UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 10-Q/A

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

o		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 (State of Incorporation)		36-2875386 (I.R.S. Employer Identification No.)

1300 East Ninth Street, Cleveland, OH (Address of Principal Executive Offices)		44114 (Zip Code)

216-696-7000

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer as defined in Rule 12b-2 of the Exchange Act. Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (August 2, 2004).

Common Stock: 33,821,208 shares

 

 

PENTON MEDIA, INC.

Form 10-Q/A

INDEX

		Page
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Restated Consolidated Balance Sheets at June 30, 2004 and December 31, 2003			4
Restated Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003			7
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 4. Controls and Procedures			49
Part II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K			51
Signature			52
Exhibit Index			53
EX-31.1 CERT
EX-31.2 CERT
EX-32 CERT

EXPLANATORY NOTE

This Amendment No. 1 (“Amendment”) to Penton Media, Inc.’s (the “Company”) Quarterly Report on Form 10-Q for the quarterly and year to date period ended June 30, 2004 (the “Form 10-Q”) includes unaudited, restated consolidated financial statements as of June 30, 2004 and for the three and six months ended June 30, 2004 and 2003, and a restated consolidated balance sheet as of June 30, 2004 and December 31, 2003. The accompanying restated consolidated financial statements, including the notes thereto, have been revised to reflect the restatement adjustments related to our deferred taxes and other accounting adjustments previously identified and deemed to be immaterial.

The Company has restated, by means of its Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”) filed on April 15, 2005, its consolidated balance sheet as of December 31, 2003, and consolidated statements of operations, cash flows, and shareholders’ equity (deficit) for the years ended December 31, 2003 and 2002. Quarterly financial information for 2004, 2003 and 2002 was also affected by the restatement. The restated amounts for the three and six months ended June 30, 2004 and the comparable interim periods in 2003 are presented in this Amendment.

Refer to Note 2 — Restatement in this Amendment for further information on the restatement impact for the three and six months ended June 30, 2004 and 2003. Refer also to Note 2 - Restatement in the Company’s 2004 Form 10-K, for additional discussion on the nature of the restatement adjustments, the impact of the restatement adjustments on net income (loss) and the cumulative impact of the adjustments on the consolidated statement of income and consolidated balance sheet for each annual period.

This Amendment amends and restates Items 1, 2 and 4 of Part I and Item 6 of Part II of the Form 10-Q to revise the disclosure contained therein in connection with the restatement.

All referenced amounts in this Amendment for prior periods and prior period comparisons reflect the balances and amounts on a restated basis, as applicable.

Except as otherwise described in Item 4 of Part I, this Amendment has not been updated for changes in events, estimates or other developments subsequent to August 16, 2004, the date of the original filing of the Form 10-Q. For a discussion of subsequent events and developments as well as revisions to prior estimates, please refer to the Company’s filings with the Securities and Exchange Commission subsequent to August 16, 2004.

Part I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PENTON MEDIA, INC.

CONSOLIDATED BALANCE SHEETS

		Restated
		June 30,				December 31,
		2004				2003
Assets
Current assets:
Cash and cash equivalents		$	15,919			$	29,626
Restricted cash			193				—
Accounts receivable, less allowance for doubtful accounts of $3,329 and $3,703 in 2004 and 2003, respectively			31,671				27,170
Notes receivable			760				571
Inventories			905				875
Deferred tax asset			253				253
Prepayments, deposits and other			11,282				9,625
Total current assets			60,983				68,120
Property, plant and equipment:
Land, buildings and improvements			8,674				8,810
Machinery and equipment			47,706				46,450
			56,380				55,260
Less: accumulated depreciation			39,691				36,332
			16,689				18,928
Other assets:
Goodwill			214,411				214,411
Other intangibles, less accumulated amortization of $14,279 and $13,189 in 2004 and 2003, respectively			9,677				10,883
Other non-current assets			7,442				9,102
			231,530				234,396
		$	309,202			$	321,444

The accompanying notes are an integral part of these consolidated financial statements.

PENTON MEDIA, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited, Dollars in thousands, except share and per share data)

		Restated
		June 30,				December 31,
		2004				2003
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable		$	6,925			$	6,402
Accrued compensation and benefits			10,092				8,458
Other accrued expenses			27,239				22,747
Unearned income, principally trade show and conference deposits			21,870				22,535
Total current liabilities			66,126				60,142
Long-term liabilities and deferred credits:
Senior secured notes, net of discount			156,979				156,915
Senior subordinated notes, net of discount			171,847				171,698
Net deferred pension credits			10,764				11,040
Deferred tax liability			18,635				17,245
Other non-current liabilities			8,320				9,270
			366,545				366,168
Commitments and contingencies
Minority interest			424				450
Mandatorily redeemable convertible preferred stock, par value $0.01 per share; 50,000 shares authorized, issued and outstanding; redeemable at $1,000 per share			63,572				54,971
Redeemable common stock, par value $0.01 per share; 4,191 shares issued and outstanding at December 31, 2003			—				2
Stockholders’ deficit:
Preferred stock, par value $0.01 per share; 1,950,000 shares authorized; none issued or outstanding			—				—
Common stock, par value $0.01 per share; 155,000,000 shares authorized; 33,353,610 and 33,220,877 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively			332				332
Capital in excess of par value			218,369				226,355
Retained deficit			(404,003	)			(382,875	)
Notes receivable from officers, less reserve of $5,848 and $7,600 at June 30, 2004 and December 31, 2003, respectively			—				(1,897	)
Accumulated other comprehensive loss			(2,163	)			(2,204	)
			(187,465	)			(160,289	)
		$	309,202			$	321,444

The accompanying notes are an integral part of these consolidated financial statements.

PENTON MEDIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Restated								Restated
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Revenues		$	50,936			$	50,183			$	105,403			$	104,575
Operating expenses:
Editorial, production and circulation			23,765				23,467				45,146				45,820
Selling, general and administrative (including $0.3 million and $2.7 million of executive separation costs for the three and six months ended June 30, 2004, respectively)			24,110				22,588				48,604				46,225
Provision for loan impairment			1,717				7,600				1,717				7,600
Restructuring and other charges			3,524				1,901				4,392				1,817
Depreciation and amortization			2,969				3,785				5,990				7,511
			56,085				59,341				105,849				108,973
Operating loss			(5,149	)			(9,158	)			(446	)			(4,398	)
Other income (expense):
Interest expense			(9,362	)			(9,412	)			(18,820	)			(19,750	)
Interest income			64				128				166				237
Other, net			(10	)			66				(16	)			(308	)
			(9,308	)			(9,218	)			(18,670	)			(19,821	)
Loss from continuing operations before income taxes			(14,457	)			(18,376	)			(19,116	)			(24,219	)
Provision for income taxes			(769	)			(760	)			(2,012	)			(5,649	)
Loss from continuing operations			(15,226	)			(19,136	)			(21,128	)			(29,868	)
Discontinued operations:
Income (loss) from discontinued operations (including gain on disposal of $1.4 million for the six months ended June 30, 2003), net of taxes			—				(188	)			—				678
Net loss			(15,226	)			(19,324	)			(21,128	)			(29,190	)
Amortization of deemed dividend and accretion of preferred stock			(3,408	)			(1,966	)			(8,601	)			(2,733	)
Net loss applicable to common stockholders		$	(18,634	)		$	(21,290	)		$	(29,729	)		$	(31,923	)
Net loss per common share — basic and diluted:
Loss from continuing operations applicable to common stockholders		$	(0.55	)		$	(0.63	)		$	(0.89	)		$	(0.98	)
Discontinued operations, net of taxes			—				(0.01	)			—				0.02
Net loss applicable to common stockholders		$	(0.55	)		$	(0.64	)		$	(0.89	)		$	(0.96	)
Weighted-average number of shares outstanding:
Basic and diluted			33,583				33,508				33,559				33,272

The accompanying notes are an integral part of these consolidated financial statements.

PENTON MEDIA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months Ended
		June 30,
		2004				2003
Net cash provided by (used for) operating activities		$	(11,757	)		$	34,722
Cash flows from investing activities:
Capital expenditures			(1,519	)			(1,343	)
Earnouts paid			—				(7	)
Decrease (increase) in notes receivable			(188	)			1,549
Proceeds from sale of Professional Trade Shows group			—				3,250
Net cash provided by (used for) investing activities			(1,707	)			3,449
Cash flows from financing activities:
Repayment of senior secured credit facility			—				(4,500	)
Payment of notes payable			—				(417	)
Employee stock purchase plan payments			—				(113	)
Proceeds from repayment of officers loans			—				250
(Increase) decrease in restricted cash			(193	)			267
Payment of financing costs			(6	)			(200	)
Increase (decrease) in book overdrafts			(63	)			193
Net cash used for financing activities			(262	)			(4,520	)
Effect of exchange rate changes on cash			19				(52	)
Net increase (decrease) in cash and cash equivalents			(13,707	)			33,599
Cash and cash equivalents at beginning of period			29,626				6,771
Cash and cash equivalents at end of period		$	15,919			$	40,370

The accompanying notes are an integral part of these consolidated financial statements.

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

These financial statements have been prepared by management in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, the interim financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results of the periods presented. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

The accompanying unaudited interim consolidated financial statements should be read together with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Reclassifications

Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation. These reclassifications did not change previously reported net income (loss), cash flows or stockholders’ deficit.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation plans under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). Pro forma information regarding net income (loss) and earnings per share is required by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” and has been determined as if Penton had accounted for its stock-based compensation under SFAS 123.

The weighted-average fair value of options granted during the first six months of 2004 and 2003 was $0.84 and $0.32, respectively. The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model, under the following assumptions:

		2004				2003
Risk-free interest rate			3.65	%			3.62	%
Dividend yield			0.00	%			0.00	%
Expected volatility			136.29	%			104.79	%
Expected life		7 years				7 years

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Had compensation cost for Penton’s stock-based compensation plans been determined based on the fair value methodologies consistent with SFAS 123, Penton’s net loss and earnings per share for the three and six months ended June 30, 2004 and 2003 would have been as follows (in thousands, except per share data):

		Restated								Restated
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Net loss applicable to common stockholders:
As reported		$	(18,634	)		$	(21,290	)		$	(29,729	)		$	(31,923	)
Add: Compensation expense included in net loss applicable to common stockholders, net of related tax effects			576				339				702				1,240
Less: Total stock-based compensation expense determined under fair value based methods for all awards, net of related tax effects			(2,544	)			(939	)			(2,901	)			(2,577	)
Pro forma		$	(20,602	)		$	(21,890	)		$	(31,928	)		$	(33,260	)
Basic and diluted earnings per share:
As reported		$	(0.55	)		$	(0.64	)		$	(0.89	)		$	(0.96	)
Pro forma		$	(0.61	)		$	(0.65	)		$	(0.95	)		$	(1.00	)

New Accounting Pronouncements

In March 2004, the Emerging Issues Task Force (“EITF”) reached a final consensus on EITF Issue 03-6, “Participating Securities and the Two-Class Method Under FASB Statement 128, Earnings Per Share” (“EITF 03-6”). EITF 03-6 addresses the computation of earnings per share by companies that have issued securities other than common stock that participate in dividends and earnings of the issuing entity. EITF 03-6 is effective for the quarter ended June 30, 2004 and requires the restatement of previously reported earnings per share. The adoption of this issue did not have an effect on the Company’s earnings per share as the Company already used the two-class method for its participating securities.

In December 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS 132-R”). The provisions of this statement do not change the measurement and recognition provisions of SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits other than Pensions.” SFAS 132-R replaces SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits” and adds additional disclosures. SFAS 132-R is effective for fiscal years ending after December 15, 2003. The Company adopted SFAS 132-R as of December 31, 2003 and has included all required disclosures in these consolidated financial statements.

In January 2003, FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”) was issued which, among other things, provides guidance on identifying variable interest entities (“VIE”) and determining when assets, liabilities, non-controlling interests, and operating results of a VIE should be included in a company’s consolidated financial statements, and also requires additional disclosures by primary beneficiaries and other significant variable interest holders. In December 2003, the FASB issued a revision of FIN 46 (“FIN 46-R”), clarifying certain provisions and partially deferring the effective dates. The Company presently does not hold an interest in any variable interest entity; therefore, application of FIN 46-R has not affected the Company’s consolidated financial statements, results of operations or disclosures.

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2 — RESTATEMENT

The consolidated financial statements have been restated in order to reflect certain adjustments to Penton’s financial statements for 2004 as previously reported in Penton’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 filed on August 16, 2004. The restatement also affects the three and six month period ended June 30, 2003. All amounts are before any tax effect unless otherwise noted.

Refer to Note 2 — Restatement, in the 2004 Form 10-K for further discussion of this restatement including the adjustments recorded in annual and quarterly periods other than the second quarter of 2004 and 2003. Accordingly, this footnote discusses the restatement adjustments included in the 2004 Form 10-K related only to the three and six months ended June 30, 2004 and 2003.

Restatements Included in 2004 Form 10-K

The Company has restated by means of its Annual Report on Form 10-K for the year ended December 31, 2004, filed on April 15, 2005, its consolidated balance sheet as of December 31, 2003, and consolidated statement of operations, cash flows and shareholder’s deficit for the years ended December 31, 2003 and 2002. In addition, the Company’s 2004 and 2003 quarterly financial information had been restated to reflect adjustments to the Company’s previously reported financial information on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004. These adjustments increased previously reported net loss by $0.7 million for the three months ended June 30, 2004 and $1.4 million for the six months ended June 30, 2004, respectively. The Company intends to file an amendment to its September 30, 2004 Form 10-Q as expeditiously as possible.

The Company performed a comprehensive review of the Company’s deferred tax assets and deferred tax liabilities and determined that certain deferred tax liabilities had been incorrectly offset against its deferred tax assets. In addition to correcting the deferred tax issue, the restatement also includes other accounting adjustments that were deemed in earlier periods to be immaterial. The corrections are further described as follows:

Deferred Tax Adjustments

The Company’s management concluded that its previously issued consolidated financial statements for the three months ended June 30, 2004 and 2003 should be restated to increase income tax expense by $0.7 million in both periods and for the six months ended June 30, 2004 and 2003 should be restated to increase income tax expense by $1.4 million and $5.5 million, respectively. The Company also established a corresponding net deferred tax liability of $18.4 million and $15.6 million for the period ended June 30, 2004 and 2003, respectively, to correct the computation of our valuation allowance for deferred tax assets over those periods.

Management reached this conclusion following a comprehensive review of the Company’s deferred tax assets and deferred tax liabilities. Under SFAS 109, taxable temporary differences related to indefinite-lived intangible assets or tax-deductible goodwill (for which reversal cannot be anticipated) should not have been offset by the Company against deductible temporary differences for other indefinite-lived intangible assets or tax-deductible goodwill when scheduling reversals of temporary differences.

Other Accounting Adjustments

Other accounting adjustments represent items previously identified but deemed to be immaterial and recorded in the period Penton identified the error or in a subsequent period. Adjustments in this category change the timing of income and expense items that were previously recognized. The impact of these adjustments on our net loss was $0.3 million for the three and six months ended June 30, 2003, respectively, which related to subscription revenues. The only other adjustment to the consolidated statement of operations for all periods was a reclassification between selling, general and administrative expenses and depreciation and amortization expense related to the classification of certain tenant improvement reimbursements in 2001.

The amortization of deemed dividend and accretion of preferred stock increased by $0.1 million and $0.2 million for the three and six months ended June 30, 2003, respectively, as it was discovered in June 2003 that the Company should not have only

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

been accruing the dividends on the preferred stock from the time of issuance but should have also been systematically accreting the value of certain preferred stocks from their issuance amounts to their redemption values over time.

The following adjustments affected the classification of certain balance sheet accounts:

	•		In September 2003, our minority interest in consolidated subsidiaries balance should have been reduced by $2.0 million, when certain assets contributed in 2002 by our minority interest partner were impaired.
	•		Other less significant balance sheet adjustments were also recorded for items related to tenant improvements, subscription revenues and restructuring charges.

Other

All previously reported amounts affected by the restatement that appear elsewhere in these notes to the consolidated financial statements have also been restated.

The following tables set forth the effects of the restatement adjustments discussed above on the Consolidated Statement of Operations for the three and six months ended June 30, 2004 and 2003.

		Three Months Ended June 30,
		As Previously								As Previously
		Reported				Restated				Reported				Restated
		2004				2004				2003				2003
		(Dollars and shares in thousands,
		except per share data)
Revenues		$	50,936			$	50,936			$	50,466			$	50,183
Editorial, production and circulation			23,765				23,765				23,467				23,467
Selling, general and administrative			24,114				24,110				22,592				22,588
Provision for loan impairment			1,717				1,717				7,600				7,600
Restructuring and other charges (credits)			3,524				3,524				1,901				1,901
Depreciation and amortization			2,965				2,969				3,781				3,785
Interest expense			9,362				9,362				9,412				9,412
Interest income			(64	)			(64	)			(128	)			(128	)
Other, net			10				10				(66	)			(66	)
Loss from continuing operations before income taxes			(14,457	)			(14,457	)			(18,093	)			(18,376	)
Provision (benefit) for income taxes			74				769				65				760
Gain (loss) from discontinued operations			—				—				(188	)			(188	)
Net loss			(14,531	)			(15,226	)			(18,346	)			(19,324	)
Amortization of deemed dividend and accretion of preferred stock			(3,408	)			(3,408	)			(1,860	)			(1,966	)
Net loss applicable to common stockholders		$	(17,939	)		$	(18,634	)		$	(20,206	)		$	(21,290	)
Earnings per common share — basic and diluted:
Loss from continuing operations applicable to common		$	(0.53	)		$	(0.55	)		$	(0.59	)		$	(0.63	)
Discontinued operations, net of taxes			—				—				(0.01	)			(0.01	)
Net loss applicable to common stockholders		$	(0.53	)		$	(0.55	)		$	(0.60	)		$	(0.64	)
Weighted-average number of shares outstanding:
Basic and diluted			33,583				33,583				33,508				33,508

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

		Six Months Ended June 30,
		As Previously								As Previously
		Reported				Restated				Reported				Restated
		2004				2004				2003				2003
		(Dollars and shares in thousands,
		except per share data)
Revenues		$	105,403			$	105,403			$	104,858			$	104,575
Editorial, production and circulation			45,146				45,146				45,820				45,820
Selling, general and administrative			48,613				48,604				46,233				46,225
Provision for loan impairment			1,717				1,717				7,600				7,600
Restructuring and other charges (credits)			4,392				4,392				1,817				1,817
Depreciation and amortization			5,981				5,990				7,503				7,511
Interest expense			18,820				18,820				19,750				19,750
Interest income			(166	)			(166	)			(237	)			(237	)
Other, net			16				16				308				308
Loss from continuing operations before income taxes			(19,116	)			(19,116	)			(23,936	)			(24,219	)
Provision (benefit) for income taxes			622				2,012				191				5,649
Gain (loss) from discontinued operations			—				—				678				678
Net loss			(19,738	)			(21,128	)			(23,449	)			(29,190	)
Amortization of deemed dividend and accretion of preferred stock			(8,601	)			(8,601	)			(2,515	)			(2,733	)
Net loss applicable to common stockholders		$	(28,339	)		$	(29,729	)		$	(25,964	)		$	(31,923	)
Earnings per common share — basic and diluted:
Loss from continuing operations applicable to common		$	(0.84	)		$	(0.89	)		$	(0.80	)		$	(0.98	)
Discontinued operations, net of taxes			—				—				0.02				0.02
Net loss applicable to common stockholders		$	(0.84	)		$	(0.89	)		$	(0.78	)		$	(0.96	)
Weighted-average number of shares outstanding:
Basic and diluted			33,559				33,559				33,272				33,272

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table sets forth the effects of the restatement adjustments discussed above on the Consolidated Balance Sheet at June 30, 2004.

		June 30, 2004
		As Previously
		Reported				Restated
		(Dollars in thousands)
Assets
Current assets:
Cash and cash equivalents		$	15,919			$	15,919
Restricted cash			193				193
Accounts receivable, net			31,671				31,671
Notes receivable			760				760
Inventories			905				905
Deferred tax assets			—				253
Prepayments, deposits and other			11,282				11,282
Total current assets			60,730				60,983
Property and equipment, net			16,573				16,689
Goodwill			214,411				214,411
Other intangible assets, net			9,677				9,677
Other non-current assets			7,442				7,442
Total Assets		$	308,833			$	309,202
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable		$	6,925			$	6,925
Accrued compensation and benefits			9,279				10,092
Other accrued expenses			27,846				27,239
Unearned income, principally trade show and conference deposits			21,559				21,870
Total current liabilities			65,609				66,126
Senior secured notes, net of discount			156,979				156,979
Senior subordinated notes, net of discount			171,847				171,847
Net deferred pension credits			10,764				10,764
Deferred tax liability			—				18,635
Other non-current liabilities			8,222				8,320
Total Liabilities			347,812				366,545
Commitments and contingencies
Minority interest			2,461				424
Mandatorily redeemable convertible preferred stock			63,661				63,572
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; 33,220,877 shares issued and outstanding at 2003, respectively			332				332
Capital in excess of par value			218,280				218,369
Retained deficit			(387,187	)			(404,003	)
Notes receivable from officers			—				—
Accumulated other comprehensive loss			(2,135	)			(2,163	)
Total Stockholders’ Deficit			(170,710	)			(187,465	)
Total Liabilities and Stockholders’ Deficit		$	308,833			$	309,202

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3 — GOODWILL AND OTHER INTANGIBLES

There were no changes in the Company’s goodwill for the first six months of 2004. Following is a summary, by business segment, of the balances in goodwill as of June 30, 2004 (in thousands):

		Goodwill
		December 31,								June 30,
		2003				Activity				2004
Industry		$	36,278			$	—			$	36,278
Technology			67,385				—				67,385
Lifestyle			84,924				—				84,924
Retail			25,824				—				25,824
Total		$	214,411			$	—			$	214,411

At June 30, 2004, other intangibles recorded in the consolidated balance sheets are comprised of the following (in thousands):

		Gross								Net
		Carrying				Accumulated				Book
		Value				Amortization				Value
Trade names		$	5,282			$	(3,983	)		$	1,299
Mailing/exhibitor lists			9,350				(5,239	)			4,111
Advertiser relationships			7,200				(3,859	)			3,341
Subscriber relationships			2,100				(1,178	)			922
Noncompete agreements			24				(20	)			4
Balance at June 30, 2004		$	23,956			$	(14,279	)		$	9,677

Other intangibles are being amortized over 3 to 10 years. Total amortization expense for the six months ended June 30, 2004 and 2003 was $1.2 million and $2.2 million, respectively. Amortization expense estimated for these intangibles for 2004 through 2008 are as follows (in thousands):

Year Ended
December 31,		Amount
2004		$	2,474
2005		$	2,441
2006		$	2,214
2007		$	1,300
2008		$	404

NOTE 4 — DISPOSALS

At December 31, 2002, the net assets of our Professional Trade Shows (“PTS”) were classified as held for sale. The sale was completed in January 2003 for approximately $3.8 million, including an earnout of $0.6 million based on reaching certain performance objectives in 2003, which were not met. The sale resulted in a gain of approximately $1.4 million, which was recorded in the first quarter of 2003. The results of PTS are reported as discontinued operations for all periods presented. PTS was part of the Company’s Industry segment.

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Operating results for discontinued operations are as follows (in thousands):

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2003				2003
Revenues		$	—			$	—
Loss from operations, net of taxes		$	(188	)		$	(709	)
Gain on sale of properties, net of taxes			—				1,387
Income (loss) from discontinued operations		$	(188	)		$	678

NOTE 5 — DEBT

Loan and Security Agreement

In August 2003, the Company replaced its senior secured credit facility with a new four-year loan and security agreement. Pursuant to the terms of the revolving loan and security agreement, the Company can borrow up to the lesser of (i) $40.0 million; (ii) 2.5x the Company’s last twelve months adjusted EBITDA measured monthly during the first year, 2.25x during the second year and 2.0x thereafter; (iii) 40% of the Company’s last six months of revenues; or (iv) 25% of the Company’s enterprise value, as determined annually by a third party. The revolving credit facility bears interest at LIBOR plus 5.0% subject to a LIBOR minimum of 1.5%. The Company must comply with a quarterly financial covenant limiting the ratio of maximum bank debt to the last twelve months adjusted EBITDA to 2.5x through March 31, 2004, 2.25x from June 30, 2004 through March 31, 2005 and 2.0x thereafter. The loan agreement permits the Company to sell assets of up to $12.0 million in the aggregate during the term or $5.0 million in any single asset sale; and complete acquisitions of up to $5.0 million per year. Included in the loan agreement are two stand-by letters of credit of $0.1 million and $0.2 million, respectively, required by two of the Company’s facility leases. The amounts of the letters of credit reduce the availability under the credit facility. As of June 30, 2004, no amounts were drawn under the stand-by letters of credit. Costs representing bank fees and other professional fees of $1.9 million are being amortized over the life of the loan agreement. As of June 30, 2004, $39.7 million was available under the loan and security agreement. There were no amounts outstanding.

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 loan agreement is subject to no material adverse change events; (ii) reserves may be established against the borrowing base for sums that the Company is required to pay, such as taxes and assessments and other types of required payments, and has failed to pay; (iii) in the event of a default under the loan agreement, the lender has the right to direct all cash that is deposited in the Company’s lock boxes to be sent to the lender to pay down outstanding borrowings; (iv) the loan agreement establishes cross-defaults to the Company’s other indebtedness (such as the 11-7/8% senior secured notes and 10-3/8% senior subordinated notes) such that a default under the loan agreement could cause a default under the note agreements and vice versa; however, default-triggering thresholds are different in the loan agreement and the notes; and (v) if the Company is in default of any material agreement to which it is a party and the counter-party to that agreement has the right to terminate such agreement as a result of the default, this constitutes an event of default under the loan 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 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 exercise of the lenders’ right is probable nor does it foresee any material adverse events in 2004. In addition, the Company believes that the note agreements are long-term in nature. Accordingly, the Company continues to classify its notes as long term. At June 30, 2004, the Company was in compliance with all of the above provisions.

Senior Secured Credit Facility

In January 2003, the Company amended its senior secured credit facility, and as noted above, this facility was replaced in August 2003. The amendment permitted the Company to sell certain properties in excess of the $5.0 million aggregate limit required by the original amended agreement. In return, the revolving commitment was ultimately reduced from $40.0 million to $20.1 million. The reduction of the revolver resulted in the write-off of unamortized financing fees of $0.9 million. This

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

charge has been classified as part of interest expense on the consolidated statement of operations for the six months ended June 30, 2003.

Senior Secured Notes

In March 2002, Penton issued $157.5 million of 11-7/8% senior secured notes (the “Secured Notes”) due in 2007. Interest is payable on the Secured Notes semiannually on April 1 and October 1. The Secured Notes were offered at a discount of $0.8 million, which is being amortized using the interest method over the term of the Secured Notes. Amortization of the discount was immaterial for the six months ended June 30, 2004 and 2003.

Senior Subordinated Notes

In June 2001, Penton issued $185.0 million of 10-3/8% senior subordinated notes (the “Subordinated Notes”) due in 2011. Interest is payable on the Subordinated Notes semiannually on June 15 and December 15. The Subordinated Notes were offered at a discount of $4.2 million, which is being amortized using the interest method, over the term of the Subordinated Notes. Amortization of the discount was approximately $0.1 million for the six months ended June 30, 2004 and 2003, respectively.

Interest Payments

Interest payments of $18.4 million and $18.5 million were made during the six months ended June 30, 2004 and 2003, respectively. Interest of $5.4 million was accrued at June 30, 2004 and December 31, 2003, respectively, and included in other accrued expenses on the consolidated balance sheets.

NOTE 6 — MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Preferred Stock Leverage Ratio Event of Non-Compliance

At June 30, 2004, an event of non-compliance continues to exist under our Series B Convertible Preferred Stock (the “preferred stock”) because the Company’s leverage ratio of 14.7 (defined as debt less cash balances in excess of $5.0 million plus the liquidation value of the preferred stock and unpaid dividends divided by adjusted EBITDA) exceeds 7.5. Upon the occurrence of this event of non-compliance, the 5% per annum dividend rate on the preferred stock increased by one percentage point as of April 1, June 30, September 28 and December 27, 2003 and March 26, 2004 to the current maximum rate of 10% per annum. The conversion price of the preferred stock decreased by $0.76 as of April 1, June 30, September 28 and December 27, 2003 and March 26, 2004 to its maximum reduction related to this event of non-compliance of $3.80 per share. The conversion price will adjust to what it would have been absent such event (to the extent any preferred shares are still outstanding) once the leverage ratio is less than 7.5. No such reduction to the conversion price will be made at any time that representatives of the preferred stockholders constitute a majority of the Board of Directors. In July 2004 at the Company’s annual stockholders’ meeting, changes were made to the Board of Directors such that the preferred stockholders now constitute a majority of the Board, and as a result, the conversion price was restored to $7.61 (see Note 19 — Subsequent Events). Furthermore, the dividend rate will adjust back to 5% as of the date on which the leverage ratio is less than 7.5. Under the preferred stock agreement, if the leverage ratio exceeds 7.5 for four consecutive quarters, the preferred stockholders will have the right to cause the Company to seek a buyer for all of the assets or issued and outstanding capital stock of the Company. As of December 31, 2003, the leverage ratio had exceeded 7.5 for four consecutive quarters giving the preferred stockholders the right to cause the Company to seek a buyer. If the Company had been sold on June 30, 2004, the bondholders would have been entitled to receive $335.8 million and the preferred stockholders would have been entitled to receive $232.4 million before the common stockholders would have received any amounts for their common shares. The amount the preferred stockholders would be entitled to receive could increase significantly in the future under certain circumstances. Stockholders are urged to read the terms of the preferred stock. The leverage ratio event of non-compliance does not represent an event of default or violation under any of the Company’s outstanding notes or the loan agreement. As such, there is no acceleration of any outstanding indebtedness as a result of this event. In addition, this event of non-compliance and the resulting consequences have not resulted in any cash outflow from the Company.

Under the conversion terms of the preferred stock, each holder has a right to convert dividends into additional shares of common stock. At June 30, 2004, no dividends have been declared. However, in light of each holder’s conversion right and considering the increase in the dividend rate and the concurrent reduction of the conversion price as noted above, the

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Company has recognized a deemed dividend for the beneficial conversion feature inherent in the accumulated dividend based on the original commitment date(s). All such accruals have been reported as an increase in the carrying value of the preferred stock and a charge to capital in excess of par value given that the Company is in a retained deficit position.

In June 2003, it was discovered that the Company should not have only been accruing dividends on the preferred stock from the time of issuance but should have also been systematically accreting the value of certain preferred stocks from their issuance amounts to their redemption values over time. The impact on net loss applicable to common stockholders for the three and six months ended June 30, 2003 was an increase of $0.1 million and $0.2 million, respectively.

NOTE 7 — EXECUTIVE BONUS AND TERMINATION BENEFITS

On June 21, 2004, Penton’s Board of Directors announced the appointment of David B. Nussbaum as Chief Executive Officer (“CEO”) of the Company. In addition to the Company’s standard executive incentive and benefit package, Mr. Nussbaum received a signing bonus of approximately $1.7 million and 30,000 shares of a new Series of Preferred Stock upon there issuance (see Note 19 — Subsequent Events). In addition, the Board accelerated the vesting of 135,000 deferred shares granted to Mr. Nussbaum on February 3, 2004. Mr. Nussbaum used the net proceeds from his signing bonus to repay a portion of his outstanding executive loan balance.

On March 24, 2004, the Company announced that its Chairman and CEO, Thomas L. Kemp, would be leaving the Company. Mr. Kemp’s employment was terminated effective June 30, 2004 and on July 1, 2004, Mr. Kemp 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 Mr. Kemp’s 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 Mr. Kemp agreed upon a number of provisions related to Mr. Kemp’s 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. Specifically, $0.8 million of the $2.3 million lump-sum payment has been placed in escrow and will be returned to Mr. Kemp only if he pays off the entire loan balance by its due date. Furthermore, Mr. Kemp 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 used to pay the appropriate taxing authorities or to pay down the outstanding loan balance.

On June 28, 2004, Mr. Kemp was granted 514,706 deferred shares that vest on January 3, 2005. In return for these shares, Mr. Kemp agreed to comply with the terms of certain restrictive covenants, including a non-compete and a non-solicitation covenant.

On June 27, 2004, the Company announced that its President and Chief Operating Officer, Daniel J. Ramella, would be leaving the Company as part of a management restructuring plan. Mr. Ramella’s employment was terminated effective June 30, 2004 and on July 1, 2004, Mr. Ramella 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 Mr. Ramella’s 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 Mr. Ramella’s executive loan in return for full and final settlement of any claims Mr. Ramella may have had against the Company.

NOTE 8 — COMMON STOCK AND COMMON STOCK AWARD PROGRAMS

Executive Loan Program

The Company has an Executive Loan Program, which allowed Penton to issue shares of Company common stock at fair market value to six key executives in exchange for full recourse notes. In December 2001, the loan notes were amended to cease interest charges as well as to extend the maturity date from the fifth anniversary of the first loan date to six months following the seventh anniversary of the first loan date. No payments are required until maturity, at which time all outstanding amounts are due.

In June 2004, Mr. Nussbaum 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

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

balance due on Mr. Ramella’s executive loan in exchange for Mr. Ramella releasing the Company of any claims he may have had. The Board also agreed upon a number of provisions related to Mr. Kemp’s outstanding executive loan balance, as previously noted.

EITF 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44” requires that once 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. Additionally, the Company reversed the $1.0 million reserve established in June 2003 related to Mr. Nussbaum against his signing bonus of $1.7 million which was recorded in selling, general and administrative expenses on the consolidated statements of operations. Going forward, all future 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.

At June 30, 2004 and December 31, 2003, the outstanding loan balance due under the Executive Loan Program was approximately $5.8 million and $9.5 million, respectively. The loan balance, net of amounts reserved of $5.8 million and $7.6 million at June 30, 2004 and December 31, 2003, respectively, is classified in the stockholders’ deficit section of the consolidated balance sheets as notes receivable from officers.

Redeemable Common Stock

At December 31, 2003, the Company classified 4,191 common shares outside of stockholders’ deficit because the redemption of the stock was not within the control of the Company. Redeemable common stock relates to common stock that may be subject to rescissionary rights. The purchase of common stock by certain employees in the Company’s 401(k) plan from May 2001 through March 2003 was not registered under the federal securities laws. As a result, such purchasers of our common stock during that period may have had the right to rescind their purchases for an amount equal to the purchase price paid for the shares, plus interest from the date of purchase. On March 14, 2004, all rescissionary rights expired.

Management Stock Purchase Plan

In February 2004, a total of 595 restricted stock units (“RSUs”) were granted at $0.84 per share, which represented 80% of the fair market value of Penton stock on the date of grant. During the first six months of 2004, 11,217 shares of the Company’s common stock were issued under this plan leaving a balance of 95,770 RSU’s outstanding at June 30, 2004. For the six months ended June 30, 2004 and 2003, respectively, an immaterial amount of expense was recognized related to the Management Stock Purchase Plan.

Equity and Performance Incentive Plan

Stock Options

In February 2004, 473,700 options were granted to certain executives and other eligible employees at an exercise price of $0.90 per share. For the first six months of 2004, 17,000 options were exercised leaving 2,337,680 options outstanding at June 30, 2004. In June 2004, the Board accelerated the vesting of 239,999 options for two executives, as previously noted.

Deferred Shares

In February 2004, 445,000 deferred shares were granted to certain executives and in June 2004, the Board granted 514,706 deferred shares to one executive. Furthermore, in June 2004 the Board also accelerated the vesting of 345,000 deferred shares originally granted in February 2004 to two other executives. For the six months ended June 30, 2004, 535,056 shares of the Company’s common stock were issued under this plan leaving 824,706 deferred shares outstanding at June 30, 2004. For the six months ended June 30, 2004 and 2003, approximately $0.6 million and $1.3 million, respectively, were recognized as expense related to deferred shares.

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Performance Shares

During the second quarter of 2004, 11,250 performance shares, which were earned as of December 31, 2003, were issued. Furthermore, a total of 255,000 performance shares were immediately vested in accordance with their respective performance share agreements when the employment of three executives was terminated. These shares were issued in July 2004. At June 30, 2004, a total of 370,000 performance shares remain outstanding, including the 255,000 shares as previously noted. Performance shares are not issuable until earned. For the six months ended June 30, 2004, $0.1 million was recognized as expense related to performance shares. For the six months ended June 30, 2003, an immaterial amount was credited to compensation expense, which resulted from the decrease in the Company’s stock price.

Performance Units

In the second quarter of 2003, the Company granted 490,155 performance units to certain key executives. Subject to the attainment of certain performance goals over a three-year period from January 1, 2003 through December 31, 2005, each grantee can earn a cash award in respect to each performance unit. For the six months ended June 30, 2004, approximately $0.1 million was recognized as expense related to these performance units. A total of 195,012 performance units worth $0.4 million were immediately vested in accordance with their respective performance share agreements when the employment of two executives was terminated in June 2004.

Treasury Stock

In the first six months of 2004, 445,981 shares were returned to the Company by certain executives to cover taxes on deferred shares issued and by one executive to pay-down a portion of his executive loan. Treasury stock is carried at cost and is recorded as a net decrease in capital in excess of par value.

NOTE 9 — EMPLOYEE BENEFIT PLANS

Effective January 1, 2004, the Company’s defined benefit plan was amended to freeze benefit accruals. The Company previously disclosed in its financial statements for the year ended December 31, 2003 that it is required to contribute $1.5 million to its defined benefit plan in 2004. As of June 30, 2004, contributions of $0.4 million have been made.

The following table summarizes the components of our defined benefit pension expenses for the three and six months ended June 30, 2004 and 2003 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Service cost		$	—			$	468			$	—			$	936
Interest cost			700				660				1,286				1,320
Expected return on plan assets			(841	)			(751	)			(1,562	)			(1,502	)
Amortization of prior service costs			—				17				—				34
Amortization of actuarial gain			—				(138	)			—				(276	)
Net periodic benefit cost (benefit)		$	(141	)		$	256			$	(276	)		$	512

Concurrent with the freeze, the Company began making contributions to a new retirement account in the 401(k) Plan, which has been renamed the Penton Media, Inc. Retirement and Savings Plan (“RSP”). The RSP now includes the new retirement account and the “old” 401(k) savings account. There are no changes to the 401(k) savings account as a result of this change. Beginning in 2004, the Company began making monthly contributions to each employee’s retirement account equal to between 3% and 6% of the employee’s annual salary, based on age and years of service. The Company’s contributions become fully vested once the employee has completed five years of service. The Company expects to make contributions to the RSP of approximately $1.8 million in 2004. During the first six months of 2004, contributions of $0.9 million were made.

Effective January 1, 2004, Penton’s supplemental executive retirement plan (“SERP”) was amended to freeze benefits. In place of the SERP, the Company will accrue an amount equal to between 3% and 6% of the participants’ eligible salary plus an investment return equal to the Moody’s Aa Corporate Bond note. The accrued percentage is based on each executive’s age and

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

years of service. In July 2004, the Company paid a total of $0.4 million to settle benefit obligations with respect to two executives in connection with the termination of their employment.

The following table summarizes the components of our SERP pension expense for the three and six months ended June 30, 2004 and 2003 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Service cost		$	—			$	18			$	—			$	36
Interest cost			13				13				26				26
Amortization of prior service costs			—				7				—				14
Net periodic benefit cost		$	13			$	38			$	26			$	76

NOTE 10 — EARNINGS PER SHARE

Earnings per share have been computed pursuant to the provisions of SFAS No. 128, “Earnings Per Share” (“SFAS 128”). Computations of basic and diluted earnings per share for the three and six months ended June 30, 2004 and 2003 are as follows (in thousands, except per share amounts):

		Restated								Restated
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Net loss applicable to common stockholders		$	(18,634	)		$	(21,290	)		$	(29,729	)		$	(31,923	)
Number of shares:
Weighted average shares outstanding — basic and diluted			33,583				33,508				33,559				33,272
Per share amount:
Loss applicable to common stockholders — basic and diluted		$	(0.55	)		$	(0.64	)		$	(0.89	)		$	(0.96	)

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 deferred shares are always included in the computation of basic earnings per share as they are considered equivalent to common stock. Furthermore, non-vested RSUs are excluded from the scope of EITF 03-6 as they are accounted for under APB 25. 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 RSU’s 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 June 30, 2004 and 2003, redeemable preferred stock and non-vested RSUs were excluded from the calculation of basic earnings per share as the results were anti-dilutive.

Due to the loss from continuing operations for the three and six months ended June 30, 2004, 2,337,680 stock options, 370,000 performance shares, 589,706 non-vested deferred shares, 83,882 Lon-vested RSUs, 50,000 redeemable preferred shares and 1,600,000 warrants were excluded from the calculation of diluted earnings per share, as the result would have been anti-dilutive. Due to the loss from continuing operations for the three and six months ended June 30, 2003, 2,110,455 stock options, 471,487 performance shares, 332,890 non-vested deferred shares, 120,329 non-vested RSUs, 50,000 redeemable preferred shares, and 1,600,000 warrants were excluded from the calculation of diluted earnings per share as the result would have been anti-dilutive.

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11 — COMPREHENSIVE LOSS

Comprehensive loss represents net loss plus the results of certain stockholders’ equity changes not reflected in the consolidated statements of operations. The after-tax component of comprehensive loss for the three and six months ended June 30, 2004 and 2003 are as follows (in thousands):

		Restated								Restated
		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Net loss		$	(15,226	)		$	(19,324	)		$	(21,128	)		$	(29,190	)
Other comprehensive loss:
Change in accumulated translation adjustment			(114	)			(108	)			41				228
Total comprehensive loss		$	(15,340	)		$	(19,432	)		$	(21,087	)		$	(28,962	)

NOTE 12 — RELATED PARTY TRANSACTIONS

In the first six months of 2004, 445,981 shares were returned to the Company by certain executives 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 selected Penton events in 2004 and 2005. Under the agreement, the former employee will receive guaranteed minimum payments of $0.4 million and $0.7 million in 2004 and 2005, respectively. In addition, Penton will provide, for an immaterial charge to the former employee, office space and related office services, including utilities, computer and office equipment, telephone service, janitorial services and other typical office services.

At June 30, 2004, Neue Medien Ulm Holdings GmbH (“Neue Medien”) owed PM Germany, a consolidated subsidiary, $0.7 million. This amount is classified on the consolidated balance sheets as notes receivable. Neue Median and Penton jointly own PM Germany. The notes are due on demand and bear interest at the German Federal rate plus 3%, or 4.14% at June 30, 2004.

NOTE 13 — INCOME TAXES

The Company assesses the recoverability of its deferred tax assets in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”). In the first quarter of 2004 the Company recorded a valuation allowance of $0.4 million against its net foreign deferred tax assets. In recording the valuation allowance, management considered it more likely than not that all of the foreign net deferred tax assets would not be realized. At June 30, 2004 (as restated) and December 31, 2003 (as restated) the valuation allowance for net deferred tax assets and net operating loss carryforwards, excluding the deferred tax liability related to indefinite-lived intangibles, totaled $77.3 million and $72.1 million, respectively. See Note 2 - Restatement.

In January 2003, the Company received a tax refund of $52.7 million. This amount is included in net cash provided by operating activities in the condensed consolidated statements of cash flows.

NOTE 14 — CONTINGENCIES

In connection with the acquisition of Mecklermedia Corporation in 1998, a lawsuit was brought against the Company on December 1, 1998 by Ariff Alidina (the “Plaintiff”), a former stockholder of Mecklermedia Corporation, in the United States Federal District Court in the Southern District of New York for an unspecified amount, as well as other relief. The Plaintiff had claimed that the Company violated the federal securities laws by selling Mr. Meckler, a beneficial owner of approximately 26% of the shares of Mecklermedia, an 80.1% interest in Jupitermedia Corporation for what the Plaintiff alleges was a below-market price, thereby giving to Mr. Meckler more consideration for his common stock in Mecklermedia Corporation than was paid to other stockholders of Mecklermedia Corporation. On May 16, 2001, the United States District Court for the Southern District of New York granted the Plaintiff’s motion for certification of a class consisting of all former stockholders of Mecklermedia who tendered their shares in the tender offer. By letter dated November 3, 2003, plaintiffs’ counsel informed the Court that a

PENTON MEDIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

settlement had been reached in this case. In July 2004, the Federal District Court approved the settlement between the former stockholders of Mecklermedia and the Company. At June 30, 2004, the company recorded a liability of approximately $4.6 million, which reflects its portion of the $7.0 million settlement amount and separately recorded an insurance receivable in the same amount (see Note 19 — Subsequent Events).

In the normal course of business, Penton is subject to a number of lawsuits and claims, both actual and potential in nature. While management believes that resolution of existing claims and lawsuits will not have a material adverse effect on Penton’s financial statements, management is unable to estimate the magnitude or financial impact of claims and lawsuits that may be filed in the future.

NOTE 15 — BUSINESS RESTRUCTURING CHARGES

In 2001, 2002, 2003 and the first half of 2004, the Company implemented a number of cost reduction initiatives to improve its operating cost structure. The cost reduction initiatives included workforce reductions, the consolidation and closure of over 30 facilities, and the cancellation of various contracts.

For facilities that the Company no longer occupies, management makes assumptions, including the number of years a property will be subleased, square footage, market trends, property location and the price per square foot based on discussions with realtors and/or parties that have shown interest in the space and records estimated sublease income accordingly. The Company is actively attempting to sublease all vacant facilities.

Personnel costs include payments for severance, benefits and outplacement services.

2004 Restructuring Plan

Reflecting Penton’s new CEO’s vision to position the Company for growth and improved performance, the Company restructured its operations by flattening its organizational structure as well as implementing other cost savings strategies. The Company recorded restructuring charges of $0.7 million and $2.9 million, respectively, in the first and second quarters of 2004. These costs are associated with the elimination of 37 employees, including several executives, primarily in the United States. As of June 30, 2004, the elimination of 30 positions and payments of $0.4 million had been completed.

Activity and liability balances related to the 2004 restructuring plan are as follows (in thousands):

		Severance
		and Other				Other
		Personnel Costs				Exit Costs				Total
Charged to costs and expenses		$	695			$	37			$	732
Cash payments			(85	)			(25	)			(110	)
Restructuring balance, March 31, 2004			610				12				622
Charged to costs and expenses			2,868				79				2,947
Adjustments			(5	)			(7	)			(12	)
Cash payments			(254	)			(20	)			(274	)
Restructuring balance, June 30, 2004		$	3,219			$	64			$	3,283

Payment of these severance costs is expected to be completed by the second quarter of 2005.

2003 Restructuring Plan

In order to meet continued revenue challenges in 2003, the Company implemented a number of expense reduction and restructuring activities. The Company recorded restructuring charges of $4.9 million in 2003 (as restated). Included in this amount is $2.7 million (as restated) for personnel costs associated with the elimination of 85 positions, primarily in the United States. Furthermore, facility closing costs of $3.8 million relate primarily to the closure of one floor at the Company’s corporate headquarters and the partial closure of one additional facility. This charge was offset by $2.3 million of estimated sublease income related to these facilities. The charge for other exit costs of $0.7 million relates primarily to equipment lease payments at closed office facilities, the cancellation of certain contracts, and broker commissions.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Activity and liability balances related to the 2003 restructuring plan are as follows (in thousands):

		Severance
		and Other				Facility				Other
		Personnel Costs				Closing Costs				Exit Costs				Total
Charged to costs and expenses		$	2,736			$	1,505			$	661			$	4,902
Adjustments			35				(11	)			—				24
Cash payments			(1,105	)			(500	)			(233	)			(1,838	)
Restructuring balance, December 31, 2003 (restated)			1,666				994				428				3,088
Adjustments			76				—				—				76
Cash payments			(1,121	)			(205	)			(182	)			(1,508	)
Restructuring balance, June 30, 2004 (restated)		$	621			$	789			$	246			$	1,656

Payments of severance costs are expected to be completed by the first quarter of 2005. Facility closing costs and other exit costs, which consist of equipment leases, will be paid over their respective lease terms, which expire at various dates through 2010.

2002 Restructuring Plan

In 2002, the Company announced a number of expense reduction and restructuring initiatives intended to improve its operating cost structure. The actions include costs of $5.1 million related to the closure of nine offices worldwide. These amounts were offset in part by approximately $1.7 million related to our New York, NY and Burlingame, CA offices that we were able to sublease in 2002. In addition, the Company reduced the workforce by approximately 316 employees and recorded a liability for other contractual obligations related primarily to the cancellation of trade show venues, hotel contracts and service agreements. Adjustments of $1.7 million primarily relate to rent escalation provisions, which had not been taken into consideration when the original 2002 liability was recorded.

Activity and liability balances related to the 2002 restructuring plan are as follows (in thousands):

		Severance
		and Other				Facility				Other
		Personnel Costs				Closing Costs				Exit Costs				Total
Charged to costs and expenses		$	10,344			$	3,421			$	1,648			$	15,413
Adjustments			200				1,705				59				1,964
Cash payments			(5,440	)			(693	)			(967	)			(7,100	)
Restructuring balance, December 31, 2002			5,104				4,433				740				10,277
Adjustments			(45	)			(604	)			(92	)			(741	)
Cash payments			(4,928	)			(1,469	)			(375	)			(6,772	)
Restructuring balance, December 31, 2003			131				2,360				273				2,764
Adjustments			(78	)			401				246				569
Cash payments			(29	)			(378	)			(35	)			(442	)
Restructuring balance, June 30, 2004		$	24			$	2,383			$	484			$	2,891

The balance of severance costs relate to an executive who will be paid through 2007. Other exit costs are expected to be paid in the second half of 2004, and obligations for the non-cancelable facility leases will be paid over their respective lease terms, which expire at various dates through 2010.

In 2002, restructuring charges of $1.0 million were classified as part of discontinued operations.

2001 Restructuring Plan

During 2001, as part of a broad cost reduction initiative, the Company announced certain expense reduction initiatives, including a reduction in workforce, which reduced headcount by approximately 400 employees, the closure of more than 20 offices worldwide and other exit costs primarily related to the write-off of computerized software development costs. Adjustments to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

other exit costs of approximately $1.0 million in 2001 and $0.4 million in 2002 primarily relate to the reversal of certain restructuring initiatives that did not require the level of spending that had originally been estimated.

Activity and liability balances related to the 2001 restructuring plan are as follows (in thousands):

		Severance
		and Other				Facility				Other
		Personnel Costs				Closing Costs				Exit Costs				Total
Charged to costs and expenses		$	6,774			$	8,669			$	4,364			$	19,807
Adjustments			(23	)			—				(994	)			(1,017	)
Cash payments			(4,468	)			(267	)			(2,423	)			(7,158	)
Restructuring balance, December 31, 2001			2,283				8,402				947				11,632
Adjustments			(135	)			(459	)			(422	)			(1,016	)
Cash payments			(2,129	)			(1,590	)			(250	)			(3,969	)
Restructuring balance, December 31, 2002			19				6,353				275				6,647
Adjustments			(8	)			598				82				672
Cash payments			(11	)			(1,304	)			(357	)			(1,672	)
Restructuring balance, December 31, 2003			—				5,647				—				5,647
Adjustments			—				1				—				1
Cash payments			—				(824	)			—				(824	)
Restructuring balance, June 30, 2004		$	—			$	4,824			$	—			$	4,824

The Company completed the workforce and other exit cost actions in 2003. The Company expects to pay the obligations for the non-cancelable leases over their respective lease terms, which expire at various dates through 2013.

Estimated Future Payments

At June 30, 2004, the Company had an accrued restructuring balance of $12.7 million (as restated). Management expects to make cash payments during the remainder of 2004 of approximately $5.1 million (as restated), composed of $3.5 million (as restated) for employee separation costs, $1.0 million for facility lease obligations and $0.6 million for other contractual obligations. The balance of severance costs will be paid through 2007, and the balance of facility costs and other exit costs, primarily long-term leases, are expected to be paid through the end of the respective lease terms, which extend through 2013.

Amounts due within one year of approximately $6.0 million (as restated) and $3.7 million at June 30, 2004 and December 31, 2003, respectively, are classified in other accrued expenses on the consolidated balance sheets. Amounts due after one year of approximately $6.7 million and $7.6 million at June 30, 2004 and December 31, 2003, respectively, are included in other non-current liabilities on the consolidated balance sheets.

Restructuring charges, including adjustments, for the three and six months ended June 30, 2004 and 2003 are as follows, by segment:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2004				2003				2004				2003
Industry		$	294			$	216			$	644			$	168
Technology			554				1,103				807				1,148
Lifestyle			(3	)			45				—				45
Retail			681				—				699				—
Corporate			1,997				(41	)			2,163				(111	)
Total		$	3,523			$	1,323			$	4,313			$	1,250