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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1300 EAST NINTH STREET, CLEVELAND, OHIO 44114
---------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
216-696-7000
-------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE OVER-THE-COUNTER BULLETIN BOARD
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated
filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of common stock held by non-affiliates of Penton
Media, Inc., computed by reference to the closing price as of the last business
day of the registrant's most recently completed second fiscal quarter, June 30,
2005, at a closing price of $0.35 per share, was approximately $9,557,203.
Shares of common stock held by each officer and director, their respective
spouses, and by each person who owns or may be deemed to own 10% or more of the
outstanding common stock have been excluded because such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
AS OF MARCH 13, 2006 34,488,719 SHARES OF PENTON MEDIA, INC. COMMON STOCK WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on or about May 16, 2006 are incorporated by reference
into Part III of this report.
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PENTON MEDIA, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2005
PART I
Item 1. Business.................................................... 3
Item 1A. Risk Factors................................................ 16
Item 1B. Unresolved Staff Comments................................... 21
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities........... 22
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 55
Item 8. Financial Statements and Supplementary Data................. 56
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 111
Item 9A. Controls and Procedures..................................... 111
Item 9B. Other Information........................................... 111
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 112
Item 11. Executive Compensation...................................... 112
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 112
Item 13. Certain Relationships and Related Transactions.............. 113
Item 14. Principal Accountant Fees and Services...................... 113
PART IV
Item 15. Exhibits and Financial Statement Schedules.................. 113
Signatures................................................................... 116
2
PART I
ITEM 1. BUSINESS
GENERAL
Penton Media 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. We publish
39 specialized trade magazines, produce more than 80 trade shows, conferences
and roadshows, and provide 47 Web sites, as well as electronic newsletters, Web
conferences and other Web-based media products.
We are structured along segment and industry lines rather than by product
lines. This enables us to promote our related group of products, including
publications, trade shows and conferences, and online media products, to our
customers. Our four principal segments and the industries they serve are as
follows:
INDUSTRY TECHNOLOGY
Manufacturing Enterprise Information Technology
Design/Engineering Electronics
Mechanical Systems/Construction Business Technology
Government/Compliance Aviation
LIFESTYLE RETAIL
Natural Products Food/Retail
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into an integrated b-to-b media company serving a wide range
of industrial, technology and retail markets. We became an independent company,
incorporated in the State of Delaware, as a result of our spinoff from Pittway
Corporation in August 1998.
Unless otherwise noted herein, disclosures in this Annual Report on Form
10-K relate only to our continuing operations. Our discontinued operations
consist of Penton Media Europe ("PM Europe"), which was substantially sold in
April 2005, Penton Media Germany ("PM Germany"), which was substantially sold in
December 2004, and Professional Trade Shows ("PTS"), which was sold in January
2003. The sale of PM Germany in December 2004, did not qualify for discontinued
operations treatment because PM Germany and PM Europe were considered one
component for Statement of Financial Accounting Standards ("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
now reported as part of discontinued operations for all periods presented.
Unless the context otherwise requires, the terms "we," "our," "us,"
"Company," and "Penton" as used herein refer to Penton Media, Inc. and its
subsidiaries.
AVAILABLE INFORMATION
Our principal executive offices are located at The Penton Media Building,
1300 East Ninth Street, Cleveland, Ohio 44114, telephone 216-696-7000.
We maintain a Web site at http://www.penton.com. The information contained
on our Web site is not incorporated by reference in this report, and you should
not consider it a part of this report. Our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those
reports are available free of charge on our Web site as soon as reasonably
practicable after they are filed, or furnished to, the Securities and Exchange
Commission.
3
RECENT DEVELOPMENTS
SENIOR SUBORDINATED NOTES REPURCHASE
In the fourth quarter of 2005, we repurchased $14.2 million par value of
our 10 3/8% senior subordinated notes ("Subordinated Notes") for $12.8 million,
using cash on hand from operations and funds from the Company's Loan and
Security Agreement revolver. These notes were purchased in the open market and
were trading at 90% of their par value at the time of purchase. The purchase
resulted in a gain of $1.1 million in the quarter. This buyback was in addition
to the repurchase of $5.5 million of Subordinated Notes in February 2005, in
which we recognized a gain of $1.6 million.
ACQUISITIONS
On August 8, 2005, we acquired 100% of the capital stock of DVGM &
Associates, a California corporation doing business under the name MSD2D
(Microsoft Developer-to-Developer), for approximately $1.4 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 complement our other Microsoft product sets.
On June 21, 2005, we 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.
SALE OF PROPERTIES
In April 2005, we completed the sale of 90% of our interest in PM Europe
for approximately $4.4 million in cash, with no gain or loss on disposal. PM
Europe was part of our former International segment. We account for our
remaining 10% interest using the cost method, as we do not exercise significant
influence.
In December 2004, we completed the sale of 70% of our 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 former
International segment. We retain a 15% interest in PM Germany, which includes a
call/put option. We account for this investment using the cost method, as we do
not exercise significant influence.
Management determined that our European operations did not fit our
strategic growth objectives as we focus new product innovation on eMedia and on
leveraging our strong print brands for further expansion in the United States
and Asia.
OUR INDUSTRY
The b-to-b media industry provides information in various formats to
targeted business and professional audiences. B-to-b media include print
products such as magazines and newsletters; in-person media such as trade shows
and conferences; and online media, such as Web sites, Web conferences,
electronic newsletters, and electronic books; and custom media products.
Through b-to-b media, marketers can reach targeted business and
professional audiences whose responsibilities include the buying or specifying
of products and services for their business organizations. Marketing
opportunities include advertising in specialized business magazines; exhibiting
at or sponsoring trade shows and conferences; sponsorship of digital media and
highly customized media products; and the strategic use of products related to
core media products, such as direct marketing mailing and e-mail lists, article
reprints and electronic reuse of content; and exclusive market intelligence and
data.
4
The b-to-b media industry suffered significant declines in 2001 and 2002 as
the weak economy, disappointing corporate profits and the lingering effects of
geopolitical events pressured many companies to reduce costs, including
marketing spending.
As the economy strengthened in 2003 and companies gained confidence in
their business results and re-engaged in marketing investment, b-to-b media
experienced growth, albeit modest. In 2004, total b-to-b media spending grew at
an accelerated rate of 5.2%, according to Veronis Suhler Stevenson's
Communications ("VSS") Industry Forecast 2005 Edition.
For 2005, VSS projects the growth for the overall b-to-b media segment at
5.9%, fueled by gains in spending on trade shows and double-digit increases in
eMedia spending. VSS projects spending on b-to-b magazines in 2005 to grow by
2.7%, largely because of increased spending in healthcare, banking, automotive
and construction magazines.
VSS forecasts that the total b-to-b media industry market will grow at a
compound annual rate of 5.8% from 2004 to 2009 to $27.7 billion, compared with a
0.1% decline in the previous five-year period. VSS bases its forecast on b-to-b
media companies continuing to expand their online media business in response to
marketers' growing need for return on investment, on their success in selling
advertising and trade show space more consultatively, and on their ability to
deliver successful custom media solutions to their customers.
THE PENTON BUSINESS MODEL
Penton's strategic goal is to be the leading provider of integrated media
and marketing solutions in the target markets we serve. Our approach in serving
our markets is "delivery agnostic," meaning, we deliver information products and
marketing services to fit our information-user customers' desires for receiving
information in a multitude of formats and our marketing customers' needs to
reach qualified prospects through efficient, creative and integrated media
channels.
Our business is organized along segment and industry lines, rather than
product lines. This business model allows our staff to develop deeper market
knowledge and experience that benefits our customers through our ability to
develop and produce the most relevant and timely information products, and our
ability to provide strategic counsel and services to marketers that reflect the
most current market conditions, trends and opportunities.
Operating in a market-focused manner also allows us to cross-promote our
related groups of publications, trade shows and conferences, online media, and
custom media solutions to our customers. This enables our customers to utilize
multiple complimentary channels for delivering their marketing message to their
best sales prospects and provides us with the opportunity to capture a larger
share of our customers' total marketing expenditure.
Penton owns dozens of historic media brands, including 16 magazines that
have served their industries for more than 50 years. Each of our business units
innovatively leverages the trust in and brand equity of its print portfolio to
introduce unique, needs-driven products in a variety of media formats. This has
led to greater diversification of our revenues streams, and we believe it has
also earned our staff a reputation for being innovative and highly knowledgeable
about their markets.
IN PRINT: PUBLICATIONS
We produce 39 specialized trade magazines that are published six times or
more per year, primarily in the United States. These titles have an average
monthly circulation of more than 3 million readers.
Of our 32 magazines that are audited by a third-party service, 17 magazines
hold the number-one or number-two market share position in their target markets,
based on the number of advertising pages, and 1 has no direct competitor. In
addition, 3 Penton titles that are tracked internally for market share
performance are number-one or number-two in their markets, and 3 additional
titles have no direct competitors.
Our publications are recognized for the quality of their editorial content;
since 2000, our magazines have won more than 260 editorial awards.
5
Our magazines generate revenues primarily from the sale of advertising
space and are primarily distributed through controlled circulation free of
charge to qualified subscribers in our target industries. Subscribers to
controlled-circulation publications qualify to receive our trade magazines by
verifying, among other things, their responsibility for specific job functions,
including purchasing authority. We survey our magazine subscribers annually to
verify their continuing qualification.
BPA Worldwide, an independent auditor of magazine circulation, audits
circulation information for the majority of our publications each year. These
audits verify that we have accurately identified the number and job
responsibilities of qualified subscribers and that those subscribers are
eligible to receive the relevant publication according to our established
criteria.
Each of our publications has its own advertising sales team and rate
structure. Some advertisers may qualify for discounts based on advertising in
multiple publications. We enable marketers to be more cost efficient in their
advertising purchases by providing a single source for reaching customers and
prospects in multiple but related markets.
In addition, each of our publications has its own editorial staff. To
preserve the editorial integrity of each publication's news reporting and
analysis, we seek to maintain separation between the editorial and sales staffs
of each publication. We believe that our reputation for objective, fair, and
credible editorial content contributes significantly to our success.
Our editorial staffs meet frequently with readers of their publications to
maintain a current understanding of the information needs and interests of those
readers in an effort to serve them more effectively. We devote considerable
resources to the study of trends in our industries and strive to make our
publications the most widely used among their respective audiences. Many of our
editors and contributors are recognized as experts in their fields and are
regularly contacted by the general press to comment on developments and trends
in their markets.
We also publish print and online industry directories and buyers' guides,
which are respected sources of purchasing information for professionals in the
markets we serve.
ONLINE: WEB SITES, ELECTRONIC NEWSLETTERS, WEB CONFERENCES
Online media has continued to expand rapidly as marketers shift spending
into eMedia marketing strategies that compliment their print marketing
strategies or integrate into broad, multi-media marketing programs. In step with
these trends, Penton's eMedia product line is the fastest growing part of our
business. We produce 47 Web sites that in 2005 generated 13.5 million average
monthly page views and a total of more than 43.2 million unique users. We are
aggressively building vertical search into appropriate sites or developing
dedicated vertical search sites, which we believe could contribute meaningfully
to our future eMedia financial results. Currently, 7 of our sites incorporate
sophisticated vertical search capabilities. Vertical search allows users to
execute productive searches for professional information that is specific to
their targeted vertical markets, eliminating wasted time in sifting through
extensive, unrelated search results that are produced by general search engine
sites. With rapidly growing use of vertical search Websites by professionals who
have buying and specification roles, advertisers have been dedicating
significant marketing expenditures on these sites to gain a presence for their
products and services and to drive user traffic to their own sites.
We produce 90 branded eNewsletters. In 2005, we conducted 316 Web
conferences, up from 225 in 2004. Our online portfolio also includes 23 digital
magazines, including 3 digital-only magazines; topic-specific microsites, and
electronic books. These latter products provide timely and focused information
to highly targeted professionals, and typically are sponsored by advertisers
interested in delivering marketing information to these professionals because of
their product/service purchasing or specifying responsibilities.
We believe we have a competitive advantage in the eMedia business because
of our established customer relationships in the markets we serve, the industry
and product development expertise of our staff, and the opportunities we have to
promote our online media to targeted audiences through our magazines and trade
shows and in Penton media products that serve related markets.
6
Our goal is to transform Penton so that we are as experienced with eMedia
as we are with print and in-person events. We are pursuing this goal through
aggressive educational programming and staff development. We have hired eMedia
product managers for every operating group to develop each group's eMedia
product line, manage implementation and support/train sales staffs. We also are
refocusing our content teams to the unique opportunities in eMedia to expand
service to their readers and broaden their overall audience.
Our eMedia business decisions are made within our market-focused brand
groups, where customer needs and desires are best understood, allowing us to
adapt quickly to specific market opportunities. Much of our development and
operations is centralized, enabling us to efficiently leverage technology
platforms, gain superior vendor contracts, and build best-of-class development
expertise.
We believe our teams have spawned a number of eMedia innovations. For
example, we believe Penton was the first b-to-b media company to launch
roadblock ads (high-impact, full-screen ads that appear in advance of a Web page
being viewed) and half-page Web ads; was one of the first b-to-b media companies
to launch sponsored eBooks; is one of the top producers of b-to-b webcasts; that
we were first in many of our markets to introduce blogs and RSS feeds; that we
introduced digital-only magazines ahead of our competitors; and that we are
pioneering b-to-b vertical search.
IN PERSON: TRADE SHOWS, CONFERENCES AND ROADSHOWS
We produce more than 80 trade shows, conferences and roadshows, which
attract attendees with purchasing and specifying responsibility.
Attendees at our trade shows and conferences are professionals and managers
in the industries we serve. Our trade shows include extensive conference
programs, which provide a forum for the exchange and dissemination of
information relevant to attendees' professional roles and responsibilities.
Trade show exhibitors pay a fixed price per square foot for booth space. In
addition, we receive revenues from attendee fees and from exhibitor sponsorships
of promotional media.
Our conferences are supported by either attendee registration fees or
marketer sponsorship fees, or a combination of both. The high quality and
unbiased nature of our conference content attract professional attendees. We are
able to cost-effectively promote to attendees by utilizing related media
products serving the same end-user audience. For example, potential attendees
are the readers of our magazines and the users of our Web sites and electronic
newsletters.
In the past few years, we have generated significant revenues from
production of roadshow conferences. These events are typically sponsored by a
single sponsor or a small group of sponsors and address special topics of
interest to business attendees. In 2005, we produced roadshow conferences in 54
cities throughout the U.S., Europe and the Middle East. Roadshow conferences
take place in multiple markets as determined by concentration of local attendees
and the marketing objectives of sponsors. As a turnkey organizer, Penton
typically manages content development, recruitment of presenters, attendee
marketing and site logistics. Sponsorship fees represent the greatest source of
revenues for roadshows, although we sometimes also generate attendee
registration fees.
CUSTOM MEDIA
Custom media continues to evolve as a significant growth business within
b-to-b media and at Penton. Our mission to provide integrated media and
marketing solutions to our customers has put increased emphasis on our custom
media capabilities. We have built a highly effective internal operation to meet
our customers' desire for unique, highly creative solutions that allow them to
address specific challenges or business opportunities. Our Custom Media team
serves customers in Penton's existing end markets, as well as other markets not
served by our product portfolio.
We produce a wide range of custom communications, such as sponsored
magazines, newsletters, Web sites, eBooks, internal communications programs for
corporations, catalogs, education and training materials, and custom
communications for associations.
7
We also offer a variety of custom data products that our customers use in
their direct marketing and promotional efforts. These include article reprints
and electronic re-use rights of our editorial content, industry directories, and
rental use of our magazine subscriber and event attendee databases.
2006 BUSINESS STRATEGY
Over the past four years, Penton has responded aggressively to the severe
downturn in our financial results. We substantially reduced the Company's fixed
costs by reducing our net headcount by 57.9% in the period 2001 through 2005 to
703 positions, including 23 positions in 2005, freezing our pension plan and
introducing a defined contribution plan; reducing capital spending; outsourcing
certain corporate and division functions; renegotiating key vendor contracts;
and implementing process improvements.
Our strategy for restoring stockholder value is directed toward expanding
revenues so that the operating leverage that these cost savings has created will
result in improved cash flows and return the Company to a positive net cash flow
position.
The key elements of our strategy are to:
- Focus on building a full "tripod" of media offering for our markets,
providing a full range of media across print, online and event delivery
channels;
- Continue to aggressively build out our eMedia offerings, pursuing
vertical search and features focused on developing community in our
customer markets;
- Augment our offering with highly creative and effective custom media and
data-driven products;
- Leverage and increase brand relationships within Penton and extend the
market equity of our long-established, respected media brands so as to
successfully launch new products for our customers;
- Provide valued services that build community and meaningful buyer-seller
connections in the markets we serve, thereby differentiating Penton from
its competitors;
- Continue to seek cost efficiencies and business process improvements.
OUR BUSINESS SEGMENTS
Our four segments derive their revenues from in-print publications,
in-person trade shows and conferences, and online media to customers in the
industries we serve. Segment results are regularly reviewed by the Company's
executive management team to determine how resources will be allocated to the
segments and in assessing segment performance.
For information about the revenues from external customers, adjusted
segment EBITDA and total assets of each of our business segments, see Note
16 -- Segment Information, in the notes to consolidated financial statements
included herein. In addition, Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations provides a description of segment
results.
INDUSTRY SEGMENT
Content of our Industry publications, trade shows and conferences, and
online media products is geared to customers in the manufacturing,
design/engineering, mechanical systems/construction, and government/compliance
industries. Our Industry segment generated 38.9%, 38.6%, and 39.9% of our total
revenues in 2005, 2004 and 2003, respectively. The percentages of our Industry
segment revenues by product line are as follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 88.7% 92.7% 94.8%
Trade shows and conferences................................. 3.8% 2.8% 2.4%
Online media................................................ 7.5% 4.5% 2.8%
8
MANUFACTURING:
Our manufacturing portfolio represented approximately 10.3% of our revenues
in 2005. This portfolio targets executives in manufacturing organizations,
managers of industrial facilities, material handling engineers, third-party
logistics providers, and management personnel in the machine tool and metals
industries. Many of our products in this portfolio have a long history and are
leaders in the industry. They include the following:
- IndustryWeek, first published in 1882, along with the IndustryWeek.com
Web site, brings together senior manufacturing executives to explore
business issues, strategies, trends and technologies that can help them
succeed in today's "better, faster, cheaper" global economy. IndustryWeek
focuses on providing well-informed ideas and best practices presented
from an authoritative point-of-view.
- IndustryWeek Smart Conference, an educational conference for
manufacturing business leaders, which offers practical knowledge to
improve their businesses by focusing on smart solutions to drive sales,
cut costs, compete more successfully and be more profitable. The
IndustryWeek group also offers the IndustryWeek/Association of
Manufacturing Excellence Best Plants Conference, which focuses on the
award-winning strategies employed by the top 10 manufacturing plants in
North America.
- American Machinist, first published in 1877, focuses on the metalworking
marketplace, which consists of industries primarily engaged in
manufacturing durable goods and other metal products.
- Material Handling Management magazine reaches subscribers responsible for
material handling functions in manufacturing, warehousing and
distribution. Editorial content focuses on material handling
applications, technology and management strategies for increasing
productivity, cutting operating costs, improving safety, supporting
effective planning, and facilitating product/information flow.
- Logistics Today magazine and the LogisticsTODAY.com Web site serve the
transportation, warehousing and distribution, technology, and global
business markets. Their content focuses on what is new, what others are
doing, and what trends will impact future work.
Competition for this portfolio includes the manufacturing demographic
editions of both BusinessWeek and Fortune magazines which compete against
IndustryWeek; Modern Machine Shop, published by Gardner Publications, which
competes against American Machinist; Modern Material Handling, which competes
with Material Handling Management; Logistics Management magazine, published by
Reed Business Information U.S. ("Reed"), and Inbound Logistics, published by
Thomas Publishing Company, which compete with Logistics Today.
DESIGN/ENGINEERING:
The design/engineering portfolio represented approximately 10.7% of our
revenues in 2005. This portfolio serves the information needs of engineers and
designers in the original equipment manufacturer ("OEM"), medical and biomedical
markets, and designers and engineers of products that incorporate hydraulic and
motion systems technologies. Leading products in this portfolio include the
following:
- Machine Design magazine, first published in 1929, holds the greatest
share of advertising pages in its market. Machine Designserves design
engineers in the OEM market, process and consulting industries. It
provides design engineers with information on new technologies,
industrial developments, research and development activities, products,
and engineering procedures for designing manufactured products. Articles
concentrate on practical applications, new developments and solutions to
design problems. The machinedesign.com Web site is an online source that
provides useful design engineering information.
- Hydraulics & Pneumatics serves design engineers, manufacturing engineers
and other technical personnel who are involved in buying or specifying
fluid power components, systems, materials and controls.
9
- Medical Design magazine focuses on engineers and engineering managers who
design, develop, and manufacture components, products and systems for the
medical and biomedical industry.
- Motion System Design magazine is written for design and manufacturing
engineers personally involved in designing motion systems for
manufactured products and industrial machinery.
Competition in this portfolio includes Design News and Product Design &
Development magazines, which are published by Reed.
MECHANICAL SYSTEMS/CONSTRUCTION:
The mechanical systems/construction portfolio represented approximately
7.1% of our revenues in 2005. This portfolio serves engineers, designers, and
contractors in the mechanical systems (heating/ventilation/air
conditioning/refrigeration/plumbing) markets, as well as professionals in the
architectural and construction trades. Our leading products in this portfolio
have a long history in the industry and a reputation of excellence. They
include:
- Contracting Business, first published in 1944, is dedicated to the
residential, commercial and industrial mechanical systems contracting
marketplace. Its editorial coverage includes new market opportunities,
Internet technologies, design and engineering, and the service and
maintenance of heating/ventilation, air conditioning, refrigeration and
plumbing systems.
- HVAC Comfortech tradeshow is a residential and light commercial
conference and product showcase designed for HVAC contractors. The event
consists of four days of seminar sessions, social events and numerous
opportunities to visit an exhibit hall featuring new products and
technologies.
- For over 50 years, Contractor magazine has been the news magazine for
mechanical contracting. Editorial content focuses on industry news,
market trends, business management advice and new product information
exclusively for plumbing, heating and piping contractors.
- HPAC Engineering magazine, first published in 1929, serves the growing
mechanical engineered systems market in the areas of building
construction, renovation and retrofit. Editorial content features
articles in the areas of systems design and sizing, facility and energy
management controls systems, energy and water efficiency, indoor air
quality, comfort management, and deregulation.
The main competitors for these magazines are ACHR News and Plumbing &
Mechanical magazines, both published by Business News Publishing, as well as
Engineered Systems magazine, which is published by BNP Media.
GOVERNMENT/COMPLIANCE:
The government/compliance portfolio represented approximately 10.8% of our
revenues in 2005. Products in this portfolio target government buyers and
professionals who manage industrial safety, occupational health and
environmental compliance. The leading products in this portfolio include:
- Government Product News, which was established in 1962 and ranks number
one in advertising market share, is a product information magazine read
by government managers, engineers, administrators, department heads and
procurement professionals who specify, plan and buy for city, county,
state, and federal governments. Editorial content includes products,
services and case histories. The Company also offers a Web site,
govpro.com for government professionals.
- Occupational Hazards magazine, first published in 1938, serves the
occupational safety and industrial hygiene market. Editorial content
provides information to meet Occupational Safety and Health
Administration ("OSHA") and Environmental Protection Agency ("EPA")
compliance requirements, improve the management of safety, industrial
hygiene and environmental programs, and to find products and services
that protect employees and property. The occupationalhazards.com Web site
is a comprehensive online source for the safety, health and environmental
professional.
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- New Equipment Digest, first published in 1936, presents concise
descriptions and photos of new and/or improved industrial products,
materials, components, equipment and services that established companies
want to sell. The newequipment.com Web site contains a variety of product
descriptions and gives visitors the ability to request more information
from manufacturers.
Government Product News has three main competitors: American City &
County,published by Primedia; Public Works, published by Hanley Wood; and
Governing Magazine, published monthly by Congressional Quarterly Inc.
Occupational Hazards magazine's main competitors are Occupational Health &
Safety magazine, which is published by Stevens Publishing, and Industrial Safety
& Hygiene Newsmagazine, published by Business News Publishing.
TECHNOLOGY SEGMENT
Content of our Technology publications, trade shows and conferences, and
online media products is geared to customers in the electronics, enterprise
information technology, aviation and business technologies industries. Our
Technology segment generated 32.2%, 32.0%, and 32.7% of our total revenues in
2005, 2004, and 2003, respectively. The percentage of our Technology segment
revenues by product line are as follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 60.0% 64.4% 71.1%
Trade shows and conferences................................. 20.3% 16.6% 12.5%
Online media................................................ 19.7% 19.0% 16.4%
ENTERPRISE INFORMATION TECHNOLOGY:
The enterprise information technology portfolio represented approximately
17.8% of our revenues in 2005. Our products in this portfolio serve
professionals involved with the Microsoft Windows NT/2000/.NET/XP and SQL, IBM
iSeries/AS400 and Lotus Domino application server environments; information
security; graphics applications; and the emerging market addressing convergence
of home office, controls and entertainment technologies. Leading products in
this portfolio include:
- Windows IT Pro Magazine and the windowsitpro.com Web site, which serve
Windows IT professionals by providing problem-solving information about
the Windows platform, including Microsoft's .NET Framework, Windows XP,
Windows 2000 and Windows NT.
- iSeries NEWS magazine, which helps iSeries and AS/400 professionals make
strategic business decisions, solve programming problems, improve
performance and security, and assess hardware and software products.The
iSeries group offers a Web site and a daily e-newletter to reach
customers online.
- SQL Server Magazine and sqlmag.com Web site are the independent guides to
using SQL Server as a business application development platform.
- SQL Server Magazine Live conference is a guide to building
enterprise-class business solutions involving SQL Server and related
technologies. We developed SQL Server Magazine Live for corporate
software and solution developers, database administrators, integrators,
data modelers and designers, IT managers, and data warehousing
specialists.
- Tech Conferences produces 10 conferences that serve the computer
programming and applications development market. The conferences educate
the attendees on current issues, upgrades and advancements in Windows,
Exchange, ASP and VS.
In addition, the enterprise information technology portfolio hosts numerous
roadshows throughout the year. A roadshow is a custom conference event bringing
buyers and sellers together in multiple cities to introduce products and
services and to generate sales leads for the sponsor.
Competitors for our media serving the Microsoft arena include: Windows
Server System, published by Fawcette Technical Publications; Redmond, published
by 101 Communications; SQL Server Professional,
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published by Pinnacle Publishing; and SQL Server Standard, published by Central
Publishing Group. Our IBM portfolio's competitors include eServer Magazine,
published by MSP Communications; SpotLight Magazine, published by Rochester
Initiative;search400.com; ITJungle.com; and Lotus Advisor Magazine and
searchdomino.com, which are produced by Advisor Media.
ELECTRONICS:
The electronics portfolio represented approximately 9.5% of our revenues in
2005. Products in this portfolio reach electronics engineers and engineering
managers in the OEM, communications systems, microwave systems, wireless
applications and network design markets. Our largest products in this portfolio
include:
- Electronic Design magazine, first published in 1952, focuses on new and
emerging technologies. The magazine reaches design engineers, engineering
managers and technical executive managers at the conceptual design stage,
where many product and technology decisions are initiated. The electronic
design Web site, elecdesign.com, features information geared to
engineers, such as forums, meetings, articles, ideas and surveys.
- Microwaves & RF magazine, first published in 1962, serves engineers and
engineering managers involved in high- frequency design. Target readers
work in both commercial and military applications at radio frequency and
microwave device, component, software, systems and test levels.
- eepn magazine, first published in 1941, provides new-product information
to engineers and engineering managers involved in electronic prototype
design.
Competition in this portfolio includes EE Times magazine, published by CMP
Media ("CMP"); EDN and ECN magazines, both published by Reed; Electronic
Products, published by Hearst Publishing; Microwave Journal, published by
Horizon House; and RF Design, published by Primedia.
BUSINESS TECHNOLOGY:
The business technology portfolio represented approximately 2.7% of our
revenues in 2005. Media products in this portfolio target service providers and
other professionals who utilize Web technologies and services to achieve their
enterprises' e-business objectives. The leading product in this portfolio is
Business Finance magazine, which informs finance executives about the growing
role of finance within organizations due to changes in technology, business
strategy and economic trends and the implications of these changes for their
business practices and career development. The businessfinancemag.com Web site
continues the editorial mission of informing financial executives about the
growing role of finance. The main competitor in the business technology sector
is CFO magazine, which is published by McGraw Hill.
AVIATION:
The aviation portfolio represented approximately 2.2% of our revenues in
2005. This portfolio's products target executives in the worldwide commercial
airline industry. The leading product in this portfolio and in the market it
serves is Air Transport World magazine, which was first published in 1964.
Editorial content covers airline operations; information technology; alliances,
distribution; transport aircraft and engine programs; maintenance, repair and
operations; aero politics; safety and regulations; finance and leasing; airport
development; and air cargo. Penton also offers an Air Transport World Web site,
atwonline.com, which provides daily news about the airline and related
industries, traffic and aircraft transaction data, commentary and insight, and
articles excerpted from Air Transport World magazine. A major competitor in the
aviation sector is Airline Business magazine, which is published by Reed.
LIFESTYLE SEGMENT
Content of our Lifestyle publications, trade shows and conferences and
online media is geared to professionals in the natural products industry. Our
Lifestyle segment generated 18.3%, 18.6%, and 16.8% of
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our total revenues in 2005, 2004 and 2003, respectively. The percentages of our
Lifestyle segment revenues by product line are as follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 31.4% 33.3% 34.8%
Trade shows and conferences................................. 68.0% 66.6% 65.2%
Online media................................................ 0.6% 0.1% 0.0%
The products in this portfolio serve the natural and organic products and
nutraceuticals markets, including producers of raw materials, manufacturers,
distributors and retailers. Leading products in this portfolio include the
following:
- The Natural Products Expo trade shows, which are held annually on the
West and East Coasts of the United States and in Asia. In addition to
extensive exhibits, the shows offer educational conferences,
entertainment and a host of social events to foster personal and
professional growth. The combined conference and trade show format is
designed to bring the industry together to learn and share information
with industry leaders.
- The Natural Foods Merchandiser magazine, the leading publication in its
market, provides information to companies involved in the development,
marketing, sales and distribution of natural and organic products and
dietary supplements.
- Delicious Living magazine is purchased by natural products retailers and
is distributed to their customers to educate and inform them about
natural products and healthy lifestyles. It provides articles on a wide
range of topics, including diet and nutrition, fitness, herbal medicine,
homeopathy, natural healing, cooking with natural foods, personal care,
and the environment.
Competition for The Natural Foods Merchandiser includes Vitamin
Retailer,published by VRM Inc., and Whole Foods Magazine, published by WFC Inc.
Titles competitive with our Delicious Living magazine include Body and Soul,
published by Omnimedia; Better Nutrition, published by Active Interest Media;
and Energy Times, published by Energy Times Inc. The primary competitors for our
Natural Products Expos are the Fancy Foods Show, which is owned by the National
Association for the Specialty Food Trade; the Food Marketing Institute show; and
the National Nutritional Foods Association show.
RETAIL SEGMENT
Content of our Retail publications, trade shows and conferences, and online
media products is geared to customers in the foodservice, convenience store
retailing and hospitality markets. Our Retail segment generated 10.6%, 10.7%,
and 10.6% of our total revenues in 2005, 2004 and 2003, respectively. The
percentages of our Retail segment revenues by product line are as follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 93.2% 92.4% 90.0%
Trade shows and conferences................................. 4.7% 6.0% 8.0%
Online media................................................ 2.1% 1.6% 2.0%
Our retail portfolio targets full-service restaurant operators; decision
makers in institutional foodservice and retail and large-volume baking
operations; management staff at convenience store headquarters; and executives
and management personnel in the hospitality industry. Leading magazines in this
portfolio include:
- Modern Baking magazine, which serves bakeries offering higher-quality
bakery foods, including retail, supermarket in-store and specialty
wholesale bakeries, and foodservice operators that bake on premise;
- Bakery-net.com Web site features an easy-to-use on-line buyer's guide,
classified advertising, expert advice, news, features, and calendars for
the bakery food industry.
- Food Management magazine, which serves the noncommercial foodservice
market, including food operations at colleges and universities, schools,
healthcare providers, the military and airlines;
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- Restaurant Hospitality, which is targeted to full-service restaurants;
- Convenience Store Decisions magazine, which reaches management personnel
in the convenience store industry; and
- Lodging Hospitality magazine, which was first published in 1949 and
serves the lodging industry, including hotel owners, operators and
developers.
- National Convenience Store Advisory Group spring and fall events bring
together convenience store retail buyers with product and service
suppliers in a relaxed environment that emphasizes timely educational
sessions, product exhibits, and one-on-one business meetings. The events'
educational sessions focus on helping retailers profitably manage their
operations in an increasingly competitive and rapidly changing business
environment.
Competition for our baking magazines primarily includes Baking Buyer and
Baking & Snack magazine, published by Sosland Publishing; and Snack Food and
Wholesale Baking magazine published by Stagnito Communications. The key
competitor for Food Management is FoodService Director, published by Ideal
Media. Competitors for our restaurant magazines include Nation's Restaurant
News, published by Lebhar-Friedman; Restaurants and Institutions, published by
Reed; Restaurant Business, published by Ideal Media; and Food Arts, published by
M. Shanken Communications. Competitors in the convenience store market include
Convenience Store News, published by VNU Business Publications ("VNU"), and
Convenience Store Petroleum, published by CSP Information Group. Competitors for
our hospitality market include Hotel & Motel Management magazine, owned by
Advanstar Communications, and Hotel Business magazine, owned by ICD
Publications.
DIVESTITURES
In April 2005, we completed the sale of 90% of our interest in PM Europe
for approximately $4.4 million in cash, with no gain or loss on disposal. PM
Europe was part of our former International segment. We account for our
remaining 10% interest using the cost method, as we do not exercise significant
influence.
In December 2004, we completed the sale of 70% of our interest in PM
Germany, a consolidated subsidiary, to Neue Medien Ulm Holdings GmbH ("Neue
Medien") for $0.8 million in cash, resulting in a loss on sale of approximately
$1.0 million. PM Germany was part of our former International segment. At
December 31, 2005, we retained a 15% interest in PM Germany, which includes a
call/put option. We account for our remaining investment using the cost method,
as we do not exercise significant influence.
In January 2003, we sold the assets of our PTS group, which was part of our
Industry segment, to Cygnus Business Media, Inc. for total consideration of
approximately $3.2 million. The cash received from the sale was used to pay down
the Company's outstanding credit facility. A gain of approximately $1.4 million
on the sale was recorded in the first quarter of 2003.
CUSTOMERS
We serve a diverse group of customers worldwide in the industries we serve.
We market our products directly to customers through our internal marketing and
sales force and through independent outside sales representatives. None of our
customers accounted for more than 2.1% of our total revenues in 2005. Our top 10
customers accounted for approximately 5.0% of our total revenues in 2005.
COMPETITION
We experience intense competition in our markets. We compete with several
much larger international companies that operate in many markets and have broad
product offerings in both publishing and trade shows and conferences. We compete
for readers and advertisers in the publishing marketplace, which is fragmented.
According to industry sources, in March 2006, there were about 1,500 publishing
companies and more than 5,200 trade magazine titles.
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Our publications generally compete on the basis of:
- editorial quality and integrity;
- quantity and quality of circulation;
- the strength of complementary products serving the same niche;
- the effectiveness of sales and customer service; and
- advertising rates.
We compete for venues, exhibitors, sponsorships and show attendees, in
certain markets we serve with our trade shows and conferences. Our trade shows
and conferences generally compete on the basis of:
- the availability of attractive venues and dates;
- the quality and integrity of educational offerings;
- the ability to provide events that meet the needs of particular market
segments;
- the ability to attract qualified attendees; and
- the ability to provide high-quality show services, exhibition space
and attractive marketing and sponsorship opportunities.
As online media has gained favor for both information delivery and for
marketing purposes, there has been a major influx of new product offerings by
b-to-b media companies and other information providers who represent added
competition.
Our online media products generally compete on the basis of:
- quality and uniqueness of information content;
- quality and speed of sales lead generation;
- technical quality and the related ease of use for the end user;
- product development speed; and
- advertising and sponsorship rates.
DOMESTIC AND FOREIGN REVENUES AND ASSETS
Domestic revenues of our products and services constituted 98.5%, 98.2%,
and 97.8% of total revenues for the years ended December 31, 2005, 2004 and
2003, respectively. Foreign revenues totaled 1.5%, 1.8%, and 2.2% of our
revenues for the years ended December 31, 2005, 2004 and 2003, respectively. See
Note 16 -- Segment Information, in the notes to consolidated financial
statements included herein, for a description of the Company's assets located in
the United States and in other foreign countries.
PRODUCTION AND DISTRIBUTION
All of the Company's print products are printed and bound by independent
printers. We have a non-cancelable service contract through 2011 that provides
for the printing of a majority of our magazines. If additional printing capacity
is needed, we believe that additional printing services are readily available at
competitive prices.
The principal raw material used in our print publications is paper. We
believe that the existing arrangements providing for the supply of paper are
adequate, and, in any event, alternative sources are available. Paper costs
accounted for approximately 9.3%, 8.7%, and 8.4% of our total editorial,
production and circulation costs for the years ended December 31, 2005, 2004 and
2003, respectively. Paper prices are affected by a variety of factors, including
demand, capacity, pulp supply, and general economic conditions. We don't expect
paper costs to increase significantly over 2005 prices.
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The majority of our publications are delivered by the United States Postal
Service within the continental United States. Consequently, postage costs are
subject to postage rate changes. Postage costs represent a significant expense,
accounting for approximately 14.0%, 14.3%, and 15.3% of our total editorial,
production and circulation costs for the years ended December 31, 2005, 2004 and
2003, respectively. Most of the Company's magazines are packaged and delivered
to the United States Postal Service directly by the printer.
Domestic postage rates increased by 5.4% in January 2006. International
postage rates increased 4.5% in January 2005 and are expected to increase again
in 2006.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
We regard our copyrights, trademarks, service marks and similar
intellectual property as critical to our success and rely upon copyright and
trademark laws, as well as confidentiality agreements with our employees and
others, to protect our rights. We pursue the registration of our material
trademarks in the United States and, depending upon use, in other countries.
Effective trademark and copyright protection may not be available in every
country in which our publications and services are available.
We may be subject to claims of alleged infringement of our trademarks or
our licenses of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. We do not believe
that any legal proceedings or claims are likely to have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
SEASONALITY
We may experience seasonal fluctuations as trade shows and conferences held
in one quarter in the current year may be held in a different quarter in future
years.
EMPLOYEES
On December 31, 2005, we employed 703 people, primarily in the United
States. None of our employees are represented by a labor union, and we consider
relations with our employees to be good.
ITEM 1A. RISK FACTORS
The following are factors that may affect our actual operating results and
could cause results to differ materially from those in any forward-looking
statements. In addition to the other information contained in this document, you
should carefully consider the following risk factors.
We have a significant amount of debt.
At December 31, 2005, we had total indebtedness of approximately $323.0
million. Subject to restrictions in our debt agreements, we had the ability to
incur additional indebtedness of approximately $27.0 million under our Loan and
Security Agreement revolver at December 31, 2005.
The level of our indebtedness could have important consequences, including:
- Limiting cash flow available for general corporate purposes, including
capital expenditures, because a substantial portion of our cash flow
from operations must be dedicated to servicing our debt;
- Limiting our ability to obtain additional debt financing in the future
for working capital, capital expenditures or acquisitions;
- Making us more vulnerable in the event of a downturn in general
economic conditions or in our business; and
- Limiting our flexibility in reacting to competitive and other changes
in our industry.
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Our current debt levels have subjected us to the risks described above. If
new debt is added to our current debt levels, these risks could intensify.
We may not be able to service our debt or refinance our debt when due.
Our ability to pay or to refinance our indebtedness will depend upon our
future operating performance, which will be affected by general economic,
financial, competitive, business, and other factors beyond our control. At
December 31, 2005, we have $157.5 million in 11 7/8 senior secured notes
("Secured Notes") that are due in October 2007. In addition, our Loan and
Security Agreement expires in August 2007.
We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated revenues and cost-saving efforts
will be realized on schedule or at all, or that future borrowings will be
available to us under our Loan and Security Agreement or otherwise in amounts
sufficient to enable us to service our debt obligations, to pay our indebtedness
at maturity or otherwise, or to fund our other liquidity needs. If we are unable
to meet our debt obligations or fund our other liquidity needs, we may need to
further restructure or refinance our indebtedness, sell assets or seek
additional equity capital. We cannot assure you that we will be able to
accomplish those actions on satisfactory terms, if at all, which could cause us
to default on our obligations and impair our liquidity. Our ability to
restructure or refinance will depend on the capital markets and our financial
condition at such time. Any refinancing of our debt could be at higher interest
rates and may require us to comply with more onerous covenants, which could
further restrict our business operations. In addition, the terms of the
convertible preferred stock and warrants to purchase common stock, including the
conversion price, dividend and liquidation preference adjustment provisions,
could result in substantial dilution to holders of our common stock. The
redemption price premiums, and board representation rights, could negatively
impact our ability to access the equity markets in the future.
Because a significant portion of our operations are currently conducted
through our subsidiaries, our ability to pay our indebtedness is also dependent
on the cash flows of our subsidiaries and the distribution of those cash flows
to us, or upon loans or other payments of funds by our subsidiaries to us. The
ability of our subsidiaries to make distributions or other payments to us will
depend upon their operating results, applicable laws and any contractual
restrictions contained in the agreements governing their indebtedness. If money
generated by our subsidiaries is not available to us, our ability to repay our
indebtedness may be adversely affected.
The terms of our debt agreements and convertible preferred stock impose
financial and operating restrictions.
The indentures governing our Subordinated Notes and our Secured Notes, our
Loan and Security Agreement and our convertible preferred stock contain
restrictive covenants that limit our ability to engage in a variety of
transactions, including incurring or guaranteeing additional indebtedness,
making investments, creating liens on our assets, transferring or selling our
assets, paying dividends or engaging in certain mergers, acquisitions or
consolidations. The terms of our Loan and Security Agreement and indentures
prohibit us from voluntarily prepaying certain indebtedness.
A breach of any of the covenants or other provisions in our debt agreements
could result in a default thereunder. Upon the occurrence of an event of default
under our debt agreements, the lenders could elect to declare all amounts
outstanding thereunder to be immediately due and payable and terminate all
commitments to extend further credit, which would adversely affect our ability
to fund our operations. An acceleration of amounts due under our Loan and
Security Agreement would cause us to be in default under the indenture governing
our Subordinated Notes and our Secured Notes, resulting in the acceleration of
all outstanding amounts, and vice versa, given certain thresholds. If we are
unable to repay any accelerated amounts under our debt agreements, the
respective lenders/holders could proceed against the collateral granted to them
to secure that indebtedness. If the lenders/holders under our debt agreements
accelerate the repayment of borrowings, we cannot assure you that we will have
sufficient assets to repay all of our indebtedness.
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We are controlled by our Series C preferred stockholders whose interests may
differ from the interests of the common stockholders.
The holders of our convertible preferred stock have appointed a majority of
the members of our Board of Directors. In addition, Mr. Yudkoff, co-founder of
ABRY Partners, LLC and its current president and managing partner, is the
chairman of our Board of Directors. Affiliates of ABRY Partners, LLC own the
majority of the Company's convertible preferred stock, as well as $12.0 million
of our Subordinated Notes.
Circumstances may occur in which the interests of our Series C Preferred
Stock holders could be in conflict with the interests of our common
stockholders. As a result of their majority position, the Series C Preferred
Stock holders have the power to appoint new management as well as the power to
approve acquisitions or sales of our assets.
If the Company is sold, we cannot assure the common stockholders that there
will be enough proceeds from the sale to pay off all of our outstanding debt,
the outstanding amount due to the Series C Preferred Stock holders, and have
funds remaining for the common stockholders. If the Company had been sold on
December 31, 2005, the outstanding loan and security balance of $10.2 million
would be required to be paid, the bondholders would have been entitled to
receive $315.9 million and the preferred stockholders, including the Series M
Preferred, would have been entitled to receive $166.7 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 change significantly in the future under certain
circumstances. Common stockholders are urged to read the terms of the preferred
stock in their entirety.
We have incurred substantial operating losses, we anticipate additional future
losses and we must increase our revenues to become profitable.
We incurred net losses of $8.4 million, $67.2 million, and $93.1 million in
2005, 2004 and 2003, respectively. We face an environment of uncertainty, and
visibility for our business, particularly advertising sales, remains limited. We
expect that we will continue to incur operating losses in the near term.
In order to return to profitability, we must achieve substantial revenue
growth. Revenue growth will depend on a recovery in marketing spending in
traditional b-to-b media along with continued growth from new online media
offerings. Although we have implemented a number of expense reduction and
restructuring initiatives to more closely align our cost structure with the
current business environment, expense reductions alone, without revenue growth,
will not return us to profitability. We cannot assure you as to whether or when
we will return to profitability or whether we will be able to sustain such
profitability, if achieved.
We depend on advertising revenues, which decrease during economic downturns and
fluctuate from period to period.
For the years ended December 31, 2005, 2004, and 2003, about 60.4%, 62.5%,
and 65.6%, respectively, of our revenues came from advertising in our
publications. Our advertising revenues fluctuate with general economic cycles,
and any material decline in these revenues could have a material adverse effect
on our business, results of operations and financial condition. Historically,
advertising revenues have increased during economic recoveries and decreased
during both general economic downturns and regional economic recessions. In a
general economic downturn or a recession, advertisers reduce their advertising
budgets, intensify their attempts to negotiate lower advertising rates and pay
outstanding invoices more slowly. We have experienced some of these effects in
2003 and 2004. Our advertising revenues decreased by 1.6% from 2003 to 2004 and
by 4.4% between 2004 and 2005. If a recovery in marketing spending in
traditional b-to-b media does not take place, our results of operations may be
adversely affected.
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If we are not able to fully integrate and provide additional electronic media
products, our revenues and long-term viability could be adversely affected.
Business-to-business marketers in recent years have been directing
increasing portions of their marketing budgets to electronic media products.
Penton has benefited from this marketing trend, as evidenced with 17.9% and
23.4% ($2.8 million and $3.0 million) year-on-year increases in eMedia revenues
in 2005 and 2004, respectively. At the same time, however, revenues for print
publishing have declined by 5.1% and 1.6% ($7.2 million and $2.3 million) in
2005 and 2004, respectively. If we are not able to rapidly evolve our portfolio
such that we can capture the market's enthusiasm and demand for innovative
eMedia solutions and our publishing revenues continue to decline at a pace
greater than the growth of our eMedia revenues, our results of operations and
cash flows may be adversely affected.
New product launches or acquired products may reduce our earnings or generate
losses.
Our future success will depend in part on our ability to continue offering
new products and services that gain market acceptance by addressing the needs of
specific audience groups within our targeted industries. Our efforts to
introduce new or to integrate acquired products may not be successful or
profitable. The process of internally researching, developing, launching,
gaining acceptance and establishing profitability for a new product, or
assimilating and marketing an acquired product, is both risky and costly.
Costs related to the development of new products and services are expensed
as incurred and, accordingly, our profitability from year to year may be
adversely affected by the number, timing, and scope of new product launches.
The profitability and success of our trade shows and conferences could be
adversely affected if we are unable to obtain desirable dates and locations.
In 2005, about 20.9% of our revenues came from trade shows and conferences.
We compete for desirable dates and venues for our trade shows and conferences.
If this competition intensifies, we may be unable to schedule important
engagements. If we are unable to obtain desirable dates and venues for events,
the profitability and future success of these events could be adversely
affected. Although we generally reserve venues and dates more than one year in
advance, these reservations are not binding until we sign a contract with a
facility operator. These contracts generally hold venues and dates for only one
year. In addition, because trade shows and conferences are held on pre-scheduled
dates at specific locations, the success of a particular trade show or
conference depends upon events outside or our control, such as natural
catastrophes, labor strikes and transportation shutdowns.
A significant portion of our revenues and operating margins are generated from
our Natural Products Expo East and Natural Products Expo West trade shows. A
major decline in the performance of these shows would significantly reduce our
revenues and operating income.
For the year ended December 31, 2005, our Natural Products Expo East and
Natural Products Expo West trade shows represented approximately 11.5% of our
total revenue and approximately 28.1% of operating margin. We expect that these
two shows will continue to represent a significant portion of our overall
revenue and operating margin in the future. Therefore, a significant decline in
the performance of one or both of the Natural Products shows could have a
material adverse effect on our financial condition and results of operations.
A terrorist attack or the outbreak of disease could have a significant effect on
our trade shows.
The events of September 11, 2001 had a material adverse impact on us. The
occurrence of another terrorist attack could again have a material adverse
impact on us and our operations.
In 2003, there was an outbreak of Severe Acute Respiratory Syndrome
("SARS"), which primarily had an adverse impact on our Asian trade show. If
there were another outbreak of a disease (such as SARS or the
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bird flu) that affected travel behavior, particularly in the U.S., it could have
a material adverse impact on our trade show operations.
Our trade shows, conferences, roadshows and publishing revenues vary based on
the timing of our customers' product launches.
Our trade shows, conferences, roadshows, and publishing revenues may
fluctuate from period to period based on the spending patterns of our customers.
Many of our large customers concentrate their advertising spending or
participation in trade shows and roadshows around major product launches.
Because we cannot always know or predict when our large customers intend to
launch new products, it is difficult to anticipate any related fluctuations in
these revenues.
Competition may adversely affect our earnings and results of operations.
We experience intense competition for our products and services. If we fail
to compete effectively, our earnings and results of operations could be
adversely affected. We compete for readers and advertisers in the publishing
marketplace; for trade show and conference venues, exhibitors, sponsorships and
show attendees; and for uniqueness of information content and product
development speed for online products. Because our industry is relatively easy
to enter, we anticipate that additional competitors, some of whom may have
greater resources than we do, may enter these markets and intensify competition.
The infringement or invalidation of our proprietary rights could have an adverse
effect on our business.
We regard our copyrights and trademarks, including our Internet domain
names, service marks and similar intellectual property, as critical to our
success. We rely on copyright and trademark laws in the United States and other
jurisdictions and on confidentiality agreements with some of our employees and
others to protect our proprietary rights. If any of these rights were infringed
or invalidated, our business could be adversely affected. In addition, our
business activities could infringe or be alleged to infringe upon the
proprietary rights of others, who could assert infringement claims against us.
If we are forced to defend against any such claims, whether they are with or
without merit or are determined in our favor, then we may face costly
litigation, diversion of technical and management personnel, or product and
service delays. As a result of such a dispute, we may have to develop
non-infringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of infringement
against us and we are unable to develop non-infringing technology or enter into
royalty or licensing agreements on a timely basis, our business could be
adversely affected.
We seek to register our trademarks in the United States and elsewhere.
These registrations could be challenged by others or invalidated through
administrative process or litigation. In addition, our confidentiality
agreements with some of our employees or others may not provide adequate
protection of our proprietary rights in the event of unauthorized use or
disclosure of our proprietary information, or if our proprietary information
otherwise becomes known or is independently developed by competitors.
Reliance on principal vendors could adversely affect our business.
We rely on our principal vendors and their ability or willingness to sell
products to us on favorable price and other terms. Many factors outside our
control may harm these relationships and the ability or willingness of these
vendors to sell these products to us on such terms. Currently, our principal
vendors are paper suppliers, the United States Postal Service and printing
suppliers. If any of our principal vendors discontinues or temporarily
terminates its services and we are unable to find adequate alternatives, we may
experience increased prices or interruptions and delays in services. These
factors could adversely affect our business.
20
Increases in paper or postage costs could cause our expenses to increase and may
adversely affect our business.
Paper and postage are necessary expenses relating to our print products and
magazine distribution. In 2005, these expenses accounted for approximately 9.3%
and 14.0%, respectively, of our total editorial, production and circulation
costs. Significant increases in paper prices or in postage prices may have an
adverse effect on our business. We do not use forward contracts, and all of our
paper supply vendor arrangements provide for price adjustments to reflect
prevailing market prices. We use the United States Postal Service for domestic
distribution of substantially all of our magazines and marketing materials. If
we cannot pass significant increases in paper and postage costs through to our
customers, our financial condition and results of operations could be materially
adversely affected.
We depend on key personnel and the loss of any of those employees could impair
our success.
We benefit from the leadership and experience of our senior management team
and other key employees, and we depend on their continuing services in order to
successfully implement our business strategy. In addition, our success is
dependent on our ability to attract, train, retain and motivate high-quality
personnel. Although we have entered into employment agreements with our Chief
Executive Officer and Chief Financial Officer, they and other key personnel may
not remain in our employment. The loss of a number of key personnel could have a
material adverse effect on our business, results of operations and financial
condition. We do not maintain "key person" life insurance with respect to our
senior management team.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We lease all of our principal properties. The general characteristics of
these properties are as follows:
LEASE APPROXIMATE
SEGMENT LOCATION PRINCIPAL USE EXPIRATION SQUARE FEET
------- --------------------- --------------- ---------- -----------
Industry/Corporate........... Cleveland, Ohio(1) General Offices 2010 161,000
Industry/Corporate........... Cleveland, Ohio Warehousing 2006 28,000
Industry..................... Silver Spring, General Offices 2012 5,400
Maryland
Technology................... Darien, General Offices 2009 18,200
Connecticut(2)
Technology................... New York, New York(2) General Offices 2009 10,000
Technology................... Paramus, New Jersey General Offices 2008 11,000
Technology................... Loveland, Colorado(3) General Offices 2005 35,650
Corporate.................... London, U.K.(4) General Offices 2010 12,000
Lifestyle.................... Boulder, Colorado General Offices 2011 29,000
Retail....................... Des Plaines, Illinois General Offices 2007 5,500
---------------
(1) The Company has sublet 57,500 square feet of office space at this facility.
(2) The Company has sublet these offices for the remainder of their respective
lease terms.
(3) The Company is currently negotiating a lease extension.
(4) This lease was not included as part of the sale of our UK operations. The
Company is currently attempting to sublease this space, which is currently
vacant.
The Company has other smaller properties, including sales and/or general
offices under leases expiring through 2013, located in cities throughout the
United States, the United Kingdom and Hong Kong. We believe our facilities are
suitable and adequate for our present needs.
21
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2005.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER REPURCHASES OF EQUITY SECURITIES
Our sole class of common equity is our $0.01 par value common stock, which
is quoted on the Over-the-Counter Bulletin Board under the symbol PTON. Prior to
June 17, 2003, our common stock was traded on the New York Stock Exchange.
The following tables set forth, for the periods indicated, the high and low
sales prices for our common stock.
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
For the year ended December 31, 2005:
First Quarter............................................. $0.33 $0.08
Second Quarter............................................ $0.61 $0.16
Third Quarter............................................. $0.51 $0.25
Fourth Quarter............................................ $0.60 $0.40
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------ ------
For the year ended December 31, 2004:
First Quarter............................................. $1.38 $0.57
Second Quarter............................................ $0.80 $0.33
Third Quarter............................................. $0.43 $0.12
Fourth Quarter............................................ $0.18 $0.06
We had approximately 793 record holders of our common stock on February 28,
2006.
Our dividend policy is determined by our Board of Directors. Any decision
to pay dividends in the future will be made by our Board of Directors based upon
the results of our operations and financial condition and such other matters as
our Board of Directors considers relevant. The terms of our outstanding
convertible preferred stock, however, limit the payment of dividends on our
common stock until all accrued dividends have been paid on the convertible
preferred stock. We may not pay accrued dividends on our convertible preferred
stock unless approved by the holders of not less than 75% of the then
outstanding convertible preferred stock. Furthermore, our ability to pay
dividends is restricted by certain covenants in our bond indentures and Loan and
Security Agreement. No dividends were declared or paid on our common stock in
2005 or 2004.
22
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from annual financial statements,
including the consolidated balance sheets at December 31, 2005 and 2004 and the
related consolidated statements of income and of cash flows for the three years
ended December 31, 2005 and notes thereto appearing elsewhere herein. You should
read the following information together with Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations, appearing
elsewhere herein.
All historical amounts have been reclassified to reflect the classification
of (i) our former International segment, comprised of PM Europe, which was sold
in April 2005, and PM Germany, which sold in December 2004; (ii) our PTS
component, which as sold in January 2003; and (iii) our PM Australia component,
which was sold in December 2002, as discontinued operations.
YEAR ENDED DECEMBER 31,
(DOLLARS AND SHARES IN THOUSANDS, ---------------------------------------------------------
EXCEPT PER SHARE DATA) 2005 2004 2003 2002 2001
--------------------------------- --------- --------- --------- --------- ---------
OPERATING RESULTS:
Revenues............................. $ 192,847 $ 194,833 $ 188,742 $ 213,893 $ 317,518
Operating expenses(1)............. 159,670 215,023 228,654 432,287 403,597
--------- --------- --------- --------- ---------
Operating income (loss).............. 33,177 (20,190) (39,912) (218,394) (86,079)
Interest expense(2)............... (39,537) (40,005) (41,581) (39,595) (30,781)
Interest income................... 241 207 437 768 1,958
Gain on sale of investments(3).... -- -- -- 1,491 --
Gain on extinguishment of
debt(4)......................... 2,732 -- -- 277 --
Other, net(5)..................... (175) 40 (929) (1,105) (431)
Provision (benefit) for income
taxes(6)........................ 1,901 (792) 6,947 (30,018) (17,869)
--------- --------- --------- --------- ---------
Loss from continuing operations...... (5,463) (59,156) (88,932) (226,540) (97,464)
Loss from discontinued
operations...................... (2,959) (8,035) (4,199) (35,357) (6,643)
Cumulative effect of accounting
change(7)....................... -- -- -- (34,572) --
--------- --------- --------- --------- ---------
Net loss............................. (8,422) (67,191) (93,131) (296,469) (104,107)
--------- --------- --------- --------- ---------
Amortization of deemed dividend
and accretion of preferred
stock(8)........................ (7,687) (12,190) (8,536) (46,436) --
--------- --------- --------- --------- ---------
Net loss applicable to common
stockholders.................... $ (16,109) $ (79,381) $(101,667) $(342,905) $(104,107)
========= ========= ========= ========= =========
Earnings per common share -- basic
and diluted:
Loss from continuing operations
applicable to common
stockholders.................... $ (0.38) $ (2.11) $ (2.92) $ (8.43) $ (3.05)
Net loss applicable to common
stockholders.................... $ (0.47) $ (2.35) $ (3.05) $ (10.59) $ (3.26)
Average shares
outstanding -- basic and
diluted......................... 34,489 33,725 33,299 32,374 31,917
CASH FLOWS AND OTHER DATA:
Cash flows:
Operating(9)...................... $ (1,583) $ (20,464) $ 27,715 $ (16,585) $ (18,248)
Investing(10)..................... $ 1,008 $ (1,577) $ 2,179 $ (3,336) $ (29,550)
Financing(10)..................... $ (6,520) $ 220 $ (7,208) $ 6,636 $ 56,326
Capital expenditures................. $ (1,028) $ (2,317) $ (3,294) $ (3,855) $ (7,602)
Depreciation and amortization........ $ 6,698 $ 8,760 $ 11,946 $ 18,701 $ 44,977
23
YEAR ENDED DECEMBER 31,
(DOLLARS AND SHARES IN THOUSANDS, ---------------------------------------------------------
EXCEPT PER SHARE DATA) 2005 2004 2003 2002 2001
--------------------------------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets......................... $ 227,169 $ 247,374 $ 321,444 $ 415,449 $ 700,638
Goodwill............................. $ 173,603 $ 176,162 $ 214,411 $ 251,972 $ 493,141
Total debt........................... $ 320,351 $ 329,064 $ 328,613 $ 333,137 $ 364,765
Mandatorily redeemable preferred
stock............................. $ 74,849 $ 67,162 $ 54,972 $ 46,435 $ --
Stockholders' equity (deficit)....... $(253,342) $(236,236) $(160,290) $ (72,608) $ 220,530
---------------
Footnotes:
(1) Operating expenses include the following charges: (a) impairment of asset
charges of $34.5 million, $39.9 million, $197.4 million and $59.8 million,
in 2004, 2003, 2002 and 2001, respectively; (b) restructuring and other
charges of $0.9 million, $6.1 million, $5.2 million, $14.4 million, and
$15.4 million in 2005, 2004, 2003, 2002 and 2001, respectively (which has
been reduced by $0.09 million, $0.7 million, $1.0 million and $3.4 million
classified with discontinued operations in 2004, 2003, 2002 and 2001,
respectively); (c) provision of loan impairment of $1.7 million and $7.6
million in 2004 and 2003, respectively; (d) executive separation costs of
$2.7 million in 2004; (e) loss on sale of properties of $0.9 million in
2002; and (f) amortization of goodwill in 2001. During the fourth quarter
of 2005, we reclassified amortization expense for deferred financing fees
to interest expense as opposed to our historical presentation as part of
amortization expense within the consolidated statement of operations.
Amounts reclassified in 2004, 2003, 2002 and 2001 were $2.0 million, $1.9
million, $1.6 million and $0.5 million, respectively.
(2) As noted in footnote 1 above, during the fourth quarter of 2005 we
reclassified amortization expense related to deferred financing fees from
amortization expense to interest expense for all periods presented. In
addition, included in interest expense in 2003 is approximately $1.9
million related to the write-off of unamortized financing fees associated
with our previous credit facility. Included in interest expense in 2002 is
approximately $0.7 million related to the write-off of unamortized finance
fees associated with a commitment reduction related to our credit facility
revolver, and approximately $1.4 million related to hedging activities.
(3) In 2003, we sold our stock in Jupitermedia Corporation and recognized a
gain from its sale of $1.5 million.
(4) The extinguishment of debt of $2.7 million in 2005 consists of a gain on
the purchase of $5.5 million, $10.0 million, and $4.2 million face value of
our Subordinated Notes in February, October and December 2005,
respectively. The extinguishment of debt of $0.3 million in 2002 consists
of a gain on the purchase of $10.0 million face value of our Subordinated
Notes in March 2002, at prevailing market prices, offset by the write-off
of unamortized deferred financing costs associated with the payoff of our
term loan A and term loan B facilities.
(5) Included in 2001 other, net on the consolidated income statement is
approximately $0.8 million of proceeds related to the write-off of Internet
investments for LeisureHub.com.
(6) In 2004 and 2003, provision (benefit) for income taxes includes a $33.9
million and $25.8 million charge, respectively, to establish a valuation
allowance for our net deferred tax assets and net operating loss
carryforwards.
(7) In 2002, Penton adopted SFAS 142 and recorded a transitional one-time,
non-cash goodwill impairment charge of $39.7 million (of which $5.1 million
is classified with discontinued operations) related to two of our reporting
units.
(8) In 2002, the amortization of deemed dividend and accretion of preferred
stock included a $42.1 million, one-time, non-cash charge, which was the
result of stockholder approval on May 31, 2002 to remove the 10-year
mandatory redemption date on our convertible preferred stock.
(9) Included in cash flows from operations in 2003 is a tax refund of $52.7
million.
24
(10) During 2005, the Company revised its classification of restricted cash, in
its consolidated statements of cash flows. Restricted cash is now presented
as an investing activity. The revised classifications have also been
reflected in 2004 of $0.1 million for purposes of consistency.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Set forth below is a discussion and analysis of our financial condition and
results of operations. You should read this discussion and analysis in
conjunction with the audited consolidated financial statements of Penton Media,
Inc. included elsewhere in this document. This "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contains
forward-looking statements. See -"Forward-Looking Information (Safe Harbor
Statement)" and "Item 1A. Risk Factors" included in this annual report on Form
10-K for a discussion of the uncertainties, risks and assumptions associated
with these statements. Also, see discussion of "Critical Accounting Policies and
Estimates," which describe key estimates and assumptions we make in the
preparation of our financial statements.
OVERVIEW
We are 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. We publish specialized
trade magazines, produce trade shows and conferences, and provide Web sites,
electronic newsletters, Web conferences and other Web-based media products.
We have four segments: Industry, Technology, Lifestyle and Retail, which
are structured along industry lines, and enable us to promote our related groups
of products to our customers. Our integrated media portfolios serve the
following markets: design/engineering, government/compliance, manufacturing,
mechanical systems/construction, aviation, business technology, enterprise
information technology, electronics, natural products and food/retail.
Unless otherwise noted, disclosures herein relate only to our continuing
operations. Our discontinued operations consist of Penton Media Europe ("PM
Europe"), which was substantially sold in April 2005, Penton Media Germany ("PM
Germany"), which was substantially sold in December 2004, and Professional Trade
Shows ("PTS"), which was sold in January 2003. 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 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 now reported as
part of discontinued operations for all periods presented. Management determined
that these European operations did not fit our strategic growth objectives as we
focus new product innovation in eMedia and on leveraging our strong print brands
for further expansion in the United States and in Asia.
During the fourth quarter of 2005, we reclassified amortization expense for
deferred financing fees to interest expense as opposed to our historical
presentation as part of amortization expense within the consolidated statements
of operations. In addition, we revised our classification of restricted cash, in
its consolidated statements of cash flows. Restricted cash is now presented as
an investing activity. The revised classifications have also been reflected in
the comparative prior years for purposes of consistency.
In 2005, we had a net loss of $8.4 million, compared to significant net
losses for 2004 and 2003 of $67.2 million and $93.1 million, respectively. The
net loss in 2003 included impairment charges of $39.9 million, a loan impairment
charge of $7.6 million and a restructuring charge of $5.2 million. The
improvement in 2005 compared to 2004 is due in part to the following:
- A decrease in goodwill and other intangible impairment charges from $34.5
million in 2004 to none in 2005,
- A decrease in the provision of executive loan impairment from $1.7
million in 2004 to none in 2005,
25
- A decrease in restructuring charges from $6.1 million in 2004 to $0.9
million in 2005,
- A decrease in loss on discontinued operations from $8.0 million in 2004
to $3.0 million in 2005, and
- A gain of $2.7 million in 2005 related to the repurchase of $19.7 million
face value of our Subordinated Notes.
Earnings in 2005 also benefited from an increase in adjusted segment EBITDA
in each of our operating segments, as set forth below:
ADJUSTED SEGMENT EBITDA
---------------------------
2005 2004 2003
------- ------- -------
Industry................................................ $22,134 $20,351 $18,929
Technology.............................................. 14,538 12,258 8,876
Lifestyle............................................... 14,452 14,141 11,571
Retail.................................................. 6,259 5,543 5,432
------- ------- -------
$57,383 $52,293 $44,808
======= ======= =======
See Note 16 -- Segment Information, in the notes to consolidated financial
statements included herein, for a reconciliation of total adjusted segment
EBITDA to loss from continuing operations before income taxes.
We continue to have a significant amount of debt. On December 31, 2005, our
total debt was $323.0 million, compared to $332.5 million at December 31, 2004.
As a result of our decreasing debt levels, our interest expense has continued to
decrease from $41.6 million in 2003 to $39.5 million in 2005. During 2005 we
repurchased $19.7 million face value of our Subordinated Notes at prevailing
market prices and recognized a gain of $2.7 million. The repurchase will result
in additional reductions in our annual Subordinated Notes interest payments of
$2.0 million. We anticipate undertaking refinancing activities in 2006 or early
2007 in order to address the maturing of our Secured Notes in October 2007 as
well as the expiration of our Loan and Security Agreement in August 2007. After
October 1, 2006, we are permitted to redeem the Secured Notes, in whole or in
part, at a redemption price of 100.0% of the principal amount. Currently we must
pay a premium to redeem the Secured Notes. Failure to obtain new financing could
have a material adverse effect on our liquidity. We are focused on conserving
cash and maintaining liquidity.
Management's key objective is to restore value for our stockholders. We
continue to work with our Board of Directors on strategies for strengthening our
financial position.
In June 2005, the Company acquired the assets of Kosher World Conference &
Expo ("Kosher World") for $0.4 million in cash. Kosher World 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 and is
expected to be a catalyst for growth into the ethnic and specialty foods market
segments. In August 2005, the Company acquired MSD2D (Microsoft
Developer-to-Developer), for approximately $1.4 million in cash. MSD2D 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
complement the Company's other Microsoft products and provide us with the
ability to deepen our services for the Microsoft community.
Our acquisition strategy for the near term is to identify and add products
that are highly synergistic and enhance our portfolios serving our key markets
and that can be purchased at attractive, modest prices, given our debt
restrictions and cash constraints. We will focus primarily on online and event
products and will seek businesses we believe can be easily integrated and that
may add quality talent to our workforce.
Penton is operating in an environment marked by significant, macro-level
sector change. Our primary customer base, b-to-b marketers, has in recent years
been directing increasing portions of their marketing budgets to electronic
media products. Penton has benefited from this marketing trend, as evidenced
with 17.9% and 23.4% ($2.8 million and $3.0 million) year-on-year increases in
eMedia revenues in 2005 and 2004,
26
respectively. At the same time, however, revenues for our print publishing
business have declined 5.1% and 1.6% ($7.2 million and $2.3 million) in 2005 and
2004, respectively. It is uncertain as to what level of spending in print will
decline or level off in the future.
Management believes that our growth and longer-term viability will be
rooted in our ability to be a fully integrated media company that provides
information and marketing solutions across every media channel. This model
provides the ability to cross-market our related products under strong brand
umbrellas. It also allows us to build larger user audiences and to offer greater
audience reach for our marketing customers. In summary, as an integrated media
company with a full array of high-quality media products, and fully leveraging
cross-product and cross-market synergies, we are at a great advantage in
providing superior service to our markets and capturing significant portions of
marketers' total marketing spend.
Our immediate challenge is to rapidly evolve our portfolio such that we can
capture the market's enthusiasm and demand for innovative eMedia solutions. In
addition, we must continue to expand our events portfolio, as in-person media
are uniquely effective vehicles for connecting buyers and sellers in our
markets, and can produce attractive profit margins for Penton. To meet these
challenges, we are focused on the following strategic priorities:
- Leveraging our content assets and the excellent reputations of our print
media brands to facilitate aggressive development of new eMedia and event
product extensions;
- Replicating successful eMedia and event launch models across multiple
markets we serve to accelerate revenue and profit growth;
- Investing prudently in dedicated eMedia staff, technology infrastructure
and staff training to support increasing eMedia business volumes and
rapidly changing trends and technologies;
- Identifying strategic, bolt-on eMedia acquisitions that represent added
content value, site traffic and marketable space inventory to our Web
site products;
- Continue to invest in leadership talent and research and development to
ensure our ongoing innovation and competitive advantage in an
increasingly competitive market.
RESULTS OF OPERATIONS
REVENUES
We recognize advertising revenues from Penton's trade magazines in the
month the publications are mailed. Amounts received in advance of trade shows
and conferences are deferred and recognized in the month the events are held.
Online media revenues, primarily advertising revenues, are recognized in the
period the obligation is fulfilled or delivered.
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.
27
A summary of our revenues by product for the years ended December 31, 2005,
2004 and 2003 are as follows (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2005 2004 2003
-------- -------- --------
Publishing........................................... $134,254 $141,406 $143,749
Trade Shows & Conferences............................ 40,227 37,845 32,364
Online Media......................................... 18,366 15,582 12,629
-------- -------- --------
$192,847 $194,833 $188,742
======== ======== ========
Key components of our strategic growth plan are to leverage the strong
market positions of our print brands to develop new products, with a focus on
offering our customers a complete array of integrated media -- print, event and
online media -- to meet their information needs and marketing objectives.
Particular focus is on building out our eMedia portfolio in all the markets we
serve and leveraging marketers' increasing investments in eMedia components of
their marketing plans.
We've had success in implementing the strategy, with sustained growth
momentum for eMedia across substantially all our market groups.
Visibility continues to be somewhat limited for b-to-b magazine
advertising, and marketers are continuing to direct greater portions of their
expenditures toward a broader variety of media, particularly online media. As
such, we are planning for modest growth in publishing revenues through the near
term, and expect revenue growth rates for trade shows and conferences and online
media to outpace publishing revenue growth in 2006.
Revenue trends within each segment are further detailed below in the
segment discussion section.
2005 vs. 2004
Total revenues decreased $2.0 million, or 1.0%, from $194.8 million in 2004
to $192.8 million in 2005. The decrease was due to a continued decrease in our
publishing revenues of $7.2 million, or 5.1%, partially offset by an increase in
our trade show and conference revenues of $2.4 million, or 6.3%, and an increase
in our online media revenues of $2.8 million, or 17.9%.
The decrease in our publishing revenues cuts across all of our segments as
customers continue to shift their spending away from publishing and into eMedia
and other marketing vehicles. Revenues from display advertising, subscriptions
and list rentals showed the greatest declines. Included in 2005 publishing
revenues is revenues from our Fluid Power Directory, which is published every
other year. Included in 2004 publishing revenues is $0.8 million related to
properties that have since been shutdown, including the April 2005 shutdown of
our Wireless Systems Design magazine and the May 2005 shutdown of our ePro
magazine.
The increase in our trade show and conference revenues for 2005 compared
with 2004 was due primarily to an increase in attendee registration revenues,
sponsorship revenues and booth rental revenues. Primary drivers of this increase
was Industry and Technology segment roadshows which had revenue increases of
nearly $1.2 million; a year-over-year revenue increase of $0.8 million from our
Natural Products Expo West show; and improved year-over-year revenues from two
of our fall technology conferences -- SQL Server and ASP/VS Connections. These
increases were partially offset by the shutdown of our Natural Products Europe
event, which had revenues of over $0.9 million in 2004, the absence of $0.6
million in revenues from our Wireless Systems Design conference, which was
discontinued after the 2004 event, and the shutdown of our Kids Marketing
Conference, which had revenues of over $0.2 million in 2004.
The increase in our online media revenues reflects a continuing trend of
customers directing higher spending into the eMedia components of their
marketing programs. Our Industry segment generated nearly $2.2 million of this
revenue increase as this segment continues to expand its array of Web-based
products. From a product perspective, Web sites generated an additional $1.9
million in revenues primarily from advertising. Web site redesigns, site
launches and strategic content partnerships have driven higher site traffic
28
and advertiser support. Page views for our sites in 2005 increased 13% to 161.9
million, or 13.5 million average page views per month. Unique visitors in 2005
grew 18% to 43.2 million, or 3.6 million average unique visitors per month. In
addition, webcast sponsorship revenue grew over 18% in 2005 as we produced 316
webcasts in 2005 compared with 225 in 2004. Online revenues in 2005 included
$0.4 million in revenues related to the acquisition of MSD2D, which was
completed in August 2005. These increases were partially offset by the shutdown
of our ePro, Powerdesign and Embedded design sites in 2005, which generated
revenues of nearly $0.4 million in 2004.
2004 vs. 2003
Total revenues increased $6.1 million, or 3.2%, in 2004. The increase was
due primarily to an increase in trade show and conference revenues of $5.5
million, or 16.9%, and an increase in online media revenues of $3.0 million, or
23.4%, partially offset by a decrease in publishing revenues of $2.3 million, or
1.6%.
The decrease in publishing revenues was due primarily to decreases in
advertising page revenues and revenues from subscriptions and list rentals. The
two primary reasons for the decrease in magazine revenues is the
period-on-period decrease in our IT Media publications and the shut-down of our
Internet World magazine in June 2003, which generated revenues of approximately
$1.1 million in 2003.
The increase in trade show and conference revenues for 2004 compared with
2003 was due primarily to an increase in sponsorship and attendee revenues
offset by a decrease in exhibitor revenues from booth rentals. Primary drivers
of this increase were our two fall technology conferences -- SQL Server and
ASP/VS Connections; the year-on-year increases of our highly successful Natural
Products Expo West show held in Anaheim, California; and an increase in our
Windows IT Pro roadshow revenues.
The increase in our online media revenues was due primarily to increases in
sponsorship revenues for electronic newsletters, Web conferences and
sponsorships of content on Web sites and in electronic books. Period-on-period
increases were realized by most of our online media products, with Windows IT
Pro, IndustryWeek and Business Finance electronic media generating the largest
increases.
EDITORIAL, PRODUCTION AND CIRCULATION
2005 2004 CHANGE 2003 CHANGE
----- ----- ------ ----- ------
(IN MILLIONS)
Editorial, production and circulation................. $83.8 $85.8 (2.3)% $85.6 0.2%
Percent of revenues................................... 43.5% 44.0% 45.4%
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 $2.0 million, or 2.3%, decrease in editorial, production and
circulation expenses in 2005 compared with 2004 is due to lower publication
expenses, such as printing, postage, circulation and other production costs, as
a result of lower print pages as well as a shift in the number of pages to
digital distribution. These lower publication costs were offset by increased
salary costs and an increase in the cost of certain paper. Online media costs
also decreased, due primarily to savings of over $0.7 million from the
consolidation of our hosting vendors and a new electronic newsletter
transmission provider. These decreases were offset by higher trade show and
conference costs related to the increased number of registrants and exhibitors.
The $0.2 million, or 0.2%, increase in editorial, production and
circulation expenses in 2004 compared with 2003 primarily reflect higher trade
show and online costs related to the increase in revenues; costs associated with
a full year of Logistics Today, which was launched in September 2003; and costs
associated with an increase in the number of roadshows held during 2004. These
cost increases were partially offset by lower headcount and personnel-related
costs, lower postage costs, and lower paper and printing costs. Expenses in 2003
include some costs attributable to unprofitable properties, which have been
eliminated, particularly Internet World magazine.
29
SELLING, GENERAL AND ADMINISTRATIVE
2005 2004 CHANGE 2003 CHANGE
----- ----- ------ ----- ------
(IN MILLIONS)
Selling, general and administrative................... $68.3 $78.9 (13.4)% $79.9 (1.2)%
Percent of revenues................................... 35.4% 40.5% 42.3%
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 $10.6 million, or 13.4%, decrease in SG&A expenses in 2005 compared
with 2004 reflects lower staff costs of over $7.0 million, lower facility costs
and lower operating unit and corporate overhead costs resulting from past
restructuring efforts, and in particular, executive changes that took place in
2004. In addition, 2004 costs include a signing bonus of $1.7 million for our
Chief Executive Officer ("CEO") and $2.7 million in executive separation costs
relating to the June 30, 2004 departure of our former CEO.
The $0.9 million, or 1.2%, decrease in SG&A expenses in 2004 compared with
2003 was due primarily to lower costs as a result of restructuring efforts
undertaken in 2003 and 2004 which resulted in lower headcount and
personnel-related costs and lower facility costs in 2004. In addition, 2003
expenses are offset by a $2.2 million curtailment gain recognized when the
Company froze its defined benefit pension plan and supplemental executive
retirement plan. Offsetting these reductions are additional costs recognized in
2004 related to a signing bonus of $1.7 million for our CEO and $2.7 million in
executive separation costs relating to the June 30, 2004 departure of our former
CEO.
IMPAIRMENT OF ASSETS
2005 IMPAIRMENTS
As a result of PM Europe being classified as held for sale at March 31,
2005, we 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. We 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. These impairment charges are
included in discontinued operations on the consolidated statements of
operations.
2004 IMPAIRMENTS
In 2004, our annual goodwill impairment review resulted in a non-cash
charge of $37.8 million ($5.2 million of which was reclassified to discontinued
operations), which reduced the carrying value of goodwill for two of our
reporting units in our Technology segment and one reporting unit in our former
International segment. The goodwill impairment charge primarily reflects lower
than expected future cash flows. We utilized a third-party valuation company to
assist management in determining the fair value our reporting units.
In 2004, we also completed an assessment of our other intangible assets in
accordance with SFAS 144, and recorded a non-cash charge of $1.9 million.
Impaired long-lived assets include exhibitor lists and advertising relationships
in our Enterprise Information Technology market due to lower than expected
revenues and lower retention rates.
2003 IMPAIRMENTS
In 2003, we completed our annual goodwill impairment test and recorded a
non-cash charge of $37.6 million ($3.1 million of which was reclassified to
discontinued operations) related to the reduction of the carrying value of
goodwill in three of our reporting units. Two of the reporting units are part of
our
30
Technology segment and one of the reporting units is part of our Retail segment.
We utilized a third-party valuation company to assist management in determining
the fair value our reporting units.
In 2003, we also completed an assessment of our other intangibles in
accordance with SFAS 144 and recorded a non-cash charge of $6.2 million ($0.8
million of which was reclassified to discontinued operations). These charges
primarily relate to the write-off of trade names and advertiser relationships
for properties in our Technology segment.
PROVISION FOR LOAN IMPAIRMENT
During the second quarter of 2003, we determined that it was probable
certain executives would be unable to repay a significant portion of their
outstanding executive loan balances without a significant recovery in the
Company's stock price. Consequently, we recorded a provision for these loans in
the amount of $7.6 million, reflecting the amount by which the carrying value of
each individual's loan exceeded the underlying estimated fair value of the
assets available to repay the loan. In the second quarter of 2004, triggered by
executive management restructurings, we recorded an additional $1.8 million
provision for the remaining unreserved balance for these loans.
RESTRUCTURING CHARGES
2005 2004 2003
---- ---- ----
(IN MILLIONS)
Restructuring and other charges, net........................ $0.9 $6.1 $5.2
Percent of revenues......................................... 0.5% 3.1% 2.8%
Commencing in 2001 as a result of an economic slowdown, we implemented a
number of cost reduction initiatives to more closely align our cost structure
with the current business environment. The cost reduction initiatives included
workforce reductions, the consolidation and closure of over 30 facilities, and
the cancellation of various contracts. The costs associated with restructuring
activities are included in restructuring and other charges in the consolidated
statements of operations.
We are actively attempting to sublease all vacant facilities. For
facilities that we no longer occupy and which have not yet been subleased,
management makes assumptions to estimate sublease income, including the number
of years a property will be subleased, square footage, market trends, property
location and the price per square foot based on discussions with realtors and/or
parties that have shown interest in the space. We record estimated sublease
income as a credit to restructuring and other charges in the consolidated
statements of operations.
Personnel costs include payments for severance, benefits and outplacement
services.
For a more detailed discussion of activity under each restructuring plan,
including adjustments, see Note 14 -- Special Charges, in the notes to
consolidated financial statements included herein.
2005 RESTRUCTURING CHARGES
In the first quarter of 2005, we announced plans to shutdown our 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. All payments related to these employees were made in 2005.
2004 RESTRUCTURING PLAN
In 2004, we recorded restructuring charges of $5.2 million, including $4.7
million related to personnel costs associated with the elimination of 68
positions, including several executive positions; office closure costs of $0.1
million related to the closure of a warehouse in Colorado; and other exit costs
of $0.4 million related to the cancellation of an agreement with a former
employee to provide trade show and conference services to select Penton events.
31
At December 31, 2005, all 2004 restructuring charges have been paid except
for the final rent payment for the warehouse in Colorado, which was paid in
January 2006.
2003 RESTRUCTURING PLAN
In 2003, we recorded restructuring charges of $4.9 million, including $2.7
million related to personnel costs associated with the elimination of 85
positions; office closure costs of $3.8 million (offset by $2.3 million of
estimated sublease income) related to the closure of certain offices; and other
exit costs of $0.7 million related to equipment leases at closed office
facilities, cancellation of certain contracts and broker commissions.
At December 31, 2005, all 2003 restructuring charges have been paid except
for those related to one non-cancelable facility lease which expires in November
2010.
2002 RESTRUCTURING PLAN
In 2002, we recorded restructuring charges of $15.4 million, including
$10.3 million related to personnel costs associated with the elimination of over
316 positions; office closure costs of $5.1 million (offset by $1.7 million of
estimated sublease income) related to the closure of nine offices; and other
exit costs of $1.7 million related to contractual obligations associated with
the cancellation of certain trade show venues, hotel contracts and service
agreements.
At December 31, 2005, all 2002 restructuring charges have been paid except
for a small balance related to one executive, which will be completed in 2007
and those related to three non-cancelable facility leases; two which expire in
late 2009, and one which expires in November 2010. Adjustments to facility
closing costs in 2005, 2004 and 2003 reflect changes in sublease assumptions.
2001 RESTRUCTURING PLAN
In 2001, the Company recorded restructuring charges of $19.8 million,
including $6.8 million related to personnel costs associated with the
elimination of over 400 positions; office closure costs of $8.7 million related
to the closure of more than 20 offices worldwide; and other exit costs of $4.3
million, including the write-off of capitalized software developments costs.
At December 31, 2005, all 2001 restructuring charges have been paid except
for those related to three non-cancelable facility leases; one which expires in
June 2009; one which expires in September 2010; and one which expires in
September 2013. Adjustments to facility closing costs in 2005, 2004 and 2003
reflect changes in sublease assumptions.
32
SUMMARY OF RESTRUCTURING ACTIVITIES
The following table summarizes our restructuring activity for the years
ended December 31, 2005, 2004 and 2003 (in thousands):
EMPLOYEE
SEPARATION FACILITY OTHER
COSTS CLOSING COSTS EXIT COSTS TOTAL
---------- ------------- ---------- --------
Accrual at December 31, 2002............. $ 5,123 $10,786 $1,015 $ 16,924
2003 charges........................... 2,736 1,505 661 4,902
2003 adjustments....................... (18) (17) (10) (45)
2003 cash payments..................... (6,044) (3,273) (965) (10,282)
------- ------- ------ --------
Accrual at December 31, 2003............. 1,797 9,001 701 11,499
2004 charges........................... 4,752 51 364 5,167
2004 adjustments....................... 116 657 255 1,028
2004 cash payments..................... (5,830) (2,217) (903) (8,950)
------- ------- ------ --------
Accrual at December 31, 2004............. 835 7,492 417 8,744
2005 charges........................... 156 -- -- 156
2005 adjustments....................... (46) 812 (115) 651
2005 cash payments..................... (920) (2,306) (302) (3,528)
------- ------- ------ --------
Accrual at December 31, 2005............. $ 25 $ 5,998 $ -- $ 6,023
======= ======= ====== ========
At December 31, 2005, we have an accrued restructuring liability of $6.0
million, net of expected sublease rental receipts (including those for assumed
subleases). We expect to make cash payments in 2006 of approximately $1.2
million, for facility lease obligations. The balance of severance costs will be
paid in 2007 and the balance of facility costs, primarily rent, will be paid
through the end of each respective lease term, some which extend through 2013.
Amounts due within one year of approximately $1.2 million and $2.7 million at
December 31, 2005 and December 31, 2004, respectively, are classified in other
accrued expenses on the consolidated balance sheets. Amounts due after one year
of approximately $4.8 million and $6.0 million at December 31, 2005 and December
31, 2004, respectively, are included in other non-current liabilities on the
consolidated balance sheets.
We realized sufficient savings from our first quarter 2005 restructuring
efforts to recover the employee termination costs in 2005. Savings from facility
lease costs will be realized over the estimated lives of each lease.
As part of our restructuring plan, we attempt to sublease facilities that
we no longer use. From 2006 through 2009, we expect to receive total cash
payments of approximately $4.0 million related to leases that we have sublet and
have under contract.
In addition to the restructuring charges outlined in the table above, other
items were included in restructuring and other charges in 2005, 2004 and 2003.
They include approximately $0.1 million, $0.03 million, and $0.8 million in
2005, 2004 and 2003, respectively, related to legal fees for suits that were
settled, as well as $0.6 million in 2003, related to our 401(k) plan, for
employees who had rescissionary rights. In addition, restructuring charges of
$0.09 million for 2004 and $0.7 million for 2003 were reclassified to
discontinued operations.
DEPRECIATION AND AMORTIZATION
2005 2004 CHANGE 2003 CHANGE
---- ---- ------ ----- ------
(IN MILLIONS)
Depreciation and amortization........................... $6.6 $8.0 (17.5)% $10.5 (23.4)%
Percent of revenues..................................... 3.4% 4.1% 5.5%
33
Depreciation expense has decreased from $7.3 million in 2003 to $5.8
million in 2004 to $4.7 million in 2005. The decrease correlates with the trend
toward lower capital expenditures as fixed assets become fully depreciated.
Amortization expense has decreased from $3.2 million in 2003 to $2.2 million in
2004 to $1.9 million in 2005. The decrease in amortization expense primarily
reflects the write-off of intangible assets in 2004 and 2003, and the affect of
intangibles becoming fully amortized.
OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
2005 2004 CHANGE 2003 CHANGE
------ ------ ------ ------ ------
(IN MILLIONS)
Interest expense................................... $(39.5) $(40.0) (1.2)% $(41.6) (3.8)%
Interest income.................................... $ 0.2 $ 0.2 -- $ 0.4 (52.6)%
Gain on extinguishment of debt..................... $ 2.7 $ -- n/a $ -- n/a
Other, net......................................... $ (0.2) $ -- n/a $ -- n/a
- The decrease in interest expense for 2005 compared with 2004 was due to
the repurchase of $19.7 million face value of our Subordinated Notes
during 2005, partially offset by an increase in interest related costs
from our Loan and Security Agreement revolver.
- Included in interest expense in 2003 is approximately $1.9 million
related to the write-off of unamortized financing fees associated with
our previous senior secured credit facility.
- Included in interest expense in 2005, 2004, and 2003 is amortization
expense related to deferred finance fees of $2.0 million, $2.0 million
and $1.9 million, respectively.
- During 2005, we repurchased $19.7 million face value of our Subordinated
Notes at prevailing market prices and recognized a gain of $2.7 million.
The repurchase will result in additional reductions in our annual
Subordinated Notes interest payments of $2.0 million.
EFFECTIVE TAX RATES
In 2005 and 2003, the Company recorded a provision for income taxes of $1.9
million and $6.9 million, respectively. The Company recorded a benefit for
income taxes of $0.8 million in 2004. The Company recorded valuation allowances
to offset the respective annual income tax benefits from operations as well as
the amount by which deferred tax assets exceeded deferred tax liabilities,
excluding the deferred tax liability related to indefinite life intangibles as
of 2005, 2004, and 2003. The effective tax rates for 2005 and 2004 were a
provision of 53.4% and a benefit of 1.3%, respectively. The change in the
effective tax rate for 2005 is due primarily to the change in the valuation
allowance between years.
The effective tax rates for 2004 and 2003 were a benefit of 1.3% and a
provision of 8.5%, respectively. The change in the effective tax rate for 2004
is due primarily to the change in the valuation allowance between years and the
Company realizing a tax benefit related to the reversal of approximately $2.9
million of contingent liabilities for which the statutes of limitations have
expired.
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
December 31, 2005 and 2004 we had not recognized tax benefits of approximately
$1.4 million and $2.2 million, respectively, relating to various state tax
positions. Should the ultimate outcome be unfavorable, we maybe required to pay
the amount currently accrued.
34
DISCONTINUED OPERATIONS
2005 2004 CHANGE 2003 CHANGE
----- ----- ------ ----- ------
(IN MILLIONS)
Discontinued operations, net of taxes................. $(3.0) $(8.0) (63.2)% $(4.2) 91.4%
Percent of revenues................................... 1.5% 4.1% 2.2%
Discontinued operations for all periods presented include the results of PM
Europe, which was sold in April 2005, PM Germany, which was sold in December
2004, and PTS, which was sold in January 2003. PM Europe and PM Germany
comprised our former International segment and PTS was part of our Industry
segment.
The loss from discontinued operations for 2005, 2004 and 2003 include the
following:
- 2005: results of operations from PM Europe through the date of its sale.
The sale was completed for approximately $4.4 million in cash, with no
gain or loss recognized on disposal. However, the Company did record an
impairment charge of $1.8 million related to the write-down of goodwill
and other long-lived assets during the first quarter of 2005, in
contemplation of the sale.
- 2004: results of operations of PM Germany through the date of its sale,
and the results of PM Europe. Included in the loss is goodwill impairment
charges of $5.2 million and a loss of $1.0 million recognized on the sale
of PM Germany.
- 2003: results of operations of PTS through the date of its sale, and the
results of PM Germany and PM Europe. Included in the loss are impairment
charges of $5.9 million related to goodwill and other intangible assets
offset by a gain of approximately $1.4 million associated with the sale
of PTS.
Discontinued operations include revenues of (i) $0.7 million, $14.6
million, and $14.2 million for 2005 (through the date of sale), 2004 and 2003,
respectively, related to PM Europe; and (ii) $3.2 million and $3.1 million for
2004 (through the date of sale), and 2003, respectively, related to PM Germany.
Income taxes on discontinued operations were not material for 2005, were a
provision of $0.7 million for 2004, and were a benefit of $0.2 million for 2003.
SEGMENTS
Our segments include: Industry, Technology, Lifestyle and Retail. The
results of these segments are regularly reviewed by our 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. All four segments
derive their revenues from publications, trade shows and conferences, and online
media products.
The executive management team evaluates performance of each segment based
on revenues and adjusted segment EBITDA. As such, in the analysis that follows,
we have used adjusted segment EBITDA, which we define as net income (loss)
before interest, taxes, depreciation and amortization, non-cash compensation,
impairment charges, restructuring and other charges, executive separation costs,
provision for executive 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 16 -- Segment Information, in the notes to consolidated financial
statements included herein, for a reconciliation of total adjusted segment
EBITDA to loss from continuing operations before income taxes.
35
Financial information by segment for 2005, 2004 and 2003, adjusted for
discontinued operations, is summarized as follows (in thousands):
ADJUSTED SEGMENT
REVENUES ADJUSTED SEGMENT EBITDA EBITDA MARGIN
------------------------------ --------------------------- ----------------------
2005 2004 2003 2005 2004 2003 2005 2004 2003
-------- -------- -------- ------- ------- ------- ---- -------- ----
Industry............. $ 74,944 $ 75,224 $ 75,307 $22,134 $20,351 $18,929 29.5% 27.1% 25.1%
Technology........... 62,036 62,443 61,743 14,538 12,258 8,876 23.4% 19.6% 14.4%
Lifestyle............ 35,341 36,223 31,756 14,452 14,141 11,571 40.9% 39.0% 36.4%
Retail............... 20,526 20,943 19,936 6,259 5,543 5,432 30.5% 26.5% 27.2%
-------- -------- -------- ------- ------- -------
$192,847 $194,833 $188,742 $57,383 $52,293 $44,808 29.8% 26.8% 23.7%
======== ======== ======== ======= ======= =======
INDUSTRY
Our Industry segment, which represented 38.9%, 38.6%, and 39.9% of our
revenues for 2005, 2004 and 2003, respectively, serves customers in the
manufacturing, design/engineering, mechanical systems/construction, and
government/compliance industries.
The percentages of our Industry segment's revenues by product line are as
follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 88.7% 92.7% 94.8%
Trade shows and conferences................................. 3.8% 2.8% 2.4%
Online media................................................ 7.5% 4.5% 2.8%
Spending on print advertising, which represents a longer-term investment
focused on brand promotion, has experienced declines for the
manufacturing-related businesses in this segment. Many of our manufacturing
customers have favored protecting their earnings improvement in an environment
in which they are cautiously optimistic about sustained economic growth. In
tandem with this trend, our manufacturing products have seen marketing dollars
spread wider, with larger allocations moving toward electronic media brand
extensions of our magazines, which have been successful in generating rapid,
direct sales leads for customers. In 2005, our manufacturing unit focused on
aggressive eMedia product development and sales, closing the year with solid
growth in Web advertising, webcasts and other electronic products.
Customers for our manufacturing and design engineering units also have been
confronting globalization issues as these companies seek to address expansion
opportunities and reduce their labor costs. These conditions also have
contributed to substantial spending increases in our online media, as our brand
groups have innovated to serve the unique, functional business needs of users,
particularly design engineers and manufacturing executives, worldwide. These
units are employing strategies to leverage the reputations of their leading U.S.
media brands to introduce media vehicles in other geographies -- primarily
Asia -- to help customers advance their global business agendas and provide
growth and a broader portfolio footprint for Penton.
Our Industry segment also includes two large new-product tabloid magazines
that serve industrial product/services purchasers and government purchasers.
While these products enjoy leading market positions, their enhancement with
data-driven Web sites and targeted Web conferences is underway to ensure
continued market dominance and longer-range revenue and profit growth.
Electronic media, in fact, is in a relatively nascent stage for several of
the brand groups in this segment. We believe there is very good growth
opportunity for the segment as we roll out new products and replicate eMedia
products that have already experienced success in other markets we serve.
All four business units in the Industry segment conducted in-person media
products in 2005, with a 33.8% growth in this product line.
36
2005 vs. 2004
Revenues for this segment decreased $0.3 million, or 0.4%, from $75.2
million for the year ended December 31, 2004 to $74.9 million for the same
period in 2005. The decrease was due primarily to lower publication revenues of
$3.2 million partially offset by improved online media revenues of $2.2 million
and an increase in trade show and conference revenues of $0.7 million. Lower
publishing revenues were due to lower advertising revenues from our
manufacturing and government/compliance groups, as publishing revenues for our
construction group increased slightly and publishing revenues for our
design/engineering group increased by over $0.6 million. The decrease in our
manufacturing and government/compliance group publishing revenues was a result
of lower year-on-year ad page revenues across a number of our brands as well as
the elimination of several small products in 2004 that produced revenues of
approximately $0.3 million. These decreases were partially offset by revenues
from our Fluid Power Directory, which is produced bi-annually. The increase in
online media revenues was primarily from year-on-year improvements in our
design/engineering and manufacturing Web sites. Revenues in 2005 for our Machine
Design Web site in our design/engineering unit increased by 152.8% compared with
2004. The increase in trade show and conferences revenues was attributed to our
Comfortech HVAC trade show, which showed a 19.6% year-on-year revenue increase
as well as from roadshows produced by our construction and manufacturing groups.
Adjusted segment EBITDA for our Industry portfolio increased $1.8 million,
or 8.8%, from $20.4 million for the year ended December 31, 2004 to $22.1
million for the same period in 2005. This increase is due to our online media
products, which increased by $1.3 million and our trade shows and conferences,
which increased $0.3 million, primarily driven by increased revenues. Our
publishing adjusted EBITDA also increased by $0.2 million, due primarily to cost
cutting and restructuring efforts. Adjusted segment EBITDA margins increased
from 27.1% in 2004 to 29.5% in 2005, due to the factors noted above.
2004 vs. 2003
Revenues for this segment decreased $0.1 million, or 0.1%, from $75.3
million for the year ended December 31, 2003 to $75.2 million for the same
period in 2004. The decrease was due primarily to lower publication revenues of
$1.7 million partially offset by improved online media revenues of $1.3 million
and an increase in trade show and conference revenues of $0.3 million. The
increase in online media revenues was due primarily to year-on-year improvements
in our manufacturing, government/compliance and design/engineering Web sites.
Our IndustryWeek Web site, which is part of our manufacturing group, increased
revenue by 77.1% in 2004 compared with 2003. The increase in trade show and
conferences revenues was attributed to our Comfortech HVAC trade show, which
showed a 25.9% year-on-year revenue increase. Lower publishing revenues were due
primarily to lower ad page revenues from our government/compliance group.
Adjusted segment EBITDA for our Industry portfolio increased $1.4 million,
or 7.5%, from $18.9 million for the year ended December 31, 2003 to $20.4
million for the same period in 2004. This increase is due to our online media
products, which increased by $1.0 million, and our trade shows and conferences,
which increased $0.6 million. These increases were partially offset by a
decrease of $0.2 million in publishing. Adjusted segment EBITDA margins improved
from 25.1% in 2003 to 27.1% in 2004, due primarily to cost reduction efforts.
TECHNOLOGY
Our Technology segment, which represented 32.2%, 32.0%, and 32.7% of our
revenues in 2005, 2004 and 2003, respectively, serves customers in the business
technology, enterprise information technology, electronics, and aviation
markets.
The percentages of our Technology segment's revenues by product line are as
follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 60.0% 64.4% 71.1%
Trade shows and conferences................................. 20.3% 16.6% 12.5%
Online media................................................ 19.7% 19.0% 16.4%
37
Segment results are largely tied to our portfolios in the enterprise IT and
electronics OEM IT markets. Our enterprise IT portfolio, the largest business in
this segment, serves the information needs of IT professionals involved with the
Microsoft Windows platform and IBM's iSeries (AS/400) server platform. Penton's
IT media groups build community among buyers and sellers in their markets
through a fully integrated offering of media products across the print, online
and event spectrum. There are a number of trends that bode well for this Penton
business in the near to medium term. We expect that the adoption of 64-bit
hardware for Windows, the strong demand for more storage and data management
products across all businesses, increasing computer mobility and increasing
demand for remote access to servers will drive IT product sales on both the
consumer and corporate IT side. Marketing spending in targeted products such as
Penton's will be necessary to support the sales process. In addition, we believe
that Microsoft product launches in 2006 and 2007 as well as IBM's strong play in
server consolidation and open systems, along with investments in more effective
marketing of the iSeries platform should generate good spending volume with our
products, across all media platforms.
Our IT Groups have successfully capitalized on the technical expertise of
their content teams and the depth and loyalty of our Windows and iSeries
communities to build a substantial custom media business. In particular, custom
roadshow conferences that focus on technical information on particular products
have drawn strong attendance in the U.S., and in 2005 were successfully
introduced in Europe and the Middle East. Microsoft has been a key sponsor of
these events. Should Microsoft make a significant adjustment in their
communications strategies, specifically, to a more inwardly-focused strategy,
our roadshow business, as well as our other major IT media products, could be
significantly impacted. Given the high quality of our products and the success
they have driven for Microsoft and their channel partners, we do not necessarily
expect this change to occur.
Penton's electronics portfolio is primarily a print media business with a
fast-growing eMedia offering. Our print business has experienced pressure as our
advertisers, manufacturers of electronic components, have endeavored to protect
their profit margins by reducing marketing spending and seeking lower labor
costs by moving production to China and others parts of Asia.
We are leveraging the strong reputations of our electronics media brands to
respond to the increasing globalization of our customers. For example, we have
entered a partnership to publish our highly respected magazine Electronic Design
in China and we produce a Chinese edition of Electronic Design's Web site. We
are also aggressively developing more content for Web-only products as a way of
reaching out to a broader global audience, including digital magazines serving
the European market, the military electronics market, and a digital new-products
publication that expediently delivers new product information and specification
data to electronics designers across a full spectrum of OEM markets.
We expect that spending on consumer electronics such as cellular phones,
iPods, and DVD players and the trend toward greater computing mobility and
communications will drive the electronics industry forward, and we are confident
that our entrenched, globally recognized brands will continue to deliver high
quality products and services.
2005 vs. 2004
Revenues for this segment decreased $0.4 million, or 0.7%, from $62.5
million for the year ended December 31, 2004 to $62.1 million for the same
period in 2005. The decrease was due to a decrease in publishing revenues of
$2.9 million, offset by higher trade show and conference revenues of $2.2
million and higher online media revenues of $0.4 million. The decrease in the
segment's publishing revenues was due partially to a year-over-year decline in
revenues from our electronics group of $2.4 million and to a decline in our
enterprise information technology group of $1.0 million, offset by an increase
of $0.5 million in our Business Technology group. The segment's 2005 results
were impacted by the April 2005 shutdown of our Wireless Systems Design magazine
and the May 2005 shutdown of our ePro magazine. The increase in trade show and
conference revenues was due primarily to our fall ASP/VS Connections and SQL
server conferences, which contributed $1.3 million in additional revenues in
2005. In addition, our enterprise
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information technology group roadshows increased revenues by $0.7 million in
2005 compared with 2004. The increase in online media revenues was due primarily
to the acquisition of MSD2D in August 2005.
Adjusted segment EBITDA for our Technology portfolio increased $2.3
million, or 18.6%, from $12.3 million for the year ended December 31, 2004 to
$14.6 million for the same period in 2005. Of the increase, $1.1 million was
attributable to the segment's publications, $0.9 million was trade shows and
conferences, and $0.5 million was online media. These improvements were
partially offset by an increase of overhead costs of $0.2 million. The increase
in adjusted segment EBITDA margins improved from 19.6% in 2004 to 23.4% in 2005,
due to cost reduction efforts.
2004 vs. 2003
Revenues for this segment increased $0.7 million, or 1.1%, from $61.7
million for the year ended December 31, 2003 to $62.4 million for the same
period in 2004. The increase was due primarily to higher trade show and
conference revenues of $2.7 million and higher online media revenues of $1.7
million, offset by a decrease in publishing revenues of $3.7 million. The
increase in trade show and conference revenues was due primarily to an increase
of $1.4 million or 66.5% from our Windows IT Pro roadshow revenues in 2004
compared with 2003. The fall ASP/VS Connections and SQL server conferences, also
contributed an additional $1.5 million in revenues. The increase in online media
revenues was due to year-over-year improvements in Windows online custom media,
the Windows Web sites, Business Finance webcasts and eMedia in our electronics
group. The decrease in the segment's publishing revenues was due partially to a
decline in our Windows IT Pro and ePro magazines of $3.2 million, and the
elimination of over $1.1 million in revenues related to our Internet World
magazine. Internet World was discontinued in June 2003 and ePro magazine was
discontinued in May 2004.
Adjusted segment EBITDA for our Technology portfolio increased $3.4
million, or 38.1%, from $8.9 million for the year ended December 31, 2003 to
$12.3 million for the same period in 2004. The increase was attributable to
online media of $2.0 million and trade shows and conferences of $2.1 million.
Overhead costs for the segment also improved by $0.5 million. These improvements
were partially offset by a decline of $1.2 million in the segment's
publications. Adjusted segment EBITDA margins improved from 14.4% in 2003 to
19.6% in 2004, due to the factors noted.
LIFESTYLE
Our Lifestyle segment, which represented 18.3%, 18.6%, and 16.8% of our
revenues in 2005, 2004 and 2003, respectively, serves customers in our natural
products industry sector. Products in this sector serve the natural and organic
products and nutraceuticals markets, including producers of raw materials,
manufacturers, distributors and retailers.
The percentages of our Lifestyle segment's revenues by product line are as
follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 31.4% 33.3% 34.8%
Trade shows and conferences................................. 68.0% 66.6% 65.2%
Online media................................................ 0.6% 0.1% 0.0%
Penton owns leading trade show and publication brands serving the natural
products/organics markets. We believe our New Hope Natural Media business, which
operates the brands, is regarded internationally as a leading information
service provider to this market and as being an innovator in terms of
introducing opportunities for all components of this market's supply
chain -- from raw materials providers to manufacturers to distributors to retail
buyers.
The success of this business has been driven by consumers increasing desire
to embrace healthy lifestyles. The natural/organics market has for over two
decades been a niche market, but the healthy-minded consumer has forced the
market to become more mainstream, and our ongoing success will be largely driven
by our
39
ability to connect the many suppliers with the retail marketplace, all of whom
are evolving their businesses to capture more of the "healthy" market.
Legislative pressure on the supplement side of this business has impacted
this business, primarily print advertising. However, New Hope has leveraged its
strong market positions to capture the momentum of the mainstream healthy foods
trend. Its events business, for example, is attracting an increasing number of
mass food companies as well as mass buyers while still serving the traditional
natural foods industry. 2006 will introduce a launch, World Ethnic Market (WEM),
co-located with Expo West. The healthy foods trend is merging with the
phenomenon of cultural and ethnic foods and WEM will focus on capturing this
trend, with special emphasis on kosher and halal foods.
In addition, New Hope's custom publishing business is expected to benefit
in the near term from sales of custom in-store merchandising publications for
mainstream grocers who are seeing negative to flat growth in most food
categories and are aggressively participating in the growth categories New
Hope's products cover, including organics, natural products, kosher, and halal.
As this market is becoming more mainstream, it also is becoming somewhat
saturated, and our customers are therefore seeking international growth
opportunities. This has likewise opened portfolio expansion opportunity for our
New Hope business. We have had some success producing events targeting the
nutraceuticals segment of the market in China and Europe and we launched a
Natural Products Expo event in Japan in 2005.
We also have gained momentum with eMedia products in addressing growth
opportunities both in the domestic U.S. and abroad. While eMedia is a very small
piece of this segment's overall business, we are developing a number of new
products online that we expect to generate increased traffic/use and sponsor
support over the near term, including a significant directory product called the
New Product Launch Pad ("NPLP"). NPLP is an on online application/Web portal
that enables manufacturers and suppliers of natural and specialty products to
introduce and promote their new products to the natural products industry. NPLP
expands upon New Hope's in-person and in-print product introduction solutions
and works to eliminate communication disconnects between retailers, buyers,
brokers, distributors, manufacturers, marketers and suppliers when introducing
new products.
2005 vs. 2004
Revenues for this segment decreased $0.9 million, or 2.4%, from $36.2
million for the year ended December 31, 2004 to $35.3 million for the same
period in 2005. Publishing revenues accounted for $1.0 million of the decrease,
as the low-carb advertising category experienced a significant slowdown in 2005.
This decrease was partially offset by an increase of $0.1 million in online
media revenues through the addition of new Web sites, as management attempts to
drive revenue and profits by accelerating eMedia product development in this
segment. Trade show and conference revenues remained flat primarily as a result
of the discontinuation of our Natural Products Expo Europe event, which was held
in the second quarter of 2004 but not held in 2005.
Adjusted segment EBITDA for the Lifestyle segment increased $0.3 million,
or 2.2%, from $14.1 million for the year ended December 31, 2004 to $14.5
million for the same period in 2005. Trade shows and conferences accounted for
$0.7 million of the improvement, offset by $0.4 million in publications. Online
media remained flat in 2005 compared to 2004. Adjusted segment EBITDA margins
improved to 40.9% in 2005 from 39.0% in 2004.
2004 vs. 2003
Revenues for this segment increased $4.5 million, or 14.1%, from $31.8
million for the year ended December 31, 2003 to $36.2 million for the same
period in 2004. Trade shows and conferences accounted for $3.4 million of the
increase and publishing revenues accounted for an additional $1.0 million. The
increase in trade show and conference revenues was due primarily to the success
of the Natural Products Expo West and East events, which were held in the first
and fourth quarter of 2004, respectively. Natural Products Expo West
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experienced a 20.2% year-over-year increase in revenues and the East event had a
15.0% year-over-year improvement in revenues. Publishing revenues in the segment
also grew, with improvements experienced by Delicious Living and The Natural
Foods Merchandiser magazines, both of which took advantage of an increase in
low-carb advertising.
Adjusted segment EBITDA for the Lifestyle segment increased $2.6 million,
or 22.2%, from $11.6 million for the year ended December 31, 2003 to $14.1
million for the same period in 2004. Trade shows and conferences accounted for
$1.7 million and publications accounted for $0.4 million of the increase and
$0.5 million of the increase from lower overhead costs. Adjusted segment EBITDA
margins improved from 36.4% in 2003 to 39.0% in 2004.
RETAIL
Our Retail segment, which represented 10.6%, 10.8%, and 10.6% of our
revenues for 2005, 2004 and 2003, respectively, serves customers in the
food/retail sectors.
The percentages of our Retail segment's revenues by product line are as
follows:
2005 2004 2003
---- ---- ----
Publishing.................................................. 93.2% 92.4% 90.0%
Trade shows and conferences................................. 4.7% 6.0% 8.0%
Online media................................................ 2.1% 1.6% 2.0%
Results from our foodservice portfolio largely drive results for this
segment.
In both the commercial and noncommercial foodservice markets, it is
possible there will be some erosion in food manufacturers' marketing spending as
distributors push their rising transportation/shipping price increases onto
manufacturers. At the same time, we expect that greater applications of
technology in foodservice and trends toward healthier eating habits are
presenting growth opportunities for both our commercial and noncommercial media
products.
For example, we believe a new technology advertising category is arising
from two major trends: educational facilities using Web sites to post menus and
track student eating habits for parents' review; and schools and other
noncommercial facilities deploying a range of cashless pay technology systems
for students' purchasing convenience.
As people move toward more healthful eating habits, our foodservice teams
are producing in-person events where operators can learn about profitably
shifting to healthy menu offerings, with sponsorship support of a growing number
of manufacturers introducing more healthful products. We expect this trend will
drive additional print advertising and online marketing business for this group,
as well, as our teams add targeted content offerings focused on "healthy." In
fact, the eMedia business for this segment overall is in a relatively nascent
stage. We believe it has good growth potential as we continue to introduce new
products and replicate eMedia products that have already experienced success in
other markets we serve.
2005 vs. 2004
Revenues for this segment decreased $0.4 million, or 2.0%, from $20.9
million for the year ended December 31, 2004 to $20.5 million for the same
period in 2005. The decrease was due primarily to lower publishing revenues of
$0.2 million and lower tradeshow and conferences revenue of $0.3 million,
partially offset by a modest increase in online media revenues of $0.1 million.
The lower publishing revenues were due primarily to slightly lower revenues for
several of our magazines. Lower trade show and conference revenues were due to
the discontinuation of our Kids Marketing conference, which was held in 2004 but
not in 2005, along with lower year-over-year revenues from our National
Convenience Store conference.
Adjusted segment EBITDA for the Retail segment increased $0.7 million for
the year ended December 31, 2005 compared with the same period in 2004. EBITDA
for publications increased by $0.8 million and
41
online media increased by $0.1 million, partially offset by a $0.2 million
decrease from trade shows and conferences. Adjusted segment EBITDA margins
improved from 26.5% in 2004 to 30.5% in 2005.
2004 vs. 2003
Revenues for this segment increased $1.0 million, or 5.1%, from $19.9
million for the year ended December 31, 2003 to $20.9 million for the same
period in 2004. The increase was due primarily to year-over-year revenue
improvements in our Restaurant Hospitality and Lodging Hospitality magazines
offset by lower year-on-year revenues from our Convenience Store Decisions
magazine, slightly lower trade show and conference revenues, and a modest
decline in online media revenues.
Adjusted segment EBITDA for the Retail segment increased $0.1 million for
the year ended December 31, 2003 compared with the same period in 2004. Although
EBITDA for publications increased by $0.7 million due to revenue increases noted
above, these improvements were offset by a decrease from trade shows and
conferences and higher overhead costs. Adjusted segment EBITDA margins decreased
from 27.2% in 2003 to 26.5% in 2004.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
At December 31, 2005, our principal sources of liquidity are our existing
cash reserves of $0.6 million and available borrowing capacity under our Loan
and Security Agreement revolver of $27.0 million.
In the fourth quarter of 2005, we repurchased $14.2 million par value of
our 10 3/8% senior subordinated notes for $12.8 million, using cash on hand from
operations and funds from our Loan and Security Agreement. These notes were
purchased in the open market and were trading at 90% of their par value at the
time of purchase. The purchase resulted in a gain of approximately $1.1 million
in the quarter. This buyback in the fourth quarter was in addition to the
repurchase of $5.5 million of Subordinated Notes in February 2005, in which we
used approximately $3.8 million in cash and recognized a gain of $1.6 million.
Our cash requirements for the next 12 months are primarily to fund:
- operations;
- repayment of the outstanding balance on our Loan and Security Agreement
revolver;
- debt service costs, which are expected to be approximately $36.1 million
in 2006;
- capital expenditures of approximately $1.3 million;
- payments related to our business restructuring initiatives of
approximately $1.2 million primarily related to lease obligations; and
- contributions totaling $1.6 million to our employees' Retirement and
Savings Plan accounts.
We have no principal repayment requirements until maturity of our Secured
Notes in October 2007. In addition, we have no maintenance covenants on our
existing bond debt.
We anticipate undertaking refinancing activities in 2006 or early 2007 in
order to address the maturing of our Secured Notes in October 2007 as well as
the expiration of our Loan and Security Agreement in August 2007. After October
1, 2006, we are permitted to redeem the Secured Notes, in whole or in part, at a
redemption price of 100.0% of the principal amount. Currently we must pay a
premium to redeem the Secured Notes. Failure to obtain new financing could have
a material adverse effect on our liquidity.
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 for the next twelve months. 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 viable. Our
ability to
42
meet cash operating requirements depends upon our future performance, which is
subject to general economic conditions and to financial, competitive, business,
and other factors. Our ability to return to sustained profitability at
acceptable levels will depend on a number of risk factors, many of which are
largely beyond our control. Some of the risk factors that have had and/or may
have a negative impact on our business and financial results are discussed in
"Item 1A. Risk Factors" of this document. If we are unable to meet our debt
obligations or fund our other liquidity needs, particularly if our revenues
deteriorate, we may be required to raise additional capital through 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.
Our 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 any borrowings outstanding under the agreement, including the
following:
(i) the obligation of the lender to provide any advances under the
loan agreement is subject to no material adverse change events;
(ii) reserves may be established against the borrowing base for sums
that we are required to pay, such as taxes and assessments and other types
of required payments, and have failed to pay;
(iii) in the event of a default under the loan agreement, the lender
has the right to direct all cash that is deposited in the Company's
lockboxes to the lender to pay down outstanding borrowings;
(iv) the loan agreement establishes cross-defaults to our other
indebtedness (such as the Secured Notes and Subordinated Notes) such that a
default under the loan agreement could cause a default under the notes
agreements and vice versa; however, default triggering thresholds are
different in the Loan and Security Agreement and the indentures;
(v) if we are in default of any material agreement to which the lender
is a party and the counter-party to that agreement has the right to
terminate such agreement as a result of the default, this constitutes an
event of default under the loan agreement.
Under the loan agreement, the lenders reserve the right to deem the notes
in default, and in those limited circumstances, could accelerate payment of the
outstanding loan balances should we undergo a material adverse event. Even
though the criteria defining a material adverse event are subjective, we do not
believe that the exercise of the lenders' right is probable nor do we foresee
any material adverse events in 2006. In addition, we believe that our 11 7/8%
senior secured and 10 3/8% senior subordinated note agreements are long-term in
nature. Accordingly, we continue to classify our notes as long term. At December
31, 2005, we are in compliance with all of the above provisions.
Analysis of Cash Flows
Our cash and cash equivalents at December 31, 2005, was $0.6 million
compared with $7.7 million at December 31, 2004 and $29.6 million at December
31, 2003. Cash used for operating activities was $1.6 million for the year ended
December 31, 2005, compared with $20.5 million for the year ended December 31,
2004. Cash of $27.7 million was provided from operations for the year ended
December 31, 2003.
- 2005 operating cash flows reflected a net loss of $8.4 million and a net
decrease in working capital items of $4.9 million, partially offset by
non-cash charges (primarily depreciation and amortization, amortization
of deferred financing fees, deferred income tax and impairment of asset
charges) of approximately $11.8 million.
43
- 2004 operating cash flows reflected a net loss of $67.2 million and a net
decrease in working capital items of $14.4 million, partially offset by
non-cash charges (primarily impairment of asset charges, depreciation and
amortization) of approximately $61.1 million.
- 2003 operating cash flows reflected a net loss of $93.1 million, offset
by a net increase in working capital items of $43.3 million (due
primarily to a tax refund of $52.7 million) and non-cash charges
(primarily impairment of asset charges, depreciation and amortization,
provision for loan impairment and deferred income tax) of approximately
$77.5 million.
The improvement in cash from operating activities in 2005 compared to 2004
was due primarily to the combination of the following factors; (i) a decrease in
accounts receivable, due primarily to the sale of our PM Europe operations as
well as the timing of billings and collections; (ii) a decrease in accounts
payable, due primarily to the sale of our PM Europe operations as well as the
timing of payments; (iii) a decrease in other accrued expenses, primarily due to
the payment of our restructuring liability; and, (iv) a decrease in unearned
income, primarily due to the sale of our PM Europe operations and the timing of
collections.
The decrease in cash from operating activities in 2004 compared to 2003 was
due primarily to the tax refund of $52.7 million received in January 2003 and
the absence of this benefit in 2004. Excluding this refund from 2003 operating
activities, the cash used from operations in 2004 actually improved by nearly
$4.6 million. Also contributing to the decrease in cash from operating
activities in 2004 compared to 2003 was the increase in accounts receivable, the
increase in accounts payable and accrued expenses, offset by an increase in
prepayments, deposits and other, all due to timing of when trade shows are held
and when deposits are due and collected.
Investing activities provided $1.0 million of cash in 2005 primarily from
net proceeds of $4.1 million from the sale of PM Europe in April 2005, offset by
capital expenditures of $1.0 million and the acquisition of Kosher World
Conference & Expo in June 2005 for $0.4 million and MSD2D of $1.4 million in
August 2005. Investing activities used $1.6 million of cash in 2004. The use of
$2.3 million for capital expenditures was partially offset by cash proceeds of
$0.8 million from the sale of 70% of our interest in PM Germany. Capital
expenditures in 2004 were primarily for computer hardware and software.
Investing activities provided $2.2 million of cash in 2003 due primarily to
proceeds from the sale of PTS in January 2003 of $3.2 million and decrease of a
note receivable of $1.6 million. These proceeds were partially offset by capital
expenditures of $3.3 million. Capital expenditures in 2003 were primarily for
desktop computers and management information systems.
Financing activities used $6.5 million of cash in 2005 due primarily to the
repurchase of $19.7 million face value of our Subordinated Notes for $16.5
million in cash offset by net proceeds from our Loan and Security Agreement
revolver of $10.2 million. Financing activities provided $0.2 million of cash in
2004 primarily as a result of an increase in cash overdrafts. Financing
activities used $7.2 million of cash for 2003 primarily for the repayment of
$4.5 million of our senior secured credit facility, the payment of financing
fees of approximately $2.0 million and the payoff of a note payable of $0.4
million. These uses were partially offset by proceeds of approximately $0.3
million from the partial repayment of an officer's loan.
DEBT SERVICE
At December 31, 2005, we had total indebtedness of $323.0 million. Our
principal obligations are described below.
Subordinated Notes:
In June 2001, we issued $185.0 million of 10 3/8% Subordinated Notes due
June 2011. Interest on the notes is payable semiannually, on June 15 and
December 15. The Subordinated Notes are fully and unconditionally, jointly and
severally guaranteed, on a senior subordinated basis, by the assets of 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 at a premium which ranges from
105.188% at June 15, 2006 to 100.000% at June 15, 2009. We are permitted to
repurchase the Subordinated Notes using up to $25.0 million in cash. During 2005
and 2002,
44
we purchased $19.7 million and $10.0 million, respectively, principal amount of
our Subordinated Notes at prevailing market prices using cash of $24.9 million.
At December 31, 2005, $155.3 million of Subordinated Notes remain outstanding.
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 our unsecured senior subordinated
obligations, subordinated in right of payment to all existing and future senior
indebtedness, including any outstanding balance under our Loan and Security
Agreement and the Secured Notes discussed below.
The Subordinated Notes are jointly and severally irrevocably and
unconditionally guaranteed on a senior subordinated basis by each of our present
and future domestic subsidiaries. The indenture governing the Subordinated Notes
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
agreement or if we have exceeded our limitation of additional indebtedness, as
specified in the indenture.
Secured Notes:
In March 2002, we issued $157.5 million of 11 7/8% Secured Notes due in
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 105.9375%
and 100.0000% of the principal amount, respectively, 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 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 agreement or if we have
exceeded our limitation of additional indebtedness, as specified in such
agreement.
45
Loan and Security Agreement:
In August 2003, we entered into a four-year revolving Loan and Security
Agreement. Pursuant to the terms of the Loan and Security Agreement, we can
borrow up to the lesser of (i) $40.0 million; (ii) 2.0x our last twelve months
adjusted EBITDA; (iii) 40% of our last six months of revenues; or (iv) 25% of
our enterprise value, as determined annually by a third party. The revolving
Loan and Security Agreement bears interest at Prime plus 3.0%, or at the
Company's option, LIBOR plus 5.0% subject to a LIBOR minimum of 1.5%. At
December 31, 2005, the rate was 10.25%. We must comply with a quarterly
financial covenant limiting the ratio of maximum bank debt to the last twelve
months adjusted EBITDA to 2.0x. The Loan and Security Agreement permits us 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. Pursuant to the terms of the Loan and Security Agreement we
have three stand-by letters of credit totaling $1.1 million required by certain
of our facility leases. The amounts of the letters of credit reduce the
availability under the Loan and Security Agreement. As of December 31, 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 December 31, 2005, $37.2 million was available under
the Loan and Security Agreement, of which $10.2 million was outstanding.
Consolidated Adjusted EBITDA
Pursuant to the terms of the Loan and Security Agreement, we can borrow up
to the lesser of (i) $40.0 million; (ii) 2.0x our last 12 months Consolidated
Adjusted EBITDA; (iii) 40% of our last six months of revenues; or (iv) 25% of
our enterprise value, as determined annually by a third party. In addition,
under our Loan and Security Agreement, we are not permitted to allow the ratio
of outstanding indebtedness to our last 12 months Consolidated Adjusted EBITDA
to exceed 2.0 to 1.00.
46
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
EBITDA and Consolidated adjusted EBITDA to net loss. Other companies may
calculate similarly titled measures differently than we do.
YEARS ENDED DECEMBER 31,
-----------------------------
2005 2004 2003
------- -------- --------
(IN THOUSANDS)
Net loss.................................................... $(8,422) $(67,191) $(93,131)
Interest expense............................................ 39,537 40,005 41,581
Interest income............................................. (241) (207) (437)
Provision (benefit) for income taxes........................ 1,901 (792) 6,947
Depreciation and amortization............................... 6,611 8,009 10,457
------- -------- --------
EBITDA...................................................... 39,386 (20,176) (34,583)
Loan and Security Agreement Adjustments:
Restructuring and other charges............................. 906 6,079 5,205
Provision for loan impairment............................... -- 1,717 7,600
Impairment of assets (including goodwill)................... -- 34,466 39,913
Executive separation costs.................................. 154 2,728 --
Non-cash compensation....................................... 21 733 1,372
Discontinued operations, net of taxes....................... 2,959 8,035 4,199
Gain on extinguishment of debt.............................. (2,732) -- --
Other, net.................................................. 175 (40) 929
------- -------- --------
Consolidated Adjusted EBITDA................................ $40,869 $ 33,542 $ 24,635
======= ======== ========
Credit Ratings:
Our credit ratings as of the date of this report are as follows:
S&P MOODY'S
---- -------
$155.3 million 10 3/8% Senior Subordinated Notes............ CCC- CCC+
$157.5 million 11 7/8% Senior Secured Notes................. CCC+ Ca
Corporate Rating............................................ B3 Caa3
On October 13, 2005, Standard & Poor's Rating Service raised its ratings on
Penton to those noted above. 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.
47
On September 13, 2004, we 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 stock was exchanged on a share-for-share basis with our Series B
Convertible Preferred Stock, $0.01 par value (the "Series B Preferred"). The
Certificate of Designations for the Series C Preferred stock is identical to the
Series B Preferred stock 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
- 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 December 31, 2005, the amount due to the Series C Preferred
stockholders, including principal and accrued dividends, was $74.8 million. The
convertible preferred stock currently accrues dividends at the maximum rate of
10% per annum. If the Company had been sold on December 31, 2005, the preferred
stockholders, including the Series M stockholders, would have been entitled to
receive $166.7 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 change
significantly in the future under certain circumstances. Common stockholders are
urged to read the terms of the preferred stock in their entirety. See Note
11 -- Mandatorily Redeemable Convertible Preferred Stock, in the notes to
consolidated financial statements included herein.
SERIES M PREFERRED STOCK
In September 2004, we filed a Certificate of Designations for a new series
of preferred stock, $0.01 par value (the "Series M Preferred") with the
Secretary of State for the State of Delaware. The Board of Directors of the
Company created the Series M Preferred stock for issuance to certain officers
and other key employees of the Company as a long-term incentive plan for
management by giving them an equity stake in the performance of the Company. The
Series M Preferred stock is limited to 150,000 shares of which 69,000 shares
have been issued as of December 31, 2005.
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
stock and second a percentage of what the holders of the Company's common stock
would receive upon such liquidation, dissolution, winding-up or change of
control.
48
CONTRACTUAL OBLIGATIONS
The following are summaries of our contractual obligations and other
commercial commitments as of December 31, 2005 (in thousands):
ANNUAL PAYMENTS DUE
------------------------------------------------------------
AFTER
2006 2007 2008 2009 2009 TOTAL
------- -------- ------- ------- -------- --------
10 3/8% Senior Subordinated
Notes(1)............................ $ -- $ -- $ -- $ -- $155,300 $155,300
11 7/8% Senior Secured Notes(1)....... -- 157,500 -- -- -- 157,500
Loan and Security Agreement........... 10,200 -- -- -- -- 10,200
Interest on indebtedness(1)........... 34,816 34,816 16,112 16,112 24,168 126,024
Capital lease obligations............. 26 26 26 4 -- 82
Operating leases obligations(2)....... 5,628 5,270 5,096 4,924 4,528 25,446
Printing contract obligation(3)....... 6,000 6,000 6,000 6,000 12,000 36,000
Communications service agreement(4)... -- 672 672 672 -- 2,016
Expected pension contributions(5)..... -- 668 429 -- -- 1,097
Other long-term obligations reflected
in the balance sheet(6)............. 13 13 -- -- -- 26
------- -------- ------- ------- -------- --------
Total................................. $56,683 $204,965 $28,335 $27,712 $195,996 $513,691
======= ======== ======= ======= ======== ========
---------------
(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.
(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, we 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) We have a service agreement with Sprint through March 2009. The agreement,
which was amended in 2005, provides for annual minimum usage levels by
Penton of approximately $0.7 million each year.
(5) We do not expect to be required to make any contributions to our defined
benefit plan in 2006. Although subject to change, the amounts set forth in
the table represent our estimated minimum funding requirements under current
ERISA law. We are not able to reasonably estimate our future required
contributions beyond 2008 with any certainty due to uncertainties regarding
significant assumptions involved in estimating future required contributions
to our defined benefit pension plans, including: (i) interest rate levels,
(ii) the amount and timing of asset returns, (iii) what, if any, changes may
occur in pending pension funding legislation, and (iv) how contributions in
excess of the minimum requirements could impact the amounts and timing of
future contributions.
Subject to the outcome of pending legislation, our pension obligation is
expected to peak in 2007. However, we may be subject to significantly higher
pension funding obligations in 2008 and beyond.
(6) Other long-term deferred tax liabilities of $22.7 million have been excluded
from the above table due to the uncertainty of the timing of payments,
combined with the absence of historical trending to be used as a predictor
for such payments.
In 2005, we made contributions totaling $1.4 million to our employees'
Retirement Savings Plan (a 401k contribution plan). We expect to make
contributions totaling $1.6 million in 2006. Contributions are made at the
discretion of our Board of Directors.
We are self-insured for health and workers' compensation benefits up to
certain stop-loss limits. In 2005, we paid approximately $3.4 million in health
and workers' compensation claims. We expect 2006 payments to range between $3.0
million and $3.5 million.
49
In June 2005, we acquired the assets of Kosher World for nearly $0.4
million in cash plus contingent payments of up to $0.7 million based on the
achievement of specified revenue targets for the 2006 event. Based on December
31, 2005 projections, we are not expecting to make any contractual payments.
OFF-BALANCE SHEET ARRANGEMENTS
We have no special purpose entities or off-balance sheet debt, other than
operating leases in the ordinary course of business, which are fully disclosed
in Note 10 -- Commitments and Contingencies of the notes to the consolidated
financial statements appearing elsewhere herein.
We have stand-by letters of credit of $1.1 million required by three of our
facility leases. At December 31, 2005, no amounts were drawn under the stand-by
letters of credit. These letters of credit reduce our availability under our
Loan and Security Agreement. Letters of credit are purchased guarantees that
ensure our performance or payment to third parties in accordance with specified
terms and conditions.
Under certain agreements, indemnification provisions may require us to make
payments to third parties. In connection with certain facility leases, we may be
required to indemnify our lessors for certain claims. Also, we may be required
to indemnify our directors, officers, employees and agents to the maximum extent
permitted under the laws of the State of Delaware. The duration of these
indemnity provisions under the terms of each agreement varies. The majority of
indemnities do not provide for any limitation of the maximum potential future
payments we could be obligated to make.
In 2005, we did not make any payments under any of these indemnification
provisions or guarantees, and we have not recorded any liability for these
indemnities in the accompanying consolidated balance sheets.
If the Company had been sold on December 31, 2005, the outstanding loan and
security balance of $10.2 million would be required to be paid, the bondholders
would have been entitled to receive $315.9 million and the preferred
stockholders, including the Series M stockholders, would have been entitled to
receive $166.7 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 stockholders would receive. The
amount the preferred stockholders would be entitled to receive could change
significantly in the future under certain circumstances. Common stockholders are
urged to read the terms of the preferred stock in their entirety. See Note
11 -- Mandatorily Redeemable Convertible Preferred Stock, in the notes to
consolidated financial statements included herein.
RELATED PARTY TRANSACTIONS
See Note 15 -- Related Parties, in the notes to consolidated financial
statements included herein for a complete description of all related party
transactions.
FOREIGN CURRENCY
The functional currency of our foreign operations is their local currency.
Accordingly, assets and liabilities of foreign operations are translated to U.S.
dollars at the rates of exchange on the balance sheet date; income and expense
are translated at the average rates of exchange prevailing during the year.
There were no significant foreign currency transaction gains or losses for the
periods presented.
SEASONALITY
We may experience seasonal fluctuations as trade shows and conferences held
in one quarter in the current year may be held in a different quarter in future
years.
50
INFLATION
The impact of inflation on our results of operations has not been
significant in recent years.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 -- Description of Business and Significant Accounting Policies,
in the notes to consolidated financial statements included herein.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to bad debts, intangible assets, income taxes, restructuring, pension
benefits, contingencies and litigation. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. We have discussed the application of these critical
accounting estimates with the Audit Committee of our Board of Directors.
REVENUE RECOGNITION
Advertising revenues from Penton's trade magazines are recognized in the
month the publications are mailed. Subscription revenues are recognized over the
subscription period, typically one year. Amounts received in advance of trade
shows and conferences are deferred and recognized in the month the events are
held. Online media revenues primarily include advertising revenues such as
banner advertising, sponsorships, e-newsletters, e-books and Web seminars.
Revenue is recognized in the period the obligation is fulfilled or delivered.
When a sale involves multiple deliverables where the deliverables are
governed by more than one authoritative standard, we evaluate all deliverables
to determine whether they represent separate units of accounting based on the
following criteria:
- whether the delivered item has value to the customer on a stand-alone
basis;
- whether there is objective and reliable evidence of the fair value of the
undelivered item(s); and
- if the contract includes a general right of return relative to the
delivered item, delivery or performance of the undelivered item(s) is
considered probable and is substantially in our control.
Our determination of whether deliverables within a multiple element
arrangement can be treated separately for revenue recognition purposes involves
significant estimates and judgment, such as whether fair value can be
established on undelivered obligations and/or whether delivered elements have
standalone value to the customer.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE
In order to record our accounts receivable at their net realizable value,
we must assess their collectibility. A considerable amount of judgment is
required in order to make this assessment, including an analysis of historical
bad debts, a review of the aging of our receivables and the current
creditworthiness of our customers. Generally, individual credit assessments of
all current and potential customers occur prior to any credit being
51
extended and at regular intervals thereafter. The following factors are
considered as part of the credit assessment:
- a customer's ability to meet and sustain its financial commitments;
- a customer's current and projected financial condition;
- the positive or negative effects of the current and projected industry
outlook; and
- the economy in general.
After considering all of the above factors, we record an allowance for
doubtful accounts for those receivables that we feel are uncollectible. In
general, if a balance has been outstanding for 90 days, we require cash with any
future order. Balances outstanding in excess of 120 days are placed in
collections. Based on historical collections of amounts placed for collection,
we reserve 50% of all such amounts. In addition, a detailed subjective
assessment of each account placed for collection is performed and additional
reserves are recorded as needed.
Over the last several years, the overall economy has generally been
improving as our days-sales-outstanding ratio has steadily decreased from 2003
to 2005.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
We have recorded long-lived assets, including fixed assets, goodwill and
intangibles assets, at cost less accumulated depreciation or amortization. The
determination of useful lives and whether or not these assets are impaired
involves significant judgment.
We continually monitor and review goodwill and long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable. Factors that could
trigger an impairment test include, but are not limited to:
- a permanent decline in cash flows;
- continued decreases in utilization of a long-lived asset;
- a change in business strategy;
- a significant adverse change in the business climate or legal factors;
- unanticipated competition;
- loss of key personnel;
- the likelihood that a reporting unit or a significant portion of a
reporting unit will be sold or disposed of; and/or
- recognition of a goodwill impairment loss in the financial statements of
a subsidiary that is a component of a reporting unit.
Goodwill is tested annually on September 30 of each year for impairment
using the fair-value-based test prescribed by SFAS 142. The estimates and
assumptions described above (along with other factors such as discount rates)
affect the amount of impairment recognized. The Company's annual SFAS 142
evaluations were performed by management with the assistance of a third-party
valuation firm, utilizing assumptions and projections we believe to be
reasonable and supportable, and that reflect management's best estimate of
projected future cash flows. Considerable judgment was required in selecting
discount rates, developing cash flow projections and developing balance sheets
for each reporting unit. Slight changes in any of these assumptions could create
a material impact on the impairment charge recorded by the Company.
Long-lived assets are accounted for in accordance with SFAS 144. The
process involves management determining if the cash flows expected to be
generated from the use of a long-lived asset group and its eventual disposition
(undiscounted and without interest charges) are less than the carrying amount of
the asset group. If the criteria are met, the fair value is determined using
appropriate assumptions. The estimate of cash flows
52
is based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. Our estimates may differ
from actual cash flows due to, among other things, technological changes,
economic conditions, changes to our business model, or changes in our operating
performance. The determination of impairment requires significant management
judgment, including establishing asset groupings.
During 2005, intangible assets were recorded in accordance with SFAS No.
141, "Business Combinations" and are being amortized over periods ranging from
two to ten years. Goodwill was also recorded in conjunction with the MSD2D
acquisition. The goodwill will not be amortized but will be tested for
impairment annually. The allocation of a purchase price requires management to
make certain assumptions as well as significant judgment.
DEFERRED TAX ASSET VALUATION AND TAX CONTINGENCIES
In 2005, 2004 and 2003, we recorded a $3.1 million, $33.9 million and $25.8
million charge, respectively, to establish a full valuation allowance for our
net deferred tax assets and net operating loss carryforwards. The valuation
allowance was calculated in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which places primary importance on
our operating results in the most recent three-year period when assessing the
need for a valuation allowance. Management intends to maintain a valuation
allowance until sufficient positive evidence exists to support its reversal.
Until such time, except for the amount by which the deferred tax assets exceed
deferred tax liabilities, excluding the deferred tax liability related to
indefinite life intangibles, we will have no reported tax provision, net of
valuation allowance adjustments. See Note 8 -- Income Taxes, in the notes to
consolidated financial statements included herein, for additional information
regarding this charge.
We are subject to ongoing examinations by certain taxation authorities of
the jurisdictions in which we operate. Management regularly assesses the status
of these examinations and the potential for adverse outcomes to determine the
adequacy of the provision for income and other taxes. Management believes that
we have adequately provided for tax adjustments that are probable as a result of
any ongoing examination.
RESTRUCTURING RESERVES
Restructuring reserves include estimated costs for severance benefits,
lease termination expenses and other costs. If the future payments of these
costs were to differ from our estimates, we may need to increase or decrease our
reserves. Specifically, for leased premises that the Company no longer occupies,
management makes certain assumptions as to when or if these premises will be
subleased and at what price. Assumptions include the number of years of any
sublease, square footage, market trends, property locations and the price per
square foot. These assumptions involve significant judgments and estimations. We
have based our assumptions on discussions with brokers and/or parties that have
shown interest in the space.
At each reporting date, we evaluate our accruals related to workforce
reduction charges, contract settlement and lease costs to ensure that these
accruals are still appropriate. In certain instances, we may determine that
these accruals are no longer required because of efficiencies in carrying out
our restructuring plan. In these cases, we reverse any related accrual to income
when it is determined that it is no longer required. Alternatively, in certain
circumstances, we may determine that certain accruals are insufficient as new
events occur or as additional information is obtained. In these cases, we would
increase the applicable existing accrual with the offset recorded against
income.
DIVESTITURES
Pursuant to SFAS 142, reporting unit level goodwill should be allocated to
individual properties that are sold, if these properties qualify as a "business"
under Emerging Issues Task Force ("EITF") Issue No. 98-3, "Determining Whether a
Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business"
("EITF 98-3"). We undertook a detailed analysis of each property sold in 2002,
2003 and 2004 to determine if it qualified as a business. Considerable judgment
is required to determine if a transferred set of activities
53
possesses all of the criteria for a business under EITF 98-3. In addition,
further judgment is required to determine if missing elements (for a business)
are major or minor items.
The allocation of reporting unit goodwill to the individual properties is
further affected by whether a business is considered to be integrated. SFAS 142
states that if a business is not integrated, the initial goodwill that was
generated upon the acquisition of that business will be included in the
computation of the gain or loss on the disposition of that unit. Considerable
judgment is required to determine if a particular property has been integrated.
Factors such as length of time since acquisition, common management, knowledge
sharing, synergies between properties and shared services such as legal and
accounting have to be considered carefully in determining whether a property is
integrated. The Company has concluded that all the properties classified as
discontinued operations had been integrated, and as such, the goodwill has been
allocated to each property sold based on its relative fair value. The difference
between the initial goodwill generated upon acquisition and the amount allocated
using relative fair value can be material.
In order for a property to be classified as discontinued operations, it
must meet the definition of a component under SFAS 144. A component is defined
as a reportable segment, a reporting unit, a subsidiary, an asset group or any
group of assets for which there is clearly distinguishable cash flows and such
cash flows will be eliminated upon the sale. This assessment requires
significant judgment.
PENSION PLANS
Penton's defined benefit plan and supplemental executive retirement plan
were amended to freeze benefit accruals as of December 31, 2003. Assumptions
used in determining the projected benefit obligation and the fair value of plan
assets for our pension plans are determined by us in consultation with our
outside actuary. Inherent in these valuations are key assumptions, including the
discount rate and expected long-term rate of return on plan assets. Material
changes in our pension costs may occur in the future due to changes in these
assumptions.
The discount rate is subject to change each year, consistent with changes
in applicable high-quality long-term corporate bond indices. Based upon our
evaluation, we have changed the discount rate from 6.00% at December 31, 2003 to
5.91% at December 31, 2004, to 5.66% at December 31, 2005. The discount rate
decrease between 2003 and 2005 reflects the decrease in Moody's Aa corporate
bond yields, which were 6.01% at December 31, 2003, 5.66% at December 31, 2004,
and 5.41% at December 31, 2005. A decrease of 25 basis points in the discount
rate at January 1, 2005 would have reduced 2005 pension expense by approximately
$0.01 million. However, a 25 basis points decrease in the discount rate as of
December 31, 2005 would increase other comprehensive loss from $2.2 million to
$4.0 million. A 25 basis point increase in the discount rate would increase
pension expense by $0.01 million and decrease other comprehensive loss from $2.2
million to $0.4 million.
The expected long-term rate of return on pension plan assets is selected by
taking into account the expected duration of the projected benefit obligation
for the plan and the targeted asset mix of the plan assets. In 2004, based upon
an evaluation, we changed our expected long-term rate of return on plan assets
from 9.0% to 8.5%. The expected long-term rate of return of 8.5%, which remains
unchanged for 2005, was based on the actual historical rates of return of
published indices consistent with our plan's targeted asset allocation. A change
of 25 basis points in the expected return on asset rate would change pension
expense by approximately $0.09 million.
FORWARD-LOOKING INFORMATION (SAFE HARBOR STATEMENT)
This Annual Report on Form 10-K contains statements relating to Penton
Media, Inc. and its subsidiaries (including its future results and business
trends) that may constitute forward-looking statements. These statements are
based on management's beliefs as well as assumptions made by and information
currently available to management. These statements are made pursuant to the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and are subject to the
"safe harbor" created by those sections. Although Penton believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance
54
that its expectations will be achieved. Actual results or events may differ
materially from those projected as a result of certain risks and uncertainties.
These risks and uncertainties include, but are not limited to, those set forth
in "Item 1A. Risk Factors." 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," "goals,"
"projects," "targets," "intends," "may," "anticipates," "plans," "expects,"
"seeks," "estimates" and similar expressions are intended to identify
forward-looking statements. Investors are cautioned not to place undue reliance
on forward-looking statements which are made only as of the date hereof, and we
undertake no obligation to update or revise any of them, whether as a result of
new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market
rates and prices, such as foreign currency exchange rates and interest rates. We
do not enter into financial instruments for trading or speculative purposes. As
of December 31, 2005, we are exposed to the following market risks:
INTEREST RATE RISK
Our cash and cash equivalents are not subject to significant interest rate
risk due to the short maturities of these instruments. As of December 31, 2005,
the carrying value of our cash and cash equivalents approximates fair value.
FAIR VALUE RISK
Our long-term debt consists of senior notes with interest at fixed rates.
Consequently, we do not have significant interest rate risk exposure related to
our long-term debt. However, the fair value of our senior notes fluctuates with
the market, as they are publicly traded.
The table below provides information about the expected cash flows
associated with our long-term debt obligations and their fair value at December
31, 2005 (in thousands):
EXPECTED MATURITY DATE
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------
FAIR
2006 2007 2011 TOTAL VALUE
----------- -------- -------- -------- --------
Long-Term Debt:
10 3/8% Senior Subordinated Notes........ $ -- $ -- $155,300 $155,300 $140,547
Interest rate......................... 10 3/8% 10 3/8% 10 3/8% 10 3/8%
11 7/8% Senior Secured Notes............. $ -- $157,500 $ -- $157,500 $164,194
Interest rate......................... 11 7/8% 11 7/8% 11 7/8% 11 7/8%
The Company currently does not manage the fair value risk related to its
senior notes.
FOREIGN CURRENCY EXCHANGE RATE RISK
We maintain assets and operations in the United Kingdom and in various
other countries. As a result, we may be exposed to fluctuations in currency
rates relative to these markets. At December 31, 2005, a hypothetical 10%
strengthening or weakening of the U.S. dollar relative to the currencies of
foreign countries in which we operate would have resulted in an immaterial
impact on our financial results and cash flows.
2004 MARKET RISK
At December 31, 2004, the Subordinated Notes had a carrying amount of
$172.0 million and a fair value of $115.5 million and the Secured Notes had a
carrying amount of $157.0 million and a fair value of $157.5 million. The fair
value of the notes is determined by quotations in the open market.
55
PENTON MEDIA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm..... 57
Consolidated Balance Sheets at December 31, 2005 and 2004... 58
Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2004 and 2003.......................... 60
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004 and 2003.......................... 61
Consolidated Statements of Stockholders' Deficit and of
Comprehensive Loss for the Years Ended December 31, 2005,
2004 and 2003............................................. 62
Notes to Consolidated Financial Statements.................. 63
FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the consolidated
financial statements or notes thereto.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of Penton Media, Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Penton Media, Inc. (the "Company") and its subsidiaries at December
31, 2005 and 2004, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2005, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 21, 2006
57
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
2005 2004
---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 632 $ 7,661
Restricted cash........................................... 299 125
Accounts receivable, net.................................. 27,471 30,571
Inventories............................................... 1,098 856
Deferred tax asset........................................ 314 276
Prepayments, deposits and other........................... 2,452 3,672
--------- ---------
Total current assets.............................. 32,266 43,161
--------- ---------
Property and equipment, net................................. 10,401 14,793
Goodwill.................................................... 173,603 176,162
Other intangible assets, net................................ 5,962 6,846
Other non-current assets.................................... 4,937 6,412
--------- ---------
$ 227,169 $ 247,374
========= =========
58
DECEMBER 31,
-----------------------
2005 2004
---------- ----------
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loan and security agreement revolver...................... $ 10,200 $ --
Accounts payable.......................................... 4,557 6,808
Accrued compensation and benefits......................... 5,016 5,880
Other accrued expenses.................................... 9,890 11,360
Unearned income, principally trade show and conference
deposits............................................... 22,702 23,274
--------- ---------
Total current liabilities......................... 52,365 47,322
Senior secured notes, net of discount....................... 157,195 157,047
Senior subordinated notes, net of discount.................. 152,956 172,017
Accrued pension liability................................... 12,400 10,568
Deferred tax liability...................................... 22,667 19,903
Other non-current liabilities............................... 8,061 9,587
--------- ---------
Total liabilities................................. 405,644 416,444
--------- ---------
Commitments and contingencies (Note 10)
Mandatorily redeemable convertible preferred stock, par
value $0.01 per share; 50,000 shares authorized, issued
and outstanding; redeemable at $1,000 per share (Note
11)....................................................... 74,849 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 December 31, 2005 and 2004, respectively... 18 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 December 31, 2005 and 2004,
respectively........................................... 343 337
Capital in excess of par value............................ 207,449 215,027
Retained deficit.......................................... (458,489) (450,067)
Notes receivable from officers, less reserve of $5,848 at
December 31, 2005 and 2004............................. -- --
Accumulated other comprehensive loss...................... (2,645) (1,533)
--------- ---------
(253,342) (236,236)
--------- ---------
$ 227,169 $ 247,374
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
59
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2005 2004 2003
--------- --------- ----------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues.................................................... $192,847 $194,833 $ 188,742
-------- -------- ---------
Operating expenses:
Editorial, production and circulation..................... 83,826 85,820 85,625
Selling, general and administrative (including $2.7
million of executive separation costs in 2004)......... 68,327 78,932 79,854
Impairment of assets (including goodwill)................. -- 34,466 39,913
Provision for executive loan impairment................... -- 1,717 7,600
Restructuring and other charges, net...................... 906 6,079 5,205
Depreciation and amortization............................. 6,611 8,009 10,457
-------- -------- ---------
159,670 215,023 228,654
-------- -------- ---------
Operating income (loss)..................................... 33,177 (20,190) (39,912)
Other income (expense):
Interest expense.......................................... (39,537) (40,005) (41,581)
Interest income........................................... 241 207 437
Gain on extinguishment of debt............................ 2,732 -- --
Other, net................................................ (175) 40 (929)
-------- -------- ---------
(36,739) (39,758) (42,073)
-------- -------- ---------
Loss from continuing operations before income taxes......... (3,562) (59,948) (81,985)
Provision (benefit) for income taxes........................ 1,901 (792) 6,947
-------- -------- ---------
Loss from continuing operations............................. (5,463) (59,156) (88,932)
Discontinued operations:
Loss from discontinued operations, net of taxes........... (2,959) (8,035) (4,199)
-------- -------- ---------
Net loss.................................................... (8,422) (67,191) (93,131)
Amortization of deemed dividend and accretion of preferred
stock..................................................... (7,687) (12,190) (8,536)
-------- -------- ---------
Net loss applicable to common stockholders.................. $(16,109) $(79,381) $(101,667)
======== ======== =========
Earnings per common share -- basic and diluted:
Loss from continuing operations applicable to common
stockholders........................................... $ (0.38) $ (2.11) $ (2.92)
Discontinued operations, net of taxes..................... (0.09) (0.24) (0.13)
-------- -------- ---------
Net loss applicable to common stockholders................ $ (0.47) $ (2.35) $ (3.05)
======== ======== =========
Weighted-average number of shares outstanding:
Basic and diluted......................................... 34,489 33,725 33,299
======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
60
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2005 2004 2003
-------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(8,422) $(67,191) $(93,131)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization........................ 6,698 8,760 11,946
Amortization of financing fees....................... 2,016 1,998 1,889
(Gain) loss from discontinued operations............. 23 1,033 (1,387)
Gain on repurchase of senior subordinated notes...... (2,732) -- --
Deferred income taxes................................ 2,633 2,634 6,847
Retirement and deferred compensation plans........... (369) (472) (2,467)
Provision for losses on accounts receivable.......... 744 1,833 2,162
Provision for loan impairment........................ -- 1,717 7,600
Non-cash restructuring charge........................ 773 2,261 3,112
Asset impairments and writedowns..................... 1,773 39,651 43,760
Other, net........................................... 194 1,675 4,040
Changes in assets and liabilities, excluding effects from
acquisitions and dispositions:
Accounts receivable.................................. (720) (5,238) 5,665
Income tax receivable................................ (247) (608) 53,392
Inventories.......................................... (242) 18 151
Prepayments, deposits and other...................... 274 5,869 (5,222)
Accounts payable and accrued expenses................ (6,069) (15,022) (9,010)
Unearned income...................................... 2,663 744 (491)
Other, net........................................... (573) (126) (1,141)
------- -------- --------
Net cash provided by (used for) operating
activities...................................... (1,583) (20,464) 27,715
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,028) (2,317) (3,294)
Acquisitions of businesses and intangibles, net of cash
acquired............................................... (1,864) -- (7)
Decreases in note receivable, net......................... -- 65 1,553
Decrease (increase) in restricted cash.................... (174) (125) 677
Net proceeds from sale of investments and properties...... 4,074 800 3,250
------- -------- --------
Net cash provided by (used for) investing
activities...................................... 1,008 (1,577) 2,179
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of senior subordinated notes................... (16,451) -- --
Proceeds from Loan and Security Agreement revolver, net... 10,200 -- --
Repayment of senior secured credit facility............... -- -- (4,500)
Payment of note payable................................... -- -- (417)
Payment of financing costs................................ -- (10) (2,045)
Employee stock purchase plan payments..................... -- -- (113)
Proceeds from repayment of officers' loans................ -- -- 250
Increase (decrease) in cash overdraft balance............. (269) 230 (383)
------- -------- --------
Net cash provided by (used for) financing
activities...................................... (6,520) 220 (7,208)
------- -------- --------
Effect of exchange rate changes on cash..................... 66 (144) 169
------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (7,029) (21,965) 22,855
Cash and cash equivalents at beginning of year.............. 7,661 29,626 6,771
------- -------- --------
Cash and cash equivalents at end of year.................... $ 632 $ 7,661 $ 29,626
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
61
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
AND OF COMPREHENSIVE LOSS
CAPITAL IN ACCUMULATED
EXCESS OF NOTES OTHER
COMMON PAR RETAINED RECEIVABLE COMPREHENSIVE
STOCK VALUE DEFICIT OFFICERS LOSS TOTAL
------ ---------- --------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
Balance at December 31, 2002...................... $317 $229,517 $(289,745) $(9,720) $(2,977) $ (72,608)
Comprehensive loss:
Net loss........................................ -- -- (93,131) -- -- (93,131)
Other comprehensive loss:
Foreign currency translation adjustment....... -- -- -- -- 795 795
Minimum pension liability adjustment............ -- -- -- -- (22) (22)
---------
Comprehensive loss.............................. (92,358)
---------
Issuance of common stock:
Deferred shares................................. 4 3,578 -- -- -- 3,582
Stock options................................... -- 11 -- -- -- 11
Performance shares.............................. -- 13 -- -- -- 13
Management stock purchase plan shares........... -- 779 -- -- -- 779
Employee stock purchase plan shares............. -- (112) -- -- -- (112)
Amortization of deemed dividend and accretion of
preferred stock................................. -- (8,536) -- -- -- (8,536)
Reclassification to redeemable common stock....... 11 1,105 -- -- -- 1,116
Reserve for impairment of notes receivable from
officers........................................ -- -- -- 7,600 -- 7,600
Repayment of notes receivable from officers....... -- -- -- 223 -- 223
---- -------- --------- ------- ------- ---------
Balance at December 31, 2003...................... 332 226,355 (382,876) (1,897) (2,204) (160,290)
Comprehensive loss:
Net loss........................................ -- -- (67,191) -- -- (67,191)
Other comprehensive loss:
Foreign currency translation adjustment........... -- -- -- -- 649 649
Minimum pension liability adjustment.............. -- -- -- -- 22 22
---------
Comprehensive loss.............................. (66,520)
---------
Issuance of common stock:
Deferred shares................................. 5 750 -- -- -- 755
Stock options................................... -- 11 -- -- -- 11
Performance shares.............................. 3 110 -- -- -- 113
Management stock purchase plan shares........... -- 212 -- -- -- 212
Amortization of deemed dividend and accretion of
preferred stock................................. -- (12,190) -- -- -- (12,190)
Reclassification from redeemable common stock..... -- 2 -- -- -- 2
Reserve for impairment of notes receivable from
officers........................................ -- (93) -- 834 -- 741
Repayment of notes receivable from officers....... (3) (130) -- 1,063 -- 930
---- -------- --------- ------- ------- ---------
Balance at December 31, 2004...................... 337 215,027 (450,067) -- (1,533) (236,236)
Comprehensive loss:
Net loss........................................ -- -- (8,422) -- -- (8,422)
Other comprehensive loss:
Foreign currency translation adjustment......... -- -- -- -- (136) (136)
Currency translation adjustment related to
sale of business............................ -- -- -- -- 1,244 1,244
Minimum pension liability adjustment............ -- -- -- -- (2,220) (2,220)
---------
Comprehensive loss.............................. (9,534)
---------
Issuance of common stock:
Deferred shares................................. 5 2 -- -- -- 7
Management stock purchase plan shares........... 1 107 -- -- -- 108
Amortization of deemed dividend and accretion of
preferred stock................................. -- (7,687) -- -- -- (7,687)
---- -------- --------- ------- ------- ---------
Balance at December 31, 2005...................... $343 $207,449 $(458,489) $ -- $(2,645) $(253,342)
==== ======== ========= ======= ======= =========
The accompanying notes are an integral part of these consolidated financial
statements.
62
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Penton Media, Inc. ("Penton" or the "Company"), which was founded in 1892,
is a leading diversified business-to-business media company. Penton became an
independent company, incorporated in the State of Delaware, as a result of its
spin-off from Pittway Corporation in August 1998. Penton provides media products
that deliver proprietary business information to owners, operators, managers and
professionals in the industries that are served. Through these products, the
Company offers industry suppliers multiple ways to reach their customers and
prospects as part of their sales and marketing efforts. The Company publishes
specialized trade magazines, produces trade shows and conferences, and provides
a range of online media products, including Web sites, electronic newsletters
and Web-based conferences.
Penton's four segments: Industry, Technology, Lifestyle, and Retail, are
structured along industry lines, which enables the Company to promote its
related groups of products to its customers. Penton's integrated media
portfolios serve the following markets: manufacturing, design/engineering,
mechanical systems/construction, government/compliance, business technology,
aviation, enterprise information technology, electronics, natural products and
food/retail.
In April 2005, Penton completed the sale of 90% of its interest in Penton
Media Europe ("PM Europe") and in December 2004, the Company completed the sale
of 70% of its interest in Penton Media Germany ("PM Germany"). In addition, the
Company completed the sale of the net assets of its Professional Trade Shows
("PTS") group in January 2003. The results of PM Europe, PM Germany and PTS are
reported as discontinued operations for all periods presented.
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 Statement of Financial Accounting Standards
("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 have been reported as discontinued operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America and
include the accounts of the Company and each of its subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Investments in companies in which the company has less than a 20% interest
are carried at cost. Dividends received from those companies, if any, are
included in other income. Dividends received in excess of the Company's
proportionate share of accumulated earnings are applied as a reduction of the
cost of the investment.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2004 and 2003 financial
statements to conform to the 2005 presentation. These reclassifications include;
reporting PM Germany as discontinued operations as discussed above;
reclassifying financing fee amortization from the depreciation and amortization
line on the statement of operations to the interest expense line; and
reclassifying certain short-term liabilities to long-term. These
reclassifications did not change previously reported net income (loss) or
stockholders' deficit.
63
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the reported amounts of revenues and
expenses during the reporting period. Management reviews its estimates based
upon currently available information on an ongoing basis. Actual results could
differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include primarily cash on hand and short-term
investments with original maturity of three months or less. The carrying amounts
of cash and cash equivalents approximate their fair values. Book overdrafts are
recorded within accounts payable and totaled $0.2 million and $0.5 million at
December 31, 2005 and 2004, respectively. Cash flows associated with book
overdrafts are classified as financing activities. During 2005, the Company
revised its classification of restricted cash, in its consolidated statements of
cash flows. Restricted cash is now presented as an investing activity. The
revised classification has also been reflected in the comparative prior year
amounts for purposes of consistency.
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 December 31, 2005, cash balances totaling $0.3 million
were subject to such restrictions, compared to $0.1 million at December 31,
2004.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The Company establishes its credit policies based on an ongoing evaluation
of its customers' credit worthiness and competitive market conditions and
establishes its allowance for doubtful accounts based on an assessment of
exposures to credit losses at each balance sheet date. Trade accounts receivable
are considered past due after 30 days and delinquent after 90 days. Collections
on accounts previously written off are included in income as received. The
Company believes its allowance for doubtful accounts is sufficient based on the
credit exposures outstanding at December 31, 2005 and 2004.
INVENTORIES
Inventories, which consist primarily of paper stock, are stated at the
lower of cost or market, cost being determined on the basis of the last-in,
first-out ("LIFO") method. The difference between cost determined on a LIFO
basis and a first-in, first-out basis was insignificant at December 31, 2005 and
2004.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Penton records depreciation
using the straight-line method over the following estimated useful lives:
Computer equipment and software.......... 3-5 years
Web site development costs............... 3 years
Furniture, fixtures and equipment........ 3-10 years
Leasehold improvements................... Estimated useful lives or lease term,
whichever is shorter
Depreciation expense was $4.7 million, $5.8 million, and $7.3 million for
the years ended December 31, 2005, 2004 and 2003, respectively.
64
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repair expenditures are charged to appropriate expense
accounts in the period incurred; replacements, renewals and betterments are
capitalized. Upon sale or other disposition of property, the cost and
accumulated depreciation of such properties are eliminated from the accounts,
and the gains or losses thereon are reflected in operations.
GOODWILL, OTHER INTANGIBLE ASSETS AND LONG-LIVED ASSETS
Goodwill is recorded when the cost of acquired businesses exceeds the fair
value of the identifiable net assets acquired. Goodwill and intangible assets
with indefinite useful lives are not amortized, but are tested for impairment
annually or when events or circumstances indicate that an impairment may have
occurred, as provided in SFAS No. 142, "Goodwill and Other Intangible Assets"
("SFAS 142"). The Company elected to perform its goodwill impairment test
annually as of September 30. Intangible assets with finite useful lives are
amortized to their estimated residual values over such finite lives, and
reviewed for impairment whenever events and circumstances indicate that the
carrying amount may not be recoverable in accordance with SFAS 144. Currently,
the Company does not have intangible assets with indefinite lives.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in other
non-current assets, in the accompanying consolidated balance sheets, and are
amortized to interest expense over the term of their related indebtedness using
the effective interest method.
REVENUE RECOGNITION
Advertising revenues from Penton's trade magazines are recognized in the
month the publications are mailed. Subscription revenues are recognized over the
subscription period, typically one year. Amounts received in advance of trade
shows and conferences are deferred and recognized on the last day of the event,
in the month the event is held. Online media revenues primarily include
advertising revenues such as banner advertising, sponsorships, e-newsletters,
e-books and web seminars. Revenue is recognized in the period the obligation is
fulfilled or delivered.
When a sale involves multiple deliverables where the deliverables are
governed by more than one authoritative standard, the Company evaluates all
deliverables to determine whether they represent separate units of accounting
based on the following criteria:
- whether the delivered item has value to the customer on a stand-alone
basis;
- whether there is objective and reliable evidence of the fair value of the
undelivered item(s); and
- if the contract includes a general right of return relative to the
delivered item, delivery, or performance of the undelivered item(s) is
considered probable and is substantially in the Company's control.
The Company's determination of whether deliverables within a multiple
element arrangement can be treated separately for revenue recognition purposes
involves significant estimates and judgment, such as whether fair value can be
established on undelivered obligations and/or whether delivered elements have
standalone value to the customer.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $3.7 million, $4.0 million, and $4.5 million in 2005, 2004 and 2003,
respectively.
65
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SELF INSURANCE
The Company is self-insured for a portion of its risk on workers'
compensation and employee medical costs. The arrangements provide for stop loss
insurance to manage the Company's risk. Operations are charged with the cost of
claims reported and an estimate of claims incurred but not reported. The Company
does not provide health care benefits to retired employees.
INCOME TAXES
In 2005, 2004 and 2003, the Company recorded a $3.1 million, $33.9 million
and $25.8 million charge, respectively, to establish a full valuation allowance
for its net deferred tax assets and net operating loss carryforwards. The
valuation allowance was calculated in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes" ("SFAS 109"), which places primary importance
on the Company's operating results in the most recent three-year period when
assessing the need for a valuation allowance. Management intends to maintain a
valuation allowance until sufficient positive evidence exists to support its
reversal. Until such time, except for the amount by which the Company's deferred
tax assets exceed deferred tax liabilities, excluding the deferred tax liability
related to indefinite life intangibles, the Company will have no reported tax
provision, net of valuation allowance adjustments. See Note 8 -- Income Taxes
for additional information.
The Company is subject to ongoing examinations by certain taxing
authorities in the jurisdictions in which the Company operates. Management
regularly assesses the status of these examinations and the potential for
adverse outcomes to determine the adequacy of the provision for income and other
taxes. Management believes that it has adequately provided for any tax
adjustments that it believes are probable as a result of any ongoing
examination.
OTHER COMPREHENSIVE LOSS
Total comprehensive loss includes, in addition to net loss, changes in
equity that are excluded from the consolidated statements of operations and are
recorded directly into a separate section of stockholders' deficit on the
consolidated balance sheets. The Company's accumulated other comprehensive loss
shown on the consolidated balance sheets, and the accumulated other
comprehensive loss shown on the consolidated statements of stockholders' deficit
and of comprehensive loss, consists of minimum pension liability adjustments and
foreign currency translation adjustments.
The components of accumulated other comprehensive loss at December 31, 2005
and 2004 are as follows (in thousands):
2005 2004
------- -------
Foreign currency translation adjustment..................... $ (425) $(1,533)
Minimum pension liability adjustment(1)..................... (2,220) --
------- -------
$(2,645) $(1,533)
======= =======
---------------
(1) includes a $0.9 million deferred tax asset offset by a valuation allowance
for the same amount.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of Penton's foreign operations is their local
currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. dollars at the rates of exchange at year-end; income and
expense are translated at the average rates of exchange prevailing during the
applicable year. The effects of translation are included in accumulated other
comprehensive loss in stockholders' deficit. There were no significant foreign
currency transaction gains or losses in 2005, 2004 or 2003.
66
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK BASED COMPENSATION PLANS
At December 31, 2005, the Company has various stock-based compensation
arrangements (see Note 12 -- Common Stock and Common Stock Award Programs). The
Company accounts for these plans under the recognition and measurement
principles of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations. For
stock option plans, no compensation expense is recognized as all options are
issued at the market value of the Company's common stock on the date of grant.
The following table illustrates the effects on net loss and earnings per
share as if the Company had applied the fair value recognition provision of SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by
SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure" ("SFAS 148"), (in thousands, except per share data):
2005 2004 2003
-------- -------- ---------
Net loss applicable to common stockholders:
As reported......................................... $(16,109) $(79,381) $(101,667)
Add: Compensation expense included in net loss
applicable to common stockholders, net of related
tax effects....................................... 13 750 112
Less: Total stock-based compensation expense
determined under fair value based methods for all
awards, net of related tax effects................ (116) (3,223) (1,539)
-------- -------- ---------
Pro forma........................................... $(16,212) $(81,854) $(103,094)
======== ======== =========
Earnings per common share -- basic and diluted:
As reported....................................... $ (0.47) $ (2.35) $ (3.05)
Pro forma......................................... $ (0.47) $ (2.43) $ (3.10)
The weighted-average fair value of options granted in 2004 and 2003 was
$0.84 and $0.32, respectively. No options were granted in 2005. The fair value
of each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model, under the following assumptions for 2004 and 2003:
2004 2003
---------- ----------
Risk-free interest rate..................................... 3.65% 3.62%
Dividend yields............................................. 0.0% 0.0%
Expected volatility......................................... 136.29% 104.8%
Expected life............................................... 7 years 7 years
On December 7, 2005, the Company's Board of Directors approved accelerating
the vesting of all outstanding, unvested stock options awarded to employees
under the Company's stock option plan. As a result of this vesting acceleration,
options to purchase 213,267 shares of the Company's common stock became
exercisable immediately. Since options were accelerated to vest in the fourth
quarter of 2005, an additional pre-tax compensation cost of $0.1 million, which
represents the unamortized cost of the accelerated unvested options, was
included in calculating the pro forma net loss for footnote disclosure purposes
under SFAS 123 for the year ended December 31, 2005. As the exercise price of
182,267 of the modified options was greater than the market price of the
Company's underlying common stock on the date of their modification, no
compensation expense was recorded in accordance with APB 25. In addition, no
compensation expense was recognized on the remaining 31,000 options that were
in-the-money on the modification date as none of the options under the original
terms were expected to expire unexercisable due to the modification, as these
options were originally scheduled to vest in February 2006.
67
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The decision to accelerate the vesting of these options was made primarily
to eliminate the accounting charge in connection with future compensation
expense the Company would otherwise recognize in its statement of operations
upon the adoption of SFAS 123(R). SFAS 123(R) requires the Company to expense
the value of the employee stock options and similar awards in its statement of
operations, rather than as a footnote disclosure in its consolidated financial
statements.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of
common shares outstanding plus the weighted-average number of fully vested
restricted stock units and fully vested deferred shares. Diluted earnings per
share also include the effects of stock options and other common stock
equivalents outstanding during the period, if they are dilutive. In periods of a
net loss position, basic and diluted weighted average shares are the same.
NEW ACCOUNTING STANDARDS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"). SFAS 154 is a replacement of APB No. 20 and FASB
Statement No. 3. This statement provides guidance on the accounting for and
reporting of accounting changes and error corrections. It established, unless
impracticable, retrospective application as the required method of reporting a
change in accounting principle in the absence of explicit transition
requirements specific to the newly adopted accounting principle. This statement
also provides guidance for determining whether retrospective application of a
change in accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed by
SFAS 154. SFAS 154 is effective for accounting changes and correction of errors
made in fiscal years beginning after December 15, 2005. The adoption of this
standard is not expected to have a material effect on the Company's financial
condition, results of operations, or liquidity.
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 adoption of this interpretation did not have any impact
on the Company's financial condition, results of operations, or liquidity.
In December 2004, the FASB issued 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 implementation of this
statement will be effective beginning with the Company's first quarter of 2006,
and will be adopted using the modified prospective method. The adoption of SFAS
123(R) will not have a material impact on the Company's results of operations or
liquidity as no unvested options remain at December 31, 2005.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29" ("SFAS 153"). This statement amends
the principle that exchanges of nonmonetary assets would be measured based on
the fair value of the assets exchanged and more broadly provides for exceptions
regarding exchanges of nonmonetary assets that do not have commercial substance.
68
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of this standard did not
have an impact on the Company's financial condition, results of operations, or
liquidity.
The FASB issued SFAS No. 151, "Inventory Costs (as amended)" ("SFAS 151")
in November 2004. The provisions of SFAS 151 are intended to eliminate narrow
differences between the existing accounting standards of the FASB and the
International Accounting Standards Board ("IASB") related to inventory costs, in
particular, the treatment of abnormal idle facility expense, freight, handling
costs and spoilage. SFAS 151 requires that these costs be recognized as current
period charges and requires the allocation of fixed production overheads to
inventory based on the normal capacity of production facilities. SFAS 151, which
was adopted by the Company on January 1, 2006, will not have a material impact
on the Company's financial condition, results of operations, or liquidity.
NOTE 2 -- ACQUISITIONS AND DISCONTINUED OPERATIONS
ACQUISITIONS
On August 8, 2005, the Company acquired 100% of the capital stock of DVGM &
Associates, a California corporation doing business under the name MSD2D
(Microsoft Developer-to-Developer), for approximately $1.4 million in cash.
MSD2D's portfolio targets IT system administrators and developers working with
Microsoft Exchange, SharePoint, .NET, and Security. Its products include Web
sites, directories, email newsletters, trade show programs, webcasts and
databases, all of which complement the Company's other Microsoft product sets.
The purchase price allocation, which was completed in January 2006, was
performed by management with the assistance of a third-party valuation
consultant. Pursuant to the purchase and resulting consolidation, the Company
recorded additional goodwill of $0.7 million. The Company also recorded
intangible assets including customer relationships, databases, and non-compete,
totaling $0.7 million. The Company has included MSD2D in its consolidated
statements of operations since the date of acquisition. There would not have
been a material impact to the financial statements had this acquisition occurred
at the beginning of any year presented; therefore, no pro forma information is
presented herein. MSD2D is part of the Company's Technology segment.
On June 21, 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. All of Kosher World's purchase price was
allocated to intangible assets as the acquisition was not considered the
purchase of a business under Emerging Issues Task Force ("EITF") No. 98-3
"Determining Whether a Nonmonetary Transaction Involves Receipt of Productive
Assets or of a Business." Kosher World is part of the Company's Lifestyle
segment.
DISCONTINUED OPERATIONS
In April 2005, the Company sold 90% of its PM Europe operation for
approximately $4.4 million in cash, with no gain or loss recognized on disposal.
However, the Company recorded an impairment charge of $1.8 million for its
long-lived assets during the first quarter of 2005, in contemplation of the
sale. PM Europe was part of the Company's former International segment. The
results of PM Europe are reported as discontinued operations for all periods
presented. The Company's remaining 10% interest is being accounted for using the
cost method, as the Company does not exercise significant influence. This 10%
investment has been reported within other non-current assets on the accompanying
consolidated balance sheets.
69
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 2004, the Company sold 70% of its interest in PM Germany, a
consolidated subsidiary, to Neue Medien Ulm Holdings GmbH ("Neue Medien") for
$0.8 million in cash, resulting in a recognized loss on sale of $1.0 million. PM
Germany was part of the Company's former 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 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 now reported as part of discontinued operations for all periods presented.
At December 31, 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. This 15%
investment has been reported within other non-current assets on the accompanying
consolidated balance sheets.
In January 2003, the Company sold the assets of its PTS group for
approximately $3.8 million, which resulted in a gain of approximately $1.4
million. PTS was part of the Company's Industry segment. The results of PTS are
reported as discontinued operations for all periods presented.
Results of discontinued operations, which include PM Europe, PM Germany and
PTS for the years ended December 31, 2005, 2004 and 2003 are as follows (in
thousands):
2005 2004 2003
------- ------- -------
Revenues................................................ $ 654 $17,830 $17,235
======= ======= =======
Operating loss before income taxes...................... $(2,936) $(7,743) $(5,434)
Gain (loss) on disposal................................. (23) (1,033) 1,387
Income tax provision (benefit).......................... -- 741 (152)
------- ------- -------
Loss from discontinued operations, net of taxes......... $(2,959) $(8,035) $(4,199)
======= ======= =======
NOTE 3 -- ACCOUNTS RECEIVABLE
Trade accounts receivable are recorded at the invoiced amount and do not
bear interest. The allowance for doubtful accounts is management's best estimate
of the amount of probable credit losses in our existing accounts receivable. The
Company does not have any off-balance-sheet credit exposure related to its
customers.
Accounts receivable consist of the following at December 31, 2005 and 2004
(in thousands):
2005 2004
------- -------
Trade....................................................... $28,747 $32,619
Employee.................................................... 36 15
Other....................................................... 1,010 763
------- -------
29,793 33,397
Less: Allowance for doubtful accounts....................... (2,322) (2,826)
------- -------
$27,471 $30,571
======= =======
70
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following are the changes in the allowance for doubtful accounts during the
years ended December 31, 2005, 2004 and 2003 (in thousands):
2005 2004 2003
------- ------- -------
Balance at the beginning of the year.................... $ 2,826 $ 3,703 $ 4,323
Additions............................................... 744 1,833 2,162
Write-offs, net of recoveries........................... (1,248) (2,710) (2,782)
------- ------- -------
Balance at the end of the year.......................... $ 2,322 $ 2,826 $ 3,703
======= ======= =======
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2005 and
2004 (in thousands):
2005 2004
-------- --------
Leasehold improvements...................................... $ 8,348 $ 8,603
Furniture and fixtures...................................... 9,480 10,938
Computer hardware and software.............................. 23,151 22,128
Web site development costs.................................. 3,106 3,784
Other....................................................... 308 329
-------- --------
44,393 45,782
Less: Accumulated depreciation.............................. (33,992) (30,989)
-------- --------
$ 10,401 $ 14,793
======== ========
The amount of capital leases included in property and equipment at December
31, 2005 and 2004 was not material.
NOTE 5 -- GOODWILL AND OTHER INTANGIBLES
IMPAIRMENT OF GOODWILL
The Company has selected September 30 of each year to perform its annual
impairment reviews under SFAS 142, which are performed by management with the
assistance of a third-party valuation firm. The evaluations utilize both an
income and market valuation approach and contain reasonable and supportable
assumptions and projections and reflect management's best estimate of projected
future cash flows. If the assumptions and estimates underlying these goodwill
impairment evaluations are not achieved, additional impairment charges may be
necessary. Impairment charges are reflected as impairment of assets (including
goodwill) in the accompanying consolidated statements of operations.
Results from the annual impairment test performed at September 30, 2005,
2004 and 2003 were as follows:
- In September 2005, no impairment charge was required.
- In September 2004, the Company was required to record a non-cash goodwill
impairment charge of $37.8 million ($5.2 million of which was
reclassified to discontinued operations). This goodwill impairment charge
is due primarily to lower than previously expected future cash flows in
two reporting units in the Company's Technology segment and by lower than
previously expected future cash flows in the Company's former
International segment.
- In September 2003, the Company recorded a non-cash goodwill impairment
charge of $37.6 million ($3.1 million of which was reclassified to
discontinued operations). This goodwill impairment charge is
71
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
due primarily to the reduction of the fair value of goodwill in three of the
Company's reporting units due to lower than previously expected future cash
flows. Two of the reporting units are part of the Company's Technology
segment and one is part of its Retail segment.
SFAS 142 also requires that goodwill be tested for impairment between
annual tests if certain triggering events occur. As a result of PM Europe being
classified as held for sale at March 31, 2005, the Company performed an
additional SFAS 142 analysis for this reporting unit, which resulted in an
impairment charge of approximately $1.4 million during the first quarter of
2005. This impairment charge is included in discontinued operations on the
consolidated statements of operations.
Changes in the carrying amount of goodwill during 2003, 2004 and 2005, by
operating segment, are as follows (in thousands):
GOODWILL
----------------------------------------------------------------------
INDUSTRY TECHNOLOGY LIFESTYLE RETAIL INTERNATIONAL TOTAL
-------- ---------- --------- ------- ------------- --------
Balance at December 31, 2002... $24,020 $108,735 $84,986 $34,231 $ -- $251,972
Earnouts....................... -- 7 -- -- -- 7
Impairment charge.............. -- (29,202) -- (8,366) -- (37,568)
------- -------- ------- ------- ------- --------
Balance at December 31, 2003... 24,020 79,540 84,986 25,865 -- 214,411
Allocation due to segment
change....................... (501) (8,424) -- -- 8,925 --
Activity(1).................... -- -- -- -- (449) (449)
Impairment charge.............. -- (32,615) -- -- (5,185) (37,800)
------- -------- ------- ------- ------- --------
Balance at December 31, 2004... 23,519 38,501 84,986 25,865 3,291 176,162
Activity(2).................... -- 732 -- -- (1,884) (1,152)
Impairment charge.............. -- -- -- -- (1,407) (1,407)
------- -------- ------- ------- ------- --------
Balance at December 31, 2005... $23,519 $ 39,233 $84,986 $25,865 $ -- $173,603
======= ======== ======= ======= ======= ========
---------------
(1) Represents goodwill related to PM Germany, which was sold in December 2004.
(2) Addition of $0.7 million represents goodwill related to MSD2D, which was
acquired in August 2005. Write-off of $1.9 million relates to PM Europe,
which was sold in April 2005.
IMPAIRMENT OF LONG-LIVED ASSETS
Due to the impairments of goodwill in 2004 and 2003, the Company also
completed annual assessments of its long-lived assets in accordance with the
provisions of SFAS 144 and recorded non-cash charges of $1.9 million and $6.2
million ($0.8 million of which was reclassified to discontinued operations) in
2004 and 2003, respectively. These charges relate primarily to the write-off of
trade names and subscriber and advertiser relationships for properties in the
Company's Technology segment.
The Company also performed a SFAS 144 impairment analysis of long-lived
assets at March 31, 2005 for PM Europe, which resulted in an impairment charge
of approximately $0.4 million. This impairment charge is included in
discontinued operations on the consolidated statements of operations.
72
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2005 and 2004, other intangibles recorded in the
consolidated balance sheets are amortized over a period of three to fifteen
years and are comprised of the following assets (in thousands):
GROSS NET
RANGE CARRYING ACCUMULATED BOOK
OF LIVES VALUE AMORTIZATION VALUE
-------- -------- ------------ ------
Trade names................................... 3-15 $ 4,933 $ (4,226) $ 707
Mailing/exhibitor lists....................... 7-15 10,049 (6,139) 3,910
Advertiser relationships...................... 7 5,767 (4,765) 1,002
Subscriber relationships...................... 6 1,929 (1,685) 244
Other......................................... 2 125 (26) 99
------- -------- ------
Balance at December 31, 2005.................. $22,803 $(16,841) $5,962
======= ======== ======
GROSS NET
RANGE CARRYING ACCUMULATED BOOK
OF LIVES VALUE AMORTIZATION VALUE
-------- -------- ------------ ------
Trade names................................... 3-15 $ 5,053 $ (4,063) $ 990
Mailing/exhibitor lists....................... 7-15 9,256 (5,478) 3,778
Advertiser relationships...................... 7 5,624 (4,242) 1,382
Subscriber relationships...................... 6 1,929 (1,361) 568
Other......................................... 3 151 (23) 128
------- -------- ------
Balance at December 31, 2004.................. $22,013 $(15,167) $6,846
======= ======== ======
Total amortization expense for 2005, 2004 and 2003 was $1.9 million, $2.2
million and $3.1 million, respectively. Amortization expense estimated for these
intangibles for 2006 through 2010 are as follows (in thousands):
YEAR ENDED
DECEMBER 31, AMOUNT
------------ ------
2006..................................................... $1,809
2007..................................................... $1,156
2008..................................................... $ 543
2009..................................................... $ 443
2010..................................................... $ 443
NOTE 6 -- OTHER ACCRUED EXPENSES
Other accrued expenses consists of the following at December 31, 2005 and
2004 (in thousands):
2005 2004
------ -------
Accrued restructuring costs -- short term................... $1,159 $ 2,713
Accrued interest............................................ 5,414 5,432
Accrued taxes............................................... 329 218
Accrued other............................................... 2,988 2,997
------ -------
$9,890 $11,360
====== =======
73
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- DEBT
LOAN AND SECURITY AGREEMENT
At December 31, 2005, $37.2 million was available under the Company's Loan
and Security Agreement of which $10.2 million was outstanding. Pursuant to the
terms of the Loan and Security Agreement, the Company can borrow up to the
lesser of (i) $40.0 million; (ii) 2.0x the Company's last twelve months adjusted
EBITDA; (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 revolver bears interest at Prime plus 3.0%, or at
the Company's option, LIBOR plus 5.0% subject to a LIBOR minimum of 1.5%. At
December 31, 2005 the rate was 10.25%. The Company must comply with a quarterly
financial covenant limiting the ratio of maximum bank debt to the last twelve
months adjusted EBITDA to 2.0x. The loan agreement permits the Company to sell
assets of up to $12.0 million in the aggregate during the term or $5.0 million
in any single asset sale; and complete acquisitions of up to $5.0 million per
year. At December 31, 2005, the Company has three stand-by letters of credit
totaling $1.1 million related to certain facility leases. The amount of these
letters of credit reduce the availability under the Loan and Security Agreement.
At December 31, 2005, no amounts have been drawn under these stand-by letters of
credit. Costs representing bank fees and other professional fees of $1.9 million
are being amortized over the life of the Loan and Security Agreement, which
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 have 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 lockboxes
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 and
Security Agreement and the indentures; and
(v) if the Company is in default of any material agreement to which
the lender 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 2006. 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 these notes as long term.
SENIOR SECURED NOTES
At December 31, 2005, the Company has $157.5 million of 11 7/8% senior
secured notes (the "Secured Notes") due in October 2007. Interest is payable on
the Secured Notes semiannually on April 1 and
74
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 1. The Secured Notes are fully and unconditionally, jointly and
severally guaranteed on a senior basis by all of the assets of Penton's domestic
subsidiaries, which are 100% owned by the Company, and also by the stock of
certain subsidiaries. Condensed consolidating financial information is presented
in Note 20 -- Guarantor and Non-guarantor Subsidiaries. Penton may redeem the
Secured Notes, in whole or in part through October 1, 2006 at a redemption price
of 105.9375% and thereafter at 100.0% of the principal amount together with
accrued and unpaid interest.
The Secured Notes were offered at a discount of $0.8 million, which is
being amortized using the interest method, over its term. In 2005, 2004, and
2003 respectively, the Company recorded $0.2 million, $0.1 million, and $0.1
million of amortization expense related to the discount. In addition, costs
representing underwriting fees and other professional fees of $6.6 million are
also being amortized, using the effective interest method, over the term of the
Secured Notes. The Secured Notes rank senior in right to all of Penton's
subordinated indebtedness, including the 10 3/8% senior subordinated notes due
in 2011. The indenture governing the Secured Notes contains covenants that,
among other things, limit the Company's ability to pay dividends, incur
additional debt, sell assets and enter into mergers or consolidations. The
Company's ability to obtain dividends from its subsidiaries is only restricted
if Penton is in default under its debt arrangement or if the Company has
exceeded its limitation of additional indebtedness, as specified in the
indenture.
SENIOR SUBORDINATED NOTES
At December 31, 2005, the Company has $155.3 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 are fully and unconditionally, jointly and
severally guaranteed, on a senior subordinated basis, by the assets of Penton's
domestic subsidiaries, which are 100% owned by the Company. Condensed
consolidating financial information is presented in Note 20 -- Guarantor and
Non-guarantor Subsidiaries. The notes may be redeemed in whole or in part on or
after June 15, 2006 at a premium. The Company is permitted to spend up to $25.0
million in cash to repurchase the Subordinated Notes. During 2005 and 2002, the
Company purchased $19.7 million and $10.0 million, respectively, principal
amount of Subordinated Notes at prevailing market prices, using cash of $24.9
million.
The Subordinated Notes were offered at a discount of $4.2 million, which is
being amortized using the interest method, over its term. In 2005, 2004, and
2003, the Company recorded $0.3 million, respectively, of amortization expense
related to this discount. In addition, costs representing underwriting fees and
other professional fees of $1.7 million are also being amortized over the term
of the Subordinated Notes. The Subordinated Notes are unsecured senior
subordinated obligations of the Company, subordinated in right of payment to all
existing and future senior indebtedness of the Company, including the Loan and
Security Agreement. The indenture governing the Subordinated Notes contains
covenants that, among other things, restrict the Company's ability to borrow
money, pay dividends on or repurchase capital stock, make investments, sell
assets and enter into mergers or consolidations. The Company's ability to obtain
dividends from its subsidiaries is only restricted if Penton is in default under
its debt arrangement or if the Company has exceeded its limitation of additional
indebtedness, as specified in such agreement.
CASH PAID FOR INTEREST
Cash paid for interest in 2005, 2004 and 2003 was $36.4 million, $36.9
million, and $36.9 million, respectively.
Included in interest expense in the consolidated statements of operations
for 2005, 2004 and 2003 is amortization of deferred finance fees of $2.0
million, $2.0 million and $1.9 million, respectively. In addition, 2003 interest
expense includes the write-offs of unamortized financing fees of approximately
$1.9 million, related to the refinancing of debt, a loss on cash flow hedges of
$1.4 million, and a loss on interest swaps that
75
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
did not qualify as hedges under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" of $0.1 million.
NOTE 8 -- INCOME TAXES
The source of loss from continuing operations before income taxes for the
years ended December 31, 2005, 2004 and 2003 is as follows (in thousands):
2005 2004 2003
-------- -------- --------
U.S. domestic........................................ $(23,915) $(67,542) $(80,900)
Foreign.............................................. 20,353 7,594 (1,085)
-------- -------- --------
$ (3,562) $(59,948) $(81,985)
======== ======== ========
The components of the provision (benefit) for income taxes by taxing
jurisdiction before discontinued operations for the years ended December 31,
2005, 2004 and 2003 are as follows (in thousands):
2005 2004 2003
------ ------- ------
Current:
Federal................................................. $ (66) $ -- $ --
State and local......................................... (679) (3,367) 100
Foreign................................................. 13 (59) --
------ ------- ------
(732) (3,426) 100
------ ------- ------
Deferred:
Federal................................................. 2,417 2,291 5,957
State and local......................................... 216 343 890
Foreign................................................. -- -- --
------ ------- ------
2,633 2,634 6,847
------ ------- ------
$1,901 $ (792) $6,947
====== ======= ======
There is no net income tax provision (benefit) recorded for other
comprehensive income for 2005, 2004 and 2003.
76
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income taxes at the U.S. statutory rate to income taxes
provided before discontinued operations for the years ended December 31, 2005,
2004 and 2003 is as follows (in thousands):
2005 2004 2003
------- -------- --------
Income tax benefit at statutory rate.................. $(1,247) $(20,982) $(28,695)
Tax effect of:
Non-deductible goodwill impairment.................. -- 3,993 9,314
Non-deductible amortization......................... 117 106 158
State income tax benefit, net of federal
provision........................................ (463) (3,024) 990
Foreign tax items................................... (235) 115 219
Non-deductible expenses............................. 210 709 246
Other items, net.................................... 243 106 (244)
Valuation allowance................................. 3,276 18,185 24,959
------- -------- --------
Actual income tax provision (benefit)............... $ 1,901 $ (792) $ 6,947
======= ======== ========
Effective income tax rate............................. (53.4)% 1.3% (8.5)%
======= ======== ========
The components of deferred tax assets and liabilities at December 31, 2005
and 2004 are as follows (in thousands):
2005 2004
--------- ---------
Deferred tax assets:
Net operating loss carryforwards.......................... $ 80,215 $ 64,233
Indefinite life intangibles............................... 12,198 14,828
Pensions.................................................. 4,960 4,255
Restructuring charges..................................... 2,409 3,817
Basis difference in investments........................... 1,732 11,048
Other..................................................... 7,520 8,642
--------- ---------
Total deferred tax assets.............................. 109,034 106,823
--------- ---------
Deferred tax liabilities:
Indefinite life intangibles............................... (22,260) (19,627)
Other..................................................... -- (816)
--------- ---------
Total deferred tax liabilities......................... (22,260) (20,443)
--------- ---------
Net deferred tax asset...................................... 86,774 86,380
--------- ---------
Valuation allowance....................................... (109,127) (106,007)
--------- ---------
Total net deferred tax liability....................... $ (22,353) $ (19,627)
========= =========
For the years ended December 31, 2005, 2004 and 2003 the change in the
valuation allowance is as follows (in thousands):
BALANCE AT BALANCE AT
BEGINNING CHARGES TO END OF
OF YEAR EXPENSE(1) DEDUCTIONS YEAR
---------- ---------- ---------- ----------
2005 -- Valuation allowance................ $106,007 $ 3,120 $ -- $109,127
2004 -- Valuation allowance................ $ 72,129 $33,878 $ -- $106,007
2003 -- Valuation allowance................ $ 46,366 $25,763 $ -- $ 72,129
---------------
(1) includes discontinued operations
77
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 109 requires that deferred tax assets be reduced by a valuation
allowance, if based on available evidence, it is more likely than not that the
deferred tax assets will not be realized. The Company recorded valuation
allowances to offset the amount by which deferred tax assets exceeded deferred
tax liabilities, excluding the deferred tax liability related to indefinite life
intangibles. The change in the valuation allowance between December 31, 2005 and
2004 totaled $3.1 million.
At December 31, 2005, the Company had federal tax assets for operating loss
carryforwards of $181.3 million that will begin expiring from 2022 to 2025. A
full valuation has been provided on the federal operating loss carryforwards.
The federal tax assets for operating loss carryforwards may be limited under
certain circumstances such as a change in control of the Company's ownership.
At December 31, 2005, the Company had state tax assets for operating loss
carryforwards of $397.5 million that will begin expiring from 2006 to 2025. A
full valuation has been provided on the state operating loss carryforwards.
At December 31, 2005, the Company had available foreign tax credit
carryforwards of approximately $1.1 million that will begin expiring from 2011
to 2012. A full valuation allowance has been provided on the foreign tax credit
carryforwards.
At December 31, 2005, there are no unremitted earnings from the Company's
international subsidiaries. At December 31, 2004 the Company had provided
federal income tax benefits, subject to valuation allowance, on temporary
differences on certain international subsidiaries.
On June 30, 2005, the State of Ohio enacted significant changes to its tax
system that will be phased in over a five-year period including repealing the
corporate Ohio franchise/income tax, repealing the tangible personal property
tax on business equipment, inventory and fixtures, and enacting a new commercial
activity tax based on Ohio gross receipts. The effect of these changes is not
expected to have a material impact on the Company's results of operations,
financial position or liquidity.
The American Job Creation Act of 2004 was signed into law in October of
2004. Due to the Company's U.S. tax loss position, the law did not have a
material impact on the Company's income taxes.
In 2005 and 2004, net cash payments for income taxes were $0.4 million
(cash paid for taxes of $0.6 million less $0.2 million of tax refunds) and $0.7
million (cash paid for taxes of $0.9 million less $0.2 million of tax refunds),
respectively. For 2003, net cash tax refunds were $52.0 million.
NOTE 9 -- EMPLOYEE BENEFIT PLANS
Penton maintains three retirement plans for its employees: a defined
contribution plan, a defined benefit plan, and a supplemental executive
retirement plan ("SERP"). Retirement benefits for employees in foreign countries
are generally provided for by national statutory programs.
RETIREMENT AND SAVINGS PLAN
The Penton Retirement and Savings Plan (the "RSP") is a 401(k) contribution
plan that covers substantially all domestic employees of the Company. The RSP
permits participants to defer up to 25% of their compensation. In 2005, the
Company made quarterly contributions to eligible employees who are employed on
the last day of each quarter equal to 3% of the employee's annual salary. In
2004, the Company made monthly contributions to each employee's retirement
account equal to between 3% and 6% of the employee's annual salary, based on age
and years of service. The Company's contributions become fully vested once the
employee completes five years of service. In 2005 and 2004, the Company made
cash contributions to the RSP of $1.4 million and $1.7 million, respectively. No
contributions were made in 2003.
78
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFINED BENEFIT PLAN AND SERP
Penton's defined benefit pension plan covers all domestic employees who
were plan participants at December 31, 2003. In November 2003, the defined
benefit plan was amended to freeze the accrual of any benefits under the plan
after December 31, 2003. The benefits accrued in the frozen plan, which were
based on years of service and annual compensation, are payable to participating
employees when they qualify for retirement. As a result of the plan being
frozen, the Company recorded a curtailment gain of $2.2 million for the year
ended December 31, 2003. This amount is included in selling, general and
administrative expenses in the consolidated statements of operations.
Penton's SERP covers certain executives of the Company. In November 2003,
Penton's SERP was amended to freeze benefits at December 31, 2003. As a result
of the SERP being frozen, the Company recorded a curtailment charge of $0.3
million for the year ended December 31, 2003. This amount is included in
selling, general and administrative expenses in the consolidated statements of
operations. The SERP is an unfunded, non-qualified plan and hence has no plan
assets.
The following table sets forth the change in benefit obligation, change in
plan assets, funded status of the plans, amounts recognized in the consolidated
balance sheets, and assumptions for the defined benefit plan and SERP at
December 31, 2005 and 2004 (in thousands, except for percentages):
DEFINED BENEFIT PLAN SERP
--------------------- -------------
2005 2004 2005 2004
--------- --------- ----- -----
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, January 1............................ $ 44,644 $ 43,646 $ 449 $ 869
Interest cost......................................... 2,613 2,571 27 41
Benefits paid......................................... (2,561) (3,653) -- (414)
Actuarial loss........................................ 2,365 2,080 30 (47)
-------- -------- ----- -----
Benefit obligation, December 31.......................... 47,061 44,644 506 449
-------- -------- ----- -----
CHANGE IN PLAN ASSETS:
Fair value of plan assets, January 1..................... 35,440 33,990 -- --
Actual return on plan assets.......................... 1,831 3,560 -- --
Employer contributions................................ -- 1,543 -- 414
Benefits and expenses paid............................ (2,610) (3,653) -- (414)
-------- -------- ----- -----
Fair value of plan assets, December 31................... 34,661 35,440 -- --
-------- -------- ----- -----
FUNDED STATUS OF THE PLAN:
Projected benefit obligation in excess of the fair value
of assets, December 31................................ (12,400) (9,204) (506) (449)
Unrecognized net (gain) loss............................. 2,201 (1,364) 19 (11)
-------- -------- ----- -----
Net amount recognized.................................... $(10,199) $(10,568) $(487) $(460)
======== ======== ===== =====
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS:
Accrued pension liability................................ $(12,400) $(10,568) $(506) $(460)
Accumulated other comprehensive loss..................... 2,201 -- 19 --
-------- -------- ----- -----
Net amount recognized, December 31....................... $(10,199) $(10,568) $(487) $(460)
======== ======== ===== =====
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
Discount rate............................................ 5.66% 5.91% 5.66% 5.91%
Expected long term return on plan assets................. 8.50% 8.50% n/a n/a
79
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the components of the Company's defined
benefit pension expense and assumptions for the years ended December 31, 2005,
2004 and 2003 (in thousands, except for percentages):
DEFINED BENEFIT PLAN
------------------------------
2005 2004 2003
------- ------- ----------
NET PERIODIC PENSION COST (BENEFIT):
Service cost........................................ $ -- $ -- $ 1,870
Interest cost....................................... 2,613 2,571 2,640
Expected return on assets........................... (2,982) (2,951) (3,002)
Amortization of:
Prior service cost............................... -- -- 69
Actuarial gain................................... -- -- (550)
------- ------- ----------
Net periodic pension cost (benefit)................. (369) (380) 1,027
------- ------- ----------
Curtailment gain................................. -- -- (2,206)
Settlement gain.................................. -- (92) --
------- ------- ----------
Total pension cost (benefit)................... $ (369) $ (472) $ (1,179)
======= ======= ==========
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET
PERIODIC PENSION COST:
Discount rate.................................... 5.91% 6.00% 6.75/6.00%*
Expected return on plan assets................... 8.50% 8.50% 9.00%
Weighted-average salary increase rate............ n/a n/a 4.00%
---------------
* A discount rate of 6.75% was used from January 1, 2003 to November 15, 2003,
and a rate of 6.00% was used for the remainder of the year.
80
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the components of SERP pension expense and
assumptions for the years ended December 31, 2005, 2004 and 2003 (in thousands,
except for percentages):
SERP
---------------------
2005 2004 2003
----- ----- -----
NET PERIODIC PENSION COST:
Service cost.............................................. $ -- $ -- $ 73
Interest cost............................................. 27 41 52
Amortization of:
Prior service cost..................................... -- -- 26
Actuarial loss......................................... -- 1 --
----- ----- -----
Net periodic pension cost................................. 27 42 151
----- ----- -----
Curtailment loss....................................... -- -- 312
Settlement gain........................................ -- (15) --
----- ----- -----
Total pension cost................................... $ 27 $ 27 $ 463
===== ===== =====
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC
PENSION COST:
Discount rate.......................................... 5.91% 6.00% 6.75/6.00%*
Expected long term return on plan assets............... n/a n/a n/a
Weighted-average salary increase rate.................. n/a n/a 4.00%
---------------
* A discount rate of 6.75% was used from January 1, 2003 to November 15, 2003,
and a rate of 6.00% was used for the remainder of the year.
The Company estimates that benefit payments under its defined benefit plan
and SERP for future years will be as follows (in thousands):
DEFINED BENEFIT
PLAN SERP
--------------- ----
ESTIMATED FUTURE PAYMENTS:
2006...................................................... $ 1,775 $ 5
2007...................................................... $ 1,999 $ 5
2008...................................................... $ 2,378 $ 7
2009...................................................... $ 2,003 $ 9
2010...................................................... $ 1,935 $ 15
2011-2015................................................. $11,596 $166
The Company does not expect to make any contributions to its defined
benefit or SERP plans in 2006.
INVESTMENT POLICY
The Investment Committee of the Board of Directors has developed and
implemented an investment policy to effectively manage the defined benefit plans
assets in the context of meeting the plan's obligations. The portfolios
investment objectives are to maximize plan assets within designated risk and
return profiles; optimize returns of invested assets consistent with prudent
risk-taking; provide returns that exceed relevant market averages and benchmarks
of comparably sized portfolios; and produce returns that are consistent with
those of asset class indices weighted by policy target weights. All assets are
managed externally according to guidelines the Company has established
individually with the investment manager. Fixed income securities are
81
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to carry a AA or better rating, those not carrying these ratings
require approval of the Investment Committee. The Investment Committee
periodically reviews the overall plan performance, the risk level, asset
allocation and the investment manager's performance to evaluate the
effectiveness of the program.
The current asset allocation consists primarily of listed stocks and
corporate bonds. Investment policy decisions and asset allocation strategies are
refined based on information, analysis and recommendations as provided by the
investment manager.
The following table indicates Penton's 2006 targeted asset allocation and
breaks down its 2005 and 2004 asset allocation:
PERCENTAGE OF
TARGET PLAN ASSETS AT
ALLOCATION DECEMBER 31,
---------- ---------------
2006 2005 2004
---------- ------ ------
ASSET CATEGORY
Equity securities......................................... 70.0% 71.5% 74.7%
Debt and fixed income securities.......................... 30.0 28.5 25.3
----- ----- -----
Total..................................................... 100.0% 100.0% 100.0%
===== ===== =====
For 2005, the Company assumed a long-term rate of return of 8.5%. In
developing this rate, the Company evaluated the actual historical rates of
return for the plan since Penton was spun-off in 1998 as well as input from our
pension fund and actuarial consultant on asset class returns and long-term
inflation rate expectations.
The discount rate that the Company uses is subject to change each year,
consistent with changes in Moody's Aa corporate bond yield. Based upon the
Company's evaluation, management changed the discount rate from 6.00% at
December 31, 2003 to 5.91% at December 31, 2004, to 5.66% at December 31, 2005.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
LEASES
Penton leases certain office space and equipment under non-cancelable
operating leases. Some of the leases contain renewal options and/or rent
escalations, which are charged to expense on a straight-lined basis. Following
is a schedule of approximate annual future minimum rental payments required
under operating leases that have non-cancelable lease terms in excess of one
year as of December 31, 2005 (in thousands):
YEARS ENDING DECEMBER 31,
-------------------------
2006........................................................ $ 5,628
2007........................................................ 5,270
2008........................................................ 5,096
2009........................................................ 4,924
2010........................................................ 3,830
Thereafter.................................................. 698
-------
$25,446
=======
The Company does not have any significant capital leases.
For the years ended December 31, 2005, 2004 and 2003, the total rent
expense (including taxes, insurance and maintenance when included in the rent
payment) incurred by Penton was approximately $4.1 million, $4.3 million, and
$4.7 million, respectively. In addition, rent expense classified as part of
82
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restructuring and other charges in the consolidated statements of operations
were $2.3 million, $2.2 million, and $3.3 million for the years ended 2005, 2004
and 2003, respectively.
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 was 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 the Company's tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. The Company
recognizes liabilities for anticipated tax audit issues based on its estimate of
whether, and the extent to which, additional taxes will be due. If management
ultimately determines that payment of these amounts is unnecessary, it reverses
the liability and recognizes a tax benefit during the period in which it
determines that the liability is no longer necessary. The Company also
recognizes tax benefits to the extent that it is probable that its position will
be sustained when challenged by the taxing authorities. As of December 31, 2005
and December 31, 2004, the Company had not recognized tax benefits of
approximately $1.4 million and $2.2 million, respectively, relating to various
state tax positions. Should the ultimate outcome be unfavorable, the Company
maybe required to pay the amount currently accrued.
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 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
the Company's convertible preferred stock and warrants, including 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 the Company's ability to
access the equity markets in the future.
83
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT PAYMENTS
In June 2005, the Company acquired the assets of Kosher World for nearly
$0.4 million in cash plus contingent payments of up to $0.7 million based on the
achievement of specified revenue targets for the 2006 event. Based on December
31, 2005 projections, Penton is not expecting to make any contractual payments.
OTHER COMMITMENTS
In February 2005, the Company replaced its printing agreement with R.R.
Donnelley 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
over the term of the agreement 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 received $0.9 million in credits in
2005 and will receive pricing reductions in 2006 through 2011. In addition, the
purchase commitments required in the old agreement of $6.8 million in 2006 has
been eliminated.
The Company has a service agreement with Sprint through March 3, 2009 for
telecommunications products and services. The agreement, which was amended in
2005, provides for annual minimum usage levels by Penton of approximately $0.7
million each year.
NOTE 11 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
PREFERRED STOCK LEVERAGE RATIO EVENT OF NON-COMPLIANCE
At December 31, 2005, an event of non-compliance continues to exist under
the Company's Series C Preferred stock because the Company's leverage ratio of
9.57 (defined as debt less cash balances in excess of $5.0 million plus the
liquidation value of the convertible preferred stock and unpaid dividends
divided by adjusted EBITDA) exceeds 7.5. As a result 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 leverage ratio event of non-compliance does not represent an event of
default or violation under any of the Company's outstanding notes or the loan
agreement. As such, there is no acceleration of any outstanding indebtedness as
a result of this event. In addition, this event of non-compliance and the
resulting consequences have not resulted in any cash outflow from the Company.
If the Company had been sold on December 31, 2005, the outstanding $10.2
million under the Loan and Security Agreement would be required to be repaid,
the bondholders would have been entitled to receive $315.9 million, and the
preferred stockholders, including the Series M Preferred holders, would have
been entitled to receive $166.7 million before the common stockholders would
have received any amounts for their common shares. In addition, the Series M
Preferred holders would receive an additional 8% of all amounts the common
stockholders would receive. The amount the Series C Preferred stockholders would
be entitled to receive could change significantly in the future under certain
circumstances, see Company redemption provisions below. Common stockholders are
urged to read the terms of the Series C Preferred stock agreement carefully.
Under the conversion terms of the preferred stock, each holder has a right
to convert dividends into additional shares of common stock. At December 31,
2005, no dividends have been declared. However, in light of each holder's
conversion right and considering the increase in the dividend rate and the
concurrent reduction of the conversion price as noted above, the Company has
recognized a deemed dividend for the beneficial conversion feature inherent in
the accumulated dividend based on the original commitment date(s). At December
31, 2005, 2004 and 2003, $7.7 million, $12.2 million, and $8.5 million,
respectively have been reported as an increase in the carrying value of the
convertible preferred stock and a charge to capital in excess of par value in
light of the stockholders' deficit.
84
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF TERMS OF CONVERTIBLE PREFERRED STOCK
Below is a description of the material terms of the preferred stock and
warrants.
Liquidation Preference
The preferred stock has preferences over the common stock in the event of
liquidation or change in control, dissolution or winding-up. Upon the occurrence
of any such event, the preferred stockholders will be entitled to be paid in
cash, subject to the satisfaction of Penton's obligations under the indentures
governing the Company's Subordinated Notes and Secured Notes.
The initial liquidation value of the preferred stock is $1,000 per share.
If the preferred stock is not converted or redeemed prior to March 19, 2008, the
liquidation value will increase to $4,570 per share. The liquidation preference
is the liquidation value plus accrued and unpaid dividends.
Dividends
From the date of issuance until March 19, 2008, the dividends on the
preferred stock accrue daily on the sum of the then-applicable liquidation
preference and the accrued dividends thereon. Initially the annual rate was 5%
per annum. However, upon the occurrence of certain triggering events, the
dividend rate increases by one percentage point, with additional
one-percentage-point increases every ninety days up to a maximum increase of
five percentage points. One of those triggering events is a leverage ratio event
of non-compliance. As noted above, a leverage ratio event of non-compliance
initially occurred on April 1, 2003 and continues to exist as of the date of
this filing. Consequently, the dividend rate is currently 10%. The dividend rate
will adjust back to 5% (to the extent of any preferred shares still outstanding)
once the leverage ratio is less than 7.5.
From and after March 19, 2008, dividends will accrue at a rate of 15% per
annum. Preferred dividends of $17.9 million were accrued for at December 31,
2005.
Dividends are payable semiannually in cash only if declared by Penton's
Board of Directors and approved by holders of no less than 75% of the preferred
stock then outstanding. The provisions of Penton's notes limit its ability to
pay dividends in cash, and the Company has no present intention to either
declare or pay cash dividends on the preferred stock.
Conversion Provisions
Each share of preferred stock is convertible into common stock at each
holder's option and, subject to certain restrictions, at Penton's option.
Preferred stock is convertible into Penton common stock by multiplying the
number of shares of preferred stock to be converted by the liquidation value
plus accrued and unpaid dividends divided by the conversion price. The
conversion price for the preferred stock is $7.61 per share, subject to certain
anti-dilution adjustments. Among others, the restrictions on Penton's right to
force conversion before March 19, 2008 includes the market price of the common
shares being equal to or greater than the applicable share minimum noted below.
Company's Redemption Provisions
The Company can redeem the preferred stock at any time, in whole or in
part, at a cash redemption price equal to the product of the number of shares of
common stock into which the preferred shares can be converted and the greater of
the volume weighted-average closing share price of Penton's common stock for
85
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the preceding 30 trading days or the applicable minimum share price. The
applicable minimum share price is, as follows for the time periods indicated (as
may be adjusted for stock splits and similar transactions):
If being redeemed prior to the third anniversary............ $15.18
If being redeemed after the third, but before the fourth
anniversary............................................... $17.51
If being redeemed after the fourth, but before the fifth
anniversary............................................... $19.31
If being redeemed after the fifth, but before the sixth
anniversary............................................... $23.26
Holders' Redemption Provisions
The preferred stockholders have the right to require the Company to redeem
the security upon the occurrence of certain contingent events, including a
change in control or liquidation, dissolution or winding-up of Penton, at a
price equal to that described above under "Company's Redemption Provisions" or,
if greater, the liquidation value of the preferred stock (including accrued
dividends).
Conversion Prices
The initial conversion price is $7.61 per share (subject to certain
anti-dilution adjustments) until the sixth anniversary of issuance, at which
time the price may be adjusted to the lesser of (a) the conversion price in
effect on the sixth anniversary or (b) the greater of 90% of the market price of
the Company's common stock on the conversion date or $4.50.
If Penton fails to comply with specific covenants contained in the purchase
agreement, the conversion price of the preferred stock could be reduced up to a
maximum reduction of $3.80 (adjusted for stock splits and similar transactions).
No such reduction to the conversion price will be made at any time that
representatives of the investors constitute a majority of the Board of
Directors.
The conversion price of the Series C Preferred stock at December 31, 2005
was $7.61.
Board Representation
The preferred stockholders were initially entitled to three board seats.
When the leverage ratio event of non-compliance first occurred on April 1, 2003,
the holders of the preferred stock were able to nominate two additional members
to the Board of Directors. Since the event of non-compliance was not cured
within 90 days of its occurrence, the holders of the preferred stock had the
right to elect one less than a minimum majority of the Board of Directors. Since
the Company's annual stockholders' meeting in July 2004, in which the number of
Board members was reduced from eleven to eight, the preferred stockholders hold
a majority of the seats of Penton's Board of Directors.
At such time as the holders of preferred stock cease to hold shares of
preferred stock having an aggregate liquidation preference of at least $25.0
million, they will lose the right to appoint the director for one of these three
Board seats. On March 19, 2008, the holders of a majority of the preferred stock
then outstanding, if any, will be entitled to appoint one less than a minimum
majority of the Board of Directors, provided however, that this is not already
the case. In addition, if the Company initiates or consents to proceedings under
any applicable bankruptcy, insolvency, composition, or other similar laws, the
holders of a majority of the preferred stock may appoint a minimum majority of
Penton's Board of Directors. At such time as the holders of preferred stock
cease to hold shares of preferred stock having an aggregate liquidation
preference of at least $10.0 million, and such holders' beneficial ownership of
Penton's preferred stock and common stock constitutes less than 5% of the
aggregate voting power of the Company's voting securities, the holders of
preferred stock will no longer have the right to appoint any directors to the
Board of Directors.
Penton has also granted the holders of the preferred stock the right to
have representatives attend meetings of the Board of Directors after such time
as they are no longer entitled to appoint any members to
86
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Board of Directors and until such time as they no longer own any preferred
stock, warrants or shares of common stock issued upon conversion of the
preferred stock or exercise of the warrants.
Voting Rights
The holders of the preferred stock are entitled to vote on all matters
submitted to a vote of Penton's stockholders, voting as a single class with the
common stockholders on an as-converted basis. In addition, Penton may not,
without the affirmative vote of the holders of not less than 75% of the
preferred stock then outstanding, declare and pay dividends, impact the existing
classes of capital stock or increase the size of the Board, among other
conditions.
Covenants
The terms of the preferred stock have several financial and non-financial
covenants. As of December 31, 2005, Penton was in compliance with all such
covenants, except the preferred stock leverage ratio, as discussed above.
Sales Rights
The terms of the preferred stock require that Penton maintain a leverage
ratio, as previously defined, of 7.5 to 1.0 for the twelve month period ending
on the last day of December, March, June, and September of each year beginning
with the period ending on December 31, 2002. If Penton is not in compliance with
this covenant for four consecutive fiscal quarters, then the holders of a
majority of the preferred stock have the right to cause the Company to seek a
buyer for all of its assets or all of its issued and outstanding capital stock.
As discussed previously, as of December 31, 2005, the leverage ratio has
exceeded 7.5 for four consecutive quarters.
In exchange for removing the scheduled redemption date, as approved at the
2002 annual stockholders' meeting, the Company agreed to grant the holders of
the preferred stock the right to require the Company to seek a buyer for
substantially all of its assets or issued and outstanding capital stock
beginning on March 19, 2008. The holders of the preferred stock will not have
this right if less than 3,500 shares of preferred stock (as adjusted for stock
splits and similar transactions) are then outstanding.
Warrants
The current exercise price of the warrants is $7.61 per share. The warrants
are subject to anti-dilution and other adjustments that mirror those applicable
to the preferred stock. The warrants are immediately exercisable and expire 10
years after issuance.
SERIES M PREFERRED STOCK
In September 2004, the Company filed a Certificate of Designations for a
new series of preferred stock, $0.01 par value (the "Series M Preferred") with
the Secretary of State for the State of Delaware. The Board of Directors of the
Company created the Series M Preferred stock for issuance to certain officers
and other key employees of the Company as a long-term incentive plan for
management by giving them an equity stake in the performance of the Company. The
Series M Preferred stock is limited to 150,000 shares of which 69,000 shares
have been issued as of December 31, 2005. The Series M Preferred stock 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. The Company recognized an immaterial amount of expense related to
the Series M Preferred in 2005 and 2004.
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.
87
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of such distribution is first a percentage of what the holders of
Series C Preferred stock and second a percentage of what the holders of the
Company's common stock would receive upon such liquidation, dissolution,
winding-up or change of control.
NOTE 12 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
MANAGEMENT STOCK PURCHASE PLAN
The Company has a Management Stock Purchase Plan ("MSPP") for designated
officers and other key employees. Participants in the plan may elect to receive
restricted stock units ("RSU") in lieu of a designated portion of up to 100% of
their annual incentive bonus. Each RSU represents the right to receive one share
of Penton common stock. RSU's are granted at a 20% discount from fair market
value on the date awarded. RSUs vest two years after the date of grant and are
settled in shares of common stock after a period of deferral (of no less than
two years) selected by the participant, or upon termination of employment. The
discount is recorded as compensation expense over the minimum vesting period.
The amounts of expense recognized for 2005, 2004 and 2003 were not material.
At December 31, 2005, 847 RSUs are outstanding. During 2005, 2004 and 2003,
the Company issued 69,775 shares, 24,611 shares, and 35,850 shares,
respectively, of common stock under this plan.
EQUITY AND PERFORMANCE INCENTIVE PLAN
There are 5,500,000 shares of common stock reserved for issuance under the
Company's 1998 Equity and Performance Incentive Plan.
Stock Options
The Company has stock option plans under which employees and directors may
be granted options to purchase shares of the Company's common stock. Options
granted under the plans generally vest equally over three years from the date of
grant. On December 7, 2005, the Company's Board of Directors approved
accelerating the vesting of all outstanding, unvested stock options. As a result
of this vesting acceleration, options to purchase approximately 213,267 shares
of the Company's common stock became exercisable immediately. All options
granted pursuant to the plans expire no later than 10 years from the date the
option was granted.
The decision to accelerate the vesting of these options was made primarily
to eliminate any accounting charge upon the adoption of SFAS 123(R). SFAS 123(R)
requires the Company to expense the value of all employee stock options and
similar awards in its statement of operations, rather than as a footnote
disclosure in its consolidated financial statements.
In February 2004, 473,700 options were granted to certain executives and
other eligible employees at an exercise price of $0.90 per share. No options
were granted in 2005 or in 2003. No compensation expense was recorded by the
Company as a result of the options granted in 2004.
88
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a summary of Penton's stock option activity
and related information for the years ended 2003, 2004 and 2005 (in thousands,
except per share amounts):
NUMBER OF OPTIONS
--------------------- WEIGHTED-AVERAGE
EMPLOYEES DIRECTORS EXERCISE PRICE
--------- --------- ----------------
Balance, December 31, 2002........................ 1,454 143 $13.05
----- ---
Granted........................................... 599 20 $ 0.37
Exercised......................................... (30) -- $ 0.37
Canceled.......................................... (275) -- $11.54
----- ---
Balance, December 31, 2003........................ 1,748 163 $ 9.36
----- ---
Granted........................................... 474 -- $ 0.90
Exercised......................................... (17) -- $ 0.37
Canceled.......................................... (935) -- $10.62
----- ---
Balance, December 31, 2004........................ 1,270 163 $ 5.85
===== ===
Granted........................................... -- -- $ --
Exercised......................................... -- -- $ --
Canceled.......................................... (190) -- $ 4.31
----- ---
Balance, December 31, 2005........................ 1,080 163 $ 6.08
===== ===
The following table summarizes information about stock options outstanding
at December 31, 2005 (in thousands, except number of years and per share
amounts):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- ------------------------
WEIGHTED- OPTIONS
AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
NUMBER REMAINING AVERAGE AT AVERAGE
RANGE OF OF CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE 2005 PRICE
--------------- ------- ----------- --------- ------------ ---------
$27.75-28.375 36 4.6 years $28.10 36 $28.10
$16.225-24.29 194 3.6 years $20.15 194 $20.15
$6.89-6.89.... 324 5.9 years $ 6.89 324 $ 6.89
$0.90-0.90.... 269 8.1 years $ 0.90 269 $ 0.90
$0.37-0.37.... 420 6.1 years $ 0.37 420 $ 0.37
----- ------ ----- ------
Total....... 1,243 6.0 years $ 6.08 1,243 $ 6.08
===== =====
Deferred Shares
During 2005, 614,706 shares of common stock were issued under this plan. At
December 31, 2005, no deferred shares remain outstanding.
Compensation expense for deferred shares is recognized over the vesting
period based on the fair value of the shares at the date of grant. During 2004
and 2003, approximately $0.6 million, and $1.4 million, respectively, were
charged to expense under this plan. The amount charged to expense in 2005 was
not material.
89
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Performance Units
At December 31, 2005, 113,500 performance units remain outstanding related
to two executives. Based on attaining certain performance goals from January 1,
2003 through December 31, 2005, each grantee earned a cash award of
approximately $1.00 for each performance unit, which will be paid in the first
quarter of 2006. In 2004 and 2003, approximately $0.3 million and $0.2 million,
respectively, was recognized as expense. The expense recognized in 2005 was not
material. In 2004, 195,012 performance units valued at $0.4 million were
immediately vested when the employment of two executives was terminated.
TREASURY STOCK
In 2005, 2004 and 2003, executives returned 28,613, 157,271 and 89,214
shares, respectively, to the Company to cover taxes for various shares issued to
them during the year. In addition, in 2004, one executive returned 288,710
shares valued at $0.1 million, to pay down a portion of his executive loan
balance.
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.
EXECUTIVE LOAN PROGRAM
In 2000, the Company established an Executive Loan Program, which allowed
Penton to issue shares of Company common stock at fair market value to certain
key executives, in exchange for full recourse notes. At December 31, 2005 and
2004, two former executives and two current executives have outstanding loan
balances totaling approximately $5.8 million. The loan balance, net of amounts
reserved of $5.8 million at December 31, 2005 and 2004, is classified in the
stockholders' deficit section of the consolidated balance sheets as notes
receivable from officers. No payment of the outstanding balances is required
until maturity in 2008, at which time all outstanding amounts are due.
In June 2004, the Company's current Chief Executive Officer ("CEO") repaid
his outstanding loan balance with proceeds from his signing bonus and 288,710
shares of Penton common stock, which were returned to the Company. In addition,
the Board agreed to discharge the outstanding balance due on the former Chief
Operating Officers ("COO") executive loan in exchange for the executive
releasing the Company of any claims he may have had. The Board also agreed upon
a number of provisions related to the former CEO's outstanding executive loan
balance. See Note 14 -- Special Charges, under the heading "2004 management
restructuring" for a detailed discussion of events related to the above
transactions.
EITF 00-23, "Issues Related to the Accounting for Stock Compensation under
APB Opinion No. 25 and FASB Interpretation No. 44" ("EITF 00-23") requires that
when a Company forgives all or part of a recourse note it must consider all
other existing recourse notes as nonrecourse prospectively (variable
accounting). Consequently, the Company recognized $0.1 million in additional
paid in capital in excess of par equal to the fair market value of the stock
issued in conjunction with the establishment of the loans. In addition, the
Company recorded a $1.8 million provision for loan impairment on the remaining
unreserved loan balance in 2004. Additionally, the Company reversed the $1.1
million reserve established in June 2003 related to the CEO's loan note against
his signing bonus of $1.7 million, which was recorded in selling, general and
administrative expenses on the consolidated statements of operations. In the
future, all awards exercised with recourse notes shall be presumed to be
exercised with nonrecourse notes with any dividends recorded as compensation
expense and interest recorded as part of the exercise price.
90
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- 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 years ended December 31, 2005, 2004 and 2003 are as
follows (in thousands, except per share data):
YEARS ENDED DECEMBER 31,
-------------------------------
2005 2004 2003
-------- -------- ---------
Net loss.............................................. $ (8,422) $(67,191) $ (93,131)
Amortization of deemed dividend and accretion of
preferred stock..................................... (7,687) (12,190) (8,536)
-------- -------- ---------
Net loss applicable to common stockholders............ $(16,109) $(79,381) $(101,667)
======== ======== =========
Number of shares:
Weighted-average shares outstanding -- basic and
diluted............................................. 34,489 33,725 33,299
======== ======== =========
Per share:
Loss applicable to common stockholders -- basic and
diluted............................................. $ (0.47) $ (2.35) $ (3.05)
Our preferred stock and RSUs are participating securities, such that in the
event a dividend is declared or paid on the common stock, the Company must
simultaneously declare and pay a dividend on the preferred stock and the RSUs as
if the preferred stock and the RSUs had been converted into common stock. EITF
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. Vested RSUs and vested deferred shares are always
included in the computation of basic earnings per share as they are considered
equivalent to common stock. For participating securities included in the scope
of EITF 03-6, the use of the two-class method to determine whether the inclusion
of such securities is dilutive is required. Furthermore, non-vested RSUs are
included in basic EPS using the two-class method in accordance with SFAS 128. To
the extent not included in basic earnings per share, the redeemable preferred
stock and the non-vested RSUs are considered in the diluted earnings per share
calculation under the "if-converted" method and "treasury stock" method,
respectively. At December 31, 2005, 2004 and 2003, redeemable preferred stock
and non-vested RSUs were excluded from the calculation of basic earnings per
share as the results were anti-dilutive.
At December 31, 2005, 2004 and 2003, approximately 1.2 million, 2.2 million
and 2.5 million stock options, performance shares, deferred shares and
non-vested RSU's, respectively, were excluded from the calculation of diluted
earnings per share due to the Company's loss position, as inclusion would have
been anti-dilutive. In addition, in 2005, 2004 and 2003, 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 14 -- SPECIAL CHARGES
BUSINESS RESTRUCTURING CHARGES
Since 2001, the Company implemented a number of cost reduction initiatives
to improve its operating cost structure. The cost reduction initiatives included
workforce reductions, the consolidation and closure of over 30 facilities, and
the cancellation of various contracts. The costs associated with restructuring
activities are included in restructuring and other charges in the consolidated
statements of operations.
The Company is actively attempting to sublease all vacant facilities. For
facilities that the Company no longer occupies and which have not yet been
subleased, management makes assumptions to estimate sublease income, including
the number of years a property will be subleased, square footage, market trends,
property location and the price per square foot based on discussions with
realtors and/or parties that have shown
91
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest in the space. The Company records estimated sublease income as a credit
to restructuring and other charges in the consolidated statements of operations.
Personnel costs include payments for severance, benefits and outplacement
services.
2005 RESTRUCTURING PLAN
In the first quarter of 2005, the Company announced its plans to shutdown
its Wireless Systems Design magazine, which was part of the Technology segment.
The shutdown resulted in the termination of eight employees at a cost of
approximately $0.2 million. All payments related to these employees were made in
2005.
2004 RESTRUCTURING PLAN
In 2004, recorded restructuring charges of $5.2 million, including $4.7
million related to personnel costs associated with the elimination of 68
positions, including several executive positions; office closure costs of $0.1
million related to the closure of a warehouse in Colorado; and other exit costs
of $0.4 million related to the cancellation of an agreement with a former
employee to provide trade show and conference services to select Penton events.
The following table presents the reconciliation of the 2004 restructuring
plan liability balance between periods (in thousands):
EMPLOYEE
SEPARATION FACILITY OTHER
COSTS CLOSING COSTS EXIT COSTS TOTAL
---------- ------------- ---------- -------
Charged to costs and expenses............. $ 4,752 $ 51 $ 364 $ 5,167
2004 adjustments.......................... 15 -- (27) (12)
Cash payments............................. (4,024) (1) (98) (4,123)
------- ---- ----- -------
Restructuring balance, December 31,
2004.................................... 743 50 239 1,032
2005 adjustments.......................... 6 (3) 49 52
Cash payments............................. (749) (43) (288) (1,080)
------- ---- ----- -------
Restructuring balance, December 31,
2005.................................... $ -- $ 4 $ -- $ 4
======= ==== ===== =======
Payments related to the closure of the warehouse in Colorado will be
completed in January 2006.
2003 RESTRUCTURING PLAN
In 2003, the Company recorded restructuring charges of $4.9 million,
including $2.7 million related to personnel costs associated with the
elimination of 85 positions; office closure costs of $3.8 million (offset by
$2.3 million of estimated sublease income) related to the closure of certain
offices; and other exit costs of $0.7 million related to equipment lease
payments at closed office facilities, cancellation of certain contracts and
broker commissions.
92
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the reconciliation of the 2003 restructuring
plan liability balance between periods (in thousands):
EMPLOYEE
SEPARATION FACILITY OTHER
COSTS CLOSING COSTS EXIT COSTS TOTAL
---------- ------------- ---------- -------
Charged to costs and expenses............. $ 2,736 $1,505 $ 661 $ 4,902
2003 adjustments.......................... 35 (11) -- 24
Cash payments............................. (1,105) (500) (233) (1,838)
------- ------ ----- -------
Restructuring balance, 2003............... 1,666 994 428 3,088
2004 adjustments.......................... 76 69 (9) 136
Cash payments............................. (1,742) (114) (241) (2,097)
------- ------ ----- -------
Restructuring balance, 2004............... -- 949 178 1,127
2005 adjustments.......................... -- 58 (164) (106)
Cash payments............................. -- (41) (14) (55)
------- ------ ----- -------
Restructuring balance, 2005............... $ -- $ 966 $ -- $ 966
======= ====== ===== =======
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 their original obligation. The Company was
also able to negotiate the settlement of a $0.06 million hotel contract
obligation. Obligations for the non-cancelable facility lease will be paid over
its respective lease term, which expires in 2010.
2002 RESTRUCTURING PLAN
In 2002, the Company recorded restructuring charges of $15.4 million,
including $10.3 million related to personnel costs associated with the
elimination of over 316 positions; office closure costs of $5.1 million (offset
by $1.7 million of estimated sublease income) related to the closure of nine
offices; and other exit costs of $1.7 million related to contractual obligations
associated with the cancellation of certain trade show venues, hotel contracts
and service agreements.
The following table presents the reconciliation of the 2002 restructuring
plan liability balance between periods (in thousands):
EMPLOYEE
SEPARATION FACILITY OTHER
COSTS CLOSING COSTS EXIT COSTS TOTAL
---------- ------------- ---------- -------
Restructuring balance, December 31,
2002.................................... $ 5,104 $ 4,433 $ 740 $10,277
2003 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
2004 adjustments.......................... 25 300 291 616
Cash payments............................. (64) (708) (564) (1,336)
------- ------- ----- -------
Restructuring balance, December 31,
2004.................................... 92 1,952 -- 2,044
2005 adjustments.......................... (52) 235 -- 183
Cash payments............................. (15) (598) -- (613)
------- ------- ----- -------
Restructuring balance, December 31,
2005.................................... $ 25 $ 1,589 $ -- $ 1,614
======= ======= ===== =======
93
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Adjustments to facility closing costs in 2003, 2004 and 2005 reflect
changes in sublease assumptions. The balance of severance costs relates to an
executive who will be paid through 2007. Obligations for the non-cancelable
leases will be paid over their respective lease terms, which expire at various
dates through 2010.
2001 RESTRUCTURING PLAN
In 2001, the Company recorded restructuring charges of $19.8 million,
including $6.8 million related to personnel costs associated with the
elimination of over 400 positions; office closure costs of $8.7 million related
to the closure of more than 20 offices worldwide; and other exit costs of $4.3
million, including the write-off of capitalized software developments costs.
The following table presents the reconciliation of the 2001 restructuring
plan liability balance between periods (in thousands):
EMPLOYEE
SEPARATION FACILITY OTHER
COSTS CLOSING COSTS EXIT COSTS TOTAL
---------- ------------- ---------- -------
Restructuring balance, December 31,
2002.................................... $ 19 $ 6,353 $ 275 $ 6,647
2003 adjustments.......................... (8) 598 82 672
Cash payments............................. (11) (1,304) (357) (1,672)
---- ------- ----- -------
Restructuring balance, December 31,
2003.................................... -- 5,647 -- 5,647
2004 adjustments.......................... -- 288 -- 288
Cash payments............................. -- (1,394) -- (1,394)
---- ------- ----- -------
Restructuring balance, December 31,
2004.................................... -- 4,541 -- 4,541
2005 adjustments.......................... -- 522 -- 522
Cash payments............................. -- (1,624) -- (1,624)
---- ------- ----- -------
Restructuring balance, December 31,
2005.................................... $ -- $ 3,439 $ -- $ 3,439
==== ======= ===== =======
Adjustments to facility closing costs in 2003, 2004 and 2005 reflect
changes in sublease assumptions. In December 2005, the Company adjusted one of
its restructured leases by $0.5 million based on its inability to sublease this
space in the time frame originally assumed. The Company expects to pay the
obligations for the non-cancelable leases over their respective lease terms,
which expire at various dates through 2013.
ESTIMATED FUTURE PAYMENTS AND SUBLEASE INCOME
Management expects to make cash restructuring payments in 2006 of
approximately $1.2 million, primarily for facility lease obligations. Severance
related payments are expected to be substantially completed at the end of 2006.
The balance of facility costs, which are 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 of approximately $1.2 million and $2.7 million
at December 31, 2005 and 2004, respectively, are classified in other accrued
expenses on the consolidated balance sheets. Amounts due after one year of
approximately $4.8 million and $6.0 million, respectively, are included in other
non-current liabilities on the consolidated balance sheets.
94
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of the Company's restructuring plan, management attempts to
sublease facilities that the Company no longer uses. Following is a schedule of
approximate future minimum lease payments expected to be received for each of
the five succeeding years as of December 31, 2005 (in thousands):
ESTIMATED
LEASE
RECEIPTS
---------
2006........................................................ $1,026
2007........................................................ 1,019
2008........................................................ 1,019
2009........................................................ 922
2010........................................................ --
------
$3,986
======
Restructuring charges by segment for the years ended December 31, 2005,
2004 and 2003 are as follows (in thousands):
2005 2004 2003
---- ------ ------
Industry.................................................... $321 $1,348 $1,467
Technology.................................................. 146 1,232 1,698
Lifestyle................................................... (65) 3 258
Retail...................................................... -- 714 738
Corporate................................................... 527 2,765 120
---- ------ ------
Total....................................................... $929 $6,062 $4,281
==== ====== ======
In addition to the restructuring charges outlined in the table above, other
items were included in restructuring and other charges in 2005, 2004 and 2003.
They include approximately $0.1 million and $0.03 million in 2005 and 2004,
respectively related to legal fees for suits that were settled, as well as $0.6
million in 2003, related to the Company's 401(k) plan, for employees who had
rescissionary rights. In addition, restructuring charges of $0.1 million for
2004 and $0.7 million for 2003 were reclassified to discontinued operations.
2004 MANAGEMENT RESTRUCTURING
In June 2004, Penton's Board of Directors appointment of a new CEO to the
Company. In addition to the Company's standard executive incentive and benefit
package, the CEO received a signing bonus of approximately $1.7 million and
30,000 shares of the new Series M Preferred Stock. The Board also accelerated
the vesting of 135,000 deferred shares originally granted to this executive in
February 2004. The CEO used the net proceeds from his signing bonus and 288,710
shares of Penton common stock, which were returned to the Company, to repay his
executive loan balance in full.
In March 2004, the Company announced that its former Chairman and CEO,
would be leaving the Company effective June 30, 2004. On July 1, 2004, the
former CEO and the Company signed a Separation Agreement and General Release
agreement. The separation agreement stipulated a lump-sum payment of $2.3
million (including the settlement of an accrued SERP obligation of $0.2
million), the acceleration of 100,000 stock options, and the acceleration of
125,000 performance shares.
In addition, the Board and the former CEO agreed upon a number of
provisions related to his outstanding executive loan balance. The underlying
goal of these provisions is to ensure that there are sufficient funds available
to pay any amount due to taxing authorities in case the loan is discharged at a
future date.
95
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Specifically, $0.8 million of the $2.3 million lump-sum payment has been placed
in escrow and will be returned to the former CEO only if he pays off the entire
loan balance by its due date. Furthermore, the former CEO has granted Penton a
security interest in approximately 1.1 million shares of Penton common stock.
These pledged securities could be transferred to Penton's ownership under
certain circumstances and the proceeds used to pay down the outstanding loan
balance.
Furthermore, in June 2004, the former CEO was granted 514,706 deferred
shares that vested on January 3, 2005. In return for these shares, the former
CEO agreed to comply with the terms of certain restrictive covenants, including
a non-compete and a non-solicitation covenant.
In June 2004, the Company announced that its President and COO, would be
leaving the Company as part of a management restructuring plan. The former COO's
employment was terminated effective June 30, 2004, and on July 1, 2004, the
former COO and the Company signed a Separation Agreement and General Release
agreement. The separation agreement stipulated a lump-sum payment of $1.7
million (including the settlement of an accrued SERP obligation of $0.2
million), and the acceleration of 139,999 stock options, 210,000 deferred shares
and 90,000 performance shares. In addition, the Board agreed to discharge the
$2.6 million outstanding balance on the former COO's executive loan in return
for full and final settlement of any claims the former COO might have against
the Company.
NOTE 15 -- RELATED PARTIES
At December 31, 2005, $12.0 million face value of the Company's
Subordinated Notes are owned by ABRY Mezzanine Partners L.P. ("ABRY"). In
January 2003, the Company sold the assets of PTS to Cygnus Expositions, a
division of Cygnus Business Media, Inc., a Delaware corporation, for $3.2
million. Cygnus Business Media, Inc. is owned by ABRY. ABRY holds a significant
portion of Penton's Series C Preferred stock and has two members on the
Company's Board of Directors, including its Chairman.
The Company has an Executive Loan Program, which allowed Penton to issue
shares of Company common stock at fair market value to certain key executives,
in exchange for full recourse notes. At December 31, 2005 and 2004, the
outstanding loan balance under the Executive Loan Program was approximately $5.8
million. In 2004 and 2003, executive loans of $1.0 million and $0.3 million were
repaid, respectively. The loan balance, net of reserves, is classified in the
stockholders' deficit section of the consolidated balance sheets as notes
receivable from officers. See Note 12 -- Common Stock and Common Stock Award
Programs.
In 2005 and 2004, executives returned 28,613 and 445,981 shares,
respectively, to the Company to cover taxes on deferred shares issued and by one
executive to pay-down a portion of his executive loan.
In December 2003, the Company entered into an agreement with a former
employee to provide trade show and conference services to select Penton events
in 2004 and 2005. In 2004, the Company paid $0.4 million under this agreement.
Effective December 31, 2004, the Company cancelled the agreement, resulting in
approximately $0.2 million of cancellation fees which were paid in 2005.
NOTE 16 -- SEGMENT INFORMATION
The Company's segments include: Industry, Technology, Lifestyle and Retail.
The results of these segments are regularly reviewed by the Company's chief
operating decision maker and the executive team to determine how resources are
allocated to each segment and to assess the performance of each segment. All
four segments derive their revenues from publications, trade shows and
conferences, and online media products.
96
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Content of each of the Company's 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
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 charges, restructuring and other charges, executive
separation costs, provision for executive loan impairment, discontinued
operations, general and administrative costs, and other non-operating items.
General and administrative costs include functions such as finance, accounting,
human resources and information systems, which cannot reasonably be allocated to
each segment. Assets are not allocated to segments and as such have not been
presented.
Summary information by segment for the years ended December 31, 2005, 2004
and 2003, adjusted for discontinued operations, are as follows (in thousands):
ADJUSTED SEGMENT
REVENUES ADJUSTED SEGMENT EBITDA EBITDA MARGIN
------------------------------ --------------------------- ---------------------
2005 2004 2003 2005 2004 2003 2005 2004 2003
-------- -------- -------- ------- ------- ------- ----- ----- -----
Industry............. $ 74,944 $ 75,224 $ 75,307 $22,134 $20,351 $18,929 29.5% 27.1% 25.1%
Technology........... 62,036 62,443 61,743 14,538 12,258 8,876 23.4% 19.6% 14.4%
Lifestyle............ 35,341 36,223 31,756 14,452 14,141 11,571 40.9% 39.0% 36.4%
Retail............... 20,526 20,943 19,936 6,259 5,543 5,432 30.5% 26.5% 27.2%
-------- -------- -------- ------- ------- -------
Total................ $192,847 $194,833 $188,742 $57,383 $52,293 $44,808 29.8% 26.8% 23.7%
======== ======== ======== ======= ======= =======
97
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. Following is a reconciliation of Penton's total
adjusted segment EBITDA to consolidated loss from continuing operations before
income taxes (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2005 2004 2003
-------- -------- --------
Total adjusted segment EBITDA........................ $ 57,383 $ 52,293 $ 44,808
General and administrative costs..................... (16,514) (18,751) (20,173)
Depreciation and amortization........................ (6,611) (8,009) (10,457)
Restructuring and other charges, net................. (906) (6,079) (5,205)
Provision for executive loan impairment.............. -- (1,717) (7,600)
Impairment of assets (including goodwill)............ -- (34,466) (39,913)
Executive separation costs........................... (154) (2,728) --
Non-cash compensation................................ (21) (733) (1,372)
Interest expense..................................... (39,537) (40,005) (41,581)
Interest income...................................... 241 207 437
Gain on extinguishment of debt....................... 2,732 -- --
Other, net........................................... (175) 40 (929)
-------- -------- --------
Loss from continuing operations before income
taxes.............................................. $ (3,562) $(59,948) $(81,985)
======== ======== ========
ENTERPRISE-WIDE DISCLOSURES
Revenues by product are as follows for the years ended December 31, 2005,
2004 and 2003 (in thousands):
2005 2004 2003
-------- -------- --------
Publishing........................................... $134,254 $141,406 $143,749
Trade shows and conferences.......................... 40,227 37,845 32,364
Online media......................................... 18,366 15,582 12,629
-------- -------- --------
$192,847 $194,833 $188,742
======== ======== ========
Domestic revenues of the Company's products and services comprised $190.0
million, $191.3 million and $184.5 million of total revenues for the years ended
December 31, 2005, 2004 and 2003, respectively. Foreign revenues totaled $2.8
million, $3.5 million and $4.2 million of the Company's revenues for the years
ended December 31, 2005, 2004 and 2003, respectively, of which $2.0 million,
$2.8 million and $2.2 million, respectively, were from the United Kingdom. No
single customer accounted for 10% or more of sales during 2005, 2004 and 2003.
Property, plant and equipment at December 31, 2005, 2004 and 2003 included
$0.1 million, $0.2 million and $0.2 million, respectively, identified with
foreign operations (primarily in the United Kingdom) with the remaining assets
identified with domestic operations.
NOTE 17 -- 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 consolidated statements of cash flows.
98
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 2005, the Company issued 69,775 common shares under the MSPP and 614,706
common shares under the deferred share plan. In addition, for 2005, the Company
recorded amortization of deemed dividend and accretion on preferred stock of
$7.7 million.
In 2004, the Company issued 24,611 shares of common stock under the MSPP
plan; 587,785 deferred shares; 266,250 performance shares and 17,000 shares
under the Company's stock option plan. In addition, five executives returned a
total of 157,271 shares to treasury stock to pay taxes related to deferred
shares issued and 135,000 shares to pay down a portion of an executive loan.
Furthermore, net proceeds from the CEO's $1.7 million signing bonus along with
288,710 shares of common stock, which were returned to the Company, were applied
to the CEO's outstanding loan balance. In 2004, the Company recorded
amortization of deemed dividends and accretion on preferred stock of $12.2
million.
In 2003, the Company issued as common stock 35,850 shares under the MSPP
plan; 372,916 deferred shares; 30,516 performance shares; and 30,249 shares
under the Company's stock option plan. The Company also recorded amortization of
deemed dividends and accretion on preferred stock of $8.9 million.
NOTE 18 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value of financial instruments as of December 31, 2005 and 2004:
CASH AND CASH EQUIVALENTS, RESTRICTED CASH, ACCOUNTS RECEIVABLE, ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, restricted cash, accounts receivable, accounts payable and
accrued expenses approximated fair value because of their short maturities.
SENIOR SECURED NOTES AND SENIOR SUBORDINATED NOTES
The fair values of the Secured Notes and Subordinated Notes are determined
by reference to quoted market prices. At December 31, 2005 and 2004, the
Company's Secured Notes had fair values of $164.2 million and $157.5 million,
respectively, and carrying amounts of $157.2 million and $157.0 million,
respectively. At December 31, 2005 and 2004, the Company's Subordinated Notes
had fair values of $140.5 million and $115.5 million, respectively, and carrying
amounts of $153.0 million and $172.0 million, respectively.
99
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2005 and
2004 are shown below (in thousands, except per share amounts):
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- --------
2005
Revenues............................... $53,331 $43,814 $50,986 $44,716 $192,847
Operating income....................... $13,663(c) $ 4,822(c) $10,766(c) $ 3,926 $ 33,177
Income (loss) from continuing
operations........................... $ 4,613(a) $(5,645) $ 259 $(4,690)(b) $ (5,463)
Discontinued operations................ $(2,800) $ (159) $ -- $ -- $ (2,959)
Net income (loss)...................... $ 1,813 $(5,804) $ 259 $(4,690) $ (8,422)
Amortization of deemed dividend and
accretion of preferred stock......... $(1,823) $(1,891) $(1,961) $(2,012) $ (7,687)
Net loss applicable to common
stockholders......................... $ (10) $(7,695) $(1,702) $(6,702) $(16,109)
Earnings per share (basic and diluted):
Income (loss) from continuing
operations applicable to common
stockholders...................... $ 0.08 $ (0.22) $ (0.05) $ (0.19) $ (0.38)
Discontinued operations.............. $ (0.08) $ -- $ -- $ -- $ (0.09)
Net loss applicable to common
stockholders...................... $ -- $ (0.22) $ (0.05) $ (0.19) $ (0.47)
Earnings per share calculations for each of the quarters are based on the
weighted-average number of shares outstanding for each quarter. The sum of the
quarters may not necessarily be equal to the full-year earnings per share
amounts.
---------------
(a) Includes $1.6 million gain on extinguishment of debt.
(b) Includes $1.1 million gain on extinguishment of debt.
(c) In the fourth quarter of 2005, the Company reclassified amortization
related to finance fees from amortization expense to interest expense.
100
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTER
---------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- ------- --------
2004
Revenues........................... $ 52,791 $ 46,106 $ 44,663 $51,273 $194,833
Operating income (loss)(e)......... $ 6,644(a) $ (4,438)(b) $(31,001)(c) $ 8,605(d) $(20,190)
Income (loss) from continuing
operations....................... $ (3,993) $(15,011) $(40,801) $ 649 $(59,156)
Discontinued operations(f)......... $ (1,909) $ (215) $ (3,595) $(2,316) $ (8,035)
Net loss........................... $ (5,902) $(15,226) $(44,396) $(1,667) $(67,191)
Amortization of deemed dividend and
accretion of preferred stock..... $ (5,193) $ (3,408) $ (1,772) $(1,817) $(12,190)
Net loss applicable to common
stockholders..................... $(11,095) $(18,634) $(46,168) $(3,484) $(79,381)
Earnings per share (basic and
diluted):
Net loss from continuing
operations applicable to
common stockholders........... $ (0.27) $ (0.55) $ (1.25) $ (0.03) $ (2.11)
Discontinued operations.......... $ (0.06) $ -- $ (0.11) $ (0.07) $ (0.24)
Net loss applicable to common
stockholders.................. $ (0.33) $ (0.55) $ (1.36) $ (0.10) $ (2.35)
Earnings per share calculations for each of the quarters are based on the
weighted-average number of shares outstanding for each quarter. The sum of the
quarters may not necessarily be equal to the full-year earnings per share
amounts.
---------------
(a) Includes $0.9 million restructuring charge and $2.4 million of executive
separation costs.
(b) Includes $3.5 million restructuring charge and $1.7 million provision for
loan impairment.
(c) Includes $1.3 million restructuring charge and $34.5 million related to
impairment of assets.
(d) Includes $0.5 million restructuring charge.
(e) In the fourth quarter of 2005, the Company reclassified amortization
related to finance fees from amortization expense to interest expense.
(f) Results from PM Europe and PM Germany have been classified as part of
discontinued operations for all quarters in 2004.
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The Company's Subordinated Notes issued in June 2001 and Secured Notes
issued in March 2002 are fully and unconditionally, jointly and severally
guaranteed by the assets of Penton's domestic subsidiaries, which are 100% owned
by the Company, and also by the stock of certain subsidiaries.
101
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedules set forth condensed consolidating balance sheets as
of December 31, 2005 and 2004 and condensed consolidating statements of
operations and condensed consolidating statements of cash flows for the years
ended December 31, 2005, 2004 and 2003. In the following schedules, "Parent"
refers to Penton Media, Inc., "Guarantor Subsidiaries" refers to Penton's wholly
owned domestic subsidiaries and "Non-guarantor Subsidiaries" refers to Penton's
foreign subsidiaries. "Eliminations" represent the adjustments necessary to (a)
eliminate intercompany transactions and (b) eliminate the investments in
Penton's subsidiaries.
Effective December 31, 2004, several domestic subsidiaries were merged into
Penton Media, Inc. Prior period condensed consolidating financial information
has been adjusted to reflect these changes. In addition, see Note
1 -- Description of Business and Significant Accounting Policies,
"reclassifications" and "cash and cash equivalents" and Note 2 -- Acquisitions
and Discontinued Operations, for reclassifications.
102
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................ $ 286 $ 58 $ 288 $ -- $ 632
Restricted cash.......................... 299 -- -- -- 299
Accounts receivable, net................. 22,853 3,558 1,060 -- 27,471
Inventories.............................. 904 190 4 -- 1,098
Deferred tax asset....................... 402 (88) -- -- 314
Prepayments, deposits and other.......... 2,179 227 46 -- 2,452
--------- --------- -------- --------- ---------
26,923 3,945 1,398 -- 32,266
--------- --------- -------- --------- ---------
Property and equipment, net.............. 9,003 1,304 94 -- 10,401
Goodwill................................. 136,689 36,914 -- -- 173,603
Other intangible assets, net............. 4,219 1,743 -- -- 5,962
Other non-current assets................. 4,791 138 8 -- 4,937
Investment in subsidiaries............... (240,510) -- -- 240,510 --
--------- --------- -------- --------- ---------
$ (58,885) $ 44,044 $ 1,500 $ 240,510 $ 227,169
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Loan and security agreement revolver..... $ 10,200 $ -- $ -- $ -- $ 10,200
Accounts payable and accrued expenses.... 12,676 1,512 259 -- 14,447
Accrued compensation and benefits........ 4,218 736 62 -- 5,016
Unearned income.......................... 18,774 2,464 1,464 -- 22,702
--------- --------- -------- --------- ---------
Total current liabilities................ 45,868 4,712 1,785 -- 52,365
Senior secured notes, net of discount...... 80,169 77,026 -- -- 157,195
Senior subordinated notes, net of
discount................................. 78,008 74,948 -- -- 152,956
Accrued pension liability.................. 12,400 -- -- -- 12,400
Deferred tax liability..................... 21,803 864 -- -- 22,667
Intercompany advances...................... (125,039) 88,547 36,492 -- --
Other non-current liabilities.............. 6,381 1,680 -- -- 8,061
--------- --------- -------- --------- ---------
Total liabilities...................... 119,590 247,777 38,277 -- 405,644
--------- --------- -------- --------- ---------
Mandatorily redeemable convertible
preferred stock.......................... 74,849 -- -- -- 74,849
--------- --------- -------- --------- ---------
Series M preferred stock................... 18 -- -- -- 18
--------- --------- -------- --------- ---------
Stockholders' equity (deficit):
Common stock and capital in excess of par
value.................................. 207,792 202,405 16,566 (218,971) 207,792
Retained earnings (deficit).............. (458,489) (406,093) (53,058) 459,151 (458,489)
Notes receivable......................... -- -- -- -- --
Accumulated other comprehensive loss..... (2,645) (45) (285) 330 (2,645)
--------- --------- -------- --------- ---------
(253,342) (203,733) (36,777) 240,510 (253,342)
--------- --------- -------- --------- ---------
$ (58,885) $ 44,044 $ 1,500 $ 240,510 $ 227,169
========= ========= ======== ========= =========
103
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF 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, plant and equipment, net....... 12,304 1,693 796 -- 14,793
Goodwill................................. 136,689 36,182 3,291 -- 176,162
Other intangibles, 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 --
--------- --------- -------- --------- ---------
$ (29,421) $ 44,687 $ 10,960 $ 221,148 $ 247,374
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.... $ 15,544 $ 1,724 $ 900 $ -- $ 18,168
Accrued compensation and benefits........ 4,961 902 17 -- 5,880
Unearned income.......................... 16,337 2,760 4,177 -- 23,274
--------- --------- -------- --------- ---------
Total current liabilities.............. 36,842 5,386 5,094 -- 47,322
Senior secured notes, net of discount...... 80,094 76,953 -- -- 157,047
Senior subordinated notes, net of
discount................................. 87,729 84,288 -- -- 172,017
Accrued pension liability.................. 10,568 -- -- -- 10,568
Deferred tax liability..................... 18,947 956 -- -- 19,903
Intercompany advances...................... (102,089) 61,420 40,669 -- --
Other non-current liabilities.............. 7,558 2,029 -- -- 9,587
--------- --------- -------- --------- ---------
Total liabilities...................... 139,649 231,032 45,763 -- 416,444
--------- --------- -------- --------- ---------
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......................... -- -- -- -- --
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
========= ========= ======== ========= =========
104
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.......................... $159,472 $ 30,562 $ 2,813 $ -- $192,847
-------- -------- ------- ------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.................. 68,072 14,812 942 -- 83,826
Selling, general and
administrative............... 52,067 14,424 1,836 -- 68,327
Restructuring and other charges,
net.......................... 881 25 -- -- 906
Depreciation and amortization... 5,086 1,449 76 -- 6,611
-------- -------- ------- ------- --------
126,106 30,710 2,854 -- 159,670
-------- -------- ------- ------- --------
OPERATING INCOME (LOSS)........... 33,366 (148) (41) -- 33,177
-------- -------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense................ (22,141) (17,271) (125) -- (39,537)
Interest income................. 241 -- -- -- 241
Gain on extinguishment of
debt......................... 1,393 1,339 -- -- 2,732
Equity in losses of
subsidiaries................. (19,362) -- -- 19,362 --
Other, net...................... -- (58) (117) -- (175)
-------- -------- ------- ------- --------
(39,869) (15,990) (242) 19,362 (36,739)
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............. (6,503) (16,138) (283) 19,362 (3,562)
Provision (benefit) for income
taxes........................... 1,896 (8) 13 -- 1,901
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS... (8,399) (16,130) (296) 19,362 (5,463)
Loss from discontinued operations,
net of taxes.................... (23) -- (2,936) -- (2,959)
-------- -------- ------- ------- --------
NET LOSS.......................... $ (8,422) $(16,130) $(3,232) $19,362 $ (8,422)
======== ======== ======= ======= ========
105
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES................................. $159,289 $ 31,516 $ 4,028 $ -- $194,833
-------- -------- ------- ------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.......................... 68,911 15,669 1,240 -- 85,820
Selling, general and administrative.... 54,078 22,390 2,464 -- 78,932
Impairment of assets................... 11,408 23,058 -- -- 34,466
Provision for executive loan
impairment........................... 1,717 -- -- -- 1,717
Restructuring and other charges, net... 4,984 1,095 -- -- 6,079
Depreciation and amortization.......... 6,808 1,078 123 -- 8,009
-------- -------- ------- ------- --------
147,906 63,290 3,827 -- 215,023
-------- -------- ------- ------- --------
OPERATING INCOME (LOSS).................. 11,383 (31,774) 201 -- (20,190)
-------- -------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense....................... (21,656) (18,045) (304) -- (40,005)
Interest income........................ 207 -- -- -- 207
Equity in losses of subsidiaries....... (56,829) -- -- 56,829 --
Other, net............................. 81 (41) -- -- 40
-------- -------- ------- ------- --------
(78,197) (18,086) (304) 56,829 (39,758)
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES........................... (66,814) (49,860) (103) 56,829 (59,948)
Provision (benefit) for income taxes..... (743) 10 (59) -- (792)
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS.......... (66,071) (49,870) (44) 56,829 (59,156)
Loss from discontinued operations, net of
taxes.................................. (1,120) -- (6,915) -- (8,035)
-------- -------- ------- ------- --------
NET LOSS................................. $(67,191) $(49,870) $(6,959) $56,829 $(67,191)
======== ======== ======= ======= ========
106
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.......................... $150,655 $ 33,769 $ 4,318 $ -- $188,742
-------- -------- ------- ------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.................. 67,586 16,632 1,407 -- 85,625
Selling, general and
administrative............... 53,850 22,818 3,186 -- 79,854
Impairment of assets............ 8,505 31,408 -- -- 39,913
Provision for executive loan
impairment................... 7,600 -- -- -- 7,600
Restructuring and other charges,
net.......................... 3,951 1,254 -- -- 5,205
Depreciation and amortization... 8,055 2,207 195 -- 10,457
-------- -------- ------- ------- --------
149,547 74,319 4,788 -- 228,654
-------- -------- ------- ------- --------
OPERATING INCOME (LOSS)........... 1,108 (40,550) (470) -- (39,912)
-------- -------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense................ (21,349) (19,852) (380) -- (41,581)
Interest income................. 432 -- 5 -- 437
Equity in losses of
subsidiaries................. (66,706) -- -- 66,706 --
Other, net...................... (695) (59) (175) -- (929)
-------- -------- ------- ------- --------
(88,318) (19,911) (550) 66,706 (42,073)
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............. (87,210) (60,461) (1,020) 66,706 (81,985)
Provision (benefit) for income
taxes........................... 6,882 65 -- -- 6,947
-------- -------- ------- ------- --------
LOSS FROM CONTINUING OPERATIONS... (94,092) (60,526) (1,020) 66,706 (88,932)
Loss from discontinued operations,
net of taxes.................... 961 9 (5,169) -- (4,199)
-------- -------- ------- ------- --------
NET LOSS.......................... $(93,131) $(60,517) $(6,189) $66,706 $(93,131)
======== ======== ======= ======= ========
107
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.................. $ (541) $ 122 $(1,164) $ -- $ (1,583)
-------- ----- ------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (873) (137) (18) -- (1,028)
Acquisitions of businesses and
intangibles, net of cash acquired... (1,864) -- -- -- (1,864)
Increase in restricted cash........... (174) -- -- -- (174)
Net proceeds from sale of
properties.......................... 4,074 -- -- -- 4,074
-------- ----- ------- ----- --------
Net cash provided by (used for)
investing activities................ 1,163 (137) (18) -- 1,008
-------- ----- ------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of senior subordinated
notes............................... (16,451) (16,451)
Proceeds from Loan and Security
Agreement........................... 10,200 10,200
Decrease in cash overdraft balance.... (142) -- (127) -- (269)
-------- ----- ------- ----- --------
Net cash provided by (used for)
financing activities................ (6,393) -- (127) -- (6,520)
-------- ----- ------- ----- --------
Effect of exchange rate changes on
cash.................................. 66 -- -- -- 66
-------- ----- ------- ----- --------
Net decrease in cash and cash
equivalents......................... (5,705) (15) (1,309) -- (7,029)
Cash and cash equivalents at beginning
of year............................... 5,991 73 1,597 -- 7,661
-------- ----- ------- ----- --------
Cash and cash equivalents at end of
year.................................. $ 286 $ 58 $ 288 $ -- $ 632
======== ===== ======= ===== ========
108
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2004
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES............... $(18,975) $ 39 $(1,528) $ -- $(20,464)
-------- ----- ------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (1,982) (178) (157) -- (2,317)
Decrease in notes receivable....... -- 65 -- -- 65
Increase in restricted cash........ (125) -- -- -- (125)
Net proceeds from sale of
properties...................... -- -- 800 -- 800
-------- ----- ------- ----- --------
Net cash provided by (used for)
investing activities............ (2,107) (113) 643 -- (1,577)
-------- ----- ------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of financing costs......... (10) -- -- -- (10)
Decrease in cash overdraft
balance......................... 102 -- 128 -- 230
-------- ----- ------- ----- --------
Net cash provided by (used for)
financing activities............ 92 -- 128 -- 220
-------- ----- ------- ----- --------
Effect of exchange rate changes on
cash............................... (144) -- -- -- (144)
-------- ----- ------- ----- --------
Net decrease in cash and cash
equivalents..................... (21,134) (74) (757) -- (21,965)
Cash and cash equivalents at
beginning of year.................. 27,125 147 2,354 -- 29,626
-------- ----- ------- ----- --------
Cash and cash equivalents at end of
year............................... $ 5,991 $ 73 $ 1,597 $ -- $ 7,661
======== ===== ======= ===== ========
109
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.................... $26,989 $543 $ 183 $ -- $27,715
------- ---- ------ ----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (2,340) (849) (105) -- (3,294)
Decrease in note receivable, net........ -- -- 1,553 -- 1,553
Decrease in restricted cash............. 241 -- 436 -- 677
Earnouts paid........................... -- (7) -- -- (7)
Proceeds from sale of Professional Trade
Shows group........................... 3,250 -- -- -- 3,250
------- ---- ------ ----- -------
Net cash provided by (used for)
investing activities.................. 1,151 (856) 1,884 -- 2,179
------- ---- ------ ----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior secured credit
facility.............................. (4,500) -- -- -- (4,500)
Payment of note payable................. -- -- (417) -- (417)
Employee stock purchase plan payments... (107) -- (6) -- (113)
Payment of financing costs.............. (2,045) -- -- -- (2,045)
Proceeds from repayment of officers'
loans................................. 250 -- -- -- 250
Decrease in cash overdraft balance...... 53 -- (436) -- (383)
------- ---- ------ ----- -------
Net cash provided by (used for)
financing activities.................. (6,349) -- (859) -- (7,208)
------- ---- ------ ----- -------
Effect of exchange rate changes on cash... 169 -- -- -- 169
------- ---- ------ ----- -------
Net increase (decrease) in cash and cash
equivalents........................... 21,960 (313) 1,208 -- 22,855
Cash and cash equivalents at beginning of
year.................................... 5,165 460 1,146 -- 6,771
------- ---- ------ ----- -------
Cash and cash equivalents at end of
year.................................... $27,125 $147 $2,354 $ -- $29,626
======= ==== ====== ===== =======
NOTE 21 -- SUBSEQUENT EVENTS
In March 2006, the Board of Directors of the Company issued 2,500 shares of
Series M Preferred Stock to three members of the Company, including one
executive officer.
110
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. 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
disclosure.
As of December 31, 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. As further discussed below, based on that
evaluation, the Company's management, including the CEO and CFO, concluded that
the Company's disclosure controls and procedures were effective as of December
31, 2005.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
In our 2004 Form 10-K, we described a material weakness in our internal
control over financial reporting with respect to our deferred tax assets and
deferred tax liabilities. This material weakness continued to exist as of the
end of each of the first three quarters of 2005. In the fourth quarter of 2005,
we completed the implementation and testing of the measures put in place to
address this material weakness. These measures included adding additional levels
of tax review (both internally and externally) and requiring all personnel who
have responsibilities for the Company's income taxes to attend an annual SFAS
109 review course. In connection with these measures, and in connection with the
evaluation of our disclosure controls and procedures described in the above
paragraph, management has determined that the material weakness has been
remediated as of December 31, 2005. Other than the remediation of this material
weakness, there were no changes in the Company's internal control over financial
reporting during the quarter ended December 31, 2005 that have materially
affected, or are reasonably likely to materially affect, its internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
111
PART III
Certain information required by Part III is omitted from this Annual Report
and is incorporated herein by reference from the Company's definitive Proxy
Statement for the 2006 Annual Meeting of Stockholders (the "Proxy Statement") to
be filed with the Securities and Exchange Commission.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference
from the sections entitled "Proposal to Elect Three Directors to the Board,"
"Board of Directors," "Executive Officers," "Does the Company have a Code of
Ethics?" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the sections entitled "Compensation," "Compensation Committee Interlocks
and Insider Participation," "Compensation Committee Report on Executive
Compensation," "Chief Executive Officer Compensation," and "Performance Graph"
in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference
from the sections entitled "What is the Security Ownership of Certain Beneficial
Owners and Management?" and "Securities Authorized for Issuance under Equity
Compensation Plans" in the Proxy Statement.
The Company currently maintains the Penton Media, Inc. 1998 Equity and
Performance Incentive Plan (As Amended and Restated Effective as of March 15,
2001) (the "Incentive Plan"), the Penton Media, Inc. 1998 Director Stock Option
Plan (As Amended and Restated Effective as of March 15, 2001) (the "Director
Plan"), and the Penton Media, Inc. Management Stock Purchase Plan (As Amended
and Restated Effective as of January 1, 2000) (the "Management Stock Purchase
Plan"), pursuant to which it has made equity available to eligible persons.
The following table summarizes information about these plans as of December
31, 2005. All outstanding awards relate to our common stock.
Equity Compensation Plan Information
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER EQUITY
ISSUED UPON EXERCISE OF EXERCISE PRICE OF OUTSTANDING COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- ----------------------------- ----------------------------
Equity compensation plans
approved by security
holders................ 1,242,925(1) $6.08 2,691,048(2)
Equity compensation plans
not approved by
security holders....... -- -- --
--------- ----- ---------
Total.................... 1,242,925 $6.08 2,691,048
---------------
(1) Includes 1,079,925 and 163,000 shares to be issued upon the exercise of
outstanding options under the Incentive Plan and Director Plan,
respectively.
112
(2) Includes 2,510,194 shares available for issuance under the Incentive Plan,
79,000 shares available for issuance under the Director Plan, and 101,854
shares available for issuance under the Management Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the section entitled "Certain Transactions" in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Information required by this Item is incorporated herein by reference
from the section entitled "What Fees have been Paid to Accountants for the
Fiscal Years Ending December 31, 2005 and 2004?" in the Proxy Statement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report.
1. FINANCIAL STATEMENTS
The following documents are filed as part of this Report:
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets at December 31, 2005 and 2004.
Consolidated Statements of Operations for the Years Ended December 31,
2005, 2004 and 2003.
Consolidated Statements of Cash Flows for the Years Ended December 31,
2005, 2004 and 2003.
Consolidated Statements of Stockholders' Deficit and of Comprehensive
Loss for the Years Ended December 31, 2005, 2004 and 2003.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because required
information is not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is included in
the consolidated financial statements or notes thereto.
3. EXHIBITS
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1
to the Company's Form 10-Q on August 14, 2002, and
incorporated herein by reference).
3.2 Certificate of Designations, Preferences and Rights of
Series M Preferred Stock of Penton Media, Inc. (filed as
Exhibit 3.1 to the Company's Form 8-K on September 13, 2004,
and incorporated herein by reference).
3.3 Certificate of Designations, Preferences and Rights of
Series C Convertible Preferred Stock of Penton Media, Inc.
(filed as Exhibit 3.1 to the Company's Form 8-K on September
13, 2004, and incorporated herein by reference).
3.4 Amended and Restated Bylaws (filed as Exhibit 3.3 to the
Company's Form 10-Q on August 14, 2002, and incorporated
herein by reference).
113
4.1 Indenture, dated as of March 28, 2002, by and among Penton
Media, Inc., the Subsidiary Guarantors named therein and
U.S. Bank National Association, as Trustee (filed as Exhibit
4.1 to the Company's Form S-4 on June 26, 2002, and
incorporated herein by reference).
4.2 Pledge and Security Agreement, dated as of March 28, 2002,
by and among Penton Media, Inc., the Subsidiary Guarantors
named therein and U.S. Bank National Association, as Trustee
(filed as Exhibit 4.3 to the Company's Form S-4 on June 26,
2002, and incorporated herein by reference).
4.3 Intercreditor Agreement, dated as of March 28, 2002, by and
between U.S. Bank National Association and The Bank of New
York (filed as Exhibit 4.4 to the Company's Form S-4 on June
26, 2002, and incorporated herein by reference).
4.4 Form of Warrants to purchase common stock of Penton Media,
Inc. (filed as Exhibit 4.1 to the Company's Form 8-K on
March 19, 2002, and incorporated herein by reference).
4.5 Indenture, dated as of June 28, 2001, between Penton Media,
Inc., as issuer, the Subsidiary Guarantors named herein, and
The Bank of New York, as Trustee, including the form of the
Company's 10.375% Senior Subordinated Notes due June 15,
2011 attached as Exhibit A thereto (filed as Exhibit 4.1 to
the Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.1 Amended and Restated Series B Convertible Preferred Stock
and Warrant Purchase Agreement, dated as of March 18, 2002,
among Penton Media, Inc. and the Investors named therein,
(filed as Exhibit 10.1 to the Company's Form 8-K on March
19, 2002, and incorporated herein by reference).
10.2 Amendment No. 1 to the Amended and Restated Series B
Convertible Preferred Stock and Warrant Purchase Agreement
(filed as Exhibit 10.3 to the Company's Form S-3/A on June
4, 2002, and incorporated herein by reference).
10.3 Form of Series M Preferred Stock Agreement (filed as Exhibit
10.1 to the Company's Form 8-K on March 10, 2006, and
incorporated herein by reference).
10.4 Registration Rights Agreement (filed as Exhibit 10.2 to the
Company's Form 8-K on March 19, 2002, and incorporated
herein by reference).
10.5 Loan and Security Agreement by and among Penton Media, Inc.,
as borrower, and the Lenders that are signatories thereto,
as the Lenders, and Wells Fargo Foothill, Inc., as the
arranger and administrative agent (filed as Exhibit 10.1 to
the Company's Form 8-K on August 15, 2003, and incorporated
herein by reference).
10.6 First Senior Secured Notes Supplemental Indenture (filed as
Exhibit 10.1 to the Company's Form 8-K on August 31, 2005,
and incorporated herein by reference).
10.7 First Senior Subordinated Notes Supplemental Indenture
(filed as Exhibit 10.2 to the Company's Form 8-K on August
31, 2005, and incorporated herein by reference).
MANAGEMENT CONTRACTS AND COMPENSATORY PLANS
10.8 Penton Media, Inc. Retirement Savings Plan (filed as Exhibit
4.3 to the Company's Form S-8 on August 27, 1998, and
incorporated herein by reference).
10.9 Penton Media, Inc. Management Stock Purchase Plan (filed as
Exhibit 4.3 to the Company's Form S-8 on March 21, 2000, and
incorporated herein by reference).
10.10 Penton Media, Inc. Amended and Restated 1998 Director Stock
Option Plan (filed as Exhibit 10.4 to the Company's Form
10-Q on August 14, 2001, and incorporated herein by
reference).
10.11 Penton Media, Inc. Amended and Restated 1998 Equity and
Performance Incentive Plan (filed as Exhibit 10.5 to the
Company's Form 10-Q on August 14, 2001, and incorporated
herein by reference).
10.12 Penton Media, Inc. Retirement Plan (filed as Exhibit 10.9 to
the Company's Registration Statement No. 333-56877, and
incorporated herein by reference).
10.13 Penton Media, Inc. Senior Executive Bonus Plan (filed as
Exhibit 10.8 to the Company's Form 10-K on March 30, 2000,
and incorporated herein by reference).
10.14 Penton Media, Inc. Supplemental Executive Retirement Plan
(as Amended and Restated Effective as of January 1, 2000)
(filed as Exhibit 10.9 to the Company's Form 10-K on March
30, 2000, and incorporated herein by reference).
114
10.15 Amended and Restated Employment Agreement, dated June 23,
2004, between Penton Media, Inc. and David B. Nussbaum
(filed as Exhibit 10.3 to the Company's Form 10-Q on August
16, 2004, and incorporated herein by reference).
10.16 Employment Agreement, dated July 16, 1998, between Penton
Media, Inc. and David Nussbaum (filed as Exhibit 10.4 to the
Company's Form 10-Q on November 16, 1998, and incorporated
herein by reference).
10.17 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and David B. Nussbaum
(filed as Exhibit 10.12 to the Company's Form 10-K on March
21, 2002, and incorporated herein by reference).
10.18 Separation Agreement and General Release, dated July 1,
2004, between Penton Media, Inc. and Thomas L. Kemp (filed
as Exhibit 10.1 to the Company's Form 10-Q on August 16,
2004, and incorporated herein by reference).
10.19 Employment Agreement, dated August 24, 1999, between Penton
Media, Inc. and Preston L. Vice (filed as Exhibit 10.17 to
the Company's Form 10-K on March 30, 2000, and incorporated
herein by reference).
10.20 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Preston L. Vice, (filed
as Exhibit 10.17 to the Company's Form 10-K on March 21,
2002, and incorporated herein by reference).
10.21 Employment Agreement, dated October 15, 2000, between Penton
Media, Inc. and Darrell C. Denny (filed as Exhibit 10.18 to
the Company's Form 10-K on March 30, 2000, and incorporated
herein by reference).
10.22 Amendment to the Employment Agreement, dated December 11,
2001, between Penton Media, Inc. and Darrell C. Denny (filed
as Exhibit 10.18 to the Company's Form 10-K on March 21,
2002, and incorporated herein by reference).
21 Subsidiaries of Penton Media, Inc.
23 Consent of Independent Registered Public Accounting Firm,
PricewaterhouseCoopers LLP.
24 Powers of Attorneys.
31.1 Principal executive officer's certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Principal financial officer's certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Exhibits
See subsection(a)(3) above.
(c) Financial Statement schedules
Not applicable
115
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
PENTON MEDIA, INC.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Chief Financial Officer
Dated: March 21, 2006
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 21, 2006.
SIGNATURE TITLE
--------- -----
/s/ DAVID B. NUSSBAUM Chief Executive Officer, President and Director
------------------------------------------------ (Principal Executive Officer)
David B. Nussbaum
/s/ PRESTON L. VICE Chief Financial Officer and Secretary (Principal
------------------------------------------------ Financial and Accounting Officer)
Preston L. Vice
/s/ * Director
------------------------------------------------
Peni A. Garber
/s/ * Director
------------------------------------------------
Vincent D. Kelly
/s/ * Director
------------------------------------------------
Adrian Kingshott
/s/ * Director
------------------------------------------------
Harlan A. Levy
/s/ * Director
------------------------------------------------
David Powers
/s/ * Director
------------------------------------------------
Perry A. Sook
/s/ * Director
------------------------------------------------
Royce Yudkoff
---------------
* The undersigned, by signing his name hereto, does sign and execute this Annual
Report on Form 10-K pursuant to a Power of Attorney executed on behalf of the
above named officers and directors of Penton Media, Inc. and files herewith as
Exhibit 24 on behalf of Penton Media, Inc. and each such person.
March 21, 2006
By: /s/ PRESTON L. VICE
--------------------------------------------------------
Preston L. Vice
Attorney-in-Fact
116