UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
PENTON MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
(State of Incorporation) (I.R.S. Employer Identification No.)
1300 East Ninth Street, Cleveland, OH 44114
(Address of Principal Executive Offices) (Zip Code)
216-696-7000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act. Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (August 10, 2005).
Common Stock: 34,487,872 shares
PENTON MEDIA, INC.
FORM 10-Q
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at June 30, 2005 and
December 31, 2004 3
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended June 30, 2005 and 2004 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 2005 and 2004 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 51
Item 4. Controls and Procedures 52
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 53
Item 6. Exhibits 53
Signature 54
Exhibit Index 55
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, DOLLARS IN THOUSANDS)
June 30, December 31,
2005 2004
-------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,676 $ 7,661
Restricted cash 361 125
Accounts receivable, less allowance for doubtful
accounts of $2,831 and $2,826 in 2005 and 2004,
respectively 26,248 30,571
Inventories 1,098 856
Deferred tax assets 276 276
Prepayments, deposits and other 5,374 3,672
-------- --------
Total current assets 35,033 43,161
-------- --------
Property and equipment, less accumulated depreciation
of $33,035 and $30,989 in 2005 and 2004, respectively 11,912 14,793
Other assets:
Goodwill 172,871 176,162
Other intangible assets, net 6,230 6,846
Other non-current assets 5,937 6,412
-------- --------
185,038 189,420
-------- --------
$231,983 $247,374
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
June 30, December 31,
2005 2004
--------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loan and security agreement $ 1,200 $ --
Accounts payable 5,293 6,808
Accrued compensation and benefits 4,015 5,880
Other accrued expenses 11,938 13,937
Unearned income, principally trade show and conference deposits 19,210 23,274
--------- ---------
Total current liabilities 41,656 49,899
--------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 157,119 157,047
Senior subordinated notes, net of discount 166,758 172,017
Net deferred pension credits 10,307 10,568
Deferred tax liability 21,154 19,903
Other non-current liabilities 6,719 7,010
--------- ---------
362,057 366,545
--------- ---------
Commitments and contingencies
Mandatorily redeemable convertible preferred stock, par value $0.01 per share;
50,000 shares authorized, issued and outstanding;
redeemable at $1,000 per share 70,876 67,162
--------- ---------
Series M preferred stock, par value $0.01 per share; 150,000 shares authorized,
69,000 and 68,625 shares issued and outstanding at June 30, 2005 and
December 31, 2004, respectively 11 4
--------- ---------
Stockholders' deficit:
Preferred stock, par value $0.01 per share; 1,800,000 shares
authorized; none issued or outstanding -- --
Common stock, par value $0.01 per share; 155,000,000 shares
authorized; 34,487,872 and 33,832,004 shares issued and outstanding
at June 30, 2005 and December 31, 2004, respectively 343 337
Capital in excess of par value 211,423 215,027
Retained deficit (454,058) (450,067)
Notes receivable from officers, less reserve of $5,848 at June 30, 2005
and December 31, 2004, respectively -- --
Accumulated other comprehensive loss (325) (1,533)
--------- ---------
(242,617) (236,236)
--------- ---------
$ 231,983 $ 247,374
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2005 2004 2005 2004
------- -------- -------- --------
Revenues $43,814 $ 46,106 $ 97,145 $ 98,897
------- -------- -------- --------
Operating expenses:
Editorial, production and circulation 20,300 21,812 40,670 42,147
Selling, general and administrative (including
$0.3 million and $2.7 million of executive
separation costs for the three and six months
ended June 30, 2004, respectively) 16,698 21,186 34,163 43,789
Provision for loan impairment -- 1,717 -- 1,717
Restructuring and other charges 186 3,502 252 4,362
Depreciation and amortization 2,310 2,827 4,577 5,675
------- -------- -------- --------
39,494 51,044 79,662 97,690
------- -------- -------- --------
Operating income (loss) 4,320 (4,938) 17,483 1,207
Other income (expense):
Interest expense (9,363) (9,362) (18,746) (18,820)
Interest income 32 50 62 136
Gain on extinguishment of debt -- -- 1,589 --
Other, net (16) 6 (24) 4
------- -------- -------- --------
(9,347) (9,306) (17,119) (18,680)
------- -------- -------- --------
Income (loss) from continuing operations before
income taxes (5,027) (14,244) 364 (17,473)
Provision for income taxes 618 767 1,396 1,531
------- -------- -------- --------
Loss from continuing operations (5,645) (15,011) (1,032) (19,004)
Discontinued operations:
Loss from discontinued operations, net of taxes (159) (215) (2,959) (2,124)
------- -------- -------- --------
Net loss (5,804) (15,226) (3,991) (21,128)
Amortization of deemed dividend and accretion
of preferred stock (1,891) (3,408) (3,714) (8,601)
------- -------- -------- --------
Net loss applicable to common stockholders $(7,695) $(18,634) $ (7,705) $(29,729)
======= ======== ======== ========
Net loss per common share - basic and diluted:
Loss from continuing operations applicable
to common stockholders $ (0.22) $ (0.55) $ (0.13) $ (0.83)
Discontinued operations, net of taxes -- -- (0.09) (0.06)
------- -------- -------- --------
Net loss applicable to common stockholders $ (0.22) $ (0.55) $ (0.22) $ (0.89)
======= ======== ======== ========
Weighted-average number of shares outstanding:
Basic and diluted 34,489 33,583 34,490 33,559
======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS)
Six Months Ended
June 30,
------------------
2005 2004
------- --------
NET CASH USED BY OPERATING ACTIVITIES $(6,242) $(11,757)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (463) (1,519)
Cash paid for acquisitions (375) --
Increase in notes receivable -- (188)
Net proceeds from sale of properties 4,073 --
------- --------
Net cash provided by (used for) investing activities 3,235 (1,707)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of 10-3/8% senior subordinated notes (3,795) --
Net proceeds from loan and security agreement 1,200 --
Payment of financing costs -- (6)
Increase in restricted cash (236) (193)
Decrease in cash overdraft balance (213) (63)
------- --------
Net cash used for financing activities (3,044) (262)
------- --------
Effect of exchange rate changes on cash 66 19
------- --------
Net decrease in cash and cash equivalents (5,985) (13,707)
Cash and cash equivalents at beginning of year 7,661 29,626
------- --------
Cash and cash equivalents at end of period $ 1,676 $ 15,919
======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ACCOUNTING POLICIES
BASIS OF PRESENTATION
Penton Media, Inc., together with its subsidiaries, is herein referred to as
either "Penton" or the "Company." These financial statements have been prepared
by management in accordance with generally accepted accounting principles
("GAAP") for interim financial information and the applicable rules and
regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they
do not include all information and footnotes required by GAAP for complete
financial statements. However, in the opinion of management, the interim
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair statement 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, 2004.
The Company realigned its business segments during the third quarter of 2004.
Accordingly, the historical results of operations of the Company's segments have
been recast to reflect the current segment reporting (See Note 13 - Segments,
for additional information). In addition, unless otherwise noted herein,
disclosures in this Quarterly Report on Form 10-Q relate only to our continuing
operations. Our discontinued operations consist of Penton Media Germany ("PM
Germany") which was sold in December 2004 and Penton Media Europe ("PM Europe")
which was sold in April 2005 (See Note 2 - Acquisitions and Disposals, for
additional information).
RESTATEMENT OF FINANCIAL STATEMENTS
On March 24, 2005, the Company's management concluded that the Company's
previously issued consolidated financial statements should be restated to
increase income tax expense to correct the computation of our valuation
allowance for deferred tax assets. Management reached this conclusion following
a comprehensive review of the Company's deferred tax assets and deferred tax
liabilities. The Company evaluated the materiality of the correction on its
consolidated financial statements using the guidelines of Staff Accounting
Bulletin No. 99, "Materiality," ("SAB 99") and concluded that the cumulative
effects of the corrections were material to its annual consolidated financial
statements for 2004, 2003 and 2002 and the related quarterly consolidated
financial statements for such periods.
These financial statements reflect adjustments to the Company's previously
reported financial information on Form 10-Q for the three and six months ended
June 30, 2004. The Company has restated and filed an amendment to its quarterly
report on Form 10-Q for the periods March 31, 2004 and June 30, 2004 prior to
the filing of its March 31, 2005 and June 30, 2005 Form 10-Qs and will restate
the financial statements included in its quarterly report on Form 10-Q for the
period ended September 30, 2004.
USE OF ESTIMATES
The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
RESTRICTED CASH
Restricted cash represents deposits related to medical self insurance
requirements and funds that are required to be held in escrow related to the
sale of PM Europe. At June 30, 2005, cash balances totaling $0.4 million were
subject to such restrictions, compared to $0.1 million at December 31, 2004.
7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Pro forma information regarding net income (loss) and earnings per
share is required by Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure,"
and has been determined as if Penton had accounted for its stock-based
compensation under SFAS 123.
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair value methodologies consistent with SFAS 123,
Penton's net loss applicable to common stockholders and earnings per share for
the three and six months ended June 30, 2005 and 2004 would have been as follows
(in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2005 2004 2005 2004
------- -------- ------- --------
Net loss applicable to common stockholders:
As reported................................................................. $(7,695) $(18,634) $(7,705) $(29,729)
Add: Stock-based employee compensation expense included in net
loss applicable to common stockholders, net of related tax effects..... -- 576 2 702
Less: Total stock-based employee compensation expense determined under
fair value based methods for all awards, net of related tax effects... (7) (2,544) (18) (2,901)
------- -------- ------- --------
Pro forma net loss applicable to common stockholders........................ $(7,702) $(20,602) $(7,721) $(31,928)
======= ======== ======= ========
Basic and diluted earnings per share:
As reported.............................................................. $ (0.22) $ (0.55) $ (0.22) $ (0.89)
Pro forma................................................................ $ (0.22) $ (0.61) $ (0.22) $ (0.95)
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which replaces SFAS
123 and supersedes APB 25. SFAS 123(R) requires recognition of an expense when a
company exchanges its equity instruments for goods or services, based on the
fair value of the share-based compensation at the grant date. The related
expense is recognized over the period in which the share-based compensation
vests. SFAS 123(R) permits either a prospective or one of two modified versions
of retrospective application under which financial statements for prior periods
are adjusted on a basis consistent with the pro forma disclosures required for
those periods by the original SFAS 123. The Company is required to adopt the
provisions of SFAS 123(R) effective January 1, 2006, at which time the Company
will begin recognizing an expense for unvested share-based compensation that has
been issued or will be issued after that date. The Company has not yet finalized
its decision concerning the transition method it will utilize to adopt SFAS
123(R) and its impact on the financial statements.
In March 2005, the FASB Staff issued Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies the term
conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations" as well as other issues related to
asset retirement obligations. FIN 47 is effective for fiscal years ending after
December 15, 2005. The Company is in the process of determining if this
interpretation will have any impact on its financial statements.
NOTE 2 - ACQUISITIONS AND DISPOSALS
Penton's management regularly reviews its portfolio to determine what markets
and properties provide the Company with the greatest opportunity for market
leadership and long-term growth. As part of that review process, management
determined that our International segment did not fit our strategic growth
objectives as we focus new product innovation on e-media and on leveraging our
strong print brands in the United States and Asia.
8
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In April 2005, the Company completed the sale of 90% of its PM Europe operation,
for approximately $4.4 million in cash, with no gain or loss recognized on
disposal. PM Europe was part of our International segment. The results of PM
Europe are reported as discontinued operations for all periods presented. The
Company's 10% interest that remains will be accounted for using the cost method,
as the Company does not exercise significant influence, and has been reported
within other non-current assets on the accompanying consolidated balance sheets.
In December 2004, the Company completed the sale of 70% of its interest in PM
Germany, a consolidated subsidiary, to Neue Medien Ulm Holdings GmbH ("Neue
Medien") for $0.8 million in cash. PM Germany was also part of our International
segment. At December 31, 2004, the sale of PM Germany did not qualify for
discontinued operations treatment because PM Germany and PM Europe were
considered one component for SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144") purposes and PM Europe did not meet
the held for sale criteria at such date. However, since PM Europe was sold in
April 2005, the results of PM Germany are reported as part of discontinued
operations for all periods presented. At June 30, 2005, the Company retains a
15% interest in PM Germany, which includes a call/put option. The Company
accounts for its investment using the cost method, as the Company does not
exercise significant influence. The investment has been reported within other
non-current assets on the accompanying consolidated balance sheets.
Revenues and net loss from discontinued operations, net of taxes for all periods
present, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2005 2004 2005 2004
----- ------ ------- -------
Revenues $ 95 $4,831 $ 654 $ 6,507
===== ====== ======= =======
Discontinued operations:
Loss from operations of discontinued component $(159) $ (213) $(2,959) $(1,644)
Gain (loss) on disposal -- -- -- --
Income tax provision -- (2) -- (480)
Loss on discontinued operations, net of taxes $(159) $ (215) $(2,959) $(2,124)
===== ====== ======= =======
In June 2005, the Company acquired the assets of Kosher World Conference & Expo
("Kosher World") from Shows International for nearly $0.4 million in cash plus
contingent considerations of up to $0.7 million based on the achievement of
specified revenue targets for the 2006 event. Kosher World, which was launched
two years ago, is a retail-based event serving the kosher market, with emphasis
on bringing kosher food products marketers together with buyers from the
mass-market grocery channel. Kosher World will be co-located with the Company's
Natural Products Expo West event, held in Anaheim, California, beginning in
March 2006.
NOTE 3 - GOODWILL AND OTHER INTANGIBLES
As required under SFAS 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
the Company assesses goodwill for impairment at least annually since its initial
adoption of SFAS 142 on January 1, 2002. As a result of PM Europe being
classified as held for sale at March 31, 2005, the Company performed a SFAS 142
analysis for this reporting unit, which resulted in an impairment charge of
approximately $1.4 million during the first quarter of 2005. The impairment
charge is included in discontinued operations on the consolidated statements of
operations.
9
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Changes in the carrying amount of goodwill for the six months ended June 30,
2005 by operating segment are as follows (in thousands):
BALANCE AT BALANCE AT
DECEMBER 31, IMPAIRMENT JUNE 30,
2004 CHARGE ACTIVITY (1) 2005
------------ ---------- ------------ ----------
Industry $ 35,777 $ -- $ -- $ 35,777
Technology 26,346 -- -- 26,346
Retail 25,824 -- -- 25,824
Lifestyle 84,924 -- -- 84,924
International 3,291 (1,407) (1,884) --
-------- ------- ------- --------
Total $176,162 $(1,407) $(1,884) $172,871
======== ======= ======= ========
(1) Represents goodwill related to PM Europe, which was sold in April 2005.
The Company also performed a SFAS 144 impairment analysis of long-lived assets
other than goodwill at March 31, 2005 for PM Europe, which resulted in an
impairment charge of approximately $0.4 million.
At June 30, 2005, other intangibles recorded in the consolidated balance sheets
are comprised of the following (in thousands):
GROSS NET
CARRYING ACCUMULATED BOOK
VALUE AMORTIZATION VALUE
-------- ------------ ------
Trade names $ 4,933 $ (4,061) $ 872
Mailing/exhibitor lists 9,604 (5,783) 3,821
Advertiser relationships 5,624 (4,493) 1,131
Subscriber relationships 1,929 (1,523) 406
------- -------- ------
Balance at June 30, 2005 $22,090 $(15,860) $6,230
======= ======== ======
Other intangibles are being amortized over 3 to 15 years. Total amortization
expense for the six months ended June 30, 2005 and 2004 was $0.9 million and
$1.2 million, respectively. Amortization expense estimated for these intangibles
for 2005 through 2009 are as follows (in thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ------
2005 $1,773
2006 $1,653
2007 $1,021
2008 $ 472
2009 $ 401
NOTE 4 - DEBT
LOAN AND SECURITY AGREEMENT
At June 30, 2005, the Company has $36.5 million available under its Loan and
Security Agreement. Pursuant to the terms of the Loan and Security Agreement,
the Company can borrow up to the lesser of (i) $40.0 million; (ii) 2.25x the
Company's last twelve months adjusted EBITDA measured through August 13, 2005,
and 2.0x thereafter; (iii) 40% of the Company's last six months of revenues; or
(iv) 25% of the Company's enterprise value, as determined annually by a third
party. The Loan and Security Agreement facility bears interest at LIBOR plus
5.0% subject to a LIBOR minimum of 1.5%. The Company must comply with a
quarterly financial covenant limiting the ratio of maximum bank debt to the last
twelve months
10
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
adjusted EBITDA to 2.0x. At June 30, 2005 the Company has three stand-by letters
of credit of $0.1 million, $0.1 million and $0.9 million, respectively, related
to certain facility leases. The amounts of these letters of credit reduce the
availability under the Loan and Security Agreement. No amounts have been drawn
under the stand-by letters of credit. Costs representing bank fees and other
professional fees of $1.9 million are being amortized over the life of the
agreement. At June 30, 2005, there was $1.2 million outstanding under the Loan
and Security Agreement. The Loan and Security Agreement expires in August 2007.
The Loan and Security Agreement contains several provisions that could have a
significant impact as to the classification as well as the acceleration of
payments for borrowings outstanding under the agreement, including the
following:
(i) the obligation of the lender to provide any advances under the
agreement is subject to no material adverse change events;
(ii) reserves may be established against the borrowing base for sums that
the Company is required to pay, such as taxes and assessments and
other types of required payments, and has failed to pay;
(iii) in the event of a default under the agreement, the lender has the
right to direct all cash that is deposited in the Company's lock boxes
to the lender to pay down outstanding borrowings;
(iv) the agreement establishes cross-defaults to the Company's other
indebtedness (such as the 11-7/8% senior secured notes and 10-3/8%
senior subordinated notes) such that a default under the Loan and
Security Agreement could cause a default under the note agreements and
vice versa; however, default-triggering thresholds are different in
the loan agreement and the notes; and
(v) if the Company is in default of any material agreement to which it is
a party and the counter-party to that agreement has the right to
terminate such agreement as a result of the default, this constitutes
an event of default under the Loan and Security Agreement.
Under the Loan and Security Agreement, the lenders reserve the right to deem
loans in default, and in those limited circumstances, could accelerate payment
of any outstanding loan balances should the Company undergo a material adverse
event. Even though the criteria defining a material adverse event are
subjective, the Company does not believe that the exercise of the lenders' right
is probable nor does it foresee any material adverse events in 2005. In
addition, the Company believes that the 11-7/8% senior secured notes and 10-3/8%
senior subordinated notes are long-term in nature. Accordingly, the Company
continues to classify its notes as long term.
SENIOR SECURED NOTES
At June 30, 2005, the Company has $157.5 million of 11-7/8% senior secured notes
(the "Secured Notes") that are due in October 2007. Interest is payable on the
Secured Notes semiannually on April 1 and October 1. The Secured Notes were
offered at a discount of $0.8 million, which is being amortized using the
interest method over the term of the Secured Notes.
SENIOR SUBORDINATED NOTES
At June 30, 2005, the Company has $169.5 million of 10-3/8% senior subordinated
notes (the "Subordinated Notes") that are due in June 2011. Interest is payable
on the Subordinated Notes semiannually on June 15 and December 15. The
Subordinated Notes were offered at a discount of $4.2 million, which is being
amortized using the interest method over the term of the Subordinated Notes.
In February 2005, the Company repurchased $5.5 million par value of the
Subordinated Notes for a total of $3.9 million, including $0.1 million of
accrued interest, using excess cash on hand. The notes were purchased in the
open market and were trading at 69% of their par value at the time of purchase.
The repurchase resulted in a gain of approximately $1.6 million, which is
classified as gain on extinguishment of debt in the consolidated statement of
operations. The repurchase will reduce the Company's annual interest charges by
approximately $0.6 million.
11
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
INTEREST PAYMENTS
Interest payments of $18.3 million and $18.4 million were made during the six
months ended June 30, 2005 and 2004, respectively. Interest of $5.4 million was
accrued for at June 30, 2005 and December 31, 2004, respectively, and is
included in other accrued expenses on the consolidated balance sheets.
NOTE 5 - PREFERRED STOCK
On September 13, 2004, the Company filed a Certificate of Designations governing
a new series of preferred stock, $0.01 par value (the "Series C Preferred"),
with the Secretary of State for the State of Delaware. The Series C Preferred
was exchanged on a share-for-share basis with the Company's Series B Preferred
Stock, $0.01 par value (the "Series B Preferred"). The Certificate of
Designations for the Series C Preferred is identical to the Series B Preferred
stock Certificate of Designations except:
- the new series allows for the sharing of the liquidation preference
with the new Series M Preferred stock (discussed below),
- certain technical and correcting amendments have been made to the
Certificate of Designations for the Series C Preferred stock,
including fixing the formula used to calculate the "Change of Control
Cap" (as defined in the Series C Preferred Stock Certificate of
Designations), and
- certain conforming changes were made to the Series C Preferred Stock
Certificate of Designations to account for the fact that the Series C
Preferred stock was issued in exchange for the Series B Preferred
stock.
At June 30, 2005, an event of non-compliance continued to exist under our Series
C Preferred because the Company's leverage ratio of 9.9 (defined as debt less
cash balances in excess of $5.0 million plus the liquidation value of the
preferred stock and unpaid dividends divided by adjusted EBITDA) exceeded 7.5.
Upon the occurrence of this event of non-compliance, the 5% per annum dividend
rate on the Series C Preferred stock was increased to the current maximum rate
of 10% per annum. The dividend rate will adjust back to 5% as of the date on
which the leverage ratio is less than 7.5.
The conversion price of the Series C Preferred stock at June 30, 2005 was $7.61.
The leverage ratio event of non-compliance does not represent an event of
default or violation under any of the Company's outstanding notes or the Loan
and Security Agreement. As such, there is no acceleration of any outstanding
indebtedness as a result of this event. In addition, this event of
non-compliance and the resulting consequences have not resulted in any cash
outflow from the Company.
Under the conversion terms of the Series C Preferred, each holder has a right to
convert dividends into shares of common stock. At June 30, 2005, no dividends
have been declared. However, in light of each holder's conversion right and
considering the increase in the dividend rate, the Company has recognized a
deemed dividend for the beneficial conversion feature inherent in the
accumulated dividend based on the original commitment date(s). For the six
months ended June 30, 2005, $3.7 million has been reported as an increase in the
carrying value of the Series C Preferred stock and a charge to capital in excess
of par value in light of the stockholders' deficit.
In September 2004, the Board of Directors of the Company created the Series M
Preferred stock ("Series M Preferred") to give management an equity stake in the
performance of the Company. The Series M Preferred is limited to 150,000 shares,
of which 69,000 shares have been issued at June 30, 2005. The Series M Preferred
is treated under fixed plan accounting and is classified in the mezzanine
section of the consolidated balance sheets because redemption is outside the
control of the Company.
Among other rights and provisions, the Series M Preferred provides that the
holder of each share will receive a cash distribution upon any liquidation,
dissolution, winding up or change of control of the Company. The amount of such
distribution is first a percentage of what the holders of Series C Preferred
would receive, and second a percentage of what the holders of the Company's
common stock would receive, in each case, upon such liquidation, dissolution,
winding up or change of control.
12
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
If the Company had been sold on June 30, 2005, the bondholders would have been
entitled to receive $330.3 million and the preferred stockholders would have
been entitled to receive $158.2 million before the common stockholders would
have received any amounts for their common shares. In addition, the Series M
Preferred holders would receive 8% of all amounts the common stockholder would
receive. The amount the preferred stockholders would be entitled to receive
could increase significantly in the future under certain circumstances. Common
stockholders are urged to read the terms of the preferred stock in their
entirety.
NOTE 6 - COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
EXECUTIVE LOAN PROGRAM
At June 30, 2005 and December 31, 2004, the outstanding loan balance due under
the Executive Loan Program was approximately $5.8 million. The loan balance is
fully reserved for at both periods and is classified in the stockholders'
deficit section of the consolidated balance sheets as notes receivable from
officers.
MANAGEMENT STOCK PURCHASE PLAN
During the first six months of 2005, 69,775 shares of the Company's common stock
were issued under this plan leaving a balance of 847 restricted stock units
("RSUs") outstanding at June 30, 2005.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Stock Options
In the first six months of 2005, 114,400 stock options were cancelled, leaving
1,136,525 options outstanding at June 30, 2005.
Deferred Shares
In the first quarter of 2005, 614,706 shares of the Company's common stock were
issued under this plan leaving no outstanding deferred shares at June 30, 2005.
Performance Units
At June 30, 2005, 113,500 performance units remain outstanding related to two
executives. Subject to the attainment of certain performance goals from January
1, 2003 through December 31, 2005, each grantee can earn a cash award of up to
$2.00 for each performance unit.
TREASURY STOCK
In the first six months of 2005, 28,613 shares were returned to the Company by a
certain executive to cover taxes on deferred shares issued. Treasury stock is
purchased for constructive retirement and is carried at cost and recorded as a
net decrease in capital in excess of par value.
NOTE 7 - EMPLOYEE BENEFIT PLANS
Effective January 1, 2004, the Company's defined benefit plan was amended to
freeze benefit accruals. The Company is not required to make any contributions
to its defined benefit plan in 2005.
13
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the components of our defined benefit pension
expense for the three and six months ended June 30, 2005 and 2004 (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2005 2004 2005 2004
----- ----- ------- -------
Interest cost............................ $ 599 $ 700 $ 1,231 $ 1,286
Expected return on plan assets........... (777) (841) (1,492) (1,562)
----- ----- ------- -------
Net periodic benefit cost (benefit)... $(178) $(141) $ (261) $ (276)
===== ===== ======= =======
Concurrent with the freeze, the Company began making contributions to a new
retirement account in the 401(k) Plan, which has been renamed the Penton Media,
Inc. Retirement and Savings Plan ("RSP"). The RSP now includes the new
retirement account and the "old" 401(k) savings account. Beginning in 2004, the
Company began making monthly contributions to each employee's retirement account
equal to between 3% and 6% of the employee's annual salary, based on age and
years of service. Effective January 1, 2005, the Company changed the
contribution to 3% and began making contributions quarterly instead of monthly.
The Company's contributions become fully vested once the employee has completed
five years of service. The Company expects to make contributions of $1.6 million
to the RSP in 2005. During the first six months of 2005, contributions of $0.8
million have been made.
Effective January 1, 2004, Penton's supplemental executive retirement plan
("SERP") was amended to freeze benefits. The following table summarizes the
components of our SERP pension expense for the three and six months ended June
30, 2005 and 2004 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2005 2004 2005 2004
---- ---- ---- ----
Interest cost............................ $ 7 $13 $13 $26
Expected return on plan assets........... -- -- -- --
--- --- --- ---
Net periodic benefit cost (benefit)... $ 7 $13 $13 $26
=== === === ===
NOTE 8 - EARNINGS PER SHARE
Earnings per share have been computed pursuant to the provisions of SFAS No.
128, "Earnings Per Share" ("SFAS 128"). Computations of basic and diluted
earnings per share for the three and six months ended June 30, 2005 and 2004 are
as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2005 2004 2005 2004
------- -------- ------- --------
Net loss applicable to common stockholders $(7,695) $(18,634) $(7,705) $(29,729)
======= ======== ======= ========
Number of shares:
Weighted average shares outstanding - basic and diluted 34,489 33,583 34,490 33,559
======= ======== ======= ========
Per share amount:
Loss applicable to common stockholders - basic and diluted $ (0.22) $ (0.55) $ (0.22) $ (0.89)
======= ======== ======= ========
Our preferred stock and RSUs are participating securities, such that in the
event a dividend is declared or paid on the common stock, the Company must
simultaneously declare and pay a dividend on the preferred stock and the RSUs as
if the
14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
preferred stock and the RSUs had been converted into common stock. Emerging
Issues Task Force ("EITF") Issue 03-6, "Participating Securities and the
Two-Class Method Under FASB Statement 128, Earnings Per Share" ("EITF 03-6")
requires that participating securities included in the scope of EITF 03-6 be
included in the computation of basic earnings per share if the effect of
inclusion is dilutive. At June 30, 2005 and 2004, redeemable preferred stock was
excluded from the calculation of basic earnings per share, as the results were
anti-dilutive. At June 30, 2004, non-vested RSUs were excluded from the
calculation of basic earnings per share, as the results were anti-dilutive. At
June 30, 2005, there are no non-vested RSUs.
For the three and six months ended June 30, 2005, 1,136,525 stock options,
50,000 redeemable preferred shares and 1,600,000 warrants were excluded from the
calculation of diluted earnings per share, as the result would have been
anti-dilutive.
For the three and six months ended June 30, 2004, 2,337,680 stock options,
370,000 performance shares, 589,706 non-vested deferred shares, 83,882
non-vested RSUs, 50,000 redeemable preferred shares and 1,600,000 warrants were
excluded from the calculation of diluted earnings per share, as the result would
have been anti-dilutive.
NOTE 9 - COMPREHENSIVE LOSS
Comprehensive loss represents net loss plus the results of certain stockholders'
equity changes not reflected in the consolidated statements of operations. The
after-tax component of comprehensive loss for the three and six months ended
June 30, 2005 and 2004 are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2005 2004 2005 2004
------- -------- ------- --------
Net loss $(5,804) $(15,226) $(3,991) $(21,128)
Cumulative translation adjustment related
to sale of business 1,244 -- 1,244 --
Change in accumulated translation adjustment 57 (114) (35) 41
------- -------- ------- --------
Total comprehensive loss $(4,503) $(15,340) $(2,782) $(21,087)
======= ======== ======= ========
NOTE 10 - INCOME TAXES
The effective tax rates for the three months ended June 30, 2005 and 2004 were a
provision of 12.3% and 5.4%, respectively. The higher effective tax rate for the
three months ended June 30, 2005 compared to June 30, 2004 is primarily due to
the impact of deferred tax liabilities on indefinite lived intangibles being in
the tax provision as a fixed amount while the loss from continuing operations
changed between periods. The effective tax rates for the six months ended June
30, 2005 and 2004 were a provision of 383.5% and 8.8%, respectively. The higher
effective tax rate for the six months ended June 30, 2005 as compared to June
30, 2004 is primarily due to the impact of deferred tax liabilities on
indefinite lived intangibles being in the tax provision as a fixed amount while
the income (loss) from continuing operations changed between periods. For the
three months ended June 30, 2005 and 2004, the Company recorded tax expense of
$0.6 million and $0.8 million on a loss from continuing operations before income
taxes of $5.0 and $14.2 million, respectively. For the six months ended June 30,
2005 and 2004, the Company recorded tax expense of $1.4 million and $1.5 million
on income from continuing operations before income taxes of $0.4 million and a
loss from continuing operations before income taxes of $17.5 million,
respectively.
The Company assesses the recoverability of its deferred tax assets in accordance
with the provisions of SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109").
At June 30, 2005 and December 31, 2004, the valuation allowance for net deferred
tax assets and net operating loss carryforwards, excluding the deferred tax
liability related to indefinite-lived intangibles, totaled $101.7 million and
$106.0 million, respectively.
On June 30, 2005, the State of Ohio enacted new tax legislation that creates a
new Commercial Activity Tax ("CAT") which computes taxes based on qualifying
"taxable gross receipts" and will not consider any expenses or costs incurred to
generate such receipts except for items such as cash discounts, returns and
allowances and bad debts. The CAT is effective July 1,
15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2005 and replaces the Ohio income-based franchise tax and personal property tax.
The CAT is phased in while the current franchise tax is phased out over a
five-year period, beginning with the year ended December 31, 2005. Personal
property tax is phased out over a four-year period, beginning with the year
ended December 31, 2005. During the phase-out period the Ohio income tax will be
computed consistently with the current tax law except that the tax liability as
computed will be multiplied by approximately 4/5 for the year ended December 31,
2005, 3/5 for the year ended December 31, 2006, 2/5 for the year ended December
31, 2007, and 1/5 for the year ended December 31, 2008, therefore eliminating
the current tax over a five-year period.
As a result of the new tax structure, all net deferred taxes that are not
expected to reverse during the five-year phase-in period have been written off
at June 30, 2005. Due to the Company's valuation allowance for net deferred tax
assets and net operating loss carryforwards, the law should not have a material
impact on our income taxes. The Ohio net operating loss carryforward of $5.5
million and its related valuation allowance were adjusted to reflect the
expiration of these net operating loss carryforwards due to the change in the
law.
The American Job Creation Act of 2004 was signed into law in October 2004. Due
to the Company's U.S. tax loss position, the law should not have a material
impact on our income taxes.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
On November 3, 2003, a lawsuit was brought against the Company for an
unspecified amount by Alison & Associates, Inc. under the Telephone Consumer
Protection Act ("TCPA"), which prohibits the transmission of unsolicited fax
advertisements. The lawsuit is a putative class action that seeks to represent a
class of plaintiffs comprised of all individuals and entities who, during the
period from November 3, 1999 through the present, received one or more
facsimiles sent by or on behalf of the Company advertising the commercial
availability of its products or services and who did not give their prior
expressed permission or invitation to receive such faxes. The statutory penalty
for a single violation of the TCPA is $500, although the penalty can increase to
$1,500 per violation if the Company is found to have willfully or knowingly
violated these laws. In June 2005, the two parties settled the case for $0.05
million in cash, which was paid entirely with insurance proceeds. The Richmond
County, Georgia, Superior Court dismissed the case on June 30, 2005.
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.
TAX MATTERS
The calculation of our tax liabilities involves dealing with uncertainties in
the application of complex tax regulations. We recognize liabilities for
anticipated tax audit issues based on our estimate of whether, and the extent to
which additional taxes will be due. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and recognize a tax
benefit during the period in which we determine that the liability is no longer
necessary. We also recognize tax benefits to the extent that it is probable that
our positions will be sustained when challenged by the taxing authorities. As of
June 30, 2005, we have not recognized tax benefits of approximately $2.3 million
relating to various state tax positions. Should the ultimate outcome be
unfavorable, we would be required to make a cash payment for all tax reductions
claimed as of that date.
CURRENT LIQUIDITY
The Company believes that its existing sources of liquidity, along with revenues
expected to be generated from operations, will be sufficient to fund operations,
anticipated capital expenditures, working capital, and other financing
requirements. However, if the Company continues to incur operating losses and
negative cash flows in the future, Penton may need to further reduce its
operating costs or obtain alternate sources of financing, or both, to remain
viable. The Company's ability to meet cash operating requirements depends upon
its future performance, which is subject to general economic conditions and to
financial, competitive, business, and other factors. The Company's ability to
return to sustained profitability at acceptable levels will
16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
depend on a number of risk factors, many of which are largely beyond the
Company's control. If the Company is unable to meet its debt obligations or fund
its other liquidity needs, particularly if the revenue environment deteriorates,
Penton may be required to raise additional capital through additional financing
arrangements or the issuance of private or public debt or equity securities.
Such additional financing may not be available at acceptable terms. In addition,
the terms of our convertible preferred stock and warrants issued, including the
conversion price, dividend and liquidation adjustment provisions, could result
in substantial dilution to common stockholders. The redemption price premiums
and board representation rights could negatively impact our ability to access
the equity markets in the future.
OTHER COMMITMENTS
In February 2005, the Company replaced its printing agreement with R.R.
Donnelley dated December 1999 with a new seven-year agreement. The new agreement
expires on December 31, 2011 unless a minimum revenue commitment to R.R.
Donnelley of $42.0 million is not reached, at which time the agreement would
extend until the commitment is reached. The Company also agreed to consolidate
certain magazines under the new agreement when current contracts with other
vendors expire. In exchange, the Company will receive certain credits for 2005
and pricing reductions in 2006 through 2011. In addition, the purchase
commitments required in the old agreement of $7.2 million and $6.8 million in
2005 and 2006, respectively, have been eliminated.
NOTE 12 - BUSINESS RESTRUCTURING CHARGES
To maintain competitiveness and in reaction to the downturn in the
business-to-business media industry, Penton has implemented restructuring
actions over the past several years for the purpose of reducing excess capacity,
eliminating redundancies and reducing costs.
The cost reduction initiatives included workforce reductions, the consolidation
and closure of over 30 facilities, and the cancellation of various contracts.
For facilities that the Company no longer occupies, management makes sublease
assumptions, including the number of years a property will be subleased and the
price per square foot expected to be received, based on discussions with
realtors and/or parties that have shown interest in the space, the square
footage of the property, the properties location, and market trends. The Company
is actively attempting to sublease all vacant facilities.
Personnel costs include payments for severance, benefits and outplacement
services.
2001 RESTRUCTURING PLAN
In 2001, as part of a broad cost reduction initiative, the Company announced
certain expense reductions, including a reduction in workforce of approximately
400 employees, the closure of more than 20 offices worldwide and other exit
costs primarily related to the write-off of computerized software development
costs. Adjustments to other exit costs of approximately $1.0 million in 2001
primarily relate to the reversal of certain restructuring initiatives that did
not require the level of spending that had originally been estimated.
Adjustments to the 2001 plan in 2002 and 2003 of $0.6 million and $0.3 million,
respectively, were made to facility closing costs to reflect changes in sublease
assumption.
17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Activity and liability balances related to the 2001 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- --------
Charged to costs and expenses $ 6,774 $ 8,669 $ 4,364 $19,807
Adjustments (23) -- (994) (1,017)
Cash payments (4,468) (267) (2,423) (7,158)
------- ------- ------- -------
Restructuring balance, December 31, 2001 2,283 8,402 947 11,632
Adjustments (135) (459) (422) (1,016)
Cash payments (2,129) (1,590) (250) (3,969)
------- ------- ------- -------
Restructuring balance, December 31, 2002 19 6,353 275 6,647
Adjustments (8) 598 82 672
Cash payments (11) (1,304) (357) (1,672)
------- ------- ------- -------
Restructuring balance, December 31, 2003 -- 5,647 -- 5,647
Adjustments -- 288 -- 288
Cash payments -- (1,394) -- (1,394)
------- ------- ------- -------
Restructuring balance, December 31, 2004 -- 4,541 -- 4,541
Adjustments -- 12 -- 12
Cash payments -- (1,057) -- (1,057)
------- ------- ------- -------
Restructuring balance, June 30, 2005 $ -- $ 3,496 $ -- $ 3,496
======= ======= ======= =======
The Company expects to pay its obligations for non-cancelable facility leases
over their respective lease terms, which expire at various dates through 2013.
2002 RESTRUCTURING PLAN
In 2002, the Company announced a number of expense reduction and restructuring
initiatives intended to further improve its operating cost structure. The
actions included costs of $5.1 million related to the closure of nine additional
offices worldwide. These amounts were offset in part by approximately $1.7
million related to our New York, New York and Burlingame, California offices
that were subleased in 2002. In addition, the Company reduced the workforce by
approximately 316 employees and recorded a liability for other contractual
obligations related primarily to the cancellation of trade show venues, hotel
contracts and service agreements. Facility closing cost adjustments of $1.7
million in 2002 relate primarily to rent escalation provisions, which had not
been taken into consideration when the original 2002 liability was recorded.
Adjustments to the 2002 plan in 2003 and 2004 of $0.6 million and $0.3 million,
respectively, were made to facility closing costs to reflect changes in sublease
assumption.
18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Activity and liability balances related to the 2002 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -------
Charged to costs and expenses $10,344 $ 3,421 $1,648 $15,413
Adjustments 200 1,705 59 1,964
Cash payments (5,440) (693) (967) (7,100)
------- ------- ------ -------
Restructuring balance, December 31, 2002 5,104 4,433 740 10,277
Adjustments (45) (604) (92) (741)
Cash payments (4,928) (1,469) (375) (6,772)
------- ------- ------ -------
Restructuring balance, December 31, 2003 131 2,360 273 2,764
Adjustments 25 300 291 616
Cash payments (64) (708) (564) (1,336)
------- ------- ------ -------
Restructuring balance, December 31, 2004 92 1,952 -- 2,044
Adjustments -- 201 -- 201
Cash payments (4) (290) -- (294)
------- ------- ------ -------
Restructuring balance, June 30, 2005 $ 88 $ 1,863 $ -- $ 1,951
======= ======= ====== =======
The balance of severance costs relate to an executive who will be paid through
2007. Obligations for non-cancelable facility leases will be paid over their
respective lease terms, which expire at various dates through 2010.
2003 RESTRUCTURING PLAN
In order to meet continued revenue challenges in 2003, the Company implemented a
number of additional expense reduction and restructuring activities totaling
$4.9 million, net of estimated sublease income. The following sets forth
additional detail concerning the principal components of this charge:
- Personnel costs of $2.7 million are associated with the elimination of 85
positions. Approximately 91% of the positions eliminated were in the United
States, with most of the remaining positions in the United Kingdom.
- The Company recorded office closure costs of $3.8 million primarily related
to the closure of one floor at the Company's corporate headquarters and the
partial closure of one additional facility. This charge was offset by $2.3
million of estimated sublease income related to these facilities.
- The charge for other exit costs of $0.7 million relates primarily to
equipment lease payments at closed office facilities, cancellation of
certain contracts, and broker commissions.
19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Activity and liability balances related to the 2003 restructuring plan, are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -------
Charged to costs and expenses $ 2,736 $1,505 $ 661 $ 4,902
Adjustments 35 (11) -- 24
Cash payments (1,105) (500) (233) (1,838)
------- ------ ----- -------
Restructuring balance, December 31, 2003 1,666 994 428 3,088
Adjustments 76 69 (9) 136
Cash payments (1,742) (114) (241) (2,097)
------- ------ ----- -------
Restructuring balance, December 31, 2004 -- 949 178 1,127
Adjustments -- 30 (167) (137)
Cash payments -- (10) (11) (21)
------- ------ ----- -------
Restructuring balance, June 30, 2005 $ -- $ 969 $ -- $ 969
======= ====== ===== =======
In March 2005, the Company was able to negotiate the termination of all of its
restructured copier leases, which were classified in other exit costs, for
approximately $0.1 million less than its original obligation. The Company was
also able to negotiate the settlement of a $0.06 million hotel contract
obligation. Obligations for non-cancelable facility leases will be paid over
their respective lease terms, which expire at various dates through 2010.
2004 RESTRUCTURING PLAN
In order to continue management's efforts to control costs, the Company
implemented a number of additional expense reduction and restructuring
activities in 2004 totaling $5.2 million. The following sets forth additional
detail regarding the principal components of this charge:
- Personnel costs of $4.7 million are associated with the elimination of
68 positions.
- Office closure costs of $0.1 million primarily relate to the closure
of a warehouse in Colorado.
- The charge for other exit costs of $0.4 million relates primarily to
the cancellation of an agreement with a former employee to provide
trade show and conference services to select Penton events, as well
costs for other miscellaneous contracts.
Activity and liability balances related to the 2004 restructuring plan are as
follows (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- -------
Charged to costs and expenses $ 4,752 $ 51 $ 364 $ 5,167
Adjustments 15 -- (27) (12)
Cash payments (4,024) (1) (98) (4,123)
------- ---- ----- -------
Restructuring balance, December 31, 2004 743 50 239 1,032
Adjustments 2 (3) 20 19
Cash payments (643) (21) (141) (805)
------- ---- ----- -------
Restructuring balance, June 30, 2005 $ 102 $ 26 $ 118 $ 246
======= ==== ===== =======
The Company expects to complete all severance payments by September 2005.
Furthermore, payments related to non-cancelable facility lease obligations and
other exit costs are expected to be completed by December 2005.
20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2005 RESTRUCTURING PLAN
In the first quarter of 2005, the Company announced its plans to shut down its
Wireless Systems Design magazine, which was part of our Technology segment. The
shutdown will result in the termination of eight employees at a cost of
approximately $0.2 million. As of June 30, 2005, the elimination of all eight
positions has been completed.
Activity and liability balances related to the first quarter 2005 restructuring
plan, are as follows (in thousands):
SEVERANCE
AND OTHER
PERSONNEL COSTS
---------------
Charged to costs and expenses $ 156
Cash payments (111)
-----
Restructuring balance, June 30, 2005 $ 45
=====
The Company expects to complete severance payments by September 2005.
ESTIMATED FUTURE PAYMENTS
Management expects to make cash restructuring payments during the remainder of
2005 of approximately $0.6 million, comprised of $0.1 million for employee
separation costs, $0.4 million for facility lease obligations and $0.1 million
for other contractual obligations. The balance of severance costs will be paid
through the first quarter of 2007, and the balance of facility costs, primarily
long-term leases, are expected to be paid through the end of their respective
lease terms, which extend through 2013.
Amounts due within one year, approximately $1.2 million and $2.7 million at June
30, 2005 and December 31, 2004, respectively, are classified in other accrued
expenses on the consolidated balance sheets. Amounts due after one year,
approximately $5.5 million and $6.0 million at June 30, 2005 and December 31,
2004, respectively, are included in other non-current liabilities on the
consolidated balance sheets.
Restructuring charges, including adjustments, for the three and six months ended
June 30, 2005 and 2004 are as follows, by segment:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2005 2004 2005 2004
---- ------ ---- ------
Industry $260 $ 294 $309 $ 643
Technology (7) 533 (18) 768
Lifestyle (65) (3) (65) 10
Retail -- 680 -- 698
Corporate (2) 2,018 26 2,185
---- ------ ---- ------
Total $186 $3,522 $252 $4,304
==== ====== ==== ======
Also included in restructuring and other charges on the consolidated statements
of operations for the six months ended June 30, 2004 is approximately $0.1
million in legal settlement costs.
NOTE 13 - SEGMENTS
Penton designates its operating segments based on how the chief operating
decision maker reviews the Company's performance. As the Company's new CEO, Mr.
Nussbaum, along with his executive team, assess and manage the Company's
operations differently than the prior management team resulting in a change in
the Company's reportable
21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
segments effective in the third quarter of 2004. As a result of this change in
reportable segments, all prior periods were recast to conform with the new
segment format.
The Company's segments include: Industry, Technology, Lifestyle, and Retail. As
discussed in Note 2 - Acquisitions and Disposals, the Company sold PM Germany in
December 2004 and PM Europe in April 2005. These two operating subsidiaries,
which are now classified as discontinued operations, made up our International
segment. The results of our segments will, consistent with past practice, be
regularly reviewed by the Company's chief operating decision maker and the
executive team to determine how resources will be allocated to each segment and
to assess the performance of each segment. Penton's four segments derive their
revenues from publications, trade shows and conferences, and online media
products.
Content of each of our segment publications, trade shows and conferences, and
online media products is geared to customers in the following market sectors:
INDUSTRY TECHNOLOGY
-------- ----------
Manufacturing Business Technology
Design/Engineering Aviation
Mechanical Systems/Construction Enterprise Information Technology
Government/Compliance Electronics
LIFESTYLE RETAIL
--------- ------
Natural Products Food/Retail
Hospitality
The executive management team evaluates performance of each segment based on its
revenues and adjusted segment EBITDA. As such, in the analysis that follows, the
Company uses adjusted segment EBITDA, which is defined as net income (loss)
before interest, taxes, depreciation and amortization, non-cash compensation,
impairment of assets, restructuring charges, executive separation costs,
provision for loan impairment, gain on extinguishment of debt, discontinued
operations, general and administrative costs, and other non-operating items.
General and administrative costs include functions such as finance, accounting,
human resources, and information systems, which cannot reasonably be allocated
to each segment. Assets are not allocated to segments and as such have not been
presented.
Summary information by segment for the three months ended June 30, 2005 and
2004, adjusted for discontinued operations, is as follows (in thousands):
REVENUES ADJUSTED SEGMENT EBITDA
----------------- -----------------------
2005 2004 2005 2004
------- ------- ------- ------
Industry $20,038 $19,485 $ 6,284 $5,688
Technology 15,251 16,520 3,437 3,143
Lifestyle 2,918 3,884 (1,137) (815)
Retail 5,607 6,217 1,897 1,767
------- ------- ------- ------
Total $43,814 $46,106 $10,481 $9,783
======= ======= ======= ======
Summary information by segment for the six months ended June 30, 2005 and 2004,
adjusted for discontinued operations, is as follows (in thousands):
REVENUES ADJUSTED SEGMENT EBITDA
----------------- -----------------------
2005 2004 2005 2004
------- ------- ------- -------
Industry $37,453 $36,666 $11,203 $ 9,973
Technology 28,577 30,462 5,668 5,120
Lifestyle 20,836 21,108 10,658 10,093
Retail 10,279 10,661 3,142 2,606
------- ------- ------- -------
Total $97,145 $98,897 $30,671 $27,792
======= ======= ======= =======
22
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total adjusted segment EBITDA to consolidated income (loss) from continuing
operations before income taxes (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
2005 2004 2005 2004
------- -------- -------- --------
Total adjusted segment EBITDA $10,481 $ 9,783 $ 30,671 $ 27,792
General and administrative costs (3,662) (5,769) (8,342) (11,448)
Depreciation and amortization (2,310) (2,827) (4,577) (5,675)
Restructuring and other charges (186) (3,502) (252) (4,362)
Executive separation costs -- (347) (3) (2,701)
Non-cash compensation (3) (559) (14) (682)
Provision for loan impairment -- (1,717) -- (1,717)
Interest expense (9,363) (9,362) (18,746) (18,820)
Interest income 32 50 62 136
Gain on extinguishment of debt -- -- 1,589 --
Other, net (16) 6 (24) 4
------- -------- -------- --------
Income (loss) from continuing operations
before income taxes $(5,027) $(14,244) $ 364 $(17,473)
======= ======== ======== ========
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Portions of the following transactions do not provide or use cash and,
accordingly, are not reflected in the condensed consolidated statements of cash
flows.
For the six months ended June 30, 2005, Penton issued 69,775 shares under the
Management Stock Purchase Plan and 614,706 deferred shares. In addition, Penton
recorded amortization of deemed dividend and accretion on the Series C Preferred
of $3.7 million in the first half of 2005.
For the six months ended June 30, 2004, Penton issued 11,217 shares under the
Management Stock Purchase Plan, 535,056 deferred shares and 17,000 shares under
the stock option plan. In February 2004, 473,700 stock options, 595 RSUs and
445,000 deferred shares were granted and in June 2004, an additional 514,706
deferred shares were granted. As a result of the termination of three executives
in June 2004, 239,999 stock options and 255,000 performance shares were
immediately vested. Furthermore, for the six months ended June 30, 2004, Penton
recorded amortization of deemed dividend and accretion on the Series C Preferred
of $8.6 million.
In June 2004, Mr. Nussbaum returned 288,710 common shares to reduce his
executive loan balance. In addition, Mr. Nussbaum received a signing bonus for
$1.7 million, of which $1.1 million was used to pay off the remaining balance of
his executive loan.
NOTE 15 - GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidated balance sheets as of
June 30, 2005 and December 31, 2004, and condensed consolidated statements of
operations for the three and six months ended June 30, 2005 and 2004, and
condensed consolidated statements of cash flows for the six months ended June
30, 2005 and 2004. In the following schedules, "Parent" refers to Penton Media,
Inc., "Guarantor Subsidiaries" refers to Penton's wholly owned domestic
subsidiaries, and "Non-guarantor Subsidiaries" refers to Penton's foreign
subsidiaries. "Eliminations" represent the adjustments necessary to eliminate
the investments in Penton's subsidiaries.
Effective January 1, 2005, several domestic subsidiaries were merged into Penton
Media, Inc. Prior period condensed consolidating financial information has been
adjusted to reflect these changes.
23
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATIED BALANCE SHEETS
AT JUNE 30, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 517 $ 201 $ 958 $ -- $ 1,676
Restricted cash 361 -- -- -- 361
Accounts receivable, net 21,757 3,269 1,222 -- 26,248
Inventories 786 307 5 -- 1,098
Deferred tax assets 273 3 -- -- 276
Prepayments, deposits and other 4,800 373 201 -- 5,374
--------- --------- -------- --------- ---------
28,494 4,153 2,386 -- 35,033
--------- --------- -------- --------- ---------
Property and equipment, net 10,378 1,404 130 -- 11,912
Goodwill 136,689 36,182 -- -- 172,871
Other intangible assets, net 4,694 1,536 -- -- 6,230
Other non-current assets 5,858 71 8 -- 5,937
Investments in subsidiaries (230,997) -- -- 230,997 --
--------- --------- -------- --------- ---------
(73,378) 39,193 138 230,997 196,950
--------- --------- -------- --------- ---------
$ (44,884) $ 43,346 $ 2,524 $ 230,997 $ 231,983
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loan and security agreement credit facility $ 1,200 $ -- $ -- $ -- $ 1,200
Accounts payable and accrued expenses 15,380 1,390 461 -- 17,231
Accrued compensation and benefits 3,397 591 27 -- 4,015
Unearned income 14,564 2,642 2,004 -- 19,210
--------- --------- -------- --------- ---------
34,541 4,623 2,492 -- 41,656
--------- --------- -------- --------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 80,131 76,988 -- -- 157,119
Senior subordinated notes, net of discount 85,047 81,711 -- -- 166,758
Net deferred pension credits 10,307 -- -- -- 10,307
Deferred tax liability 20,198 956 -- -- 21,154
Intercompany advances (108,104) 71,600 36,504 -- --
Other non-current liabilities 4,726 1,993 -- -- 6,719
--------- --------- -------- --------- ---------
92,305 233,248 36,504 -- 362,057
--------- --------- -------- --------- ---------
Commitments and contingencies
Mandatorily redeemable convertible
preferred stock 70,876 -- -- -- 70,876
--------- --------- -------- --------- ---------
Series M preferred stock 11 -- -- -- 11
--------- --------- -------- --------- ---------
Stockholders' deficit:
Common stock and capital in excess
of par value 211,766 202,400 16,566 (218,966) 211,766
Retained deficit (454,058) (396,880) (52,758) 449,638 (454,058)
Notes receivable from officers, less
reserve of $5,848 -- -- -- -- --
Accumulated other comprehensive
income (loss) (325) (45) (280) 325 (325)
--------- --------- -------- --------- ---------
(242,617) (194,525) (36,472) 230,997 (242,617)
--------- --------- -------- --------- ---------
$ (44,884) $ 43,346 $ 2,524 $ 230,997 $ 231,983
========= ========= ======== ========= =========
24
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AT DECEMBER 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 5,991 $ 73 $ 1,597 $ -- $ 7,661
Restricted cash 125 -- -- -- 125
Accounts receivable, net 22,033 4,248 4,290 -- 30,571
Inventories 560 291 5 -- 856
Deferred tax asset 273 3 -- -- 276
Prepayments, deposits and other 2,896 39 737 -- 3,672
--------- --------- -------- --------- ---------
31,878 4,654 6,629 -- 43,161
--------- --------- -------- --------- ---------
Property and equipment, net 12,304 1,693 796 -- 14,793
Goodwill 136,689 36,182 3,291 -- 176,162
Other intangible assets, net 4,688 1,950 208 -- 6,846
Other non-current assets 6,168 208 36 -- 6,412
Investment in subsidiaries (221,148) -- -- 221,148 --
--------- --------- -------- --------- ---------
(61,299) 40,033 4,331 221,148 204,213
--------- --------- -------- --------- ---------
$ (29,421) $ 44,687 $ 10,960 $ 221,148 $ 247,374
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 18,121 $ 1,724 $ 900 $ -- $ 20,745
Accrued compensation and benefits 4,961 902 17 -- 5,880
Unearned income 16,337 2,760 4,177 -- 23,274
--------- --------- -------- --------- ---------
39,419 5,386 5,094 -- 49,899
--------- --------- -------- --------- ---------
Long-term liabilities and deferred credits:
Senior secured notes, net of discount 80,094 76,953 -- -- 157,047
Senior subordinated notes, net of discount 87,729 84,288 -- -- 172,017
Net deferred pension credits 10,568 -- -- -- 10,568
Deferred tax liability 18,947 956 -- -- 19,903
Intercompany advances (102,089) 61,420 40,669 -- --
Other non-current liabilities 4,981 2,029 -- -- 7,010
--------- --------- -------- --------- ---------
100,230 225,646 40,669 -- 366,545
--------- --------- -------- --------- ---------
Commitments and contingencies
Mandatorily redeemable convertible
preferred stock 67,162 -- -- -- 67,162
--------- --------- -------- --------- ---------
Series M preferred stock 4 -- -- -- 4
--------- --------- -------- --------- ---------
Stockholders' equity (deficit):
Common stock and capital in excess
of par value 215,364 203,660 16,566 (220,226) 215,364
Retained earnings (deficit) (450,067) (389,963) (49,826) 439,789 (450,067)
Notes receivable from officers -- -- -- -- --
Accumulated other comprehensive loss (1,533) (42) (1,543) 1,585 (1,533)
--------- --------- -------- --------- ---------
(236,236) (186,345) (34,803) 221,148 (236,236)
--------- --------- -------- --------- ---------
$ (29,421) $ 44,687 $ 10,960 $ 221,148 $ 247,374
========= ========= ======== ========= =========
25
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $34,621 $ 8,163 $1,030 $ -- $ 43,814
------- ------- ------ ------ --------
OPERATING EXPENSES:
Editorial, production and circulation 16,147 3,820 333 -- 20,300
Selling, general and administrative 13,837 2,361 500 -- 16,698
Restructuring and other charges 193 (7) -- -- 186
Depreciation and amortization 1,933 358 19 -- 2,310
------- ------- ------ ------ --------
32,110 6,532 852 -- 39,494
------- ------- ------ ------ --------
OPERATING INCOME (LOSS) 2,511 1,631 178 -- 4,320
------- ------- ------ ------ --------
OTHER INCOME (EXPENSE):
Interest expense (4,766) (4,578) (19) -- (9,363)
Interest income 32 -- -- -- 32
Equity in losses of subsidiaries (2,956) -- -- 2,956 --
Other, net (2) -- (14) -- (16)
------- ------- ------ ------ --------
(7,692) (4,578) (33) 2,956 (9,347)
------- ------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,181) (2,947) 145 2,956 (5,027)
Provision for income taxes 623 (5) -- -- 618
------- ------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (5,804) (2,942) 145 2,956 (5,645)
Loss from discontinued operations, net of taxes -- -- (159) -- (159)
------- ------- ------ ------ --------
NET LOSS $(5,804) $(2,942) $ (14) $2,956 $ (5,804)
======= ======= ====== ====== ========
26
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 35,961 $ 8,619 $1,526 $ -- $ 46,106
-------- ------- ------ ------ --------
OPERATING EXPENSES:
Editorial, production and circulation 17,165 4,094 553 -- 21,812
Selling, general and administrative 17,525 2,821 840 -- 21,186
Provision for loan impairment 1,717 -- -- -- 1,717
Restructuring and other charges 2,988 514 -- -- 3,502
Depreciation and amortization 2,205 591 31 -- 2,827
-------- ------- ------ ------ --------
41,600 8,020 1,424 -- 51,044
-------- ------- ------ ------ --------
OPERATING INCOME (LOSS) (5,639) 599 102 -- (4,938)
-------- ------- ------ ------ --------
OTHER INCOME (EXPENSE):
Interest expense (4,815) (4,468) (79) -- (9,362)
Interest income 50 -- -- -- 50
Equity in losses of subsidiaries (4,065) -- -- 4,065 --
Other, net 6 -- -- -- 6
-------- ------- ------ ------ --------
(8,824) (4,468) (79) 4,065 (9,306)
-------- ------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (14,463) (3,869) 23 4,065 (14,244)
Provision for income taxes 763 4 -- -- 767
-------- ------- ------ ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (15,226) (3,873) 23 4,065 (15,011)
Loss from discontinued operations, net of taxes -- -- (215) -- (215)
-------- ------- ------ ------ --------
NET INCOME (LOSS) $(15,226) $(3,873) $ (192) $4,065 $(15,226)
======== ======= ====== ====== ========
27
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 81,650 $14,266 $ 1,229 $ -- $ 97,145
-------- ------- ------- ------ --------
OPERATING EXPENSES:
Editorial, production and circulation 33,138 7,165 367 -- 40,670
Selling, general and administrative 29,282 4,176 705 -- 34,163
Restructuring and other charges 270 (18) -- -- 252
Depreciation and amortization 3,823 715 39 -- 4,577
-------- ------- ------- ------ --------
66,513 12,038 1,111 -- 79,662
-------- ------- ------- ------ --------
OPERATING INCOME 15,137 2,228 118 -- 17,483
-------- ------- ------- ------ --------
OTHER INCOME (EXPENSE):
Interest expense (9,521) (9,148) (77) -- (18,746)
Interest income 62 -- -- -- 62
Equity in losses of subsidiaries (9,849) -- -- 9,849 --
Gain on extinguishment of debt 1,589 -- -- -- 1,589
Other, net (10) -- (14) -- (24)
-------- ------- ------- ------ --------
(17,729) (9,148) (91) 9,849 (17,119)
-------- ------- ------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (2,592) (6,920) 27 9,849 364
Provision for income taxes 1,399 (3) -- -- 1,396
-------- ------- ------- ------ --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (3,991) (6,917) 27 9,849 (1,032)
Loss from discontinued operations, net of taxes -- -- (2,959) -- (2,959)
-------- ------- ------- ------ --------
NET INCOME (LOSS) $ (3,991) $(6,917) $(2,932) $9,849 $ (3,991)
======== ======= ======= ====== ========
28
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES $ 81,003 $15,979 $ 1,915 $ -- $ 98,897
-------- ------- ------- ------- --------
OPERATING EXPENSES:
Editorial, production and circulation 33,607 7,854 686 -- 42,147
Selling, general and administrative 37,099 5,327 1,363 -- 43,789
Provision for loan impairment 1,717 -- -- -- 1,717
Restructuring and other charges 3,619 733 10 -- 4,362
Depreciation and amortization 4,419 1,190 66 -- 5,675
-------- ------- ------- ------- --------
80,461 15,104 2,125 -- 97,690
-------- ------- ------- ------- --------
OPERATING INCOME (LOSS) 542 875 (210) -- 1,207
-------- ------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense (9,674) (8,978) (168) -- (18,820)
Interest income 136 -- -- -- 136
Equity in losses of subsidiaries (10,613) -- -- 10,613 --
Other, net 4 -- -- -- 4
-------- ------- ------- ------- --------
(20,147) (8,978) (168) 10,613 (18,680)
-------- ------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (19,605) (8,103) (378) 10,613 (17,473)
Provision for income taxes 1,523 8 -- -- 1,531
-------- ------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (21,128) (8,111) (378) 10,613 (19,004)
Loss from discontinued operations, net of taxes -- -- (2,124) -- (2,124)
-------- ------- ------- ------- --------
NET INCOME (LOSS) $(21,128) $(8,111) $(2,502) $10,613 $(21,128)
======== ======= ======= ======= ========
29
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES $(5,710) $218 $ (750) $-- $(6,242)
------- ---- ------ --- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (379) (67) (17) -- (463)
Acquisitions (375) -- -- -- (375)
Net proceeds from sale of properties 4,073 -- -- -- 4,073
------- ---- ------ --- -------
Net cash provided by (used for) investing
activities 3,319 (67) (17) -- 3,235
------- ---- ------ --- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of 10-3/8% senior subordinated
notes (3,795) -- -- -- (3,795)
Proceeds from loan and security agreement 1,200 -- -- -- 1,200
Increase in restricted cash (236) -- -- -- (236)
Increase (decrease) in cash overdraft
balance (318) (23) 128 -- (213)
------- ---- ------ --- -------
Net cash provided by (used for) financing
activities (3,149) (23) 128 -- (3,044)
------- ---- ------ --- -------
Effect of exchange rate changes on cash 66 -- -- -- 66
------- ---- ------ --- -------
Net increase (decrease) in cash and cash
equivalents (5,474) 128 (639) -- (5,985)
Cash and cash equivalents at beginning of year 5,991 73 1,597 -- 7,661
------- ---- ------ --- -------
Cash and cash equivalents at end of period $ 517 $201 $ 958 $-- $ 1,676
======= ==== ====== === =======
30
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 15 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $(12,825) $(15) $1,083 $-- $(11,757)
-------- ---- ------ --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,449) (39) (31) -- (1,519)
Net notes receivable -- -- (188) -- (188)
-------- ---- ------ --- --------
Net cash used for investing activities (1,449) (39) (219) -- (1,707)
-------- ---- ------ --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of financing costs (6) -- -- -- (6)
Increase in restricted cash (193) -- -- -- (193)
Increase (decrease) in book overdrafts (224) -- 161 -- (63)
-------- ---- ------ --- --------
Net cash provided by (used for) financing activities (423) -- 161 -- (262)
-------- ---- ------ --- --------
Effect of exchange rate changes on cash 19 -- -- -- 19
-------- ---- ------ --- --------
Net increase (decrease) in cash and cash equivalents (14,678) (54) 1,025 -- (13,707)
Cash and cash equivalents at beginning of period 27,125 147 2,354 -- 29,626
-------- ---- ------ --- --------
Cash and cash equivalents at end of period $ 12,447 $ 93 $3,379 $-- $ 15,919
======== ==== ====== === ========
31
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16 - SUBSEQUENT EVENTS
On August 8, 2005, the Company acquired the capital stock of DVGM & Associates,
a California corporation doing business under the name MSD2D (Microsoft
Developer-to-Developer), for approximately $1.35 million in cash. MSD2D's
portfolio targets IT system administrators and developers working with Microsoft
Exchange, SharePoint, .NET, and Security. Their products include Web sites,
directories, email newsletters, trade show programs, webcasts and databases, all
of which are synergistic to the Company's other Microsoft product sets.
32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes thereto. Historical results and percentage
relationships set forth in the consolidated financial statements, including
trends that might appear, should not be taken as indicative of future results.
Penton considers portions of this information to be forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, both as amended, with respect to
expectations for future periods. Although Penton believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations will be achieved.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates" and similar expressions are intended to identify forward-looking
statements. A number of important factors could cause Penton's results to differ
materially from those indicated by such forward-looking statements, including,
among other factors:
- fluctuations in advertising revenue with general economic cycles;
- economic uncertainty exacerbated by potential terrorist attacks on the
United States, the impact of U.S. military and political engagement in
Iraq, and other geopolitical events;
- the performance of our natural products industry trade shows;
- the seasonality of revenues from trade shows and conferences;
- our ability to launch new products that fit strategically with and add
value to our business;
- our ability to penetrate new markets internationally;
- increases in paper and postage costs;
- the effectiveness of our cost-saving efforts;
- the infringement or invalidation of Penton's intellectual property
rights;
- pending litigation;
- government regulation;
- competition; and
- technological changes.
Except as expressly required by the federal securities laws, Penton does not
undertake any obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances, or any other reason.
OVERVIEW
Penton Media, Inc. is a diversified business-to-business ("b-to-b") 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.
In June 2004, the Company appointed David B. Nussbaum as Chief Executive Officer
("CEO"). Mr. Nussbaum is now Penton's chief operating decision maker. After
reviewing the Company's operations, Mr. Nussbaum and the executive team
implemented a change in the Company's reportable segments effective in the third
quarter of 2004 to conform with the way the Company's businesses are now
assessed and managed. The Company is structured along segment and industry lines
rather than by product lines. This enables us to promote our related group of
products, including publications, trade shows and conferences, and online media
products, to our customers. As a result of this change in reportable segments,
all prior periods were recast to conform with the new segment format.
Management's key objective is to restore value for our stockholders. We are
focused on conserving cash and maintaining liquidity. We reduced our long-term
senior debt from $332.5 million at December 31, 2004 to $327.0 million at June
30, 2005 through the repurchase of $5.5 million face value of our 10-3/8% senior
subordinated notes ("Subordinated Notes") in February 2005. The purchase will
result in a reduction of the Company's annual interest payments by $0.6 million.
We continue to work with our Board of Directors on strategies for strengthening
the Company's balance sheet.
33
RECENT DEVELOPMENTS
SALE OF PROPERTIES
Penton's management regularly reviews its portfolio to determine what markets
and properties provide us with the greatest opportunity for market leadership
and long-term growth. As part of that review process, management determined that
our International segment did not fit our strategic growth objectives as we
focus new product innovation on e-media and on leveraging our strong print
brands in the United States and Asia.
In April 2005, the Company completed the sale of 90% of its interest in Penton
Media Europe ("PM Europe") for approximately $4.4 million in cash, with no gain
or loss on disposal. PM Europe was part of the Company's International segment.
The Company accounts for its remaining 10% interest using the cost method, as
the Company does not exercise significant influence.
In December 2004, the Company completed the sale of 70% of its interest in PM
Germany, a consolidated subsidiary, to Neue Medien Ulm Holdings GmbH ("Neue
Medien"), for $0.8 million in cash. PM Germany was part of our International
segment. At June 30, 2005, the Company retains a 15% interest in PM Germany,
which includes a call/put option. The Company accounts for its investment using
the cost method, as the Company does not exercise significant influence.
ACQUISITIONS
In June 2005, the Company acquired the assets of Kosher World Conference & Expo
("Kosher World") from Shows International for nearly $0.4 million in cash plus
contingent considerations of up to $0.7 million based on the achievement of
specified revenue targets for the 2006 event. Kosher World, which was launched
two years ago, is a retail-based event serving the kosher market, with emphasis
on bringing kosher food products marketers together with buyers from the
mass-market grocery channel. Kosher World will be co-located with our Natural
Products Expo West event in Anaheim, California, beginning in March 2006.
In August 2005, the Company acquired the capital stock of DVGM & Associates, a
California corporation doing business under the name MSD2D (Microsoft
Developer-to-Developer), for approximately $1.35 million in cash. MSD2D's
portfolio targets IT system administrators and developers working with Microsoft
Exchange, SharePoint, .NET, and Security. Their products include Web sites,
directories, email newsletters, trade show programs, webcasts and databases, all
of which are synergistic to the Company's other Microsoft product sets.
RESTATEMENT OF FINANCIAL STATEMENTS
On March 24, 2005, the Company's management concluded that the Company's
previously issued consolidated financial statements should be restated to
increase income tax expense to correct the computation of our valuation
allowance for deferred tax assets. Management reached this conclusion following
a comprehensive review of the Company's deferred tax assets and deferred tax
liabilities. The Company evaluated the materiality of the correction on its
consolidated financial statements using the guidelines of Staff Accounting
Bulletin No. 99, "Materiality," ("SAB 99") and concluded that the cumulative
effects of the corrections were material to its annual consolidated financial
statements for 2004, 2003 and 2002 and the related quarterly consolidated
financial statements for such periods.
These financial statements reflect adjustments to the Company's previously
reported financial information on Form 10-Q for the three and six months ended
June 30, 2004. The Company has restated and filed an amendment to its quarterly
report on Form 10-Q for the periods March 31, 2004 and June 30, 2004 prior to
the filing of its March 31, 2005 and June 30, 2005 Form 10-Qs and will restate
the financial statements included in its quarterly report on Form 10-Q for the
period ended September 30, 2004.
SENIOR SUBORDINATED NOTES REPURCHASE
In February 2005, the Company repurchased $5.5 million par value of its
Subordinated Notes for $3.9 million, including $0.1 million of accrued interest,
using excess cash on hand. These notes were purchased in the open market and
were trading at 69% of their par value at the time of purchase. The repurchase
resulted in a gain of approximately $1.6 million.
34
RESULTS OF OPERATIONS
REVENUES
Our magazines generate revenues primarily from the sale of advertising space.
Our magazines are primarily controlled circulation and are distributed free of
charge to qualified subscribers in our target industries. Subscribers to
controlled-circulation publications qualify to receive our trade magazines by
verifying their responsibility for specific job functions, including purchasing
authority. We survey our magazine subscribers annually to verify their
continuing qualification. Trade show exhibitors pay a fixed price per square
foot of booth space. In addition, we receive revenues from attendee fees at
trade shows and from exhibitor sponsorships of promotional media. Our
conferences are supported by either attendee registration fees or marketer
sponsorship fees, or a combination of each. Online media revenues are generated
from a variety of sources, such as: advertising on Web sites, including
search-engine advertising; sponsorship of Web conferences; advertising in and
sponsorships of electronic newsletters; sponsorship of content on Web sites and
in electronic books; and listings in online databases and directories.
Three-Month Comparison
A summary of these revenues by product for the three months ended June 30, 2005
and 2004 is as follows:
THREE MONTHS ENDED
JUNE 30,
------------------
2005 2004 $ CHANGE % CHANGE
------- ------- -------- --------
(In thousands)
Publishing $35,364 $36,848 $(1,484) (4.0)%
Trade shows & conferences 3,561 4,813 (1,252) (26.0)%
Online media 4,889 4,445 444 10.0%
------- ------- -------
Total revenues $43,814 $46,106 $(2,292) (5.0)%
======= ======= =======
The $1.5 million, or 4.0%, decrease in publishing revenues was primarily due to
lower advertising revenues, lower subscription revenues and lower list rental
revenues. Approximately $0.2 million of the decrease was a result of magazines
that were shut down, including ePro magazine, which was discontinued in May
2004, and Wireless Systems Design magazine, which was shut down in April 2005.
An additional $0.3 million of the decrease is due to the shift in timing of two
of our Retail Segment special editions, which were published in the second
quarter of 2004. One of these magazines was published in the first quarter of
2005 and the other was published in July 2005. The remaining decrease is due to
year-on-year declines, primarily in our manufacturing and electronic market
sectors. These decreases were partially offset by new custom print revenues, as
more customers invest in specialty media products as part of their marketing
communications programs.
The $1.3 million, or 26.0%, decrease in trade show and conference revenues
between the second quarter of 2004 and the second quarter of 2005 is primarily
due to a shift in timing of approximately $1.3 million in revenues related to
three conferences that were held in the second quarter in 2004, but took place
in the first quarter 2005. In addition, our Natural Products Expo Europe trade
show, which generated revenues of approximately $1.0 million in the second
quarter of 2004, was not repeated in 2005. These decreases were partially offset
by an increase in road show revenues of nearly $1.0 million and revenues of
almost $0.2 million related to our Natural Products Expo Japan event, which was
held for the first time in the second quarter of 2005.
The $0.4 million, or 10.0%, increase in online media revenues was primarily due
to increases of nearly $0.3 million in Web site-related advertising revenues, an
increase of nearly $0.2 million in sponsorship revenues, and an increase of $0.2
million in electronic newsletter revenues. These increases were partially offset
by a decrease of nearly $0.2 million in sponsored Web conferences between the
second quarter of 2004 and the second quarter of 2005.
35
Six-Month Comparison
A summary of revenues by product is as follows:
SIX MONTHS ENDED
JUNE 30,
-----------------
2005 2004 $ CHANGE % CHANGE
------- ------- -------- --------
(In thousands)
Publishing $68,052 $70,358 $(2,306) (3.3)%
Trade shows & conferences 20,091 20,662 (571) (2.8)%
Online media 9,002 7,877 1,125 14.3%
------- ------- -------
Total revenues $97,145 $98,897 $(1,752) (1.8)%
======= ======= =======
The $2.3 million, or 3.3%, decrease in publishing revenues was primarily due to
lower advertising revenues, lower subscription revenues and lower list rental
revenues. Approximately $0.4 million of the decrease was a result of the 2004
shutdown of our ePro and Wireless Systems Design magazines. An additional $0.2
million of the decrease is due to the shift in timing of one of our Retail
Segment special editions from June 2004 to July 2005. The remaining decrease is
due to year-on-year declines, primarily in our manufacturing, government and
electronic market sectors. These decreases were partially offset by new custom
print revenues. Although publishing revenues continue to decline, the rate of
decline has lessened and the Company is seeing a stabilization trend.
The $0.6 million, or 2.8%, decrease in trade show and conference revenues
between the first half of 2004 and the first half of 2005 is primarily due to
the shut down of our Natural Products Europe event, which had revenues of over
$1.0 million in 2004; the loss of $0.6 million in revenues from our Wireless
Systems Design conference, which was shut down after the 2004 event; and the
timing of our IW Smart Manufacturing conference, which was held in the second
quarter of 2004 and will be held in the third quarter of 2005. These decreases
were partially offset by a year-over-year revenue increase of $0.9 million from
our Natural Products Expo West show, which was held in March 2005. The show
posted growth over the 2004 event in total revenues, number of exhibitors,
number of booths sold, and number of attendees, with more than 38,000 attendees
in 2005.
The $1.1 million, or 14.3%, increase in online media revenues was primarily due
to increases of nearly $0.3 million in Web site-related advertising revenues, an
increase of nearly $0.4 million in sponsorship revenues, and an increase of $0.3
million in electronic newsletter revenues.
Revenue trends within each segment are detailed below in the segment discussion
section.
EDITORIAL, PRODUCTION AND CIRCULATION
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 CHANGE 2005 2004 CHANGE
----- ----- ------ ----- ----- ------
(In millions)
Editorial, production and circulation.... $20.3 $21.8 (6.9)% $40.7 $42.1 (3.5)%
Percent of revenues...................... 46.3% 47.3% 41.9% 42.6%
36
Our editorial, production and circulation expenses include personnel costs,
purchased editorial costs, exhibit hall costs, online media costs, postage
charges, circulation qualification costs, and paper costs. The decrease in
editorial, production and circulation expenses for the second quarter of 2005
compared with the second quarter of 2004 primarily reflect the shift in costs of
approximately $0.7 million for three conferences, which were held in the second
quarter in 2004 but moved to the first quarter 2005. Second quarter and
year-to-date 2005 costs also reflect lower printing costs as the Company signed
a new seven-year contract with R.R. Donnelley, effective January 1, 2005. The
Company agreed to consolidate certain magazines under the new agreement when
current contracts with other vendors expire. In exchange, the Company is
receiving certain credits in 2005 and pricing reductions in 2006 through 2011.
The decrease in second quarter and year-to-date costs also reflects lower
headcount and personnel-related costs as a result of restructuring activities
completed in 2004.
SELLING, GENERAL AND ADMINISTRATIVE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2005 2004 CHANGE 2005 2004 CHANGE
----- ----- ------ ----- ----- ------
(In millions)
Selling, general and administrative.... $16.7 $21.2 (21.2)% $34.2 $43.8 (22.0)%
Percent of revenues.................... 38.1% 46.0% 35.2% 44.3%
Our selling, general and administrative ("SG&A") expenses include personnel
costs, independent sales representative commissions, product marketing, and
facility costs. Our SG&A expenses also include costs of corporate functions,
including accounting, finance, legal, human resources, information systems, and
communications. The decrease in SG&A expenses for the three months ended June
30, 2005 compared with the same 2004 period is due primarily to Mr. Nussbaum's
signing bonus of approximately $1.7 million in the second quarter of 2004 as
well as a charge of approximately $0.3 million related to executive separation
costs for Mr. Kemp, former CEO. These second quarter 2004 costs were partially
offset by the reversal of $1.0 million related to Mr. Nussbaum's executive loan
which was repaid in full. The decrease in SG&A expenses for the six months ended
June 30, 2005 compared with the same 2004 period was due to the items discussed
for the three-month period plus a charge of $2.7 million related to executive
separation costs that were accrued for in the first quarter of 2004 related to
Mr. Kemp, who left the Company on June 30, 2004. The decrease in SG&A costs for
both 2005 periods also reflects lower staff costs, lower facility costs and
lower division and corporate overhead costs resulting from past restructuring
efforts, and, in particular, the executive changes that took place in June 2004.
RESTRUCTURING AND OTHER CHARGES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2005 2004 CHANGE 2005 2004 CHANGE
---- ---- ------ ---- ---- ------
(In millions)
Restructuring and other charges.... $0.2 $3.5 94.7% $0.3 $4.4 94.2%
Percent of revenues................ 0.4% 7.6% 0.3% 4.4%
To maintain competitiveness and in reaction to the downturn in the b-to-b media
industry, Penton has implemented restructuring actions over the past several
years. The actions were taken to reduce excess capacity, eliminate redundancies
and reduce costs.
37
2005 RESTRUCTURING PLAN
In the first quarter of 2005, the Company announced its plans to shut down
Wireless Systems Design magazine, which was part of our Technology segment. The
shutdown resulted in the termination of eight employees at a cost of
approximately $0.2 million. As of June 30, 2005, the elimination of all eight
positions has been completed. In March 2005, the Company was able to negotiate
the termination of all of its restructured copier leases, which were classified
in other exit costs, for approximately $0.1 million less than its original
obligation. In addition, during the second quarter, the Company was able to
negotiate the settlement of a $0.06 million hotel contract obligation.
SUMMARY OF RESTRUCTURING ACTIVITIES
The following table summarizes all of the Company's restructuring activity
through June 30, 2005 (in thousands):
SEVERANCE
AND OTHER FACILITY OTHER
PERSONNEL COSTS CLOSING COSTS EXIT COSTS TOTAL
--------------- ------------- ---------- --------
Charges $ 6,774 $ 8,669 $ 4,364 $ 19,807
Adjustments (23) -- (994) (1,017)
Cash payments (4,468) (267) (2,423) (7,158)
------- ------- ------- --------
Accrual at December 31, 2001 2,283 8,402 947 11,632
Charges 10,344 3,421 1,648 15,413
Adjustments 65 1,246 (363) 948
Cash payments (7,569) (2,283) (1,217) (11,069)
------- ------- ------- --------
Accrual at December 31, 2002 5,123 10,786 1,015 16,924
Charges 2,736 1,505 661 4,902
Adjustments (18) (17) (10) (45)
Cash payments (6,044) (3,273) (965) (10,282)
------- ------- ------- --------
Accrual at December 31, 2003 1,797 9,001 701 11,499
Charges 4,752 51 364 5,167
Adjustments 116 657 255 1,028
Cash payments (5,830) (2,217) (903) (8,950)
------- ------- ------- --------
Accrual at December 31, 2004 835 7,492 417 8,744
Charges 156 -- -- 156
Adjustments 2 241 (147) 96
Cash payments (759) (1,378) (152) (2,289)
------- ------- ------- --------
Accrual at June 30, 2005 $ 234 $ 6,355 $ 118 $ 6,707
======= ======= ======= ========
We expect to make cash payments through the remainder of 2005 of approximately
$0.6 million, comprised of $0.1 million for employee separation costs, $0.4
million for lease obligations and $0.1 million for other contractual
obligations. The balance of severance costs will be paid through 2007, and the
balance of facility costs, primarily long-term leases, is expected to be paid
through the end of the respective lease terms, which extend through 2013.
Amounts due within one year of approximately $1.2 million and $2.7 million at
June 30, 2005 and December 31, 2004, respectively, are classified in other
accrued expenses on the consolidated balance sheets. Amounts due after one year
of approximately $5.5 million and $6.0 million at June 30, 2005 and December 31,
2004, respectively, are included in other non-current liabilities on the
consolidated balance sheets.
The Company expects that savings from its 2005 restructuring efforts will allow
it to recover costs relating to employee terminations by October 2005.
38
OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ------------------------
2005 2004 CHANGE 2005 2004 CHANGE
----- ----- ------ ------ ------ ------
(In millions)
Interest expense.................. $(9.4) $(9.4) (0.0)% $(18.7) $(18.8) (0.4)%
Interest income................... $ -- $ -- n/m $ -- $ 0.1 (100.0)%
Gain on extinguishment of debt.... $ -- $ -- n/m $ 1.6 $ -- 100.0%
The decrease in interest expense for the six months ended June 30, 2005 compared
with the same period in 2004 was due to the repurchase of $5.5 million par value
of our Subordinated Notes in February 2005. The repurchase is expected to reduce
interest costs by $0.6 million annually. Interest expense for the three months
ended June 30, 2005 remained flat with the same 2004 period as the Company
incurred interest charges when it borrowed funds under its loan and security
agreement.
The Company recognized a gain of approximately $1.6 million for the six months
ended June 30, 2005 from the repurchase of our Subordinated Notes, as discussed
above. The Company repurchased $5.5 million in notes for approximately $3.8
million, as the notes were trading at 69% of their par value at the time of
purchase.
EFFECTIVE TAX RATES
The effective tax rates for the three months ended June 30, 2005 and 2004 were a
provision of 12.3% and 5.4%, respectively. The higher effective tax rate for the
three months ended June 30, 2005 compared to June 30, 2004 is primarily due to
the impact of deferred tax liabilities on indefinite lived intangibles being in
the tax provision as a fixed amount while the loss from continuing operations
changed between periods. The effective tax rates for the six months ended June
30, 2005 and 2004 were a provision of 383.5% and 8.8% respectively. The higher
effective tax rate for the six months ended June 30, 2005 as compared to June
30, 2004 is primarily due to the impact of deferred tax liabilities on
indefinite lived intangibles being in the tax provision as a fixed amount while
the income (loss) from continuing operations changed between periods. For the
three months ended June 30, 2005 and 2004, the Company recorded tax expense of
$0.6 million and $0.8 million on a loss from continuing operations before income
taxes of $5.0 and $14.2 million, respectively. For the six months ended June 30,
2005 and 2004, the Company recorded tax expense of $1.4 million and $1.5 million
on income from continuing operations before income taxes of $0.4 million and a
loss from continuing operations before income taxes of $17.5 million,
respectively.
The calculation of our tax liabilities involves dealing with uncertainties in
the application of complex tax regulations. We recognize liabilities for
anticipated tax audit issues based on our estimate of whether, and the extent to
which, additional taxes will be due. If we ultimately determine that payment of
these amounts is unnecessary, we reverse the liability and recognize a tax
benefit during the period in which we determine that the liability is no longer
necessary. We also recognize tax benefits to the extent that it is probable that
our positions will be sustained when challenged by the taxing authorities. As of
June 30, 2005 we had not recognized tax benefits of approximately $2.3 million
relating to various state tax positions. Should the ultimate outcome be
unfavorable, we would be required to make a cash payment for all tax reductions
claimed as of that date.
DISCONTINUED OPERATIONS
The loss from discontinued operations of $0.2 million for the three months ended
June 30, 2005, includes the results of operations for PM Europe through the date
of its sale in April 2005. The sale of PM Europe was completed for approximately
$4.4 million in cash, with no gain or loss on disposal. The loss from
discontinued operations of $0.2 million for the three months ended June 30, 2004
includes the operations of PM Germany, which was sold in December 2004, and the
operations of PM Europe.
Discontinued operations include revenues from PM Europe of $0.1 million and $3.9
million for the three months ended June 30, 2005 and 2004, respectively, and
revenues from PM Germany of $0.9 million for the three months ended June 30,
2004.
39
Income taxes on discontinued operations were not material for the three months
ended June 30, 2005 and 2004 as the Company had a full valuation allowance
established for both entities in the second quarter of 2004.
The loss from discontinued operations of $3.0 million for the six months ended
June 30, 2005, includes the results of operations from PM Europe through the
date of its sale in April 2005. As noted above, the sale of PM Europe was
completed in April 2005 for approximately $4.4 million, with no gain or loss on
disposal. However, the Company recorded impairment charges of $1.8 million for
long-lived assets during the three months ended March 31, 2005, in contemplation
of the sale. The loss from discontinued operations of $2.1 million for the six
months ended June 30, 2004 includes the operations of PM Germany and the
operations of PM Europe.
Discontinued operations include revenues from PM Europe of $0.7 million and $5.0
million for the six months ended June 30, 2005 and 2004, respectively, and
revenues from PM Germany of $1.6 million for the six months ended June 30, 2004.
Income taxes on discontinued operations were not material for the six months
ended June 30, 2005 and were approximately $0.5 million for the six months ended
June 30, 2004. The Company had a full valuation allowance established for both
entities in 2004.
SEGMENTS
Mr. Nussbaum is Penton's chief operating decision maker. Mr. Nussbaum and the
executive team assess and manage the Company's operations differently than the
prior management team resulting in a change in the Company's reportable segments
effective in the third quarter of 2004. As a result of this change in reportable
segments, all prior periods have been recast to conform with the new segment
format.
The Company's segments include: Industry, Technology, Lifestyle, and Retail. As
discussed in Note 2 - Acquisitions and Disposals, the Company sold PM Germany in
December 2004 and PM Europe in April 2005. These two operating subsidiaries,
which are now classified as discontinued operations, made up our International
segment. The results of our segments will, consistent with past practice, be
regularly reviewed by the Company's chief operating decision maker and the
executive team to determine how resources will be allocated to each segment and
to assess the performance of each segment. Penton's four segments derive their
revenues from publications, trade shows and conferences, and online media
products.
The executive management team evaluates performance of the segments based on
revenues and adjusted segment EBITDA. As such, in the analysis that follows, we
have used adjusted segment EBITDA, which we define as net income (loss) before
interest, taxes, depreciation and amortization, non-cash compensation, executive
separation costs, impairment of assets, restructuring charges, provision for
loan impairment, discontinued operations, general and administrative costs, and
other non-operating items. General and administrative costs include functions
such as finance, accounting, human resources and information systems, which
cannot reasonably be allocated to each segment. See Note 13 - Segments, for a
reconciliation of total adjusted segment EBITDA to consolidated income (loss)
from continuing operations before income taxes.
Financial information by segment for the three months ended June 30, 2005 and
2004, is summarized as follows (in thousands):
ADJUSTED ADJUSTED SEGMENT
REVENUES SEGMENT EBITDA EBITDA MARGIN
----------------- ---------------- ----------------
2005 2004 2005 2004 2005 2004
------- ------- ------- ------ ----- -----
Industry $20,038 $19,485 $ 6,284 $5,688 31.4% 29.2%
Technology 15,251 16,520 3,437 3,143 22.5% 19.0%
Lifestyle 2,918 3,884 (1,137) (815) (39.0)% (21.0)%
Retail 5,607 6,217 1,897 1,767 33.8% 28.4%
------- ------- ------- ------
Total $43,814 $46,106 $10,481 $9,783
======= ======= ======= ======
40
Financial information by segment for the six months ended June 30, 2005 and
2004, is summarized as follows (in thousands):
ADJUSTED ADJUSTED SEGMENT
REVENUES SEGMENT EBITDA EBITDA MARGIN
----------------- ----------------- ----------------
2005 2004 2005 2004 2005 2004
------- ------- ------- ------- ---- ----
Industry $37,453 $36,666 $11,203 $ 9,973 29.9% 27.2%
Technology 28,577 30,462 5,668 5,120 19.8% 16.8%
Lifestyle 20,836 21,108 10,658 10,093 51.2% 47.8%
Retail 10,279 10,661 3,142 2,606 30.6% 24.4%
------- ------- ------- -------
Total $97,145 $98,897 $30,671 $27,792
======= ======= ======= =======
INDUSTRY
Three Months
Our Industry segment, which represented 45.7% and 42.3% of total Company
revenues for the three months ended June 30, 2005 and 2004, respectively, serves
customers in the manufacturing, design/engineering, construction,
government/compliance and supply/logistics industries. For the three months
ended June 30, 2005 and 2004, respectively, 89.7% and 94.2% of this segment's
revenues were generated from publishing operations, 3.4% and 1.6%, from trade
shows and conferences, and 6.9% and 4.2% from online media products.
Revenues for this segment increased $0.6 million, or 2.8%, from $19.5 million
for the three months ended June 30, 2004 to $20.0 million, for the same period
in 2005. This increase was due to higher online revenues of $0.6 million and
higher trade show and conference revenues of $0.4 million, partially offset by
lower publication revenues of $0.4 million. The increase in online revenues was
attributable to all groups within the Industry segment, with the manufacturing
and design engineering groups showing the largest quarter-on-quarter increases.
Higher trade show and conference revenues was due to IndustryWeek and Comfortech
road shows held in the second quarter of 2005, offset in part, by the IW Smart
Manufacturing conference, which was held in the second quarter of 2004 but will
be held in the third quarter of 2005. Lower publication revenues were due to
lower quarter-on-quarter revenues from our manufacturing group of $0.4 million
and our government/compliance group of $0.1 million.
Adjusted segment EBITDA for our Industry portfolio increased $0.6 million, or
10.5%, from $5.7 million for the three months ended June 30, 2004 to $6.3
million for the same period in 2005. Industry trade shows and conferences
increased $0.3 million and online media improved $0.4 million, while
publications decreased by a nearly $0.1 million. The increase in adjusted
segment EBITDA margin was due primarily to higher revenues and cost reduction
efforts undertaken in 2004.
Six Months
Our Industry segment represented 38.6% and 37.1% of total Company revenues for
the six months ended June 30, 2005 and 2004, respectively. For the six months
ended June 30, 2005 and 2004, respectively, 91.4% and 95.0% of this segment's
revenues were generated from publishing operations, 1.8% and 1.1%, from trade
shows and conferences, and 6.8% and 3.9% from online media products.
Revenues for this segment increased $0.8 million, or 2.1%, from $36.7 million
for the six months ended June 30, 2004 to $37.5 million for the same period in
2005. This increase was due to higher online revenues of $1.1 million and higher
trade shows and conference revenues of $0.3 million, partially offset by lower
publication revenues of $0.7 million. The increase in online revenues was
attributable to all groups within the Industry segment, with the manufacturing
and design engineering groups showing the largest revenues increases. Higher
trade show and conference revenues was due to IndustryWeek and Comfortech road
shows, which were held in 2005 and not in 2004, offset in part by the shift in
timing of the IW Smart Manufacturing conference, which was held in the second
quarter of 2004 but will be held in the third quarter of 2005. Lower publication
revenues was due to lower revenues from our manufacturing group of $0.7 million
and our government/compliance group of $0.4 million, partially offset by an
increase of $0.4 million from our design engineering group publications.
41
Revenues for the Industry segment reflect the aggressive response its business
units have taken to customers' need for integrated marketing solutions that
incorporate more online and custom media products, in addition to print
advertising and event exhibits or sponsorships.
Adjusted segment EBITDA for our Industry portfolio increased $1.2 million, or
12.3%, from $10.0 million for the six months ended June 30, 2004 to $11.2
million for the same period in 2005. Industry publications increased $0.2
million on reduced revenues, while online media adjusted EBITDA improved $0.8
million and trade shows and conferences adjusted EBITDA increased $0.2 million.
The increase in adjusted segment EBITDA margin was due primarily to higher
revenues and cost reduction efforts undertaken in 2004.
TECHNOLOGY
Three Months
Our Technology segment, which represented 34.8% and 35.8% of total Company
revenues for the three months ended June 30, 2005 and 2004, respectively, serves
customers in the business technology, aviation, enterprise information
technology and electronics industries. For the three months ended June 30, 2005
and 2004, respectively, 62.0% and 60.6% of this segment's revenues were
generated from publishing operations, 16.0% and 17.8% from trade shows and
conferences, and 22.0% and 21.6% from online media products.
Revenues for this segment decreased $1.3 million, or 7.7%, from $16.5 million
for the three months ended June 30, 2004 to $15.3 million for the same period in
2005. The decrease was due to lower publishing revenues of $0.6 million, lower
trade show and conference revenues of $0.5 million, and lower online media
revenues of $0.2 million. The decrease in publishing revenues was primarily the
result of lower revenues from our enterprise IT and electronics publications,
partially offset by slightly higher revenues from our business technology and
aviation group magazines. Lower enterprise IT and electronic group magazine
revenues was partially due to the shutdown of our ePro and Wireless Systems
Design magazines. The decrease in trade show and conference revenues was
attributable to the shift in timing of our SQL Live Spring and ASP Spring events
from the second quarter in 2004 to the first quarter in 2005. The decrease in
online media revenues was primarily due to the timing and number of Web
conferences.
Adjusted segment EBITDA for our Technology portfolio increased $0.3 million, or
9.4%, from $3.1 million for the three months ended June 30, 2004 to $3.4 million
for the same period in 2005. The increase was attributable to publications of
$0.6 million, partially offset by a decline of $0.2 million in the segment's
trade shows and conferences. Adjusted EBITDA for online media remained
relatively flat. The increase in adjusted segment EBITDA margin was due
primarily to cost-reduction efforts undertaken in this segment, particularly in
the publications product line.
Six Months
Our Technology segment represented 29.4% and 30.8% of total Company revenues for
the six months ended June 30, 2005 and 2004, respectively. For the six months
ended June 30, 2005 and 2004, respectively, 64.3% and 63.6% of this segment's
revenues were generated from publishing operations, 14.1% and 15.8% from trade
shows and conferences, and 21.6% and 20.6% from online media products.
Revenues for this segment decreased $1.9 million, or 6.2%, from $30.5 million
for the six months ended June 30, 2004 to $28.6 million for the same period in
2005. The decrease was due primarily to lower publishing revenues of $1.0
million, lower trade show and conference revenues of $0.8 million, and lower
online media revenues of $0.1 million. The decrease in publishing revenues was
primarily the result of lower revenues from our enterprise IT and electronics
publications, partially offset by slightly higher revenues from our business
technology and aviation group magazines. Lower enterprise IT and electronic
group magazine revenues was partially due to the shutdown of our ePro and
Wireless Systems Design magazines. The decrease in trade show and conference
revenues was primarily attributable to the cancellation of our Wireless Systems
Design conference, which had revenues of $0.6 million in the first quarter of
2004 and was not repeated in 2005. The decrease in online media revenues was
primarily due to the timing of Web conferences.
Adjusted segment EBITDA for our Technology portfolio increased $0.5 million, or
10.7%, from $5.1 million for the six months ended June 30, 2004 to $5.7 million
for the same period in 2005. The increase was attributable to online media
growth of $0.2 million and publications growth of $0.9 million. These
improvements were partially offset by a decline of
42
$0.4 million in the segment's trade shows and conferences. The increase in
adjusted segment EBITDA margin was due primarily to publishing cost reductions.
LIFESTYLE
Three Months
Our Lifestyle segment, which represented 6.7% and 8.4% of total Company revenues
for the three months ended June 30, 2005 and 2004, respectively, serves
customers in the natural products industry. For the three months ended June 30,
2005 and 2004, respectively, 86.3% and 72.3% of this segment's revenues were
generated from publishing and 12.3% and 27.7% from trade shows and conferences,
respectively. Online media products for the three months ended June 30, 2005
generated 1.4% of segment revenues.
Revenues for this segment decreased $1.0 million, or 24.9%, from $3.9 million
for the three months ended June 30, 2004 to $2.9 million for the same period in
2005. Trade shows and conferences accounted for $0.7 million of this decrease,
while publications accounted for the remaining $0.3 million decrease. The
decrease in trade shows and conference revenues was due to our Natural Products
Expo Europe event, which was held in the second quarter of 2004 but was not held
in 2005. The decrease in publishing revenues was primarily due to the decrease
in "low carb" advertising in 2005 compared with 2004.
Adjusted segment EBITDA for the Lifestyle segment decreased $0.3 million, or
39.5%, from a loss of $0.8 million for the three months ended June 30, 2004 to a
loss of $1.1 million for the same period in 2005. Trade shows and conferences
accounted for nearly all of this decline.
Six Months
Our Lifestyle segment represented 21.4% and 21.3% of total Company revenues for
the six months ended June 30, 2005 and 2004, respectively. For the six months
ended June 30, 2005 and 2004, respectively, 27.8% and 29.8% of this segment's
revenues were generated from publishing and 71.7% and 70.2% from trade shows and
conferences. Online media products for the six months ended June 30, 2005
generated 0.5% of segment revenues.
Revenues for this segment decreased $0.3 million, or 1.3%, from $21.1 million
for the six months ended June 30, 2004 to $20.8 million for the same period in
2005. Publishing revenues accounted for $0.5 million of this decrease, offset by
an increase in trade show and conference revenues of $0.1 million and online
media revenues of $0.1 million. The decrease in publishing revenues was
primarily due to the decrease in "low carb" advertising in 2005 compared with
2004. The increase in trade shows and conference revenues was due to
year-on-year growth in our Natural Products Expo West event, which was held in
Anaheim, California, in March 2005. The show posted growth in total revenues,
number of exhibitors, number of booths sold, and number of attendees, with more
than 38,000 visitors attending the event. This increase in trade show and
conference revenues was partially offset by the discontinuation of our Natural
Products Expo Europe event, which was held in the second quarter of 2004 but not
held in 2005. Online media revenues increased through the addition of new Web
sites, as management attempts to drive revenue and profits by accelerating
eMedia product development.
Adjusted segment EBITDA for the Lifestyle segment increased $0.6 million, or
5.6%, from $10.1 million for the six months ended June 30, 2004 to $10.7 million
for the same period in 2005. Trade shows and conferences accounted for nearly
all of this improvement.
In June 2005, Penton completed the acquisition of Kosher World, a two-year old
event that will be co-located with our Natural Products Expo West event in March
2006. The kosher market has been growing at a rapid pace, driven by both broad
consumer appeal for healthier foods and the growth in its religiously oriented
customer base. Penton's management believes that the acquisition of Kosher World
will provide a good foundation for expansion into more specialty/ethnic/gourmet
food markets.
43
RETAIL
Three Months
Our Retail segment, which represented 12.8% and 13.5% of total Company revenues
for the three months ended June 30, 2005 and 2004, respectively, serves
customers in the food/retail and hospitality industries. For the three months
ended June 30, 2005 and 2004, respectively, 96.0% and 91.3% of this segment's
revenues were generated from publishing, 2.0% and 7.6% from trade shows and
conferences, and 2.0% and 1.1% from online media products.
Revenues for this segment decreased $0.6 million, or 9.8%, from $6.2 million for
the three months ended June 30, 2004, to $5.6 million for the same period in
2005. This decrease was due primarily to lower publishing revenues of $0.3
million and lower trade show and conference revenues of $0.3 million. Online
media revenues remained relatively flat in the second quarter of 2005 compared
with the same 2004 period. Lower publishing revenues was due primarily to the
timing change of a special issue from May of 2004 to July in 2005 and the timing
change of a second special issue from April of 2004 to March in 2005. Lower
trade show and conference revenues was due primarily to our Kids Marketing
conference, which was held in 2004 and not in 2005.
Adjusted segment EBITDA for the Retail segment increased $0.1 million, or 7.4%,
from $1.8 million for the three months ended June 30, 2004 to $1.9 million for
the same period in 2005. The increase was due to cost-cutting initiatives
undertaken in 2004.
Six Months
Our Retail segment represented 10.6% and 10.8% of total Company revenues for the
six months ended June 30, 2005 and 2004, respectively. For the six months ended
June 30, 2005 and 2004, respectively, 92.8% and 92.5% of this segment's revenues
were generated from publishing, 5.0% and 6.1% from trade shows and conferences,
and 2.2% and 1.4% from online media products.
Revenues for this segment decreased $0.4 million, or 3.6%, from $10.7 million
for the six months ended June 30, 2004, to $10.3 million for the same period in
2005. This decrease was primarily due to lower publishing revenues of $0.3
million and lower trade show and conference revenues of $0.1 million. Online
media revenues remained relatively flat in the second half of 2005 compared with
the same 2004 period. The lower publishing revenues was due primarily to the
timing change of a special issue from the second quarter of 2004 to the third
quarter of 2005. Lower trade show and conference revenues was primarily due to
the discontinuation of the Kids Marketing conference, which was held in 2004 and
not repeated this year.
Adjusted segment EBITDA for the Retail segment increased $0.5 million, or 20.6%,
from $2.6 million for the six months ended June 30, 2004 to $3.1 million for the
same period in 2005. The increase was due primarily to cost-cutting initiatives
undertaken in 2004.
LIQUIDITY AND CAPITAL RESOURCES
CURRENT LIQUIDITY
At June 30, 2005, our principal sources of liquidity are our existing cash
reserves of $1.7 million and available borrowing capacity under our loan and
security agreement of $36.5 million. During the second quarter, the Company
borrowed $8.5 million under the Company's loan and security agreement. The
proceeds were used to pay the interest due on April 1 under the Company's
11-7/8% senior secured notes ("Secured Notes") and interest due on June 15 under
the Company's Subordinated Notes. On July 19, 2005, the Company repaid the $1.2
million balance outstanding on the Loan and Security Agreement at June 30, 2005
with cash provided from operations.
In February 2005, the Company repurchased $5.5 million par value of its
Subordinated Notes for $3.9 million, including $0.1 million of accrued interest,
using excess cash on hand. The repurchase will reduce our interest charges by
nearly $0.6 million annually.
44
Cash payments expected to be made in the third quarter of 2005 include:
- repayment of loan and security agreement balance of $1.2 million;
- annual insurance premium of approximately $1.1 million;
- capital expenditures of approximately $0.4 million;
- payments related to our business restructuring initiatives of
approximately $0.6 million; and
- a contribution of $0.3 million to our Retirement and Savings Plan.
No debt service charges are required in the third quarter. In addition, we have
no principal repayment requirements until maturity of our Secured Notes in
October 2007.
We believe that our existing sources of liquidity, along with revenues expected
to be generated from operations, will be sufficient to fund our operations,
anticipated capital expenditures, working capital, and other financing
requirements. However, we cannot assure you that this will be the case, and if
we continue to incur operating losses and negative cash flows in the future, we
may need to further reduce our operating costs or obtain alternate sources of
financing, or both, to remain in business. Our ability to meet cash operating
requirements depends upon our future performance, which is subject to general
economic conditions and to financial, competitive, business, and other factors.
The Company's ability to return to sustained profitability at acceptable levels
will depend on a number of risk factors, many of which are largely beyond the
Company's control. If we are unable to meet our debt obligations or fund our
other liquidity needs, particularly if the revenue environment does not
substantially improve, we may be required to raise additional capital through
additional financing arrangements or the issuance of private or public debt or
equity securities. We cannot assure you that such additional financing will be
available at acceptable terms. In addition, the terms of our convertible
preferred stock and warrants issued, including the conversion price, dividend,
and liquidation adjustment provisions, could result in substantial dilution to
common stockholders. The redemption price premiums and board representation
rights could negatively impact our ability to access the equity markets in the
future.
The Company has implemented, and continues to implement, various cost-cutting
programs and cash conservation plans, which involve the limitation of capital
expenditures and the control of working capital.
ANALYSIS OF CASH FLOWS
Penton's total cash and cash equivalents was $1.7 million at June 30, 2005,
compared with $7.7 million at December 31, 2004. Cash used for operating
activities was $6.2 million for the six months ended June 30, 2005 and $11.8
million for the same period in 2004. Operating cash flows for the six months
ended June 30, 2005, reflected a net loss of $4.0 million and a net decrease in
working capital items of approximately $7.5 million, offset by a net increase in
non-cash charges (primarily depreciation and amortization) of approximately $5.2
million. Operating cash flows for the six months ended June 30, 2004, reflected
a net loss of $21.1 million and a net decrease in working capital items of
approximately $4.7 million, offset by non-cash charges (primarily depreciation
and amortization and restructuring charges) of approximately $14.1 million.
Investing activities provided $3.2 million of cash for the six months ended June
30, 2005 primarily from net proceeds of $4.1 million from the sale of PM Europe
in April 2005, offset by capital expenditures of $0.5 million and the
acquisition of Kosher World Conference & Expo in June 2005 for $0.4 million.
Investing activities used $1.7 million of cash for the six months ended June 30,
2004 primarily for capital expenditures.
Financing activities used $3.0 million of cash for the six months ended June 30,
2005 primarily due to the purchase of $5.5 million face value of our
Subordinated Notes at prevailing market prices, partially offset by net proceeds
from the Loan and Security Agreement of $1.2 million. Financing activities used
$0.3 million of cash for the six months ended June 30, 2004 primarily due to an
increase in restricted cash.
DEBT SERVICE
At June 30, 2005, we had total indebtedness of $328.2 million. Our principal
obligations are described below.
45
Subordinated Notes:
In June 2001, we issued $185.0 million of the Subordinated Notes due June 2011,
of which $169.5 million is outstanding at June 30, 2005. Interest on the notes
is payable semiannually, on June 15 and December 15. The Subordinated Notes were
offered at a discount of $4.2 million. This discount is being amortized using
the interest method over the term of the Subordinated Notes. Costs representing
underwriting fees and other professional fees of approximately $1.7 million are
being amortized over the term of the Subordinated Notes. The Subordinated Notes
are the Company's unsecured senior subordinated obligations, subordinated in
right of payment to all existing and future senior indebtedness, including the
Loan and Security Agreement and the Secured Notes discussed below.
In February 2005, the Company repurchased $5.5 million par value of the
Subordinated Notes for a total of $3.9 million, including $0.1 million of
accrued interest, using excess cash on hand. The notes were purchased in the
open market and were trading at 69% of their par value at the time of purchase.
The repurchase resulted in a gain of approximately $1.6 million, which is
classified in gain on extinguishment of debt in the consolidated statements of
operations.
In March 2002, the Company repurchased $10.0 million of its Subordinated Notes
with $8.7 million of the proceeds from the Secured Notes offering, completed in
March 2002.
The Subordinated Notes are fully and unconditionally, jointly and severally
guaranteed, on a senior subordinated basis, by the assets of our domestic
subsidiaries, which are 100% owned by the Company, and may be redeemed, in whole
or in part, on or after June 15, 2006. The indenture governing the Subordinated
Notes contains covenants that, among other things, restrict our and our
subsidiaries' ability to borrow money; pay dividends on or repurchase capital
stock; make certain investments; enter into agreements that restrict our
subsidiaries from paying dividends or making other distributions, making loans
or otherwise transferring assets to us or to any other subsidiaries; create
liens on assets; engage in transactions with affiliates; sell assets, including
capital stock of our subsidiaries; and merge, consolidate or sell all or
substantially all of our assets and the assets of our subsidiaries. Our ability
to obtain dividends from our subsidiaries is restricted only if we are in
default under our Loan and Security Agreement or if we have exceeded our
limitation of additional indebtedness, as specified in the indenture.
Secured Notes:
In March 2002, Penton issued $157.5 million of the Secured Notes due in October
2007. Interest is payable on the Secured Notes semiannually on April 1 and
October 1. The Secured Notes are fully and unconditionally, jointly and
severally guaranteed, on a senior basis, by all of our domestic subsidiaries,
which are 100% owned by the Company, and also the stock of certain subsidiaries.
We may redeem the Secured Notes, in whole or in part, during the periods October
1, 2005 through October 1, 2006 and thereafter at redemption prices of
approximately 105.9% and 100.0% of the principal amount, respectively, together
with accrued and unpaid interest to the date of redemption. In addition, at any
time prior to October 1, 2005, upon certain public equity offerings of our
common stock, up to 35% of the aggregate principal amount of the Secured Notes
may be redeemed at our option, within 90 days of such public equity offering,
with cash proceeds from the offering at a redemption price equal to 111.875% of
the principal amount, together with accrued and unpaid interest to the date of
redemption.
The Secured Notes were offered at a discount of $0.8 million, which is being
amortized, using the interest method, over the term of the Secured Notes. Costs
representing underwriting fees and other professional fees of $6.6 million are
being amortized over the term of the Secured Notes. The Secured Notes rank
senior in right to all of our senior subordinated indebtedness, including our
Subordinated Notes. The guarantees are senior secured obligations of each of our
subsidiary guarantors and rank senior in right of payment to all subordinated
indebtedness of the subsidiary guarantors, including the guarantees of our
Subordinated Notes, and equal in right of payment with all of our senior
indebtedness. The notes and guarantees are secured by a lien on substantially
all of our assets and those of our subsidiary guarantors, other than specified
excluded assets. Excluded assets consist of, among other things, the capital
stock of Duke Communications International, Inc. and Internet World Media, Inc.;
the capital stock of our foreign subsidiaries directly owned by us or the
subsidiary guarantors which exceed 65% of the outstanding capital stock or
equity interest of such foreign subsidiaries; and all of the capital stock of
our other foreign subsidiaries.
The indenture governing the Secured Notes contain covenants that, among other
things, restrict our and our subsidiaries' ability to borrow money; pay
dividends on or repurchase capital stock; make certain investments; enter into
agreements that restrict our subsidiaries from paying dividends or other
distributions, making loans or otherwise transferring assets to us or to any
other
46
subsidiaries; create liens on assets; engage in transactions with affiliates;
sell assets, including capital stock of our subsidiaries; and merge, consolidate
or sell all or substantially all of our assets and the assets of our
subsidiaries. Our ability to obtain dividends from our subsidiaries is
restricted only if we are in default under our Loan and Security Agreement or if
we have exceeded our limitation of additional indebtedness, as specified in such
agreement.
Loan and Security Agreement:
In August 2003, the Company entered into a four-year revolving Loan and Security
Agreement. Pursuant to the terms of the Loan and Security Agreement, the Company
can borrow up to the lesser of (i) $40.0 million; (ii) 2.25x the Company's last
twelve months Consolidated Adjusted EBITDA measured monthly through August 13,
2005 and 2.0x thereafter; (iii) 40% of the Company's last six months of
revenues; or (iv) 25% of the Company's enterprise value, as determined annually
by a third party. The Loan and Security Agreement facility bears interest at
LIBOR plus 5.0% subject to a LIBOR minimum of 1.5%. The Company must comply with
a quarterly financial covenant limiting the ratio of maximum bank debt to the
last twelve months consolidated adjusted EBITDA to 2.0x. The Loan and Security
Agreement permits the Company to sell assets of up to $12.0 million in the
aggregate during the term or $5.0 million in any single asset sale, and complete
acquisitions of up to $5.0 million per year. Included in the Loan and Security
Agreement are three stand-by letters of credit of $0.1 million, $0.1 million and
$0.9 million, respectively, required by certain facility leases. The amounts of
the letters of credit reduce the availability under the Loan and Security
Agreement. As of June 30, 2005, no amounts were drawn under the stand-by letters
of credit. Costs representing bank fees and other professional fees of $1.9
million are being amortized over the life of the agreement. At June 30, 2005,
$36.5 million was available under the Loan and Security Agreement.
CONSOLIDATED ADJUSTED EBITDA
As described above, under "Loan and Security Agreement," the Company's borrowing
capacity under the Loan and Security Agreement is determined in part by the
Company's last 12 months Consolidated Adjusted EBITDA. In addition, under our
Loan and Security Agreement, we are not permitted to allow the ratio of
outstanding indebtedness to Consolidated Adjusted EBITDA to exceed 2.0 to 1.0.
Consolidated EBITDA is a non-GAAP financial measure that is presented not as a
measure of operating results, but rather as a measure of our ability to service
debt. It should not be construed as an alternative to either income (loss)
before income taxes, or cash flows from operating activities. Our inability to
borrow based on the terms of the Loan and Security Agreement could have a
material adverse effect on our liquidity and operations. Accordingly, management
believes that the presentation of Consolidated Adjusted EBITDA will provide
investors with information needed to assess our ability to continue to have
access to funds as necessary. The following table presents a reconciliation of
net loss to EBITDA and Consolidated Adjusted EBITDA (in thousands). Other
companies may calculate similarly titled measures differently than we do.
47
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2005 2004 2005 2004
------- -------- ------- --------
Net loss $(5,804) $(15,226) $(3,991) $(21,128)
Interest expense 9,363 9,362 18,746 18,820
Provision for income taxes 618 767 1,396 1,531
Depreciation and amortization 2,310 2,827 4,577 5,675
------- -------- ------- --------
EBITDA 6,487 (2,270) 20,728 4,898
Loan and Security Agreement Adjustments:
Restructuring and other charges 186 3,502 252 4,362
Provision for loan impairment -- 1,717 -- 1,717
Executive separation costs -- 347 3 2,701
Non-cash compensation 3 559 14 682
Interest income (32) (50) (62) (136)
Discontinued operations, net of taxes 159 215 2,959 2,124
Gain on extinguishment of debt -- -- (1,589) --
Other, net 16 (6) 24 (4)
------- -------- ------- --------
Consolidated Adjusted EBITDA $ 6,819 $ 4,014 $22,329 $ 16,344
======= ======== ======= ========
CREDIT RATINGS
Our credit ratings as of the date of this report are as follows:
S&P Moody's
--- -------
$169.5 million 10-3/8% Senior Subordinated Notes CC Ca
$157.5 million 11-7/8% Senior Secured Notes CCC B3
Corporate Rating CCC Caa3
A change in the rating of our debt instruments by outside rating agencies would
not negatively impact our ability to access our Loan and Security Agreement. A
rating reflects only the view of a rating agency and is not a recommendation to
buy, sell or hold securities. Any rating can be revised upward or downward at
any time by a rating agency if such rating agency decides that circumstances
warrant such a change.
CONVERTIBLE PREFERRED STOCK
In March 2002, we entered into an agreement with a group of investors to sell
50,000 shares of Series B 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 convertible preferred stock and
warrants to purchase 1,280,000 shares of our common stock on March 19, 2002 and
gross proceeds of $10.0 million from the sale of 10,000 shares of convertible
preferred stock and warrants to purchase 320,000 shares of our common stock on
March 28, 2002.
On September 13, 2004, the Company filed a Certificate of Designations governing
a new series of convertible preferred stock, $0.01 par value (the "Series C
Preferred"), with the Secretary of State for the State of Delaware. The Series C
Preferred was exchanged on a share-for-share basis with the Company's Series B
Convertible Preferred, $0.01 par value (the "Series B Preferred"). The
Certificate of Designations for the Series C Preferred is identical to the
Series B Preferred Certificate of Designations except that:
- the new series allows for the sharing of the liquidation preference
with the new Series M Preferred Stock (discussed below),
- certain technical and correcting amendments have been made to the
Certificate of Designations for the Series C Preferred stock,
including fixing the formula used to calculate the "Change of Control
Cap" (as defined in the Series C Preferred stock Certificate of
Designations), and
48
- certain conforming changes were made to the Series C Preferred stock
Certificate of Designations to account for the fact that the Series C
Preferred stock was issued in exchange for the Series B Preferred
stock.
At June 30, 2005 an event of non-compliance continued to exist under our Series
C Preferred stock because the Company's leverage ratio of 9.9 (defined as debt
less cash balances in excess of $5.0 million plus the liquidation value of the
preferred stock and unpaid dividends divided by adjusted EBITDA) exceeded 7.5.
Upon the occurrence of this event of non-compliance, the 5% per annum dividend
rate on the preferred stock has increased to the current maximum rate of 10% per
annum. The dividend rate will adjust back to 5% as of the date on which the
leverage ratio is less than 7.5.
The conversion price of the Series C Preferred stock at June 30, 2005 was $7.61.
The leverage ratio event of non-compliance does not represent an event of
default or violation under any of the Company's outstanding notes or the Loan
and Security Agreement. As such, there is no acceleration of any outstanding
indebtedness as a result of this event. In addition, this event of
non-compliance and the resulting consequences have not resulted in any cash
outflow from the Company.
Under the conversion terms of the Series C Preferred, each holder has a right to
convert dividends into shares of common stock. At June 30, 2005, no dividends
have been declared. However, in light of each holder's conversion right and
considering the increase in the dividend rate, the Company has recognized a
deemed dividend for the beneficial conversion feature inherent in the
accumulated dividend based on the original commitment date(s). For the six
months ended June 30, 2005, $3.7 million has been reported as an increase in the
carrying value of the Series C Preferred stock and a charge to capital in excess
of par value in light of the stockholders' deficit.
In September 2004, the Board of Directors of the Company created the Series M
Preferred stock ("Series M Preferred") to give management an equity stake in the
performance of the Company. The Series M Preferred is limited to 150,000 shares,
of which 69,000 shares have been issued at June 30, 2005. The Series M Preferred
is treated under fixed plan accounting and is classified in the mezzanine
section of the consolidated balance sheets because redemption is outside the
control of the Company.
Among other rights and provisions, the Series M Preferred provides that the
holder of each share will receive a cash distribution upon any liquidation,
dissolution, winding up or change of control of the Company. The amount of such
distribution is first a percentage of what the holders of Series C Preferred
would receive, and second a percentage of what the holders of the Company's
common stock would receive, in each case, upon such liquidation, dissolution,
winding up or change of control.
If the Company had been sold on June 30, 2005, the bondholders would have been
entitled to receive $330.3 million and the preferred stockholders would have
been entitled to receive $158.2 million before the common stockholders would
have received any amounts for their common shares. In addition, the Series M
Preferred holders would receive 8% of all amounts the common stockholder would
receive. The amount the preferred stockholders would be entitled to receive
could increase significantly in the future under certain circumstances. Common
stockholders are urged to read the terms of the preferred stock in their
entirety.
49
CONTRACTUAL OBLIGATIONS
The following are summaries of our contractual obligations and other commercial
commitments as of June 30, 2005 (in thousands):
ANNUAL PAYMENTS DUE
--------------------------------------------------
AFTER
2005 2006 2007 2008 2008 TOTAL
------- ------- -------- ------- -------- --------
10-3/8% Senior Subordinated Notes (1) $ -- $ -- $ -- $ -- $169,500 $169,500
11-7/8% Senior Secured Notes (1) -- -- 157,500 -- -- 157,500
Interest on indebtedness (1) 18,144 36,289 36,289 17,586 43,964 152,272
Loan and Security Agreement 1,200 -- -- -- -- 1,200
Capital lease obligations 12 24 25 25 4 90
Operating leases obligations (2) 3,406 5,191 4,627 4,496 8,024 25,744
Printing contract obligation (3) 6,000 6,000 6,000 6,000 18,000 42,000
Communications service agreement (4) 528 800 133 -- -- 1,461
Expected pension contributions (5) -- -- 1,800 -- -- 1,800
Other long-term obligations reflected
in the balance sheet 264 44 44 -- -- 352
------- ------- -------- ------- -------- --------
Total $29,554 $48,348 $206,418 $28,107 $239,492 $551,919
======= ======= ======== ======= ======== ========
(1) There are no required debt principal payments until October 2007. Interest
is paid semi-annually in June and December for the Subordinated Notes and
April and October for the Secured Notes. In February 2005, the Company
repurchased $5.5 million par value of its Subordinated Notes for $3.9
million, including $0.1 million of accrued interest. The Subordinated Notes
were purchased in the open market and were trading at 69% of their par
value at the time of purchase. As a result of this repurchase, future
interest payments will be reduced annually by approximately $0.6 million.
(2) We lease all of our facilities and certain equipment under non-cancelable
operating leases. The leases expire at various dates through 2013 and some
contain various provisions for rental adjustments.
(3) In February 2005, the Company signed a new agreement with R.R. Donnelley,
which expires in December 2011, unless a minimum revenue commitment of
$42.0 million is not reached, at which time the agreement would extend
until the commitment is reached.
(4) In February 2004, the Company amended its communication services agreement
with Sprint, originally entered into in 2002, to extend the term to
February 2007. The agreement provides for annual minimum usage levels by
Penton of $0.8 million each year.
(5) Based on current estimates the Company expects to make a contribution of
approximately $1.8 million to its defined benefit plan in 2007. No
contributions are expected in 2005 or 2006. Due to the presence of
significant variables, actual future contributions may differ materially.
We expect to make contributions totaling $1.6 million to the employees
Retirement Savings Plan accounts in 2005, of which, $0.8 million has already
been paid. Contributions are made at the discretion of our Board of Directors.
The Company is self-insured for health and workers' compensation benefits up to
certain stop-loss limits. Payments of between $3.5 million and $4.0 million are
expected to be made in 2005.
In December 2003, the Company entered into an agreement with a former employee
to provide trade show and conference services to select Penton events. Under the
agreement, the former employee was to receive guaranteed minimum payments of
$0.7 million in 2005 unless the contract was cancelled. In December 2004, the
Company terminated the agreement, which required a $0.2 million cancellation
fee. The fee is being paid in twelve equal installments throughout 2005.
The Company has three stand-by letters of credit of $0.1 million, $0.1 million
and $0.9 million respectively, required related to facility leases. As of June
30, 2005, no amounts were drawn under the stand-by letters of credit.
50
RISK FACTORS
Management's concerns remain consistent with and should be read in conjunction
with the Risk Factors section of the Company's Annual Report on Form 10-K for
the year ended December 31, 2004.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 - Accounting Policies, New Accounting Pronouncements, of the notes to
the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
During the six months ended June 30, 2005, there were no significant new or
changes in any critical accounting policies or estimates.
FOREIGN CURRENCY
The functional currency of our foreign operations is their local currency.
Accordingly, assets and liabilities of foreign operations are translated to U.S.
dollars at the rates of exchange on the balance sheet date; income and expense
are translated at the average rates of exchange prevailing during the period.
There were no significant foreign currency transaction gains or losses for the
periods presented.
SEASONALITY
We may experience seasonal fluctuations as trade shows and conferences held in
one period in the current year may be held in a different period in future
years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our long-term debt consists of Secured Notes and Subordinated Notes with
interest at fixed rates. Consequently, we do not have significant interest rate
risk exposure related to our long-term debt. However, the fair value of our
notes fluctuates with the market, as they are publicly traded. At June 30, 2005,
the fair value of the Subordinated Notes and the Secured Notes was $141.5
million and $164.6 million, respectively, compared to $115.5 million and $157.5
million, respectively, at December 31, 2004. The fair value of the notes is
determined by the price investors are willing to pay in the open market. We
currently do not manage the fair value risk related to our notes.
The table below provides information about the expected cash flows associated
with our long-term debt obligations and their fair value at June 30, 2005 (in
thousands):
EXPECTED MATURITY DATE
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------
FAIR
2005 2006 2007 2008 2011 TOTAL VALUE
------ ------ -------- ------ -------- -------- -------
Long-Term Debt:
Senior Subordinated Notes -- -- -- -- $169,500 $169,500 $141,533
Interest rate 10-3/8% 10-3/8% 10-3/8% 10-3/8% 10-3/8% 10-3/8%
Senior Secured Notes -- -- $157,500 -- -- $157,500 $164,588
Interest rate 11-7/8% 11-7/8% 11-7/8% -- -- 11-7/8%
During the six months ended June 30, 2005, there were no other significant
changes related to the Company's market risk exposure.
51
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure and controls and procedures (as defined in Exchange Act
Rules 13a - 15(e) and 15d - 15(e)) that are designed to ensure that information
required to be disclosed in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding the required disclosures.
As of June 30, 2005, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and CFO, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon, and as of the date of, this evaluation, the CEO and
the CFO concluded that our disclosure controls and procedures were not effective
because of the material weakness discussed below.
A material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that misstatements caused by error or fraud in amounts that would
be material in relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal course of
performing their assigned functions.
On March 24, 2005, following a comprehensive review of the Company's deferred
tax assets and deferred tax liabilities, management concluded that the Company's
previously issued consolidated financial statements should be restated to
correct the computation of our valuation allowance for deferred tax assets,
which resulted in an increase to income tax expense. Management determined that
certain deferred tax liabilities had been incorrectly offset against deferred
tax assets. Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," taxable temporary differences related to
indefinite-lived intangible assets or tax-deductible goodwill (for which
reversal cannot be anticipated) should not be offset against deductible
temporary differences for other indefinite-lived intangible assets or
tax-deductible goodwill when scheduling reversals of temporary differences.
Management determined that this control deficiency constitutes a material
weakness in the Company's disclosure controls and procedures and internal
control over financial reporting.
Management evaluated the materiality of the correction on its consolidated
financial statements using the guidelines of Staff Accounting Bulletin No. 99,
"Materiality" and concluded that the cumulative effects of the corrections were
material to its annual consolidated financial statements for 2004, 2003 and 2002
and the related quarterly consolidated financial statements for such periods. As
a result, management concluded that it would restate its previously issued
consolidated financial statements to recognize the impact of the correction. For
complete details, see Note 2 - Restatement, in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2004.
We are continuing to implement steps to remediate this matter by adding
additional levels of tax review and requiring all personnel who have
responsibilities for the Company's income taxes to attend an annual SFAS 109
review course.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the Company's fiscal quarter ended June 30, 2005, there were no changes
in internal control over financial reporting (as defined in Exchange Act Rules
13a - 15(f) and 15(d) - 15(f)), that have materially affected or are reasonably
likely to materially affect the Company's internal control over financial
reporting.
52
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2005, the Company and Alison & Associates, Inc., settled the lawsuit
brought against the Company under the Telephone Consumer Protection Act, which
prohibits the transmission of unsolicited fax advertisements. The settlement
amount of $0.05 million was paid entirely with insurance proceeds. The Richmond
County, Georgia, Superior Court dismissed the case on June 30, 2005.
ITEM 6. EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
31.1 Principal executive officer's certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Principal financial officer's certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penton Media, Inc.
(Registrant)
By: /s/ Preston L. Vice
------------------------------------
Preston L. Vice
Chief Financial Officer
Date: August 15, 2005
54
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
31.1 Principal executive officer's certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Principal financial officer's certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
55