ADVANSTAR COMMUNICATIONS INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý		Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934.

		For the quarterly period ended: September 30, 2002

Commission File Number: 333-57201

Advanstar Communications Inc.
(Exact name of registrant as specified in its charter)

New York
(State or other jurisdiction of
incorporation or organization)

59-2757389
(I.R.S. Employer
Identification No.)

545 Boylston Street, Boston, Massachusetts
(Address of principal executive offices)

02116
(Zip Code)

Registrant's Telephone Number, Including Area Code: (617) 267-6500

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 ý No o

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

As of November 14, 2002, 1,000,000 shares of the Registrant's common stock were outstanding.

PART I Financial Information

Item 1. Financial Statements:

		Page in this Quarterly Report
	Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001	2
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended September 30, 2002 and 2001	3
	Condensed Consolidated Statements of Operations (unaudited) for the nine months ended September 30, 2002 and 2001	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2002 and 2001	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Qualitative and Quantitative Disclosure about Market Risk	33
Item 4.	Controls and Procedures	34
PART II Other Information
Item 4.	Submissions of Matters to a Vote of Security Holders	35
Item 6(a).	Exhibits	35
Item 6(b).	Reports on Form 8-K	35
	Signature	36

ADVANSTAR COMMUNICATIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

			September 30, 2002			December 31, 2001
			(Unaudited)			(Restated)
ASSETS
Current Assets
	Cash and cash equivalents		$	13,177		$	44,636
	Accounts receivable, net			23,245			22,891
	Prepaid expenses			7,507			11,402
	Other			1,064			1,648

		Total current assets		44,993			80,577
Property, plant and equipment, net				24,222			25,456
Intangible and other assets
	Goodwill, net			725,936			719,386
	Intangibles and other, net			138,199			175,360

		Total intangible and other assets		864,135			894,746

		Total assets	$	933,350		$	1,000,779

LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
	Current maturities of long-term debt		$	17,000		$	16,200
	Accounts payable			25,436			29,794
	Accrued liabilities			24,444			31,596
	Deferred revenue			25,189			54,049

		Total current liabilities		92,069			131,639
Long-term debt, net of current maturities				536,050			553,800
Deferred income taxes				6,623			16,157
Other long-term liabilities				4,566			4,525
Due to Parent				6,566			3,662
Minority interests				15,584			14,610
Commitments and contingencies
Stockholder's equity
	Common stock, $.01 par value; 40,000,000 shares authorized; 1,000,000 shares issued and outstanding at September 30, 2002 and December 31, 2001			10			10
	Capital in excess of par			387,367			350,175
	Accumulated deficit			(103,234	)		(67,807	)
	Accumulated other comprehensive loss			(12,251	)		(5,992	)

		Total stockholder's equity		271,892			276,386

		Total liabilities and stockholder's equity	$	933,350		$	1,000,779

See notes to condensed consolidated financial statements.

ADVANSTAR COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands—Unaudited)

			Three Months Ended September 30, 2002			Three Months Ended September 30, 2001
						(Restated)
Net revenue			$	81,399		$	80,778

Operating expenses:
	Costs of production			15,621			14,223
	Selling, editorial and circulation			27,080			29,625
	Funding of affiliated dot.com company operations (see Note 8)			379			—
	General and administrative			8,957			8,409
	Amortization of intangible assets			14,711			24,618
	Depreciation			2,484			2,217

		Total operating expenses		69,232			79,092

Operating income				12,167			1,686
Other income (expense):
	Interest expense, net			(12,871	)		(13,488	)
	Other income (expense), net			1,716			(352	)

Income (loss) before income taxes and minority interests				1,012			(12,154	)
Provision (benefit) for income taxes				190			(2,334	)
Minority interests				(1	)		420

Net income (loss)			$	821		$	(9,400	)

See notes to condensed consolidated financial statements.

ADVANSTAR COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands—Unaudited)

			Nine Months Ended September 30, 2002			Nine Months Ended September 30, 2001
Net revenue			$	254,119		$	284,906

Operating expenses:
	Costs of production			51,511			55,625
	Selling, editorial and circulation			89,605			112,718
	Funding of affiliated dot.com company operations (see Note 8)			39,095			—
	General and administrative			31,042			32,868
	Amortization of intangible assets			43,701			62,602
	Depreciation			6,971			6,752

		Total operating expenses		261,925			270,565

Operating income (loss)				(7,806	)		14,341
Other income (expense):
	Interest expense, net			(38,797	)		(41,680	)
	Other income (expense), net			3,974			1,108

Loss before income taxes and minority interests				(42,629	)		(26,231	)
Provision (benefit) for income taxes				(7,882	)		(5,019	)
Minority interests				(680	)		(328	)

Loss before extraordinary item and accounting change				(35,427	)		(21,540	)
Extraordinary item, net of tax				—			(2,556	)
Cumulative effect of accounting change, net of tax				—			(552	)

Net loss			$	(35,427	)	$	(24,648	)

See notes to condensed consolidated financial statements.

ADVANSTAR COMMUNICATIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands—Unaudited)

				Nine Months Ended September 30, 2002			Nine Months Ended September 30, 2001
							(Restated)
Operating Activities
	Net loss			$	(35,427	)	$	(24,648	)
	Adjustments to reconcile net loss to net cash provided by operating activities, excluding effects of acquisitions:
		Provision for notes and advances from affiliated dot.com company (see Note 8)			37,192			—
		Deferred income taxes			(9,534	)		(10,920	)
		Extraordinary item—early extinguishment of debt, net of taxes			—			2,556
		Unrealized (gain) loss on derivative financial instruments			(967	)		886
		Depreciation and amortization			50,672			69,354
		Non-cash interest			2,011			1,744
		Loss on sales of assets and other			670			433
		Changes in operating assets and liabilities			(33,876	)		(26,670	)

			Net cash provided by operating activities		10,741			12,735

Investing Activities
	Additions to property, plant and equipment				(5,705	)		(6,907	)
	Acquisition of publications and trade shows, net of cash acquired				(14,327	)		(14,535	)
	Increase in advances and notes due from affiliates				—			(15,437	)
	Proceeds from sale of assets and other				21			18

			Net cash used in investing activities		(20,011	)		(36,861	)

Financing Activities
	Net proceeds from (payments on) revolving credit facility				(5,000	)		34,000
	Borrowings of long-term debt				—			160,000
	Payments of long-term debt				(11,950	)		(195,000	)
	Long-term debt financing costs				(1,785	)		(9,001	)
	Dividends paid to minority interest holders				(503	)		—
	Proceeds from capital contributions				—			34,775

			Net cash provided by (used in) financing activities		(19,238	)		24,774
Effect of exchange rate changes on cash and cash equivalents					(2,951	)		(786	)
Net decrease in cash and cash equivalents					(31,459	)		(138	)
Cash and cash equivalents, beginning of period					44,636			17,675

Cash and cash equivalents, end of period				$	13,177		$	17,537

See notes to condensed consolidated financial statements.

ADVANSTAR COMMUNICATIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Advanstar Communications Inc. (Communications, or the Company) in accordance with the instructions to Form 10-Q and, therefore, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Management believes that all adjustments, consisting solely of normal recurring items, considered necessary for a fair presentation have been included, and that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements, however, should be read in conjunction with the audited financial statements and the related notes, included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002, which will be amended to reflect the restatement of the Company's results of operations for 2001. The results of operations for the three and nine month periods ended September 30, 2002 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2002.

Reclassifications

Certain reclassifications have been made to amounts reported in prior periods in order to conform to the current period presentation.

2. Restatement of Financial Information Relating to Goodwill and Intangible Assets

In connection with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," the Company determined that $71.7 million of goodwill arising from the acquisition of the Company's direct parent, Advanstar, Inc., in October 2000, and related to the operations of the reporting units comprising the company should have been pushed down from the parent to the financial statements of the Company. As a result, the financial statements have been restated to reflect the push down of this goodwill and related amortization expense from the acquisition date to the adoption of SFAS No. 142 effective January 1, 2002.

In addition, the Company has determined that the method of amortization of certain intangible assets acquired in the acquisition of the Company consisting of intangible assets related to trade exhibitor lists and advertiser lists, should reflect the pattern in which the economic benefit would be realized. Accordingly, amortization of the affected intangible assets which was recognized on a straight-line basis in 2001 and an accelerated basis in 2002 was adjusted to reflect accelerated methods which correspond to the Company's projections of future cash flows directly related to these intangible assets.

A summary of the restatement of previously issued financial information is as follows:

(in thousands)	As Previously Reported			As Restated
Balance Sheet at December 31, 2001
Goodwill, net of accumulated amortization	$	653,758		$	719,386
Intangibles and other, net of accumulated amortization		202,993			175,360
Deferred income tax liability		30,541			16,157
Minority interests		14,640			14,610
Capital in excess of par		278,425			350,175
Accumulated deficit		(45,194	)		(67,807	)
Accumulated other comprehensive income		(5,956	)		(5,992	)
Total stockholder's equity		227,285			276,386
Statement of Operations
Three Months Ended September 30, 2001
Amortization of intangible assets		15,059			24,618
Operating Income		11,245			1,686
Loss before income taxes and minority interests		(2,595	)		(12,154	)
Provision (benefit) for income taxes		1,926			(2,334	)
Minority interests		392			420
Net loss		(4,129	)		(9,400	)
Statement of Operations
Nine Months Ended September 30, 2001
Amortization of intangible assets		40,970			62,602
Operating income		35,973			14,341
Loss before income taxes and minority interests		(4,509	)		(26,231	)
Provision (benefit) for income taxes		5,901			(5,019	)
Minority interests		(374	)		(328	)
Loss before extraordinary item and accounting change		(10,784	)		(21,540	)
Net loss		(13,892	)		(24,648	)
Statement of Operations
Year Ended December 31, 2001
Amortization of intangible assets		53,530			85,949
Operating income (loss)		29,466			(2,953	)
Loss before income taxes and minority interests		(25,155	)		(57,664	)
Provision (benefit) for income taxes		—			(11,166	)
Minority interests		(186	)		(156	)
Loss before extraordinary item and accounting change		(25,341	)		(46,654	)
Net loss		(28,449	)		(49,762	)
Balance Sheet at December 31, 2000
Goodwill, net of accumulated amortization		748,320			818,770
Capital in excess of par		280,842			352,592
Accumulated deficit		(16,745	)		(18,045	)
Total stockholder's equity		265,011			335,461
Statement of Operations
For the period from October 12, 2000 through December 31, 2000
Amortization of intangible assets		12,711			14,011
Operating loss		(8,092	)		(9,392	)
Loss before income taxes and minority interests		(21,642	)		(22,942	)
Net loss		(16,745	)		(18,045	)

The adjustments to previously reported financial statements have no impact on net revenue or cash flows for any period, do not impact measurements of earnings before taxes, depreciation, amortization and taxes and have no impact on the Company's financial ratio covenants in its debt instruments.

As discussed in Note 3 related to the adoption of SFAS 142, the Company and its parent, Advanstar, Inc., completed an initial assessment of goodwill impairment. The assessment has indicated that there is the potential for a goodwill impairment charge related to our trade show segment. When we have completed the final measurement of the goodwill impairment, a charge will be recorded as the cumulative effect of an accounting change as of January 1, 2002. The Company expects to complete the impairment measurement process in the fourth quarter of 2002.

3. Goodwill and Intangible Assets

Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized. However, the Company is required to perform an initial impairment review of goodwill in 2002 and an annual impairment review thereafter, or more frequently if impairment indicators arise. Identified intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives, but with no maximum life.

During the second quarter 2002, the Company completed an initial assessment of goodwill impairment. The assessment indicated that there is the potential for a goodwill impairment charge related to our trade show segment which has an aggregate net book value of goodwill at December 31, 2001 of approximately $528.9 million. Preliminary valuations show that the carrying value of our trade show segment is in excess of its fair value by approximately $11.6 million. Consequently, there is the possibility for a material, non-cash impairment charge in the fourth quarter of 2002. Once final measurement of the goodwill impairment has been completed, the charge will be recorded as the cumulative effect of an accounting change as of January 1, 2002. The Company expects to complete the impairment measurement process in the fourth quarter of 2002.

Upon adoption of SFAS No. 142, the Company discontinued the amortization of goodwill. The following table represents a reconciliation of income before extraordinary item and accounting change and net income adjusted for the exclusion of goodwill amortization, net of tax (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2002		2001			2002			2001
			(As Restated)						(As Restated)
Reported income (loss) before extraordinary item and accounting change	$	821	$	(9,400	)	$	(35,427	)	$	(21,540	)
Add: goodwill amortization, net of tax		—		5,685			—			17,055

Adjusted income (loss) before extraordinary item and accounting change	$	821	$	(3,715	)	$	(35,427	)	$	(4,485	)

Reported net (loss) income	$	821	$	(9,400	)	$	(35,427	)	$	(24,648	)
Add: goodwill amortization, net of tax		—		5,685			—			17,055

Adjusted net income (loss)	$	821	$	(3,715	)	$	(35,427	)	$	(7,593	)

The changes in the carrying amount of goodwill for the nine months ended September 30, 2002, by operating segment, are as follows (in thousands):

	Trade Shows and Conferences		Trade Publications			Marketing Services			Totals
Balance as of December 31, 2001	$	557,109	$	131,932		$	30,345		$	719,386
Goodwill acquired during the period (final purchase price allocations completed)		7,586		(697	)		(339	)		6,550

Balance as of September 30, 2002	$	564,695	$	131,235		$	30,006		$	725,936

During the first quarter of 2002 we completed the acquisitions of the AIIM International Exposition and Conference and the First Global Media Group with a cumulative purchase price totaling approximately $12.4 million in cash and assumed liabilities. We have accounted for our acquisitions under the purchase method of accounting and our results of operations include the effect of these acquisitions from the date of purchase. Certain of the liabilities assumed and the identified intangible assets in connection with the 2001 and 2002 acquisitions have been recorded based on preliminary estimates as of the dates of acquisition and are subject to adjustment upon completion of the allocation of the purchase price. The pro forma operating results of the acquisitions are not material to our operating results.

Trade exhibitor and advertiser lists are amortized on an accelerated basis over six and five years, respectively, while subscriber lists and other intangible assets are amortized on a straight-line basis over three to 10 years and consist of the following as of September 30, 2002 and December 31, 2001 (in thousands):

	September 30, 2002			December 31, 2001
				(Restated)
Trade exhibitor lists	$	161,410		$	160,318
Advertiser lists		34,530			33,302
Subscriber lists		23,423			22,339
Other intangible assets		6,071			3,529
Other assets		22,417			20,582

		247,851			240,070
Accumulated amortization		(109,652	)		(64,710	)

Total intangible and other assets, net	$	138,199		$	175,360

Estimated amortization expense of identified intangible assets for the next five years are as follows (in thousands):

2002	$	60,657
2003		41,984
2004		25,283
2005		17,394
2006		12,203

4. Derivative Financial Instruments

Effective January 1, 2001, the Company adopted Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which required derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivative

financial instruments must be recognized currently in earnings unless specific hedge accounting criteria are met. For those instruments which meet the hedging criteria, gains and losses will be recognized in other comprehensive income rather than in earnings.

The Company's adoption of FAS 133 on January 1, 2001 resulted in a reduction in income of approximately $0.6 million, net of tax, reported as a cumulative effect of accounting change and a reduction to other comprehensive income of approximately $0.2 million, net of tax.

The Company uses derivative instruments to manage exposure to interest rate and foreign currency risks. The Company's objectives for holding derivatives are to minimize the risks using the most effective methods to eliminate or reduce the impact of these exposures.

Interest Rate Risk

Variable rate debt instruments are subject to interest rate risk. The Company has entered into interest rate collar agreements with remaining maturities of up to 17 months to manage its exposure to interest rate movements on a portion of its variable rate debt obligations. The effective portion of the cumulative gain or loss on these derivative instruments is reported as a component of accumulated other comprehensive income in stockholder's equity and is recognized in earnings as the underlying interest expense is incurred. The ineffective portion of the interest rate collar agreements is recognized in current earnings.

Foreign Currency Risk

Certain forecasted transactions are exposed to foreign currency risk. Foreign currencies hedged are the Euro, British Pound Sterling and the Brazilian Real. Forward contracts are used to manage the exposure associated with forecasted international revenue transactions for up to twelve months in the future and are designated as cash flow hedging instruments. Changes in fair value of these instruments are reported as a component of accumulated other comprehensive income in stockholder's equity and are recognized in earnings as the underlying revenue is recognized. Forward contracts not designated as hedging instruments under SFAS No. 133 are also used to manage the impact of the variability in exchange rates. Changes in the fair value of these foreign exchange contracts are recognized in current earnings.

At September 30, 2002, the Company had foreign exchange derivative contracts to sell with a notional amount totalling $0.7 million and to buy totalling $0.5 million. The estimated fair value of the foreign exchange contracts based upon market quotes was a net liability of $0.1 million at September 30, 2002.

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the effects of FAS 133 on the Company's accumulated other comprehensive income as of September 30, 2002 (in thousands):

	Interest Rate Collar Agreements			Foreign Exchange Contracts			Total
Accumulated other comprehensive income (loss) balance at December 31, 2001	$	(4,189	)	$	5		$	(4,184	)
Unwound from accumulated other comprehensive Income (loss) during the period		5,574			(5	)		5,569
Mark to market of hedge contracts		(5,750	)		—			(5,750	)

Accumulated other comprehensive income (loss) balance at September 30, 2002	$	(4,365	)	$	—		$	(4,365	)

The fair value of the Company's derivatives was a net liability position of $6.9 million and $7.7 million at September 30, 2002 and December 31, 2001, respectively, of which $4.7 million and $6.6 million is included in accrued liabilities at September 30, 2002 and December 31, 2001, respectively, and $2.2 million and $1.1 million is included in other long-term liabilities at September 30, 2002 and December 31, 2001, respectively, in the accompanying condensed consolidated balance sheets.

Statement of Operations

The following tables summarize the effects of FAS 133 on the Company's statement of operations for the three and nine month periods ended September 30, 2002 and 2001 (in thousands):

	Interest Rate Collar Agreements			Foreign Exchange Contracts			Total
Three months ended September 30, 2002
Other income (expense)	$	80		$	60		$	140

Total statement of operations impact before taxes	$	80		$	60		$	140

Three months ended September 30, 2001
Other income (expense)	$	(674	)	$	(221	)	$	(895	)

Total statement of operations impact before taxes	$	(674	)	$	(221	)	$	(895	)

	Interest Rate Collar Agreements			Foreign Exchange Contracts		Total
Nine months ended September 30, 2002
Other income (expense)	$	368		$	599	$	967

Total statement of operations impact before taxes	$	368		$	599	$	967

Nine months ended September 30, 2001
Other income (expense)	$	(423	)	$	409	$	(14	)

Total statement of operations impact before taxes	$	(423	)	$	409	$	(14	)

5. Debt

Credit Facility

The senior credit facility (the Credit Facility) consists of (i) $415 million of term loans payable in quarterly installments beginning March 31, 2001 and continuing through October 11, 2008 and (ii) $80 million of revolving loan availability. As of September 30, 2002, the Company had approximately $48.4 million of borrowings available under the Credit Facility, subject to customary conditions. The Credit Facility contains a number of covenants that, among other things, require 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 Credit Facility.

Borrowings under the Credit Facility are collateralized by substantially all of the Company's assets. In addition, as of September 30, 2002, the Company has interest rate protection agreements for a notional amount of $150 million that effectively guarantee that the Company's interest rate on $150 million of the Company's Credit Facility will not exceed 10.17 percent, nor be less than 9.0 percent. The net interest paid or received is included in interest expense. At September 30, 2002, the estimated fair value of the interest rate protection agreements was a net liability position to the Company of approximately $6.9 million.

Senior Subordinated Notes

On January 9, 2001, the 9.25 percent senior subordinated notes due in 2008 (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. The premium paid on the tender of the Notes of approximately $1.0 million, net of related tax benefits, is reflected as an extraordinary item in the accompanying 2001 condensed consolidated statement of operations.

On February 21, 2001, the Company issued $160.0 million of unsecured, 12 percent Series B senior subordinated notes due 2011 (the Replacement Notes). Interest on the Replacement Notes is payable semiannually on February 15 and August 15 of each year commencing on August 15, 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 the remaining unamortized deferred financing costs of approximately $1.6 million, net of related tax benefits, which is reflected as an extraordinary item in the accompanying 2001 consolidated statement of operations.

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 approximately $68.6 million and warrants to purchase shares of common stock of its parent, Advanstar Holdings Corp. (Holdings), for consideration of approximately $34.8 million. Advanstar, Inc.

contributed the proceeds from the issuance of the Discount Notes to the Company. 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 Credit Facility. The contribution of the proceeds from the Discount Notes by Advanstar, Inc. to the Company was treated as a capital contribution.

Long-term debt consists of the following (in thousands):

	September 30, 2002			December 31, 2001
Term loan A, interest at LIBOR plus 3.25%; 5.07% at September 30, 2002, due quarterly through April 11, 2007	$	78,750		$	89,200
Term loan B, interest at LIBOR plus 4.00%; 5.82% September 30, 2002, due quarterly through October 11, 2008		280,800			280,800
Revolving credit loan, interest at LIBOR plus 3.25%; 5.07% at September 30, 2002, due April 11, 2007		29,000			34,000
Senior subordinated notes at 12.00%, due 2011		160,000			160,000
Acquisition note payable, interest at 5.50%, due monthly through 2004		4,500			6,000

		553,050			570,000
Less- Current maturities		(17,000	)		(16,200	)

	$	536,050		$	553,800

The Company's credit facility contains certain financial covenants, including a minimum fixed charge coverage ratio and a maximum leverage ratio. Additionally, certain financial covenants under the Replacement Notes include a maximum leverage ratio, limitations on certain asset dispositions, payments, debt incurrence, dividends and other restricted payments. In March 2002, the Company obtained an amendment to the Credit Facility providing for certain revisions to the quarterly financial covenants applicable in 2002 and 2003. The Company was in compliance with all covenants as of September 30, 2002.

6. Comprehensive Income

The tables below present comprehensive loss, defined as changes in the equity of the Company excluding changes resulting from investments by and distributions to shareholders (in thousands):

	Three Months Ended September 30, 2002			Three Months Ended September 30, 2001
				(Restated)
Net income (loss)	$	821		$	(9,400	)
Change in cumulative translation adjustment		(4,986	)		(1,302	)
Change in unrealized losses on derivative financial Instruments, net of taxes		(1,202	)		(4,915	)

Comprehensive loss	$	(5,367	)	$	(15,617	)

	Nine Months Ended September 30, 2002			Nine Months Ended September 30, 2001
				(Restated)
Net income (loss)	$	(35,427	)	$	(24,648	)
Change in cumulative translation adjustment		(6,078	)		(4,471	)
Change in unrealized losses on derivative financial Instruments, net of taxes		(181	)		(7,464	)

Comprehensive loss	$	(41,686	)	$	(30,583	)

7. Segment Information

	Trade Shows and Conferences		Trade Publications		Marketing Services		Corporate and Other		Totals
			(In thousands)
Three months ended September 30, 2002
Revenues	$	46,988	$	30,567	$	3,651	$	193	$	81,399
Contribution margin		28,120		8,304		1,464		810		38,698
Segment assets		666,799		176,173		31,837		58,541		933,350
Three months ended September 30, 2001 (Restated—See Note 2)
Revenues	$	42,797	$	33,757	$	3,780	$	444	$	80,778
Contribution margin		26,473		7,581		1,904		972		36,930
Segment assets		664,662		190,396		30,305		79,371		964,734

	Trade Shows and Conferences		Trade Publications		Marketing Services		Corporate and Other		Totals
			(In thousands)
Nine months ended September 30, 2002
Revenues	$	145,387	$	96,290	$	11,322	$	1,120	$	254,119
Contribution margin		78,907		26,739		5,032		2,325		113,003
Segment assets		666,799		176,173		31,837		58,541		933,350
Nine months ended September 30, 2001 (Restated—See Note 2)
Revenues	$	162,471	$	109,130	$	12,426	$	879	$	284,906
Contribution margin		81,783		26,921		6,169		1,690		116,563
Segment assets		664,662		190,396		30,305		79,371		964,734

Contribution margin is defined as net revenue less cost of production and selling, editorial and circulation costs.

The reconciliation of total segment gross profit to consolidated pre-tax income (loss) is as follows (in thousands):

	Three Months Ended September 30, 2002			Three Months Ended September 30, 2001
				(Restated)
Total segment contribution margin	$	38,698		$	36,930
General and administrative		(8,957	)		(8,409	)
Funding of affiliated dotcom company operations		(379	)		—
Depreciation and amortization		(17,195	)		(26,835	)
Interest expense		(12,871	)		(13,488	)
Other income (expense), net		1,716			(352	)

Consolidated income (loss) before taxes and minority interests	$	1,012		$	(12,154	)

	Nine Months Ended September 30, 2002			Nine Months Ended September 30, 2001
				(Restated)
Total segment contribution margin	$	113,003		$	116,563
General and administrative		(31,042	)		(32,868	)
Funding of affiliated dotcom company operations		(39,095	)		—
Depreciation and amortization		(50,672	)		(69,354	)
Interest expense		(38,797	)		(41,680	)
Other income (expense), net		3,974			1,108

Consolidated income (loss) before taxes and minority interests	$	(42,629	)	$	(26,231	)

8. Related-Party Transactions

Relationship with Advanstar.com, Inc.

Advanstar.com, Inc. (Advanstar.com), an affiliate of the Company, operates the Company's event and publication-related web sites and develops certain enhanced web opportunities to serve the Company's customers in selected industries. The Company provides Advanstar.com with certain administrative support services and charges for these services based on a general overhead charge. In addition, selected sales, editorial, marketing and production staff of the Company are shared with Advanstar.com. 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. In return, Advanstar.com provides support on its web sites for the Company's trade publications and trade shows.

In the third quarter of 2001, certain events, including the slowdown in the economy, the changing business environment and continuing operating losses of Advanstar.com, caused management of Advanstar, Inc. to consider certain transactions between its two sister subsidiaries, the Company and Advanstar.com, to satisfy the outstanding advances and notes due to the Company from Advanstar.com. Accordingly, through December 31, 2001 the Company accounted for these advances and notes to Advanstar.com as a charge to capital in excess of par value in the accompanying consolidated balance sheet, pending final determination of the disposition of these advances and notes.

In the first quarter of 2002, management of Advanstar, Inc. began to consider the further consolidation of the activities of Advanstar.com with the Company, or a merger of Advanstar.com into

the Company. Consequently, the Company recorded a first quarter non-cash charge of $37.2 million related to a provision against the outstanding advances and notes due to the Company from Advanstar.com as of December 31, 2001.

In 2002 the Company began recording the advances and notes issued during the current year as an operating expense on the Company's condensed consolidated statement of operations, as a reflection of the ongoing nature of the operations of Advanstar.com in support of the Company's operations as a result of the restructuring of the activities of Advanstar.com in 2001. Net advances and notes during the three and nine month period ended September 30, 2002 were approximately $0.4 million and $1.9 million, respectively.

Financial Advisory Fees and Agreements

Credit Suisse First Boston Corporation (CSFB), an affiliate of the DLJ Merchant Banking funds, acted as the Company's financial advisor in connection with the issuance of, and was an initial purchaser of, the Replacement Notes and the Discount Notes. The Company paid customary fees to CSFB as compensation for those services. DLJ Capital Funding, an affiliate of the DLJ Merchant Banking funds, received customary fees and reimbursement of expenses in connection with the bridge financing. The aggregate amount of all fees paid to the CSFB entities in connection with these financings during 2001 was approximately $7.3 million, plus out-of-pocket expenses.

Advanstar Holdings Corp. has agreed to pay CSFB an annual advisory fee of $0.5 million, 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 16²/3% of the shares of Holdings' common stock held by them on the closing date of the acquisition and (3) October 11, 2005. Payment of the advisory fee will be dependent upon the receipt of dividends from its subsidiaries, including the Company.

Parent Company Notes

As part of the financing for the Acquisition, our parent, Advanstar, Inc., issued the Discount Notes with a principal amount at maturity of $103.2 million. Concurrently with the closing of the offering of the Replacement Notes, Advanstar, Inc. sold additional senior discount notes due October 2011 with an additional aggregate principal amount at maturity of $68.6 million. These notes do not require cash interest payments until 2006. Neither we nor any of our subsidiaries guaranteed the senior discount notes. Advanstar, Inc., however, is a holding company and its ability to pay interest on these senior discount notes will be dependent upon the receipt of dividends from its subsidiaries, including the Company. The credit facility and the Replacement Notes impose substantial restrictions on our subsidiaries' ability to pay dividends.

9. New Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. FAS 144 retains and expands upon the fundamental provisions of existing guidance related to the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale. Generally, the provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The Company has adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not impact the results of operations or financial position of the Company for the three or nine month period ended September 30, 2002.

In May 2002, the FASB issued Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). SFAS No. 145 rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". SFAS No. 145 also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". SFAS No. 145 amends FASB Statement No. 13, "Accounting for Leases", to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is generally effective for fiscal years beginning after May 15, 2002. The Company has not adopted SFAS No. 145. The adoption of SFAS No. 145 is not expected to have a significant impact of the results of operations or financial position of the Company, but in accordance with the transition provisions will result in the Company's fiscal 2001 extraordinary item being reclassified in the statement of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a significant impact of the results of operations or financial position of the Company.

10. 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 Mens Apparel Guild In California, Inc. (MAGIC) and Applied Business TeleCommunications, Inc. (ABC). The subsidiary guarantors and the non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries of the Company. The condensed consolidated 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 consolidated financial statements presented are more meaningful in understanding the financial position of the guarantors and management has determined that such information is not material to investors.

There are no significant restrictions on the ability of the subsidiary guarantors to make distributions to the Company.

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating balance sheets
As of September 30, 2002
(in thousands—unaudited)

			Communications			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Elimination			Consolidated Total
ASSETS
Current assets:
	Cash and cash equivalents		$	6,426		$	—		$	6,751		$	—		$	13,177
	Accounts receivable, net			20,178			39			3,028			—			23,245
	Prepaid expenses			3,729			1,378			2,400			—			7,507
	Intercompany receivable (payable)			(205,804	)		173,578			32,226			—			—
	Other			1,219			(220	)		65			—			1,064

		Total current assets		(174,252	)		174,775			44,470			—			44,993
Noncurrent assets:
	Property, plant and equipment, net			22,252			943			1,027			—			24,222
	Intangible and other assets, net			470,473			318,962			74,700			—			864,135
	Investments in subsidiaries			572,963			—			—			(572,963	)		—

			$	891,436		$	494,680		$	120,197		$	(572,963	)	$	933,350

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
	Current maturities of long-term debt		$	17,000		$	—		$	—		$	—		$	17,000
	Accounts payable			14,189			6,553			4,694			—			25,436
	Deferred revenue			18,440			1,547			5,202			—			25,189
	Accrued liabilities			17,210			6,446			788			—			24,444

		Total current liabilities		66,839			14,546			10,684			—			92,069
Long term debt, net of current maturities				536,050			—			—			—			536,050
Deferred income taxes and other long-term liabilities				(18,407	)		29,293			303			—			11,189
Due to parent				12,441			(5,875	)		—			—			6,566
Minority interests				14,734			—			850			—			15,584
Stockholder's equity:
	Common stock			10			3			483			(486	)		10
	Capital in excess of par value			387,367			438,117			123,465			(561,582	)		387,367
	Accumulated deficit			(103,234	)		18,596			(7,701	)		(10,895	)		(103,234	)
	Accumulted other comprehensive income			(4,364	)		—			(7,887	)		—			(12,251	)

		Total stockholder's equity		279,779			456,716			108,360			(572,963	)		271,892

			$	891,436		$	494,680		$	120,197		$	(572,963	)	$	933,350

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Three months ended September 30, 2002
(in thousands—unaudited)

			Communications			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Net revenue			$	43,392		$	31,104	$	6,903		$	—		$	81,399
Operating expenses:
	Cost of production and selling, editorial and circulation			26,528			10,147		6,026			—			42,701
	General and administrative			7,174			355		1,428			—			8,957
Funding of affiliated dot.com company operations				379			—		—			—			379
	Depreciation and amortization			9,242			7,188		765			—			17,195

		Total operating expenses		43,323			17,690		8,219			—			69,232

Operating income (loss)				69			13,414		(1,316	)		—			12,167
Other income (expense):
	Interest expense, net			(12,926	)		—		55			—			(12,871	)
	Other income (expense), net			182			—		1,534			—			1,716

Income (loss) before income taxes and minority interests				(12,675	)		13,414		273			—			1,012
Provision (benefit) for income taxes				(4,422	)		4,695		(83	)		—			190
Minority interests				(124	)		—		123			—			(1	)
Equity in earnings of subsidiaries				8,908			—		—			(8,908	)		—

		Net income (loss)	$	531		$	8,719	$	479		$	(8,908	)	$	821

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Nine months ended September 30, 2002
(in thousands—unaudited)

			Communications			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Net revenue			$	163,581		$	62,919	$	27,619		$	—		$	254,119
Operating expenses:
	Cost of production and selling, editorial and circulation			100,734			20,557		19,825			—			141,116
	General and administrative			25,849			1,193		4,000			—			31,042
Funding of affiliated dot.com company operations				39,095			—		—			—			39,095
	Depreciation and amortization			26,547			21,629		2,496			—			50,672

		Total operating expenses		192,225			43,379		26,321			—			261,925

Operating income (loss)				(28,644	)		19,540		1,298			—			(7,806	)
Other income (expense):
	Interest expense, net			(38,341	)		—		(456	)		—			(38,797	)
	Other income (expense), net			1,453			—		2,521			—			3,974

Income (loss) before income taxes and minority interests				(65,532	)		19,540		3,363			—			(42,629	)
Provision (benefit) for income taxes				(16,369	)		6,839		1,648			—			(7,882	)
Minority interests				(102	)		—		(578	)		—			(680	)
Equity in earnings of subsidiaries				13,838			—		—			(13,838	)		—

		Net income (loss)	$	(35,427	)	$	12,701	$	1,137		$	(13,838	)	$	(35,427	)

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of cash flows
Nine months ended September 30, 2002
(in thousands—unaudited)

				Communications			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Operating activities:
	Net income (loss)			$	(35,427	)	$	12,701		$	1,137		$	(13,838	)	$	(35,427	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities-
		Provision for notes and advances from affiliated dot.com company			37,192			—			—			—			37,192
		Deferred income taxes			(12,826	)	$	3,292			—			—			(9,534	)
		Equity in earnings of subsidiaries			(13,838	)		—			—			13,838			—
		Unrealized (gain) loss on derivative financial instruments			(967	)		—			—			—			(967	)
		Depreciation and amortization			26,547			21,629			2,496			—			50,672
		Non-cash interest			2,011			—			—			—			2,011
		Loss on sales of assets and other			98			—			572			—			670
		Change in operating assets and liabilities			6,310			(37,378	)		(2,808	)		—			(33,876	)

			Net cash provided by operating activities		9,100			244			1,397			—			10,741

	Investing activities:
		Additions to property, plant and equipment			(5,082	)		(244	)		(379	)		—			(5,705	)
		Acquisitions of publications and trade shows, net of proceeds			(12,773	)		—			(1,554	)		—			(14,327	)
		Proceeds from sale of assets and other			10			—			11			—			21

			Net cash provided used in investing activities		(17,845	)		(244	)		(1,922	)		—			(20,011	)

	Financing activities:
		Payments of long-term debt, net			(16,950	)		—			—			—			(16,950	)
		Deferred financing costs			(1,785	)		—			—			—			(1,785	)
		Dividends paid to minority interest holders			—			—			(503	)		—			(503	)

			Net cash provided by (used in) financing activities		(18,735	)		—			(503	)		—			(19,238	)
	Effect of exchange rate changes on cash				—			—			(2,951	)		—			(2,951	)

	Net increase (derease) in cash and cash equivalaents				(27,480	)		—			(3,979	)		—			(31,459	)
	Cash and cash equivalents, beginning of period				33,906			—			10,730			—			44,636

	Cash and cash equivalents, end of period			$	6,426		$	—		$	6,751		$	—		$	13,177

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating balance sheets
As of December 31, 2001
(in thousands—unaudited)
(Restated)

			Communications			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Elimination			Consolidated Total
ASSETS
Current assets:
	Cash and cash equivalents		$	33,906		$	—	$	10,730			—		$	44,636
	Accounts receivable, net			20,049			63		2,779			—			22,891
	Prepaid expenses			6,202			2,511		2,689			—			11,402
	Intercompany receivable (payable)			(148,162	)		153,827		(5,665	)		—			—
	Other			(2,483	)		171		3,960			—			1,648

		Total current assets		(90,488	)		156,572		14,493			—			80,577
Noncurent assets:
	Property, plant and equipment, net			23,299			1,042		1,115			—			25,456
	Intangible and other assets, net			477,175			340,246		77,325			—			894,746
	Investments in subsidiaries			523,878			—		—			(523,878	)		—

			$	933,864		$	497,860	$	92,933		$	(523,878	)	$	1,000,779

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
	Current maturities of long-term debt		$	16,200		$	—	$	—		$	—		$	16,200
	Accounts payable			20,883			2,609		6,302			—			29,794
	Deferred revenue			25,750			21,657		6,642			—			54,049
	Accrued liabilities			24,147			6,161		1,288			—			31,596

		Total current liabilities		86,980			30,427		14,232			—			131,639
Long term debt, net of current maturities				553,800			—		—			—			553,800
Deferred income taxes and other Long-term liabilities				(3,184	)		23,418		448			—			20,682
Due to parent				3,662			—		—			—			3,662
Minority interest				14,412			—		198			—			14,610
Shareholder's equity:
	Common stock			10			3		475			(478	)		10
	Capital in excess of par value			350,175			438,117		88,226			(526,343	)		350,175
	Acclumulated deficit			(67,807	)		5,895		(8,838	)		2,943			(67,807	)
	Accum other comprehensive income			(4,184	)		—		(1,808	)		—			(5,992	)

		Total shareholder's equity		278,194			444,015		78,055			(523,878	)		276,386

			$	933,864		$	497,860	$	92,933		$	(523,878	)	$	1,000,779

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Three months ended September 30, 2001
(in thousands—unaudited)
(Restated)

			Communications			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Net revenue			$	39,960		$	33,643	$	7,175		$	—		$	80,778
Operating expenses:
	Cost of production and selling, editorial and circulation			29,834			7,872		6,142			—			43,848
	General and administrative			6,681			364		1,364			—			8,409
	Depreciation and amortization			12,898			12,310		1,627			—			26,835

		Total operating expenses		49,413			20,546		9,133			—			79,092
Operating income (loss)				(9,453	)		13,097		(1,958	)		—			1,686
Other income (expense):
	Interest expense, net			(13,171	)		—		(317	)		—			(13,488	)
	Other income (expense), net			(763	)		—		411			—			(352	)

Income (loss) before income taxes and minority interests				(23,387	)		13,097		(1,864	)		—			(12,154	)
Provision (benefit) for income taxes				(8,279	)		5,016		929			—			(2,334	)
Minority interests				144			—		276			—			420
Equity in (loss) of subsidiaries				5,564			—		—			(5,564	)		—

		Net income (loss)	$	(9,400	)	$	8,081	$	(2,517	)	$	(5,564	)	$	(9,400	)

ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Condensed consolidating statements of operations
Nine months ended September 30, 2001
(in thousands—unaudited)
(Restated)

			Communications			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Net revenue			$	182,306		$	69,443	$	33,157		$	—		$	284,906
Operating expenses:
	Cost of production and selling, editorial and circulation			121,683			19,755		26,905			—			168,343
	General and administrative			27,243			927		4,698			—			32,868
	Depreciation and amortization			37,662			26,604		5,088			—			69,354

		Total operating expenses		186,588			47,286		36,691			—			270,565
Operating income (loss)				(4,282	)		22,157		(3,534	)		—			14,341
Other income (expense):
	Interest expense, net			(40,677	)		—		(1,003	)		—			(41,680	)
	Other income (expense), net			(188	)		—		1,296			—			1,108

Income (loss) before income taxes and minority interests				(45,147	)		22,157		(3,241	)		—			(26,231	)
Provision (benefit) for income taxes				(14,668	)		6,790		2,859			—			(5,019	)
Minority interests				118			—		(446	)		—			(328	)
Equity in (loss) of subsidiaries				8,821			—		—			(8,821	)		—

Income (loss) before extraordinary item and accounting change				(21,540	)		15,367		(6,546	)		(8,821	)		(21,540	)
Extraordinary item				(2,556	)		—		—			—			(2,556	)
Cumulative effect of accounting change				(552	)		—		—			—			(552	)

		Net income (loss)	$	(24,648	)	$	15,367	$	(6,546	)	$	(8,821	)	$	(24,648	)

ADVANSTAR COMMUNICATIONS INC. AMD SUBSIDIARIES
Condensed condolidating statements of cash flows
Nine months ended September 30, 2001
(in thousands—unaudited)
(Restated)

				Communications			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Elimination			Consolidated Total
Operating activities:
	Net income (loss)			$	(24,648	)	$	15,367		$	(6,546	)	$	(8,821	)	$	(24,648	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Deferred income tax			—			(10,920	)		—						(10,920	)
		Equity in earnings of subsidiaries			(8,821	)		—			—			8,821			—
		Extraordinary item-early extinguishment of debt			2,556			—			—			—			2,556
		Unrealized (gain) loss on derivative financial			886			—			—			—			886
		Depreciation and amortization			37,662			26,604			5,088			—			69,354
		Non-cash interest			1,744			—			—			—			1,744
		Loss on sales of assets and other			(110	)		—			543						433
		Change in operating assets and liabilities			(2,164	)		(30,168	)		5,662			—			(26,670	)

			Net cash provided by operating activities		7,105			883			4,747			—			12,735

	Investing activities:
		Additions to property, plant and equipment			(5,792	)		(884	)		(231	)		—			(6,907	)
		Acquisitions of publications and trade shows, net of proceeds			(13,845	)		—			(690	)		—			(14,535	)
		Increase in advances and notes due from affiliate			(15,437	)		—			—			—			(15,437	)
		Proceeds from sale of assets and other			18			—			—			—			18

			Net cash used in investing activities		(35,056	)		(884	)		(921	)		—			(36,861	)

	Financing activities:
		Payments of long-term debt, net			(1,000	)		—			—			—			(1,000	)
		Proceed from capital contributions and other			34,775			—			—			—			34,775
		Deferred financing costs			(9,001	)		—			—			—			(9,001	)

			Net cash provided by (used in) financing activities		24,774			—			—			—			24,774
	Effect of exchange rate changes on cash				—			—			(786	)		—			(786	)

	Net increase (decrease) in cash and cash equivalents				(3,177	)		(1	)		3,040			—			(138	)
	Cash and cash equivalents, beginning of period				10,736			1			6,938			—			17,675

	Cash and cash equivalents, end of period			$	7,559		$	—		$	9,978		$	—		$	17,537

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations:

This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned not to place undue reliance on these forward-looking statements, including statements about plans and objectives of management and market growth and opportunity. These forward-looking statements are neither promises or guarantees and involve risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements. You should not expect that these forward-looking statements will be updated or supplemented as a result of changing circumstances or otherwise, and we disavow and disclaim any obligation to do so. Important cautionary statements and risk factors that would affect actual results are discussed in the Company's periodic reports and registration statements filed with the Securities and Exchange Commission, including those under the caption entitled "Certain Factors Which May Affect Future Results" in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2002.

General

We are a worldwide provider of integrated, business-to-business 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 approximately 57% of total revenue in each of the nine month periods ended September 30, 2002 and 2001, respectively. Trade publications accounted for approximately 38% of total revenue in each of the nine month periods ended September 30, 2002 and 2001, respectively, while marketing services accounted for approximately 5% of total revenue in each of the nine month periods ended September 30, 2002 and 2001. Our revenue reaches its highest levels during the first and third quarters of the year primarily due to the timing of the MAGIC trade shows and our other large trade shows and conferences. In comparing results between years, we may experience fluctuations in quarterly revenue based on the movement of trade show dates from one quarter to another because trade show and conference revenue is recognized when a particular event is held.

Recent Developments

Our business and results of operations in 2002 have been significantly impacted by the recession in the U.S. economy, particularly in our Information Technology & Communications trade shows and publications and our Travel & Hospitality publications. The events of September 11, 2001 also impacted our results in 2002 particularly our trade shows, including cancellations and reductions in attendance at certain of our events. We are seeing early indications of stabilization in advertising in many of our markets, except for continuing downward pressure in our technology and travel markets. For the third quarter, advertising revenue and pages increased 0.9% and 2.6%, respectively, over the same period last year across all our sectors other than our travel and technology markets. Despite these early

indications, the economic outlook in the publishing sector continues to be challenging, and forward visibility on our advertising revenue and pages is limited, due to the concerns of our customers related to the overall business environment. Our trade show segment continues to be negatively impacted by the economic recession, particularly in our technology sectors, with reductions in booth space and attendance compared to the same period last year. We expect any improvement in the performance of our trade show segment to lag behind any general economic recovery as it lagged the downturn in the economy going into recession beginning in late 2000.

In response to the decline in revenues throughout 2001 and into 2002, we implemented early and aggressive cost management actions, including the layoff of staff, reductions in travel and other operating costs, and reorganization of certain support functions and processes. Between January 2001 and September 2002 we reduced our overall headcount by 241or 16.4% across all functions in our company. Through these cost initiatives, we were able to mitigate the effect of the decline in revenue on our operating results for the third quarter and the first nine months of 2002.

The persistence of the general economic slowdown in the U.S. will likely result in continued weakness in overall marketing and advertising expenditures by our customers into 2003. As a result, we expect our revenues and EBITDA to reflect this overall weakness. However, we believe that our balanced portfolio between trade shows and publications and our diversification of these products across many industry sectors may mitigate the overall impact from continued weakness in general economic conditions and reduce potential volatility of any one sector.

Funding of Advanstar.com

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. In return, Advanstar.com provides promotional support on its web sites for our trade publications and trade shows.

In 2001, our parent, Advanstar, Inc., more tightly focused 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 our core activities in publishing, trade shows, and marketing services. As a result of the reorganization and redirection of the activities of Advanstar.com during 2001, there has been a significant reduction in the levels of funding by the Company to Advanstar.com during 2002 and management anticipates this will continue in subsequent periods. We funded approximately $1.9 million in support of those operations in the first nine months of 2002 compared to approximately $15.4 million in the first nine months of 2001. This level of support represents a significant reduction in the operating costs of Advanstar.com from those in 2001.

In the third quarter of 2001, certain events, including the slowdown in the economy, the changing business environment and continuing operating losses of Advanstar.com, caused management of Advanstar, Inc. to consider certain options between its two sister subsidiaries, the Company and Advanstar.com, to satisfy the outstanding advances and notes due to the Company from Advanstar.com. Accordingly, through December 31, 2001 the Company accounted for these advances and notes to Advanstar.com as a charge to capital in excess of par value in the accompanying consolidated balance sheet, pending final determination of the disposition of these advances and notes.

In the first quarter of 2002, management of Advanstar, Inc. began to consider the further consolidation of the activities of Advanstar.com with the Company, or a merger of Advanstar.com into the Company. Consequently, the Company recorded a first quarter non-cash charge of $37.2 million related to a provision against the outstanding advances and notes due to the Company from Advanstar.com as of December 31, 2001.

In the first quarter of 2002 the Company began recording the advances and notes issued during the quarter as an operating expense on the Company's condensed consolidated statement of operations, as a reflection of the ongoing nature of the operations of Advanstar.com in support of the Company's operations as a result of the restructuring of the activities of Advanstar.com in 2001. Net advances and notes during the three and nine month periods ended September 30, 2002 were approximately $0.4 million and $1.9 million, respectively.

Presentation of Financial Information

Acquisitions

Our business strategy includes the consummation of strategic acquisitions. In connection with this strategy, we completed the following acquisitions:

•: From January 1, 2001 through December 31, 2001 we purchased the outstanding minority interests in Advanstar Wideband (our License magazine), several automotive industry magazines and the TechLearn conference for a cumulative purchase price totaling $14.3 million in cash and assumed liabilities. We also financed a portion of the acquisition of the Techlearn conference with a $6.0 million note payable. In addition, we contributed SeCA to a 65% owned joint venture and recorded a minority interest of $6.3 million representing the minority stockholder's proportional share of the joint venture's equity at its formation date.
•: From January 1, 2002 through September 30, 2002 we completed the acquisitions of the AIIM International Exposition and Conference and the First Global Media Group with a cumulative purchase price totaling approximately $12.4 million in cash and assumed liabilities.

We account for our acquisitions under the purchase method of accounting and our results of operations include the effect of these acquisitions from the date of purchase. The pro forma operating results of the acquisitions are not material to our operating results.

Refinancing related to the DLJ Acquisition

During the first quarter of 2001, we recorded an extraordinary charge of approximately $2.6 million, net of a deferred tax benefit of approximately $1.5 million, in connection with the refinancing of the 9.25% senior subordinated notes with the 12.00% senior subordinated notes and the concurrent offering of additional senior discount notes. See Note 5 in the Notes to our Condensed Consolidated Financial Statements included within this report for further details.

Sources of Revenue

Trade Shows and Conferences

Our trade shows and conferences derive revenue principally from the sale of exhibit space and conference attendance fees generated at the events. For the nine months ended September 30, 2002, approximately 86% 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 some of our trade shows, a portion of exhibit space is reserved and partial payment is received as much as a year in advance. 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

Our trade publications derive 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.

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.

Our trade show and publishing properties operate in many different markets and industries which are subject to economic conditions prevalent in those industries. Accordingly, net revenues may fluctuate in connection with the markets in which we operate.

Components of Expenses

Trade Shows and Conferences

Costs incurred by our trade shows and conferences include facility rent, outsourced services such as registration, security, 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 our trade publications 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.

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.

Significant Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to bad debts, intangible assets and income taxes. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of

which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We apply the following critical accounting policies in the preparation of our consolidated financial statements:

Revenue Recognition. We recognize revenue as discussed in the "Sources of Revenue" section above.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Deferred Taxes. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Similarly, should we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax asset would reduce income in the period such determination was made.

Amortization of intangible Assets. We amortize intangible assets on a basis which corresponds to our projections of future cash flows directly related to these intangible assets.

Impairment of Long-Lived Assets. We evaluate the recoverability of our identifiable intangible assets, and other long-lived assets in accordance with SFAS No. 144 which requires us to assess these assets for recoverability when events or circumstances indicate a potential impairment by estimating the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. We use the fair value method to assess our goodwill on at least an annual basis. Impairments will be recorded in income from continuing operations.

On January 1, 2002, Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142) became effective for the Company and as a result, we ceased amortizing approximately $721.2 million of goodwill. We had recorded approximately $28.0 million of amortization on these amounts during 2001. In lieu of amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter.

During the second quarter 2002, the Company completed an initial assessment of goodwill impairment. The assessment has indicated that there is the potential for a goodwill impairment charge related to our trade show segment, which has an aggregate net book value of goodwill of approximately $528.9 million. Preliminary valuations show that the carrying value of our trade show segment is in excess of its fair value by approximately $11.6 million. Consequently, there is the possibility for a material, non-cash impairment charge in the fourth quarter of 2002. Once final measurement of the goodwill impairment has been completed, the charge will be recorded as the cumulative effect of an accounting change as of January 1, 2002. We expect to complete the impairment measurement process in the fourth quarter of 2002.

Restatement of Financial Information Relating to Goodwill and Intangible Assets

In connection with our initial assessment of goodwill impairment for purposes of FAS 142, we determined that $71.7 million of goodwill should have been pushed down to, and reflected in, our financial statements. This goodwill arose from the October 2000 acquisition of Advanstar, Inc. and

relates to the operations of our reporting units. As a result, our financial statements have been restated to reflect the push down of this goodwill and the related amortization expense from the acquisition date to the adoption of FAS 142 effective January 1, 2002.

In addition, we have determined that the method of amortization of certain intangible assets acquired in the acquisition of our company consisting of intangible assets related to trade exhibitor lists and advertiser lists, should reflect the pattern in which the economic benefit would be realized. Accordingly, amortization of the affected intangible assets which was recognized on a straight-line basis in 2001 and an accelerated basis in 2002 was adjusted to reflect accelerated methods which correspond to the Company's projections of future cash flows directly related to these intangible assets.

While the adjustments to previously reported financial statements increase our net loss for the period from October 12, 2000 through December 31, 2000 and for the year ended December 31, 2001, these adjustments have no impact on net revenue or cash flows for any period, do not impact measurements of EBITDA (defined below) and have no impact on the financial ratio covenants in our debt instruments. We intend to amend our prior filings on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002 as well as its Form 10-K for the year ended December 31, 2001 to reflect the restatement of our results of operations for 2001 and for the period from October 12, 2000 through December 31, 2000. See Note 2 in the Notes to our Condensed Consolidated Financial Statements for a summary of the restatement of certain previously issued financial information relating to goodwill and intangible assets.

Selected Financial Data

The following table sets forth selected statements of operations and other financial data.

We define "EBITDA" as operating income plus amortization and depreciation less amounts attributable to minority interest. EBITDA does not represent, and should not be considered to be, an alternative to net income or cash flow from operations as determined in accordance with GAAP, and our calculation thereof may not be comparable to that reported by other companies. We believe that EBITDA provides useful information regarding our ability to service and/or incur indebtedness and is used by many other companies. Our key financial covenants under our existing credit facility, which impact the amount of indebtedness we are permitted to incur, are based, in part, on our EBITDA. EBITDA does not take into account our working capital requirements, debt service requirements and other commitments. Accordingly, EBITDA is not necessarily indicative of amounts that may be available to us for discretionary uses.

"Adjusted EBITDA" is defined as EBITDA excluding the provision for notes and advances due from Advanstar.com. We believe that "Adjusted EBITDA" is a useful supplement to net income in understanding cash flows generated from operations that are available for taxes, debt service and capital expenditures, as it excludes the one-time non-cash provision in the first quarter of 2002 for notes and advances due from Advanstar.com.

To calculate EBITDA for the nine months ended September 30, 2002 and 2001, we adjusted operating income by $(1.0) million, respectively, to reflect minority interest. The adjustment for the three month period ended September 30, 2002 and 2001 was not material.

			Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)			Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)			2002			2001			2002			2001
						(Restated)						(Restated)
Net revenue:
	Trade shows and conferences		$	46,988		$	42,797		$	145,387		$	162,471
	Publications			30,567			33,757			96,290			109,130
	Marketing services and other			3,844			4,224			12,442			13,305

		Total net revenues		81,399			80,778			254,119			284,906
Cost of production and selling:
	Trade shows and conferences			18,838			16,324			66,480			80,688
	Publications			22,263			26,176			69,551			82,209
	Marketing services and other			1,600			1,348			5,085			5,446

		Total cost of production and selling		42,701			43,848			141,116			168,343
Funding of affiliated dot.com company operations				379			—			39,095			—
General and administrative expenses				8,957			8,409			31,042			32,868
Depreciation and amortization				17,195			26,835			50,672			69,354

		Operating income (loss)		12,167			1,686			(7,806	)		14,341
Other income (expense):
	Interest expense, net			(12,871	)		(13,488	)		(38,797	)		(41,680	)
	Other income (expense)			1,716			(352	)		3,974			1,108
Provision (benefit) for income taxes				190			(2,334	)		(7,882	)		(5,019	)
Minority interests				(1	)		420			(680	)		(328	)

Income (loss) before extraordinary item and accounting change			$	821		$	(9,400	)	$	(35,427	)	$	(21,540	)

EBITDA			$	29,322		$	28,547		$	41,908		$	82,669
Provision for notes and advances from affiliated dot.com company				—			—			37,192			—

Adjusted EBITDA			$	29,322		$	28,547		$	79,100		$	82,669

Results of Operations

Three Months Ended September 30, 2002 Compared to the Three Months Ended September 30, 2001

Net Revenue

Total net revenue increased $0.6 million, or 0.8%, to $81.4 million in the third quarter of 2002 from $80.8 million for the third quarter of 2001.

Net revenue from trade shows and conferences increased $4.2 million, or 9.7%, to $47.0 million for the third quarter of 2002 from $42.8 million in the third quarter of 2001. This increase was primarily attributable to a shift in the timing of when events take place and the launch of several conferences, partially offset by the continued effect of the economic downturn on our 2002 events, particularly in our technology and fashion sectors. Revenue from our fall MAGIC event, our largest trade show held in the third quarter, declined approximately 7.5% from the third quarter last year, which was held before the events of September 11, 2001. Revenue for the fall Magic event, however, increased 3.3% over the spring 2002 Magic event and attendance increased approximately 8.4% over attendance at the

spring MAGIC event. The downturn in the U.S. economy continued to impact revenue in our trade shows due to our customers' concern over its ongoing impact on their marketing efforts. Revenue for the quarter was impacted by a net shift in the timing of six trade shows. One was held in the first quarter of 2001, but moved to the third quarter of 2002 and five events were held in the fourth quarter of 2001, but moved to the third quarter of 2002. Adjusting the third quarter 2001 for timing shifts, third quarter 2002 trade show revenue declined by $5.6 million or 10.6%.

Net revenue from publications and marketing services declined $3.6 million, or 9.4%, to $34.4 million for the third quarter of 2002 from $38.0 million in 2001. Advertising pages decreased approximately 9.4% across our portfolio. The decline was concentrated heavily in our technology and travel sectors, which continue to slump due to the condition of the technology markets and the disruptions in the travel industry which began on September 11 and which continues to be impacted by poor economic conditions for the hospitality industry. These declines were partially offset by revenue from several product launches in the pharmaceutical and health care sectors and several acquisitions in the motor vehicle sector. Excluding our travel and technology sectors, advertising pages increased 2.6% with related revenue growing 0.9%. Despite early indications of stability in the publishing sector, the economic outlook continues to be challenging, and forward visibility on our advertising revenue and pages is limited, due to the concerns of our customers related to the overall business environment.

Cost of Production and Selling

Cost of production and selling expenses declined $1.1 million, or 2.6%, to $42.7 million for the third quarter of 2002 from $43.8 million for the comparable period of 2001.

Expenses of trade shows and conferences increased $2.5 million, or 15.4%, to $18.8 million for the third quarter of 2002 from $16.3 million in 2001. This increase was primarily due to the shift in the timing of when events take place and additional investment in our MAGIC trade shows, partially offset by the discontinuation of several events in our technology sector and aggressive cost management on staff and discretionary direct trade show costs. During the quarter we also received an insurance recovery of $2.4 million related to losses resulting from the events of September 11. Adjusting third quarter 2001 results for movements of events between quarters, trade show and conference expenses in 2002 declined $3.1 million.

Expenses of publication and marketing services declined $3.6 million, or 13.3%, to $23.9 million in the third quarter of 2002 from $27.5 million in the third quarter of 2001. This decline was due primarily to savings attributable to our ongoing cost reduction programs and a 13.9% reduction in paper costs. These cost savings were partially offset by increased costs related to publications acquired in 2002.

Funding of Affiliated Company Operations

In the first quarter of 2002 we recorded a non-cash charge of $37.2 million related to recording a provision against the outstanding advances and notes due to us from Advanstar.com as of December 31, 2001.

We began recording the advances and notes issued during 2002 as an operating expense on our condensed consolidated statement of operations, as a reflection of the ongoing nature of the operations of Advanstar.com in support of our operations resulting from the restructuring of the activities of Advanstar.com in 2001. We funded approximately $0.4 million in support of those operations in the third quarter of 2002 compared to $3.0 million in the third quarter of 2001. This level of support represents a significant reduction in the operating costs of Advanstar.com from 2001 levels.

General and Administrative Expenses

General and administrative expenses increased $0.5 million, or 6.5%, to $9.0 million in the third quarter of 2002 from $8.4 million in the third quarter of 2001. This increase was primarily due to the change in timing of certain bonus compensation accruals as a result of declining revenue in 2001 compared to 2002. This period over period increase was partially offset by administrative staff reductions in 2002 of approximately 5.9%

Depreciation and Amortization

Depreciation and amortization expense decreased $9.6 million to $17.2 million in the third quarter of 2002 from $26.8 million in the third quarter of 2001 primarily due to the adoption in January 2002 of SFAS No. 142, "Goodwill and Other Intangible Assets", and the effect of the declining balance method of accelerated amortization on our exhibitor and advertiser lists. Upon adoption of SFAS No. 142 we discontinued the amortization of goodwill. Excluding goodwill amortization recorded during the third quarter of 2001, depreciation and amortization for the third quarter of 2002 decreased $3.3 million.

Interest Expense, Net

Net interest expense declined $0.6 million, or 4.6%, in the third quarter of 2002 to $12.9 million from $13.5 million in the third quarter of 2001 due to a decrease in our weighted average interest rate.

Approximately $165.0 million of our total debt is at a fixed rate through coupon rates on our senior subordinated notes with an additional $150.0 million covered by our interest rate protection agreements. While we do not anticipate a significant change in interest rates in the near term, a 100 basis point increase in interest rates on variable rate debt would have resulted in an increase in interest expense for the quarter of $1.0 million.

Other Income (Expense)

Other income increased $2.1 million in the third quarter of 2002 to $1.7 million from an expense of $0.4 million in the third quarter of 2001. We recognized a non-cash gain of approximately $0.1 million in the third quarter of 2002 related to our foreign currency and interest rate hedging activities, compared to a non-cash loss of approximately $0.9 million in the comparable period of 2001. During the third quarter of 2002 we also recognized a non-cash foreign exchange gain of $1.4 million, compared to $0.4 million in the third quarter of 2001.

Provision (Benefit) for Income Taxes

Advanstar recorded tax expense (provision) of approximately $0.2 million during the three-month period ended September 30, 2002 compared to a tax benefit of $2.3 million for the same period in 2001. Tax expense recorded in the third quarter of 2002 is the result of reducing the 2002 effective tax benefit rate and establishing a valuation allowance against deferred tax assets.

Adjusted EBITDA

Adjusted EBITDA increased $0.8 million, or 2.7%, to $29.3 million in the third quarter of 2002 from $28.5 million in the third quarter of 2001. The increase was due primarily to a shift in the timing of when events take place, the insurance recovery received during the quarter and the effect of our on-going cost reduction programs, partially offset by a $0.4 million charge related to current funding of our affiliated dot.com company's operations. Adjusting third quarter results for the net shift in the timing of trade shows, 2002 Adjusted EBITDA declined by $3.1 million or 9.5%.

Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2001

Net Revenue

Total net revenue declined $30.8 million, or 10.8%, to $254.1 million in the first nine months of 2002 from $284.9 million for the comparable period of 2001.

Net revenue from trade shows and conferences declined $17.1 million, or 10.5%, to $145.4 million for the first nine months of 2002 from $162.5 million in the same period of 2001. This decrease was attributable to declines in our technology sector which continues to suffer from the overall technology market slump; we held three fewer events in our iEB internet group in the U.S., Europe and Brazil; and our fashion sector, which was impacted by the effects of September 11 on our spring MAGIC event along with a difficult apparel retail business environment and by a continuing lagging economy on our Fall Magic event. Year-to-date revenue from our MAGIC events declined 10.3% from last year. The fall MAGICevent increased revenue 3.3% over the spring MAGIC event. These declines were partially offset by revenue from our AIIM acquisition. Revenue for the nine months ended September 30, 2002 was also impacted by a shift in the timing of five trade shows held 2001 but not scheduled in the first nine months of 2002. Adjusting nine months 2001 results for this movement, trade show revenue for the first nine months of 2002 declined $24.0 million or 14.2%.

Net revenue from publications and marketing services declined $13.7 million, or 11.2%, to $108.7 million for the first nine months of 2002 from $122.4 million in 2001. Advertising pages for the first nine months of 2002 declined approximately 8.1% across our portfolio. The page decline was heavily concentrated in our technology and travel sectors. Advertising pages increased 0.8% across all sectors other than technology and travel. These declines were partially offset by revenue from several product launches in the pharmaceutical and health care sectors and acquisitions in the motor vehicle sector.

Cost of Production and Selling

Cost of production and selling expenses declined $27.2 million, or 16.2%, to $141.1 million for the first nine months of 2002 from $168.3 million for the comparable period of 2001.

Expenses of trade shows and conferences declined $14.2 million, or 17.6%, to $66.5 million for the first nine months of 2002 from $80.7 million in 2001. This decrease was due to cost savings related to holding fewer events, primarily in our technology sector, including three events in our iEB internet group and aggressive cost management activities affecting direct trade show related costs and staffing. These cost savings were partially offset by increased costs related to our AIIM acquisition, the launch of several events and the shift in the timing of when events take place. During the third quarter we also received an insurance recovery of $2.4 million related to 2001 event interruption losses resulting from the events of September 11. Adjusting nine months 2001 results for movements of events between quarters, trade show and conference expenses in 2002 declined $18.3 million or 21.6%.

Expenses of publication and marketing services declined $13.1 million, or 14.9%, to $74.6 million in the first nine months of 2002 from $87.7 million in 2001. This decrease was due primarily to savings attributable to our ongoing cost reduction programs and a reduction in paper costs, partially offset by increased costs related to acquired publications in our motor vehicle sector and product launches. Printing and postage pricing remained stable during the period with paper costs declining approximately 15.0% since January 2002 due to excess industry capacity and low demand. We expect paper prices to experience upward pressure over the next 12 months as economic recovery increases global demand.

Funding of Affiliated Company Operations

In the first quarter of 2002, management of Advanstar, Inc. began to consider the further consolidation of the activities of Advanstar.com with the Company, or a merger of Advanstar.com into the Company. Consequently, in response to the changing business environment and continuing operating losses of Advanstar.com, the Company recorded a first quarter non-cash charge of $37.2 million related to a provision against the outstanding advances and notes due to the Company from Advanstar.com as of December 31, 2001.

The Company also began recording the advances and notes issued during 2002 as an operating expense on our condensed consolidated statement of operations, as a reflection of the ongoing nature of the operations of Advanstar.com in support of our operations resulting from the restructuring of the activities of Advanstar.com in 2001. We funded approximately $1.9 million in support of those operations in the first nine months of 2002 compared to approximately $15.4 million in the first nine months of 2001. This level of support represents a significant reduction in the operating costs of Advanstar.com from those in 2001.

General and Administrative Expenses

General and administrative expenses declined $1.9 million, or 5.6%, to $31.0 million in the first nine months of 2002 from $32.9 million in the comparable period of 2001. This decrease is primarily attributable to our ongoing cost and headcount reduction programs. In response to the decline in revenues throughout 2001 and into 2002, we implemented early and aggressive cost management actions, including staff reductions of approximately 8.6%, reductions in travel and other operating costs, and reorganization of certain support functions and processes.

Depreciation and Amortization

Depreciation and amortization expense decreased $18.7 million to $50.7 million in the first nine months of 2002 from $69.4 million in the first nine months of 2001 primarily due to the adoption in January 2002 of SFAS No. 142, "Goodwill and Other Intangible Assets", and the effect of the declining balance method of accelerated amortization on our exhibitor and advertiser lists, partially offset by additional amortization related to acquisitions. Upon adoption of SFAS No. 142 we discontinued the amortization of goodwill. Excluding goodwill amortization recorded during the nine months ended September 30, 2001, depreciation and amortization for the nine months ended September 30, 2002 increased $1.6 million.

Interest Expense, Net

Net interest expense declined $2.9 million, or 6.9%, to $38.8 million in the first nine months of 2002 from $41.7 million in 2001 due to a decrease in our weighted average interest rate, partially offset by the additional indebtedness necessary to fund the DLJ Acquisition in October 2000. In February 2001, we replaced our then outstanding $150.0 million 9.25% senior subordinated notes with $160.0 million 12.00% senior subordinated notes.

Other Income (Expense)

Other income increased $2.9 million to $4.0 million in the first nine months of 2002 from $1.1 million in 2001. We recognized a non-cash gain of approximately $1.0 million in the first nine months of 2002 related to our foreign currency and interest rate hedging activities. We also recognized a non-cash foreign exchange gain of approximately $2.6 million in 2002 compared to a gain of approximately $0.8 million in 2001.

Provision (Benefit) for Income Taxes

Advanstar recorded tax benefit of approximately $7.9 million during the nine-month period ended September 30, 2002 compared to a tax benefit of $5.0 million for the same period in 2001. Tax benefit recorded in the first three quarters of 2002 is the result of reducing the 2002 effective tax benefit rate and establishing a valuation allowance against deferred tax assets.

Adjusted EBITDA

Adjusted EBITDA declined $3.6 million, or 4.3%, to $79.1 million in the first nine months of 2002 from $82.7 million in the first nine months of 2001. The decrease was due primarily to a reduction in revenue and a $1.9 million charge related to current funding of our affiliated dot.com company's operations, partially offset by savings in our corporate overhead structure as part of an on-going cost reduction program and the insurance recovery received during the third quarter of 2002. We continue to aggressively manage and reduce costs in response to declines in revenue in order to sustain our Adjusted EBITDA margins which are 31.1% for the first nine months of 2002 compared to 29.0% for the same period last year. Adjusting first nine months 2001 results for the shift in the timing of trade shows, 2002 Adjusted EBITDA declined by $6.5 million or 7.6%.

Liquidity and Capital Resources

Since the DLJ Acquisition, our principal sources of liquidity have been cash flow from operations and borrowings under our credit facility and our principal uses of cash have been the debt service requirements of our indebtedness described below, capital expenditures and strategic acquisitions. As of September 30, 2002, we had total indebtedness of $553.1 million and approximately $48.4 million of borrowings available under our revolving credit facility. We repaid $5.0 million on the revolving credit facility during the second quarter of 2002.

Credit facility. The term loan facility under the credit facility consists of a $100.0 million amortizing term loan A maturing April 11, 2007 and a $315.0 million amortizing term loan B maturing October 11, 2008. The credit facility also includes an $80.0 million revolving credit facility. The revolving credit facility will terminate in April 2007. The credit facility may be increased by up to $50.0 million at our request, with the formal prior consent of the lenders or other financial institutions providing the increase. However, there can be no assurance that this consent will be obtained. In February 2001, we repaid $10.8 million of term loan A and $34.2 million of term loan B at the closing of the issuance of our 12.00% Series B senior subordinated notes due 2011(the Replacement Notes).

Borrowings under the credit facility generally bear interest based on a margin over, at our option, the base rate or the reserve-adjusted London-interbank offered rate (LIBOR). 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 credit facility, and the applicable margin for term loan B is 4.00% over LIBOR and 2.75% over the base rate. Our obligations under the credit facility are guaranteed by Advanstar Holdings Corp., our ultimate 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 Advanstar, Inc., 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 Advanstar Holdings Corp. The credit facility contains covenants and events of default that, among other things, limit our ability to incur debt, pay dividends and make investments.

In March 2002, we sought and obtained an amendment to the Credit Facility which provided for certain revisions to our quarterly financial covenants in 2002 and 2003. As of September 30, 2002 we were in compliance with these financial covenants.

Replacement Notes. The Replacement Notes mature in 2011 and are guaranteed by each of our existing and future domestic restricted subsidiaries. Interest on the Replacement Notes is payable semi-annually in cash. The Replacement Notes contain covenants and events of default that, among other things, limit our ability to incur debt, pay dividends and make investments. As of September 30, 2002, we were in compliance with these covenants.

Parent company notes. As part of the financing for the Acquisition, our parent, Advanstar, Inc., issued senior discount notes due October 2011 (the Discount Notes) with a principal amount at maturity of $103.2 million. Concurrently with the closing of the offering of the Replacement Notes, Advanstar, Inc. sold additional senior discount notes due October 2011 with an additional aggregate principal amount at maturity of $68.6 million. These Discount Notes do not require cash interest payments until 2006 and contain covenants and events of default that, among other things, limit the ability of Advanstar, Inc. and its subsidiaries (including the Company) to incur debt, pay dividends and make investments. Neither we nor any of our subsidiaries guaranteed the Discount Notes. Advanstar, Inc., however, is a holding company and its ability to pay interest on these Discount Notes will be dependent upon the receipt of dividends from its subsidiaries, including the Company.

Contractual and contingent obligations. Our contractual obligations are set forth below (in millions):

		Payment due by Period
Contractual Obligation		Less Than 1 Year		1 to 3 Years		Over 3 Years
Indebtedness (excluding interest)		$	17.0	$	53.4	$	482.7
Operating leases			5.8		12.6		12.6

	Total	$	22.8	$	66.0	$	495.3

Our contingent obligations are primarily composed of $2.6 million of letters of credit and our interest rate and foreign currency derivatives discussed more fully below in Item 3—Qualitative and Quantitative Disclosure About Market Risk

Capital expenditures. Capital expenditures in the first nine months of 2002 were approximately $5.7 million compared to $6.9 million in the same period last year. We anticipate that we will spend between $7.0 and $8.0 million on capital expenditures in 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 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 $1.9 million in the first nine months of 2002 and anticipate that we will provide approximately $0.6 million of additional funding in 2002. Our debt instruments limit the total amount we can invest in

Advanstar.com. Based on current estimates, we anticipate that we will be able to make these investments within those limitations.

Our business strategy includes the consummation of strategic 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 longstanding strategy, we continue to pursue potential acquisitions of complementary businesses.

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.

On a relative basis, our revenue reaches its highest levels during the first and third quarters of the year largely due to the timing of the MAGIC trade shows and our other large trade shows and conferences. This seasonality, when combined with the shift in the timing of when events take place from year to year, may have a significant effect on our quarterly working capital.

We anticipate that our operating cash flow, together with borrowings under the credit facility, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service and other 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.

Historically, our financing requirements have been funded primarily through cash generated by operating activities and borrowings under our revolving credit facility. From time to time, we have also raised additional funds through sales of common stock, high yield offerings and term borrowings under our credit facility for purposes of completing strategic acquisitions.

Cash flows from operating activities. Net cash provided by operations decreased $2.0 million to $10.7 million in 2002 from $12.7 million in 2001. The decrease was primarily due to reduction in operating results, an increase in cash interest expense of $2.8 million and a reduction in our working capital deficit, partially offset by a reduction in taxes paid of $3.0 million related to a federal tax refund received in 2002.

Cash flows used in investing activities. Net cash used in investing activities declined $16.9 million to $20.0 million in 2002, from $36.9 million in 2001. This decline was principally due to decreased funding of Advanstar.com and reduced capital expenditures as a result of our on-going cost reduction program.

Cash flows from financing activities. Net cash used by financing activities increased $44.0 million to $19.2 million in 2002, from a source of cash of $24.8 million in 2001. This increase was principally due to approximately $17.0 million of payments on our long-term debt and financing costs related to the amendment to our senior credit agreement during the first quarter of 2002. In 2001 we refinanced the Replacement Notes (as more fully discussed above) and made additional borrowings under our operating line of credit during the first nine months of 2001.

New Accounting Pronouncements

Item 3. Qualitative and Quantitative Disclosure about Market Risk

We are exposed to various market risks, which is 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 Rates. We rely significantly on variable rate and fixed rate debt in our capital structure. At September 30, 2002, we had fixed rate debt of $165.0 million and variable rate debt of $388.6 million. The pre-tax earnings and cash flows impact for the next year resulting from a 100 basis point increase in interest rates on variable rate debt would be a reduction of pre-tax earnings of $2.9 million for the nine months ended September 30, 2002, holding other variables constant and excluding the impact of our interest rate protection agreements. Under the 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 Replacement Notes to be fixed-rate borrowings. We have entered into agreements to cap the interest rate on $150.0 million of borrowings under our 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 (loss). 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 September 30, 2002, there were open foreign exchange derivative contracts to sell with a notional amount totaling $0.7 million and to buy with a notional amount totaling $0.5 million. The estimated fair value of the foreign exchange contracts based upon market quotes was a net liability of approximately $0.1 million. The potential loss in fair value resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates amounts to an additional loss of approximately $0.2 million. Actual results may differ.

Item 4. Controls and Procedures

(a): Evaluation of disclosure controls and procedures.

The Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures as of a date within 90 days before the filing date of this quarterly report. Based on this evaluation, they concluded that, as of the evaluation date, the disclosure controls and procedures were adequate and effective and designed to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared.

(b): Changes in internal controls.

There have been no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to the evaluation of the internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II Other Information

Item 4. Submissions of Matters to a Vote of Security Holders.

None

Item 6. Exhibits and Reports on Form 8-K

Item 6(a). Exhibits

99.1—CEO's Certificate Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

99.2—CFO's Certificate Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

Item 6(b). Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			Advanstar Communications Inc.
	November 14, 2002		/s/ DAVID W. MONTGOMERY David W. Montgomery Vice President-Finance, Secretary and Chief Financial Officer (Principal Financial Officer and Authorized Representative of the Registrant)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert L. Krakoff, certify that:

(1)

I have reviewed this quarterly report on Form 10-Q of Advanstar Communications Inc.;

(2)

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

(4)

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5)

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

(a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

(6): The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By:		/s/ ROBERT L. KRAKOFF Robert L. Krakoff Chief Executive Officer

Date: November 14, 2002

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David W. Montgomery, certify that:

(1)

I have reviewed this quarterly report on Form 10-Q of Advanstar Communications Inc.;

(2)

(3)

(4)

(a): Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
(b): Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c): Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

(5)

(a): All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
(b): Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

(6): The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

By:		/s/ DAVID W. MONTGOMERY David W. Montgomery Chief Financial Officer

Date: November 14, 2002

Exhibit Index

Exhibit No.		Document
99.1		CEO's Certificate Pursuant to §906 of the Sarbanes-Oxley Act of 2002.
99.2		CFO's Certificate Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

QuickLinks

PART I Financial Information

Item 1. Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Qualitative and Quantitative Disclosure about Market Risk

Item 4. Controls and Procedures

PART II Other Information

Item 4. Submissions of Matters to a Vote of Security Holders.

Item 6. Exhibits and Reports on Form 8-K

Item 6(a). Exhibits

Item 6(b). Reports on Form 8-K