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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
ADVANSTAR COMMUNICATIONS INC.
(Exact name of Registrant as specified in its charter)
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NEW YORK 59-2757389
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
545 BOYLSTON STREET, 9TH FLOOR
BOSTON, MA 02116
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(Address of principal executive offices,
including zip code)
(617) 267-6500
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
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. [X]
As of April 13, 2001 none of the registrant's common stock was held by
non-affiliates of the registrant.
As of April 13, 2001, the registrant had 1,000,000 shares of common stock
issued and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Filings made by companies with the Securities and Exchange Commission sometimes
"incorporate information by reference." This means that the company is referring
you to information that was previously filed with the SEC, and this information
is considered to be part of the filing you are reading. The following materials
are incorporated by reference into this Form 10-K: None
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TABLE OF CONTENTS
PAGE
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PART I
Item 1: Business...................................................................................... 1
Item 2: Properties.................................................................................... 17
Item 3: Legal Proceedings............................................................................. 17
Item 4: Submission of Matters to a Vote of Security Holders........................................... 17
PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters......................... 17
Item 6: Selected Financial Data....................................................................... 17
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations......... 21
Item 7A: Quantitative and Qualitative Disclosures About Market Risk.................................... 31
Item 8: Financial Statements and Supplementary Data................................................... 31
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 31
PART III
Item 10: Directors and Executive Officers of the Registrant............................................ 32
Item 11: Executive Compensation........................................................................ 34
Item 12: Security Ownership of Certain Beneficial Owners and Management................................ 39
Item 13: Certain Relationships and Related Transactions................................................ 40
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 42
Signatures ................................................................................................... 75
PART I
ITEM 1. -- BUSINESS
FORWARD LOOKING STATEMENTS
THIS ANNUAL REPORT, OTHER REPORTS, AND COMMUNICATIONS TO SECURITYHOLDERS,
AS WELL AS ORAL STATEMENTS MADE BY THE OFFICERS OR AGENTS OF ADVANSTAR MAY
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN 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, MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATMENTS MAY RELATE
TO, AMONG OTHER THINGS, ADVANSTAR'S FUTURE REVENUES, OPERATING INCOME, EBITDA
AND THE PLANS AND OBJECTIVES OF MANAGEMENT. ALL FORWARD-LOOKING STATEMENTS
INCLUDED HEREIN ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE
TO ADVANSTAR AS OF THE DATE THEREOF, AND ADVANSTAR ASSUMES NO OBLIGATION TO
UPDATE ANY FORWARD-LOOKING STATEMENT. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
VARIATION ARE DISCUSSED BELOW IN AND ADVANSTAR'S OTHER REPORTS AND REGISTRATION
STATEMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND IN
ADVANSTAR, INC.'S ANNUAL REPORT ON FORM 10-K FOR 1999 UNDER "RISK FACTORS".
NOTE ON INDUSTRY MARKET DATA
Industry and market data used throughout this prospectus were obtained
through company research, surveys and studies conducted by third parties and
industry and general publications.
In particular:
o INDUSTRY OVERVIEW: Except where otherwise specifically referenced,
we have based our discussion of the business-to-business communications
industry on publications by Veronis Suhler & Associates.
o TRADE SHOWS: As is typical in the trade show industry, we rank our
trade shows against the trade shows of our competitors based on an
internally conducted analysis of net square footage of exhibition
space. This data is typically reported by trade show organizers and
published in the Tradeshow Week Data Book 2000, a publication that
lists trade shows grouped by industrial classification codes. We
include both direct and indirect competitors in such comparisons.
Direct competitors are the trade shows within the same industrial
classification code and geographic region as our trade shows,
although we only include trade shows within the same industrial
classification code that are within the same subcategory, as defined
by us, as our trade shows. For example, we only include women's
apparel shows in providing data about our women's apparel trade
shows, although the relevant industrial classification code covers
all apparel shows. Direct competitors are also determined in some
cases by the time of the year during which a trade show is held.
Indirect competitors are subjectively determined by us on a
case-by-case basis. These indirect competitors include:
(1) broad-based trade shows we know from prior experience that
display, among other products, products displayed at our trade shows
and (2) trade shows identified by our current exhibitors as other
trade shows in which they participate. In determining our market
position in comparison to these broad-based shows, we compare the
square footage of our show against the estimated square footage of
that broad-based show allocated to the products that are of the same
type as those displayed in our trade show. Some of our trade shows
have insignificant or no direct competition, such as IBS New York,
Licensing International, Dealernews International Powersports Dealer
Expo and the TeleCon shows.
o TRADE PUBLICATIONS: We utilize the industry-standard method of number
of advertising pages to rank our publications against competitors'
publications. For purposes of these rankings, we have defined our
markets narrowly as the niche of businesses or professionals at which
a publication is specifically targeted. Except where otherwise
specifically referenced, we have based the rankings of our
publications on the number of advertising pages in our publications
compared to their competitors as determined by Inquiry Management
Systems Ltd., an independent third party.
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We have not independently verified market and industry data from
third-party sources. While we believe internal company surveys are reliable
and market definitions are appropriate, neither these surveys nor these
definitions have been verified by any independent sources.
GENERAL
Our parent company, Advanstar, Inc., was acquired (the "Acquisition") by
Advanstar Holdings Corp. ("Holdings"), a newly created corporation formed by
DLJ Merchant Banking Partners III, L.P. and related funds (the "DLJ Merchant
Banking Funds"), in October 2000. When we refer below to "pro forma"
information, we mean our consolidated results as if the Acquisition, as well
as the related financing transactions, occurred at the beginning of the
applicable period or as of the applicable date.
We are a leading worldwide provider of integrated, business-to-business,
or "B-to-B," marketing communications products and services for targeted
industry sectors, principally through trade shows and conferences and through
controlled circulation trade, business and professional magazines. We also
provide a broad range of other marketing services products, including
classified advertising, direct mail services, reprints, database marketing,
directories, guides and reference books. We are one of the largest U.S. trade
show operators based upon total square footage and number of shows in 2000
and the fifth largest B-to-B trade publisher in the United States as measured
by advertising pages in 2000.
PRODUCTS AND SERVICES
We offer our customers a comprehensive array of B-to-B communications
products and services to reach their existing and prospective buyers on a
cost-effective basis.
TRADE SHOWS
We are one of the largest trade show operators in the United States based on
total square footage and number of shows in 2000. As of December 31, 2000, we
owned and managed 92 trade shows and 16 standalone conferences for business,
professional and consumer audiences worldwide, most of which were among the
leading events in their respective markets based on square footage. Our trade
shows revenue is derived primarily from the sale of trade show floor space to
exhibitors, show-specific advertising, sponsorships and conferences. Trade shows
revenue accounted for approximately 49.0% of our revenue in 1999 and 52.6% in
the year ended December 31, 2000. Our largest trade shows include MAGIC Fall,
MAGIC Spring, Dealer News International Powersports Dealer Expo and Telexpo and
WWDMAGIC, which collectively represented 2.1 million of the 6 million total
square footage of all our trade shows in the twelve months ended December 31,
2000.
TRADE PUBLICATIONS
As of December 31, 2000, we published 72 specialized business magazines and
professional journals and 36 directories and other publications. Approximately
76% of our 59 magazines and journals for which competitive data is available
ranked either #1 or #2 in their respective markets, based on the number of
advertising pages in the year ended December 31, 2000. Our publications are
generally distributed free-of-charge to qualified professional recipients and
generate revenues predominantly from the sale of advertising. Trade publications
revenue accounted for approximately 45.0% of our total revenue in 1999 and 42.1%
in 2000. Our largest publications include TRAVEL AGENT, PHARMACEUTICAL
TECHNOLOGY, HOTEL AND MOTEL MANAGEMENT, PHARMACEUTICAL EXECUTIVE and AMERICAS
NETWORK, which collectively represented 28.5% of total advertising pages of all
our publications in the year ended December 31, 2000.
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MARKETING SERVICES
Within each industry cluster, we provide a comprehensive set of marketing
communications products, services and support geared to the particular
industry's marketing and customer needs. These services include direct mail and
database marketing programs, reprint services, reference books and other
services to facilitate our clients' B-to-B marketing and communications
programs. These services are incremental to trade shows and publications and
allow our customers to fill in their marketing plans. Marketing services revenue
accounted for approximately 6.0% of our total revenue in 1999 and 5.3% in 2000.
In addition to our trade shows, trade publications, and marketing
services, we are working with our affiliate, Advanstar.com, which is also a
subsidiary of our parent, to use the Internet increasingly to deliver our
integrated B-to-B marketing communications products and services to our
customers.
INDUSTRY CLUSTERS
We organize and operate our business by targeting a number of industry
sectors in North America, Latin America, Europe and Asia through certain niche
markets grouped together in six core clusters. In addition to our six core
clusters, we have grouped the industry sectors in which we provide products and
services but do not have a significant industry presence into a "Market
Development" cluster. We believe that by focusing on industries rather than
products, we better serve our customers' B-to-B marketing communications needs.
In addition, we believe our industry focus allows us to cross-sell our products
and services effectively and to capture a larger share of our customers'
marketing budgets. In each of our niche markets, many of the same customers
advertise in our publications, exhibit at our trade shows and use our marketing
services to reach their buyers. We have expanded our trade show, conference and
publication offerings rapidly within each cluster through new product
introductions and strategic acquisitions, which we believe maximizes our
existing marketing and customer service infrastructure and industry expertise.
We believe that our total cluster participants, including readers, attendees,
conferees, exhibitors, advertisers, and other customers, number approximately
three million.
COMPETITIVE STRENGTHS
We believe that the following factors contribute to our strong competitive
position:
MARKET LEADERSHIP
We have achieved a strong market position within each of our six core
industry clusters, primarily as a result of our ability to offer customers in
each cluster comprehensive and integrated marketing communications products and
services, consisting of significant trade shows and conferences, leading
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publications and marketing services. In 2000, most of our trade shows and
stand-alone conferences were among the leading events in their respective
markets based on square footage. For the twelve months ended December 31, 2000,
approximately 76% of our 59 magazines and journals for which competitive data is
available ranked either #1 or #2 in their respective markets, based on number of
advertising pages.
INDUSTRY-FOCUSED INTEGRATED MARKETING
We employ an integrated, industry-focused marketing approach that enables us
to better serve our customers' B-to-B marketing communications needs. We believe
this approach facilitates the development of deeper relationships with our
customers. For example, our call center group, which is part of the Information
Technology & Communications cluster, recently concluded several marketing
contracts involving participation in trade shows and advertising in our trade
publications.
DIVERSE CUSTOMER BASE
Our diverse customer base has provided us with stable and diverse sources of
revenue and cash flow as well as an established foundation from which to further
penetrate existing markets and to develop new markets. We benefit from:
- A high level of revenue diversification, primarily as a result of our
business presence in 19 different industry sectors consisting of over
24,000 advertisers and exhibitors, none of which represented more than 1%
of our revenues in 2000.
- A strong balance of revenue, with 52.6% of our revenues coming from trade
shows, 42.1% from publishing and 5.3% from marketing services in 2000.
- Approximately 11.4% of our revenues were generated from international
markets in 2000.
- Our customer diversity helps to mitigate our exposure to downturns in
particular industries or geographic markets.
MODEST ONGOING CAPITAL EXPENDITURE REQUIREMENTS
Our operating strategy has allowed us to incur modest ongoing capital
expenditure requirements. Our low ongoing capital expenditure requirements
are a result, in part, of our outsourcing of the printing of trade
publications and the physical operation of trade shows. Our capital
expenditures totaled $11.9 million or 3.1% of total revenues in the year
ended December 31, 2000.
EXPERIENCED AND MOTIVATED MANAGEMENT TEAM
Our senior management team has an average of over 17 years of industry
experience and has an established track record in:
- Delivering revenue and profit growth.
- Developing new products.
- Penetrating new markets.
- Integrating 28 acquisitions and joint ventures since 1996.
Our management is led by Robert L. Krakoff, Chairman and Chief Executive
Officer, and James M. Alic, Vice Chairman, both of whom joined Advanstar in
July 1996 with significant industry experience.
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BUSINESS STRATEGY
Our objective is to increase profitability by solidifying our position as a
leading provider of comprehensive one stop B-to-B marketing communications
products and services. In order to achieve this objective, we operate our
business based on the following strategies:
OPERATE LEADING TRADE SHOWS AND PUBLISH LEADING MAGAZINES IN ATTRACTIVE
NICHE MARKETS
We focus on owning and managing businesses that are the leading sources of
information for businesses and professionals in specific niches. We believe that
our leading trade shows and trade publications serve as unique forums for B-to-B
communications and provide substantial value to industry participants. Niche
markets are often attractive publishing and trade show opportunities because of
the difficulty in reaching industry leaders through general interest
publications or broad based expositions.
UTILIZE INDUSTRY CLUSTER STRATEGY TO DRIVE GROWTH
We organize our business based on the markets served, rather than by product
or geography. This structure allows us to provide expertise across all media
products within a market and to respond effectively to the market needs of
buyers and sellers however they may choose to go to market to reach their
customers. We are able to drive growth through multiple means, including:
- adaptation of existing trade shows and magazines to reflect industry
trends and attract new categories of buyers and sellers;
- development of new product extensions based on interaction with key
members of the buying and selling community;
- identification and introduction of international extensions of successful
U.S.-based products; and
- identification of fill-in acquisition and joint venture opportunities
based on continuing interaction within the market.
MAXIMIZE SHARE OF CUSTOMERS' TOTAL MARKETING EXPENDITURES
We seek to create cross-selling opportunities across existing as well as
newly-launched or acquired products and services. We offer customers a range of
communications methods to attain their specific B-to-B marketing goals. For
example, customers can choose to benefit from face-to-face meetings at trade
shows and conferences, achieve cost effective advertising through controlled
circulation trade publications and diversify and expand revenues through
customized marketing services, including Internet links to and from web sites
owned and operated by our affiliate.
LAUNCH NEW PRODUCTS AND SERVICES WITHIN EXISTING CLUSTERS
We have successfully developed new products within existing industry
clusters and will continue to make strategic new product introductions. We
launched seven magazines and 14 trade shows in existing industry sectors to
fill-in our existing product portfolio in the year ended December 31, 2000. Our
launches are generally line extensions or regional expansions of existing
product concepts, and thus launch investments are not high and risks are lower
than for major new product introductions.
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IDENTIFY AND CONSUMMATE STRATEGIC ACQUISITIONS
As we expand further into our existing industry sectors, we explore
strategic acquisitions and joint ventures designed to maintain and achieve
market leading positions in particular niche markets. In addition, we also build
on our existing international infrastructure to make strategic international
acquisitions and enter into joint ventures with local operating partners. We
believe we enhance the value of acquired businesses by (1) integrating
acquisitions and joint ventures into our efficient infrastructure, (2) applying
our industry experience and (3) cross-selling new products and services to
increase our visibility in a given market. From May 31, 1996 to December 31,
2000, we completed 28 acquisitions and joint ventures. Consistent with our
strategy since 1996, we are engaged in negotiations involving potential
acquisitions of complementary businesses. We do not expect that these
acquisition opportunities, if consummated, would total more than $60.0
million.
INDUSTRY OVERVIEW
B-to-B communications companies provide marketing solutions for specific
industry sectors through trade shows and conferences, trade publications,
ancillary marketing services and through Internet applications. According to the
July 2000 Veronis Suhler & Associates COMMUNICATIONS INDUSTRY FORECAST, the
communications industry was the fastest growing sector of the U.S. economy from
1994 to 1999, expanding at a compound annual growth rate, or CAGR, of 7.8%.
Total spending on B-to-B communications increased from $16.8 billion to
$23.1 billion from 1995 to 1999, which represents a CAGR of 8.2% during that
period, with growth of 7.5% in 1999. Veronis expects a CAGR in excess of 6.0%
for the period from 1999 to 2004. Over the 1995 to 1999 period, trade shows grew
at a 9.6% CAGR and business magazines, which include both general and controlled
circulation magazines, increased at a 7.4% CAGR.
TRADE SHOWS
Trade shows have emerged as an important B-to-B sales, marketing and
educational medium in the global economy, paralleling its rise in profile among
corporate marketers as a highly cost-effective marketing tool. Trade shows
provide an opportunity for industry participants to conduct face-to-face selling
efforts, transact business and receive product information from the exhibits,
conferences, workshops and other forums. Trade show attendees include
executives, manufacturers and operating management, sales and marketing
personnel, industry analysts, middle-level managers and other industry
professionals. Trade shows are the second-leading form of B-to-B communication
in the United States. According to the Veronis report, spending on trade show
space in trade shows and conferences amounted to $8.5 billion in 1999, an 8.2%
increase from 1998 and a 9.6% CAGR during the period from 1995 to 1999.
TRADE PUBLICATIONS
Trade publications are generally published monthly and provide information
about a specific industry or market segment within an industry. Advertisers are
attracted to B-to-B print media by the highly targeted and controlled
circulation of publications. By focusing on targeted audiences, publishers aim
to connect advertisers with key purchasing decision-makers. Controlled
distribution assists advertisers in reaching very specific target groups and
provides for more efficient use of advertising dollars. The cost efficiency of
controlled circulation advertising versus general business advertising or
consumer advertising enhances the stability of B-to-B advertising spending
during difficult economic conditions. The U.S. B-to-B publishing industry is a
large, growing industry with revenues of $14.6 billion in 1999. According to
Veronis, from 1995 to 1999, the industry grew at a CAGR of 7.4%. This growth was
driven by rising levels of advertising spending, which accounted for over 80% of
B-to-B publishing revenues during that period. The remainder of B-to-B
publishing revenues was derived from subscription revenues.
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PRODUCTS AND SERVICES
We offer our customers a comprehensive array of B-to-B communications
products and services to reach their existing and prospective customer base on a
cost-effective basis. We believe that our ability to offer a broad range of
marketing products and services in each of our target markets, or clusters, is a
key competitive advantage for us and allows us to maximize our share of our
customers' marketing expenditures. Our traditional product offerings are trade
shows and conferences, controlled circulation trade, business and professional
magazines, and marketing services.
TRADE SHOWS
We are one of the largest trade show operators in the United States based on
total square footage and number of trade shows in 2000. As of December 31, 2000,
we owned and managed 92 trade shows and 16 standalone conferences for business,
professional and consumer audiences worldwide, most of which were among the
leading events in their respective markets based on square footage. Our primary
sources of revenue from a trade show are derived from the sale of trade show
floor space to exhibitors as well as show-specific advertising, sponsorships and
conferences.
Trade shows are a long-established means of community building, bringing
buyers and sellers in one particular industry or business face-to-face, in a
single forum. In addition, as new products and services proliferate, both
suppliers and their customers need efficient forums to interact and transact
business with one another. Events often include an extensive conference program,
which provides a forum for the exchange and dissemination of information
relevant to the particular event's focus. A conference linked to a trade show
plays a strategic role in trade show development because it represents the
unique editorial content for an event, and it can be used to build new segments,
raise the profile of particular segments or technologies and drive attendance at
the underlying trade show. In addition, each event typically has one or more
keynote speakers drawn from notable industry leaders.
The advantages of trade shows to exhibitors and attendees are summarized
below:
ADVANTAGES TO EXHIBITOR ADVANTAGES TO ATTENDEE
- ----------------------- ----------------------
- - conduct sales more efficiently than in - receive overview of market and
the field; emerging trends;
- - position product and company in target - network with industry executives;
industry; - identify and work with new vendors;
and
- - communicate vision; - source new products.
- - service existing customers;
- - open new accounts; and
- - introduce new products.
TRADE PUBLICATIONS
As of December 31, 2000, we published 72 specialized business magazines and
professional journals and 36 directories and other publications. Of our 59
magazines and journals for which competitive data is available, approximately
76% ranked either #1 or #2 in their respective markets based on the number of
advertising pages in the year ended December 31, 2000. Our publications are
generally distributed free-of-charge to qualified professional recipients and
generate revenues predominantly from the sale of advertising.
By offering our advertisers access to a targeted and industry-specific
customer base, we believe that we are able to sell advertising space in our
publications at a rate per customer that is higher than the average rate charged
by publications aimed at more general audiences. We believe that our targeted
circulation lists for our U.S. and international publications provide our
advertising customers with a cost-effective method of reaching their target
market's decision-makers. We seek to increase advertising
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revenues by introducing existing advertisers to new titles, by attracting new
advertisers who target our readership and by developing new reader and
advertising categories.
The advantages of trade publications to advertisers and readers are
summarized below:
ADVANTAGES TO ADVERTISER ADVANTAGES TO READER
- ------------------------ --------------------
- - cost effective; - relevant, industry specific
information;
- - highly targeted audience of qualified - promotion of industry stewardship;
readers; - keep up with peers in the industry; and
- - focused medium; - interactive follow-up system in print
- - attractive means to introduce new and/or electronically.
products; and
- - audited, controlled circulation.
MARKETING SERVICES
Within each industry cluster, we provide a comprehensive set of marketing
communications products, services and support geared to the particular
industry's marketing and customer needs. These services include direct mail and
database marketing programs, reprint services, reference books and other
services to facilitate our clients' B-to-B marketing and communications
programs.
Marketing services are centrally managed, rather than being organized by
cluster. Thus, our cluster executives are able to dedicate their activities to
high value sales. In addition, our central telesales and product management
provides professional skills to these specialized product offerings.
INTERNET
In addition to our trade shows, conferences, publications and marketing
services, we are working with Advanstar.com, which is also a subsidiary of
our parent, to use the Internet increasingly to deliver our integrated B-to-B
marketing communications products and services to our customers.
Advanstar.com is developing vertical community web sites to serve our
industry sectors and is operating our event and publication-related web
sites. We believe that the Internet can be utilized on a customized basis to
serve our customers' B-to-B marketing communication needs more efficiently
and effectively by offering information 24 hours a day, seven days a week.
For example, Advanstar.com is completing development of a web site,
MagicOnline, to serve as an on-line information and product resource for
apparel retailers. See "Certain Relationships and Related Party
Transactions--Relationship with Advanstar.com."
INDUSTRY CLUSTERS
We organize our operations into six core clusters. In addition to our six
core clusters, we have grouped the industry sectors in which we provide services
but do not have a significant industry presence into a "Market Development"
cluster. In each of our targeted segments within these clusters, many of the
same customers advertise in our publications, exhibit at our trade shows and use
our marketing services to reach their buyers. We have expanded our offerings
rapidly within each community through new product introductions and strategic
acquisitions. We believe our total community participants, including readers,
attendees, conferees, exhibitors, advertisers and other customers, number
approximately three million.
The following is a summary of each of our clusters.
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FASHION & APPAREL
Our Fashion & Apparel cluster serves the men's, women's, children's, and
fabrics industries. In 1999, we operated in these industry sectors through 23
trade shows. Three trade shows held concurrently in Las Vegas twice annually
constitute the foundation of our apparel market position:
- MAGIC, the world's largest and most widely recognized trade show for the
men's apparel industry;
- WWDMAGIC, the largest women's apparel trade show in the United States; and
- MAGICKids, the second largest children's apparel show in the United
States.
In 1999, we acquired the Larkin Group, adding 15 trade shows serving the
women's and children's fashion and fabric/textile industries to complement our
core Fashion & Apparel cluster. The Larkin Group trade shows held in New York
City consist of (1) five International Fashion Boutique shows focusing on
moderate price point women's apparel and accessories; (2) five Style Industries
shows focusing on higher end women's clothing; (3) three International Fashion
Kids shows focusing on children's apparel and accessories; and (4) two
International Fashion Fabric Trade shows focusing on fabric and textiles for the
apparel industry.
The following table sets forth pro forma information relating to trade shows
in our Fashion & Apparel cluster in the twelve months ended December 31, 2000.
We currently have no publications in this cluster:
FASHION & APPAREL EVENTS
EVENTS (1)
-----------------------------
SECTOR NUMBER NET SQUARE FOOTAGE
- ------ -------- ------------------
Men's (includes Edge)....................................... 4 1,432,875
Women's..................................................... 12 941,576
Kids........................................................ 5 299,589
Fabric...................................................... 2 102,522
- --------------------------
(1) Excludes conferences.
INFORMATION TECHNOLOGY & COMMUNICATIONS
Our Information Technology & Communications cluster serves the information
technology, telecommunications and call center industries. In 2000, we operated
in these industry sectors through 27 trade shows and 18 publications. We are a
very specialized niche company in the information technology market with focused
and successful events in Internet commerce, digital printing and digital media.
The rapidly evolving, deregulated competitive telecommunications sector is one
of our most important and fastest growing targeted markets and we have a
significant worldwide presence in trade shows and magazines. We are also a
leader in the rapidly growing and evolving market for teleconferencing,
web-based collaboration and e-learning. Finally, our CRM/Call Center sector has
served as a primary example of successful market-focused expansion on an
international scale:
Key trade shows, conferences and publications include:
- On Demand Digital Printing & Publishing Conference and Expo, the second
largest trade show and conference for the digital print and publishing
market;
- the TeleCon and e-Learning shows, trade shows in the United States for the
video conferencing and long distance e-learning markets, and the related
TELECONFERENCE AND E-LEARNING magazines;
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- Incoming Call Center Management Conference & Exhibition, the #1 U.S. trade
show and conference for call center managers, and Call Center
Conference & Exhibition, large U.S. trade show and conference for
technology in the call center market;
- iEB, Internet and Electronic Business Conference and Exhibition, a large
U.S. trade show and conference serving the rapidly growing market for
electronic commerce through the Internet, produced in partnership with The
Gartner Group, Inc.;
- Telexpo, the #1 telecom trade show and conference in Latin America, held
annually in March in Sao Paolo with over 40,000 attendees and 377
exhibitors; and
- a global grouping of leading telecom magazines, including AMERICA'S
NETWORK, EURONET, TELECOM ASIA, TELECOM CHINA, WIRELESS ASIA, RNT(Brazil)
and TPLA (Latin America).
The following table sets forth pro forma information relating to trade shows
and magazines in our Information Technology & Communications cluster in the year
ended December 31, 2000:
INFORMATION TECHNOLOGY & COMMUNICATIONS EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ----------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2 (2)
- ------ -------- ---------- -------- -------- ------------
Information Technology......................... 8 389,626 4 1,323 2 of 2
Telecommunications............................. 4 375,940 11 2,986 3 of 7
CRM / Call Center.............................. 15 334,836 3 628 1 of 3
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
SPECIALTY RETAIL
We served the Specialty Retail sector through 26 trade shows and 11
publications in 2000. This cluster includes the art, beauty,
entertainment/marketing and motor vehicles sectors.
Key trade shows and publications include:
- Artexpo New York, the largest mid-market art trade show in the United
States, and ART BUSINESS NEWS, a leading publication for gallery and
framing professionals;
- IBS New York, the largest trade show and educational event on the East
Coast for the beauty salon market, and AMERICAN SALON, the #2 publication
for the professional beauty and hair care industry;
- Licensing International, the largest trade show worldwide for the
merchandise licensing industry, and LICENSE!, the #1 publication for the
licensing industry; and
- Dealernews International Powersports Dealer Expo, the largest aftermarket
accessories trade show in the United States targeted at powersports
dealers, the 12 city tour of consumer International Motorcycle shows and
DEALERNEWS, the #1 magazine targeted at retailers in the powersports
market--motorcycles, snowmobiles and personal watercraft.
10
The following table sets forth pro forma information relating to trade shows
and magazines in our Specialty Retail cluster in the year ended December 31,
2000:
SPECIALTY RETAIL EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ---------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- ---------- -------- -------- -----------
Art............................................ 4 223,548 2 1,051 0 of 1
Beauty......................................... 2 226,646 3 1,459 2 of 3
Entertainment / Marketing...................... 6 289,796 3 2,233 3 of 3
Motor Vehicle.................................. 14 925,448 3 1,488 2 of 2
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
HEALTHCARE, SCIENCE & PHARMACEUTICALS
Our Healthcare, Science & Pharmaceuticals cluster provided marketing
products and services to these three related sectors with eight trade shows and
19 publications in 2000. We serve the healthcare sector in both primary and
specialized care areas, such as geriatrics, dermatology, ophthalmology and
veterinary medicine; the science sector in areas such as spectroscopy and liquid
and gas chromatography; and the pharmaceutical sector in areas such as research
and development, manufacturing, testing and marketing.
Key trade shows, conferences and publications include:
- PHARMACEUTICAL TECHNOLOGY, the #1 publication targeted at pharmaceutical
scientists, engineers and operation managers, and PHARMACEUTICAL
EXECUTIVE, the #1 magazine for pharmaceutical company product managers and
marketing professionals;
- LCGC AND LCGC EUROPE, the #1 magazines in the United States and Europe in
liquid and gas chromatography;
- GERIATRICS, the #2 magazine for the geriatrics segment of the primary care
market, FORMULARY, the #2 magazine for the drug selection market and DVM,
THE NEWS MAGAZINE OF VETERINARY MEDICINE, the #1 magazine for
veterinarians; and
- Abilities Expos, the largest consumer-oriented events targeting
individuals with disabilities.
11
The following table sets forth pro forma information relating to trade shows
and magazines in our Healthcare, Science & Pharmaceuticals cluster in the year
ended December 31, 2000:
HEALTHCARE, SCIENCE & PHARMACEUTICALS EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ---------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- ---------- -------- -------- -----------
Healthcare..................................... 6 122,670 9 4,349 6 of 9
Science........................................ 1 16,678 5 1,910 4 of 4
Pharmaceuticals................................ 1 1,065 5 4,049 5 of 5
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
TRAVEL & HOSPITALITY
We served the travel and hospitality sector through two trade shows and six
publications in 2000. Our publications for the travel and hospitality sector
provide a strong foundation to launch related trade shows and services as well
as to develop custom-publishing products.
Selected publications include:
- TRAVEL AGENT, the second largest non-computer U.S. trade magazine and #1
trade periodical for the travel industry;
- HOTEL & MOTEL MANAGEMENT, the #1 publication for the hospitality
management market; and
- PREMIER HOTELS AND RESORTS, a leading directory of 4 and 5 star hotel and
resort properties.
The following table sets forth pro forma information relating to trade shows
and magazines in our Travel & Hospitality cluster in the year ended
December 31, 2000:
TRAVEL & HOSPITALITY EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Travel.......................................... 2 43,700 5 6,470 2 of 3
Hospitality..................................... -- NA 1 1,305 1 of 1
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
12
MANUFACTURING & PROCESSING
Our Manufacturing & Processing cluster serves the application technology and
OEM/processing sectors. In 2000, we delivered our B-to-B marketing
communications products and services to our customers in these industries
through five trade shows and seven publications. In applied technology, we
focus:
- on the automatic data capture, identification and tracking systems market,
including bar coding, magnetic stripe, smart cards, biometrics and the
associated systems,
- the geospatial market, including global positioning systems and geographic
information systems and
- sensors technology.
For the OEM and processing sector, we offer trade shows, conferences and
publications focused on equipment, materials and intermediate products used in
the manufacturing and processing of a wide range of products.
Key trade shows, conferences and publications include:
- Frontline Solutions and Frontline Solutions Europe (formerly ScanTech),
the #1 U.S. and European trade show and conference, respectively, for the
automatic data capture, identification and tracking systems market, and
FRONTLINE SOLUTIONS magazine (formerly AUTOMATIC ID NEWS), the #1
publication in the United States and Europe for the automatic data
capture, identification and tracking systems market; and
- SENSORS, the #1 U.S. magazine for engineers in the expanding use of
sensors in industrial and consumer products, and Sensors Expos, leading
trade shows serving the sensors market.
The following table sets forth pro forma information relating to trade shows
and magazines in our Manufacturing & Processing cluster in the year ended
December 31, 2000:
MANUFACTURING & PROCESSING EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Applications Technology........................ 2 153,484 4 1,062 4 of 4
OEM / Processing............................... 3 95,375 3 1,889 3 of 3
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
MARKET DEVELOPMENT
We group the balance of our products and services into a Market Development
cluster which serves as an incubator focused on growing these products and
services through internal development and acquisitions. The Market Development
cluster addresses large and attractive market sectors in which we provide
selected products and services but do not have a significant presence. Markets
currently served include energy, finance, landscaping/pest control, paper and
roofing sectors. In 2000, we delivered our B-to-B marketing communications
products and services to our customers in these industry sectors through one
trade show and 11 publications.
13
The following table sets forth pro forma information relating to trade shows
and magazines in our Market Development cluster in the year ended December 31,
2000:
MARKET DEVELOPMENT EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Energy.......................................... -- -- 1 341 1 of 1
Intimate Apparel................................ -- -- 2 143 1 of 1
Finance......................................... 1 9,780 -- -- --
Landscape / Pest Control........................ -- -- 5 1,811 4 of 4
Paper........................................... -- -- 2 1,181 1 of 2
Roofing......................................... -- -- 1 357 0 of 1
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
COMPANY OPERATIONS
TRADE SHOWS
The sales cycle for a future trade show typically begins shortly before the
current show, with pricing information, preliminary floor plans and exhibitor
promotion for the future show mailed in advance of the current show so that
selling for the future show can begin at the current show. Typically, this
"upfront" selling includes floor space reservations with exhibitors executing a
contract and making deposits for the future show. At many of our trade shows, a
commitment for a large portion of exhibit space for the next event is reserved
by the end of the current event. For example, at each of the Dealer Expo,
Frontline Solutions, ICCM and Telecon trade shows, over 70% of the exhibit space
for the future show is reserved by the end of the current show, and a portion of
the fees are collected shortly thereafter. The sales cycle continues with
selling to new exhibitors and collecting the balance of payments due. In
general, we require exhibitor payments in full prior to a trade show as a
condition to participation.
In addition to the sale of exhibit space, we market to exhibitors a wide
range of promotional opportunities to raise their visibility at an event. These
opportunities include directory and preview advertising, banners, sponsorships
of various functions and a wide variety of other products or services. We also
produce related conferences and workshops, which represent the editorial content
for an event and play a crucial strategic role in trade show development.
Conferences, workshops and other ancillary forums all stimulate interest in the
industry and drive attendance at the trade show. While show attendance is
typically free for qualified attendees, participation in conferences at these
shows can be a significant revenue source.
Event promotion is undertaken through direct mail, using both in-house,
exhibitor-provided and rented lists of pre-qualified industry participants. In
those industry sectors for which we also have complementary publications, our
publications play a key role in event promotion by providing lists from
circulation files and editorial coverage for the upcoming show. Other industry
magazines may also be involved, as the goal of any event is to represent the
entire industry or market. The "show issue" of an industry magazine for a
related event is often the biggest issue of the year, as the advertisers want to
reinforce their show presence.
14
In operating trade shows and conferences, we function in a capacity similar
to a general contractor. Through our central trade show and conference
operations, we select and manage venues, hotels, and vendors for decorating,
registration, travel and housing, audio-visual services and other services. In
many cases, venue and hotel reservations are made several years in advance,
particularly for primary markets such as New York, Chicago, Las Vegas, Los
Angeles and San Francisco. While the production of a show may involve hundreds
of workers, most workers are employees of our subcontractor vendors. We employ
very few of the workers on-site.
TRADE PUBLICATIONS
We have established an efficient publishing infrastructure in the United
States and Europe. Our publications generally follow the controlled circulation
model and are distributed free-of-charge to qualified recipients. We build
readership and maintain the quality and quantity of our circulation based on
delivering high quality, professional coverage of relevant industry information.
Because we offer our advertisers access to a highly-targeted, industry-specific
subscriber base with potential buying influence, our advertisers place their ads
in our publications to reach their customers. Most of our magazines are
published monthly, although some titles are published weekly or semi-monthly.
We attract readership and improve the effectiveness of our advertising by
maintaining and continuously improving the quality of the editorial content of
our publications. Recipients of our publications are targeted through market
research designed to determine the market coverage and purchasing authority
desired by prospective advertisers. Based on existing and acquired mail lists,
the targeted recipient is then solicited through promotions offering free
subscriptions to the relevant publications. High-quality circulation is
achieved when a high percentage of the circulation list is recently qualified,
within one or two years, and the publication is delivered at the direct
request of the recipient. Recipients are qualified and requalified on a
regular basis through direct mail qualification cards included in the
publication and, increasingly, the Internet.
Our advertising sales and editorial functions are dispersed throughout North
America, Asia, Europe and Brazil. Advertising sales are predominantly conducted
by our dedicated sales force. Editorial content for our publications is
primarily staff-written, with some editorial contribution by freelance writers
and industry or professional participants in selected markets.
Our advertising materials and editorial content are integrated in our
Duluth, Minnesota and Chester, England production facilities, where layout, ad
insertion and output to film is completed. All printing is outsourced to vendors
in various regions, but printing contracts are negotiated and managed centrally.
We purchase paper centrally through a relationship with one of the industry's
largest paper brokers. Paper is shipped directly from the mills to the printers
at our request. We maintain our own central U.S. fulfillment operation in Duluth
to generate mailing labels and mailing instructions for the printers. Our
production workforce is highly experienced and is based in relatively low-cost
locations in Duluth and Chester.
COMPETITION
The market for our products and services is intensely competitive. The
competition is highly fragmented by product offering and by geography. On a
global level, larger international firms operate in many geographic markets and
have broad product offerings in trade shows, conferences, publications and
marketing services. In several industries, such as information technology and
healthcare, we compete with large firms with a single-industry focus. Many of
these large international and single-industry firms are better capitalized than
we are and have substantially greater financial and other resources than we
have.
15
Within each particular industry sector, we also compete with a large number
of small to medium-sized firms. While most small to medium-sized firms operate
in a single geographic market, in some cases, our competitors operate in several
geographic markets. In the trade show and conference segment, we compete with
trade associations and, in several international markets, with exposition hall
owners and operators. Trade show and conference competition in each market and
country occurs on many levels. The venues and dates of trade shows drive
competition. Historically, successful shows have been held at desirable
locations and on desirable dates. Given the availability of alternative venues
and the ability to define events for particular market segments, the range of
competition for exhibitor dollars, sponsorships, attendees and conferees is
extensive. In the publications segment, we typically have between two and five
direct competitors which target the same industry sector and many indirect
competitors which define industry segments differently than we do and thus may
be alternatives for either readers or advertisers.
INTELLECTUAL PROPERTY
We have developed strong brand awareness for our principal products and
services. Accordingly, we consider our trademarks, service marks, copyrights,
trade secrets and similar intellectual property important to our success, and
we rely on trademark, service mark, copyright and trade secret laws, as well
as licensing and confidentiality agreements, to protect our intellectual
property rights. We generally register our material trademarks and service
marks in the United States and in certain other key countries in which these
trademarks and service marks are used. Effective trademark, service mark and
trade secret protection may not be available in every country in which our
products and services are available.
ENVIRONMENTAL MATTERS
We are subject to various foreign, federal, state and local environmental
protection and health and safety laws and regulations, and accordingly, we incur
some costs to comply with those laws. We own or lease real property, and some
environmental laws hold current or previous owners or operators of businesses
and real property liable for contamination on that property, even if they did
not know of and were not responsible for the contamination. Although we do not
currently anticipate that the costs of complying with environmental laws will
materially adversely affect us, we cannot ensure that we will not incur material
costs or liabilities in the future, due to the discovery of new facts or
conditions, releases of hazardous materials, or a change in environmental laws.
EMPLOYEES
As of December 31, 2000, we had approximately 1,500 full-time equivalent
employees. Of these, approximately 210 employees were located in Europe, Brazil
and Asia with the balance based in the United States. None of our U.S. employees
are represented by a labor union. We consider our relationships with our
employees to be good.
16
ITEM 2. -- PROPERTIES
PROPERTIES
We have executive, marketing, sales and editorial offices in several cities
in the United States, including Boston; Cleveland; Edison, New Jersey; Eugene,
Oregon; Milford, Connecticut; New York City; Santa Ana, California; and Woodland
Hills, California. In addition, we have offices in Sao Paulo, Brazil; Hong Kong,
China; Paris, France; Essen, Germany; and Chester and London, United Kingdom.
Our finance, trade show registration, call center, circulation, fulfillment,
production and other necessary operational support facilities in the United
States are located in Duluth, Minnesota.
We generally lease our offices from third parties. However, we own our
operations offices in Duluth and Cleveland, although we have granted mortgages
on these properties to the lenders under our new credit facility. We believe
that our properties are in good operating condition and that suitable additional
or alternative space will be available on commercially reasonable terms for
future expansion.
ITEM 3. -- LEGAL PROCEEDINGS
We are not a party to any legal proceedings other than ordinary course, routine
litigation which is not material to our business, financial condition or results
of operations.
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 the fiscal year ended December 31, 2000.
PART II
ITEM 5. -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the registrant's common
equity.
ITEM 6. -- SELECTED FINANCIAL DATA
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected financial data for Advanstar
Communications Inc. and its predecessors for each of the periods indicated.
The selected historical financial data for Advanstar's predecessors for the
five months ended May 31, 1996, the seven months ended December 31, 1996, for
the year ended December 31, 1997 and the consolidated balance sheet as of
December 31, 1998 have been derived from the audited consolidated financial
statements and notes thereto of the predecessors for those periods, which are
not included nor incorporated herein. The selected historical financial data
for Advanstar's predecessor for the years ended December 31, 1998, 1999 and
for the period January 1, 2000 through October 11, 2000 have been derived
from the audited consolidated financial statements and notes thereto of the
predecessor for those periods included herein. The selected historical
financial data for Advanstar for the period October 12, 2000 through December
31, 2000 have been derived from Advanstar's audited financial statements,
included herein. The selected historical consolidated financial data should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this annual report.
17
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------------ ---------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH
MAY 31, DECEMBER 31, ------------------------------ OCTOBER 11, DECEMBER 31,
1996 1996 1997 1998 1999 2000 2000
----------- ------------- -------- -------- -------- --------------- ---------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT
DATA:
Revenue.............. $68,286 $ 82,720 $187,656 $259,825 $328,372 $314,045 $ 63,434
Cost of production
and selling........ 43,827 53,493 126,103 168,543 205,105 187,849 47,296
General and
administrative
expenses........... 11,462 17,395 30,714 36,557 43,646 41,290 11,519
Stock option
compensation
expense (benefit)
(1)................ -- -- -- 3,397 3,925 (2,485) --
Amortization of
goodwill and
intangible
assets............. 1,588 13,171 24,326 48,752 49,214 35,133 12,711
------- -------- -------- -------- -------- -------- --------
Operating income
(loss)............. 11,409 (1,339) 6,513 2,576 26,482 52,258 (8,092)
Other income
(expense):
Interest expense..... (6,963) (7,511) (15,117) (27,862) (39,888) (38,161) (13,765)
Other income
(expense), net..... 23 (488) 292 (1,926) (198) (2,394) 215
------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority
interest........... 4,469 (9,338) (8,312) (27,212) (13,604) 11,703 (21,642)
Provision (benefit)
for income taxes... 13 1,076 583 1,264 (11,431) 11,190 (4,772)
Minority interests in
income (loss) of
subsidiaries....... -- -- -- (40) (1,588) 1,003 (125)
------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing
operations......... $ 4,456 $(10,414) ($ 8,895) ($28,436) ($ 585) ($ 490) ($16,745)
======= ======== ======== ======== ======== ======== ========
18
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------------ ------------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH
MAY 31, DECEMBER 31, ------------------------------ OCTOBER 11, DECEMBER 31,
1996 1996 1997 1998 1999 2000 2000
----------- ------------- -------- -------- -------- --------------- ------------------
(DOLLARS IN THOUSANDS)
OTHER DATA:
EBITDA (2)........... $14,428 $ 13,781 $ 34,039 $ 53,828 $ 78,478
Adjusted EBITDA (3).. 14,428 13,781 34,039 57,225 82,403
Adjusted EBITDA
margin............. 21.1% 16.7% 18.1% 22.0% 25.1%
Capital
expenditures....... $ 365 $ 780 $ 2,260 $ 4,154 $ 9,722
Ratio of Adjusted
EBITDA to cash
interest expense... 1.8x 2.4x 2.1x 2.1x
Ration of net debt to
Adjusted EBITDA (4) 4.6x 7.2x 6.2x
Ratio of earnings to
fixed charges (5).. 1.6x -- -- -- --
BALANCE SHEET DATA
(AT END OF PERIOD)
Cash and cash
equivalents........ $ 2,531 $ 7,024 $ 14,016 $ 11,237 $ 17,675
Working capital(6)... (11,572) (12,034) (33,232) (53,479) (62,601)
Total assets......... 277,173 298,497 660,226 781,581 957,205
Total debt........... 151,000 164,223 426,868 523,154 565,000
Total stockholder's
equity............. 86,839 89,734 134,760 132,961 265,011
- ------------------------------
(1) We account for stock-based compensation using the intrinsic value method. As
a result, we measure compensation cost as the difference between the
exercise price of the options and the fair value of the shares underlying
the options at the end of the period. Our results for the period January 1,
2000 through October 11, 2001 were favorably impacted by compensation
benefits due to a decrease in the fair value of the shares underlying the
options. We will no longer recognize compensation expense thereafter as a
result of a change in benefit plans.
(2) "EBITDA" is defined as operating income (loss) plus depreciation and
amortization less amounts attributable to minority interest. EBITDA is a key
financial measure but should not be construed as an alternative to operating
income or cash flows from operating activities (as determined in accordance
with generally accepted accounting principles). We believe that EBITDA is a
useful supplement to net income and other income statement data in
understanding cash flows generated from operations that are available for
taxes, debt service and capital expenditures. However, our method of
computation may not be comparable to other similarly titled measures of
other companies.
19
The following table demonstrates our calculation of EBITDA for each period
presented.
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------------ ----------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH
MAY 31, DECEMBER 31, ------------------------------ OCTOBER 11, DECEMBER 31,
1996 1996 1997 1998 1999 2000 2000
----------- ------------- -------- -------- -------- --------------- ----------------
(DOLLARS IN THOUSANDS)
Operating income..... $11,409 $ (1,339) $ 6,513 $ 2,576 $ 26,482 $ 52,258 ($ 8,092)
Depreciation and
amortization....... 3,019 15,120 27,526 51,823 53,258 39,653 14,447
Minority interest
(Excluding
depreciation and
amortization)...... -- -- -- (571) (1,262) (1,991) 36
------- -------- -------- -------- -------- -------- --------
EBITDA............... $14,428 $ 13,781 $ 34,039 $ 53,828 $ 78,478 $ 89,920 $ 6,391
======= ======== ======== ======== ======== ======== ========
(3) "Adjusted EBITDA" is defined as EBITDA plus stock option compensation
expense, or less any stock option compensation benefit. We believe that
Adjusted EBITDA is a useful supplement to net income and other income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures, as it
excludes stock option compensation expense which, in all historical periods,
was a non-cash expense.
(4) Net debt equals total debt less cash and cash equivalents.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as pretax income from continuing operations plus fixed charges,
and fixed charges consist of interest expense and one-third of rental
expense, which is considered representative of the interest component of
rental expense. Earnings were insufficient to cover fixed charges in the
seven months ended December 31, 1996, the years ended December 31, 1997,
1998, and 1999 and the period from October 12, 2000 through December 31,
2000 by $1.0 million, $9.3 million, $8.3 million, $27.2 million, $12.0
million and $21.5 million, respectively.
(6) Working capital is defined as current assets, excluding cash, less current
liabilities, excluding the current portion of long term debt.
20
ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We are a worldwide provider of integrated, B-to-B marketing communications
products and services for targeted industry sectors, principally through trade
shows and conferences and through controlled circulation trade, business and
professional magazines. We also provide a broad range of other marketing
services products, including classified advertising, direct mail services,
reprints, database marketing, guides, and reference books.
We report our business in three segments:
- trade shows and conferences, which consists primarily of the management of
trade shows and seminars held in convention and conference centers;
- trade publications, which consists primarily of the creation and
distribution of controlled circulation trade, business and professional
magazines; and
- marketing services, which consists primarily of sales of a variety of
direct mail and database products, magazine editorial reprints, and
classified advertising.
Trade shows and conferences accounted for 32.8%, 43.5%, 49.0% and 52.6% of
total revenue in 1997, 1998, 1999 and 2000, respectively. Trade publications
accounted for 59.5%, 50.2%, 45.0%, and 42.1% of total revenue in 1997, 1998,
1999 and 2000, respectively, while marketing services accounted for 7.7%, 6.3%,
6.0%, and 5.3% of total revenue in 1997, 1998, 1999 and 2000, respectively. Our
revenue reaches its highest levels during the first and third quarters of the
year due to the timing of the MAGIC trade shows and our other large trade shows
and conferences. Because trade shows and conferences revenue is recognized when
a particular event is held, we may experience fluctuations in quarterly revenue
based on the movement of annual trade show dates from one quarter to another.
We provide our affiliate Advanstar.com with administrative support
services in accounting, finance, legal, human resource management,
information technology and business development. We also provide
Advanstar.com with marketing and promotional support through advertising
pages in our trade publications and exhibit space in our trade shows. These
services are provided at rates which fully cover our incremental costs. In
return, Advanstar.com provides promotional support on its web sites for our
trade publications and trade shows at rates which reflect incremental cost.
We will pay Advanstar.com a service fee beginning in 2001 based on cost plus
a small administrative charge for these web site services. Advanstar.com has
the right to use the content from our publications and events, our brands and
our customer lists for the purpose of building and operating the web sites.
In return for these rights, Advanstar.com will pay us beginning in 2001 a
royalty based on a percentage of all revenue derived by Advanstar.com. We
expect that the transactions described above will be on arm's-length terms
going forward.
In March 2001, our parent, Advanstar, Inc. announced plans to more
tightly focus the activities of Advanstar.com. These plans will have the
effect of more closely integrating many of the sales, marketing, technology
and operating functions of Advanstar.com with us and our core activities in
publishing, tradeshows, and marketing services. As a result, Advanstar.com
will reduce the number of internet products scheduled for introduction in 2001.
PRESENTATION OF FINANCIAL INFORMATION
ACQUISITIONS
Since May 31, 1996, we have completed 28 acquisitions and joint ventures, 14
of which were completed in 1998, four of which were completed in 1999 and two of
which were completed in 2000.
- On April 30, 1998, we acquired Men's Apparel Guild in California, Inc.
("MAGIC") for approximately $234.3 million. MAGIC is now our wholly-owned
subsidiary and the core asset of our Fashion & Apparel cluster. On
August 17, 1998, we acquired certain travel-related publications and trade
show assets from Universal Media, Inc. for cash consideration of
$68.0 million. In addition, in 1998, we completed 12 other acquisitions or
joint ventures with purchase prices ranging from approximately
$0.6 million to approximately $20.0 million and aggregating approximately
$89.1 million.
21
- On July 28, 1999, we acquired certain trade shows and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC, which
operates apparel trade shows. The purchase price was approximately
$135.4 million in cash and assumed liabilities. From January 1, 1999
through December 31, 1999, we completed three other acquisitions of trade
shows, conferences and publishing properties, with a cumulative purchase
price totaling approximately $17.3 million in cash and assumed
liabilities.
- In January 2000 we acquired the Documents, Messaging and Security or "DMS"
tradeshow and INFO 21 magazine from Gruppe 21 Informations-GmbH for
approximately $7.8 million in cash and assumed liabilities. In July 2000
we acquired the Brand Licensing London tradeshow for approximately
$4.6 million in cash and assumed liabilities.
- On November 26, 2000 we purchased the outstanding minority interest in
SeCA, a French trade show joint venture, for approximately $9.0 million.
These acquisitions have been accounted for under the purchase method of
accounting and our results of operations include the effect of these
acquisitions from the date of purchase.
In addition, we will purchase the outstanding minority interest in
Advanstar Wideband for approximately $4.0 million in a transaction that is
expected to close in early 2001. We previously recorded a minority interest
expense related to Advanstar Wideband's earnings in other income (expense),
net. As a result of this transaction, in future periods we will eliminate the
minority interest expense related to Advanstar Wideband in our results of
operations.
In February 2001, we purchased several automotive industry magazines for
approximately $4.0 million. The acquisition is not expected to have a
material impact on our financial condition or results of operations.
THE ACQUISITION
As a result of the acquisition of our company by the DLJ Merchant Banking
funds, we will have significantly higher indebtedness and interest expense than
reflected in our historical results of operations. In addition, our acquisition
was accounted for under the purchase method of accounting. Under purchase
accounting, the purchase price is allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective
fair values, with the remainder being allocated to goodwill. The increase in
basis of these assets will result in non-cash depreciation and amortization
charges in future periods that will be significantly higher than that reflected
in our historical financial information.
During the first quarter of 2001, we will record an extraordinary charge of
approximately $2.4 million, net of a deferred tax benefit of $1.6 million, in
connection with the write-off of deferred financing fees related to the bridge
facility that was refinanced with the proceeds of the offering of the old notes
and the concurrent offering of additional parent company units.
STOCK OPTION COMPENSATION CHARGES
We account for stock-based compensation using the intrinsic value method. As
a result, due to the variable features of option grants under Advanstar, Inc.'s
old stock option plan, we measure compensation cost as the difference between
the exercise price of the options and the fair value of the shares underlying
the options at the end of the period. We then recognize a non-cash compensation
expense.
Our results for 2000, including our EBITDA and EBITDA margin, were
positively impacted by non-cash compensation benefits recognized due to a
decrease in the fair value of the shares underlying the options at the end of
the period.
We no longer have a variable-feature benefit plan after the acquisition and
will therefore not recognize stock option compensation charges under that plan
as currently in effect.
22
SOURCES OF REVENUE
TRADE SHOWS AND CONFERENCES
The trade shows and conferences segment derives revenue principally from the
sale of exhibit space and conference attendance fees generated at its events. In
2000, approximately 81.6% of our trade shows and conferences revenue was from
the sale of exhibit space. Events are generally held on an annual basis in major
metropolitan or convention areas such as New York City or Las Vegas. At many of
our trade shows, a portion of exhibit space is reserved and partial payment is
received as much as a year in advance. For example, over 70% of exhibit space at
our Dealer Expo, Frontline Solutions, ICCM and Telecon shows is reserved prior
to the end of the preceding show. The sale of exhibit space is affected by the
on-going quality and quantity of attendance, venue selection and availability,
industry life cycle and general market conditions. Revenue and related direct
event expenses are recognized in the month in which the event is held. Cash is
collected in advance of an event and is recorded on our balance sheet as
deferred revenue.
TRADE PUBLICATIONS
The trade publications segment derives revenue principally from the sale of
advertising in its business-to-business magazines. Additionally, certain
publications derive revenue from paid subscriptions and custom publishing. Paid
subscriptions comprise less than 5% of total publishing revenue. Most
publications are produced monthly with advertising sold both on an annual
schedule and single insertion basis. The sale of advertising is affected by new
product releases, circulation quality, readership and general market conditions.
Advertising revenue is recognized on the publication issue date, and
subscription revenue, if any, is recognized over the subscription period,
typically one year.
Our publishing properties operate in many different markets and industries
which are subject to economic conditions prevalent in those industries.
Accordingly, publishing revenues may fluctuate in connection with the markets in
which we operate.
MARKETING SERVICES
The marketing services segment derives its revenue from the sale of
value-added marketing products such as classified advertising, both print and
internet based, direct mail services, reprints, database marketing, directories,
guides and reference books. These products complement and, in many cases,
utilize the content or databases generated by our trade shows, conferences and
publications. The sale of these products is affected by the success of the event
or publication from which these products are derived, the quality of the sales
team and general market conditions. Revenue is generally recognized when the
applicable product is shipped.
COMPONENTS OF EXPENSES
TRADE SHOWS AND CONFERENCES
Costs incurred by the trade shows and conferences segment include facility
rent, outsourced services such as registration, security and decorator, and
attendee and exhibitor promotion. Exhibitors generally contract directly with
third parties for on-site services such as electrical, booth set-up and drayage.
Staff salaries and related payroll expenses are treated as monthly period
expenses. All other direct costs are expensed in the month the event occurs.
TRADE PUBLICATIONS
Costs incurred by the trade publications segment include printing, paper and
postage; selling and promotion; editorial and prepress; and circulation
acquisition and fulfillment. Additionally, publisher and sales staff costs, and
production, editorial and circulation staff costs, with related payroll taxes
and benefits, are charged to the publications. We outsource the actual printing
of our publications.
23
MARKETING SERVICES
Costs of the marketing services segment include printing and distribution
costs, database administration fees and selling and product development salaries
and related payroll taxes and benefits.
General and administrative costs are not allocated to the segments.
RESULTS OF OPERATIONS
The following discussion compares our results for the two months and 20 days
ended December 31, 2000 combined with our predecessor's results for the period
January 1, 2000 through October 11, 2000, to our predecessor's results in 1999.
2000 COMPARED TO 1999
REVENUE
Revenue increased $49.1 million, or 15.0%, from $328.4 million in
December 31, 1999 to $377.5 million in 2000.
Revenue from our trade shows and conferences increased $37.4 million, or
23.2%, from $161.0 million in 1999 to $198.4 million for the comparable period
in 2000. This increase was attributable to:
- trade shows and conferences acquired in 1999 and 2000, such as Larkin and
DMS;
- new product launches, such as iEB West, InterExpo, Custom Relationship
Management New York and Art Expo Florida; and
- the growth of our existing product portfolio.
These revenue gains were partially offset by the discontinuation or sale of
certain trade shows and conferences held in 1999. Revenue for 2000 was also
impacted by weaker performance in the fourth quarter of 2000 compared to the
fourth quarter of 1999 resulting primarily from declines in our New York fashion
and apparel events, due in part to the ongoing market repositioning of these
events, and from competitive pressures and certain weather-related events
impacting certain European trade shows in our Call Center and Application
Technology sectors.
Revenue from trade publications increased $11.3 million, or 7.6%, from
$147.7 million in 1999 to $159.0 million in 2000. The increase in revenue was
due primarily to:
- trade publications acquired in 1999 and 2000, such as SENSORS and INFO 21;
- new product launches, such as E-LEARNING and WIRELESS ASIA; and
- the growth in advertising pages on our existing product portfolio.
These revenue gains were partially offset by the sale or discontinuation of
certain magazines published in 1999.
Revenue from our marketing services increased $0.5 million or 2.5% from
$19.7 million in 1999 to $20.1 million in 2000. Growth in revenue from list
rentals, reprints and classified advertising was primarily responsible for the
increase.
PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $30.0 million, or
14.7%, from $205.1 million in 1999 to $235.1 million in 2000.
Trade shows and conference production, selling and other direct expenses
increased $22.7 million, or 25.4%, from $89.4 million in 1999 to $112.1 million
in 2000. This increase was primarily due to increases in operations, promotion
and management costs associated with our acquisitions and launches as well as
costs attributable to growth in existing events. These increases were partially
offset by cost savings associated with discontinued events.
24
Trade publications production, selling and other direct expenses increased
$7.1 million, or 6.7%, from $105.7 million in 1999 to $112.8 million in 2000.
This increase was primarily attributable to direct costs related to acquisitions
and launches as well as normal increases due to growth in revenue.
Marketing services production, selling and other direct expenses increased
$0.2 million, or 2.1%, from $10.0 million in 1999 to $10.2 million in 2000. This
increase was primarily due to increased selling expenses incurred as a result of
our efforts to market these products as well as increased costs of production
due to growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $9.2 million, or 21.0%, from
$43.6 million in 1999 to $52.8 million in 2000. The increase was primarily due
to:
- the consolidation of our New York metropolitan area offices and office
expansion in several locations due to acquisitions and growth;
- the full-period depreciation effect of the development and expansion of
our information technology infrastructure;
- the continued implementation of our market-focused cluster management
structure; and
- increases in central services groups, such as finance and legal
administration, in line with our growth in scale and complexity.
In 2000 we recognized a benefit of $2.5 million related to our stock option
compensation plan. This represents a decrease in compensation expense of
approximately $6.4 million from 1999, resulting from a decrease in the fair
value of the shares underlying the options at the end of the period.
AMORTIZATION
Amortization expense decreased $1.4 million from $49.2 million in 1999 to
$47.8 million in 2000. This decrease was primarily due to the impact of certain
of our intangibles becoming fully amortized in 2000 and the Write-off in 1999 of
$4.1 million of intangible assets related to publications and trade shows that
were discontinous partially offset by increased amortization related to our
acquisitions.
OPERATING INCOME
Operating income increased $17.7 million, or 66.8%, from $26.5 million in
1999 to $44.2 million in 2000. The increase was primarily due to revenue growth
across our segments and reduced general and administrative expense after stock
option compensation expense, as more fully described above.
INTEREST EXPENSE
Net interest expense increased $12.0 million, or 30.2%, from $39.9 million
in 1999 to $51.9 million in 2000 due to the additional indebtedness necessary to
fund acquisitions and an aggregate increase in interest rates of approximately
1.0%. In July 1999, we obtained an additional $138.0 million in term debt
financing that was used to fund the Larkin and other acquisitions during the
year.
INCOME TAXES
Provision for income taxes increased $17.8 million from a benefit of
$11.4 million in 1999 to a provision of $6.4 million in 2000. This increase
was primarily due to an increase in taxable earnings as compared to book
earnings. The DLJ acquisition has increased the amount of non-deductible
goodwill, impacting our taxable income.
25
NET LOSS
Net loss increased $16.6 million from $0.6 million in 1999 to $17.2
million in 2000. This increase was primarily due to increased general and
administrative expense, increases in amortization, interest expense and
provision for income taxes, partially offset by revenue growth across our
segments as more fully described above.
EBITDA
EBITDA increased $17.8 million, or 22.7%, from $78.5 million in 1999 to
$96.3 million in 2000. The increase was primarily due to revenue growth across
our segments, partially offset by increased production, selling and other direct
expense and increased general and administrative expense, as more fully
described above.
1999 COMPARED TO 1998
REVENUE
Revenue increased $68.6 million, or 26.4%, from $259.8 million in 1998 to
$328.4 million in 1999.
Revenue from our trade shows and conferences increased $47.9 million, or
42.4%, from $113.1 million in 1998 to $161.0 million in 1999. This increase was
attributable to:
- trade shows and conferences acquired in 1998 and 1999, such as MAGIC,
SeCA, SCANTECH, Telexpo, Starform and Larkin;
- new product launches, such as Luxury Travel Expo, iEC Europe and MAGIC
East; and
- the growth of our existing product portfolio.
These revenue gains were partially offset by the discontinuation in 1999 of
certain trade shows and conferences held in 1998.
Revenue from our trade publications increased $17.3 million, or 13.2%, from
$130.4 million in 1998 to $147.7 million in 1999. The increase in revenue was
due primarily to:
- trade publications acquired in 1998 and 1999, such as TRAVEL AGENT,
TELEPROFESSIONAL, LICENSE!, POST and SENSORS;
- new product launches, such as GOLFDOM, SHADES OF BEAUTY and CUSTOMER
CONTACT SOLUTIONS; and
- the growth of advertising pages and advertising revenue per page in our
existing portfolio.
These revenue gains were partially offset by the sale or discontinuation in 1999
of certain magazines published in 1998.
Revenue from our marketing services increased $3.4 million, or 20.4%, from
$16.3 million in 1998 to $19.7 million in 1999. Growth in revenue from list
rentals, display and classified advertising, card decks and books was primarily
responsible for the increase.
PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $36.6 million, or
21.7%, from $168.5 million in 1998 to $205.1 million in 1999.
Trade shows and conferences production, selling and other direct expenses
increased $21.4 million, or 31.4%, from $68.0 million in 1998 to $89.4
million in 1999. This increase was primarily due to increases in our
operation, promotion and management costs associated with our acquisitions as
well as costs attributable to new launches and growth in our existing events.
Trade publications production, selling and other direct expenses increased
$13.0 million, or 14.0%, from $92.7 million in 1998 to $105.7 million in 1999.
Direct costs related to acquisitions of publications were primarily responsible
for the increase as well as selected investments and product development in
certain of our publications.
26
Marketing services production, selling and other direct expenses increased
$2.2 million, or 28.3%, from $7.8 million in 1998 to $10.0 million in 1999. This
increase was primarily due to the increased selling expenses incurred as a
result of our efforts to market these products as well as increased costs of
production due to the growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses before non-cash stock option
compensation charges increased $7.0 million, or 19.4%, from $36.6 million in
1998 to $43.6 million in 1999. This increase was primarily attributable to
increased overhead related to the 18 acquisitions completed after January 1,
1998. We also incurred incremental expenses related to the expansion of our
infrastructure to support our industry-focused organization. These increases
were partially offset by improvements in our trade show operations support
group.
For the year ended December 31, 1999 we recognized non-cash stock option
compensation expense of $3.9 million related to our stock option compensation
plan. This represents an increase in compensation expense of approximately
$0.5 million over the comparable period of 1998, resulting from an increase in
the fair value of the shares underlying the options at the end of the period and
additional options issued during 1999.
AMORTIZATION
Amortization expense increased $0.4 million from $48.8 million in 1998 to
$49.2 million in 1999. This increase was primarily attributable to increased
amortization of intangible assets related to our acquisitions, partially offset
by a reduction of $8.5 million related to the write-off of intangible assets of
publication and trade show properties that were discontinued.
OPERATING INCOME
Operating income increased $23.9 million from $2.6 million in 1998 to
$26.5 million in 1999. The increase was due to the revenue growth across our
segments, partially offset by increased costs attributable to our acquisitions.
INTEREST EXPENSE
Net interest expense increased $12.0 million, or 43.2%, from $27.9 million
in 1998 to $39.9 million in 1999 due to a full year of interest on the 9 1/4%
senior subordinated notes issued in April 1998 to finance the MAGIC acquisition
and to the incurrence of additional indebtedness to fund acquisitions, partially
offset by an aggregate reduction in interest rates of approximately 0.2%. In
July 1999, we obtained an additional $138.0 million in term debt financing that
was used to fund the Larkin and other acquisitions.
INCOME TAXES
Provision for income taxes decreased $12.7 million from a provision of
$1.3 million in 1998 to a benefit of $11.4 million in 1999 due to the reversal
of valuation reserves established in prior years for deferred tax assets related
to amortization, depreciation and net operating loss carryforwards.
NET LOSS
Net loss decreased $27.9 million, or 97.9%, from a net loss of
$28.4 million in 1998 to a net loss of $0.6 million in 1999 due to the
improvements in operating performance described above.
EBITDA
EBITDA increased $24.7 million, or 45.8%, from $53.8 million in 1998 to
$78.5 million in 1999. The increase was primarily due to an increase in our
revenue and resulting improvement in operating performance as described above.
27
LIQUIDITY AND CAPITAL RESOURCES
POST-ACQUISITION
Following the Acquisition and related financing, our principal sources of
liquidity are cash flow from operations and borrowings under our new credit
facility. Our principal uses of cash will be debt service requirements to
service our debt described below, capital expenditures and strategic
acquisitions and investments.
DEBT SERVICE
On a pro forma basis, as of December 31, 2000, we had: (a) total
indebtedness of $530.0 million; and (b) approximately $76.8 million of
borrowings available under our new credit facility, subject to customary
conditions. Our significant debt service obligations following the acquisition
could have material consequences to our security holders.
NEW CREDIT FACILITY. The term loan facility under the new credit facility
consists of a $100.0 million amortizing term loan A maturing six and one-half
years after the closing date of the new credit facility and a $315.0 million
amortizing term loan B maturing seven years after the closing date. We repaid
$10.8 million of term loan A and $34.2 million of term loan B at closing of the
offering of the old notes. The new credit facility also includes a
$80.0 million revolving credit facility. The revolving credit facility will
terminate six and one-half years after the closing date. The credit facility may
be increased by up to $50.0 million at our request, with the consent of the
lenders or other financial institutions providing the increase.
Borrowings under the new credit facility generally bear interest based on a
margin over, at our option, the base rate or the reserve-adjusted
London-interbank offered rate, or LIBOR. The applicable margin, until
approximately six months after the closing date, is 3.00% over LIBOR and 1.75%
over the base rate for borrowings under the revolving credit facility and for
term loan A, and 3.50% over LIBOR and 2.25% over the base rate for term loan B.
Thereafter, the applicable margin for revolving credit loans and term loan A
will vary based upon our ratio of consolidated debt to EBITDA, as defined in the
new credit facility, and the applicable margin for term loan B will remain 3.50%
over LIBOR and 2.25% over the base rate. Our obligations under the new credit
facility are guaranteed by Holdings, our parent company and all our existing and
future domestic subsidiaries and are secured by substantially all of the assets
of our company and the subsidiary guarantors, including a pledge of the capital
stock of all our existing and future domestic subsidiaries, a pledge of no more
than 65% of the voting stock of any foreign subsidiary directly owned by our
company or any domestic subsidiary, a pledge of all intercompany indebtedness in
favor of our company and our domestic subsidiaries, a pledge of our company's
and Advanstar IH, Inc.'s capital stock by our parent company and a pledge of our
parent company's capital stock by Holdings. The new credit facility contains
customary covenants, including covenants that limit our ability to incur debt,
pay dividends and make investments, and customary events of default.
NOTES. Our 12% senior subordinated notes that we issued in connection
with the Acquisition mature in 2011 and are guaranteed by each of our
existing and future domestic restricted subsidiaries. Interest on the notes
is payable semi-annually in cash. The notes contain customary covenants and
events of default, including covenants that limit our ability to incur debt,
pay dividends and make investments.
PARENT COMPANY NOTES. As part of the financing for the acquisition,
Advanstar, Inc. issued 15% senior discount notes due October 2011 with a
principal amount at maturity of $103.2 million. In February 2001, Advanstar,
Inc. sold additional senior discount notes due October 2011 with an
additional aggregate principal amount at maturity of $68.6 million. These
notes will not require cash interest payments until 2006 and contain
customary covenants and events of default, including covenants that limit the
ability of Advanstar, Inc. and its subsidiaries to incur debt, pay dividends
and make investments. Neither we nor any of our subsidiaries guaranteed the
notes. However, Advanstar, Inc. is a holding company and its ability to pay
interest on these notes will be dependent upon the receipt of dividends from
its subsidiaries, including our company. The new credit facility and the
senior subordinated notes offered hereby impose substantial restrictions on
our ability to pay dividends.
28
CAPITAL EXPENDITURES
Capital expenditures in 2000 were approximately $11.9 million and we
anticipate that we will spend approximately $10.0 million on capital
expenditures in each of 2001 and 2002, primarily for expenditures related to our
desktop computers and management information systems. Based on current
estimates, management believes that the amount of capital expenditures permitted
to be made under the new credit facility will be adequate to grow our business
according to our business strategy and to maintain the properties and business
of our continuing operations.
ACQUISITIONS AND INVESTMENTS
We have provided funding to Advanstar.com, our affiliate and a subsidiary of
Advanstar, Inc., to support its operations. We provided funding of approximately
$19.8 million in 2000 and anticipate that we will provide an aggregate of
$16.0 million of additional funding in 2001. Our debt instruments restrict our
ability to make investments in Advanstar.com, but, based on current estimates,
we anticipate that we will be able to make these investments.
Our business strategy includes the consummation of acquisitions. In
connection with any future acquisitions, we may require additional funding,
which may be provided in the form of additional debt or equity financing or a
combination thereof. There can be no assurance that any additional financing
will be available to us on acceptable terms or in a manner that complies with
the restrictive covenants in our debt instruments. Consistent with our strategy
since 1996, we are engaged in negotiations involving potential acquisitions
of complementary businesses. We do not expect that these acquisition
opportunities, if consummated, would total more than $60.0 million.
SOURCE OF FUNDS
We generally operate with negative working capital, excluding cash and
current maturities of long-term debt, due to the impact of deferred revenue from
trade shows, which is billed and collected as deposits up to one year in advance
of the respective trade show. Consequently, our existing operations are expected
to maintain very low or negative working capital balances, excluding cash and
current maturities of long-term debt. We anticipate that our operating cash
flow, together with borrowings under the new credit facility, will be sufficient
to meet our anticipated future operating expenses, capital expenditures and debt
service obligations as they become due. However, our ability to make scheduled
payments of principal, to pay interest on or to refinance our indebtedness
and to satisfy our other debt obligations will depend upon our future operating
performance, which will be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our control.
From time to time we will continue to explore additional financing methods
and other means to lower our cost of capital, which could include stock issuance
or debt financing and the application of the proceeds therefrom to the repayment
of bank debt or other indebtedness.
HISTORICAL
Historically, our financing requirements have been funded through cash
generated by operating activities, the sale of additional shares of common stock
to our stockholder, revolving and term loan borrowings and, in 1998, the
issuance of $150.0 million of 9 1/4% senior subordinated notes.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operations
decreased $22.8 million, or 42.6%, to $30.7 million in 2000 from $53.5 million
in 1999. The decrease was primarily due to an increase in general and
administrative expenses, interest expense, other expenses and working capital
items.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
decreased $103.4 million, or 68.5%, to $47.5 million in 2000 from
$150.9 million in 1999. The decrease was primarily due to a reduction in
acquisition activity in 2000, an increase in proceeds received on the sale of
certain of our properties, partially offset by our funding of Advanstar.com, and
an increase in fixed asset expenditures, as more fully discussed below.
29
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities decreased to a use of cash of $16.8 million in 2000 from a source of
cash of $94.9 million in 1999. This decrease was principally due to our
financing of fewer acquisitions in 2000 in comparison to 1999, and repayments of
our long-term debt. In July 1999, we also obtained an additional $138.0 million
in term debt financing that was used to fund the Larkin acquisition.
CAPITAL EXPENDITURES. Capital expenditures increased $2.2 million, or
22.2%, to $11.9 million in 2000 from $9.7 million in 1999. The increase was
primarily due to the consolidation of multiple office locations in New York into
a single office location and other strategic investments. Capital expenditures
have been financed by our cash flows from operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to various market risks, including the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in interest rates and
foreign currency exchange rates.
INTEREST
We rely significantly on variable-rate and fixed-rate debt in our capital
structure. On a pro forma basis at December 31, 2000, we had fixed-rate debt of
$160.0 million and variable-rate debt of $370.0 million. The pre-tax earnings
and cash flows impact for the next year resulting from a one percentage point
increase in interest rates on variable rate debt would be a reduction of
$3.7 million, holding other variables constant and excluding the impact of our
interest rate cap agreements. Under the new credit facility, we are required to
enter into interest rate protection agreements that have the effect of causing
at least half of the outstanding term loan borrowings and senior subordinated
notes to be fixed-rate borrowings. We have entered into agreements to cap the
interest rate on $105.3 million of new credit facility, which would have the
effect of reducing the impact of interest rate increases on our earnings and
cash flows.
CURRENCIES
Outside of the United States, we maintain assets and operations in Europe,
South America and Asia. The results of operations and financial position of our
foreign operations are principally measured in their respective currency and
translated into U.S. dollars. As a result, exposure to foreign currency gains
and losses exists. The reported income of these subsidiaries will be higher or
lower depending on a weakening or strengthening of the U.S. dollar against the
respective foreign currency. Our subsidiaries and affiliates also purchase and
sell products and services in various currencies. As a result, we may be exposed
to cost increases relative to the local currencies in the markets in which we
sell.
A portion of our assets are based in our foreign locations and are
translated into U.S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected in other
comprehensive income. Accordingly, our consolidated stockholder's equity will
fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting our operations in a country's respective currency and may, from time
to time, involve currency derivatives, primarily forward exchange contracts, to
reduce our exposure to currency fluctuations. As of December 31, 2000 there were
open foreign exchange derivative contracts with a notional amount totaling
$20.1 million. The potential loss in fair value resulting from a hypothetical
10% adverse change in quoted foreign currency exchange rates amounts to
approximately $1.1 million. Actual results may differ.
30
IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
as amended, is effective for fiscal years beginning after June 15, 2000. We
adopted SFAS No. 133 on January 1, 2001, which did not have a material impact on
our financial position or results of operations.
ITEM 7A. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to Item 7. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Please refer to Item 14. - Exhibits, financial Statements and Reports on
Form 8-K.
ITEM 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No events have occurred which would require disclosure under this Item.
31
PART III
ITEM 10. -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position of each of our
executive officers, directors and other key employees.
NAME AGE POSITION
- ---- --- --------
Robert L. Krakoff 65 Chairman of the Board and Chief Executive Officer
James M. Alic 58 Vice Chairman, Vice President and Director
David W. Montgomery 43 Vice President--Finance, Chief Financial Officer and
Secretary
Eric I. Lisman 44 Vice President and General Counsel
William J. Cooke 49 Executive Vice President
Alexander S. DeBarr 40 Executive Vice President
Morris R. Levitt 60 Executive Vice President
Joseph Loggia 41 Executive Vice President, President--MAGIC
Daniel M. Phillips 38 Executive Vice President
OhSang Kwon 32 Director
James A. Quella 50 Director
David M. Wittels 36 Director
EXECUTIVE OFFICERS
ROBERT L. KRAKOFF has served as our Chairman and Chief Executive Officer
since he joined Advanstar in July 1996. From January 1993 to June 1996, he was
the Chairman and Chief Executive Officer of Reed Publishing USA, a division of
Reed Elsevier Inc. which included Cahners Publishing Company, a trade
publications business, and Reed Exhibition Companies, an exposition and
conference business. From January 1993 to June 1996, he was also a member of the
board of directors of Reed Elsevier PLC.
JAMES M. ALIC has served as our Vice Chairman and Vice President since he
joined Advanstar in July 1996. From June 1995 to June 1996, he was Vice
President and Controller of IBM Corporation, a computer hardware and software
manufacturer. From September 1994 to May 1995, he was Chairman of Reed
Exhibition Companies. From August 1991 to August 1994, he was President of Reed
Exhibitions North America.
DAVID W. MONTGOMERY has served as our Vice President--Finance and Chief
Financial Officer since January 1994. From July 1989 to December 1993, he was
our Director of Corporate Finance. In July 1992, he became our Secretary. From
January 1981 to June 1989, he was a practicing CPA with McGladrey & Pullen in
Minneapolis, St. Paul, Minnesota.
ERIC I. LISMAN has served as our Vice President and General Counsel since
September 1998. From November 1997 to August 1998, he engaged in a private legal
practice. From August 1996 to July 1997, he was a Senior Vice President and
General Counsel of Cahners Publishing Company. From July 1993 to July 1996, he
was a Vice President and General Counsel of Reed Publishing USA.
KEY EMPLOYEES
WILLIAM J. COOKE has served as our Executive Vice President since June 1997
and is responsible for the OEM and application technology industry sector, the
Market Development cluster and marketing services. In addition, Mr. Cooke is
responsible for corporate marketing and corporate training. From July 1995 to
May 1997, he was Group Vice President of Advanstar. From July 1993 to
June 1995, he was our President of the Marketing Services Division. From 1988
until June 1993, Mr. Cooke was Vice President of Strategic Planning and
Marketing for Dun & Bradstreet Corporation.
ALEXANDER S. DEBARR has served as our Executive Vice President since
June 1997 and is responsible for the art, beauty, travel and hospitality and
motor vehicle sectors. From February 1995 to May 1997, he was a Group Vice
President of Advanstar. Mr. DeBarr also served as a Group Publisher of Advanstar
from February 1993 until January 1995.
32
MORRIS R. LEVITT joined us in March 1999 as our Executive Vice President
with responsibility for the Healthcare, Science & Pharmaceuticals cluster. From
October 1991 to February 1999, he headed the Advanced Technology Division of
PennWell Publishing Company, a publisher of trade publications and an operator
of trade shows.
JOSEPH LOGGIA has served as MAGIC's President and Chief Executive Officer
since May 1997, President from August 1996 and Chief Operating Officer beginning
in 1995. From January 1993 to August 1996, he was Chief Financial Officer of
MAGIC. Prior to joining MAGIC, Mr. Loggia, who is a certified public accountant,
was a manager at the accounting firm of Coopers & Lybrand responsible for
Fraud & Financial Investigations.
DANIEL M. PHILLIPS currently serves as Executive Vice President of Advanstar
Technology Communities. He was previously Vice President and General Manager of
Advanstar's Technology groups. Mr. Phillips joined Advanstar in 1996 as a group
publisher of America's Network, Telecom Asia and Communicationes magazines, and
in 1998 was promoted to Vice President and General Manager. Prior to joining
Advanstar, Mr. Phillips was responsible for publications for EMAP (U.K.) in the
area of telecommunications.
DIRECTORS
ROBERT L. KRAKOFF. See "--Executive Officers."
JAMES M. ALIC. See "--Executive Officers."
OHSANG KWON has served as a director since October 2000. Mr. Kwon has been a
Principal of DLJ Merchant Banking, Inc. since 2001 and a Vice President of DLJ
Merchant Banking, Inc. prior to that. From May 1997 to February 2000, he was an
Associate with DLJ Securities Corporation, and he became a Vice President of DLJ
Securities Corporation in February 2000. From October 1996 to May 1997, he was
an Associate at Davis Polk & Wardwell. Prior to that, he was a law clerk for the
Hon. William C. Conner in the United States District Court for the Southern
District of New York.
JAMES A. QUELLA has served as a director since October 2000. Mr. Quella
joined DLJ Merchant Banking, Inc. in 2000 as a Managing Director and Operating
Partner. Immediately prior to joining DLJ, he was a Managing Director at GH
Venture Partners. From 1990 to 1999, Mr. Quella worked at Mercer Management
Consulting where he served as a senior consultant and became Vice Chairman in
1997. Mr. Quella was also a Director of Mercer Consulting Group and Executive
Partner of Marsh McLennan Companies. Mr. Quella currently serves on the board of
directors of AKI Holding Corp., AKI Inc., Merrill Corporation and Von Hoffman
Press, Inc.
DAVID M. WITTELS has served as a director since October 2000. Mr. Wittels
has been a Managing Director of DLJ Merchant Banking, Inc. since 2001 and has
served in various capacities with DLJ Merchant Banking for the past five years.
Mr. Wittels serves as a director of AKI Holding Corp., AKI Inc., Mueller
Holdings (N.A.) Inc., Ziff Davis Media Inc., Ziff Davis Holdings Inc. and Wilson
Greatbatch Technologies Inc.
33
ITEM 11. -- EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents compensation paid to our chief executive
officer and four other most highly paid officers in the last three fiscal years.
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER TOTAL
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(5) COMPENSATION($) COMPENSATION($)
- ------------------ -------- --------- ----------- ------------------ --------------- ---------------
Robert L. Krakoff..... 2000 522,308 194,805 4,861 12,624(3) 734,598
Chairman of the 1999 433,846 169,500 15,231(3) 618,577
Board and Chief 1998 415,385 150,000 18,138(3) 583,523
Executive Officer
James M. Alic......... 2000 422,308 157,700 5,392 7,112(3) 592,512
Vice Chairman, Vice 1999 333,846 133,200 7,561(3) 474,607
President and 1998 311,538 115,000 8,310(3) 434,848
Director
David W. Montgomery... 2000 210,000 260,836 14,712 623,246(2)(3) 1,108,794
Vice President- 1999 190,000 92,442 5,576(3) 288,018
Finance, Chief 1998 186,538 74,000 5,918(3) 266,456
Financial Officer
and Secretary
Eric I. Lisman(4)..... 2000 257,500 210,156 314,520(2)(3) 782,176
Vice President and 1999 237,500 87,984 2,637(3) 328,121
General Counsel 1998 72,692 25,012 199(3) 97,903
Joseph Loggia(6)...... 2000 565,385 1,280,933 622,611(2)(3) 2,468,929
1999 700,000 175,000 4,800(3) 879,800
1998 500,130 175,000 -- 675,130
- --------------------------
(1) Bonuses are reported in the year earned, even though they were actually paid
in the subsequent year.
(2) Includes all stock option payments and discretionary bonuses relating to the
acquisition of Advanstar, Inc. by the DLJ Merchant Banking funds and are
reported in the year earned even though some portion was actually paid in
the subsequent year. See "-Option Exercises and Holdings."
(3) Includes value of group term life insurance benefits paid for by our
company.
(4) Mr. Lisman commenced employment on September 8, 1998.
(5) Includes the fair market value of fringe benefits provided for by our
company.
(6) Mr. Loggia commenced employment with Advanstar on April 30, 1998.
34
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made by
Advanstar during the year ended December 31, 2000 pursuant to the 2000
Management Incentive Plan (as defined below) to each of the Named Executive
Officers. We have not granted any stock appreciation rights.
Potential Realizable
Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted to Appreciation
Underlying Employees Exercise for Option Term
Options In Fiscal Price Expiration ------------------------
2000 GRANTS Granted Year ($/share) Date 5%($) 10%($)
------- ---- -------- ---- ------------------------
Robert L. Krakoff -- -- -- -- -- --
James M. Alic -- -- -- -- -- --
David W. Montgomery 200,000 6% 10.00 2010 1,257,789 3,187,485
Eric I Lisman 100,000 3% 10.00 2010 628,895 1,593,742
Joseph Loggia 200,000 6% 10.00 2010 1,257,789 3,187,485
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers named in the
Summary Compensation Table, certain information concerning the number of
shares subject to both exercisable and unexercisable stock options as of
December 31, 2000. None of the unexercised options were "in-the-money" at
December 31, 2000. No options were exercised by any of the named officers in
2000. However, under the merger agreement, the holder of each "in-the-money"
option outstanding under the 1996 stock option plan received, for each option
an amount equal to the per share merger consideration less the exercise
price. While that transaction was not technically an option exercise, we have
provided information in the following table about the number of shares and
value realized in connection with that transaction.
AGGREGATED OPTION EXERCISES IN 2000 AND DECEMBER 31, 2000 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR END FISCAL YEAR END
NUMBER OF SHARES VALUE --------------------------- ---------------------------
NAME ACQUIRED ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------------------- -------- ----------- ------------- ----------- -------------
Robert L. Krakoff......... -- -- -- -- -- --
James M. Alic............. -- -- -- -- -- --
David W. Montgomery....... 200,000 $617,511 -- 200,000 -- --
Eric I. Lisman............ 100,000 308,755 -- 100,000 -- --
Joseph Loggia............. 200,000 617,511 -- 400,000 -- --
35
STOCK OPTION AND INCENTIVE PLANS
1996 STOCK OPTION PLAN
Advanstar, Inc.'s Second Amended and Restated 1996 Stock Option Plan, as
amended, provides for the issuance of a maximum of 2,051,124 shares of its
common stock pursuant to the grant of non-qualified stock options to employees
and other individuals who render services to Advanstar, Inc. As of December 31,
1999, options to purchase 2,031,100 shares of Advanstar, Inc.'s common stock at
an average exercise price of $8.24 were outstanding under the 1996 Plan, and no
options had been exercised. Under the terms of the 1996 Plan and existing award
agreements, upon the closing of the merger all outstanding options became fully
vested and exercisable. Under the merger agreement, the holder of each option
outstanding under the 1996 Plan whose exercise price was less than the value of
the merger consideration received for every option, an amount equal to the per
share merger consideration minus the exercise price for such option. Outstanding
options whose exercise price exceeded the value of the merger consideration were
canceled as of the closing of the merger.
2000 MANAGEMENT INCENTIVE PLAN
The 2000 Management Incentive Plan was adopted by the board of Holdings on
October 11, 2000. The following description of the plan is intended to be a
summary and does not describe all provisions of the plan.
PURPOSE OF THE PLAN
The purpose of the plan is to attract and retain the best available key
employees, non-employee directors and consultants for Holdings and its
subsidiaries and affiliates and to encourage the highest level of performance by
those individuals, thereby enhancing Holdings' value for the benefit of its
stockholders. The plan is also intended to motivate such individuals by means of
performance-related incentives to achieve longer-range performance goals and
enable such individuals to participate in the long-term growth and financial
success of Holdings.
ADMINISTRATION OF THE PLAN
The plan will be administered by the compensation committee or the board
as a whole, if no committee is constituted. The compensation committee has
the power, in its discretion, to select the participants who will participate
in the plan, to grant awards under the plan, to determine the terms of these
awards, to interpret the provisions of the plan and to take any action that
it deems necessary or advisable for the administration of the plan.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the plan is limited to key employees of
Holdings, its subsidiaries and affiliates. Participation in the plan is at the
discretion of the compensation committee and will be based upon the individual's
present and potential contributions to Holdings' success and such other factors
as the compensation committee deems relevant. No individual may be granted in
any calendar year awards covering more than 900,000 shares of Holdings common
stock.
TYPE OF AWARDS UNDER THE PLAN
The plan provides that the compensation committee may grant nonstatutory
stock options to eligible participants subject to such terms, conditions and
provisions as the compensation committee may determine to be necessary or
desirable.
NUMBER OF AUTHORIZED SHARES
Holdings has authorized a maximum of 3,422,789 shares of its common stock
for participants under the plan during the term of the plan, of which
3,255,000 have been granted as of March 31, 2001. In addition, the number of
shares available will be increased to the extent that shares are not
purchased on a leveraged basis under Holdings' Direct Investment Program. The
compensation committee may adjust the number and class of shares available
under the plan to prevent dilution or enlargement of rights in the event of
various changes in Holdings' capitalization.
36
PUT AND CALL RIGHTS
Holdings has certain rights to repurchase, or "call," shares purchased
pursuant to the plan if a plan participant is terminated by Holdings or one of
its subsidiaries for cause or without cause, or if the participant terminates
employment for good reason, without good reason, or due to death, disability or
"qualified retirement." A plan participant has the right to sell, or "put,"
shares purchased pursuant to the plan to Holdings if a participant's employment
is terminated due to disability, "qualified retirement" or death. "Qualified
retirement" means retirement at age 62 or with board approval.
CHANGE IN CONTROL
If there is a change in control of Holdings, all unvested time-vesting
options granted pursuant to the plan will vest and become immediately
exercisable and, if the change in control constitutes a liquidity event (as
defined in the award agreements), all performance vesting options will vest. A
change in control generally means the acquisition by any person or group of
persons, other than an affiliate or affiliates of the DLJ Merchant Banking
funds, of more than 51% of the outstanding voting securities of Holdings or a
sale of all or substantially all of Holdings' assets.
AMENDMENT AND TERMINATION
Holdings' board may amend, alter, suspend, discontinue or terminate the plan
at any time, provided that no such amendment, alteration, suspension,
discontinuation or termination will be made without stockholder approval if such
approval is necessary to qualify for or comply with any tax or regulatory status
or requirement with which the board deems it necessary or desirable to qualify
or comply.
DIRECT INVESTMENT PLAN
The Direct Investment Plan was adopted by the board of Holdings on
October 11, 2000. The following description of the plan is intended to be a
summary and does not describe all provisions of the plan.
PURPOSE OF THE PLAN
The purpose of the plan is to promote the interests of Holdings and its
stockholders by attracting and retaining exceptional executive personnel and
other key employees of Holdings, its subsidiaries and affiliates. The plan is
also intended to align the interests of such employees with those of Holdings'
equity investors and enable such employees to participate in the long-term
growth and financial success of Holdings.
ADMINISTRATION OF THE PLAN
The plan will be administered by a committee of the board or the board as a
whole, if no committee is constituted. The committee has the power, in its
discretion, to select the participants who will participate in the plan, to
determine the number of shares to be covered by purchase agreements, to
determine the terms and conditions of the purchase agreements, to interpret the
provisions of the plan and to take any action that it deems necessary or
advisable for the administration of the plan.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the plan is limited to executive personnel and
key employees of Holdings, its subsidiaries and affiliates.
NUMBER OF AUTHORIZED SHARES
Holdings has authorized a maximum of 1,500,000 shares of its common stock
for purchase by participants under the plan during the term of the plan. The
committee may adjust the number and class of shares available under the plan to
prevent dilution or enlargement of rights in the event of various changes in
Holdings' capitalization.
37
SHARE PURCHASES
Holdings has agreed to make available non-recourse loans to purchase a
portion of the shares available for purchase under the plan.
PUT AND CALL RIGHTS
Holdings has certain rights to repurchase, or "call," shares purchased
pursuant to the plan if a plan participant is terminated by Holdings or one of
its subsidiaries for cause or without cause, or if the participant terminates
employment for good reason, without good reason, or due to death, disability or
"qualified retirement." A plan participant has the right to sell, or "put,"
shares purchased pursuant to the plan to Holdings if a participant's employment
is terminated due to disability, "qualified retirement" or death. "Qualified
retirement" means retirement at age 62 or with board approval.
TERM OF THE PLAN
Unless earlier terminated by the board, the plan will terminate on
October 11, 2010.
AMENDMENT AND TERMINATION
Holdings' board may amend, alter, suspend, discontinue or terminate the plan
at any time, provided that no such amendment, alteration, suspension,
discontinuation or termination will be made without stockholder approval if such
approval is necessary to qualify for or comply with any tax or regulatory status
or requirement with which the board deems it necessary or desirable to qualify
or comply.
401(K) PLAN
Advanstar, Inc. has an Employees' 401(k) Plan and Trust. All current and
future employees who have completed one year of service with Advanstar, Inc. or
any other domestic subsidiary of Advanstar, Inc. and are at least
21 years-of-age are eligible to participate in the 401(k) Plan. Participants in
the 401(k) Plan may not contribute more than the lesser of a specified statutory
amount or 15% of his or her pre-tax total compensation. Advanstar, Inc. is
required to make a matching contribution to the 401(k) Plan, which vests in
equal installments over five years, in accordance with the following schedule:
- with respect to the employee's elective contribution in an amount up to 2%
of the employee's gross compensation, the matching contribution is
required to be equal to 100% of the employee's contribution;
- with respect to the employee's elective contribution in excess of 2% and
not in excess of 6% of gross compensation, the matching contribution is
required to be equal to 25% of such employee's contribution; and
- with respect to the employee's elective contribution in excess of 6% of
gross compensation, there shall be no matching contribution.
EMPLOYMENT AGREEMENTS
Messrs. Krakoff and Alic have entered into employment agreements with us,
each dated as of August 14, 2000 which became effective on the closing of the
merger. Each agreement provides for a term through September 30, 2003. Pursuant
to the agreements, Messrs. Krakoff and Alic are entitled to annual base salaries
of $600,000 and $500,000, respectively. Mr. Krakoff and Mr. Alic are also
entitled to annual bonuses based on our EBITDA for any year, up to a maximum
bonus in any one year of 100% of base salary. The agreements provide for
indemnification of the executives to the extent permissible under New York law.
The agreements further provide for severance benefits equal to one year's base
salary and benefits and a pro rated bonus upon termination of employment by
Advanstar without "cause" or by the executive for "good reason," which includes
a change of control. Mr. Krakoff and Mr. Alic also entered into noncompetition
and confidentiality agreements with us. The noncompete period is one year after
termination of employment unless employment is terminated by us without cause or
by the executive for good reason, in which case the noncompetition period is six
months. During the noncompete period, the executives may not hire any employee
or solicit any trade show or publishing business from a third party that has a
relationship or contract with us.
We do not have employment agreements with our other named executive
officers.
38
DIRECTOR COMPENSATION
We have not yet determined whether we will pay our directors any fees.
ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of our common stock is owned by our parent company, Advanstar, Inc.,
which is wholly-owned by Holdings. The following table sets forth information
with respect to the beneficial ownership of Holdings' common stock as of
December 31, 2000 by (a) any person or group who beneficially owns more than
five percent of Holdings common stock, (b) each of our directors and executive
officers and (c) all directors and officers as a group.
In accordance with the rules of the SEC, beneficial ownership includes
voting or investment power with respect to securities and includes shares
issuable pursuant to warrants that are exercisable within 60 days of
December 31, 2000. Shares issuable pursuant to warrants are deemed outstanding
in computing the percentage held by the person holding the warrants but are not
deemed outstanding in computing the percentage held by any other person.
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER: OWNED STOCK
- ------------------------- ------------ -------------
DLJ Merchant Banking Partners III, L.P. and related investors(1)............ 29,957,541 91.6%
Hellman & Friedman Capital Partners III, L.P. and related investors(2)...... 1,653,132 5.2%
Robert L. Krakoff........................................................... 980,373(3) 3.2%
James M. Alic............................................................... 301,596(4) 1.0%
David M. Montgomery......................................................... -- --
Eric I. Lisman.............................................................. -- --
Joseph Loggia............................................................... -- --
David M. Wittels(5)
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10172.................................................. -- --
OhSang Kwon(5)
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10172.................................................. -- --
James A. Quella(5)
DLJ Investment Partners II, Inc.
277 Park Avenue
New York, New York 10172.................................................. -- --
All directors and officers as a group (8 persons)(5)........................ 1,281,969 4.2%
- --------------------------
(1) Consists of 29,100,000 shares held directly by DLJ Merchant Banking Partners
III, L.P. and the following related investors: DLJ ESC II, L.P., DLJMB
Funding III, Inc. and DLJ Offshore Partners III, C.V. and warrants to
purchase 857,541 shares of common stock issued to DLJ Investment Partners,
II, L.P. and the following related investors (the "DLJ Investment Partners
funds"): DLJ ESC II, L.P., DLJ Investment Funding II, Inc. and DLJ
Investment Partners, L.P. See "Item 13.--Certain Relationships and Related
Party Transactions." The address of each of these investors is 277 Park
Avenue, New York, New York 10172, except that the address of Offshore
Partners is John B. Gorsiraweg 14, Willemstad, Curacao, Netherlands
Antilles.
(2) Consists of 569,602 shares and warrants to purchase 1,083,530 shares held
directly by Hellman & Friedman Capital Partners III, L.P. and the following
related investors: H&F Orchard Partners, III, L.P. and H&F International
Partners, III, L.P. The address of each of these investors is One Maritime
Plaza, San Francisco, CA 94111.
(3) Consists of 864,342 shares and warrants to purchase 116,031 shares.
39
(4) Consists of 266,809 shares and warrants to purchase 34,787 shares.
(5) Messrs. Wittels, Quella and Kwon are officers of DLJ Merchant Banking, Inc.,
an affiliate of the DLJ Merchant Banking funds and the DLJ Investment
Partners funds. Shares shown for Messrs. Wittels, Quella and Kwon exclude
shares shown as held by the DLJ Merchant Banking funds and the DLJ
Investment Partners funds, as to which they disclaim beneficial ownership.
ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
THE ACQUISITION
FINANCIAL ADVISORY FEES AND AGREEMENTS
Credit Suisse First Boston Corporation, an affiliate of the DLJ Merchant
Banking funds, was an initial purchaser of the old notes and the additional
parent company units issued in connection with the Acquisition. We paid
customary fees to Credit Suisse First Boston Corporation as compensation for
those services. DLJ Capital Funding, an affiliate of the DLJ Merchant Banking
funds, has and will receive customary fees and reimbursement of expenses in
connection with the arrangement and syndication of the new credit facility
and as a lender thereunder. Credit Suisse First Boston, Cayman Islands
Branch, an affiliate of the DLJ Merchant Banking Funds, received customary
fees in connection with the bridge financing used as part of the Acquisition.
The aggregate amount of all fees payable to the Credit Suisse First Boston
Corporation entities in connection with the acquisition and the related
financings, including the offering of the old notes, was approximately $26.2
million, plus out-of-pocket expenses.
Holdings has agreed to pay Credit Suisse First Boston Corporation an annual
advisory fee of $0.5 million beginning upon closing of the acquisition until the
earlier to occur of:
(1) an initial public offering of Holdings;
(2) the date when the DLJ Merchant Banking funds own less than 16 2/3%
of the shares of Holdings' common stock held by them on the closing date of
the acquisition; and
(3) October 11, 2005.
Advanstar and its subsidiaries may from time to time enter into other
investment banking relationships with Credit Suisse First Boston Corporation or
one of its affiliates pursuant to which Credit Suisse First Boston Corporation
or its affiliates will receive customary fees and will be entitled to
reimbursement for all related disbursements and out-of-pocket expenses. We
expect that any arrangement will include provisions for the indemnification of
Credit Suisse First Boston Corporation against a variety of liabilities,
including liabilities under the federal securities laws.
STOCKHOLDERS' AGREEMENT
Holdings, the DLJ Merchant Banking funds, the DLJ Investment Partners funds,
the existing stockholders and the management stockholders entered into a
stockholders' agreement at the closing of the acquisition. The stockholders'
agreement provides that any person acquiring shares of common stock of Holdings
who is required by the stockholders' agreement or by any other agreement or plan
of Holdings to become a party to the stockholders' agreement will execute an
agreement to be bound by the stockholders' agreement. In April 2001, Hellman &
Friedman sold a portion of its shares to another institutional investor which
became a party to the stockholders' agreement.
The terms of the stockholders' agreement restrict transfers of shares of
Holdings capital stock by the DLJ Investment Partners funds, the existing
stockholders and the management stockholders, except to permitted transferees
and subject to various exceptions. The agreement will permit:
- the other stockholders to participate in specified sales of shares of
Holdings capital stock by the DLJ Merchant Banking funds,
- the DLJ Merchant Banking funds to require the other stockholders to sell
shares of Holdings capital stock in specified circumstances should the DLJ
Merchant Banking funds choose to sell any shares owned by them, and
40
- the stockholders to purchase equity securities proposed to be issued by
Holdings to the DLJ Merchant Banking funds on a preemptive basis to
maintain their percentage ownership interest.
The stockholders' agreement also provides that the DLJ Merchant Banking
funds have the right to select three of the five members of the board of
directors of Holdings, the DLJ Investment Partners funds will have the right to
select one member so long as they maintain ownership of at least 50% of their
initial equity ownership, and Mr. Krakoff will be the other director pursuant to
the terms of his employment agreement. In addition, the DLJ Merchant Banking
funds are permitted to expand Holdings' board and select all of the additional
directors. Messrs. Alic, Kwon and Wittels are the directors selected by the DLJ
Merchant Banking funds and Mr. Quella is the director selected by the DLJ
Investment Partners funds.
Under the agreement, the DLJ Merchant Banking funds, the DLJ Investment
Partners funds, the existing stockholders and the management stockholders
entered into a registration rights agreement with Holdings. Under that
agreement, the DLJ Merchant Banking funds will have the right to six demand
registrations (or five if the DLJ Investment Partners funds have exercised a
demand), and the DLJ Investment Partners funds will have the right to one demand
registration of common stock after an initial public offering. In addition, all
of the holders will be entitled to piggyback registration rights, subject to
customary cutback and deferral provisions. The agreement also provides that
Holdings will indemnify the parties against specified liabilities, including
liabilities under the Securities Act.
RELATIONSHIP WITH ADVANSTAR.COM
Our affiliate, Advanstar.com, is developing vertical community web sites to
serve our industry sectors and operates our event and publication-related web
sites. We provide Advanstar.com with administrative support services in
accounting, finance, legal, human resource management, information technology
and business development. These services are charged to Advanstar.com based on
level of activity. In addition, selected staff in editorial and other functions
at Advanstar will be shared with Advanstar.com. To the extent the percentage of
time devoted by our employees to Advanstar.com activities is significant,
appropriate allocations of staff cost will be made to Advanstar.com. We also
provide Advanstar.com with marketing and promotional support through advertising
pages in our trade publications and exhibit space in our trade shows. These
services are provided at rates which fully cover our incremental costs. In
return, Advanstar.com provides promotional support on its web sites for our
trade publications and trade shows at rates which reflect incremental cost.
Advanstar.com operates specific web sites in support of our trade publications
and trade shows. Among other functions, these sites provide essential services,
such as trade show and conference registration and publication subscription and
reader services, in support of our products. We will pay Advanstar.com a service
fee beginning in 2001 based on cost plus a small administrative charge for these
web site services. Advanstar.com has the right to use the content from our
publications and events, our brands and our customer lists for the purpose of
building and operating the web sites. In return for these rights, Advanstar.com
will pay us beginning in 2001 a royalty based on a percentage of all revenue
derived by Advanstar.com. We expect that the transactions described above will
be on arm's-length terms going forward.
In addition, we have provided funding to Advanstar.com to support its
operations. We provided funding of approximately $19.8 million in 2000 and
anticipate that we will provide an aggregate of $16.0 million of additional
funding in 2001.
41
PART IV
ITEM 14. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
PAGE
----
Report of Arthur Andersen LLP........................................................................ 43
Consolidated Balance Sheets as of December 31, 1999 and 2000......................................... 44
Consolidated Statements of Operations for each of the two years in the period ended
December 31, 1999, for the period from January 1, 2000 through October 11,
2000 and for the period form October 12, 2000 through December 31, 2000......................... 45
Consolidated Statements of Stockholder's Equity for each of the two years in the
period ended December 31, 1999, for the period from January 1, 2000 through
October 11, 2000 and for the period from October 12, 2000 through December
31, 2000........................................................................................ 46
Consolidated Statements of Cash Flows for each of the two years in the period
ended December 31, 1999, for the period from January 1, 2000 through
October 11, 2000 and for the period from October 12, 2000 through December
31, 2000........................................................................................ 47
Notes to Consolidated Financial Statements........................................................... 48
42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanstar Communications Inc.:
We have audited the accompanying consolidated balance sheets of Advanstar
Communications Inc. (a Delaware corporation) and Subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
stockholder's equity and cash flows for the period from October 12, 2000
through December 31, 2000, the period from January 1, 2000 through October
11, 2000, and the years ended December 31, 1999 and 1998. These consolidated
financial statements and schedule referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Advanstar
Communications Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for the period from October 12,
2000 through December 31, 2000, the period from January 1, 2000 through October
11, 2000, and the years ended December 31, 1999 and 1998, in conformity with
accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
Arthur Andersen LLP
Minneapolis, Minnesota,
February 26, 2001
43
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated balance sheets
(In thousands, except share and per share data)
Successor Predecessor
December 31, December 31,
2000 1999
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,675 $ 11,237
Accounts receivable, net of allowance of $725 and $709 31,158 30,889
Prepaid expenses 15,721 14,595
Other 1,832 2,220
--------- ---------
Total current assets 66,386 58,941
DUE FROM AFFILIATE 19,769 --
PROPERTY, PLANT AND EQUIPMENT, net 25,767 20,866
INTANGIBLE ASSETS, net
Goodwill 752,235 590,912
Other intangibles 84,520 93,635
--------- ---------
Total intangible assets 836,755 684,547
DEFERRED INCOME TAXES 7,743 16,442
OTHER ASSETS 785 785
--------- ---------
$ 957,205 $ 781,581
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 13,150 $ 13,740
Accounts payable 22,007 18,691
Accrued compensation 9,707 6,595
Deferred income taxes -- 1,481
Other accrued liabilities 11,643 12,453
Deferred revenue 67,955 61,963
--------- ---------
Total current liabilities 124,462 114,923
LONG-TERM DEBT, net of current maturities 551,850 509,414
OTHER LONG-TERM LIABILITIES 5,448 9,122
MINORITY INTERESTS 10,434 15,161
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 40,000,000 shares
authorized; 1,000,000 shares issued and outstanding
at December 31, 2000 and 1999 10 10
Capital in excess of par value 280,842 186,904
Accumulated deficit (16,745) (48,330)
Accumulated other comprehensive income (loss) 904 (5,623)
--------- ---------
Total stockholder's equity 265,011 132,961
--------- ---------
$ 957,205 $ 781,581
========= =========
See notes to consolidated financial statements.
44
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated statements of operations
(In thousands)
Successor Predecessor
-------------- ------------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, ----------------------
2000 2000 1999 1998
--------- ------------ --------- ---------
NET REVENUE $ 63,434 $ 314,045 $ 328,372 $ 259,825
OPERATING EXPENSES:
Cost of production 15,017 61,687 66,237 54,330
Selling, editorial and circulation 32,279 126,162 138,868 114,213
General and administrative 9,783 34,285 43,527 36,883
Amortization of goodwill and other intangibles 12,711 35,133 49,214 48,752
Depreciation 1,736 4,520 4,044 3,071
--------- --------- --------- ---------
Total operating expenses 71,526 261,787 301,890 257,249
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (8,092) 52,258 26,482 2,576
OTHER INCOME (EXPENSE):
Interest expense, net (13,765) (38,161) (39,888) (27,862)
Other income (expense), net 215 (2,394) (198) (1,926)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTERESTS
(21,642) 11,703 (13,604) (27,212)
PROVISION (BENEFIT) FOR INCOME TAXES (4,772) 11,190 (11,431) 1,264
MINORITY INTERESTS IN (INCOME) LOSS OF SUBSIDIARIES 125 (1,003) 1,588 40
--------- --------- --------- ---------
NET LOSS $ (16,745) $ (490) $ (585) $ (28,436)
========= ========= ========= =========
See notes to consolidated financial statements.
45
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated statements of stockholder's equity
(Dollars in thousands)
Accumulated
Common Capital in other
--------------------- excess of comprehensive Accumulated
Shares Amount par value income (loss) deficit Total
--------- --------- ---------- ------------- ----------- ---------
BALANCE, December 31, 1997 (Predecessor) 1,000,000 $ 10 $ 108,990 $ 43 $ (19,309) $ 89,734
Comprehensive loss-
Net loss -- -- -- -- (28,436)
Translation adjustment -- -- -- (915) --
Total comprehensive loss -- -- -- -- -- (29,351)
Stock option compensation expense -- -- 3,397 -- -- 3,397
Capital contribution -- -- 70,980 -- -- 70,980
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1998 (Predecessor) 1,000,000 10 183,367 (872) (47,745) 134,760
Comprehensive income-
Net loss -- -- -- -- (585)
Translation adjustment -- -- -- (4,751) --
Total comprehensive loss -- -- -- -- -- (5,336)
Stock option compensation expense and other -- -- 3,536 -- -- 3,536
Capital contribution -- -- 1 -- -- 1
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 1999 (Predecessor) 1,000,000 10 186,904 (5,623) (48,330) 132,961
Comprehensive loss-
Net loss -- -- -- -- (490)
Translation adjustment -- -- -- (3,231) --
Total comprehensive loss -- -- -- -- -- (3,721)
Stock option compensation (income) and other -- -- (6,933) -- -- (6,933)
--------- --------- --------- --------- --------- ---------
BALANCE, October 11, 2000 (Predecessor) 1,000,000 $ 10 $ 179,971 $ (8,854) $ (48,820) $ 122,307
========= ========= ========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, October 12, 2000 (Successor) 1,000,000 $ 10 $ 280,842 $ -- $ -- $ 280,852
Comprehensive loss-
Net loss -- -- -- -- (16,745)
Translation adjustment -- -- -- 904 --
Total comprehensive loss -- -- -- -- -- (15,841)
--------- --------- --------- --------- --------- ---------
BALANCE, December 31, 2000 (Successor) 1,000,000 $ 10 $ 280,842 $ 904 $ (16,745) $ 265,011
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
46
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated statements of cash flows
(Dollars in thousands)
Successor Predecessor
-------------- ------------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, ----------------------
2000 2000 1999 1998
--------- ------------ --------- ---------
OPERATING ACTIVITIES:
Net loss $ (16,745) $ (490) $ (585) $ (28,436)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities-
Depreciation and amortization 14,447 39,653 49,114 39,158
Noncash interest 748 899 1,209 960
Asset impairment write-downs -- -- 4,144 12,665
Noncash stock compensation -- (2,485) 3,925 3,397
Loss (gain) on sales of assets and other (4,580) 3,092 (659) 1,968
Deferred income taxes (1,040) 3,231 (12,631) --
Changes in operating assets and liabilities:
Accounts receivable, net (161) (887) (2,830) (6,064)
Inventories (5) 384 (318) 657
Prepaid expenses (2,969) 1,270 1,736 (670)
Accounts payable and accrued liabilities (21,947) 15,314 (555) 7,338
Deferred revenue 23,999 (18,863) 10,521 3,674
Other 123 (2,320) 449 (1,079)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities (8,130) 38,798 53,520 33,568
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,578) (9,304) (9,722) (4,154)
Acquisition of publications and trade shows, net of cash acquired (6,408) (13,264) (141,479) (358,315)
Increase in long-term receivable from affiliate (9,020) (10,749) -- --
Proceeds from sale of assets and other 66 3,767 299 4,208
--------- --------- --------- ---------
Net cash used in investing activities (17,940) (29,550) (150,902) (358,261)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving credit loan -- -- (29,000) 27,000
Proceeds from long-term debt -- -- 138,000 399,613
Payments of long-term debt -- (16,828) (12,752) (163,993)
Proceeds from capital contributions and other -- -- (1,344) 69,980
--------- --------- --------- ---------
Net cash provided by (used in) financing activities -- (16,828) 94,904 332,600
--------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (986) 280 (301) (915)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (27,056) (7,300) (2,779) 6,992
CASH AND CASH EQUIVALENTS, beginning of period 44,731 11,237 14,016 7,024
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 17,675 $ 3,937 $ 11,237 $ 14,016
========= ========= ========= =========
See notes to consolidated financial statements.
47
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Notes to consolidated financial statements
December 31, 2000 and 1999
1 NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Advanstar Communications Inc. and its majority-owned subsidiaries (collectively,
Advanstar or the Company). All intercompany accounts and transactions between
consolidated entities have been eliminated.
The Company operates and manages trade shows and conferences; publishes
controlled circulation trade and professional periodicals; and markets a broad
range of marketing, direct mail and database products and services.
On October 11, 2000, a group of investors, including DLJ Merchant Banking
Partners III LP (DLJMB), certain of its affiliated funds and certain members of
management, formed Advanstar Holdings Corp. (Holdings) to acquire substantially
all of the outstanding shares of Advanstar's direct parent, Advanstar, Inc., for
an aggregate purchase price of approximately $917.6 million (the DLJ
Acquisition) including the assumption of outstanding indebtedness and debt
repaid on the date of sale. The acquisition has been accounted for using the
purchase method of accounting and, accordingly, all assets and liabilities of
the Company have been recorded at their fair values as of the date of
acquisition. The excess of the purchase price over the fair value of the assets
and liabilities of the Company has been recorded as goodwill. Certain of the
assets, including identifiable intangibles, have been recorded based upon
preliminary estimates as of the date of acquisition. The Company does not
believe the final allocation of purchase price will be materially different from
preliminary allocations. Any changes to the preliminary estimates during the
allocation period will be reflected as an adjustment to goodwill.
Due to the effects of the DLJ Acquisition on the recorded bases of goodwill,
intangibles, property and stockholder's equity, the financial statements prior
to and subsequent to the DLJ Acquisition are not comparable. Periods prior to
October 12, 2000 represent the accounts of the Predecessor and from that date,
the Successor. The effects of the DLJ Acquisition have not been included in the
accompanying statements of cash flows as the acquisition was deemed to have
occurred at a date that is not part of either the Predecessor or Successor
company operations.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and highly liquid investments
with original maturities of three months or less. Cash equivalents are stated at
cost, which approximates fair market value.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses consist primarily of prepaid trade show and conference
expenses, prepaid publication production costs and miscellaneous deposits. Event
and publication expenses are charged to operations at the time of the occurrence
of the related event and at the time of publication issuance. Other current
assets consist of paper inventories and notes receivable.
48
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
Successor Predecessor
------------ ------------
December 31, December 31,
2000 1999
------------ ------------
Land and improvements $ 2,401 $ 2,538
Buildings 4,686 5,359
Furniture, machinery and equipment 16,454 17,443
Leasehold improvements 3,973 3,967
-------- --------
27,514 29,307
Accumulated depreciation (1,747) (8,441)
-------- --------
Net property, plant and equipment $ 25,767 $ 20,866
======== ========
Property, plant and equipment is depreciated on the straight-line basis over the
following estimated useful lives:
Estimated
useful lives
------------
Land improvements 10-15 years
Buildings 20-40 years
Furniture, machinery and equipment 3-10 years
Leasehold improvements Life of lease
For tax reporting purposes, certain assets have different estimated useful lives
and depreciation methods.
Maintenance and repairs are charged to expense as incurred. Major betterments
and improvements which extend the useful life of the item are capitalized and
depreciated. The cost and accumulated depreciation of property, plant and
equipment retired or otherwise disposed of are removed from the related
accounts, and any residual values are charged or credited to income.
GOODWILL
Goodwill, which is being amortized on a straight-line basis over an average of
23 years, is recorded in the accompanying consolidated balance sheets net of
accumulated amortization of $8.3 million and $53.7 million at December 31, 2000
and 1999, respectively.
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over 1 to 20
years. Intangible assets consist primarily of identifiable intangibles including
advertiser, paid subscriber and trade show exhibitor lists, computer software,
the value assigned to Advanstar's assembled workforce and fulfillment
agreements. Accumulated amortization was $4.8 million and $60.4 million at
December 31, 2000 and 1999, respectively.
49
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets, including
identifiable intangibles and goodwill, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the assets and any
related goodwill, the carrying value is reduced to the estimated fair value as
measured by the associated discounted cash flows.
During 1999 and 1998, the Company identified certain properties which, due to
changes in market conditions and portfolio management direction, the Company
elected to discontinue. As a result, a total noncash charge of $4.1 million
and $12.7 million was recorded in 1999 and 1998, respectively, to write down
the carrying value of the related operating assets and intangibles, and is
included in amortization of goodwill and other intangibles on the
consolidated statements of operations. There were no impairment write-downs
for the period from October 12, 2000 through December 31, 2000 or for the
period from January 1, 2000 through October 11, 2000.
REVENUE RECOGNITION
Trade show and conference revenue is recognized in the accounting period in
which the event is conducted. Subscription revenue is recognized on a pro rata
basis as publications are issued to fulfill the subscription obligations.
Advertising revenue is recognized as the publication with the respective
advertisement is published. Deferred revenue is recorded when cash is received
in advance of providing the related service.
Deferred revenue consisted of the following (in thousands):
Successor Predecessor
------------ ------------
December 31, December 31,
2000 1999
------------ ------------
Deferred trade show and conference revenue $63,937 $57,727
Deferred advertising and subscription revenue 4,018 4,236
------- -------
Total deferred revenue $67,955 $61,963
======= =======
FOREIGN CURRENCY TRANSLATION
The Company accounts for translation investments in foreign entities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation."
FINANCIAL DERIVATIVE INSTRUMENTS
The Company's policy is to generally use financial derivative instruments only
to manage exposure to fluctuations in interest and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.
50
The Company periodically enters into forward exchange contracts principally to
hedge the eventual dollar results of foreign currency-denominated transactions
(primarily British pounds, Euros and Brazilian reals). Gains and losses on
forward exchange contracts entered into to hedge foreign currency transactions
are included in revenue in the consolidated statements of operations when the
underlying transaction is closed. There were open forward exchange contracts
with a notional amount totaling $20.1 million and $23.3 million, and unrealized
gains (losses) of $(0.8) million and $0.1 million, at December 31, 2000 and
1999, respectively.
The Company has entered into interest rate collar and cap agreements with
remaining maturities of up to 18 months to manage its exposure to interest rate
movements on a portion of its variable rate debt obligations. Interest rate
differentials paid or received under these agreements are recognized as an
adjustment to interest expense in the period realized. The notional amount of
these contracts was $105.5 million and $113.8 million at December 31, 2000 and
1999, respectively.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for stock options and awards to employees under
the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.
COMPREHENSIVE INCOME (LOSS)
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income." This statement established rules for the reporting of comprehensive
income and its components. Comprehensive income reflects the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. Comprehensive income (loss) consists of net
income (loss) and foreign currency translation adjustments and is presented in
the consolidated statements of stockholder's equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Ultimate results could differ from these estimates. On an
ongoing basis, management reviews its estimates, including those affecting
doubtful accounts, valuation of goodwill and intangible assets and income taxes.
Changes in facts and circumstances may result in revised estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported in prior periods in
order to conform to the current period presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, is effective for fiscal years beginning after June 15, 2000. The
statement establishes accounting and reporting standards requiring that each
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at fair value. Changes in the derivative financial
instrument's fair value must be recognized currently in earnings unless specific
hedge accounting criteria are met. For derivative financial instruments which
meet the criteria, gains and losses may be recognized in other comprehensive
income rather than current earnings. The Company adopted SFAS No. 133 on January
1, 2001, which did not have a material impact on the Company's financial
position or results of operations.
51
3 ACQUISITIONS
On April 30, 1998, the Company acquired Men's Apparel Guild in California, Inc.
(MAGIC), which operates apparel trade shows (the MAGIC Acquisition). The
purchase price was approximately $234.3 million in cash and assumed liabilities.
Concurrent with the MAGIC Acquisition, the Company renegotiated its credit
agreement to provide additional borrowing capacity. The Company also received an
additional equity contribution of approximately $71.0 million.
On August 17, 1998, the Company acquired certain travel-related publication and
trade show assets of Universal Media Inc., including Travel Agent (collectively,
Travel Agent). The purchase price was approximately $68.0 million in cash plus
approximately $1.0 million in assumed liabilities. Concurrent with the Travel
Agent acquisition, the Company undertook an additional amendment to its credit
agreement to further increase its borrowing capacity and financed the balance of
the cash purchase price with its available cash and revolving credit facility.
From January 1, 1998 through December 31, 1998, the Company completed 11 other
acquisitions of trade shows, conferences and publishing properties, with a
cumulative purchase price totaling approximately $89.1 million. Certain entities
acquired in 1998 have minority ownership interests.
On July 28, 1999, the Company acquired certain trade shows and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin), which operates apparel trade shows. The purchase price
was approximately $135.4 million in cash and assumed liabilities. Concurrent
with the Larkin acquisition, the Company amended and restated its credit
agreement to provide additional borrowing capacity to finance the acquisition.
From January 1, 1999 through December 31, 1999, the Company completed three
other acquisitions of trade shows, conferences and publishing properties, with a
cumulative purchase price totaling approximately $17.3 million in cash and
assumed liabilities.
On January 7, 2000, the Company acquired the Documents, Messaging and Security
(DMS) tradeshow and Info 21 magazine from Gruppe 21 Informations-GmbH for
approximately $7.8 million in cash and assumed liabilities.
On July 26, 2000, the Company acquired the Brand Licensing London tradeshow for
approximately $4.6 million in cash and assumed liabilities.
On November 26, 2000, the Company purchased the outstanding minority interest in
SeCA, its French joint venture, for approximately $9.0 million in cash.
Each of the acquisitions discussed above have been accounted for using the
purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at their fair values as of the dates of
the acquisitions. The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill. Certain
of the liabilities assumed in connection with 2000 acquisitions have been
recorded based upon preliminary estimates as of the dates of acquisition. The
Company does not believe the final allocation of purchase price will be
materially different from preliminary allocations. Any changes to the
preliminary estimates during the allocation period will be reflected as an
adjustment to goodwill. Results of operations for these acquisitions have been
included in the accompanying consolidated financial statements since their
respective dates of acquisition.
The following are unaudited pro forma operating results as if the acquisitions
had taken place at the beginning of the following periods (in thousands):
Years ended December 31
-------------------------------------------
2000 1999 1998
--------- --------- ---------
Total revenues $ 377,479 $ 353,777 $ 342,606
Operating income 46,349 32,593 21,000
Net loss (14,828) (2,346) (17,923)
52
The unaudited pro forma financial information is provided for informational
purposes only. It is based on historical information and does not purport to be
indicative of the results that would have occurred had the acquisitions occurred
at such dates, of the Company's future results of operations at January 1, 1998,
or of future results of operations.
4 DEBT
CREDIT FACILITY
In connection with the DLJ Acquisition, the Company's Amended Credit Facility
was replaced with a syndicated senior secured credit facility (the New Credit
Facility) with a group of financial institutions. The New Credit Facility
consists of (i) $415 million of term loans payable in quarterly installments
beginning March 31, 2001 and continuing through October 11, 2007 and (ii) $80
million of revolving loan availability. The New Credit Facility contains a
number of covenants that, among other things, requires the Company to maintain
certain financial ratios, including leverage and fixed charge coverage ratios,
as defined. Failure of the Company to comply with any of these covenants may
cause an Event of Default under the New Credit Facility. The Company was in
compliance with all covenants as of December 31, 2000. Borrowings under the New
Credit Facility are secured by substantially all of the Company's assets. In
addition, at December 31, 2000, the Company has purchased interest rate
protection agreements for a notional amount of $105.5 million that effectively
guarantee that the Company's interest rate on $105.5 million of the Company's
New Credit Facility will not exceed 12 percent, nor be less than 8.75 percent.
SENIOR SUBORDINATED NOTES
The senior subordinated notes (the Notes) issued in conjunction with the MAGIC
Acquisition are unsecured obligations of Communications, limited to $150.0
million aggregate principal amount, and will mature on May 1, 2008. Each Note
bears interest at 9 1/4 percent, payable semiannually. On January 9, 2001, the
Notes were tendered at an offer price in cash equal to 101 percent of the
aggregate principal amount, plus accrued interest. The Company financed the
repurchase of the Notes with bridge financing and subsequently replaced the
bridge financing with the issuance of 12 percent senior subordinated notes, due
2011 (see Note 10).
Long-term debt consists of the following (in thousands):
Successor Predecessor
------------ ------------
December 31, December 31,
2000 1999
------------ ------------
Tranche $ -- $ 90,210
A term loan, interest at LIBOR plus 2.25 percent
Tranche B term loan, interest at LIBOR plus 2.50 percent -- 147,223
Tranche C term loan, interest at LIBOR plus 3.00 percent -- 136,043
Term loan A, interest at LIBOR plus 3.00%, 9.72% at
December 31, 2000, due quarterly through
April 11, 2007 100,000 --
Term loan B, interest at LIBOR plus 3.50%, 10.14% at
December 31, 2000, due quarterly through
October 11, 2007 315,000 --
Senior subordinated notes at 9.25%, due May 31, 2008 150,000 149,678
--------- ---------
565,000 523,154
Less- Current maturities (13,150) (13,740)
--------- ---------
$ 551,850 $ 509,414
========= =========
Based on the borrowing rates currently available to the Company for debt
instruments with similar terms and average maturities, the fair value of
long-term debt would have been below its carrying value by approximately $20.0
million at December 31, 2000 and was substantially the same as its carrying
value at December 31, 1999. Cash paid during the period from October 12, 2000
through December 31, 2000, the period from January 1, 2000 through October 11,
2000, 1999 and 1998 for interest was $15.3 million, $34.0 million, $38.8 million
and $25.3 million, respectively.
53
Annual maturities of long-term debt for the next five years are as follows (in
thousands):
2001 $ 13,150
2002 18,150
2003 18,150
2004 20,294
2005 20,294
Thereafter 474,962
5 STOCKHOLDER'S EQUITY
STOCK OPTION PLANS
The Company's stock option plans consist of the 1996 Stock Option Plan and the
2000 Management Incentive Plan.
1996 STOCK OPTION PLAN
The Company accounts for the options using the intrinsic value method outlined
in APB Opinion No. 25. Accordingly, and because of certain variable features of
the 1996 Stock Option Plan (the Plan), the Company measures compensation cost as
the difference between the exercise price of the options and the fair value of
the shares under option at the end of each period, and recognizes compensation
expense to provide for such difference. In connection with the DLJ Acquisition,
all of the outstanding options under the Plan became fully vested and were
purchased and cancelled by the Company at fair market value and the Plan was
terminated. For the period from January 1, 2000 through October 11, 2000, and
the year ended December 31, 1999 the Company recognized a benefit of $2.5
million and compensation expense of $3.9 million, respectively, under the Plan.
The compensation expense is presented in the consolidated statement of
stockholder's equity net of the Company's repurchase of the options.
2000 MANAGEMENT INCENTIVE PLAN
On October 12, 2000, Holdings adopted the 2000 Management Incentive Plan. A
maximum of 3,422,789 shares of Holdings are authorized for grant to participants
under the 2000 Management Incentive Plan. Options are granted by Holdings' board
of directors at an exercise price of not less than the fair market value of
Holdings common stock at the date of grant and vest over a maximum of nine
years. Shares available for grant under the 2000 Management Incentive Plan
totaled 167,789 at December 31, 2000.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted as prescribed by SFAS No. 123, net loss would have
been increased to the pro forma amounts indicated in the table below (in
thousands):
Successor Predecessor
-------------- -----------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, --------------------
2000 2000 1999 1998
-------------- ------------ ------- --------
Net loss--as reported $(16,745) $ (490) $(2,027) $(28,436)
Net loss--pro forma (17,065) (2,434) (2,858) (29,005)
54
For purposes of computing compensation cost of stock options granted, the fair
value of each stock option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Successor Predecessor
---------------- -----------------
For the period For the years
from October 12, ended
2000 through December 31
December 31, -----------------
2000 1999 1998
---------------- ------- -------
Expected dividend yield -- -- --
Expected stock price volatility 41.6% 34.7% 30.6%
Risk-free interest rate 6.0% 6.5% 5.6%
Expected life of options 7.5 years 5 years 5 years
A summary of stock option activity under the 1996 Stock Option Plan and the 2000
Management Incentive Plan is as follows:
Weighted
average
Options exercise
outstanding price
----------- --------
Outstanding at December 31, 1997 (Predecessor) 1,470,800 $ 5.82
Granted 720,300 6.09
Cancelled (380,000) 5.87
--------- ------
Outstanding at December 31, 1998 (Predecessor) 1,811,100 6.42
Granted 410,000 12.68
Cancelled (190,000) 6.67
--------- ------
Outstanding at December 31, 1999 (Predecessor) 2,031,100 8.24
Granted 50,000 12.68
Repurchased in connection with DLJ Acquisition (2,081,100) 9.00
--------- ------
Outstanding at October 11, 2000 (Predecessor) -- $ --
========= ======
- --------------------------------------------------------------------------------
Outstanding at October 12, 2000 (Successor) -- $ --
Granted 3,255,000 10.00
--------- ------
Outstanding at December 31, 2000 (Successor) 3,255,000 $10.00
========= ======
As of December 31, 2000, the outstanding stock options had a weighted average
remaining contractual life of 9.8 years. None of the options outstanding at
December 31, 2000 were exercisable. The weighted average fair value of grants,
as estimated using the Black-Scholes option pricing model, for the period from
October 12, 2000 through December 31, 2000 and for the years ended December 31,
1999 and 1998, was $5.54, $3.14 and $2.40 per option, respectively.
DIVIDENDS
The Company has not declared or paid any cash dividends in the past. Under terms
of the Company's New Credit Facility, the Company is prohibited from paying cash
dividends without prior approval of the financial institutions.
55
6 401(K) PLAN
The Company has an Employees' 401(k) Plan and Trust (the 401(k) Plan) available
to employees of the Company and its domestic subsidiaries. All current and
future domestic employees who have completed one year of service and are at
least 21 years of age are eligible to participate in the 401(k) Plan. The
Company is required to make a matching contribution to the 401(k) Plan and may,
at its discretion, make discretionary contributions to the 401(k) Plan. Eligible
employees are vested 100 percent in their own contributions. Contributions made
by the Company vest in equal installments over five years. Total contribution
expense was $0.2 million and $1.1 million for the period from October 12, 2000
through December 31, 2000 and the period from January 1, 2000 through October
11, 2000, respectively and was $1.2 million and $1.0 million for the years ended
December 31, 1999 and 1998, respectively.
7 INCOME TAXES
The Company's operations are included in the consolidated federal income tax
return of Advanstar, Inc. Federal income taxes are paid to or refunded by
Advanstar, Inc. as if taxes were computed on a separate company basis. Taxes
receivable from Advanstar, Inc. of approximately $2.7 million and $7.0 million
at December 31, 2000 and 1999, respectively, are included in prepaid expenses in
the accompanying consolidated balance sheets.
The summary of loss before provision (benefit) for income taxes and minority
interest were as follows (in thousands):
Successor Predecessor
-------------- ------------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, ---------------------
2000 2000 1999 1998
-------------- ------------ -------- --------
Domestic $(20,138) $ 15,163 $(10,247) $(28,219)
Foreign (1,504) (3,460) (3,357) 1,007
-------- -------- -------- --------
Total $(21,642) $ 11,703 $(13,604) $(27,212)
======== ======== ======== ========
The provision (benefit) for income taxes is comprised of the following (in
thousands):
Successor Predecessor
-------------- -----------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, --------------------
2000 2000 1999 1998
-------------- ------------ -------- --------
Current:
Federal $ (6,595) $ 5,792 $ 268 $ --
State (44) 811 65 217
Foreign 156 1,355 867 1,047
Deferred 1,711 3,232 (12,631) --
-------- -------- -------- --------
Total provision (benefit) $ (4,772) $ 11,190 $(11,431) $ 1,264
======== ======== ======== ========
56
The Company accounts for income taxes following the provisions of SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
currently enacted tax rates.
Significant components of the Company's deferred income taxes were as follows
(in thousands):
Successor Predecessor
------------ ------------
December 31, December 31,
2000 1999
------------ ------------
Deferred tax liabilities:
Prepaid expenses $ (2,021) $ (2,570)
-------- --------
Total deferred tax liabilities (2,021) (2,570)
-------- --------
Deferred tax assets:
Net operating loss carryforwards -- 3,965
Foreign tax credit carryforwards 513 1,593
Depreciation and amortization 6,861 8,819
Stock options and warrants -- 2,637
Accrued expenses and other 2,903 2,110
-------- --------
Total deferred tax assets 10,277 19,124
-------- --------
Valuation allowance (513) (1,593)
-------- --------
Net deferred income taxes $ 7,743 $ 14,961
======== ========
During 1999, the Company established deferred tax assets of $2.3 million related
to its 1998 and prior acquisitions. Due to the difference in the income tax and
financial reporting bases of assets acquired and liabilities assumed in these
acquisitions, the tax benefit has been reflected as a reduction of goodwill in
the accompanying consolidated balance sheet as of December 31, 1999.
The valuation allowance for deferred tax assets decreased by $1.1 million in
2000. The decrease in the allowance is primarily attributable to foreign tax
credit carryforwards which expired in 2000. A valuation allowance has been
provided on foreign tax credit carryforwards which substantially expire in 2001.
Based on management's assessment, it is more likely than not that all the
deferred tax assets, net of the valuation allowance at December 31, 2000, will
be realized.
57
A reconciliation of the Company's provision (benefit) for income taxes at the
federal statutory rate to the reported income tax provision (benefit) is as
follows (in thousands):
Successor Predecessor
-------------- -----------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, --------------------
2000 2000 1999 1998
-------------- ------------ -------- --------
Income tax expense (benefit) at statutory rates $ (7,358) $ 3,638 $ (4,710) $ (9,510)
Change in valuation allowance -- -- (13,817) 9,060
Nondeductible amortization 904 3,339 4,127 2,875
Foreign provision in excess of U.S. rates 1,509 2,215 468 220
State taxes, net of federal benefit (386) 754 102 143
Change in deferred tax rates -- -- 488 --
Other, net 559 1,244 1,911 (1,524)
-------- -------- -------- --------
Total $ (4,772) $ 11,190 $(11,431) $ 1,264
======== ======== ======== ========
8 COMMITMENTS AND CONTINGENCIES
LEASES
The Company has long-term operating leases for office space and office
equipment. The leases generally require the Company to pay maintenance,
insurance, taxes and other expenses in addition to minimum annual rentals.
Building and equipment rent expense was $1.3 million, $5.0 million, $5.2 million
and $3.4 million for the period from October 12, 2000 through December 31, 2000,
the period from January 1, 2000 through October 11, 2000, and the years ending
December 31, 1999 and 1998, respectively. Future minimum lease commitments under
operating leases with initial terms of one year or more are as follows (in
thousands):
2001 $ 6,056
2002 5,584
2003 4,697
2004 3,802
2005 3,818
Thereafter 15,032
LITIGATION
The Company is a defendant in legal proceedings arising in the ordinary course
of business. Although the outcome of these proceedings cannot presently be
determined, in the opinion of management, disposition of these proceedings will
not have a material effect on the results of operations or financial position of
the Company.
58
9 SEGMENTS
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," and has three reportable segments:
trade shows and conferences, trade publications and marketing services. The
trade show and conference segment allows exhibitors a cost-effective means to
showcase and sell products and services while developing business relationships
with many potential customers in a short time period. The Company's trade
publications segment provides key new product and educational information to
readers and allows advertisers to reach highly targeted and select business
audiences. The marketing services segment offers customers mailing lists from
the Company's subscriber and attendee databases; editorial and advertising
reprints; direct mail postcards; and classified, recruitment and industry
directory advertising.
The Company evaluates the performance of, and allocates resources to, its
segments based on gross profit. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. There are no intersegment sales or transfers. Segment
assets are primarily intangible assets, prepaid expenses and accounts
receivables (in thousands):
Trade
shows and Trade Marketing Corporate
conferences publications services and other Totals
----------- ------------ -------- --------- ------
Period from October 12, 2000 through
December 31, 2000 (Successor):
Revenues $ 19,752 $ 38,281 $ 5,206 $ 195 $ 63,434
Gross profit 2,399 10,959 2,585 195 16,138
Segment assets 281,666 568,639 3,003 103,897 957,205
- -----------------------------------------------------------------------------------------------------
Period from January 1, 2000 through
October 11, 2000 (Predecessor):
Revenues 178,606 120,706 13,794 939 314,045
Gross profit 83,815 35,209 6,233 939 126,196
Segment assets 453,299 224,829 2,291 67,565 747,984
Year ended December 31, 1999 (Predecessor):
Revenues 161,007 147,714 18,581 1,070 328,372
Gross profit 71,593 41,991 9,290 393 123,267
Segment assets 468,018 236,062 3,020 74,481 781,581
Year ended December 31, 1998 (Predecessor):
Revenues 113,066 130,442 15,647 670 259,825
Gross profit 45,020 37,715 8,102 445 91,282
Segment assets 356,655 248,291 2,254 53,026 660,226
59
The reconciliation of total segment gross profit to consolidated pretax income
(loss) are as follows (in thousands):
Successor Predecessor
-------------- ------------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, ---------------------
2000 2000 1999 1998
-------------- ------------ --------- ---------
Total segment gross profit $ 16,138 $ 126,196 $ 123,267 $ 91,282
General and administrative expense (9,783) (34,285) (43,527) (36,883)
Depreciation and amortization (14,447) (39,653) (53,258) (51,823)
Other expense (13,550) (40,555) (40,086) (29,788)
--------- --------- --------- ---------
Consolidated pretax income (loss) $ (21,642) $ 11,703 $ (13,604) $ (27,212)
========= ========= ========= =========
Financial information relating to the Company's operations by geographic area
are as follows (in thousands):
REVENUES
Successor Predecessor
-------------- -----------------------------------
For the period For the
from period from
October 12, January 1, For the years ended
2000 through 2000 through December 31
December 31, October 11, --------------------
2000 2000 1999 1998
-------------- ------------ -------- --------
United States $ 53,319 $280,836 $287,850 $225,104
International 10,115 33,209 40,522 34,721
-------- -------- -------- --------
Total $ 63,434 $314,045 $328,372 $259,825
======== ======== ======== ========
Revenues are primarily attributed to countries based on the location of
customers.
LONG-LIVED ASSETS
Successor Predecessor
------------ -------------------
December 31,
December 31, -------------------
2000 1999 1998
------------ -------- --------
United States $817,078 $688,112 $573,734
International 45,444 17,301 27,619
-------- -------- --------
$862,522 $705,413 $601,353
======== ======== ========
60
10 EVENTS SUBSEQUENT TO DECEMBER 31, 2000 (UNAUDITED)
The DLJ Acquisition constituted a change in control under the Notes. Upon
occurrence of a change of control, each holder of the Notes may require the
Company to repurchase all or any part of the Notes held by such holder at an
offer price in cash equal to 101 percent of the aggregate principal amount
thereof, plus accrued interest and other specified costs to the date of
repurchase. On January 4, 2001, all of the Notes were tendered. The Company
obtained bridge financing in order to fund the repurchase price of the Notes. On
February 21, 2001, the Company issued $160.0 million of unsecured, 12 percent
senior subordinated notes, due 2011(the Replacement Notes). Interest on the
Replacement Notes is payable semiannually commencing August 2001. The
Replacement Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by the Company and its wholly-owned
domestic subsidiaries. As part of tendering of the Notes, the Company wrote off
remaining deferred financing costs of approximately $2.4 million, net of related
tax benefits.
Concurrent with the issuance of the Replacement Notes, Advanstar, Inc. issued
units comprised of 15 percent senior discount notes (the Discount Notes) with an
aggregate principal amount at maturity of $68.6 million, and warrants to
purchase shares of common stock of Holdings, for consideration of approximately
$34.8 million. The Discount Notes bear interest at 15 percent, payable
semiannually beginning October 2005, and have an implied yield to maturity of
17.2 percent. The Discount Notes are redeemable at the Company's option at
specified premiums through 2007, and at par thereafter. The Discount Notes may
also be redeemed at a premium upon a qualifying change of control of the
Company. The Discount Notes have been excluded from the Company's consolidated
financial statements, as the Company is not a guarantor under the Discount
Notes.
The Company used the proceeds from issuance of the Replacement Notes and the
Discount Notes to repay and terminate the bridge financing and to repay
approximately $45.0 million of term loan borrowings under the New Credit
Facility. Concurrent with the issuance of the Discount Notes, DLJIP exchanged
its senior discount notes, issued by Advanstar, Inc. as part of the DLJ
Acquisition, for like units valued at $52.7 million.
11 RELATIONSHIP WITH ADVANSTAR.COM
Advanstar.com, an affiliate, is developing vertical community web sites to serve
the Company's industry sectors and is operating the Company's event and
publication-related web sites. The Company provides Advanstar.com with certain
administrative support services in accounting, finance, legal, human resource
management, information technology and business development. During 2000, the
Company began to charge for these services based on a general overhead charge.
There was approximately $0.2 million and $0.5 million charged for the period
from October 12, 2000 through December 31, 2000 and the period from January 1,
2000 through October 11, 2000, respectively. In addition, selected staff in
editorial and other functions in Advanstar are shared with Advanstar.com.
Beginning in 2001, appropriate allocations of staff costs will be made to
Advanstar.com. No such charges have been made during 2000. The Company also
provides Advanstar.com with marketing and promotional support through
advertising pages in its trade publications and exhibit space in its trade
shows. These are provided at rates which fully cover the Company's incremental
costs. In return, Advanstar.com provides support on its web sites for
Advanstar's trade publications and trade shows at rates which reflect
incremental costs. Advanstar.com operates specific web sites in support of
Advanstar's trade publications and trade shows. Among other functions, these
sites provide essential services, such as trade show and conference registration
and publication subscription and reader services, in support of the Company's
products. Advanstar.com has the right to use the content from the Company's
publications and events, its brands and its customer lists for the purpose of
building and operating the web sites. The Company has a long-term receivable of
$19.8 million from Advanstar.com as of December 31, 2000. There are no specific
repayment terms for this receivable.
61
12 SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Replacement Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by the Company and its wholly owned
domestic subsidiaries. The subsidiary guarantors are Art Expositions
International, Inc., MAGIC and Applied Business TeleCommunications. The
condensed consolidating financial statements of the guarantors are presented
below and should be read in connection with the consolidated financial
statements of the Company. Separate financial statements of the guarantors are
not presented because the guarantors are jointly, severally and unconditionally
liable under the guarantees and the Company believes the condensed consolidating
financial statements presented are more meaningful in understanding the
financial position of the guarantors. Management has determined that such
information is not material to investors.
Due to the effects of the DLJ Acquisition on the recorded bases of goodwill,
intangibles, property and shareholder's equity, the financial statements prior
to and subsequent to the DLJ Acquisition are not comparable. Periods prior to
October 12, 2000 represent the accounts of the Predecessor and from that date,
the Successor. The DLJ Acquisition effects have not been included in the
accompanying statements of cash flows as it was deemed to have occurred at a
date that is not part of either the Predecessor or Successor company operations.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company.
62
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating balance sheet
As of December 31, 2000
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,736 $ 1 $ 6,938 $ -- $ 17,675
Accounts receivable, net 28,061 329 2,768 -- 31,158
Prepaid expenses 8,223 2,712 4,786 -- 15,721
Intercompany receivable (payable) (72,727) 100,811 (28,084) -- --
Other 1,491 -- 341 -- 1,832
--------- --------- --------- --------- ---------
Total current assets (24,216) 103,853 (13,251) -- 66,386
Noncurrent assets:
Due from affiliate 19,769 -- -- -- 19,769
Property, plant and equipment, net 23,654 713 1,400 -- 25,767
Intangible assets, net 701,250 56,435 79,070 -- 836,755
Deferred income taxes and other 8,446 -- 82 -- 8,528
Investments in subsidiaries 182,395 -- -- (182,395) --
--------- --------- --------- --------- ---------
$ 911,298 $ 161,001 $ 67,301 $(182,395) $ 957,205
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,150 $ -- $ -- $ -- $ 13,150
Accounts payable 13,800 1,793 6,414 -- 22,007
Deferred revenue 37,389 21,526 9,040 -- 67,955
Accrued liabilities 15,120 3,707 2,523 -- 21,350
--------- --------- --------- --------- ---------
Total current liabilities 79,459 27,026 17,977 -- 124,462
Long-term debt, net of current maturities 551,850 -- -- -- 551,850
Other long-term liabilities 5,448 -- -- -- 5,448
Minority interest 10,434 -- -- -- 10,434
Stockholder's equity:
Common stock 10 3 403 (406) 10
Capital in excess of par value 280,842 134,110 49,988 (184,098) 280,842
Accumulated deficit (16,745) (138) (1,971) 2,109 (16,745)
Accumulated other comprehensive income -- -- 904 -- 904
--------- --------- --------- --------- ---------
Total stockholder's equity 264,107 133,975 49,324 (182,395) 265,011
--------- --------- --------- --------- ---------
$ 911,298 $ 161,001 $ 67,301 $(182,395) $ 957,205
========= ========= ========= ========= =========
63
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
For the period from October 12, 2000 through December 31, 2000
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Net revenue $ 48,638 $ 4,260 $ 10,536 $ -- $ 63,434
Operating expenses:
Cost of sales and selling, editorial and circulation 34,102 3,506 9,688 -- 47,296
General and administrative 8,425 281 1,077 -- 9,783
Depreciation and amortization 12,649 528 1,270 -- 14,447
-------- -------- -------- -------- --------
Total operating expenses 55,176 4,315 12,035 -- 71,526
-------- -------- -------- -------- --------
Operating income (loss) (6,538) (55) (1,499) -- (8,092)
Other income (expense):
Interest income (expense), net (14,027) -- 262 -- (13,765)
Other income (expense), net 828 -- (613) -- 215
-------- -------- -------- -------- --------
Income (loss) before income taxes: (19,737) (55) (1,850) -- (21,642)
Provision (benefit) for income taxes (4,976) 83 121 -- (4,772)
Minority interests in earnings 125 -- -- -- 125
Equity in earnings (loss) of subsidiaries (2,109) -- -- 2,109 --
-------- -------- -------- -------- --------
Net income (loss) $(16,745) $ (138) $ (1,971) $ 2,109 $(16,745)
======== ======== ======== ======== ========
64
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
For the period from January 1, 2000 through October 11, 2000
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Net revenue $ 210,239 $ 63,738 $ 40,068 $ -- $ 314,045
Operating expenses:
Cost of sales and selling, editorial and circulation 135,918 20,149 31,782 -- 187,849
General and administrative 28,636 728 4,921 -- 34,285
Depreciation and amortization 27,259 9,491 2,903 -- 39,653
--------- --------- --------- --------- ---------
Total operating expenses 191,813 30,368 39,606 -- 261,787
--------- --------- --------- --------- ---------
Operating income (loss) 18,426 33,370 462 -- 52,258
Other income (expense):
Interest income (expense), net (36,928) -- (1,233) -- (38,161)
Other income (expense), net (595) -- (1,799) -- (2,394)
--------- --------- --------- --------- ---------
Income (loss) before income taxes: (19,097) 33,370 (2,570) -- 11,703
Provision (benefit) for income taxes (6,213) 15,710 1,693 -- 11,190
Minority interests in earnings (1,003) -- -- -- (1,003)
Equity in earnings (loss) of subsidiaries 13,397 -- -- (13,397) --
--------- --------- --------- --------- ---------
Net income (loss) $ (490) $ 17,660 $ (4,263) $ (13,397) $ (490)
========= ========= ========= ========= =========
65
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of cash flows
For the period from October 12, 2000 through December 31, 2000
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss) $(16,745) $ (138) $ (1,971) $ 2,109 $(16,745)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Undistributed earnings of subsidiaries 2,109 -- -- (2,109) --
Depreciation and amortization 12,649 528 1,270 -- 14,447
Non cash Items (3,496) -- -- -- (3,496)
Change in working capital items 1,614 (355) (3,595) -- (2,336)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities (3,869) 35 (4,296) -- (8,130)
-------- -------- -------- -------- --------
Investment activities:
Investment in subsidiaries (13,783) -- -- 13,783 --
Additions to property, plant and equipment, net (2,304) (67) (207) -- (2,578)
Acquisitions of publications and trade shows (298) -- (6,044) -- (6,342)
Increase in long-term receivable from affiliate (9,020) -- -- -- (9,020)
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities (25,405) (67) (6,251) 13,783 (17,940)
-------- -------- -------- -------- --------
Financing activities:
Proceeds from sale of common stock and capital
contributions and others -- -- 13,783 (13,783) --
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 904 -- (1,890) -- (986)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (28,370) (32) 1,346 -- (27,056)
CASH AND CASH EQUIVALENTS, beginning of period: 39,106 33 5,592 -- 44,731
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period: $ 10,736 $ 1 $ 6,938 $ -- $ 17,675
======== ======== ======== ======== ========
66
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of cash flows
For the period from January 1, 2000 through October 11, 2000
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss) $ (490) $ 17,660 $ (4,263) $ (13,397) $ (490)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Undistributed earnings of subsidiaries (13,397) -- -- 13,397 --
Depreciation and amortization 27,259 9,491 2,903 -- 39,653
Non cash Items 4,737 -- -- -- 4,737
Change in working capital items (70,721) 74,914 (9,295) -- (5,102)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities (52,612) 102,065 (10,655) -- 38,798
--------- --------- --------- --------- ---------
Investing activities:
Investment in subsidiaries 84,997 -- -- (84,997) --
Additions to property, plant and equipment, net (8,508) (338) (458) -- (9,304)
Acquisitions of publications and trade shows 1,204 500 (11,201) -- (9,497)
Increase in long-term receivable from affiliate (10,749) -- -- -- (10,749)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities 66,944 162 (11,659) (84,997) (29,550)
--------- --------- --------- --------- ---------
Financing activities:
Proceeds from sale of common stock and capital
contributions and other -- (102,256) 17,259 84,997 --
Payments of long-term debt, net (16,828) -- -- -- (16,828)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities (16,828) (102,256) 17,259 84,997 (16,828)
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,230) -- 3,510 -- 280
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (5,726) (29) (1,545) -- (7,300)
CASH AND CASH EQUIVALENTS, beginning of period: 5,612 33 5,592 -- 11,237
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period: $ (114) $ 4 $ 4,047 $ -- $ 3,937
========= ========= ========= ========= =========
67
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating balance sheets
December 31, 1999
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,612 $ 33 $ 5,592 $ -- $ 11,237
Accounts receivable, net 27,571 (301) 3,619 -- 30,889
Prepaid expenses 8,989 2,268 3,338 -- 14,595
Intercompany receivable (payable) (60,989) 75,724 (14,735) -- --
Other 1,940 -- 280 -- 2,220
--------- --------- --------- --------- ---------
Total current assets (16,877) 77,724 (1,906) -- 58,941
Noncurrent assets:
Deferred income taxes and other 17,227 -- -- -- 17,227
Property, plant and equipment, net 18,859 673 1,334 -- 20,866
Investments in subsidiaries 304,269 -- -- (304,269) --
Intangible assets, net 423,020 215,603 45,924 -- 684,547
--------- --------- --------- --------- ---------
$ 746,498 $ 294,000 $ 45,352 $(304,269) $ 781,581
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,740 $ -- $ -- $ -- $ 13,740
Accounts payable 13,748 880 4,063 -- 18,691
Deferred revenue 30,933 24,576 6,454 -- 61,963
Accrued liabilities 15,796 3,085 1,648 -- 20,529
--------- --------- --------- --------- ---------
Total current liabilities 74,217 28,541 12,165 -- 114,923
Long-term debt, net of current maturities 509,414 -- -- -- 509,414
Other long-term liabilities 9,122 -- -- -- 9,122
Minority interest 15,161 -- -- -- 15,161
Stockholder's equity:
Common stock 10 3 382 (385) 10
Capital in excess of par value 186,904 236,366 44,890 (281,256) 186,904
Retained earnings (deficit) (48,330) 29,090 (6,462) (22,628) (48,330)
Accumulated other comprehensive income -- -- (5,623) -- (5,623)
--------- --------- --------- --------- ---------
Total stockholder's equity 138,584 265,459 33,187 (304,269) 132,961
--------- --------- --------- --------- ---------
$ 746,498 $ 294,000 $ 45,352 $(304,269) $ 781,581
========= ========= ========= ========= =========
68
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Year ended December 31, 1999
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Net revenue $ 223,042 $ 58,221 $ 47,109 $ -- $ 328,372
Operating expenses:
Cost of sales and selling, editorial and circulation 150,114 20,357 34,634 -- 205,105
General and administrative 35,742 1,955 5,830 -- 43,527
Depreciation and amortization 33,676 12,129 7,453 -- 53,258
--------- --------- --------- --------- ---------
Total operating expenses 219,532 34,441 47,917 -- 301,890
--------- --------- --------- --------- ---------
Operating income (loss) 3,510 23,780 (808) -- 26,482
Other income (expense):
Interest income (expense), net (38,578) 2 (1,312) -- (39,888)
Other income (expense), net 4,707 2 (4,907) -- (198)
--------- --------- --------- --------- ---------
Income (loss) before income taxes: (30,361) 23,784 (7,027) -- (13,604)
Provision (benefit) for income taxes (12,180) -- 749 -- (11,431)
Minority interests in earnings 1,588 -- -- -- 1,588
Equity in earnings (loss) of subsidiaries 16,008 -- -- (16,008) --
--------- --------- --------- --------- ---------
Net income (loss) $ (585) $ 23,784 $ (7,776) $ (16,008) $ (585)
========= ========= ========= ========= =========
69
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of cash flows
Year ended December 31, 1999
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss) $ (585) $ 23,784 $ (7,776) $ (16,008) $ (585)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 33,665 12,138 7,455 -- 53,258
Non cash Items (9,605) -- 7 -- (9,598)
Change in working capital items 27,395 (36,448) 3,490 16,008 10,445
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities 50,870 (526) 3,176 -- 53,520
--------- --------- --------- --------- ---------
Investment activities:
Additions to property, plant and equipment, net (8,287) (444) (887) -- (9,618)
Acquisitions of publications and trade shows (139,472) 1,099 (2,911) -- (141,284)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities (147,759) 655 (3,798) -- (150,902)
--------- --------- --------- --------- ---------
Financing activities:
Dividends paid to minority interest holders (1,344) -- -- -- (1,344)
Borrowings of long-term debt, net 96,248 -- -- -- 96,248
--------- --------- --------- --------- ---------
Net cash provided by (used in) --
financing activities 94,904 -- -- 94,904
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (301) -- -- -- (301)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (2,286) 129 (622) -- (2,779)
CASH AND CASH EQUIVALENTS, beginning of period: 7,898 (96) 6,214 -- 14,016
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period: $ 5,612 $ 33 $ 5,592 $ -- $ 11,237
========= ========= ========= ========= =========
70
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Year ended December 31, 1998
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Net revenue $ 181,709 $ 35,700 $ 42,416 $ -- $ 259,825
Operating expenses:
Cost of sales and selling, editorial and circulation 123,426 17,081 28,528 -- 169,035
General and administrative 27,818 2,758 6,307 -- 36,883
Depreciation and amortization 38,713 10,241 2,377 -- 51,331
--------- --------- --------- --------- ---------
Total operating expenses 189,957 30,080 37,212 -- 257,249
--------- --------- --------- --------- ---------
Operating income (loss) (8,248) 5,620 5,204 -- 2,576
Other income (expense):
Interest income (expense), net (27,602) 60 (320) -- (27,862)
Other income (expense), net 2,812 (884) (3,854) -- (1,926)
--------- --------- --------- --------- ---------
Income (loss) before income taxes: (33,038) 4,796 1,030 -- (27,212)
Provision (benefit) for income taxes 288 13 963 -- 1,264
Minority interests in earnings 40 -- -- -- 40
Equity in earnings (loss) of subsidiaries 4,850 -- -- (4,850) --
--------- --------- --------- --------- ---------
Net income (loss) $ (28,436) $ 4,783 $ 67 $ (4,850) $ (28,436)
========= ========= ========= ========= =========
71
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of cash flows
Year ended December 31, 1998
(In thousands)
Guarantor Nonguarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss) $ (28,436) $ 4,783 $ 67 $ (4,850) $ (28,436)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 39,205 10,241 2,377 -- 51,823
Noncash Items 6,305 20 -- -- 6,325
Change in working capital items (247,166) 214,561 31,611 4,850 3,856
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities (230,092) 229,605 34,055 -- 33,568
--------- --------- --------- --------- ---------
Investment activities:
Additions to property, plant and equipment, net 1,243 (671) (518) -- 54
Acquisitions of publications and trade shows (98,969) (229,085) (30,261) -- (358,315)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities (97,726) (229,756) (30,779) -- (358,261)
--------- --------- --------- --------- ---------
Financing activities:
Proceeds from sale of common stock and capital
contributions and other 70,980 -- -- -- 70,980
Dividends paid to minority interest holders -- -- (1,000) -- (1,000)
Borrowings of long-term debt, net 262,620 -- -- -- 262,620
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities 333,600 -- (1,000) -- 332,600
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (915) -- -- -- (915)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: 4,867 (151) 2,276 -- 6,992
CASH AND CASH EQUIVALENTS, beginning of period: 3,403 (317) 3,938 -- 7,024
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period: $ 8,270 $ (468) $ 6,214 $ -- $ 14,016
========= ========= ========= ========= =========
72
2. FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts.
SCHEDULE II
ADVANSTAR COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
------------ ----------- ----------- ------------- ----------
Period of October 12, 2000 to December 31, 2000
Allowance for doubtful accounts $ 703,000 $ 956,500 - $ 934,500 $ 725,000
Period of January 1, 2000 to October 11, 2000
Allowance for doubtful accounts $ 709,000 $1,406,500 - $1,412,500 $ 703,000
Year ended December 31, 1999
Allowance for doubtful accounts $ 574,000 $1,878,000 - $1,743,000 $ 709,000
Year ended December 31, 1998
Allowance for doubtful accounts $ 553,000 $1,148,000 - $1,127,000 $ 574,000
-----------------------------------
(1) Uncollectible accounts written off.
All other financial statement schedules are omitted because they are not
applicable or the information is included in the financial statements or
related notes.
B. REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the fourth quarter of
fiscal 2000.
C. EXHIBITS
73
EXHIBIT INDEX
EXHIBIT NO.
-----------
2.1 Agreement and Plan of Merger dated August 14, 2000, among
Advanstar, Inc., Advanstar Holdings Corp. (formerly known as
Jetman Acquisition Corp.), Junior Jetman Corp. and AHI
Advanstar LLC (Previously filed as Exhibit 2.1 to Form 8-K of
Advanstar, Inc. filed with the Securities and Exchange
Commission on October 26, 2000, and incorporated by
reference herein)
3.1 Certificate of Incorporation of Advanstar Communications
Inc. (Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
3.1.1 Certificate of Amendment of the Certificates of
Incorporation of Advanstar Communications Inc.
3.2 By-Laws of Advanstar Communications Inc. (Previously filed
as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 333-57201) and incorporated by reference
herein)
4.1 Indenture, dated as of February 21, 2001 among Advanstar
Communications Inc., the Guarantor party thereto and the
Trustee.
10.1 Advanstar Holdings Corp. 2000 Management Plan Incentive
dated as of October 11, 2000.
10.2 Advanstar Holdings Corp. Shareholders Agreement dated as of
October 11, 2000.
10.3 Credit Agreement, dated as of October 11, 2000, as amended
and restated November 7, 2000, among, Advanstar
Communications Inc., the guarantors party thereto and the
lenders party thereto.
10.4 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and Robert Krakoff. (Previously filed as
Exhibit 10.1 to Form 10-Q of Advanstar, Inc. filed with
the Securities and Exchange Commission on November 14, 2000,
and incorporated by reference herein)
10.5 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and James M. Alic. (Previously filed as
Exhibit 10.2 to Form 10-Q of Advanstar, Inc. filed with
the Securities and Exchange Commission on November 14, 2000,
and incorporated by reference herein)
10.6 Employees' 401(k) Plan and Trust, as amended. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
10.7 Agreement, dated July 31, 1997, between Advanstar
Communications Inc. and Banta Publications. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
21.1 Subsidiaries of Advanstar Communications, Inc.
74
SIGNATURES
Pursuant to the requirements of Section13 or 15(d) of the Exchange Act
of 1934, the registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ADVANSTAR COMMUNICATIONS, INC.
By: /s/ Robert Krakoff
-----------------------------------
Name: Robert Krakoff
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert L. Krakoff Chairman of the Board and April 12, 2001
---------------------------- Chief Executive Officer
Robert L. Krakoff
/s/ David W. Montgomery Vice President-Finance, Chief April 12, 2001
---------------------------- Financial Officer Secretary
David W. Montgomery and Principal Accounting
Officer
/s/ James M. Alic Director April 12, 2001
---------------------------
James M. Alic
/s/ OhSang Kwon Director April 12, 2001
---------------------------
OhSang Kwon
/s/ James A. Quella Director April 12, 2001
---------------------------
James A. Quella
Director April __, 2001
---------------------------
David M. Wittels
75