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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
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PENTON MEDIA, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
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(State of Incorporation) (I.R.S. Employer Identification No.)
1300 East Ninth Street, Cleveland, OH 44114
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(Address of Principal Executive Offices) (Zip Code)
216/696-7000
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (May 11, 2001).
Common Stock 31,927,910
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
As of March 31, 2001 and December 31, 2000 3 - 4
Consolidated Statements of Income - 5
For the Three Months Ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows - 6 - 7
For the Three Months Ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements 8 - 18
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
March 31, December 31,
2001 2000
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ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 15,193 $ 11,605
Accounts and notes receivable, less allowance for doubtful
accounts of $6,796 and $3,863 in 2001 and 2000, respectively 70,691 70,059
Inventories 1,687 798
Deferred tax asset 5,562 5,562
Prepayments, deposits and other 18,697 11,763
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111,830 99,787
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PROPERTY, PLANT AND EQUIPMENT, at cost:
Land, buildings and improvements 8,845 8,205
Machinery and equipment 65,725 63,998
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74,570 72,203
Less: Accumulated depreciation 39,525 36,706
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35,045 35,497
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OTHER ASSETS:
Goodwill, less accumulated amortization of
$56,097 and $49,142 in 2001 and 2000, respectively 576,656 574,626
Other intangibles, less accumulated amortization of
$16,585 and $14,901 in 2001 and 2000, respectively 52,936 54,122
Investments 10,779 17,725
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640,371 646,473
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$ 787,246 $ 781,757
========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in thousands)
March 31, December 31,
2001 2000
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Senior debt facility $ 13,000 $ 11,250
Accounts payable 10,873 12,054
Income taxes payable - 3,260
Accrued earnouts 2,868 14,704
Accrued compensation and benefits 12,777 18,485
Other accrued expenses 18,093 15,024
Unearned income, principally trade
show and conference deposits 54,599 55,772
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112,210 130,549
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LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility 126,000 91,000
Senior debt facility 196,188 199,875
Notes payable 3,513 -
Net deferred pension credits 15,517 15,395
Deferred tax liability 3,224 5,978
Other 2,245 2,391
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346,687 314,639
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STOCKHOLDERS' EQUITY:
Preferred stock, none issued - -
Common stock 319 318
Capital in excess of par value 227,948 226,446
Retained earnings 110,510 112,745
Notes receivable officers/directors (10,845) (10,207)
Accumulated other comprehensive income 417 7,267
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328,349 336,569
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$ 787,246 $ 781,757
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited; Dollars and shares in thousands, except per share data)
Three Months Ended
March 31,
2001 2000
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REVENUES $ 112,693 $ 75,825
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OPERATING EXPENSES:
Editorial, production and circulation 40,841 30,309
Selling, general and administrative 51,944 34,479
Depreciation and amortization 11,579 7,653
Restructuring charges 5,567 -
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109,931 72,441
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OPERATING INCOME 2,762 3,384
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OTHER EXPENSE (INCOME):
Interest expense, net of interest earned 6,001 2,735
Gain on sale of investments - (110,210)
Miscellaneous, net (51) 20
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5,950 (107,455)
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INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (3,188) 110,839
PROVISION (BENEFIT) FOR INCOME TAXES (1,910) 44,416
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INCOME (LOSS) FROM CONTINUING OPERATIONS (1,278) 66,423
LOSS FROM OPERATIONS OF DISCONTINUED
BUSINESS, (less applicable income tax benefit of $57 in 2000) - (85)
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NET INCOME (LOSS) $ (1,278) $ 66,338
========== =========
EARNINGS PER COMMON SHARE - Basic:
Income (loss) from continuing operations $ (0.04) $ 2.10
Discontinued operations - -
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Net income (loss) $ (0.04) $ 2.10
=========== =========
EARNINGS PER COMMON SHARE - Diluted:
Income (loss) from continuing operations $ (0.04) $ 2.09
Discontinued operations - -
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Net income (loss) $ (0.04) $ 2.09
========== =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 31,876 31,577
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Diluted 31,876 31,789
========== =========
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited; Dollars in thousands)
2001 2000
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Cash flows from operating activities:
Net income (loss) $ (1,278) $ 66,338
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 11,579 7,653
Gain on sale of investments -- (110,210)
Loss from discontinued operations -- 85
Retirement and deferred compensation plans 123 --
Provision for losses on accounts receivable 459 264
Restructuring charge 5,567 --
Changes in assets and liabilities,
excluding effects from acquisitions and dispositions:
Accounts and notes receivable (1,005) (2,078)
Inventories (889) (232)
Prepayment and deposits (5,540) (1,914)
Accounts payable and accrued expenses (16,284) 39,308
Unearned income (2,451) 15,755
Other changes, net (208) 105
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Net cash provided by (used for) operating activities (9,927) 15,074
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Cash flows from investing activities:
Capital expenditures (2,385) (3,025)
Acquisitions and investments, net of cash acquired (5,018) (6,772)
Earnouts paid (11,975) (4,780)
Proceeds from sale of internet.com Corporation stock -- 113,100
Net proceeds from sale of discontinued operations -- 4,000
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Net cash provided by (used for) investing activities (19,378) 102,523
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Cash flows from financing activities:
Proceeds from senior debt facility 35,000 --
Repayment of senior debt facility (1,938) --
Employee stock purchase plan payments (23) --
Proceeds from deferred shares and options exercised 888 138
Dividends paid (955) (939)
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Net cash provided by (used for) financing activities 32,972 (801)
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Effect of exchange rate changes on cash (79) (43)
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Net increase in cash and cash equivalents 3,588 116,753
Cash and cash equivalents at beginning of period 11,605 30,370
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Cash and cash equivalents at end of period $ 15,193 $ 147,123
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the three months ended March 31, 2001, Penton issued 20,000 shares to an
officers under the executive loan program, marked to market its investment in
internet.com Corporation stock by approximately $6.5 million and declared
dividends of $1.0 million. In addition, Penton acquired Hillgate for
approximately $4.1 million, of which $3.5 million was in the form of notes
payable.
For the three months ended March 31, 2000, Penton issued 52,920 common shares
valued at approximately $1.4 million in connection with New Hope's earnout.
Penton also issued 400,000 shares during the quarter to officers and directors
under the Company's executive loan program. In addition, Penton marked to market
its investment in internet.com Corporation stock by approximately $119.3
million, and declared dividends of $0.9 million.
The foregoing transactions did not provide for or require the use of cash and,
accordingly, are not reflected in the Consolidated Statements of Cash Flows.
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; Dollars in thousands)
NOTE 1 - NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
These consolidated financial statements have been prepared by
management in accordance with generally accepted accounting principles for
interim financial information and the applicable rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, the
interim consolidated financial statements reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of the
results of the periods presented. The results of operations for the interim
periods are not necessarily indicative of the results of operations to be
expected for the full year.
The accompanying unaudited interim consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 financial
statements to conform to the 2001 presentation.
USE OF ESTIMATES
The preparation of the consolidated financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
NOTE 2 - ACQUISITIONS
2001 ACQUISITIONS
During the first quarter of 2001, Penton acquired six companies for an
aggregate purchase price of approximately $7.8 million in cash and $3.5 million
in promissory notes, with potential contingent consideration of up to $2.9
million based on the achievement of specified business targets through 2003.
The excess of the aggregate purchase price over the fair market value of net
assets acquired of approximately $7.2 million is being amortized over a
period ranging from 5 to 40 years.
2000 ACQUISITIONS
In addition, Penton acquired five companies for an aggregate purchase price
of approximately $3.8 million in cash with potential consideration based on the
achievement of specified business targets through 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $3.7 million is being amortized over a period ranging from 5 to 20
years.
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2000 ACQUISITIONS
In September 2000, Penton acquired the assets of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50.0 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.3 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the AS/400 and Windows 2000 operating systems markets.
In September 2000, Penton acquired the assets of Professional Trade
Shows ("PTS") for $17.0 million in cash. The excess of the aggregate purchase
price over the fair market value of net assets acquired of approximately $16.1
million is being amortized over 20 years. PTS produces 50 regional trade shows
for the plant engineering and maintenance, material handling, buildings and
facilities maintenance, design engineering, and machine tool industries.
In September 2000, Penton acquired the stock of Streaming Media, Inc.
for $65.0 million in cash plus contingent consideration of up to $35.0 million
based on the achievement of specified business targets in 2001. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of approximately $62.9 million is being amortized over periods ranging from 15
to 20 years. Streaming Media, Inc., is a leading integrated media company
serving the streaming media market.
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2000 Acquisitions
In addition, Penton acquired five companies for an aggregate purchase
price of approximately $3.8 million in cash with potential contingent
consideration based on the achievement of specified business targets through
2001. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $3.7 million is being amortized over a
period ranging from 5 to 20 years.
For the three months ended March 31, 2001, Penton paid approximately
$12.0 million in contingent consideration related to 2000 and 1999 acquisition,
of which approximately $10.2 million was paid to New Hope.
NOTE 3 - DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss through the date of sale of $0.08 million, net of a tax benefit
of $0.06 million, was recorded and classified as loss from operations of
discontinued business in the accompanying consolidated financial statements for
the three months ended March 31, 2000. This loss was in addition to the $0.06
million that was accrued in 1999.
NOTE 4 - INVESTMENTS
In February 2000, Penton sold 2.0 million shares of internet.com
Corporation stock as part of a 3,750,000 share offering. Penton received cash of
$113.1 million and recognized a pre-tax gain of approximately $110.2 million. As
of March 31, 2001, Penton maintains an 11.8% ownership interest, representing
approximately 3.0 million shares, in internet.com Corporation. Penton does not
have the ability to exercise significant influence, accordingly, the Company
marks to market its investment in internet.com Corporation as it is an available
for sale security. At March 31, 2001, Penton's investment totaled $10.8 million,
including a cumulative mark to market adjustment in 2001 of $6.5 million,
related adjustment in long-term deferred taxes of $2.6 million, and other
comprehensive income of $3.9 million.
NOTE 5 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the
three months ended March 31, 2000 assumes that the 2000 acquisitions occurred as
of the beginning of the period, 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. These actions have already commenced and are expected to continue
in the year 2001. Pro forma results for the three months ended March 31, 2001
have not been presented because the impact of the 2001 acquisitions was
immaterial.
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The pro forma information is presented for information purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had these transactions been consummated at the
beginning of the period presented (in thousands, except per share data):
Three Months Ended
March 31, 2000
--------------
Pro forma revenues $ 88,103
============
Pro forma income from continuing operations $ 63,020
============
Pro forma net income $ 62,935
============
Per share data:
Earnings per common share - basic:
Income from continuing operations $ 1.99
============
Net income $ 1.99
============
Earnings per common share - diluted:
Income from continuing operations $ 1.98
============
Net income $ 1.98
============
The pro forma information above does not include the operations of the
2001 acquisitions as well as the acquisition of Profit.Net, Inc., Leisurehub.com
and ComMunic, which were acquired in 2000, as the historical information is
immaterial.
NOTE 6 - DEBT
Penton maintains a credit agreement with several banks under which it
may borrow up to $340.0 million. The agreement provides for a revolving credit
facility of up to $125.0 million, a long-term loan of $140.0 million ("Term Loan
A") and a long-term loan of $75.0 million ("Term Loan B").
The credit facility is collateralized by all tangible and intangible
assets of Penton, including the equity interests in all of its U.S. subsidiaries
and not less than 65% of the equity interests of any of its foreign
subsidiaries. Under the terms of the agreement, Penton is required to maintain
certain financial ratios and other financial conditions. The agreement also
prohibits Penton from incurring certain additional indebtedness; limits certain
investments, advances or loans; and restricts substantial asset sales and cash
dividends. At March 31, 2001, Penton was in compliance with all covenants.
In October 2000, Penton amended its Credit Agreement to give the
Company the option to increase, in the aggregate, its Term Loan A, Term Loan B
and/or its Revolver by $100.0 million. The Term Loans and the Revolver cannot be
increased on more than three separate occasions, and any increase must take
place by September 30, 2001.
In April 2000, Penton amended its Credit Agreement to give the Company
the flexibility to sell assets of up to $30.0 million and the ability to
monetize the Company's joint venture investments.
The revolving credit facility bears interest, at Penton's option, at
either the Alternative Base Rate ("ABR"), defined as the higher of the
Administrative Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at
LIBOR, plus a rate margin ranging from 0.25% to 2.125% based on Penton's
consolidated leverage ratio, as defined. Up to the full amount of the revolving
credit facility may be borrowed, repaid and reborrowed until maturity on August
31, 2006; however, the revolving credit facility commitment shall be reduced as
of September
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30, 2003, by 7.5% per quarter until September 30, 2005, at which
time it will be reduced by 10% per quarter until maturity. At March 31, 2001,
$126.0 million was outstanding under the revolving credit facility. Penton has
agreed to pay a commitment fee ranging from 0.375% to 0.50%, based on Penton's
consolidated leverage ratio, on the average unused portion of the revolving
credit facility commitment.
Term Loan A bears interest, at Penton's option, at either the ABR rate
or at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At March 31, 2001, the
rate in effect was 6.3125%. The loan, which requires quarterly principal
payments starting in September 2000, will mature on August 31, 2006. At March
31, 2001, $134.8 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 March 31, 2001, the
rate in effect was 6.8125%. The loan requires quarterly principal payments of
approximately $0.2 million starting in September 2000, and four balloon payments
of $17.6 million beginning in September 2006, and will mature on August 31,
2007. At March 31, 2001 $74.4 million was outstanding under Term Loan B.
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 11).
Cash paid for interest for the three months ended March 31, 2001 and
2000, was $5.4 million and $3.0 million, respectively. Included in interest
expense in the Consolidated Statements of Income are $0.5 million and $1.6
million of interest income for the three months ended March 31, 2001 and 2000,
respectively.
NOTE 7 - NOTES PAYABLE
The Company's long-term notes payable at March 31, 2001 of $3.5 million
represents indebtedness resulting from the acquisition of Hillgate in February
2001. The notes are denominated in British pounds, bear interest at 1% and
mature in April 2002 ($2.9 million) and July 2004 ($0.6 million).
NOTE 8 - NET INCOME PER COMMON SHARE
The following table sets forth the reconciliation of basic and diluted
earnings per share (in thousands) for the three months ended March 31, 2001 and
2000:
Three Month Period
Ended March 31,
2001 2000
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Numerator:
Income (loss) applicable to
common shareholders $ (1,278) $ 66,338
======== ========
Denominator (Number of shares):
Basic - average shares outstanding 31,876 31,577
Effect of dilutive securities:
Stock options -- 212
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Diluted - average shares outstanding 31,876 31,789
======== ========
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Due to the net loss from operations for the three months ended March
31, 2001, any outstanding options, restricted stock units, deferred shares, and
contingent shares would have been antidilutive. Accordingly, they were excluded
from the calculation of diluted earnings per share. For the three months ended
March 31, 2000, restricted stock units, deferred shares, and contingent shares
were not included as the effect would have been antidilutive.
NOTE 9 - 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. The Company did not receive any proceeds
from this offering.
STOCKHOLDERS RIGHTS AGREEMENT
In June 2000, the Company adopted a Shareholder Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with the Company's common stock and will not be exercisable. In the absence of
further board action, the rights generally will become exercisable and allow the
holder to acquire the Company's common stock at a discounted price if any person
or group acquires 20 percent or more of the outstanding shares of the Company's
common stock. Rights held by the persons who exceed the applicable threshold
will be void.
Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price. The plan also includes an
exchange option. In general, after the rights become exercisable, the Penton
Board may, at its option, effect an exchange of part or all of the rights, other
than rights that have become void, for shares of 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. The Rights Agreement has no impact on the consolidated
financial statements or earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, the Company established an Employee Stock
Purchase Plan, with the intent of aligning the interests of Penton's employees
and its stockholders by allowing employees the opportunity to purchase shares of
Penton. The plan, which was effective January 1, 2000, allows employees to
purchase common stock at 85% of the lower of the market price at the beginning
or end of each quarter. This plan was deemed to be non-compensatory pursuant to
the appropriate sections of the Internal Revenue Service Codes.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, the Company established a Management Stock
Purchase Plan for designated officers and other key employees. Participants in
the plan may elect to receive restricted stock units ("RSUs") in lieu of a
designated portion of up to 100% of their annual incentive bonus. Each RSU
represents the right to receive one share of Penton common stock. RSUs are
granted at a 20% discount from fair market value on the date awarded. RSUs vest
two years after the date of grant and are settled in shares of common stock
after a period of deferral (of no less than two years) selected by the
participant, or upon termination of employment. In February 2001 and 2000,
31,942 and 25,507 RSUs were granted at a fair market value of $25.10 and $25.94
per
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share, respectively. At March 31, 2001, 57,449 RSUs were outstanding. The
discount is recorded as compensation expense over the minimum vesting period.
EXECUTIVE LOAN PROGRAM
In January 2000, the Company established the Executive Loan Program,
which allowed Penton to issue an aggregate of up to 400,000 shares of Penton
common stock at fair market value to six key executives, in exchange for full
recourse notes. In addition, on October 27, 2000, the Board of Directors
authorized one additional executive to borrow up to $1.0 million under the
Executive Loan Program for the purchase of Penton stock at fair value in
exchange for a full recourse note. All notes bear interest compounded
semiannually, at a rate equal to the applicable interest rate as published by
the Internal Revenue Service, and mature on or before the fifth anniversary of
the first loan date. No principal or interest payments are required until
maturity, at which time all outstanding amounts are due.
At March 31, 2001, 430,000 shares had been issued under the Executive
Loan Program and the outstanding loan balance was approximately $10.8 million
(including $0.7 million of accrued interest), which is classified in the
Stockholders' Equity section of the balance sheet as notes receivable from
officers and directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Stock Options
In February 2001 and 2000, 539,500 options and 512,600 options,
respectively, were granted under the Company's Performance Incentive Plan.
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. Option grants do not
have any associated compensation charge as all grants are issued at fair market
value.
Deferred Shares
At March 31, 2001 and 2000, 56,249 deferred shares, which were granted
in 1999, were outstanding. Of these shares, 47,553 shares vest on the third
anniversary of the grant date, while the remaining 8,696 shares vest at the rate
of 20% per year over a five-year period from date of grant. Compensation expense
is being recognized over the related vesting period based on the fair value of
the shares at the date of grant. At March 31, 2001 and 2000, approximately $0.09
million, respectively, was charged to expense for these shares.
Performance Shares
In February 2001, the Board of Directors approved a grant of 139,985
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. The grantee is eligible to receive between 50% 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. The 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, the grantee is eligible to receive
between 50% and 150% of the granted shared.
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Performance shares are not issuable until earned. Compensation expense
related to these shares is recorded over the performance period. For the three
months ended March 31, 2001 and 2000, approximately $0.6 million, respectively,
was charged to expense for these shares.
NOTE 10 - COMPREHENSIVE INCOME
Total comprehensive income (loss) for the three months ended March 31,
2001 and 2000 was $(8.1) million and $(13.3) million, respectively.
Notes
Current Capital in Receivable
Comprehensive Common Excess of Retained Officers/
Income Stock Par Value Earnings Directors
--------- --------- --------- --------- ---------
Balance at December 31, 2000 $ -- $ 318 $ 226,446 $ 112,745 $ (10,207)
Dividends -- -- -- (957) --
Executive loan shares issued -- -- 477 -- --
Receivable from officers/directors -- -- -- -- (638)
Contingent shares issued -- -- -- -- --
Issuance of shares related to
exercise of stock options -- 1 1,048 -- --
Employee Stock Purchase Plan -- -- (23) -- --
Comprehensive Income:
Net income (1,278) -- -- (1,278) --
Unrealized gain (loss) on securities
reported at fair value (4,126) -- -- -- --
Net loss on cash flow hedges (2,177) -- -- -- --
Foreign currency translation
adjustment (547) -- -- -- --
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Balance at March 31, 2001 $ (8,128) $ 319 $ 227,948 $ 110,510 $ (10,845)
===========================================================================
Accumulated
Other
Comprehensive
Income Total
--------- ---------
Balance at December 31, 2000 $ 7,267 $ 336,569
Dividends -- (957)
Executive loan shares issued -- 477
Receivable from officers/directors -- (638)
Contingent shares issued -- --
Issuance of shares related to
exercise of stock options -- 1,049
Employee Stock Purchase Plan -- (23)
Comprehensive Income:
Net income -- (1,278)
Unrealized gain (loss) on securities
reported at fair value (4,126) (4,126)
Net loss on cash flow hedges (2,177) (2,177)
Foreign currency translation
adjustment (547) (547)
----------------------------
Balance at March 31, 2001 $ 417 $ 328,349
=============================
NOTE 11 - HEDGING ACTIVITIES
ADOPTION OF FAS 133
The Company adopted Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards 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, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "FAS 133"), on January 1, 2001.
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. The Company expects
that within the next twelve months it will reclassify to earnings $0.9 million
of the transition adjustment that was recorded in accumulated other
comprehensive income.
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During the first quarter, the Company had the following activity in
other comprehensive income related to derivatives:
Total cumulative effect of adoption on other comprehensive
income, net of tax, at January 1, 2001 $ 1,351
Net change related to current period hedging transactions 941
Net amount reclassified to earnings (115)
---------
Net deferred loss on cash flow hedges at March 31, 2001 $ 2,177
========
ACCOUNTING POLICY FOR DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are recognized on the balance sheet at their fair
value. On the date that the Company enters into a derivative contract, it
designates the derivative as (1) a hedge of (a) the fair value of a recognized
asset or liability or (b) an unrecognized firm commitment (a "fair value"
hedge); (2) a hedge of (a) a forecasted transaction or (b) the variability of
cash flows that are to be received or paid in connection with a recognized asset
or liability (a "cash flow" hedge); (3) a foreign-currency fair-value or cash
flow hedge (a "foreign currency" hedge); (4) a hedge of a net investment in a
foreign operation; or (5) an instrument that is held for trading or non-hedging
purposes (a "trading" or "non-hedging" instrument).
Changes in the fair value of a derivative that is highly effective as,
and that is designated and qualifies as, a fair-value hedge, along with changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk (including changes that reflect losses or gains on firm
commitments), are recorded in current-period earnings. The Company did not have
any fair value hedges during the three months ended March 31, 2001.
Changes in the fair value of a derivative that is highly effective as,
and that is designated and qualifies as, a cash flow hedge, to the extent that
the hedge is effective, are recorded in other comprehensive income, until
earnings are affected by the variability of cash flows of the hedged transaction
(e.g., until periodic settlements of a variable-rate asset or liability are
recorded in earnings). Any hedge ineffectiveness (which represents the amount by
which the changes in the fair value of the derivative exceed the variability in
the cash flows of the forecasted transaction) is recorded in current-period
earnings. The Company had interest rate swaps and caps which were designated as
cash flow hedges for the three months ended March 31, 2001.
Changes in the fair value of a derivative that is highly effective as,
and that is designated and qualifies as, a foreign-currency hedge is recorded in
either current-period earnings or other comprehensive income, depending on
whether the hedging relationship satisfies the criteria for a fair-value or
cash-flow hedge. If, however, a derivative is used as a hedge of a net
investment in a foreign operation, the changes in the derivative's fair value,
to the extent that the derivative is effective as a hedge, are recorded in the
cumulative-translation-adjustment account within other comprehensive income.
Changes in the fair value of derivative trading and non-hedging instruments are
reported in current-period earnings. For the three months ended March 31, 2001,
the Company did not have any foreign-currency or net investment hedges.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as fair-value, cash flow, or
foreign-currency hedges to (1) specific assets and liabilities on the balance
sheet or (2) specific firm commitments or forecasted transactions. The Company
also formally assesses (both at the hedge's inception and on an ongoing basis)
whether the derivatives that are used in hedging transactions have been highly
effective in offsetting changes in the fair value or cash flows of hedged items
and whether those derivatives may be expected to remain highly effective in
future periods. When it is determined that a derivative is not (or has ceased to
be) highly effective as a hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
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The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate. In all
situations in which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current-period earnings.
At March 31, 2001, Penton had the following derivative instruments in
effect (in thousands):
NOTIONAL
AMOUNT RATE PERIOD
Interest rate swap $26,875 6.22% 1/00-10/02
Interest rate swap $35,832 6.77% 5/00-11/02
Interest rate swap $25,000 7.09% 6/00-12/01
Interest rate swap $17,916 5.95% 9/99-10/02
Interest rate cap $26,875 8.50% 10/99-10/02
At March 31, 2001 the interest rate instruments had fair values of
($2.8) million recorded in Other Accrued Expenses on the balance sheet. The
Company is exposed to credit loss in the event of non-performance by the other
parties to the interest rate swap and cap agreements. However, the Company does
not anticipate non-performance by the other counter-parties as they are major
financial institutions. The Company controls the credit risk of its interest
rate swap agreements through credit approvals, limits and monitoring procedures.
The Company also maintains a policy of requiring that all swap derivative
contracts be pursuant to the International Swaps and Derivatives Association
Master Agreement.
RISK MANAGEMENT
In the ordinary course of business, Penton is exposed to fluctuations
in interest rates and foreign currency rates. Penton maintains assets and
operations in Europe and Asia, and as a result, may be exposed to cost increases
relative to the markets in which it sells; however, Penton does not manage this
risk using derivative instruments. The Company is exposed to interest rate risk
due to the variable interest rate of the $340 million Credit Agreement. 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 interest rate caps.
CASH FLOW HEDGES
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 the Credit agreement (see Note 6), and other
factors. The Company purchases interest rate caps to minimize its exposure to
volatility in LIBOR. The level of 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.
For the three months ended March 31, 2001, the Company recognized a net
loss of $0.1 million (reported as interest expense in the Consolidated
Statements of Income), which represents the total ineffectiveness of all cash
flow hedges, including the time value of option contracts. All components of
each derivative's gain or loss were included in the assessment of hedge
effectiveness except for the time value of interest rate caps (option
contracts).
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During the three months ended March 31, 2001, the Company reclassified
$0.1 million from accumulated other comprehensive income to current period
earnings (reported as interest expense in the Consolidated Statements of
Income). 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 March 31, 2001, $1.0 million of deferred losses on
derivative instruments accumulated in other comprehensive income is expected to
be reclassified as earnings during the next twelve months. As of March 31, 2001,
the maximum term over which the Company is hedging its exposure to the
variability of future cash flows is nineteen months.
NOTE 12- RESTRUCTURING CHARGES
Penton continues to adjust its portfolio of Internet media products to
focus on those that are demonstrating revenue growth, customer acceptance and
near-term opportunity for profit. To that end, Penton announced a restructuring
program in February 2001 with the intent of discontinuing certain Internet
operations that have significantly diminished expectations of future
profitability. Penton incurred a pre-tax charge of $5.6 million for this
restructuring program in the first quarter of 2001. The charge was reported as a
component of operating expenses.
An analysis of restructuring charges recorded in the Consolidated
Statement of Income at March 31, 2001, and the amount accrued in the
Consolidated Balance Sheet at March 31, 2001 is as follows:
Description Expense Accrued
----------- ------- -------
Severance, outplacement and
other personnel costs (cash outlay) $ 1,913 $ 260
Impaired assets (non-cash) 2,054 567
Other exit costs (cash-outlay) 1,600 1,370
------- -------
Total $ 5,567 $ 2,197
======= =======
Asset impairment costs primarily included the write-off of capitalized
software costs associated with the discontinuance of the industry exchange
component of New Hope Natural Media's Healthwell.com. Employee termination costs
are associated with the reduction of approximately 58 employees at
Healthwell.com as well as a reduction of workforce in a number of other Internet
initiatives throughout Penton. Employee termination costs included payments for
severance and earned vacation as well as the costs of outplacement services and
the provision of continued benefits to personnel. Other exit costs reflect
expenses associated with office space under lease and other contractual
obligations.
NOTE 13- SEGMENT INFORMATION
Historically, Penton had three reportable segments: Media Services,
Printing and Direct Mail. Due to the sale of the Printing segment in 1999 and
the Direct Mail segment in 2000, Penton currently has only one segment. The
Media Services segment serves specific industries with integrated product
offerings.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes thereto. Historical results and
percentage relationships set forth in the consolidated financial statements,
including trends which might appear, should not be taken as indicative of future
operations. Penton considers portions of this information to be forward-looking
statements within the meaning of Section 27A of the Securities Exchange Act of
1933 and Section 21E of the Securities Exchange Act of 1934, both as amended,
with respect to Penton's expectations for future periods. Although Penton
believes that the expectations reflected in such forward-looking statements are
based upon reasonable assumptions, it can give no assurance that its
expectations will be achieved. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. A number of important factors could cause
Penton's results to differ materially from those indicated by such
forward-looking statements, including, among other factors, pending litigation,
government regulation, competition, technological change, intellectual property
rights, capital spending, international operations and Penton's acquisition and
Internet strategies.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE THREE MONTHS ENDED MARCH 31,
2000
REVENUES
Total revenues increased $36.9 million, or 48.6%, from $75.8 million
for the three months ended March 31, 2000 to $112.7 million for the same period
in 2001.
Publishing revenues increased $4.2 million, or 8.0%, from $52.9 million
for the three months ended March 31, 2000 to $57.2 million in the same period in
2001, due primarily to the following: (i) the addition of Windows 2000 Magazine,
Business Finance Magazine, SQL Magazine and the NEWS/400 magazine, which were
part of the Duke acquisition in September 2000; (ii) the launch of Streaming
Media magazine in the fourth quarter of 2000; (iii) year-over-year increases in
Supply Chain Technology News and Transportation and Distribution magazines, and
(iv) the addition of Group Computing magazine, which was acquired in December
2000. These increases were offset somewhat by the discontinuance of the IW
Growing Companies magazine during the first quarter of 2000, the absence of the
Fluid Power Handbook and Directory, which is published every other year, and a
significant decrease in revenues from Internet World magazine.
Trade show and conference revenues increased $29.8 million, or 132.6%,
from $22.5 million for the three months ended March 31, 2000 to $52.3 million
for the same period in 2001, due primarily to the following: (i) the timing of
the Internet World Spring and eCRM trade shows which were held in the first
quarter of 2001 compared with the second quarter of 2000; and (ii) the
successful launches of the Internet World Wireless East and ASPCON Spring shows
in New York and the m-Commerce World show in London. These increases were
somewhat offset by the move of the eCRM and Service Management Europe shows from
the first quarter of 2000 to the second quarter of 2001.
Web revenues increased $2.8 million from $0.4 million for the three
months ended March 31, 2000 to $3.3 million for the same period in 2001, due
primarily to the addition of Duke's Web business which was acquired in September
2000.
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OPERATING EXPENSES:
Operating expenses increased $37.5 million, or 51.8%, from $72.4
million for the three months ended March 31, 2000 to $109.9 million for the same
period in 2001. As a percentage of revenues, operating costs increased from
95.5% in 2000 to 97.5% in 2001. The increase is due primarily to the addition of
approximately $5.6 million in restructuring charges taken in the quarter.
Excluding restructuring charges, operating costs, as a percentage of revenues,
actually decreased from 95.5% to 92.6%. The improvement in operating expenses as
a percentage of revenues was due primarily to higher margins earned from the
trade shows held during the quarter, especially, Internet World Spring, offset
in part by higher corporate costs and higher depreciation and amortization
related to acquisitions and capitalized costs related to the move of the
Company's corporate headquarters.
Editorial, Production and Circulation.
Total editorial, production and circulation expenses grew to $40.8
million for the three months ended March 31, 2001 compared with $30.3 million
for the same period in 2000, representing an increase of $10.5 million, or
34.7%. The increase was due primarily to the acquisitions of Duke, Streaming
Media and PTS in September 2000, as well as costs associated with the Internet
World Spring and eCRM trade shows, which were held in the second quarter of
2000.
As a percentage of revenues, editorial, production and circulation
expenses decreased from 40.0% in 2000 to 36.2% in 2001. The decrease was due
largely to higher margins earned from the Internet World Spring trade show held
during the quarter.
Selling, General and Administrative.
Total selling, general and administrative expenses grew $17.5 million,
or 50.7%, from $34.5 million for the three months ended March 31, 2000 to $51.9
million for the same period in 2001. The increase is primarily due to the
acquisitions of Duke, Streaming Media and PTS in September 2000, as well as
costs associated with the Internet World Spring and eCRM trade shows, which were
held in the first quarter of 2001, compared with the second quarter of 2000, and
increased corporate spending, especially related to health care costs.
As a percentage of revenues, selling, general and administrative
expenses increased from 45.5% in 2000 to 46.1% in 2001. The increase was due
largely to an increase in corporate costs, especially related to health care.
Depreciation and Amortization.
Depreciation and amortization increased $3.9 million, or 51.3%, to
$11.6 million for the three months ended March 31, 2001. The higher expense was
the result primarily of the amortization of intangible assets from acquisitions
and higher depreciation associated with increased capital expenditures.
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Restructuring Charge.
As a result of the current economic environment, Penton continues to
adjust its portfolio of Internet media products to focus on those initiative
that are demonstrating revenue growth, customer acceptance and near-term
opportunity for profit. To that end, Penton announced a restructuring program in
February 2001 with the intent of discontinuing certain Internet operations that
have failed to demonstrate prospects for future viability and profitability.
Penton incurred a pre-tax charge of $5.6 million for this restructuring program
in the first quarter of 2001. The charge was reported as a component of
operating expenses. The following sets forth additional detail concerning the
principal components of the charge:
- Asset impairment costs totaled $2.1 million. These costs
primarily included the write-off of capitalized software costs
associated with the discontinuance of the industry exchange
component of New Hope Natural Media's Healthwell.com.
- Employee termination costs of $1.9 million associated with the
reduction of 58 employees at Healthwell.com as well as a
reduction of workforce in a number of other Internet
initiatives throughout Penton. Employee termination costs
included payments for severance and earned vacation as well as
the costs of outplacement services and provision for certain
continued benefits to terminated employees.
- Charges of $1.6 million reflecting exit costs associated with
office space under lease and other contractual obligations.
OPERATING INCOME
Overall, Penton's operating income decreased $0.6 million, or 18.4%,
from $3.4 million for the three months ended March 31, 2000 to $2.8 million for
the same period in 2001. Operating income as a percentage of revenue decreased
from 4.5% in 2000 to 2.5% in 2001 due primarily to the restructuring charges
discussed above.
OTHER EXPENSE (INCOME)
Interest expense increased $3.3 million to $6.0 million for the three
months ended March 31, 2001, compared with $2.7 million for the same prior year
period, due to a higher average debt balance outstanding for the three months
ending March 31, 2001 when compared with the same prior year period, as well as
a decrease in interest earned on the Company's cash balance compared with the
prior year.
In February 2000, Penton sold 2.0 million shares of internet.com
Corporation 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.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 60.0% and 40.0%
for the three months ended March 31, 2001 and 2000, respectively. The increase
in the effective tax rate is due to Penton's sale of a portion of its investment
in internet.com Corporation in the first quarter of 2000. The sale resulted in
the recognition of a gain of $110.2 million in pre-tax income, which was taxed
at a rate of approximately 40.0%.
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ADJUSTED EBITDA
Net income (loss) before interest, taxes, depreciation and
amortization, and nonrecurring items ("adjusted EBITDA") is a widely used and
commonly reported standard measure utilized by analysts and investors in the
analysis of the media industry. Adjusted EBITDA is not a measure of performance
under GAAP because it excludes those items listed above that are significant
components in understanding and evaluating the Company's financial performance.
However, the following adjusted EBITDA information can provide additional
information for determining the ability of the Company to meet its debt service
requirements and for other comparative analyses of the Company's operating
performance relative to other media companies. The Company's calculation of
adjusted EBITDA is as follows (in thousands):
Three Months Ended
March 31,
2001 2000
--------- ---------
Net income (loss) $ (1,278) $ 66,338
Interest expense, net of interest earned 6,001 2,735
Gain on sale of investments -- (110,210)
Provision (benefit) for income taxes (1,910) 44,416
Restructuring charges 5,567 --
Depreciation and amortization 11,579 7,653
Loss from operations of discontinued business, net -- 85
Miscellaneous, net (51) 20
--------- ---------
Adjusted EBITDA $ 19,908 $ 11,037
========= =========
For the three months ended March 31, 2001, the Company's adjusted
EBITDA increased $8.9 million, or 80.4%, to $19.9 million from $11.0 million for
the same period in 2000. The increase was due primarily to the following: (i)
the timing of the Internet World Spring and eCRM trade shows, which were held in
the second quarter of 2000 and in the first quarter of 2001; (ii) the
acquisition of Duke in September 2000, and (iii) the successful launches of
Streaming Media magazine and Internet World Wireless East, ASPCON Spring, and
m-Commerce World trade shows. These increases were offset in part by a
significant revenue decrease in Internet World magazine, the absence of the
Fluid Power Handbook and Directory, which is published every other year, and was
published in 2000, and higher corporate and period costs. Adjusted EBITDA
margins increased to 17.7% for the quarter compared with 14.6% in the same year
ago period primarily due to higher margins from the Internet World Spring show.
Penton's calculation of adjusted EBITDA by product is as follows (in
thousands):
Three Months Ended
March 31,
2001 2000
-------- --------
Publishing and other $ 6,769 $ 11,044
Trade shows & conferences 25,360 8,960
Internet (987) (785)
Corporate (11,234) (8,182)
-------- --------
Adjusted EBITDA $ 19,908 $ 11,037
======== ========
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For the three months ended March 31, 2001, adjusted EBITDA for the
Company's publishing operations decreased $4.3 million, or 38.7%, when compared
with the same prior-year period. The adjusted EBITDA decrease for publishing
operations were due primarily to the significant decrease in Internet World
magazine and the absence of the Fluid Power Handbook and Directory which is
published every other year.
For the three months ended March 31, 2001, adjusted EBITDA for the
Company's trade shows and conferences operations increased $16.4 million, when
compared with the same prior year period. The increase was due primarily to: (i)
the timing of the Internet World Spring and eCRM trade shows in the first
quarter of 2001 compared with the second quarter of 2000; and (ii) the
successful launches of the Internet World Wireless East and ASPCON Spring shows
in New York and the m-Commerce World show in London.
For the three months ended March 31, 2001, adjusted EBITDA for the
Company's Internet operations increased from a loss of $0.8 million to a loss of
$1.0 million. The increase was primarily due to the increase in various costs
associated with the development of market-focused Web sites.
For the three months ended March 31, 2001, corporate costs increased
$3.1 million, when compared with the same prior year period. The increase was
primarily due to the higher compensation expense and a significant
year-over-year increase in healthcare costs.
FOREIGN CURRENCY
The functional currency of the Company's foreign operations is their
local currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. Dollars at the rates of exchange on the balance sheet date;
income and expenses are translated at the average rates of exchange prevailing
during the year. There were no significant foreign currency transaction gains or
losses for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, Penton financed its operations primarily
through cash generated from operating activities, borrowings under its credit
facilities and the sale of investments and assets.
Cash provided by (used for) operating activities was ($9.9) million,
and $15.1 million for the three months ended March 31, 2001 and 2000,
respectively. Operating cash flows for the three months ended March 31, 2001
reflect the Company's net loss of $1.3 million in addition to a net working
capital decrease of approximately $26.4 million and non-cash charges
(depreciation and amortization, and restructuring charge) of approximately $17.1
million.
The decrease in operating cash flows for the three months ended March
31, 2001 compared to the same 2000 period was due primarily to decreases in
working capital items. The most significant working capital changes in 2001 were
attributable to prepayments and deposits, accounts payable and accrued expenses,
and unearned income. The prepayments and deposits change is due primarily to the
timing of when payments are made and when the shows are held. The change in
accounts payable and accrued expenses is due primarily to timing of vendor and
other payments. The change in unearned income is due to the timing of when
events are held.
Investing activities used $19.4 million in 2001, primarily for
acquisitions (including Hillgate, NBI and TCI) and earnouts paid during the
year, as well as capital expenditures. Investing activities provided $102.5
million in 2000, primarily from proceeds from the sale of 2.0 million shares of
internet.com Corporation stock and proceeds from the sale of the Direct Mail
segment. These proceeds were partially offset by the uses for acquisitions and
investments (including Cayenta and bakery-net.com) and earnouts paid during the
year, as well as capital expenditures.
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Financing activities provided $33.0 million in 2001, primarily from
borrowings under the Company's revolving credit facility and proceeds from
options exercised, offset partially by debt repayments and dividends paid to
stockholders. Financing activities used $0.8 million in 2000, primarily for the
payment of dividends to shareholders.
In October 2000, the Company amended its Credit Agreement to give the
Company the ability to increase its Term Loan A, Term Loan B and/or Revolver up
to an aggregate of $100.0 million. The Term loans and the Revolver cannot be
increased on more than three separate occasions and the increase must take place
by September 30, 2001.
On April 3, 2000, Penton amended its Credit Agreement to give the
Company the flexibility to sell assets of up to $30.0 million and the ability to
monetize the Company's joint venture investments.
On September 1, 1999, Penton entered into a credit agreement with
several banks under which it can borrow up to $340.0 million. The agreement
provides for a revolving credit facility of up to $125.0 million, a long-term
loan of $140.0 million ("Term Loan A") and a long-term loan of $75.0 million
("Term Loan B"). The proceeds of this credit agreement were used to repay
Penton's debt outstanding under the $325.0 million credit facility obtained when
Penton purchased IWM. At March 31, 2001, Penton had $209.2 million outstanding
under its term loans and $126.0 million outstanding under its revolving credit
facility.
On November 24, 1998, the Company entered into a credit agreement with
several banks under which it could borrow up to $325.0 million. The agreement
provided for a revolving loan facility of up to $25.0 million, a long-term loan
of $175.0 million (Term A Loan) and a long-term loan of $125.0 million (Term B
Loan). The proceeds of this credit agreement were used to repay Penton's debt
outstanding under the $75.0 million revolving credit facility obtained at the
spinoff date and to purchase IWM (formerly known as Mecklermedia). On March 31,
1999, the Company and the banks amended this agreement to enable the Company to
borrow an additional $15.0 million as part of the Term Loan B facility. In
September 1999, this debt was refinanced with the current $340.0 million senior
debt facility.
Based upon current and anticipated levels of operations, management
believes that cash on hand and cash flow from operations, combined with
borrowings available under Penton's credit facilities, will be sufficient to
enable Penton to meet current and anticipated cash operating requirements,
including scheduled interest and principal payments, capital expenditures and
working capital needs. However, actual capital requirements may change,
particularly as a result of any acquisitions that Penton may make. Penton's
ability to meet current and anticipated operating requirements will depend upon
its future performance, which, in turn, will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond Penton's control. Depending on the nature, size and timing of future
acquisitions, Penton may be required to raise additional capital through
additional financing arrangements or the issuance of private or public debt or
equity securities. Management cannot assure that such additional financing will
be available at acceptable terms. Substantially all of Penton's debt bears
interest at floating rates. Therefore, Penton's liquidity and financial
condition are, and will continue to be, affected by changes in prevailing
interest rates.
SEASONALITY
The introduction of trade shows and conferences into Penton's product
mix through the acquisition of INDEX and ISOA in late 1997, the acquisition of
IWM in November 1998, the acquisition of New Hope in May 1999 and the
acquisition of Streaming Media in September 2000 has changed the seasonal
pattern of revenue and profit because all five companies have pronounced
seasonal patterns in their businesses. The majority of the trade shows of ISOA,
Streaming Media and IWM are held in the second and fourth quarters and,
accordingly, the majority of their revenue is recognized in these quarters.
Furthermore, the majority of the INDEX shows historically have been held in the
fourth quarter, and the New Hope shows have been held in the first and third or
fourth quarters. Accordingly, these acquisitions have had and will have a
positive impact on revenue and profit for these quarters.
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Penton also may experience seasonal fluctuations as trade shows and
conferences held in one period in the current year may be held in a different
period in future years.
INFLATION
The impact of inflation on Penton's results of operations has not been
significant in recent years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Penton was required
to adopt this statement in the first quarter of 2000. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138 "Accounting for Certain Derivative and Certain Hedging Activities--an
Amendment of FASB Statement No. 133" (SFAS 138). Penton adopted this statement
effective January 1, 2001. See Note 11 for additional information.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provided guidance on applying existing generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company adopted SAB 101 during the fourth quarter of 2000. The adoption of SAB
101 did not have a material effect on the Company.
EURO CONVERSION
On January 1, 1999, 11 of the 15 participating countries that are
members of the European Union established a new uniform currency known as the
Euro. The currency existing prior to such date in the participating countries
will be phased out during the transition period commencing January 1, 1999, and
ending January 1, 2002. During this transition period, both the Euro and the
existing currency will be available in the participating countries. Although
Penton generates revenues in some of the participating countries, management
does not anticipate that the introduction and use of the Euro will materially
affect Penton's business, results of operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign currency exchange and interest rates.
Penton does not enter into derivatives or other financial instruments for
trading or speculative purposes.
In the normal course of business, Penton manages fluctuations in
interest rates through swap agreements to hedge up to 50% of its floating rate
borrowings. Penton's objective in managing this exposure is to reduce
fluctuations in earnings and cash flows associated with changes in interest
rates.
Penton maintains assets and operations in Europe, and as a result, may
be exposed to cost increases relative to the markets in which it sells. At March
31, 2001, a hypothetical 10% strengthening of the U.S. dollar relative to the
currencies of foreign countries in which Penton operates was not material.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None
(b) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penton Media, Inc.
(Registrant)
By: /s/Joseph G. NeCastro
Joseph G. NeCastro
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 15, 2001
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