $26,875 6.22% 1/00-10/02
Interest rate swap...................................... $35,832 6.77% 5/00-11/02
Interest rate swap...................................... $17,916 5.95% 9/99-10/02
Interest rate cap....................................... $26,875 8.50% 10/99-10/02
At December 31, 2001, the interest rate instruments had a fair value of
($3.4) million, which is recorded as a liability in Other Accrued Expenses on
the Consolidated Balance Sheet.
For the 12 months ended December 31, 2001, the Company recognized a net
loss of $0.9 million (reported as Interest Expense, Net, in the Consolidated
Statements of Operations), which represents the total ineffectiveness of all
cash flow hedges. All components of interest rate swaps were included in the
assessment of hedge effectiveness. With respect to interest rate caps, the hedge
effectiveness assessment excluded the time value element.
During the 12 months ended December 31, 2001, the Company reclassified $1.2
million from Accumulated Other Comprehensive Income to current period earnings
(reported as Interest Expense, Net, in the Consolidated Statements of
Operations). The net deferred loss recorded in Accumulated Other Comprehensive
Income will be reclassified to earnings on a quarterly basis as interest
payments occur. As of December 31, 2001, $1.4 million of deferred losses on
derivative instruments classified in Accumulated Other Comprehensive Income are
expected to be reclassified to expense during the next 12 months. As of December
31, 2001, the maximum term over which the Company was hedging its exposure to
the variability of future cash flows is 10 months.
The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the counter-parties, as they are major
financial institutions.
NOTE 9 -- INCOME TAXES
The source of income (loss) on continuing operations before income tax
expense consists of (in thousands):
2001 2000 1999
--------- -------- -------
U.S. domestic................................. $(122,995) $135,164 $23,021
Foreign....................................... (1,319) 6,070 974
--------- -------- -------
$(124,314) $141,234 $23,995
========= ======== =======
57
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes (benefits) on continuing operations in the
Consolidated Statements of Operations is as follows (in thousands):
2001 2000 1999
-------- ------- -------
Current:
Federal............................................... $(11,981) $51,052 $12,797
State and local....................................... -- 12,828 2,837
Foreign............................................... 1,547 2,058 794
-------- ------- -------
(10,434) 65,938 16,428
-------- ------- -------
Deferred:
Federal............................................... (5,445) (3,814) (301)
State and local....................................... (4,328) (565) (62)
Foreign............................................... -- -- --
-------- ------- -------
(9,773) (4,379) (363)
-------- ------- -------
$(20,207) $61,559 $16,065
======== ======= =======
The consolidated provision for income taxes comprises the following (in
thousands):
2001 2000 1999
-------- ------- -------
Provision (benefit) for income taxes from continuing
operations............................................ $(20,207) $61,559 $16,065
Provision (benefit) for income taxes from discontinued
operations............................................ -- (57) 5,805
Provision (benefit) for income from extraordinary
item.................................................. -- -- (5,600)
-------- ------- -------
Consolidated tax provision (benefit).................... $(20,207) $61,502 $16,270
======== ======= =======
The difference between the actual income tax provision (benefit) on
continuing operations and the tax provision (benefit) computed by applying the
statutory federal income tax rate of 35% to income before income taxes is as
follows (in thousands):
2001 2000 1999
-------- ------- -------
Income tax provision (benefit) at statutory rate........ $(43,509) $49,432 $ 8,398
Tax effect of:
Impairment of assets.................................. 16,438 -- --
State income benefit, net of federal provision........ (3,100) 7,766 1,804
Non-deductible goodwill............................... 6,698 5,104 4,830
Foreign tax items..................................... 2,828 -- --
Non-deductible expenses............................... 305 259 548
Other items, net...................................... 133 (1,002) 485
-------- ------- -------
Actual income tax provision (benefit)................. $(20,207) $61,559 $16,065
======== ======= =======
Effective income tax rate............................. 16.3% 43.6% 67.0%
======== ======= =======
58
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities at December 31, 2001,
2000 and 1999 are as follows (in thousands):
2001 2000 1999
-------- -------- ---------
Deferred tax assets:
Deferred pension credits........................... $ 6,202 $ 6,100 $ 6,532
Accrued vacation................................... 1,460 889 989
Bad debts.......................................... 3,594 1,963 1,551
Reserves recorded for financial reporting
purposes........................................ 2,253 3,420 2,107
Investment writedown............................... 2,565 3,821 --
Branch net operating losses........................ -- 1,133 452
Impairment of assets............................... 6,319 -- --
Restructuring charge............................... 4,083 -- --
Net operating loss carryforwards................... 2,096 -- --
Foreign tax credits................................ 1,779 -- --
Deferred compensation.............................. 883 -- --
Other.............................................. 148 283 188
-------- -------- ---------
Total deferred tax assets before valuation
allowance..................................... 31,382 17,609 11,819
Valuation allowance............................. (1,779) -- --
-------- -------- ---------
Total deferred tax assets....................... $ 29,603 $ 17,609 $ 11,819
======== ======== =========
Deferred tax liabilities:
Mark-to-market adjustment for securities........... (584) (5,340) (101,070)
Depreciation....................................... (2,081) (896) (1,366)
Amortization....................................... (12,825) (10,265) (9,209)
Trade show expenses................................ -- (954) (668)
Other.............................................. -- (570) (27)
-------- -------- ---------
Total deferred tax liabilities.................. (15,490) (18,025) (112,340)
-------- -------- ---------
Net deferred tax asset (liability)................... $ 14,113 $ (416) $(100,521)
======== ======== =========
These balances are allocated between current assets, long-term assets and
long-term liabilities in the accompanying Consolidated Balance Sheets.
At December 31, 2001, the Company had state operating loss carryforwards of
$3.5 million for tax purposes, which can be carried forward from 5 to 20 years.
At December 31, 2001, the Company had available foreign tax credit
carryforwards of approximately $1.8 million, which will expire between 2003 and
2006, if not utilized. A full valuation allowance has been provided on the
foreign tax credit carryforwards.
At December 31, 2001, a valuation allowance was not recorded for the $14.1
million net deferred tax asset as it is more likely than not that the asset will
be realized in the future. The Company's assessment is based on restructuring
efforts currently in process, the asset impairment and restructuring charges
recorded in 2001, and the potential for loss carrybacks.
The net change in the mark-to-market adjustments for investments included
in the deferred balances for the period ended December 31, 2001, 2000 and 1999
had a balance sheet impact only.
59
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For 2001, 2000 and 1999, cash paid for income taxes was $3.0 million, $71.6
million and $13.9 million, respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Penton's non-contributory retirement plans cover substantially all current
and former domestic employees. Retirement benefits for employees in foreign
countries generally are provided by national statutory programs. Benefits for
domestic employees are based on years of service and annual compensation as
defined by each plan.
The following table sets forth the funded status of the plan and amounts
recognized in the Consolidated Balance Sheets (in thousands):
2001 2000
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1.......................... $ 40,555 $ 37,433
Service cost........................................ 2,213 1,831
Interest cost....................................... 2,966 3,036
Benefits paid....................................... (3,541) (5,236)
Actuarial loss...................................... 559 3,491
Plan amendments..................................... -- --
Curtailments........................................ (553) --
-------- --------
Benefit obligation, December 31........................ $ 42,199 $ 40,555
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1................... $ 45,772 $ 40,908
Actual return on plan assets........................ 1,729 10,100
Benefits paid....................................... (3,541) (5,236)
-------- --------
Fair value of plan assets, December 31................. $ 43,960 $ 45,772
======== ========
FUNDED STATUS OF THE PLAN
Projected benefit obligation less than fair value of
assets, December 31................................. $ 1,761 $ 5,217
Unrecognized actuarial gain............................ (17,589) (21,355)
Unrecognized prior service cost........................ 688 897
Unrecognized net transition asset...................... -- --
-------- --------
Net deferred pension credits........................... $(15,140) $(15,241)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Accrued benefit cost................................... $(15,140) $(15,241)
Additional minimum liability........................... -- --
Intangible assets...................................... -- --
-------- --------
Net amount recognized, December 31..................... $(15,140) $(15,241)
======== ========
ASSUMPTIONS AS OF DECEMBER 31
Discount rates:
Pre-retirement...................................... 7.25% 7.50%
Post-retirement..................................... 6.25% 6.50%
Expected return on plan assets......................... 9.00% 9.00%
Weighted-average salary increase rate.................. 4.00% 5.00%
60
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the components of pension expense for the
years ended December 31, (in thousands, except for percentages):
2001 2000 1999
------- ------- -------
NET PERIODIC COST
Service cost................................... $ 2,213 $ 1,831 $ 2,107
Interest cost.................................. 2,966 3,036 2,666
Expected return on assets...................... (3,515) (3,737) (3,782)
Amortization of:
Transition asset............................ -- (840) (841)
Prior service cost.......................... 101 126 346
Actuarial gain.............................. (1,421) (1,444) (1,678)
------- ------- -------
Net pension expense (income)..................... 344 (1,028) (1,182)
------- ------- -------
Cost of special termination benefits........... -- -- 91
Curtailment gain............................... (446) -- (647)
------- ------- -------
Total net periodic pension cost (benefit)... $ (102) $(1,028) $(1,738)
======= ======= =======
ASSUMPTIONS AS TO PERIODIC PENSION COST
Discount rate
Pre-retirement.............................. 7.50% 8.00% 7.75%
Post-retirement............................. 6.50% 7.00% 6.75%
Expected return on plan assets................. 9.00% 9.00% 9.00%
Weighted-average salary increase rate.......... 5.00% 5.00% 5.00%
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In February 2000, the board of directors approved the addition of 10 key
employees to participate in Penton's supplemental executive retirement plan
("SERP"), in addition to the two executives already participating in the plan.
The projected benefit obligation and accumulated benefit obligation for the SERP
plan, which has an accumulated benefit obligation in excess of plan assets, were
$0.8 million and $0.6 million, respectively, as of December 31, 2001 and $0.8
million and $0.5 million, respectively, as of December 31, 2000. Amounts in 1999
were immaterial. The SERP plan is an unfunded, non-qualified plan, and hence has
no plan assets.
401(k) PLAN
The Penton Media, Inc. Retirement Savings Plan (the "401(k) Plan") covers
substantially all domestic officers and employees of the Company. The 401(k)
Plan permits participants to defer up to a maximum of 15% of their compensation.
Penton matches 50% of the employee's contributions up to a maximum of 6% of the
employee's annual compensation. The employee's contribution and Penton's
matching contribution vest immediately. Penton's contributions to the 401(k)
Plan for the years ended December 31, 2001, 2000 and 1999 were $2.2 million,
$1.7 million and $1.5 million, respectively. Effective January 1, 2002, the
Company temporarily suspended the 50% Company match.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LEASES
Penton leases certain office space and equipment under non-cancelable
operating leases. Some of the leases contain renewal options, and certain
equipment leases include options to purchase during or at the end of the lease
term. Following is a schedule of approximate annual future minimum rental
payments required under
61
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year as of December 31, 2001 (in thousands):
YEARS ENDING
DECEMBER 31,
------------------------------------------------------------
2002........................................................ $ 9,277
2003........................................................ 7,599
2004........................................................ 6,764
2005........................................................ 5,993
2006........................................................ 4,769
Thereafter.................................................. 17,206
-------
$51,608
=======
Future minimum lease payments under capital leases are $0.06 million, $0.04
million and $0.02 million for the years ended December 31, 2002, 2003 and 2004
and thereafter, respectively.
For the years ended December 31, 2001, 2000 and 1999, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by Penton was approximately $9.8 million, $8.4 million and $7.5
million, respectively.
LEGAL PROCEEDINGS
In connection with the acquisition of Mecklermedia Corporation on December
1, 1998, a lawsuit was brought against the Company by Ariff Alidina (the
"Plaintiff"), a former stockholder of Mecklermedia Corporation, in United States
Federal District Court in the Southern District of New York for an unspecified
amount, as well as other relief. The Plaintiff has claimed that the Company
violated the federal securities laws by selling Mr. Meckler, a beneficial owner
of approximately 26% of the shares of Mecklermedia, an 80.1% interest in INT
Media 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. On October 17, 2001, the District Court denied the Company's motion for a
summary judgment. Management does not expect that the outcome of this case will
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
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.
OTHER COMMITMENTS
In December 1999, Penton entered into a print agreement with R.R. Donnelley
& Sons Company ("R.R. Donnelley"), which entitles R.R. Donnelley to the
exclusive right to print and produce certain magazines for a period of seven
years beginning December 1, 1999 through November 30, 2006. Under the agreement,
which is non-cancelable, Penton is obligated to pay certain minimum amounts.
These minimum amounts will be adjusted annually based on changes in the Consumer
Price Index.
62
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule sets forth the minimum liability under the agreement
with R.R. Donnelley (in thousands):
YEARS ENDING
DECEMBER 31,
------------------------------------------------------------
2002................................................... $ 8,370
2003................................................... 7,905
2004................................................... 7,440
2005................................................... 7,440
2006................................................... 6,975
-------
$38,130
=======
For the years ended December 31, 2001 and 2000, Penton paid $9.0 million
and $10.5 million, respectively, under the agreement with R.R. Donnelley.
NOTE 12 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
STOCK OFFERINGS
In September 2000, Penton arranged a secondary offering in which existing
stockholders, other than management, offered 3,638,320 shares of common stock at
a price of $30.00 per share. Penton did not receive any proceeds from this
offering.
In May 1999, Penton completed a 6,500,000 common share offering. Penton
offered 6,250,000 of the shares and existing stockholders offered 250,000
shares. The underwriters exercised their option to purchase an additional
180,000 shares from Penton and 795,000 shares from existing stockholders to
cover over-allotments. Penton received net proceeds of approximately $118.4
million, which were used to repay debt, finance the acquisition of New Hope and
for general corporate purposes. Penton did not receive any proceeds from the
shares sold by the selling stockholders.
STOCKHOLDER RIGHTS AGREEMENT
In June 2000, Penton adopted a Stockholder Rights Agreement (the "Rights
Agreement"). Under the plan, the rights will initially trade together with
Penton's common stock and will not be exercisable. In the absence of further
board action, the rights generally will become exercisable and allow the holder
to acquire Penton's common stock at a discounted price if any person or group
acquires 20 percent or more of the outstanding shares of Penton's common stock.
Rights held by the persons who exceed the applicable threshold will be void.
Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price. The plan also includes an
exchange option. In general, after the rights become exercisable, the Penton
board may, at its option, effect an exchange of part or all of the rights, other
than rights that have become void, for shares of Penton's common stock. Under
this option, Penton would issue one share of common stock for each right,
subject to adjustment in certain circumstances.
The Penton board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or amended by the
Penton board. The Rights Agreement has no impact on the financial statements or
earnings per share.
The Rights Agreement was amended by the board to permit the sale of
convertible preferred stock to an investor group led by ABRY Mezzanine Partners,
L.P. See Note 20 -- Subsequent Events for further discussion.
63
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, Penton established an Employee Stock Purchase Plan,
with the intent of aligning the interests of Penton's employees and its
stockholders by allowing employees the opportunity to purchase shares of Penton.
The plan allows employees to purchase common stock at 85% of the lower of the
market price at the beginning or end of each quarter. This plan was deemed to be
non-compensatory pursuant to the appropriate sections of the Internal Revenue
Service Codes. In 2001 and 2000, 165,767 and 38,002 shares, respectively, were
purchased by employees under this plan.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, Penton established a Management Stock Purchase Plan
for designated officers and other key employees. Participants in the plan may
elect to receive restricted stock units ("RSUs") in lieu of a designated portion
of up to 100% of their annual incentive bonus. Each RSU represents the right to
receive one share of Penton common stock. RSUs are granted at a 20% discount
from fair market value on the date awarded. RSUs vest two years after the date
of grant and are settled in shares of common stock after a period of deferral
(of no less than two years) selected by the participant, or upon termination of
employment. In February 2002, 2001 and 2000, respectively, 21,976 RSUs, 31,942
RSUs and 25,507 RSUs were granted at a fair market value of $7.38, $25.10 and
$25.94 per share. As of December 31, 2001 and 2000, 56,968 and 25,507 RSUs were
outstanding, respectively. The discount is recorded as compensation expense over
the vesting period. In both 2001 and 2000, approximately $0.1 million was
recognized as expense related to the discount. During 2001, 361 shares of common
stock were issued under this plan.
EXECUTIVE LOAN PROGRAM
In January 2000, Penton established the Executive Loan Program, which
allowed Penton to issue an aggregate of up to 400,000 shares of Penton common
stock at fair market value to six key executives, in exchange for recourse
notes. In December 2001, the loan notes were amended such that interest was no
longer compounded semi-annually at a rate equal to the applicable interest rate
as published by the Internal Revenue Service. Furthermore, the maturity dates
were changed from the fifth anniversary of the first loan date to six months
following the seventh anniversary of the first loan date. No principal or
interest payments are required until maturity, at which time all outstanding
amounts are due. Variable stock compensation treatment will be accorded such
stock awards from December 31, 2001 forward.
At December 31, 2001 and 2000, 400,000 shares had been issued under the
Executive Loan Program and the outstanding loan balance was approximately $10.8
million and $10.2 million (including $1.2 million and $0.5 million of accrued
interest), respectively. The loan balance is classified in the Stockholders'
Equity section of the Consolidated Balance Sheets as Notes Receivable
Officers/Directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
In May 2001, the stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Equity and
Performance Incentive Plan from 2,500,000 shares to 5,500,000 shares.
Stock Options
In May 2001, the stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Director Stock
Option Plan from 100,000 shares to 250,000 shares.
Options granted under the plan generally vest equally over three years from
the date of grant. However, most options granted are not exercisable until the
third anniversary. All options granted pursuant to the plan will expire no later
than 10 years from the date the option was granted.
64
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a summary of Penton's stock option activity
and related information for the years ended 1999, 2000 and 2001 (in thousands,
except per share amounts):
NUMBER OF OPTIONS
---------------------
EMPLOYEES DIRECTORS WEIGHTED AVERAGE
--------- --------- ----------------
Balance, December 31, 1998............... 681 69 $16.23
----- ---
Granted.................................. 349 -- $21.50
Exercised................................ (4) -- $16.23
Canceled................................. (65) -- $17.70
----- ---
Balance, December 31, 1999............... 961 69 $17.93
----- ---
Granted.................................. 519 30 $22.72
Exercised................................ (37) (8) $17.63
Canceled................................. (70) -- $20.51
----- ---
Balance, December 31, 2000............... 1,373 91 $19.80
----- ---
Granted.................................. 1,565 52 $12.83
Exercised................................ (51) -- $16.94
Canceled................................. (101) -- $20.92
----- ---
Balance, December 31, 2001............... 2,786 143 $15.98
===== ===
The following table summarizes information about stock options outstanding
at December 31, 2001 (in thousands, except number of years and per share
amounts):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- OPTIONS WEIGHTED-
NUMBER REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE 2001 PRICE
--------------- ------- ------------ --------- -------------- ---------
$27.75-29.19 . 36 8.6 years.. $28.55 5 $27.75
$16.23-24.25 . 1,832 7.8 years.. $21.00 106 $16.52
$ 6.89 . 1,061 9.9 years.. $ 6.89 -- --
Deferred Shares
At December 31, 2001, 2000 and 1999, deferred shares of 397,749, 63,029 and
63,029, respectively, were outstanding. Of the shares outstanding at December
31, 2001, 341,500 shares vest one-fourth on each three-month anniversary
following the date of grant, 47,553 shares vest on the third anniversary of the
grant date, while the remaining 8,696 shares vest at the rate of 20% per year
over a five-year period from date of grant. In August 2001, 6,780 fully vested
deferred shares were issued for common stock of Penton.
Compensation expense is being recognized over the related vesting period
based on the fair value of the shares at the date of grant. During 2001, 2000
and 1999, approximately $0.4 million, $0.4 million and $0.08 million,
respectively, were charged to expense for these shares. The board of directors
may authorize the payment of dividend equivalents on such shares on a current,
deferred or contingent basis, either in cash or in additional shares of common
stock. At December 31, 2001, no such authorization had been made.
65
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Shares
In February 2001, the board of directors approved a grant of 101,485
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2001 through
December 31, 2003. Each grantee is eligible to receive between 50% and 150% of
the granted shares.
In October 2000, the board of directors approved a grant of 15,000
performance shares to a key executive, subject to the attainment of certain
performance goals over a three-year period from January 1, 2001 through December
31, 2003. The grantee is eligible to receive between 17% and 150% of the granted
shares.
In June 2000, the board of directors approved a grant of 20,000 performance
shares to two key executives, subject to the attainment of certain performance
goals over a three-year period from January 1, 2000 through December 31, 2002.
Each grantee is eligible to receive between 10% and 150% of the granted shares.
In February 2000, the board of directors approved a grant of 136,054
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2000 through
December 31, 2002. For 99,000 of the shares, each grantee is eligible to receive
between 50% and 150% of the granted shares.
Performance shares are not issuable until earned. Compensation expense
related to these shares is recorded over the performance period. For the years
ended December 31, 2001 and 2000, approximately $0.5 million and $1.4 million,
respectively, were charged to expense for these shares.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Penton accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and not under the
fair value method as provided by Financial Accounting Standard No. 123,
"Accounting and Disclosure of Stock-Based Compensation" ("FAS 123").
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if Penton had accounted for its
employee stock options under FAS 123. The weighted-average fair value of options
granted in 2001, 2000 and 1999 was $6.32, $10.95 and $5.07, respectively. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model, under the following assumptions for 2001,
2000 and 1999:
2001 2000 1999
------- ------- -------
Risk-free interest rate........................... 4.03% 5.06% 6.20%
Dividend yields................................... 0.0% 0.40% 0.50%
Expected volatility............................... 59.4% 55.93% 61.25%
Expected life..................................... 4 years 4 years 4 years
66
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair values of the options granted at the grant dates,
consistent with FAS 123, Penton's net income (loss) and earnings per share would
have been as follows (dollars in thousands, except per share data):
2001 2000 1999
--------- ------- ------
Net income (loss) applicable to common stockholders
As reported........................................... $(104,107) $79,590 $8,210
Pro forma............................................. $(107,461) $77,406 $6,238
Basic earnings per share
As reported........................................... $ (3.26) $ 2.51 $ 0.29
Pro forma............................................. $ (3.37) $ 2.44 $ 0.22
Diluted earnings per share
As reported........................................... $ (3.26) $ 2.49 $ 0.29
Pro forma............................................. $ (3.37) $ 2.42 $ 0.22
NOTE 13 -- EARNINGS PER SHARE
Earnings per share ("EPS") have been computed pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Computations of basic and diluted earnings per share for the years ended
December 31, 2001, 2000 and 1999 are as follows (in thousands, except per share
amounts):
YEARS ENDED DECEMBER 31,
----------------------------
2001 2000 1999
--------- ------- ------
Income (loss) from continuing operations applicable to
common stockholders................................... $(104,107) $79,675 $7,930
========= ======= ======
Number of shares:
Basic - weighted-average shares outstanding............. 31,917 31,730 28,108
Effect of dilutive securities:
Stock options......................................... -- 280 74
Performance shares.................................... -- -- --
Contingent shares..................................... -- -- 27
--------- ------- ------
Diluted - weighted-average shares outstanding........... 31,917 32,010 28,209
========= ======= ======
Per share amount:
Income (loss) from continuing operations
Basic................................................. $ (3.26) $ 2.51 $ 0.28
Diluted............................................... $ (3.26) $ 2.49 $ 0.28
Due to the net loss from operations for the year ended December 31, 2001,
36 stock options and 206 performance shares were excluded from the calculation
of diluted earnings per share, as the result would have been anti-dilutive.
NOTE 14 -- COMPREHENSIVE INCOME (LOSS)
Comprehensive income, which is displayed in the Consolidated Statements of
Stockholders' Equity, represents net income (loss) plus the results of certain
stockholder equity changes not reflected in the Consolidated Statements of
Operations.
67
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The after-tax components of other comprehensive income (loss) are as
follows:
2001 2000 1999
--------- -------- --------
Net income (loss).................................... $(104,107) $ 79,590 $ 8,210
Change in unrealized gain (loss) on securities
reported at fair value, net of tax of $2.9 million,
$29.3 million, and $60.6 million in 2001, 2000 and
1999, respectively................................. (7,202) (73,323) 151,605
Reclassification adjustment for gain on sale of
securities, net of tax of $28.1 million in 2000.... -- (70,272) --
Reclassification adjustment for cash flow hedges..... (1,439) -- --
Change in accumulated translation adjustments........ (1,560) 95 (787)
--------- -------- --------
Comprehensive income (loss).......................... $(114,308) $(63,910) $159,028
========= ======== ========
NOTE 15 -- BUSINESS RESTRUCTURING AND OTHER CHARGES
IMPAIRMENT OF ASSETS
Triggered by the continued decline in the economy and the negative impact
of the September 11, 2001 catastrophe, Penton recorded asset and goodwill
impairment charges of $69.6 million ($41.7 million after tax, or $1.31 per
diluted share) in the second half of 2001. In addition to goodwill writedowns of
$66.4 million, the remaining charge primarily represents assets of $1.7 million
related to various Web sites that were shut down and $0.9 million related to
abandoned circulation software costs.
Asset impairment charges of $9.7 million in the third quarter included the
writedown of goodwill by $7.1 million on five small acquisitions; $1.7 million
for various Web sites that were shut down; and $0.9 million of abandoned
circulation software costs. Asset impairment charges of $59.6 million in the
fourth quarter included primarily the writedown of goodwill related to eight
acquisitions.
In December 2000, the Company wrote off $2.1 million of impaired assets
related to certain internally funded Internet media initiatives. The impaired
assets related to certain abandoned projects. In addition, the Company recorded
approximately a $1.0 million non-cash charge in 2000 to write down the carrying
value of certain leasehold improvements, furniture and fixtures, and computer
equipment to fair value.
WRITEDOWN OF INTERNET INVESTMENTS
In March 2000, Penton entered into a strategic alliance agreement with
Cayenta, Inc. ("Cayenta"), a subsidiary of the Titan Corporation. Cayenta is a
total service provider of end-to-end e-commerce systems. As part of the
agreement, Penton purchased 250,000 shares of Cayenta stock for $6.3 million.
Penton recorded its investment under the cost method of accounting due to the
Company's inability to exert significant influence over Cayenta.
In June 2000, Penton entered into a strategic investment and partnership
agreement with LeisureHub.com, an online B2B trading community for the global
leisure industry. Penton paid approximately $3.4 million for a 19.9% stake in
the company. As Penton has the ability to exercise significant influence over
LeisureHub.com, the Company accounted for its investment using the equity method
of accounting.
During the fourth quarter of 2000, the Company determined that its
investments in Cayenta and Leisurehub.com had suffered declines in value that
were other than temporary. The decision was based on current market conditions,
economic outlook and the future viability of these companies. As a result, the
Company recognized losses totaling $9.5 million and reduced its investment in
Cayenta and LeisureHub.com to zero. In 2001, LeisureHub.com voluntarily
liquidated and, in December 2001, Penton received partial settlement proceeds
68
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of approximately $0.8 million that was recorded in the Writedown of Internet
Investments in the Consolidated Statements of Operations.
RESTRUCTURING CHARGES
In February 2001, Penton announced a restructuring program with the intent
of discontinuing certain Internet operations that had not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. The charge of
$5.6 million ($3.3 million after tax, or $0.10 per share on a basic and diluted
basis) included the write-off of capitalized software development costs
associated with the discontinuance of the industry exchange component of New
Hope Natural Media's Healthwell.com; personnel costs, including the reduction of
approximately 60 employees at Healthwell.com as well as a reduction of workforce
related to a number of other Internet initiatives throughout Penton; and exit
costs associated with existing office spaces under lease and other contractual
obligations. In the third quarter of 2001, the Company determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated. Based on the Company's third quarter
estimates, approximately $1.0 million was reversed from the first-quarter charge
and the total amount of the charge was adjusted to $4.6 million ($2.7 million
after tax, or $0.09 per share on a basic and diluted basis). The majority of the
remaining costs incurred in connection with the first-quarter restructuring plan
have been paid.
In the second half of 2001, the Company implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the business environment. Restructuring charges of $9.5 million ($5.7
million after tax, or $0.18 per share on a diluted basis), net of $1.0 million
reversal noted above, in the third quarter and $3.7 million ($2.3 million after
tax, or $0.07 per share on a diluted basis) in the fourth quarter resulted
primarily from strategic decisions to restructure a number of businesses and
support departments, including reducing our overhead infrastructure by
consolidating and closing several branch offices, centralizing information
technology and outsourcing certain corporate functions. Of the total charges,
$4.7 million relates to employee termination benefits for the elimination of
nearly 340 positions, of which 294 positions and $2.7 million in payments had
been completed by year end. Approximately 84% of the positions eliminated or to
be eliminated are in the U.S., with the remaining positions predominantly in the
United Kingdom and Germany. The remaining $8.5 million of the restructuring
charges relates to the closure of over 20 Penton offices worldwide, and includes
costs associated with existing office spaces under lease and other contractual
obligations.
The following table summarizes the restructuring and impairment charges,
the amounts paid and the ending accrual balances for the year ended December 31,
2001(in thousands):
ENDING
TOTAL CASH NON-CASH ACCRUAL
DESCRIPTION CHARGES PAYMENTS CHARGES BALANCE
----------- ------- -------- -------- -------
Severance, outplacement and other personnel
costs........................................ $ 6,583 $4,468 $ -- $ 2,115
Facility closing costs......................... 8,764 267 -- 8,497
Asset impairments.............................. 2,288 567 1,084 637
Other exit costs............................... 1,155 772 -- 383
------- ------ ------ -------
Total.......................................... $18,790 $6,074 $1,084 $11,632
======= ====== ====== =======
The majority of the severance costs are expected to be paid by the end of
April 2002, while the balance of facility costs, which include long-term leases,
is expected to be paid through the end of the respective lease term.
NOTE 16 -- SEGMENT INFORMATION
During 2001, we began to view and manage our business differently than we
had in the past. Our new approach involves dividing the business into four media
segments; Technology, Industry, Lifestyle and Other, and
69
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
grouping our industry sectors within each segment. During 2001, we put a senior
manager in charge of each segment. These senior managers report directly to the
Chief Executive Officer and President and Chief Operating Officer. We have
included segment information for 2000 on the same basis as has begun to be used
in 2001. It was not practicable to obtain similar segment information for 1999
as a result of refinements made to our accounting systems and procedures
beginning in 2000.
Our four segments derive their revenues from the production of trade shows,
publications and online media products, including Web sites serving customers in
our 12 distinct industry sectors. The Industry Media segment serves customers in
the aviation, design/engineering, government/compliance, manufacturing,
mechanical systems/construction and supply chain industry sectors. The
Technology Media segment serves customers in the electronics, information
technology and Internet/Broadband industry sectors. The Lifestyle Media segment
serves customers in the natural products industry, and the Other segment serves
customers in the food/retail, hospitality and leisure industry markets.
The accounting policies of the operating segments are the same as those
described in Note 2 -- Summary of Significant Accounting Policies. The chief
operating decision makers evaluate performance of the segments based on revenues
and adjusted EBITDA. Adjusted EBITDA for segments is calculated as previously
defined except that segment adjusted EBITDA also excludes corporate level costs.
Corporate level costs include costs for centralized functions, such as finance,
accounting and information systems, which cannot be reasonably allocated to each
segment. Assets are not allocated to segments and as such have not been
presented.
Summary information by segment for the years ended December 31, 2001 and
2000 is as follows (in thousands):
INDUSTRY TECHNOLOGY LIFESTYLE
MEDIA MEDIA MEDIA OTHER TOTAL
-------- ---------- --------- ------- --------
2001
Revenues........................ $124,331 $196,928 $29,893 $20,400 $371,552
Adjusted EBITDA................. $ 17,443 $ 34,513 $ 9,814 $ 4,775 $ 66,545
2000
Revenues........................ $142,245 $205,380 $30,121 $26,825 $404,571
Adjusted EBITDA................. $ 28,739 $ 69,652 $ 7,495 $ 7,526 $113,412
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. Following is a reconciliation of Penton's total
segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
YEARS ENDED
DECEMBER 31,
--------------------
2001 2000
--------- --------
CONSOLIDATED INCOME (LOSS) BEFORE TAXES:
Total segment adjusted EBITDA............................... $ 66,545 $113,412
Depreciation and amortization............................... (45,492) (33,431)
Restructuring charge........................................ (18,790) --
Asset writedowns and impairments............................ (68,741) (12,636)
Gain on sale of investments................................. -- 110,210
Interest expense, net of interest earned.................... (28,721) (14,133)
Miscellaneous, net.......................................... (2,839) (64)
Corporate costs............................................. (26,276) (22,124)
--------- --------
Consolidated income (loss) before taxes..................... $(124,314) $141,234
========= ========
70
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Enterprise-wide Disclosures
Revenues by product offerings are as follows for the years ended December
31, 2001, 2000 and 1999 (in thousands):
2001 2000 1999
-------- -------- --------
Publishing........................................... $210,208 $230,120 $202,472
Trade shows and conferences.......................... 149,202 168,436 97,444
Online media......................................... 12,142 6,015 908
-------- -------- --------
$371,552 $404,571 $300,824
======== ======== ========
Domestic revenues of our products and services comprised $323.3 million,
$362.9 million and $277.3 million of total revenues for the years ended December
31, 2001, 2000 and 1999, respectively. Foreign revenues totaled $48.2 million,
$41.7 million and $23.5 million of our revenues for the years ended December 31,
2001, 2000 and 1999, respectively, of which $31.6 million, $15.6 million and
$17.8 million, respectively, were from the United Kingdom. No single customer
accounted for 10% or more of sales during 2001, 2000 and 1999.
Long-lived assets at December 31, 2001, 2000 and 1999 included $42.2
million, $36.4 million and $31.3 million, respectively, identified with foreign
operations, substantially all of which were intangible assets, with the
remaining assets identified with domestic operations. Long-lived assets from the
United Kingdom comprised $33.1 million, $29.8 million and $31.2 million,
respectively, of these foreign assets.
NOTE 17 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
INVESTING ACTIVITIES
Penton assumed liabilities of approximately $9.9 million, $21.0 million and
$5.6 million in connection with acquisitions completed in 2001, 2000 and 1999,
respectively. In conjunction with the acquisition of New Hope in May 1999,
Penton issued 2.1 million common shares valued at $41.0 million as
consideration.
In 2001, 2000 and 1999, Penton marked to market its investment in INT Media
Group, Inc. stock by approximately $1.3 million, $13.4 million and $252.7
million, respectively. See Note 5 -- Investments, for further discussion.
At December 31, 1999, Penton had $4.2 million of net investment in
discontinued operations for the Direct Mail segment and a related non-cash loss
of $0.7 million.
FINANCING ACTIVITIES
At December 31, 2000 and 1999, dividends of $1.0 million and $0.9 million,
respectively, were declared and paid in 2001 and 2000.
The foregoing transactions do not provide or use cash and, accordingly, are
not reflected in the Consolidated Statements of Cash Flows.
71
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2001 and
2000 are shown below (dollars in thousands, except per share amounts):
2001 QUARTERS
-------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
-------- -------- -------- -------- ---------
Revenues............................ $112,693 $106,777 $ 61,523 $ 90,559 $ 371,552
Operating income (loss)............. $ 2,762(a) $ 4,779 $(38,622)(b) $(62,497)(c) $ (93,578)
Income (loss) from continuing
operations before income taxes.... $ (3,188) $ (2,971) $(47,679) $(70,476) $(124,314)
Net loss............................ $ (1,278) $ (5,483) $(29,495) $(67,851) $(104,107)
Earnings per share (basic and
diluted):
Net loss.......................... (0.04) (0.17) (0.92) (2.12) (3.26)
2000 QUARTERS
-------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
-------- -------- -------- -------- ---------
Revenues............................ $ 75,825 $109,058 $ 76,720 $142,968 $ 404,571
Operating income (loss)............. $ 3,384 $ 24,574(e) $ (714) $ 27,467(f) $ 54,711
Income (loss) from continuing
operations before income taxes.... $110,839 $ 21,709 $ (3,756) $ 12,442 $ 141,234
Income (loss) from continuing
operations........................ $ 66,423(d) $ 8,695 $ (1,244) $ 5,801(g) $ 79,675
Discontinued operations............. $ (85) $ -- $ -- $ -- $ (85)
Net income (loss)................... $ 66,338 $ 8,695 $ (1,244) $ 5,801 $ 79,590
Earnings per share (basic):
Income (loss) from continuing
operations..................... $ 2.10 $ 0.27 $ (0.04) $ 0.18 $ 2.51
Discontinued operations........... -- -- -- -- --
-------- -------- -------- -------- ---------
Net income (loss)................. $ 2.10 $ 0.27 $ (0.04) $ 0.18 $ 2.51
======== ======== ======== ======== =========
Earnings per share (diluted):
Income (loss) from continuing
operations..................... $ 2.09 $ 0.27 $ (0.04) $ 0.18 $ 2.49
Discontinued operations........... -- -- -- -- --
-------- -------- -------- -------- ---------
Net income (loss)................. $ 2.09 $ 0.27 $ (0.04) $ 0.18 $ 2.49
======== ======== ======== ======== =========
Earnings per share calculations for each of the quarters are based on the
weighted-average number of shares outstanding for each quarter, and the sum of
the quarters may not necessarily be equal to the full-year earnings per share
amount.
---------------
(a) Includes $5.6 million, $0.10 per dilutive share after tax, of restructuring
charge.
(b) Includes $9.7 million, $0.18 per dilutive share after tax, related to
impairment of assets and $9.5 million, $0.18 per dilutive share after tax,
related to restructuring charge.
(c) Includes $59.1 million, $1.11 per dilutive share after tax, related to
impairment of assets and $3.8 million, $0.07 per dilutive share after tax,
related to restructuring charge.
(d) Includes $110.2 million, $2.08 per dilutive share after tax, related to gain
on sale of 2.0 million shares of INT Media common stock.
72
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Includes $1.0 million, $0.02 per dilutive share after tax, related to
impairment of assets.
(f) Includes $2.1 million, $0.04 per dilutive share after tax, related to
impairment of Internet assets.
(g) Includes $9.5 million, $0.18 per dilutive share after tax, related to
writedown of Internet investments.
Quarterly results of operations by segment for the years ended December 31,
2001 and 2000 are shown below (in thousands):
2001 QUARTERS
--------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- ------- ------- --------
REVENUE
Industry........................ $ 31,382 $ 37,240 $26,899 $28,810 $124,331
Technology...................... 61,839 61,522 25,536 48,031 196,928
Lifestyle....................... 14,429 3,711 3,920 7,833 29,893
Other........................... 5,043 4,304 5,168 5,885 20,400
-------- -------- ------- ------- --------
Total............................. $112,693 $106,777 $61,523 $90,559 $371,552
======== ======== ======= ======= ========
ADJUSTED EBITDA
Industry........................ $ 4,704 $ 7,251 $ 2,343 $ 3,145 $ 17,443
Technology...................... 15,161 14,215 (5,647) 10,784 34,513
Lifestyle....................... 8,384 (608) (151) 2,189 9,814
Other........................... 1,115 884 1,305 1,471 4,775
-------- -------- ------- ------- --------
Total............................. $ 29,364 $ 21,742 $(2,150) $17,589 $ 66,545
======== ======== ======= ======= ========
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
2001 QUARTERS
---------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- -------- -------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE TAXES:
Total segment adjusted EBITDA..... $29,364 $21,742 $ (2,150) $ 17,589 $ 66,545
Depreciation and amortization..... (11,579) (11,135) (11,211) (11,567) (45,492)
Restructuring charge.............. (5,567) -- (9,468) (3,755) (18,790)
Asset writedowns and
impairments..................... -- -- (9,663) (59,902) (69,565)
Writedown of internet
investments..................... -- -- -- 824 824
Gain on sale of investments....... -- -- -- -- --
Interest expense, net of interest
earned.......................... (6,001) (6,249) (8,263) (8,208) (28,721)
Miscellaneous, net................ 51 (1,501) (794) (595) (2,839)
Corporate costs................... (9,456) (5,828) (6,130) (4,862) (26,276)
------- ------- -------- -------- ---------
Consolidated income (loss) before
taxes........................... $(3,188) $(2,971) $(47,679) $(70,476) $(124,314)
======= ======= ======== ======== =========
73
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2000 QUARTERS
--------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- -------- --------
REVENUE
Industry........................ $31,869 $ 36,184 $31,547 $ 42,645 $142,245
Technology...................... 25,110 63,201 24,357 92,712 205,380
Lifestyle....................... 13,889 3,573 10,198 2,461 30,121
Other........................... 4,957 6,100 10,618 5,150 26,825
------- -------- ------- -------- --------
Total............................. $75,825 $109,058 $76,720 $142,968 $404,571
======= ======== ======= ======== ========
ADJUSTED EBITDA
Industry........................ $ 5,368 $ 8,416 $ 5,671 $ 9,284 $ 28,739
Technology...................... 2,648 31,447 (1,180) 36,737 69,652
Lifestyle....................... 8,670 (2,111) 4,183 (3,247) 7,495
Other........................... 1,211 1,878 3,848 589 7,526
------- -------- ------- -------- --------
Total............................. $17,897 $ 39,630 $12,522 $ 43,363 $113,412
======= ======== ======= ======== ========
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
2000 QUARTERS
-------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- ------- ------- ------- --------
CONSOLIDATED INCOME (LOSS) BEFORE
TAXES:
Total segment adjusted EBITDA...... $ 17,897 $39,630 $12,522 $43,363 $113,412
Depreciation and amortization...... (7,653) (7,376) (7,851) (10,551) (33,431)
Restructuring charge............... -- -- -- -- --
Asset writedowns and impairments... -- (1,051) -- (11,585) (12,636)
Gain on sale of investments........ 110,210 -- -- -- 110,210
Interest expense, net of interest
earned........................... (2,735) (2,441) (3,129) (5,828) (14,133)
Miscellaneous, net................. (20) (424) 87 293 (64)
Corporate costs.................... (6,860) (6,629) (5,385) (3,250) (22,124)
-------- ------- ------- ------- --------
Consolidated income (loss) before
taxes............................ $110,839 $21,709 $(3,756) $12,442 $141,234
======== ======= ======= ======= ========
NOTE 19 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as
of December 31, 2001 and 2000 and condensed consolidating statements of
operations and condensed consolidating statements of cash flows for the years
ended December 31, 2001, 2000 and 1999. In the following schedules, "Parent
Company" refers to the combined balances of Penton Media, Inc.; "Guarantor
Subsidiaries" refers to Penton's wholly owned domestic subsidiaries; and
"Non-guarantor Subsidiaries" refers to Penton's foreign subsidiaries.
"Eliminations" represent the adjustments necessary to (a) eliminate intercompany
transactions and (b) eliminate the investments in our subsidiaries.
74
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents........... $ 14,518 $ 1,993 $ 3,680 $ -- $ 20,191
Accounts and notes receivable,
net.............................. 32,973 93,247 12,232 (82,000) 56,452
Income tax receivable............... 14,750 -- -- -- 14,750
Inventories......................... 1,090 248 13 -- 1,351
Deferred tax asset.................. 4,683 1,962 -- -- 6,645
Prepayments, deposits and other..... 3,893 3,961 -- -- 7,854
-------- -------- ------- --------- --------
71,907 101,411 15,925 (82,000) 107,243
-------- -------- ------- --------- --------
Property, plant and equipment,
net.............................. 22,563 4,694 2,919 -- 30,176
Goodwill, net....................... 124,828 331,570 36,743 -- 493,141
Other intangibles, net.............. 13,624 40,684 2,492 -- 56,800
Deferred tax asset.................. 16,462 (8,994) -- -- 7,468
Investment in subsidiaries.......... 221,915 146,235 -- (368,150) --
Investments......................... -- 5,649 -- -- 5,649
-------- -------- ------- --------- --------
399,392 519,838 42,154 (368,150) 593,234
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior debt facility................ $ 16,489 $ -- $ -- $ -- $ 16,489
Note payable........................ -- -- 2,804 -- 2,804
Accounts payable and accrued
expenses......................... 38,969 (1,580) 9,656 -- 47,045
Accrued compensation and benefits... 10,562 1,226 623 -- 12,411
Unearned income..................... 15,339 16,723 4,877 -- 36,939
-------- -------- ------- --------- --------
81,359 16,369 17,960 -- 115,688
-------- -------- ------- --------- --------
Long-term liabilities and deferred
credits:
Senior debt facility................ 164,098 -- -- -- 164,098
Senior subordinated notes........... 180,957 -- -- -- 180,957
Note payable........................ 82,000 -- 417 (82,000) 417
Net deferred pension credits........ 15,140 -- -- -- 15,140
Intercompany advances............... (310,773) 266,714 44,059 -- --
Other............................... 2,097 384 1,166 -- 3,647
-------- -------- ------- --------- --------
133,519 267,098 45,642 (82,000) 364,259
-------- -------- ------- --------- --------
Stockholders' equity:
Common stock........................ 227,564 355,888 1,465 (357,353) 227,564
Retained earnings................... 41,251 (18,914) (4,816) (10,797) 6,724
Notes receivable
officers/directors............... (10,824) -- -- -- (10,824)
Accumulated other comprehensive
income........................... (1,570) 808 (2,172) -- (2,934)
-------- -------- ------- --------- --------
256,421 337,782 (5,523) (368,150) 220,530
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
75
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ 8,678 $ 3,970 $ (1,043) $ 11,605
Accounts and notes receivable,
net.......................... 40,592 96,850 12,617 (80,000) 70,059
Inventories..................... 495 282 21 -- 798
Deferred tax asset.............. 3,600 1,962 -- -- 5,562
Prepayments, deposits and
other........................ 5,282 4,710 1,771 -- 11,763
-------- -------- ------- --------- --------
49,969 112,482 18,379 (81,043) 99,787
-------- -------- ------- --------- --------
Property, plant and equipment,
net.......................... 28,951 5,462 1,084 -- 35,497
Goodwill, net................... 139,023 405,987 29,616 -- 574,626
Other intangibles, net.......... 26,548 25,562 2,012 -- 54,122
Deferred tax asset.............. 2,472 -- 6 (2,478) --
Investment in subsidiaries...... 222,801 144,235 -- (367,036) --
Investments..................... -- 17,725 -- -- 17,725
-------- -------- ------- --------- --------
419,795 598,971 32,718 (369,514) 681,970
-------- -------- ------- --------- --------
$469,764 $711,453 $51,097 $(450,557) $781,757
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Senior debt facility............ $ 11,250 $ -- $ -- $ -- $ 11,250
Accounts payable and accrued
expenses..................... 32,273 7,412 6,400 (1,043) 45,042
Accrued compensation and
benefits..................... 15,200 2,985 300 -- 18,485
Unearned income................. 17,253 28,860 9,659 -- 55,772
-------- -------- ------- --------- --------
75,976 39,257 16,359 (1,043) 130,549
-------- -------- ------- --------- --------
Long-term liabilities and deferred
credits:
Revolving credit facility....... 91,000 -- -- -- 91,000
Senior debt facility............ 199,875 -- -- -- 199,875
Note payable.................... 80,000 -- -- (80,000) --
Net deferred pension credits.... 15,241 -- -- -- 15,241
Deferred tax liability.......... -- 8,456 -- (2,478) 5,978
Intercompany advances........... (304,754) 269,182 35,572 -- --
Other........................... 2,549 25 (29) -- 2,545
-------- -------- ------- --------- --------
83,911 277,663 35,543 (82,478) 314,639
-------- -------- ------- --------- --------
Stockholders' equity:
Common stock.................... 226,764 353,889 2,350 (356,239) 226,764
Retained earnings............... 93,406 32,637 (2,501) (10,797) 112,745
Notes receivable
officers/directors........... (10,207) -- -- -- (10,207)
Accumulated other comprehensive
income....................... (86) 8,007 (654) -- 7,267
-------- -------- ------- --------- --------
309,877 394,533 (805) (367,036) 336,569
-------- -------- ------- --------- --------
$469,764 $711,453 $51,097 $(450,557) $781,757
======== ======== ======= ========= ========
76
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
REVENUES.......................... $195,126 $130,454 $45,972 $ -- $ 371,552
-------- -------- ------- ---- ---------
OPERATING EXPENSES:
Editorial, production and
circulation.................. 91,665 45,663 16,051 -- 153,379
Selling, general and
administrative............... 97,834 57,521 22,549 -- 177,904
Depreciation and amortization... 15,723 26,899 2,870 -- 45,492
Impairment of other assets...... 14,164 53,259 2,142 -- 69,565
Restructuring charges........... 6,097 10,169 2,524 -- 18,790
-------- -------- ------- ---- ---------
225,483 193,511 46,136 -- 465,130
-------- -------- ------- ---- ---------
OPERATING INCOME (LOSS)........... (30,357) (63,057) (164) -- (93,578)
-------- -------- ------- ---- ---------
OTHER INCOME (EXPENSE):
Interest expense, net of income
earned....................... (32,794) 4,530 (457) -- (28,721)
Writedown of Internet
investments.................. -- -- 824 -- 824
Miscellaneous, net.............. (1,285) -- (1,554) -- (2,839)
-------- -------- ------- ---- ---------
(34,079) 4,530 (1,187) -- (30,736)
-------- -------- ------- ---- ---------
LOSS BEFORE INCOME TAXES.......... (64,436) (58,527) (1,351) -- (124,314)
PROVISION (BENEFIT) FOR INCOME
TAXES........................... (14,195) (6,976) 964 -- (20,207)
-------- -------- ------- ---- ---------
NET LOSS.......................... $(50,241) $(51,551) $(2,315) $ -- $(104,107)
======== ======== ======= ==== =========
77
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
REVENUES.......................... $219,933 $156,240 $28,398 $ -- $404,571
OPERATING EXPENSES:
Editorial, production and
circulation.................. 94,730 43,176 9,106 -- 147,012
Selling, general and
administrative............... 101,394 51,935 12,942 -- 166,271
Depreciation and amortization... 12,500 18,795 2,136 -- 33,431
Restructuring charges........... -- 1,051 -- -- 1,051
Impairment of other assets...... 2,095 -- -- -- 2,095
-------- -------- ------- ---- --------
210,719 114,957 24,184 -- 349,860
-------- -------- ------- ---- --------
OPERATING INCOME.................. 9,214 41,283 4,214 -- 54,711
-------- -------- ------- ---- --------
OTHER INCOME (EXPENSE):
Interest expense, net of income
earned....................... (16,016) 2,340 (457) -- (14,133)
Writedown of Internet
investments.................. (9,490) -- -- -- (9,490)
Gain on sale of investments..... 110,210 -- -- -- 110,210
Miscellaneous, net.............. (950) 377 509 -- (64)
-------- -------- ------- ---- --------
83,754 2,717 52 -- 86,523
-------- -------- ------- ---- --------
INCOME BEFORE INCOME TAXES........ 92,968 44,000 4,266 -- 141,234
PROVISION FOR INCOME TAXES........ 30,496 28,238 2,825 -- 61,559
-------- -------- ------- ---- --------
INCOME FROM CONTINUING
OPERATIONS...................... 62,472 15,762 1,441 -- 79,675
DISCONTINUED OPERATIONS:
Loss from discontinued
operations, net.............. (85) -- -- -- (85)
-------- -------- ------- ---- --------
NET INCOME........................ $ 62,387 $ 15,762 $ 1,441 $ -- $ 79,590
======== ======== ======= ==== ========
78
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
REVENUES.......................... $198,137 $85,081 $17,606 $ -- $300,824
OPERATING EXPENSES:
Editorial, production and
circulation.................. 86,910 23,634 6,380 -- 116,924
Selling, general and
administrative............... 87,553 21,781 7,258 -- 116,592
Depreciation and amortization... 7,491 18,575 1,852 -- 27,918
Restructuring charges........... -- -- -- -- --
Impairment of other assets...... -- -- -- -- --
-------- ------- ------- ---- --------
181,954 63,990 15,490 -- 261,434
-------- ------- ------- ---- --------
OPERATING INCOME.................. 16,183 21,091 2,116 -- 39,390
-------- ------- ------- ---- --------
OTHER INCOME (EXPENSE):
Interest expense, net of income
earned....................... (20,559) 36 (608) -- (21,131)
Gain on sale of investments..... 5,906 -- -- -- 5,906
Miscellaneous, net.............. 197 (89) (278) -- (170)
-------- ------- ------- ---- --------
(14,456) (53) (886) -- (15,395)
-------- ------- ------- ---- --------
INCOME BEFORE INCOME TAXES........ 1,727 21,038 1,230 -- 23,995
PROVISION FOR INCOME TAXES........ 2,304 12,966 795 -- 16,065
-------- ------- ------- ---- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS...................... (577) 8,072 435 -- 7,930
GAIN ON SALE OF DISCONTINUED
OPERATIONS...................... 8,693 -- -- -- 8,693
-------- ------- ------- ---- --------
INCOME BEFORE EXTRAORDINARY
ITEM............................ 8,116 8,072 435 -- 16,623
EXTRAORDINARY ITEM -- EARLY
EXTINGUISHMENT OF DEBT.......... (8,413) -- -- -- (8,413)
-------- ------- ------- ---- --------
NET INCOME (LOSS)................. $ (297) $ 8,072 $ 435 $ -- $ 8,210
======== ======= ======= ==== ========
79
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES........... $ (25,529) $ (699) $ 4,842 $ 1,043 $ (20,343)
--------- ------- ------- ------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (3,735) (2,153) (1,714) -- (7,602)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (12,806) (3,833) (3,214) -- (19,853)
--------- ------- ------- ------- ---------
Net cash used for investing
activities................ (16,541) (5,986) (4,928) -- (27,455)
--------- ------- ------- ------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from senior
subordinated notes.......... 180,836 -- -- -- 180,836
Proceeds from senior debt
facility.................... 45,000 -- -- -- 45,000
Repayment of senior debt
facility.................... (166,538) -- -- -- (166,538)
Repayment of notes payable..... -- -- (201) -- (201)
Employee stock purchase plan
payments.................... (350) -- (3) -- (353)
Proceeds from deferred shares
and options exercised....... 1,153 -- -- -- 1,153
Payment of financing costs..... (1,657) -- -- -- (1,657)
Dividends paid................. (1,914) -- -- -- (1,914)
--------- ------- ------- ------- ---------
Net cash provided by
financing activities... 56,530 -- (204) -- 56,326
--------- ------- ------- ------- ---------
Effect of exchange rate.......... 58 -- -- -- 58
--------- ------- ------- ------- ---------
Net increase (decrease) in
cash and equivalents... 14,518 (6,685) (290) 1,043 8,586
Cash and equivalents at beginning
of period...................... -- 8,678 3,970 (1,043) 11,605
--------- ------- ------- ------- ---------
Cash and equivalents at end of
period......................... $ 14,518 $ 1,993 $ 3,680 $ -- $ 20,191
========= ======= ======= ======= =========
80
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES........... $ (13,600) $ 15,809 $ 8,074 $(1,043) $ 9,240
--------- -------- ------- ------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (19,208) (7,416) (648) -- (27,272)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (192,119) (2,633) (6,244) -- (200,996)
Proceeds from sale of INT Media
Group Inc. stock............ 113,100 -- -- -- 113,100
Net proceeds from sale of
discontinued operations..... 4,000 -- -- -- 4,000
--------- -------- ------- ------- ---------
Net cash used for investing
activities................ (94,227) (10,049) (6,892) -- (111,168)
--------- -------- ------- ------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from senior debt
facility.................... 91,000 -- -- -- 91,000
Repayment of senior debt
facility.................... (283) -- -- -- (283)
Employee stock purchase plan
payments.................... (3,875) -- -- -- (3,875)
Employee stock purchase plan... (209) -- -- -- (209)
Proceeds from deferred shares
and options exercised....... 473 -- -- -- 473
Dividends paid................. (3,800) -- -- -- (3,800)
--------- -------- ------- ------- ---------
Net cash provided by
financing activities...... 83,306 -- -- -- 83,306
--------- -------- ------- ------- ---------
Effect of exchange rate.......... (143) -- -- -- (143)
Net increase in cash and
equivalents............... (24,664) 5,760 1,182 (1,043) (18,765)
Cash and equivalents at beginning
of period...................... 24,664 2,918 2,788 -- 30,370
--------- -------- ------- ------- ---------
Cash and equivalents at end of
period......................... $ -- $ 8,678 $ 3,970 $(1,043) $ 11,605
========= ======== ======= ======= =========
81
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES........... $ 28,317 $ 3,160 $2,880 $ -- $ 34,357
--------- ------- ------ ---- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (4,602) (890) (392) -- (5,884)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (54,432) (2,983) -- -- (57,415)
Proceeds from sale of INT Media
Group Inc. stock............ 6,640 -- -- -- 6,640
Net proceeds from sale of
discontinued operations..... 28,889... -- -- -- 28,889
--------- ------- ------ ---- ---------
Net cash used for investing
activities................ (23,505) (3,873) (392) -- (27,770)
--------- ------- ------ ---- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from senior debt
facility.................... 259,500 -- -- -- 259,500
Repayment of senior debt
facility.................... (350,500) -- -- -- (350,500)
Payment of notes payable....... (1,000) -- -- -- (1,000)
Payment of financing costs..... (3,461) -- -- -- (3,461)
Proceeds from equity offering,
net......................... 118,416 -- -- -- 118,416
Proceeds from deferred shares
and options exercised....... 170 -- -- -- 170
Dividends paid................. (3,246) -- -- -- (3,246)
--------- ------- ------ ---- ---------
Net cash provided by
financing activities...... 19,879 -- -- -- 19,879
--------- ------- ------ ---- ---------
Effect of exchange rate.......... (49) -- -- -- (49)
Net increase in cash and
equivalents............... 24,642 (713) 2,488 -- 26,417
Cash and equivalents at beginning
of period...................... 22 3,631 300 -- 3,953
--------- ------- ------ ---- ---------
Cash and equivalents at end of
period......................... $ 24,664 $ 2,918 $2,788 $ -- $ 30,370
========= ======= ====== ==== =========
NOTE 20 -- SUBSEQUENT EVENTS
In January 2002, we sold our remaining 11.8% ownership interest, or
approximately 2,973,383 shares, in INT Media for approximately $5.8 million.
On March 19, 2002, simultaneously with the payment discussed below, Penton
amended its credit facility. If Penton were required to file its compliance
certificate prior to the amendment of the credit facility, the Company would not
have been in compliance with its financial covenants. The amended and restated
facility provides for the following: (i) the revolving credit facility was
permanently reduced to $40.0 million from $185.0 million; (ii) Penton was
relieved of its financial covenants at December 31, 2001 and March 31, 2002;
(iii) Penton
82
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obtained revised financial covenant requirements after March 31, 2002. For
example, our leverage ratio and fixed charge ratio are not applicable until
after June 30, 2003 and September 30, 2003, respectively; (iv) the revolver is
limited to $15.0 million until the leverage ratio is less than 5.0x or the term
loans have been prepaid in full. An additional $10.0 million will become
available in the event that not less than $10.0 million is raised from an equity
issuance and the proceeds are used to prepay the term loans. Upon receipt of the
second-quarter compliance certificate, an additional $5.0 million will become
available; (v) in order to access the revolver, the Company must not have more
than $7.5 million of cash and cash equivalents available and must be in
compliance with the loan documents; and (vi) the amendment also increased the
interest rate on the revolver as well as the term A and term B loans, placed
additional restrictions on certain payments, limited additional debt and
contingent obligations, required additional collateral, limited additional
acquisitions and investments, limited our ability to sell assets and limited
capital expenditures.
On March 10, 2002, Penton entered into an agreement, which was subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of the Company's
common stock for $50.0 million. Pursuant to this agreement, Penton received
gross proceeds of $40.0 million from the sale of 40,000 shares of preferred
stock and warrants to purchase 1.28 million shares of the Company's common stock
on March 19, 2002. Penton expects to close the remaining $10.0 million within 30
days of the initial closing.
Significant terms of the new preferred stock are as follows: (i) holders of
the preferred shares will have a liquidation preference over holders of common
stock; (ii) the initial liquidation value per share will be $1,000. If the
preferred stock is not converted or redeemed prior to the sixth anniversary of
the date of issuance, the liquidation value will increase to $4,570 per share if
stockholder approval has been obtained on certain matters. If the stockholder
approval has not been obtained, the liquidation value will increase to $9,140
per share; (iii) dividends accrue at an annual rate of 7% from issuance until
year six unless stockholder approval is obtained on certain matters, at which
time the rate will decrease to 5% per annum. If the stockholder approval is
obtained within six months of the date of issuance, the rate will decrease
retroactive to the date of issuance. After the sixth anniversary, dividends
accrue at an annual rate of 15%. Upon certain triggering events, the dividend
rate may increase by one percentage point per quarter up to a maximum increase
of five percentage points; (iv) the dividends are payable semi-annually in cash
only if declared by the Company's board of directors and approved by no less
than 75% of the convertible preferred stock then outstanding. The provisions of
the Company's debt instruments limit our ability to pay dividends in cash, and
the Company has no present intention to pay dividends in cash; (v) shares of
preferred stock will be convertible at any time at each investor's option into a
number of shares of the Company's common stock equal to the liquidation value
plus accrued but unpaid dividends, divided by the conversion price. The
conversion price will initially be $7.61, and is subject to certain
anti-dilution and other adjustments. Subject to certain restrictions, the
Company has the option to convert the preferred stock at any time; (vi) if
stockholder approval of certain matters is not obtained by June 28, 2002, the
conversion price will automatically be reduced by 20%. Thereafter, until such
approval is obtained, every 90 days the conversion price will be reduced by 20%
of the conversion price then in effect. In no event will the conversion price
reduction related to the failure to timely obtain stockholder approval exceed
50% of the conversion price that would have been in effect had the Company
obtained stockholder approval. Upon the receipt of stockholder approval, the
conversion price will be readjusted as if no adjustments had occurred for
failure to timely obtain stockholder approval; (vii) if the Company fails to
comply with specific covenants contained in the purchase agreement, the
conversion price will be reduced by $0.76 (adjusted for stock splits and similar
transactions). The conversion price will readjust to what it would have been
absent such breach once the breach is cured; (viii) the Company may redeem the
preferred stock at any time, in whole or in part, provided that the redemption
price is equivalent to the amount the holders would receive on an as-converted
basis using a trailing 30-day period and subject to certain minimum share prices
based on the year redeemed; (iv) the preferred stock initially entitles the
holders to three seats on our board of directors. Upon the occurrence of certain
triggering events, an example of which would include a default resulting in
acceleration of indebtedness where the principal amount exceeds $5.0 million
83
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or final judgments of money aggregating more than $1.0 million are entered
against the Company and are not discharged, dismissed, or stayed pending appeal
within 90 days, the holders may appoint up to one less than a minimum majority
of the Company's board of directors or a minimum majority upon the occurrence of
certain events of bankruptcy or insolvency; (x) the holders of the convertible
preferred stock are entitled to vote on all matters submitted to a vote of the
Company's common stockholders; (xi) the terms of the convertible preferred stock
subjects the Company to various covenants, which among other things, limits the
Company's ability to sell assets, make any restricted payments or restricted
investments, enter into various agreements and grant certain options; (xii)
warrants will be issued to purchase an additional 0.32 million shares of the
Company's common stock. All warrants will have an initial exercise price of
$7.61 per share, subject to certain anti-dilution and other adjustments that
mirror those applicable to the convertible preferred stock. The warrants are
immediately exercisable and expire 10 years after issuance. The Company is
currently studying the accounting for this transaction, including the provisions
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities".
Net proceeds from the sale of the preferred stock, along with the net
proceeds of $5.8 million from the Company's recent sale of our INT Media Group,
Inc. common stock and cash on hand from the Company's $12.2 million tax refund,
will be used to repay $48.0 million of amounts outstanding under the Company's
term loans.
84
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, 1999
BALANCE AT BALANCE AT
BEGINNING CHARGE TO END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- --------- ---------- ----------
(DOLLARS IN THOUSANDS)
2001 - Allowance for doubtful accounts............. $3,863 $14,971 $(7,858) $10,976
2000 - Allowance for doubtful accounts............. $3,958 $ 1,714 $(1,809) $ 3,863
1999 - Allowance for doubtful accounts............. $4,899 $ 943 $(1,884) $ 3,958
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
85
PART III
The Information required by Part III, Items 10 through 13, of Form 10-K is
incorporated by reference from the registrant's definitive proxy statement for
its 2002 annual meeting of stockholders, which is to be filed pursuant to
Regulation 14A no later than 120 days following the end of the fiscal year
reported upon.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report.
1. Financial statements: The following documents are filed as part of this
report.
Report of Independent Accountants.
Consolidated Balance Sheets as of December 31, 2001 and 2000.
Consolidated Statements of Operations for the years ended December 31,
2001, 2000 and 1999.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule: The following financial statement schedule
of Penton Media, Inc. is filed as part of this Report and should be read
in conjunction with the Consolidated Financial Statements of Penton
Media, Inc.
Schedule II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Consolidated Financial Statements or
Notes thereto.
(b) Reports on Form 8-K
DATE OF REPORT ITEMS REPORTED
-------------- --------------
June 8, 2001................... Item 5. Other Events
June 22, 2001.................. Item 5. Other Events
September 20, 2001............. Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
October 30, 2001............... Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
November 16, 2001.............. Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 11, 2002................. Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 13, 2002................. Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
March 19, 2002................. Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
86
(c) Exhibits: The Exhibits listed in the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this Report.
EXHIBIT NO. DESCRIPTION OF DOCUMENTS
----------- ------------------------
2.1 Asset Purchase Agreement, dated as of May 18, 1999, by and
among Penton Media, Inc., New Hope Communications, Inc. and
R. Douglas Greene (filed as Exhibit 2.0 to the Company's
Form 8-K/A on August 10, 1999, and incorporated herein by
reference). The Registrant agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon
request.
2.2 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., D-M Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue and John J. Meehan (filed as Exhibit 2.1 to the
Company's Registration Statement No. 33-56877 and
incorporated herein by reference). The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement No. 333-56877 on Form S-1, dated August 5, 1998,
and incorporated herein by reference).
3.2 Certificate of Designation of Series A Junior Participating
Preferred Stock of Penton Media, Inc. (filed as Exhibit 4.1
to the Company's Form 8-K on June 12, 2000, and incorporated
herein by reference).
3.3 Certificate of Designations, Preferences and Rights of the
Series B Convertible Preferred Stock of Penton Media, Inc.
(filed as Exhibit 3.1 to the Company's Form 8-K on March 19,
2002, and incorporated herein by reference).
3.4 Amended and Restated Bylaws of the Registrant, filed herein.
4.1 Form of Warrants to purchase common stock of Penton Media,
Inc. (filed as Exhibit 4.1 to the Company's Form 8-K on
March 19, 2002, and incorporated herein by reference).
4.2 Rights Agreement, dated as of June 9, 2000, between Penton
Media, Inc. and Harris Trust and Savings Bank, as Rights
Agent, including a Form of Certificate of Designation of
Series A Junior Participating Preferred Stock as Exhibit A
thereto, a Form of Right Certificate as Exhibit B thereto
and a Summary of Rights to Purchase Preferred Stock as
Exhibit C thereto (filed as Exhibit 4.1 to the Company's
Form 8-K on June 12, 2000, and incorporated herein by
reference).
4.3 Amendment No. 1, dated as of March 18, 2002, to the Rights
Agreement, by and between Penton and National City Bank, as
successor Rights Agent (filed as Exhibit 4.2 to the
Company's Form 8-K on March 19, 2002, and incorporated
herein by reference).
4.4 Indenture, dated as of June 28, 2001, between Penton Media,
Inc., as issuer, the Subsidiary Guarantors named herein, and
The Bank of New York, as Trustee, including the form of the
Company's 10.375% Senior Subordinated Notes due June 15,
2011 attached as Exhibit A thereto (filed as Exhibit 4.1 to
the Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.1 Amended and Restated Series B Convertible Preferred Stock
and Warrant Purchase Agreement, dated as of March 18, 2002,
among Penton Media, Inc. and the investors listed on
Schedule 1 attached thereto (the 'Investors'), (filed as
Exhibit 10.1 to the Company's Form 8-K on March 19, 2002,
and incorporated herein by reference). The Registrant agrees
to furnish supplementally a copy of any omitted schedule to
the Commission upon request.
10.2 Registration Rights Agreement dated as of March 19, 2002 to
be entered into by Penton Media, Inc. and the Investors
(filed as Exhibit 10.2 to the Company's Form 8-K on March
19, 2002, and incorporated herein by reference).
10.3 Amended and Restated Credit Agreement, dated March 8, 2002,
between Penton Media, Inc., as borrower, the Lenders Party
hereto, as lenders, Banc of America Securities, LLC, as
syndication agent, Bank One and Fleet National Bank, as
co-documentation agents and The Bank of New York, as
administrative agent, filed herewith.
87
EXHIBIT NO. DESCRIPTION OF DOCUMENTS
----------- ------------------------
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.4 Penton Media, Inc. Retirement Savings Plan (filed as Exhibit
4.3 to the Company's Form S-8 on August 27, 1998, and
incorporated herein by reference).
10.5 Penton Media, Inc. Management Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on March 21, 2000, and
incorporated herein by reference).
10.6 Penton Media, Inc. Employee Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on November 17, 1999,
and incorporated herein by reference).
10.7 Penton Media, Inc. Amended and Restated 1998 Director Stock
Option Plan (filed as Exhibit 10.4 to the Company's Form
10-Q on August 14, 2001, and incorporated herein by
reference).
10.8 Penton Media, Inc. Amended and Restated 1998 Equity and
Performance Incentive Plan (filed as Exhibit 10.5 to the
Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.9 Penton Media, Inc. Retirement Plan (filed as Exhibit 10.9 to
the Company's Registration Statement No. 333-56877, and
incorporated herein by reference).
10.10 Penton Media, Inc. Senior Executive Bonus Plan (filed as
Exhibit 10.8 to the Company's Form 10-K on March 30, 2000,
and incorporated herein by reference).
10.11 Penton Media, Inc. Supplemental Executive Retirement Plan
(as Amended and Restated Effective as of January 1, 2000
(filed as Exhibit 10.9 to the Treference).
10.12 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and David Nussbaum, filed
herewith.
10.13 Amendment to the Restated Employment Agreement, dated
December 11, 2001, between Penton Media, Inc. and Thomas
Kemp, filed herewith.
10.14 Amendment to the Restated Employment Agreement, dated
December 11, 2001, between Penton Media, Inc. and Daniel J.
Ramella, filed herewith.
10.15 Amendment to the Amended and Restated Employment Agreement,
dated December 11, 2001, between Penton Media, Inc. and
James W. Zaremba, filed herewith.
10.16 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Joseph G. NeCastro,
filed herewith.
10.17 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Preston L. Vice, filed
herewith.
10.18 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Darrell Denny, filed
herewith.
21. Subsidiaries of Penton Media, Inc.
23. Consent of the Independent Accountants.
24. Powers of Attorneys.
88
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PENTON MEDIA, INC.
By: /s/ JOSEPH G. NECASTRO
------------------------------------
Name: Joseph G. NeCastro
Title: Chief Financial Officer and
Treasurer
Dated: March 21, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 21, 2002.
SIGNATURE TITLE
--------- -----
/s/ THOMAS L. KEMP Chairman of the Board, Chief Executive Officer and
------------------------------------------------ Director (Principal Executive Officer)
Thomas L. Kemp
/s/ JOSEPH G. NECASTRO Chief Financial Officer and Treasurer (Principal
------------------------------------------------ Financial Officer)
Joseph G. NeCastro
/s/ JOCELYN A. BRADFORD Vice President and Controller
------------------------------------------------
Jocelyn A. Bradford
/s/ * Director
------------------------------------------------
Paul W. Brown
/s/ * Director
------------------------------------------------
Daniel C. Budde
/s/ * Director
------------------------------------------------
Peni Garber
/s/ * Director
------------------------------------------------
R. Douglas Greene
/s/ * Director
------------------------------------------------
King Harris
/s/ * Director
------------------------------------------------
John J. Meehan
/s/ * Director
------------------------------------------------
David B. Nussbaum
/s/ * Director
------------------------------------------------
Daniel J. Ramella
/s/ * Director
------------------------------------------------
Edward J. Schwartz
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SIGNATURE TITLE
--------- -----
/s/ * Director
------------------------------------------------
Hannah C. Stone
/s/ * Director
------------------------------------------------
William B. Summers
/s/ * Director
------------------------------------------------
Richard B. Swank
---------------
* The undersigned, by signing his name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to a Power of Attorney executed on behalf of the
above named officers and directors of Penton Media, Inc. and files herewith as
Exhibit 24 on behalf of Penton Media, Inc. and each such person.
March 21, 2002
By: /s/ JOSEPH G. NECASTRO
----------------------------------
Joseph G. NeCastro
Attorney-in-Fact
90
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENTS
----------- ------------------------
2.1 Asset Purchase Agreement, dated as of May 18, 1999, by and
among Penton Media, Inc., New Hope Communications, Inc. and
R. Douglas Greene (filed as Exhibit 2.0 to the Company's
Form 8-K/A on August 10, 1999, and incorporated herein by
reference). The Registrant agrees to furnish supplementally
a copy of any omitted schedule to the Commission upon
request.
2.2 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., D-M Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue and John J. Meehan (filed as Exhibit 2.1 to the
Company's Registration Statement No. 33-56877 and
incorporated herein by reference). The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Restated Certificate of Incorporation of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration
Statement No. 333-56877 on Form S-1, dated August 5, 1998,
and incorporated herein by reference).
3.2 Certificate of Designation of Series A Junior Participating
Preferred Stock of Penton Media, Inc. (filed as Exhibit 4.1
to the Company's Form 8-K on June 12, 2000, and incorporated
herein by reference).
3.3 Certificate of Designations, Preferences and Rights of the
Series B Convertible Preferred Stock of Penton Media, Inc.
(filed as Exhibit 3.1 to the Company's Form 8-K on March 19,
2002, and incorporated herein by reference).
3.4 Amended and Restated Bylaws of the Registrant, filed herein.
4.1 Form of Warrants to purchase common stock of Penton Media,
Inc. (filed as Exhibit 4.1 to the Company's Form 8-K on
March 19, 2002, and incorporated herein by reference).
4.2 Rights Agreement, dated as of June 9, 2000, between Penton
Media, Inc. and Harris Trust and Savings Bank, as Rights
Agent, including a Form of Certificate of Designation of
Series A Junior Participating Preferred Stock as Exhibit A
thereto, a Form of Right Certificate as Exhibit B thereto
and a Summary of Rights to Purchase Preferred Stock as
Exhibit C thereto (filed as Exhibit 4.1 to the Company's
Form 8-K on June 12, 2000, and incorporated herein by
reference).
4.3 Amendment No. 1, dated as of March 18, 2002, to the Rights
Agreement, by and between Penton and National City Bank, as
successor Rights Agent (filed as Exhibit 4.2 to the
Company's Form 8-K on March 19, 2002, and incorporated
herein by reference).
4.4 Indenture, dated as of June 28, 2001, between Penton Media,
Inc., as issuer, the Subsidiary Guarantors named herein, and
The Bank of New York, as Trustee, including the form of the
Company's 10.375% Senior Subordinated Notes due June 15,
2011 attached as Exhibit A thereto (filed as Exhibit 4.1 to
the Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.1 Amended and Restated Series B Convertible Preferred Stock
and Warrant Purchase Agreement, dated as of March 18, 2002,
among Penton Media, Inc. and the investors listed on
Schedule 1 attached thereto (the 'Investors'), (filed as
Exhibit 10.1 to the Company's Form 8-K on March 19, 2002,
and incorporated herein by reference). The Registrant agrees
to furnish supplementally a copy of any omitted schedule to
the Commission upon request.
10.2 Registration Rights Agreement dated as of March 19, 2002 to
be entered into by Penton Media, Inc. and the Investors
(filed as Exhibit 10.2 to the Company's Form 8-K on March
19, 2002, and incorporated herein by reference).
10.3 Amended and Restated Credit Agreement, dated March 8, 2002,
between Penton Media, Inc., as borrower, the Lenders Party
hereto, as lenders, Banc of America Securities, LLC, as
syndication agent, Bank One and Fleet National Bank, as
co-documentation agents and The Bank of New York, as
administrative agent, filed herewith.
91
EXHIBIT NO. DESCRIPTION OF DOCUMENTS
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MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.4 Penton Media, Inc. Retirement Savings Plan (filed as Exhibit
4.3 to the Company's Form S-8 on August 27, 1998, and
incorporated herein by reference).
10.5 Penton Media, Inc. Management Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on March 21, 2000, and
incorporated herein by reference).
10.6 Penton Media, Inc. Employee Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on November 17, 1999,
and incorporated herein by reference).
10.7 Penton Media, Inc. Amended and Restated 1998 Director Stock
Option Plan (filed as Exhibit 10.4 to the Company's Form
10-Q on August 14, 2001, and incorporated herein by
reference).
10.8 Penton Media, Inc. Amended and Restated 1998 Equity and
Performance Incentive Plan (filed as Exhibit 10.5 to the
Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.9 Penton Media, Inc. Retirement Plan (filed as Exhibit 10.9 to
the Company's Registration Statement No. 333-56877, and
incorporated herein by reference).
10.10 Penton Media, Inc. Senior Executive Bonus Plan (filed as
Exhibit 10.8 to the Company's Form 10-K on March 30, 2000,
and incorporated herein by reference).
10.11 Penton Media, Inc. Supplemental Executive Retirement Plan
(as Amended and Restated Effective as of January 1, 2000
(filed as Exhibit 10.9 to the Company's Form 10-K on March
30, 2000, and incorporated herein by reference).
10.12 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and David Nussbaum, filed
herewith.
10.13 Amendment to the Restated Employment Agreement, dated
December 11, 2001, between Penton Media, Inc. and Thomas
Kemp, filed herewith.
10.14 Amendment to the Restated Employment Agreement, dated
December 11, 2001, between Penton Media, Inc. and Daniel J.
Ramella, filed herewith.
10.15 Amendment to the Amended and Restated Employment Agreement,
dated December 11, 2001, between Penton Media, Inc. and
James W. Zaremba, filed herewith.
10.16 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Joseph G. NeCastro,
filed herewith.
10.17 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Preston L. Vice, filed
herewith.
10.18 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Darrell Denny, filed
herewith.
21. Subsidiaries of Penton Media, Inc.
23. Consent of the Independent Accountants.
24. Powers of Attorneys.
92