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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITIONAL REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934. For the Fiscal Year Ended: December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934. For the transition period from to
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Commission File Number: 333-57201
ADVANSTAR, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3243499
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 267-6500
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
$150,000,000 Principal Amount of 9 1/4% Senior Subordinated Notes Due 2008
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 30, 2000 was $0.
As of March 30, 2000, 33,630,000 shares of the Registrant's common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None applicable.
PART I
ITEM 1. BUSINESS
GENERAL
Advanstar, Inc. was incorporated in the State of Delaware on April 11, 1996
as AHI Holding Corp. AHI Holding Corp. changed its corporate name to Advanstar
Holdings, Inc. in a merger with its wholly-owned subsidiary Advanstar Holdings,
Inc. on June 10, 1998 and changed its corporate name to Advanstar, Inc. on March
17, 1999. Advanstar was purchased on May 31, 1996 by HFCP III (as defined
below), a private equity investment fund with committed equity capital of
approximately $1.5 billion. To date, HFCP III has invested $177.0 million of
equity in Advanstar. Except where the context otherwise requires, the terms
"Advanstar," "the Company," "our company" and "we," as used in this Annual
Report on Form 10-K (the "Annual Report "), refer collectively to "Advanstar,
Inc.," its direct and indirect subsidiaries and predecessors as a combined
entity, and the term "HFCP III" refers to Hellman & Friedman Capital Partners
III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III,
L.P., collectively.
THE COMPANY
Advanstar provides 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, directories, guides and reference books.
Additionally, Advanstar is a provider of business-to-business content and
services over the Internet, operating 79 web sites and is developing online
communities and exchanges based upon its current core product base. As of
December 31, 1999, we owned and managed 86 trade shows and 15 conferences for
business and professional audiences worldwide and published 67 specialized
business magazines and professional journals and 36 directories and other
publications.
We serve a number of industry sectors in North America, Latin America,
Europe and Asia. We market our broad range of products and services
in certain niche markets of the following industry clusters in which we believe
we have developed scale and expertise:
. Fashion & Apparel,
. Travel & Hospitality,
. Specialty Retail,
. Information Technology & Communications,
. Manufacturing & Processing and
. Healthcare, Science & Pharmaceuticals.
In addition to the six clusters above, we have grouped the industry sectors
in which we provide products and services but do not have a significant industry
presence into a Market Development cluster. In this cluster in 1999, we
produced two trade shows and 11 publications, provided marketing services and
operated four web sites.
Within each of these clusters, we operate trade shows and publications
targeted at businesses or professionals in specific or niche market segments. In
each of our niche markets, many of the same customers advertise in our
publications, exhibit at our trade shows and use our marketing services to reach
their buyers. We believe this cluster structure allows us to cross-sell our
products and services to capture a larger share of our customers' marketing
budgets.
TRADE SHOWS AND CONFERENCES. In 1999, we held 101 events (an event is a
stand-alone trade show or conference) for business, professional and consumer
audiences worldwide. For example, in our Fashion & Apparel cluster, we produce
MAGIC, a trade show for the men's apparel industry; WWDMAGIC, a women's apparel
show in the United States; INTERNATIONAL FASHION BOUTIQUE SHOW, a women's
apparel and accessories show; STYLE INDUSTRIE, an upscale designer clothing
show; MAGICKids and INTERNATIONAL FASHION KIDS SHOWS, children's apparel shows;
and INTERNATIONAL FASHION FABRIC TRADE SHOW, a fabric and textiles show for the
apparel industry. In our Specialty Retail cluster, we produce ARTEXPO NEW YORK,
a mid-market art show in the United States; IBS NEW YORK, an exhibition and
educational event on the East Coast for the beauty salon market; LICENSING
INTERNATIONAL, a trade show targeting the merchandise licensing industry
worldwide; and DEALERNEWS INTERNATIONAL POWERSPORTS DEALER EXPO, a U.S.
motorcycle accessories aftermarket trade show. In our Information Technology &
Communications cluster we hold TELEXPO, a telecommunications trade show in Latin
America; iEC, Interent and Electronic Commerce Conference and Exhibition, a
trade show and conference serving the market for electronic commerce through the
internet; ON DEMAND DIGITAL PRINTING AND PUBLISHING CONFERENCES AND EXPOS,
events for the digital print and publishing markets in the U.S. and Europe; and
INCOMING CALL CENTER MANAGEMENT CONFERENCE & EXHIBITION, a U.S. trade show and
conference for the call center market. Trade shows and conferences in our other
clusters include SCANTECH, a U.S. event for the automatic data capture,
identification and tracking systems market; and ABILITIES EXPOS,
consumer-oriented events serving individuals with disabilities.
PUBLICATIONS. In 1999, we published 103 publications (a publication is a
magazine, newsletter directory or other publication). Our largest magazines
include TRAVEL AGENT, a trade publication directed to travel agents in the
travel industry; VIDEO STORE, a magazine serving the retail video rental and
sell through market; Pharmaceutical Technology, a publication focussing on the
needs of pharmaceutical scientists, engineers and operations managers; HOTEL &
MOTEL MANAGEMENT, targeting the hospitality and lodging management segment of
the travel industry; POST, a publication for post production professionals in
the film and video industry; and AMERICAN SALON, a magazine directed to the hair
and beauty salon market.
MARKETING SERVICES. Within each cluster, as a value-added supplement to our
trade shows, conferences and publications, we offer our customers a variety of
marketing services, such as classified advertising, direct mail services,
reprints, database marketing, directories, guides and reference books to support
their business-to-business marketing communications programs. Our marketing
services, particularly our direct mail services and directories, reinforce our
efforts to cross-sell our events and publications and, we believe, further our
goal of providing our customers "one-stop shopping" for their
business-to-business marketing communications needs.
INTERNET. We operate over 79 web sites which provide an interactive
component of our core products. These web sites promote our trade shows,
conferences and publications as well as our marketing services. Most of our web
sites either enable exhibitors and attendees to register on-line for our trade
shows and conferences or permit prospective readers to subscribe on-line to our
controlled circulation publications. In addition, many of our web sites provide
attendees of our trade shows and conferences and readers of our publications the
opportunity to receive additional product information through links to our
customer's web sites. In late 1999, we began a development and launch program to
extend our market communities to the online environment of the Internet and
deepen our involvement in the commercial transactions within these communities.
This development program includes strategic alliances with developers of
Web-based e-commerce software and operators of Web community and exchange sites.
Since May 31, 1996, Advanstar has completed 26 acquisitions and joint
ventures, 14 of which were completed in 1998 and 4 of which were completed in
1999. On April 30, 1998, we acquired Men's Apparel Guild in California, Inc.
("MAGIC") for approximately $234.3 million (the "MAGIC Acquisition"). MAGIC is a
wholly-owned subsidiary of Advanstar and a core asset of our Fashion & Apparel
cluster. On August 17, 1998, we acquired certain travel-related publications and
trade show assets ("Travel Agent") from Universal Media, Inc. for cash
consideration of $68.0 million (the "Travel Agent Acquisition"). In addition, in
1998, we completed 12 other acquisitions or joint ventures (collectively, the
"Other Acquisitions") with purchase prices ranging from approximately $0.6
million to approximately $20.0 million and aggregating approximately $89.1
million. On July 28, 1999, we acquired certain trade shows and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin), which operates apparel trade shows. The purchase price
was approximately $135.4 million in cash and assumed liabilities. From January
1, 1999 through December 31, 1999, we completed three other acquisitions of
trade shows, conferences and publishing properties, with a cumulative purchase
price totaling approximately $17.3 million in cash and assumed liabilities.
These acquisitions have been accounted for under the purchase method of
accounting. Additionally, in January, 2000 we acquired the Documents, Messaging
and Security (DMS) tradeshow and Info 21 magazine from Gruppe 21 Informations-
GmbH for approximately $7.8 million in cash and assumed liabilities.
PRODUCTS AND SERVICES
We provide integrated products and services to our consumers' business-
to-business marketing communications needs. Within each cluster, we provide a
comprehensive set of industry-focused marketing communications products,
services and support, which include trade shows and conferences, publications,
marketing services and Web-based services, to facilitate our customers'
business-to-business marketing and communications programs. Our trade shows,
conferences, publications, marketing services and Web sites position us to
better serve our customers' business-to-business marketing communications needs
and to capture a larger share of their marketing expenditures.
TRADE SHOWS AND CONFERENCES. Our trade shows and conferences are an
essential part of our overall portfolio of products and services. In 1999, we
held 101 events. Our trade shows typically include an extensive conference
program, which provides a forum for the exchange and dissemination of
information relevant to a particular event niche. Our conferences typically have
one or more keynote speakers drawn from industry leaders.
The sales cycle for a future trade show typically begins shortly before the
current show, with pricing information, preliminary floor plans and exhibitor
promotion for the future show mailed in advance of the current show so that
selling for the future show can begin at the current show. Typically, this
"upfront" selling includes floor space reservations with exhibitors executing a
contract and making deposits for the future show. At many of our trade shows, a
commitment for a large portion of exhibit space for the next event is reserved
by the end of the current event. For example, at each of the MAGIC, SCANTECH,
ICCM AND TELECON trade shows, over 70% of the exhibit space for the future show
is reserved by the end of the current show, and a portion of the fees are
collected shortly thereafter. The sales cycle continues with selling to new
exhibitors and collecting the balance of payments due. In general, we require
exhibitor payments in full prior to a trade show as a condition to
participation.
In addition to the sale of exhibit space, we market to exhibitors a wide
range of promotional opportunities to raise their visibility at an event. These
opportunities include directory and preview advertising, banners, sponsorships
of various functions and a wide variety of other products or services. We also
produce related conferences and workshops, which represent the editorial content
for an event and play a crucial strategic role in trade show development.
Conferences, workshops and other ancillary forums all stimulate interest in the
industry and drive attendance at the trade show. While show attendance is
typically free for qualified attendees, participation in conferences at these
shows can be a significant revenue source.
Event promotion is undertaken through direct mail, using both in-house,
exhibitor-provided and rented lists of pre-qualified industry participants. In
those industry sectors for which we also have complementary publications, our
publications play a key role in event promotion by providing lists from
circulation files and editorial coverage for the upcoming show. Other industry
magazines may also be involved, as the goal of any event is to represent the
entire industry or market. The "show issue" of an industry magazine for a
related event is often the biggest issue of the year, as the advertisers want to
reinforce their show presence.
In operating trade shows and conferences, we function in a capacity similar
to a general contractor. Through our central trade show and conference
operations, we select and manage venues, hotels, and vendors for decorating,
registration, travel and housing, audio-visual services and other services. In
many cases, venue and hotel reservations are made several years in advance,
particularly for primary markets such as New York, Chicago, Las Vegas, Los
Angeles and San Francisco. While the production of a show may involve hundreds
of workers, most workers are employees of our subcontractor vendors. We employ
very few of the workers on-site.
PUBLICATIONS. Our publications generally are controlled circulation,
business-to-business trade magazines which are distributed free-of-charge to
qualified recipients. We build readership and maintain the quality and quantity
of our circulation based on delivering high quality, professional coverage of
relevant industry information. Because we offer our advertisers access to a
highly-targeted, industry-specific subscriber base with potential buying
influence, our advertisers place their ads in our publications to reach their
customers. Most of our magazines are published monthly, while certain titles
publish weekly or semi-monthly.
Recipients of our publications are targeted through market research
designed to determine the market coverage and purchasing authority desired by
prospective advertisers. Based on existing and acquired mail lists, the targeted
recipient is then solicited through promotions offering free subscriptions to
the relevant publications. High-quality circulation is achieved when a high
percentage of the circulation list is recently qualified (within one or two
years) and the publication is delivered at the direct request of the recipient.
Recipients are qualified and requalified on a regular basis through direct mail,
qualification cards included in the publication and, increasingly, the Internet.
We attract recipients and improve the effectiveness of our advertising by
maintaining and continuously improving the quality of the editorial content of
our publications.
Our advertising sales and editorial functions are dispersed throughout
North America, Asia, Europe and Brazil. Advertising sales are predominantly
conducted by our dedicated sales force. Editorial content for our publications
is primarily staff-written, with some editorial contribution by freelance
writers and industry or professional participants in selected markets.
Our advertising materials and editorial content are integrated in our
Duluth, Minnesota and Chester, England production facilities, where layout, ad
insertion and output to film is completed. All printing is outsourced to vendors
in various regions, but printing contracts are negotiated and managed centrally.
We purchase paper centrally through a relationship with one of the industry's
largest paper brokers. Paper is shipped directly from the mills to the printers
at our request. We maintain our own central U.S. fulfillment operations in
Duluth to generate mailing labels and mailing instructions for the printers. Our
production workforce is highly experienced and is based in relatively low-cost
locations in Duluth and Chester.
MARKETING SERVICES. As a value-added supplement to our trade shows,
conferences and publications, we offer our customers a variety of marketing
services to support their business-to-business marketing communications
programs. We believe that our marketing services highlight our commitment to be
a "one-stop" provider of business-to-business marketing communications
solutions. Within each cluster, we provide classified advertising, direct mail
services, reprints, database marketing, directories, guides and reference books.
Our marketing services support our efforts to cross-sell events and publications
and customize our integrated products and services to capture a larger share of
our customers' marketing budgets. Our marketing services business reuses our
existing data content and utilizes a centralized telephone sales approach.
INTERNET. In addition to our trade shows, conferences, publications and
marketing services, we are increasingly using the World Wide Web to deliver our
integrated business-to-business marketing communications solutions to our
customers. We operate a centralized web site that serves as a portal to our
event-and publication-related web sites. We also believe that the Internet can
be utilized on a customized basis to serve our customers' business-to-business
marketing communication needs more efficiently and effectively by offering
information 24 hours a day, seven days a week. For example, our web site, Travel
Agent University, serves as an on-line information and education resource for
travel agents and our community web site, Pharmaportal.com serves Pharmaceutical
industry buyers and sellers with content from our pharmaceutical magazines,
recruitment and classified advertising, directory information, conference
information and an events calendar. We are further evolving our Web-based
services by organizing them into market specific communities to extend and
deepen out involvement in the commercial transactions within these communities.
OUR MARKETS
Our comprehensive business-to-business marketing communications products
and services for our six industry-related clusters--Fashion & Apparel; Travel &
Hospitality; Specialty Retail; Information Technology & Communications;
Manufacturing & Processing; and Healthcare, Science & Pharmaceuticals --and our
Market Development cluster are set forth below.
FASHION & APPAREL
We serve the fashion and apparel marketplace through our wide array
of resources including 24 trade shows. This cluster serves the men's, women's,
children's, and fabrics industries. The foundation of our apparel market
position is three trade shows held concurrently in Las Vegas twice annually:
. MAGIC, (a trade show for the men's apparel industry);
. WWDMAGIC, (an apparel trade show in the U.S.; and)
. MAGICKids, (a children's apparel show in the U.S.)
In 1999, we acquired the Larkin Group, adding 16 trade shows serving the women's
and children's fashion and fabric/textile industries to complement our core
Fashion & Apparel business. The Larkin Group trade shows held in New York City
consist of five International Fashion Boutique Shows focusing on moderate price
point women's apparel and accessories; five Style Industrie shows focusing on
the upscale designer clothing market; four International Fashion Kids Shows
focusing on children's apparel and accessories; and two International Fashion
Fabric Trade show focusing on fabric and textiles for the apparel industry.
TRAVEL & HOSPITALITY
We serve the travel and hospitality sector through 2 trade shows, 5
publications and 7 related Web sites. Our publications for the travel and
hospitality sector, including Travel Agent, provide a strong foundation to
launch related trade shows and services as well as to develop custom-publishing
products and establish a stronger Internet presence, as with Travel Agent
University.
SELECTED PUBLICATIONS INCLUDE:
. TRAVEL AGENT (a leading trade periodical for the travel industry)
. HOTEL & MOTEL MANAGEMENT (a publication for the hospitality management
market).
SPECIALTY RETAIL
We serve the Specialty Retail sector through 23 trade shows, 10 publications and
17 related Web sites. This cluster includes the art, beauty,
entertainment/marketing and motor vehicles sectors.
Selected trade shows and publications include:
. ARTEXPO NEW YORK (a mid-market art trade show in the United States);
. IBS NEW YORK (a trade show and educational event on the East Coast for
the beauty salon market) and AMERICAN SALON (a publication for the
professional beauty and hair care industry);
. LICENSING INTERNATIONAL (a trade show for the merchandise licensing
industry);
. LICENSE! (a publication for the licensing industry); and
. DEALERNEWS INTERNATIONAL POWERSPORTS DEALER EXPO (a aftermarket
accessories trade show in the United States targeted at powersports
dealers) and DEALERNEWS (a magazine targeted at retailers in the
powersports market - motorcycles, snowmobiles and personal
watercraft).
INFORMATION TECHNOLOGY & COMMUNICATIONS
Our Information Technology & Communications cluster serves the information
technology, telecommunications and call center and computer telephony industry
sectors. In 1999, we operated in these industry sectors through 19 trade shows,
15 publications and 15 related web sites. In the information technology sector,
we are a highly targeted niche exhibition organizer and publisher. The rapidly
evolving, newly competitive telecommunications sector is one of our most
important and fastest growing targeted markets. Through its global reach, our
call center and computer telephony sector serves as a primary example of our
market-focused expansion strategy.
Our leading trade shows, conferences and publications include:
. ON DEMAND DIGITAL PRINTING & PUBLISHING CONFERENCE AND EXPO (a trade
show and conference for the digital print and publishing market) and
CADALYST (a publication targeted at end users, managers and executives
in the computer-aided design and visualization market);
. THE TELECON SHOWS (trade shows in the United States and Europe for the
video conferencing and long distance learning markets);
. INCOMING CALL CENTER MANAGEMENT CONFERENCE & EXHIBITION (a U.S. trade
show and conference for the call center market) and CALL CENTER
CONFERENCE & EXPOSITION (a U.S. trade show and conference for the
computer telephony market);
. iEC, INTERNET AND ELECTRONIC COMMERCE CONFERENCE AND EXPOSITION (a
U.S. trade show and conference serving the rapidly growing market for
electronic commerce through the Internet, produced in partnership with
The Gartner Group, Inc); and
. TELEXPO, (a trade show and conference for the telecommunications
industry held in Sao Paolo, Brazil).
MANUFACTURING & PROCESSING
Our Manufacturing & Processing cluster serves certain niche market segments
of the applications technology industry sector and the OEM and processing
sector. In 1999, we delivered our business-to-business marketing communications
solutions to our customers in these industries through 8 trade shows, 7
publications and 15 related Web sites. In the application technology sector, we
focus on the automatic data capture, identification and tracking systems (bar
coding, magnetic stripe, smart cards, biometrics and the associated systems)
market and geospacial market (global positioning systems and geographic
information systems). For the OEM and processing sector, we offer exhibitions
and conferences and publications focused on equipment, materials and
intermediate products used in the manufacturing and processing of a wide range
of products.
Our leading trade shows, conferences and publications include:
. SCANTECH and SCANTECH EXPO EUROPE (a U.S. and European trade show and
conference, respectively, for the automatic data capture,
identification and tracking systems market) and FRONTLINE SOLUTIONS (a
publication in the U.S. and Europe for the automatic data capture,
identification and tracking systems market);
. SENSORS (a magazine for engineers in the expanding use of sensors in
industrial and consumer products) and SENSORS EXPO (a leading trade
show serving the sensors market.
HEALTHCARE, SCIENCE & PHARMACEUTICALS
Our Healthcare, Science & Pharmaceuticals cluster serves the healthcare,
science and pharmaceuticals industry sectors. In 1999, we delivered our
business-to-business marketing communications products and services to our
customers in these industry sectors through eight trade shows, 19 publications
and 15 related web sites. We serve the healthcare sector in areas such as
geriatrics, dermatology, ophthalmology and veterinary medicine, the science
sector in areas such as spectroscopy and liquid and gas chromatography and the
pharmaceutical sector in areas such as research and development, manufacturing,
testing and marketing.
Key trade shows, conferences and publications in this cluster include:
. ABILITIES EXPO (a consumer-oriented trade show targeting individuals
with disabilities);
. LCGC AND LCGC EUROPE (magazines in the U.S. and Europe in liquid and
gas chromatography);
. GERIATRICS (a magazine for the geriatrics segment of the primary care
market), FORMULARY (a magazine for the drug selection market) and DVM
THE NEWSMAGAZINE OF VETERINARY MEDICINE (a magazine for
veterinarians); and
. PHARMACEUTICAL TECHNOLOGY (a publication targeted at pharmaceutical
scientists, engineers and operation managers) and PHARMACEUTICAL
EXECUTIVE (a magazine for pharmaceutical company product managers and
marketing professionals).
MARKET DEVELOPMENT
We have grouped the balance of our products and services into a Market
Development cluster to focus on growing these products and services through
internal development or acquisitions. The Market Development cluster addresses
large and attractive market sectors in which we provide products and services
but do not have a significant presence. Our Market Development cluster serves
the energy, finance, landscape, pest control, paper and building industry
sectors. In 1999, we delivered our business-to-business marketing communications
products and services to our customers in these industry sectors through two
trade shows, 11 publications and seven related web sites.
COMPETITION
The market for our products and services is intensely competitive. The
competition is highly fragmented, both by product offering and geography. On a
global level, larger international firms operate in many geographic markets and
have broad product offerings in trade shows, conferences, publications and
marketing services. In several industries such as information technology and
healthcare, we compete with large firms with a single-industry focus. Many of
these large international and single-industry firms are better capitalized than
we are and have substantially greater financial and other resources than we
have.
Within each particular industry sector, we also compete with a large number
of small to medium-sized firms. While most small to medium-sized firms operate
in a single geographic market, in some cases, our competitors operate in several
geographic markets. In the trade show and conference segment, we compete with
trade associations and, in several international markets, with exposition hall
owners and operators. Trade show and conference competition in each market and
country occurs on many levels. The venues and dates of trade shows drive
competition. Historically, successful shows have been held at desirable
locations and on desirable dates. Given the availability of alternative venues
and the ability to define events for particular market segments, the range of
competition for exhibitor dollars, sponsorships, attendees and conferees is
extensive. In the publications segment, we typically have between two and five
direct competitors which target the same industry sector and many indirect
competitors which define industry segments differently than we do and thus may
be alternatives for either readers or advertisers.
INTELLECTUAL PROPERTY
We have developed strong brand awareness for our principal products and
services. Accordingly, we consider our trademarks, service marks, copyrights,
trade secrets and similar intellectual property as important to our success, and
we rely on trademark, servicemark, copyright and trade secret laws, as well as
licensing and confidentiality agreements, to protect our intellectual property
rights. We generally register our material trademarks and service marks in the
United States and in certain other key countries in which these trademarks and
service marks are used. Effective trademark, service mark and trade secret
protection may not be available in every country in which our products and
services are available.
EMPLOYEES
As of December 31, 1999, we had approximately 1,470 full-time equivalent
employees. Of these, approximately 210 employees were located in Europe, Brazil
and Asia with the balance based in the U.S. None of our U.S. employees are
represented by a labor union. We consider our relationships with our employees
to be good.
ITEM 2. PROPERTIES
We have executive, marketing, sales and editorial offices in several cities
in the United States, including Boston (MA), Chicago (IL), Cleveland (OH), Coral
Gables (FL), Edison (NJ), Eugene (OR), Honolulu (HI), Los Angeles (CA), Milford
(CT), New York (NY), Orlando (FL), Peterborough (NH), Santa Ana (CA), Washington
(DC), and Woodland Hills (CA). In addition, we have offices in Sao Paulo and Rio
de Janiero, Brazil; Toronto, Canada; Hong Kong, China; Paris, France; Mexico
City, Mexico; and Chester and London, United Kingdom. Our finance, expo
registration, call center, circulation, fulfillment, production and other
necessary operational support facilities in the U.S. are located in Duluth
(MN).
We generally lease our offices from third parties. However, we own our
operations offices in Duluth and Cleveland. We believe that our properties are
in good operating condition and that suitable additional or alternative space
will be available on commercially reasonable terms for future expansion.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings other than ordinary course,
routine litigation which is not material to our business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 13, 1999, the sole stockholder of Advanstar, by written consent,
elected Brian M. Powers as a director of Advanstar, to serve until the next
annual meeting of the sole stockholder of Advanstar and until his successor is
duly elected and qualified, or until his earlier resignation or removal. No
matters were submitted to a vote of the sole stockholder of Advanstar in the
quarter ending December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Advanstar has not registered any class of its common equity under the
Securities Exchange Act of 1933, as amended. There is no established public
trading market for any class of Advanstar's common equity. As of March 30, 2000,
there was one holder of Advanstar's common stock. Advanstar has never declared
or paid cash dividends to the holder of its common stock. Therefore, except as
set forth below, the information required by this Item 5 is not applicable.
RECENT SALES OF UNREGISTERED SECURITIES.
In 1999, Advanstar issued the following securities that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"):
In 1999, Advanstar issued options to purchase an aggregate of 410,000
shares of the Company's common stock under the 1996 Stock Option Plan at a
weighted average exercise price of approximately $13.00 (calculated as of
December 31, 1999). No shares have been issued by the Company pursuant to the
exercise of previously granted stock options.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 of the
Securities Act. All of the foregoing securities are deemed restricted securities
for the purposes of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated statement of operations and other
financial data for the years ended December 31, 1995 and the five months ended
May 31, 1996 are derived from the audited consolidated financial statements of
the Predecessor for such periods. The consolidated statement of operations and
other financial data of Advanstar for the seven months ended December 31, 1996
and the years ended December 31, 1997, 1998 and 1999 are derived from the
audited consolidated financial statements of Advanstar. The statement of
operations and other financial data for the combined year ended December 31,
1996 have been derived from the audited consolidated financial statements of the
Predecessor and Advanstar and are unaudited and are not necessarily indicative
of the results that can be expected for future periods or the entire year. The
information presented below should be read in conjunction with Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements and the other
financial information appearing elsewhere herein.
ADVANSTAR PREDECESSOR
---------------------------------------------------- -------------------------
FIVE
YEAR ENDED DECEMBER 31, SEVEN MONTHS MONTHS YEAR
---------------------------------------------------- ENDED ENDED ENDED
COMBINED DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1997 1996(1) 1996 1996 1995
----------- ----------- ----------- ----------- ------------ ----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenue ........................ $ 328,372 $ 259,825 $ 187,656 $ 151,006 $ 82,720 $ 68,286 $ 145,300
Operating expenses:
Cost of production, selling and
other direct.................... 205,105 168,543 126,103 97,395 53,560 43,835 96,942
General and administrative ....... 43,646 36,557 30,714 28,782 17,328 11,454 27,152
Non-cash stock option
compensation ................... 3,925 3,397 -- -- --
Amortization(2) .................. 49,214 48,752 24,326 14,759 13,171 1,588 4,801
---------------------------------------------------------------------------------------------
Operating income (loss) ............ 26,482 2,576 6,513 10,070 (1,339) 11,409 16,405
Interest expense, net ............ (39,888) (27,862) (15,117) (14,474) (7,511) (6,963) (19,613)
Other income (expense), net ...... (52) (1,886) 292 (465) (488) 23 2,230
Provision (benefit) for
income taxes ................... (11,431) 1,264 583 1,089 1,076 13 16
Net income (loss) .................. $ (2,027) $ (28,436) $ (8,895) $ (5,958) $ (10,414) $ 4,456 $ (994)
=============================================================================================
Net loss per share, basic and
diluted .......................... $ (0.06) $ (0.96) $ (0.41) $ (0.31)
Weighted average shares outstanding,
basic and diluted................. 33,596 29,652 21,768 19,400
OTHER FINANCIAL DATA:
EBITDA(3) .......................... $ 78,478 $ 53,828 $ 34,039 $ 28,209 $ 13,781 $ 14,428 $ 24,611
EBITDA margin(3) ................... 23.9% 20.7% 18.1% 18.7% 16.7% 21.1% 16.9%
Non-cash stock option compensation.. $ 3,925 $ 3,397 $ -- $ -- $ --
Cash flows provided by (used in):
Operating activities ............. 53,520 33,568 12,802 11,605 12,616 $ (1,011) $ 3,907
Investing activities ............. (150,902) (358,261) (33,323) (19,198) (18,924) (274) 4,432
Financing activities ............. 94,904 332,600 25,224 8,171 5,944 2,227 (14,658)
Depreciation ....................... 4,044 3,071 3,200 3,380 1,949 1,431 3,405
Amortization(2) .................... 49,214 48,752 24,326 14,759 13,171 1,588 4,801
Capital expenditures ............... 9,722 4,154 2,260 1,145 780 365 1,451
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets ....................... $ 832,595 $ 660,226 $ 298,497 $ 277,173 $ 79,098
Long-term debt, including current
maturities ....................... 523,154 426,868 164,223 151,000 173,058
(1) Combines the five months ended May 31, 1996 of the Predecessor with the
seven months ended December 31, 1996 of Advanstar. On May 31, 1996, the
HFCP III Acquisition was consummated. Accordingly, certain information
provided herein for the Predecessor is not comparable to the statement of
operations and other financial data of Advanstar due to the effects of
certain purchase accounting adjustments and the financing of the HFCP III
Acquisition. The statement of operations and other financial data for the
Predecessor for the five months ended May 31, 1996 have been combined for
presentation purposes with the statement of operations and other financial
data of Advanstar for the seven months ended December 31, 1996, without
giving effect to purchase accounting or the impact of the financing of the
HFCP III Acquisition and is not in accordance with GAAP.
(2) Amortized assets include identifiable intangibles such as advertiser,
exhibitor and circulation lists, assembled work force and other intangibles
as well as goodwill. Amortization increased for the seven months ended
December 31, 1996 and the years ended December 31, 1997, 1998 and 1999 as a
result of the HFCP III Acquisition completed in May 1996. Purchase price in
excess of fair market value of tangible and intangible assets acquired is
allocated to goodwill. Intangibles are being amortized over lives ranging
from one to 23 years.
(3) "EBITDA" is defined as operating income plus amortization and depreciation,
adjusted for the results of our joint ventures held by minority interest
holders. EBITDA does not represent, and should not be considered, 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 serve and/or incur indebtedness
and is used by many other companies. Our lenders have indicated that the
amount of indebtedness we will be permitted to incur will be based, in
part, on the Company's EBITDA. EBITDA does not take into account our
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary uses. Set forth below is a
reconciliation of Advanstar's operating income, as reported, to EBITDA for
the periods indicated:
ADVANSTAR PREDECESSOR
---------------------------------------------- ----------------------
FIVE
YEAR ENDED DECEMBER 31, SEVEN MONTHS MONTHS YEAR
---------------------------------------------- ENDED ENDED ENDED
COMBINED DECEMBER 31, MAY 31, DECEMBER 31,
1999 1998 1997 1996(1) 1996 1996 1995
--------- -------- -------- --------- ------------ --------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating income (loss) ................ $ 26,482 $ 2,576 $ 6,513 $ 10,070 $ (1,339) $ 11,409 $ 16,405
Depreciation and amortization .......... 53,258 51,823 27,526 18,139 15,120 3,019 8,206
Minority interest ...................... (1,262) (571)
-----------------------------------------------------------------------------------
EBITDA ................................. $ 78,478 $ 53,828 $ 34,039 $ 28,209 $ 13,781 $ 14,428 $ 24,611
===================================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This annual report on Form 10-K 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
involve risks and uncertainties that could cause actual results to differ
materially from those indicated by such forward-looking statements. Important
cautionary statements and risk factors that would affect actual results are
discussed in Advanstar's periodic reports and registration statements filed with
the Securities and Exchange Commission, including those under the caption
entitled "Factors That May Affect Future Results" in the Company's Annual Report
on this Form 10-K.
GENERAL
Advanstar is a worldwide provider of integrated, business-to-business
marketing communications solutions for targeted industry sectors, principally
through trade shows and conferences and through controlled circulation trade,
business and professional magazines. We also provide a broad range of other
marketing services products, including classified advertising, direct mail
services, reprints, database marketing, directories, guides, reference books and
internet based advertising, sponsorships and custom projects.
Advanstar reports its 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; 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 directory and classified advertising.
Trade shows and conferences accounted for 49.0%, 43.5% and 32.8% of total
revenue in 1999, 1998 and 1997, respectively. Publications accounted for 45.0%,
50.2% and 59.5% of total revenue in 1999, 1998 and 1997, respectively while
marketing services accounted for 6.0%, 6.3% and 7.7% of total revenue in 1999,
1998 and 1997, respectively. Our revenue reaches its highest levels during the
first and third quarters of the year due to the timing of the MAGIC trade shows
and our other large trade shows and conferences. Because trade shows and
conferences revenue is recognized when a particular event is held, we may
experience fluctuations in quarterly revenue based on the movement of annual
trade show dates from one quarter to another.
Beginning in the quarter ended March 31, 1999, we began capitalizing direct
costs related to a planned initial public offering of our common stock. During
the quarter ended September 31, 1999, we determined not to move forward at that
time with the initial public offering. As a result, we have recognized a $1.4
million charge for costs previously capitalized.
SOURCES OF REVENUE
TRADE SHOWS AND CONFERENCES. The trade shows and conferences segment
derives revenue principally from the sale of exhibit space and conference
attendance fees generated at its events. Events are generally held on an annual
basis in major metropolitan or convention areas such as New York City or Las
Vegas. At many of our trade shows, a portion of exhibit space is reserved and
partial payment is received as much as a year in advance. For example, over 70%
of exhibit space at our MAGIC, SCANTECH, ICCM AND TELECON shows is reserved
prior to the end of the preceding show. The sale of exhibit space is affected by
the on-going quality and quantity of attendance, venue selection and
availability, industry life cycle and general market conditions. Revenue and
related direct event expenses are recognized in the month in which the event is
held. Cash is collected in advance of an event and is recorded on our balance
sheet as deferred revenue.
PUBLICATIONS. The publications segment derives revenue principally from the
sale of advertising in its business-to-business magazines. Additionally, certain
publications derive revenue from paid subscriptions, custom publishing, and
internet based advertising and sponsorship activities. 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.
COMPONENTS OF EXPENSES
TRADE SHOWS AND CONFERENCES. Costs incurred by the trade shows and
conferences segment include facility rent, outsourced services such as
registration, security and decorator, and attendee and exhibitor promotion.
Exhibitors generally contract directly with third parties for on-site services
such as electrical, booth set-up and drayage. Staff salaries and related payroll
expenses are treated as monthly period expenses. All other direct costs are
expensed in the month the event occurs. General and administrative costs are not
allocated to the segments.
PUBLICATIONS. Costs incurred by the publications segment include printing,
paper and postage; selling and promotion; editorial and prepress; and
circulation acquisition and fulfillment. Additionally, publisher and sales staff
costs, and production, editorial and circulation staff costs, with related
payroll taxes and benefits, are charged to the publications. We outsource the
actual printing of our publications. General and administrative costs are not
allocated to the segments.
MARKETING SERVICES. Costs of the marketing services segment include
printing and distribution costs, database administration fees and selling and
product development salaries and related payroll taxes and benefits. General and
administrative costs are not allocated to the segments.
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.
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 the Amended Credit Agreement, 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.
To calculate EBITDA for 1999 and 1998, we reduced operating income by $1.3 and
$0.6, to reflect minority interest. There was no comparable adjustment in
calculating EBITDA for 1997.
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
Net revenue
Trade shows and conferences .............................. $ 161,007 $ 113,066 $ 61,608
Publications ............................................. 147,714 130,442 111,611
Marketing services and other ............................. 19,651 16,317 14,437
-----------------------------------
Total net revenues .................................. 328,372 259,825 187,656
Production, selling and other direct expenses
Trade shows and conferences .............................. 89,414 68,046 41,573
Publications ............................................. 105,723 92,727 77,810
Marketing services and other ............................. 9,968 7,770 6,720
===================================
Total production, selling and other direct expenses.. 205,105 168,543 126,103
General and administrative expenses ........................... 43,646 36,557 30,714
Non-cash stock option compensation ............................ 3,925 3,397 --
Amortization .................................................. 49,214 48,752 24,326
-----------------------------------
Operating income .................................... 26,482 2,576 6,513
Other income (expense):
Interest expense (net) ................................... (39,888) (27,862) (15,117)
Other income (expense) ................................... (52) (1,886) 292
Provision (benefit) for income taxes .......................... (11,431) 1,264 583
===================================
Net income (loss) ............................................. (2,027) $ (28,436) $ (8,895)
EBITDA(1) ..................................................... 78,478 $ 53,828 $ 34,039
- --------
1999 COMPARED TO 1998
REVENUE
Revenue increased $68.6 million or 26.4% from $259.8 million in 1998 to
$328.4 million in 1999.
Revenue from our trade shows and conferences increased $47.9 million or
42.4% from $113.1 million in 1998 to $161.0 million in 1999. This increase was
attributable to trade shows and conferences acquired in 1998 and 1999 such as,
among others, MAGIC, SeCA, Scantech, Telexpo, Starform and Larkin; new product
launches such as Luxury Travel Expo, iEC Europe and Magic International; and the
growth of our existing product portfolio. These revenue gains were partially
offset by the discontinuation in 1999 of certain trade shows and conferences
held in 1998.
Revenue from our publications increased $17.3 million or 13.2% from $130.4
million in 1998 to $147.7 million in 1999. The increase in revenue was due
primarily to acquisitions that we made in 1998 and 1999 such as Travel Agent,
TeleProfessional, Wideband, Post and Sensors, new launches such as Golfdom,
Shades of Beauty and Customer Contact Solutions, and the growth for advertising
pages and advertising revenue per page in our existing portfolio. These revenue
gains were partially offset by the sale or discontinuation in 1999 of certain
magazines published in 1998. Our publishing properties operate in many different
markets and industries which are subject to economic conditions prevalent in
those industries. Accordingly, publishing revenues may fluctuate in connection
with the markets in which they operate.
Revenue from our marketing services increased $3.4 million or 20.4% from
$16.3 million in 1998 to $19.7 million in 1999. Growth in revenue from list
rentals, display and classified advertising, card decks and books was primarily
responsible for the increase.
PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $36.6 million or
21.7% from $168.5 million in 1998 to $205.1 million in 1999.
Trade shows and conferences production, selling and other direct expenses
increased $21.4 million or 31.4% from $68.0 million in 1998 to $89.4 million in
1999. This increase was primarily due to increases in our operation, promotion
and management costs associated with our acquisitions as well as to costs
attributable to new launches and growth in our existing events.
Publications production, selling and other direct expenses increased $13.0
million or 14.0% from $92.7 million in 1998 to $105.7 million in 1999. Direct
costs related to acquisitions of publications were primarily responsible for the
increase as well as selected investments and product development in certain of
our publications.
Marketing services production, selling and other direct expenses increased
$2.2 million or 28.3% from $7.8 million in 1998 to $10.0 million in 1999. This
increase was primarily due to the increased selling expenses incurred as a
result of our efforts to market these products as well as increased costs of
production due to the growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses before non-cash stock option
compensation charges increased $7.0 million or 19.4% from $36.6 million in 1998
to $43.6 million in 1999. This increase was primarily attributable to increased
overhead related to the 18 acquisitions completed after January 1, 1998. We also
incurred incremental expenses related to the expansion of our infrastructure to
support our industry-focused organization. These increases were partially offset
by improvements in our trade show operations support group. Additionally,
general and administrative expenses include a $3.9 million non-cash charge
related to our stock option compensation plan, which represents a $0.5 million
increase over the comparable charge in 1998.
AMORTIZATION
Amortization expense increased $0.4 million from $48.8 million in 1998 to
$49.2 million in 1999. This increase was primarily attributable to increased
amortization of intangible assets of related to our acquisitions, partially
offset by a reduction of $8.5 million related to the the write-off of intangible
assets of publication and trade show properties that were discontinued.
OPERATING INCOME
Operating income increased $23.9 million or 928.0% from $2.6 million in
1998 to $26.5 million in 1999. The increase was due to the revenue growth across
our segments, partially offset by increased costs attributable to our
acquisitions.
INTEREST EXPENSE
Net interest expense increased $12.0 million or 43.2% from $27.9 million
in 1998 to $39.9 million in 1999 due to a full year in 1999 on the subordinated
notes issued in April, 1998 to finance the Magic acquisition and to the
incurrence of additional indebtedness to fund acquisitions, partially offset by
an aggregate reduction in interest rates of approximately 0.2%. In July 1999, we
obtained an additional $138.0 million in term debt financing that was used to
fund the Larkin and certain other acquisitions.
INCOME TAXES
Provision for income taxes decreased $12.7 million from a provision of
$1.3 million in 1998 to a benefit of $11.4 million in 1999 due to the reversal
of valuation reserves established in prior years for deferred tax assets
related to amortization, depreciation and net operating loss carryforwards.
NET LOSS
Net loss decreased $26.4 million or 92.9% from a net loss of $28.4 million
in 1998 to a net loss of $2.0 million in 1999 due the improvements in operating
performance described above.
EBITDA
EBITDA increased $24.7 million or 45.8% from $53.8 million in 1998 to $78.5
million in 1999. The increase was due primarily to an increase in our revenue
and resulting increase in operating performance as described above.
1998 COMPARED TO 1997
REVENUE
Revenue increased $72.1 million or 38.5% from $187.7 million in 1997 to
$259.8 million in 1998.
Revenue from trade shows and conferences increased $51.5 million or 83.5%
from $61.6 million to $113.1 million in 1998. The increase in revenue was
attributable to trade shows and conferences acquired in 1998, new launches such
as HEALTHCARE INFORMATION TECHNOLOGY, WORLDPHARM and CALL CENTRE SOLUTIONS and
the growth of our existing product portfolio (including revenue generated by our
plastics events which were not held in 1997), offset by the discontinuation in
1998 of certain trade shows and conferences held in 1997. In 1998 Advanstar
acquired MAGIC, TELECON, TELEXPO, SCANTECH and eight other trade shows and
conferences.
Revenue from publications increased $18.8 million or 16.9% from $111.6
million to $130.4 million in 1998. The increase in revenue was attributable
primarily to acquisitions in 1998 and a modest increase in 1998 of advertising
pages and advertising revenue per page, partially offset by the sale or
discontinuation in 1998 of certain magazines published in 1997. In 1998,
Advanstar acquired TRAVEL AGENT and six other trade publications, including
TELEPROFESSIONAL and POST. Advanstar also launched several other publications in
1998, which increased revenue.
Revenue from marketing services increased $1.9 million or 13.0% from $14.4
million to $16.3 million in 1998. Growth in revenue from list rentals,
classified advertising and reprints was primarily responsible for the increase.
PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $42.4 million or
33.7% from $126.1 million in 1997 to $168.5 million in 1998.
Trade shows and conferences production, selling and other direct expenses
increased $26.7 million or 63.9% from $41.8 million to $68.5 million in 1998.
This increase was primarily due to increases in operation, promotion and
management costs associated with acquisitions completed in 1998 as well as costs
attributable to new launches and growth of existing events.
Publications production, selling and other direct expenses increased $14.9
million or 19.2% from $77.8 million to $92.7 million in 1998. Direct costs
related to acquisitions of publications in 1998 were primarily responsible for
the increase.
Marketing services production, selling and other direct expenses increased
$1.1 million or 15.6% from $6.7 million to $7.8 million in 1998. This increase
was primarily due to increased selling expenses incurred as a result of
Advanstar's effort to market these products as well as increased costs of
production due to the growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $9.3 million or 30.1% from
$30.7 million to $40.0 million in 1998. This increase was primarily attributable
to overheads acquired with acquisitions made in 1998 and a $3.4 million non-cash
charge related to Advanstar's stock option plan. Advanstar also incurred
incremental expenses relating to the establishment of Advanstar's Latin American
operations and to the expansion of infrastructure to support the new
industry-focused organization.
AMORTIZATION
Amortization expense increased $24.5 million from $24.3 million to $48.8
million in 1998 primarily due to increased amortization of intangible assets
related to the acquisitions completed in 1998 and a $12.7 million write-off of
impaired intangible assets related to three discontinued trade shows and two
discontinued publications as well as the replacement of certain software system
applications.
OPERATING INCOME
Operating income decreased $3.9 million or 60.4% from $6.5 million to $2.6
million in 1998 due primarily to increased amortization and the incurrence of a
$3.4 million charge for non-cash, stock option-related compensation expense,
partially offset by improved operating performance.
INTEREST EXPENSE
Net interest expense increased $12.8 million or 84.3% from $15.1 million to
$27.9 million in 1998, due to the incurrence of additional indebtedness
necessary to fund acquisitions made in 1998. In April 1998, Advanstar issued the
Notes (as defined below) in the amount of $150.0 million at a fixed rate of
9.25% to fund a portion of the MAGIC Acquisition. Interest on the Notes is
payable semi-annually with the first payment made on November 1, 1998.
NET LOSS
Net loss increased $19.5 million from $8.9 million to $28.4 million in
1998. In addition to the changes described above, the increase was due to the
write-off of $4.1 million of certain unamortized intangibles relating to the
refinancing of Advanstar's credit facilities as part of the MAGIC Acquisition,
partially offset by a gain on the disposition of certain publishing assets of
$2.2 million.
EBITDA
EBITDA increased $19.8 million or 58.1% from $34.0 million to $53.8 million
in 1998. The increase was due primarily to the increase in revenue and resulting
increase in operating performance as described above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our financing requirements have been funded through cash
generated by operating activities, the sale of additional shares of common stock
to our existing stockholder, revolving and term loan borrowings and, in 1998,
the issuance of $150.0 million of the Senior Subordinated Notes.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operations in
1999 increased $20.0 million, or 59.4%, to $53.5 million in 1999 from $33.5
million in 1998. The increase was due primarily to an increase in earnings of
$26.4 million, additional depreciation and amortization of $1.4 million and a
decrease in working capital items of $6.6 million.
The deferred tax provision of $12.6 million and a decrease in other charges of
$1.8 million served to offset the gains described above.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
decreased $207.4 million from $358.3 million to $150.9 million in 1999. The
decrease is primarily due to a reduction in acquisition activity in 1999, offset
by an increase in fixed asset expenditures principally attributable to our year
2000 efforts and proceeds of $4.0 million from the sale of certain properties in
April 1998.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities decreased $237.7 million from $332.6 million in 1998 to $94.9 million
in 1999. This decrease was principally due to our financing fewer acquisitions
in 1999 in comparison to 1998, and repayments on our long-term debt. In July
1999, we also obtained an additional $138.0 million in term debt financing that
was used to fund the Larkin acquisition. In December 1999 we made a $4.0 million
optional Prepayment on our Senior term loan.
CAPITAL EXPENDITURES. Capital expenditures increased $5.5 million from $4.2
million in 1998 to $9.7 million in 1999. The increase was due primarily to
upgrades and expansion of certain of our computer networks and servers
principally related to our year 2000 efforts and other strategic investments.
Capital expenditures have been financed by our cash flows from operations.
Annual capital expenditures have historically included approximately $2.0
million for routine replacement or maintenance level requirements primarily for
expenditures related to the Company's desktop computers and management
information systems. Capital expenditures have been financed by Advanstar's cash
flows from operations. We believe that our operating cash flows will be
sufficient to fund anticipated levels of capital expenditures.
We expect Advanstar's primary source of liquidity will be cash flow from
operations. Advanstar also has a $60.0 million revolving credit line under its
credit facility available for funding capital expenditures, working capital
needs, acquisitions or for other general corporate purposes. As of December 31,
1999, Advanstar had $60.0 million of availability under the revolving credit
line. Advanstar generally operates 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. In connection with a strategic
alliance relating to the development of our Internet communities, we received
warrants to purchase 525,000 shares of PurchasePro.com, Inc. common stock at an
exercise price of $37.58 per share, to expire six months from the date granted.
We have valued these warrants on December 31, 1999 at $52.5 million, calculated
using the Black-Scholes option pricing model and based on the closing market
price of PurchasePro.com, Inc. common stock at December 31, 1999 of $137.50 per
share. We expect to use the net proceeds from the exercise of these warrants
for, among other corporate purposes, the launch and development of our
market-based Internet communities.
Interest payments on our Notes and interest and principal payments under
our credit facility represent significant liquidity requirements for us. Our
credit facility includes both term loans and a revolving credit facility. The
senior term debt under our credit facility consists of three tranches, $100.0
million of tranche A term loans amortizing over 5.5 years maturing October 31,
2003, $150.0 million of tranche B term loans with modest amortization over the
initial 5.5 years of its term maturing with balloon payments in 2004 and 2005
and $138.0 million of tranche C term loans with modest amortization over the
initial 7 years of its term maturing with balloon payments in 2006 and 2007. The
Chase Manhattan Bank, as administrative agent, leads our lenders which include
FleetBoston Financial Corp., Bank of New York, Dresdner Bank AG, Heller
Financial, First Source Financial LLP, Pacific Century Bank and Trust Company of
the West as well as several other institutional funds. The $60.0 million
revolving credit facility matures on October 31, 2003. Interest rates under our
senior term debt and revolving credit facility fluctuate and significant
increases in LIBOR could adversely impact our liquidity. To mitigate such risk,
we have capped our interest rate exposure by fixing interest rates on
approximately $263.8 million of long-term debt by the issuance of our Notes and
the purchase of interest rate cap agreements ranging from 8.0% to 8.5%.
We believe that cash flow from operations and borrowings under the
revolving credit facility will provide adequate funds for our working capital
needs, planned capital expenditures, debt service obligations (including our
Notes) and other needs. We believe such liquidity will also enable us to make
selective acquisitions to the extent of available free cash flow and remaining
availability under our revolving credit facility. There can be no assurance that
our business will generate sufficient revenue growth, or that future borrowings
will be available to enable us to service our indebtedness or to fund our other
liquidity needs.
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. We rely significantly on long-term floating rate and fixed rate
debt in our capital structure. At December 31, 1999, our debt totaled $523.2
million of which $263.8 million was either fixed rate or was covered by
interest rate cap agreements limiting our interest rate exposure at 8.0%-8.5%.
At December 31, 1999, we had fixed rate debt of $150.0 million and
floating rate debt of $373.5 million. Holding other variables constant (such as
debt levels) a one percentage point decrease in interest rates would have a net
increase in the fair market value of the fixed rate debt of approximately $9.0
million. The pre-tax earnings and cash flows impact for the next year resulting
from a one percentage point increase in interest rates on variable rate debt
would be a reduction of $3.7 million, holding other variables constant and
excluding the impact of our interest rate cap agreements.
CURRENCIES. We maintain assets and operations in Europe, South America and
Asia. The results of operations and financial position of the 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 US 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 it
sells.
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 other
comprehensive income. Accordingly, our consolidated stockholder's equity will
fluctuate depending upon the weakening or strengthening of the U S dollar
against the respective foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting our operations in a country's respective currency and may, from time
to time, involve currency derivatives, primarily forward exchange contracts, to
reduce our exposure to currency fluctuations. At December 31, 1999 there were
open foreign exchange derivative contracts with a notional amount totaling $23.3
million. The potential loss in fair value resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates amounts to $1.3
million. Actual results may differ. There were no material forward exchange
contracts outstanding in 1998 and 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
THIS ANNUAL REPORT, OTHER REPORTS, AND COMMUNICATIONS TO SECURITYHOLDERS,
AS WELL AS ORAL STATEMENTS MADE BY THE OFFICERS OR AGENTS OF ADVANSTAR MAY
CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS MAY RELATED
TO, AMONG OTHER THINGS, ADVANSTAR'S FUTURE REVENUES, OPERATING INCOME, EBITDA
AND THE PLANS AND OBJECTIVES OF MANAGEMENT. ALL FORWARD-LOOKING STATEMENTS
INCLUDED HEREIN ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION AVAILABLE
TO ADVANSTAR AS OF THE DATE THEREOF, AND ADVANSTAR ASSUMES NO OBLIGATION TO
UPDATE ANY FORWARD-LOOKING STATEMENT. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH VARIATION ARE DISCUSSED BELOW IN AND ADVANSTAR'S
OTHER REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
WE HAVE SUBSTANTIAL INDEBTEDNESS THAT COULD AFFECT OUR OPERATIONS AND
RESULTS.
As of December 31, 1999, our outstanding indebtedness equaled approximately
$523.2 million and represented approximately 76.6% of our total capitalization.
Our leveraged financial position creates the risks that:
. we will not obtain financing for acquisitions, capital expenditures,
working capital or general corporate purposes when needed in the
future;
. we will divert funds otherwise available for operations or other
purposes to pay our debt service obligations;
. we will be more vulnerable to changing market conditions than many of
our competitors that are less leveraged than we are; and
. our debt service obligations will increase if interest rates increase
because some of our indebtedness bears variable interest rates.
In the past, we have paid our debt service obligations with cash flow from
operations. In the future, we may not generate cash flow sufficient to pay our
debt service obligations and pursue our present operating and growth strategies.
Our financial and operating performance depends on the economy and other factors
over which we have no control. If we cannot pay our debt service obligations, we
will reconsider our present operating and growth strategies and may be required
to sell material assets or operations to pay our obligations. In addition, we
may sell shares of our capital stock to pay these obligations, and if we do, our
stockholders may experience dilution.
THE TERMS OF OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO PURSUE OUR
OPERATING AND GROWTH STRATEGIES.
The terms of our indebtedness impose operating restrictions on our ability
to borrow, make investments, capital expenditures and distributions and pursue
other corporate objectives. In addition, our credit facility requires us to
satisfy specified financial covenants. Our ability to comply with such
provisions depends in part on factors over which we have no control. These
operating restrictions could adversely affect our ability to pursue our growth
and expansion strategy. If we breach any of our financial covenants, our
creditors could declare all amounts owed to them to be immediately due and
payable. We may not have available funds sufficient to repay the amounts
declared due and payable and may be required to sell assets to repay in full
such amounts. Our credit facility is secured by substantially all of our assets.
If we cannot repay all amounts that we have borrowed under our credit facility,
our senior lenders could proceed against our assets.
THE NOTES AND THE GUARANTEES ARE UNSECURED AND SUBORDINATED.
The Notes are unsecured. The payment of principal of and interest on, and
any premium or other amounts owing in respect of, the Notes is subordinated to
the prior payment in full of all of our existing and future senior indebtedness,
including all amounts owing under the Amended Credit Facility which are secured
by a lien on substantially all of the assets of Advanstar. The Notes rank pari
passu with any future senior subordinated indebtedness of our wholly-owned
subsidiary, Advanstar Communications Inc. ("Communications"), and senior to all
subordinated obligations of Communications. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceedings with
respect to Communications or if an event of default occurs under the Amended
Credit Facility, our assets will be available to pay obligations on the Notes
only after senior
indebtedness has been paid in full. We give no assurance that there will be
sufficient assets, after payment in full of our senior indebtedness, to pay
amounts due on all or any of the Notes.
The Notes are guaranteed (the "Guarantees") by Advanstar, Inc. and certain
of its indirect wholly-owned subsidiaries, MAGIC, and Applied Business
TeleCommunications (the "Subsidiary Guarantors" and together with Advanstar, the
"Guarantors"). The Guarantees are unsecured, senior subordinated obligations of
the Guarantors, subordinated in right of payment to all of the Guarantor's
existing and future senior indebtedness including the guarantees of indebtedness
under the Amended Credit Facility.
THE INDEBTEDNESS EVIDENCED BY THE NOTES IS SUBJECT TO FRAUDULENT CONVEYANCE
REVIEW.
The incurrence of indebtedness (such as the Notes) is subject to review
under relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
Advanstar. Under these statutes, a court could void or subordinate the
obligations in question if that court determined that obligations were incurred
with the intent of hindering, delaying or defrauding present or future
creditors, that Advanstar received less than a reasonably equivalent value or
fair consideration for those obligations and, at the time of the incurrence of
the obligations the obligor either (1) was insolvent or rendered insolvent by
reason thereof, (2) was engaged or was about to engage in a business or
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (3) intended to or believed that it would incur debts beyond
its ability to pay such debts as they matured or became due. The measure of
insolvency for purposes of a fraudulent conveyance claim varies depending upon
the law of the jurisdiction being applied. Generally, however, a company would
be considered insolvent at a particular time if the sum of its debts at that
time is greater than the then fair saleable value of its assets or if the fair
saleable value of its assets at that time is less than the amount that would be
required to pay its probable liability on its existing debts as they become
absolute and mature. Advanstar believes that it is (1) not insolvent, (2) in
possession of sufficient capital to run its business effectively and (3)
incurring debts within its ability to pay as the same mature or become due.
In addition, the Guarantees by the Subsidiary Guarantors may be subject to
review under relevant federal and state fraudulent conveyance and similar
statutes in a bankruptcy or reorganization case or a lawsuit by or on behalf of
creditors of any of the Subsidiary Guarantors. In such a case, the analysis set
forth above would generally apply, except that the Guarantees by the Subsidiary
Guarantors could also be subject to the claim that, since the Guarantees were
incurred for the benefit of Advanstar (and only indirectly for the benefit of
the Subsidiary Guarantors), the obligations of the Subsidiary Guarantors
thereunder were incurred for less than reasonably equivalent value or fair
consideration. A court could void any of the Subsidiary Guarantors' obligations
under such Guarantees, subordinate the Guarantees by the Subsidiary Guarantors
to other indebtedness of the Subsidiary Guarantors or take other action
detrimental to the holders of the Notes.
THE GUARANTEES BY THE SUBSIDIARY GUARANTORS MAY NOT BE ENFORCEABLE.
We derive certain of our operating income from our direct and indirect
subsidiaries. The holders of the Notes have no direct claim against such
subsidiaries other than a claim created by one or more of the Guarantees by the
Subsidiary Guarantors, which may be subject to legal challenge in a bankruptcy
or reorganization case or a lawsuit by or on behalf of creditors of a Subsidiary
Guarantor. If such a challenge were upheld, the Guarantees by the Subsidiary
Guarantors would be invalid and unenforceable. To the extent that any Subsidiary
Guarantee is not enforceable, the rights of the holders of the Notes to
participate in any distribution of assets of any Subsidiary Guarantor upon
liquidation, bankruptcy, reorganization or otherwise will, as is the case with
other unsecured creditors of Advanstar, be subject to prior claims of creditors
of that Subsidiary Guarantor. We rely in part upon distributions from our
subsidiaries to generate the funds necessary to meet our obligations, including
the payment of principal of and interest on the Notes. The Indenture contains
covenants that restrict the ability of our indirect subsidiaries to enter into
any agreement limiting distributions and transfers, including dividends. The
ability of our
indirect subsidiaries to make distributions may be restricted by among other
things, applicable state corporate laws and other laws and regulations or by
terms of agreements to which they are or may become a party. In addition, we
make no assurance that such distributions will be adequate to fund the interest
and principal payments on the Amended Credit Facility and the Notes when due.
WE HAVE A HISTORY OF NET LOSSES.
We had net losses of approximately $2.0 million for the year ended December
31, 1999 and $28.4 million for the year ended December 31, 1998. We cannot
assure you that we will report net income in the future.
WE DEPEND ON OUR CUSTOMERS' DISCRETIONARY MARKETING AND ADVERTISING BUDGETS.
For the year ended December 31, 1999, we derived approximately 51.8% of our
total pro forma revenue from trade shows and conferences and approximately 37.1%
of our total pro forma revenue from advertising sales. If a general economic
downturn or a recession occurs in the United States, our customers may reduce
their marketing and advertising budgets. Any material decrease in marketing
budgets could reduce the demand for exhibition space, attendance at our trade
shows and conferences or the demand for advertising space in our publications.
As a result, our revenue and our cash flow from operations would decrease
significantly. In addition, our integrated marketing strategy could be
materially adversely affected.
WE DEPEND ON SECURING DESIRABLE DATES AND LOCATIONS FOR OUR TRADE SHOWS AND
CONFERENCES.
The date and location of a trade show or a conference impact its
profitability and prospects. The market for desirable dates and locations is
highly competitive. If we cannot secure desirable dates and locations for our
trade shows and conferences, their profitability and future prospects would
suffer, and our financial condition and results of operations would be
materially adversely affected. In general, we maintain multi-year reservations
for our trade shows and conferences. Consistent with industry practice, we do
not pay for these reservations, and these reservations are not binding on the
facility owners until we execute a contract with the owner. We typically sign
contracts that guarantee the right to certain venues or dates for only one year.
Therefore, our multi-year reservations may not lead to binding contracts with
facility owners. In addition, because trade shows and conferences are held on
pre-scheduled dates at specific locations, the success of a particular trade
show or conference depends upon events outside of our control, such as natural
catastrophes, labor strikes and transportation shutdowns.
A SIGNIFICANT PORTION OF OUR REVENUE AND EBITDA IS GENERATED FROM THE MAGIC
TRADE SHOWS.
For the year ended December 31, 1999, the MAGIC trade shows would have
represented 15.0% of our total pro forma revenue and 40.9% of our total pro
forma EBITDA. We expect that the MAGIC trade shows will continue to represent a
significant portion of our overall revenue and EBITDA in the future. Therefore,
a significant decline in the performance of one or both of the MAGIC trade shows
could have a material adverse effect on our financial condition and results of
operations.
ANY SIGNIFICANT INCREASE IN PAPER OR POSTAGE COSTS WOULD CAUSE OUR EXPENSES
TO INCREASE SIGNIFICANTLY AND MATERIALLY ADVERSELY AFFECT US.
Because of our print products, direct mail solicitations and product
distributions, we incur substantial costs for paper and postage. We do not use
forward contracts to purchase paper, and therefore are not protected against
fluctuations in paper prices. In general, we use the United States Postal
Service to distribute our print products and
mailings. United States Postal Service rates increase periodically. If we cannot
pass increased paper and postage costs through to our customers, our financial
condition and results of operations would be materially adversely affected.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS INTENSELY COMPETITIVE.
The competition for our products and services is intense and highly
fragmented, both by product offering and geography. See Part I, Item 1,
"Business--Competition."
WE DEPEND IN PART ON NEW PRODUCT INTRODUCTIONS.
Our future success will depend in part upon our ability to monitor rapidly
changing market trends, to adapt our events and publications to meet the
evolving needs of existing and emerging target audiences and to offer new events
and publications that gain market acceptance by addressing the needs of specific
audience groups within our target markets. The process of researching and
developing, launching and establishing profitability for a new event or
publication is risky and costly. We generally incur initial operating losses
when we introduce new events and publications. Our efforts to introduce new
events or publications may not ultimately be successful or profitable. In
addition, we have invested in, and intend to continue to invest in, the
development of Internet services, which are currently generating losses. The
Internet is still in the early stages of development as a commercial medium, and
these services may not prove to be successful or profitable. We expense as
incurred costs related to the development of new events and publications.
Therefore, our quarterly and annual operating results may be adversely affected
by the number and timing of new product launches.
OUR GROWTH STRATEGY TO IDENTIFY AND CONSUMMATE ACQUISITIONS ENTAILS CERTAIN
RISKS.
We intend to continue to grow in part through strategic acquisitions. This
growth strategy entails risks inherent in identifying desirable acquisition
candidates and in integrating the operations of acquired businesses. In
addition, we may not be able to finance the acquisition of a desirable candidate
or to pay as much as our competitors because of our leveraged financial
condition or general economic conditions. Our management will continue to devote
substantial attention to the identification of acquisition candidates and the
integration of acquired businesses. The diversion of our management's attention
and the difficulties that we may encounter in integrating the operations of
acquired businesses could have a material adverse impact on our results of
operations and financial condition. Moreover, we may not realize any of the
anticipated benefits of an acquisition, and integration costs may exceed
anticipated amounts. In addition, we may issue additional shares of stock as
acquisition consideration, and if we do, our stockholders may experience
dilution.
WE DEPEND ON OUR SENIOR MANAGEMENT TEAM.
We benefit substantially from the leadership and experience of Robert L.
Krakoff, James M. Alic and other members of our senior management team and
depend on their continued services to implement successfully our business
strategy. The loss of any member of our senior management team or other key
employee could materially adversely affect our financial condition and results
of operations. Although we have entered into employment agreements with Mr.
Krakoff and Mr. Alic, we cannot be certain that we will continue to have their
services, or the services of other key personnel, going forward. Moreover, we
may not be able to attract and retain other qualified personnel in the future.
We do not currently maintain key-man life insurance policies on any member of
our senior management team or other key employees.
THERE ARE CERTAIN RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND
INTERNATIONAL EXPANSION.
Our growth strategy includes expanding our product and service offerings
internationally. We currently maintain offices in Brazil, Canada, France, Hong
Kong, Mexico and the United Kingdom. International operations accounted for
approximately 11.4% of our total pro forma revenue in 1999. International
operations and expansion involve numerous risks, such as:
. the uncertainty of product acceptance by different cultures,
. divergent business expectations or cultural incompatibility in
establishing joint ventures with foreign partners,
. difficulties in staffing and managing multinational operations,
. currency fluctuations,
. state-imposed restrictions on the repatriation of funds and
. potentially adverse tax consequences.
The impact of any these risks could materially adversely affect our future
international operations and our financial condition and results of operations.
WE HAVE SOME EXPOSURE TO FLUCTUATIONS IN THE EXCHANGE RATES OF INTERNATIONAL
CURRENCIES.
Our consolidated financial statements are prepared in U.S. dollars. A
percentage of the revenues, expenses, assets and liabilities of Advanstar is
denominated in currencies other than the U.S. dollar. Consequently, fluctuations
in exchange rates could result in exchange losses. In 1998 and 1999, there was
no material effect on net income due to currency fluctuations. The impact of
future exchange rate fluctuations on our results of operations cannot be
accurately predicted. Moreover, because we intend to continue our international
expansion, the effect of exchange rate fluctuations could be greater in the
future. We may undertake transactions to hedge the risks associated with
fluctuations in exchange rates of other currencies to the dollar. We do not know
if any hedging techniques that we may implement will be successful or will
mitigate the effect, if any, of exchange rate fluctuations on our financial
condition and results of operations.
OUR BUSINESS IS SEASONAL DUE LARGELY TO HIGHER TRADE SHOW REVENUE IN THE
FIRST QUARTER.
Our business is seasonal, with revenue typically reaching its highest
levels during the first and third quarters of each calendar year, largely due to
the timing of the MAGIC trade shows and our other large trade shows and
conferences. In 1999, approximately 32.9% of our pro forma revenue would have
been generated during the first quarter and approximately 24.3% during the third
quarter. The second and fourth quarters would have accounted for approximately
22.1% and 20.8% of pro forma revenue in 1999, respectively. Because event
revenue is recognized when a particular event is held, we may also experience
fluctuations in quarterly revenue based on the movement of annual trade show
dates from one quarter to another.
WE ARE CONTROLLED BY HFCP III.
HFCP III beneficially owns, directly or indirectly, substantially all of
our outstanding capital stock (assuming no exercise of all currently vested
stock options). As a result, HFCP III has the right to elect all of our
directors and will exercise substantial control over matters requiring the vote
of our stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Advanstar required by this item
are included in a separate section of this Annual Report. See Part IV, Item 14,
"Exhibits, Financial Statement Schedules and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors, Executive Officers and Key Employees
The following table sets forth certain information as of February 29, 2000
regarding our directors, executive officers and key employees.
Name Age Title
- ------------------------------ --- -------------------------------------------------
Robert L. Krakoff.............. 64 Chairman of the Board and Chief Executive Officer
James M. Alic.................. 57 Vice Chairman, Vice President and Director
Martin C. ("Skip") Farber..... 47 Executive Vice President--Business Development
David W. Montgomery............ 42 Vice President--Finance, Chief Financial Officer
and Secretary
Eric I. Lisman................. 43 Vice President and General Counsel
William J. Cooke............... 48 Executive Vice President
Alexander S. DeBarr............ 40 Executive Vice President
Morris R. Levitt............... 59 Executive Vice President
Joseph Loggia.................. 40 President--MAGIC
Daniel M. Phillips............. 37 Executive Vice President
Kenneth T. Berliner............ 40 Director
Mitchell R. Cohen.............. 36 Director
John M. Pasquesi............... 39 Director
Brian M. Powers 49 Director
EXECUTIVE OFFICERS
ROBERT L. KRAKOFF has served as our Chairman and Chief Executive Officer
since he joined Advanstar in July 1996. From January 1993 to June 1996, he was
the Chairman and Chief Executive Officer of Reed Publishing USA, a division of
Reed Elsevier Inc. which included Cahners Publishing Company, a trade
publications business, and Reed Exhibition Companies, an exposition and
conference business. From January 1993 to June 1996, he was also a member of the
board of directors of Reed Elsevier PLC.
JAMES M. ALIC has served as our Vice Chairman and Vice President since he
joined Advanstar in July 1996. From June 1995 to June 1996, he was Vice
President and Controller of IBM Corporation, a computer hardware and software
manufacturer. From September 1994 to May 1995, he was Chairman of Reed
Exhibition Companies. From August 1991 to August 1994, he was President of Reed
Exhibitions North America.
MARTIN C. ("SKIP") FARBER has served as our Executive Vice
President--Business Development since he joined Advanstar in October 1996. From
February 1993 to September 1996, he was Vice President for Business Development
of Reed Publishing USA., which included Cahners Publishing Company and Reed
Exhibition Companies. From July 1995 to September 1996, Mr. Farber also had
responsibility for Cahners Direct Marketing Services, a division of Reed
Elsevier Inc.
DAVID W. MONTGOMERY has served as our Vice President--Finance and Chief
Financial Officer since January 1994. From July 1989 to December 1993, he was
our Director of Corporate Finance. In July 1992, he became our Secretary. From
January 1981 to June 1989, he was a practicing CPA with McGladrey & Pullen in
Minneapolis, St. Paul, Minnesota.
ERIC I. LISMAN has served as our Vice President and General Counsel since
September 1998. From November 1997 to August 1998, he engaged in a private legal
practice. From August 1996 to July 1997, he was a Senior Vice President and
General Counsel of Cahners Publishing Company. From July 1993 to July 1996, he
was a Vice President and General Counsel of Reed Publishing USA.
KEY EMPLOYEES
WILLIAM J. COOKE has served as our Executive Vice President since June 1997
and is responsible for the OEM and application technology industry sector, the
Market Development cluster and marketing services. In addition, Mr. Cooke is
responsible for corporate marketing and corporate training. From July 1995 to
May 1997, he was Group Vice President of Advanstar. From July 1993 to June 1995,
he was our President of the Marketing Services Division. From 1988 until June
1993, Mr. Cooke was Vice President of Strategic Planning and Marketing for Dun &
Bradstreet Corporation.
ALEXANDER S. DEBARR has served as our Executive Vice President since June
1997 and is responsible for the art, beauty, travel and hospitality and motor
vehicle sectors. From February 1995 to May 1997, he was a Group Vice President
of Advanstar. Mr. DeBarr also served as a Group Publisher of Advanstar from
February 1993 until January 1995.
MORRIS R. LEVITT joined us in March 1999 as our Executive Vice President
with responsibility for the Healthcare, Science & Pharmaceuticals cluster. From
October 1991 to February 1999, he headed the Advanced Technology Division of
PennWell Publishing Company, a publisher of trade publications and an operator
of trade shows.
JOSEPH LOGGIA has served as MAGIC's President and Chief Executive Officer
since May 1997, President from August 1996 and Chief Operating Officer beginning
in 1995. From January 1993 to August 1996, he was Chief Financial Officer of
MAGIC. Prior to joining MAGIC, Mr. Loggia, who is a certified public accountant,
was a manager at the accounting firm of Coopers & Lybrand responsible for Fraud
& Financial Investigations. Mr. Loggia is also responsible for our Beauty group.
Daniel M. Phillips currently serves as Executive Vice President of
Advanstar Technology Communities. He was previously Vice President and General
Manager of Advanstar's Technology groups. Mr. Phillips joined Advanstar in 1996
as a group publisher of America's Network, Telecom Asia and Communicationes
magazines, and in 1998 was promoted to Vice President and General Manager. Prior
to joining Advanstar, Mr. Phillips was responsible for publications for EMAP
(U.K.) in the area of telecommunications. ----
DIRECTORS
KENNETH T. BERLINER has served as a director of Advanstar since the HFCP
III Acquisition. Since 1992, Mr. Berliner has been employed by Peter J. Solomon
Company Limited ("PJSC"), an investment banking firm. He is currently a
managing director at PJSC.
MITCHELL R. COHEN has served as a director of Advanstar since the HFCP III
Acquisition. Since January 1998, Mr. Cohen has been a Managing Director of
Hellman & Friedman LLC, a private equity investment firm. From January 1993 to
December 1997, Mr. Cohen was a General Partner of Hellman & Friedman. Mr. Cohen
is also a director of Western Wireless Corporation and VoiceStream, Wireless
Corporation.
JOHN M. PASQUESI has served as a director of Advanstar since the HFCP III
Acquisition. Since January 1998, Mr. Pasquesi has been a Managing Director of
Hellman & Friedman LLC, a private equity investment firm. From January 1989 to
December 1997, Mr. Pasquesi was a General Partner of Hellman & Friedman. Mr.
Pasquesi is also a director of The Covenant Group Inc.
BRIAN M. POWERS was elected to serve as a director of Advanstar in July,
1999. Since January 1999, Mr. Powers has been with Hellman and Friedman LLC, a
private equity investment firm, and is currently a Managing Director at Hellman
and Friedman. From 1994 to 1999, Mr. Powers served as Managing Director and
Chief Executive Officer of both Consolidated Press Holdings Limited and
Publishing and Broadcasting Limited in Australia. Mr. Powers is also a director
of John Fairfax Holding Limited and Blackbaud, Inc.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------- ALL OTHER TOTAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) COMPENSATION($)
--------------------------- ---- --------- ----------- --------------- ---------------
Robert L. Krakoff ...................... 1999 $433,846 $169,500 $15,231(3) $618,577
Chairman of the Board and Chief 1998 415,385 150,000 18,138(3) 583,523
Executive Officer 1997 400,000 150,000 12,449(2) 562,449
James M. Alic ............................. 1999 $333,846 $133,200 $ 7,561(3) $474,607
Vice Chairman, Vice President and 1998 311,538 115,000 8,310(3) 434,848
Director 1997 300,000 112,500 7,260(3) 419,760
Martin C. ("Skip") Farber ................. 1999 $310,000 $131,247 $ 6,040(3) $447,287
Executive Vice President-Business 1998 284,615 120,000 6,436(3) 411,051
Development 1997 250,000 87,000 2,713(3) 339,713
David W. Montgomery ....................... 1999 $190,000 $ 92,442 $ 5,576(3) $288,018
Vice President-Finance, Chief 1998 186,538 74,000 5,918(3) 266,456
Financial 1997 170,000 60,000 5,860(3) 235,860
Officer and Secretary
Eric I. Lisman(4) ......................... 1999 $237,500 $ 87,984 $ 2,637(3) $328,121
Vice President and General Counsel 1998 72,692 25,012 199(2) 97,903
(1) Bonuses are reported in the year earned, even though they were actually
paid in the subsequent year.
(2) Constitutes value of group term life insurance benefits paid for by the
Company.
(3) Constitutes value of group term life insurance benefits paid for by the
Company and contributions made by the Company to a defined contribution
plan.
(4) Mr. Lisman commenced employment on September 8, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made by
Advanstar during the year ended December 31, 1999 pursuant to the 1996 Plan (as
defined below) to each of the Named Executive Officers. We have not granted any
stock appreciation rights.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
--------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------------- ---------- --------------- ------------ ----------- ------ -----------
Robert L. Krakoff.............. -- -- -- -- -- --
James M. Alic.................. -- -- -- -- -- --
Martin C. ("Skip") Farber...... -- -- -- -- -- --
David W. Montgomery............ -- -- -- -- -- --
Eric I. Lisman................. -- -- -- -- -- --
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers named in the
Summary Compensation Table, certain information concerning stock options
exercised during 1999, and the number of shares subject to both exercisable and
unexercisable stock options as of December 31, 1999. Also reported are values
for "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of our common stock as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN 1999
AND DECEMBER 31, 1999 OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
NUMBER OF AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END(1)
ACQUIRED ON VALUE --------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------- -------- ----------- ------------- ----------- -------------
Robert L. Krakoff.............. -- -- -- -- -- --
James M. Alic.................. -- -- -- -- -- --
Martin C. ("Skip") Farber...... -- -- 167,505 205,219 $944,727 $1,157,436
David W. Montgomery............ -- -- 108,000 92,000 609,120 518,880
Eric I. Lisman................. -- -- 20,000 80,000 112,800 451,200
- --------------------
(1) Amount based on the fair market value of our common stock on December 31,
1999 as determined by our Board of Directors, less the exercise payable for
such shares.
CERTAIN PLANS AND EMPLOYMENT AGREEMENTS
1996 STOCK OPTION PLAN. Advanstar's Second Amended and Restated 1996 Stock
Option Plan, as amended (the "1996 Plan") provides for the issuance of a maximum
of 2,051,124 shares of Common Stock pursuant to the grant of non-qualified stock
options to employees and other individuals who render services to Advanstar. As
of December 31, 1999, options to purchase 2,031,100 shares of our common stock
at an average exercise price of $8.24 were outstanding under the 1996 Plan, and
no options had been exercised.
The 1996 Plan is administered by the Board of Directors. Subject to the
provisions of the 1996 Plan, the Board of Directors has the authority to
determine the terms of options granted, including the authority to: (i)
determine to whom options may be granted; (ii) determine the time or times at
which options shall be granted; (iii) determine the exercise price of shares
subject to each option; (iv) determine the time or times when each option shall
become vested and exercisable and the duration of the exercise period; (v)
extend the period during which outstanding options may be exercised; (vi)
determine whether restrictions such as repurchase options are to be imposed on
shares subject to options and the nature of such restrictions, if any; and (vii)
interpret the 1996 Plan and prescribe and rescind rules and regulations relating
to it. The 1996 Plan provides that the Board of Directors will take whatever
actions it deems necessary, under Section 422 of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder, to ensure that
options granted under the 1996 Stock Plan are not treated as "incentive stock
options."
With the exception of the stock options granted to Mr. Loggia, each stock
option is subject to a five-year vesting schedule pursuant to which the options
vest in increments of approximately 20% on each of the first five anniversaries
of the date of grant. Each outstanding stock option shall become fully
exercisable in the event of a "change of control." A "change of control" means
the acquisition by any person or group of persons (other than an affiliate or
affiliates of HFCP III) of more than 50% of the outstanding shares of Advanstar
common stock or shares of capital stock constituting more than 50% of our voting
capital stock, or of all or substantially all of our assets. The Board of
Directors may, in its discretion and in accordance with the provisions of the
1996 Plan, accelerate the vesting of any stock option.
401(k) PLAN. We have an Employees' 401(k) Plan and Trust (the "401(k)
Plan"). All current and future employees who have completed one year of service
with Advanstar or any other domestic subsidiary of Advanstar and are at least 21
years-of-age are eligible to participate in the Plan. Participants in the 401(k)
Plan may not contribute more than the lesser of a specified statutory amount
or 15% of his or her pre-tax total compensation. We are required to make a
matching contribution to the 401(k) Plan, which vests in equal installments over
five years, in accordance with the following schedule:
. with respect to the employee's elective contribution in an amount up to
two percent (2%) of the employee's gross compensation, the matching
contribution is required to be equal to 100% of the employee's
contribution;
. with respect to the employee's elective contribution in excess of 2%
and not in excess of 6% of gross compensation, the matching
contribution is required to be equal to 25% of such employee's
contribution; and
. with respect to the employee's elective contribution in excess of six
percent (6%) of gross compensation, there shall be no matching
contribution.
EMPLOYMENT AGREEMENTS. Messrs. Krakoff, Alic and Farber entered into
employment agreements with Advanstar each dated as of September 1, 1999. Each
agreement provides for a term through May 31, 2003. Pursuant to the agreements,
Messrs. Krakoff, Alic and Farber are entitled to annual base salaries of not
less than $500,000, $400,000 and $310,000, respectively. Mr. Krakoff and Mr.
Alic are entitled to annual bonuses based on our EBITDA for any year, up to a
maximum bonus in any one year of 100% of base salary. Mr. Farber may be entitled
to annual bonuses as determined from time to time by the Chief Executive Officer
of Advanstar. The agreements provide for indemnification of the executives to
the extent permissible under Delaware law. The agreements provide for severance
benefits equal to one year's base salary and benefits (and a pro rated bonus)
upon termination of employment by Advanstar without "cause" or by the executive
for "good reason" (which includes a change of control). Mr. Krakoff and Mr. Alic
also entered into noncompetition and confidentiality agreements with us. The
noncompete period is one year after termination of employment unless employment
is terminated by Advanstar without cause or by the executive for good reason, in
which case the noncompetition period is six months. During the noncompetition
period, the executives may not hire any Advanstar employee or solicit any trade
show or publishing business from a third party which has a relationship or
contract with Advanstar.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 30, 2000:
. each person known to us to be the beneficial owner of more than 5% of
the outstanding shares of our common stock,
. our Named Executive Officers,
. our directors and
. all executive officers and directors as a group.
Unless otherwise noted below, the address of each person listed on the
table is c/o Advanstar, Inc., 545 Boylston Street, Boston, Massachusetts 02116.
The applicable percentage of shares beneficially owned is based upon
33,630,000 shares of common stock outstanding as of March 30, 2000.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. For the purposes of calculating the number
of shares and the percentage beneficially owned by a person or entity, shares of
common stock issuable by Advanstar to that person or entity pursuant to options
which may be exercised within 60 days after March 30, 2000 are deemed to be
beneficially owned and outstanding. Except as otherwise indicated, each
stockholder named in the following table has sole voting and investment power
with respect to the shares set forth opposite that stockholder's name.
SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- -------------------------------------------------------------- ------------------ --------------------
AHI Advanstar LLC (1)......................................... 33,630,000 100%
One Maritime Plaza
San Francisco, CA 94111
Robert L. Krakoff (1)......................................... -- --
James M. Alic (1)............................................. -- --
Martin C. ("Skip") Farber..................................... 181,026(2) *
David W. Montgomery........................................... 108,000(3) *
Eric I. Lisman................................................ 20,000(4) *
Kenneth T. Berliner (1)(4).................................... -- --
Mitchell R. Cohen (1)(5)...................................... -- --
John M. Pasquesi (1)(6)....................................... -- --
Brian M. Powers (1)(8)........................................ -- --
All directors and executive officers as a group (8 persons)... 309,026(9) *
* Represents less than 1% of the outstanding shares of our common stock.
(1) AHI Advanstar LLC ("AHI Advanstar") is the sole owner of all of the
outstanding shares of Advanstar common stock. Hellman & Friedman Capital
Partners III, L.P., a California limited partnership ("HFCP"), H&F Orchard
Partners III, L.P., a California limited partnership ("HFOP III"), H&F
International Partners III, L.P., a California limited partnership ("HFIP
III"), Mr. Krakoff and Mr. Alic own all of the membership interests of AHI
Advanstar. HFCP III owns approximately 98.3% of the membership interests of
AHI Advanstar. H&F Investors III, a California general partnership
("Investors III"), is the sole general partner of
HFCP, HFOP III and HFIP III. Messrs. Pasquesi and Cohen are Managing
Directors of Hellman & Friedman LLC, an affiliate of Investors III. The
managing general partner of Investors III is Hellman & Friedman Associates
III, L.P., a California limited partnership ("Associates III"), and the
general partners of Associates III are H&F Management III, L.L.C., a
California limited liability company ("Management III LLC"), and H&F
Investors III, Inc., a California corporation ("H&F Inc."). The sole
shareholder of H&F Inc. is the Hellman Family Revocable Trust (the
"Trust"). The investment decisions of H&F Inc. and Management III LLC are
made by an executive committee, of which Mr. Pasquesi is a member. The
executive committee indirectly exercises voting and investment power with
respect to the shares of Advanstar common stock held by AHI Advanstar LLC
and could be deemed to beneficially own such shares, but disclaims such
beneficial ownership except to the extent of its individual members'
respective indirect pecuniary interest in such shares. Mr. Krakoff has made
a $2.48 million investment in AHI Advanstar and Mr. Alic has made a $0.5
million investment in AHI Advanstar. Each of Messrs. Krakoff and Alic and
PJSC has a carried interest in AHI Advanstar. As a result of such capital
investment and/or carried interest, each of Messrs. Krakoff and Alic and
PJSC has an indirect pecuniary interest in the shares of Advanstar common
stock held by AHI Advanstar.
(2) Consists of 181,026 shares of Advanstar common stock issuable pursuant to
stock options exercisable within 60 days.
(3) Consists of 108,000 shares of Advanstar common stock issuable pursuant to
stock options exercisable within 60 days.
(4) Consists of 20,000 shares of Advanstar common stock issuable pursuant to
stock options exercisable within 60 days.
(5) Mr. Berliner is a Managing Director of PJSC. Mr. Berliner disclaims
beneficial ownership of all shares of Advanstar common stock held by AHI
Advanstar except to the extent of his indirect pecuniary interest in such
shares.
(6) Mr. Cohen disclaims beneficial ownership of all shares of Advanstar common
stock held by AHI Advanstar except to the extent of his indirect pecuniary
interest in such shares.
(7) Mr. Pasquesi disclaims beneficial ownership of all shares of Advanstar
common stock held by AHI Advanstar except to the extent of his indirect
pecuniary interest in such shares.
(8) Mr. Powers disclaims beneficial ownership of all shares of Advanstar common
stock held by AHI Advanstar except to the extent of his indirect pecuniary
interest in such shares.
(9) Consists of 309,026 shares of our common stock issuable pursuant to stock
options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT:
(1) FINANCIAL STATEMENTS.
The financial statements listed below are included in this Annual Report on
the pages indicated below:
PAGE IN THIS
ANNUAL REPORT
-------------
Report of Independent Public Accountants........................................................... F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998....................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997......... F-3
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1999,
1998 and 1997................................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997......... F-5
Notes to Consolidated Financial Statements......................................................... F-6
(2) FINANCIAL STATEMENT SCHEDULES.
The following schedule is included in this Annual Report on the page
indicated:
PAGE IN THIS
ANNUAL REPORT
-------------
Schedule II Valuation and Qualifying Accounts............ S-1
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(3) LIST OF EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------
3.1(1) Certificate of Incorporation, as amended, of Advanstar, Inc.
3.1(4) Certificate of Amendment to the Certificate of Incorporation of
Advanstar dated April 21, 1999
3.2(1) By-Laws of Advanstar, Inc.
4.1(1) Indenture, dated as of April 30, 1998, among the Company, the
Guarantors (as defined therein) and the Bank of New York.
4.2(1) Supplemental Indenture, dated as of May 19, 1998, among the Company,
Applied Business teleCommunications and the Bank of New York
4.3(1) Form of Exchange Note
10.1(5) Second Amended and Restated 1996 Stock Option Plan
10.2(3) Amended Credit Agreement (the "Credit Agreement"), dated as of May 31,
1996, as amended and restated as of July 28, 1999, among the Company,
the Guarantors (as defined in the Credit Agreement), the Lenders (as
defined in the Credit Agreement) and the Chase Manhattan Bank
10.3(5) Employment Agreement, dated September 1, 1999 between Advanstar, Inc.
and Robert Krakoff
10.4(5) Employment Agreement, dated September 1, 1999, between Advanstar, Inc.
and James M. Alic
10.5(5) Employment Agreement, dated September 1, 1999, between Advanstar, Inc.
and Martin C. ("Skip") Farber
10.6(1) Employees' 401(k) Plan and Trust, as amended
10.7(1) Agreement, dated July 31, 1997, between the Company and Banta
Publications
10.8(1) Lease Agreement, dated September 5, 1997, between the Interface
Group--Nevada, Inc. and Men's Apparel Guild in California, Inc.
21.1* Subsidiaries of Advanstar, Inc.
24.1* Power of Attorney (included on signature page of Annual Report)
27.1* Financial Data Schedule (EDGAR version only)
- -----------------
(1) Previously filed as an exhibit to Registration Statement on Form S-4 (File
No. 333-57201) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Annual Report on Form 10-K for the
fiscal year ended December 12, 1998 and filed with the Securities and
Exchange Commission on March 31, 1999 and incorporated herein by reference.
(3) Previously filed as an exhibit to Advanstar, Inc.'s Current Report on Form
8-K and filed with the Securities and Exchange Commission on August 12,
1999, and incorporated herein by reference.
(4) Previously filed as an exhibit to Advanstar, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999 and filed with the
Securities and Exchange Commission on August 13, 1999, and incorporated
herein by reference.
(5) Previously filed as an exhibit to Advanstar, Inc.'s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1999 and filed with
the Securities and Exchange Commission on November 12, 1999, and
incorporated by reference.
* Filed herewith.
(b) Reports On Form 8-K
Advanstar filed no reports on Form 8-K during the quarter ended December
31, 1998.
(c) Exhibits.
Advanstar hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above. We will furnish to any
eligible securityholder, upon written request of such securityholder, a copy of
any exhibit listed above upon the payment of a reasonable fee equal to our
expenses in furnishing such exhibit.
REPORT of INDEPENDENT PUBLIC ACCOUNTANTS
To Advanstar, Inc.:
We have audited the accompanying consolidated balance sheets of Advanstar,
Inc. and Subsidiaries (a Delaware corporation) as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholder's equity and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanstar,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II on page S-1 is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
February 11, 2000
F-1
ADVANSTAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
----------------------
1999 1998
----------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 11,237 $ 14,016
Investments ............................................................................ 52,456 --
Accounts receivable, net of allowance of $709 and $574 at
December 31, 1999 and 1998, respectively ............................................ 29,447 27,976
Prepaid expenses ....................................................................... 15,380 14,784
Other .................................................................................. 2,220 2,097
----------------------
Total current assets .............................................................. 110,740 58,873
DEFERRED INCOME TAXES ....................................................................... 16,442 --
PROPERTY, PLANT AND EQUIPMENT
Land and improvements .................................................................. 2,538 2,526
Buildings .............................................................................. 5,359 5,110
Furniture, machinery and equipment ..................................................... 17,443 13,706
Leasehold improvements ................................................................. 3,967 973
----------------------
29,307 22,315
Accumulated depreciation ............................................................... (8,441) (8,190)
----------------------
Net property, plant and equipment 20,866 14,125
INTANGIBLE ASSETS, net
Goodwill ............................................................................... 590,912 495,144
Other intangibles ...................................................................... 93,635 92,084
----------------------
Total intangible assets ........................................................... 684,547 587,228
----------------------
$ 832,595 $ 660,226
======================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt.................................................... $ 13,740 $ 8,253
Accounts payable ....................................................................... 18,691 13,311
Accrued compensation ................................................................... 6,595 6,146
Income taxes payable ................................................................... 1,067 1,329
Deferred income taxes .................................................................. 17,973 --
Other accrued liabilities .............................................................. 13,860 11,660
Deferred revenue ....................................................................... 69,483 45,643
----------------------
Total current liabilities ......................................................... 141,409 86,342
======================
LONG-TERM DEBT, net of current maturities ................................................... 509,414 418,615
OTHER LONG-TERM LIABILITIES ................................................................. 6,645 3,227
MINORITY INTEREST ........................................................................... 15,161 17,282
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 40,000 shares authorized; 33,630 and 33,466 shares
issued and outstanding at December 31, 1999 and 1998, respectively .................. 336 335
Capital in excess of par ............................................................... 186,578 183,042
Accumulated deficit .................................................................... (49,772) (47,745)
Accumulated other comprehensive income (loss) .......................................... 22,824 (872)
----------------------
Total stockholder's equity ........................................................ 159,966 134,760
----------------------
$ 832,595 $ 660,226
======================
The accompanying notes to financial statements are an integral
part of these consolidated statements.
F-2
ADVANSTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------
Net revenue ............................................. $ 328,372 $ 259,825 $ 187,656
===================================
Operating expenses
Cost of production ................................. 66,237 54,330 39,096
Selling, editorial and circulation ................. 138,868 114,213 87,007
General and administrative ......................... 43,527 36,883 27,514
Amortization of goodwill and other intangible assets 49,214 48,752 24,326
Depreciation ....................................... 4,044 3,071 3,200
-----------------------------------
Total operating expenses ...................... 301,890 257,249 181,143
-----------------------------------
Operating income ........................................ 26,482 2,576 6,513
Other income (expense)
Interest expense, net .............................. (39,888) (27,862) (15,117)
Other income (expense), net ........................ (198) (1,926) 292
Non-recurring charge ............................... (1,442) -- --
-----------------------------------
Income (loss) before income taxes and minority interest . (15,046) (27,212) (8,312)
-----------------------------------
Provision (benefit) for income taxes .................... (11,431) 1,264 583
Minority interest in loss of subsidiary ................. 1,588 40 --
-----------------------------------
Net income (loss) ....................................... $ (2,027) $ (28,436) $ (8,895)
===================================
Loss per share
Basic and diluted .................................. $ (0.06) $ (0.96) $ (0.41)
===================================
Weighted average shares outstanding
Basic and diluted .................................. 33,596 29,652 21,768
The accompanying notes to financial statements are an integral
part of these consolidated statements.
F-3
ADVANSTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER's EQUITY
(Dollars in thousands)
Accumulated
Common Capital in Other
------------------------- Excess of Comprehensive Accumulated
Shares Amount Par Value Income (Loss) Deficit Total
-------------------------------------------------------------------------------
Balance, January 1, 1997 .............. 19,400,000 $ 194 $ 96,806 $ 253 $ (10,414) $ 86,839
Comprehensive income
Net loss ...................... -- -- -- -- (8,895) --
Translation adjustment ........ -- -- -- (210) -- --
Total comprehensive loss ...... -- -- -- -- -- (9,105)
Issuance of common stock ........... 2,400,000 24 11,976 -- -- 12,000
-------------------------------------------------------------------------------
Balance, December 31, 1997 ............ 21,800,000 218 108,782 43 (19,309) 89,734
Comprehensive income
Net loss ...................... -- -- -- -- (28,436) --
Translation adjustment ........ -- -- -- (915) -- --
Total comprehensive loss ...... -- -- -- -- -- (29,351)
Stock option compensation .......... -- -- 3,397 -- -- 3,397
Issuance of common stock ........... 11,666,666 117 70,863 -- -- 70,980
-------------------------------------------------------------------------------
Balance, December 31, 1998 ............ 33,466,666 335 183,042 (872) (47,745) 134,760
Comprehensive income
Net loss ...................... -- -- -- -- (2,027) --
Translation adjustment ........ -- -- -- (4,751) -- --
Unrealized gain on investments,
net of tax effect ........... -- -- -- 28,447 -- --
Total comprehensive income .... -- -- -- -- -- 21,669
Stock option compensation and other -- -- 3,536 -- -- 3,536
Issuance of common stock ........... 163,334 1 -- -- -- 1
-------------------------------------------------------------------------------
Balance, December 31, 1999 ............ 33,630,000 $ 336 $ 186,578 $ 22,824 $ (49,772) $ 159,966
===============================================================================
The accompanying notes to financial statements are an integral
part of these consolidated statements.
F-4
ADVANSTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
-----------------------------------
OPERATING ACTIVITIES
Net income (loss) ............................................. $ (2,027) $ (28,436) $ (8,895)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization ............................... 49,114 39,158 26,371
Non-cash interest ........................................... 1,209 960 934
Impairment of intangible assets ............................. 4,144 12,665 1,155
Non-cash stock compensation ................................. 3,925 3,397 --
(Gain) loss on sales of assets and other .................... (659) 1,968 (228)
Deferred income taxes ....................................... (12,631) -- --
Changes in operating assets and liabilities
Accounts receivable, net .................................. (1,388) (6,064) (2,098)
Inventories ............................................... (318) 657 (317)
Prepaid expenses .......................................... 1,736 (670) (2,001)
Accounts payable and accrued liabilities .................. (555) 7,338 (2,591)
Deferred revenue .......................................... 10,521 3,674 290
Other ..................................................... 449 (1,079) 182
-----------------------------------
Net cash provided by operating activities ............... 53,520 33,568 12,802
-----------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment .................... (9,722) (4,154) (2,260)
Change in notes receivable .................................... 195 (124) (235)
Acquisition of publications and trade shows, net .............. (141,479) (358,315) (31,871)
Proceeds from sale of publishing and other assets ............. 104 4,332 1,043
-----------------------------------
Net cash used in investing activities ................... (150,902) (358,261) (33,323)
===================================
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan ......... (29,000) 27,000 (15,000)
Proceeds from long-term debt .................................. 138,000 399,613 40,000
Payments of long-term debt .................................... (12,752) (163,993) (11,776)
Proceeds from sale of common stock, capital
contributions and other ..................................... -- 70,980 12,000
Dividends paid to minority interest holders ................... (1,344) (1,000) --
-----------------------------------
Net cash provided by financing activities ............... 94,904 332,600 25,224
-----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................... (301) (915) (210)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............ (2,779) 6,992 4,493
CASH AND CASH EQUIVALENTS, beginning of period .................. 14,016 7,024 2,531
-----------------------------------
CASH AND CASH EQUIVALENTS, end of period ........................ $ 11,237 $ 14,016 $ 7,024
===================================
The accompanying notes to financial statements are an integral
part of these consolidated statements.
F-5
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Advanstar, Inc., and its wholly-owned subsidiary Advanstar Communications Inc.
(Communications), and Communications' majority-owned subsidiaries (collectively,
Advanstar or the Company). All intercompany accounts and transactions between
consolidated entities have been eliminated.
The Company operates and manages trade shows and conferences; publishes
controlled circulation trade and professional periodicals; and markets a broad
range of marketing, direct mail and database products and services.
On June 10, 1998, Advanstar Holdings, Inc., merged into its parent holding
company, AHI Holdings Corp. AHI Holdings Corp. had no operations independent of
Advanstar Holdings, Inc. In connection with the merger, AHI Holdings Corp.
changed its name to Advanstar Holdings, Inc. All references to the number of
common shares and per share amounts have been adjusted to reflect the
capitalization of the merged entity. On March 17, 1999, Advanstar Holdings, Inc.
changed its name to Advanstar, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and highly liquid
investments with original maturities of three months or less. Cash equivalents
are stated at cost, which approximates their fair market value.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses consist primarily of prepaid trade show and conference
expenses, prepaid publication production costs and miscellaneous deposits. Event
and publication expenses are charged to operations at the time of the occurrence
of the related event and at the time of publication issuance. Other current
assets consist of paper inventories and notes receivable.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment additions are recorded at cost. For financial
reporting purposes, depreciation is provided on a straight-line basis over the
following estimated useful lives:
ESTIMATED USEFUL LIVES
----------------------
Land improvements....................... 10-15 years
Buildings............................... 20-40 years
Furniture, machinery and equipment...... 3-10 years
Leasehold improvements.................. Life of lease
For tax reporting purposes, certain assets have different estimated useful
lives.
F-6
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL
All acquisitions have been accounted for using the purchase method of
accounting, with the purchase price in excess of the fair values of specific
identifiable tangible and intangible assets acquired allocated to goodwill.
Goodwill, which is being amortized on a straight-line basis over an average
of 23 years, is recorded in the accompanying consolidated balance sheets net of
accumulated amortization of $53.7 million and $29.4 million at December 31, 1999
and 1998, respectively.
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over 1 to 20
years. Intangible assets consist primarily of identifiable intangibles including
advertiser, paid subscriber and trade show exhibitor lists, computer software,
the value assigned to Advanstar's assembled workforce and fulfillment
agreements. Accumulated amortization was $60.4 million and $41.1 million at
December 31, 1999 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets, including
identifiable intangibles and goodwill, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
non-discounted cash flows are less than the carrying value of the assets and any
related goodwill, the carrying value is reduced to the estimated fair value as
measured by the discounted cash flows.
During 1999 and 1998, the Company identified certain properties which, due
to changes in market conditions and portfolio management direction, the Company
elected to discontinue. As a result, a total non-cash charge of $4.1 million and
$12.7 million was recorded in 1999 and 1998, respectively, to write down the
carrying value of the related operating assets and intangibles, and is included
in amortization of goodwill and other intangible assets on the consolidated
statements of operations.
REVENUE RECOGNITION
Trade show and conference revenue is recognized in the accounting period in
which the event is conducted. Subscription revenue is recognized on a pro rata
basis as publications are issued to fulfill the subscription obligations.
Advertising revenue is recognized as the publication with the respective
advertisement is published. Deferred revenue is recorded when cash is received
in advance of providing the related service.
Deferred revenue consisted of the following (in thousands):
AT DECEMBER 31,
--------------------
1999 1998
--------------------
Deferred trade show and conference revenue......... $ 57,727 $ 41,468
Deferred advertising and subscription revenue...... 4,236 4,175
Deferred internet revenue.......................... 7,520 --
--------------------
Total deferred revenue........................ $ 69,483 $ 45,643
====================
F-7
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Ultimate results could differ from these estimates. On an
ongoing basis, management reviews its estimates, including those affecting
doubtful accounts, valuation of goodwill and intangible assets, compensation
related to stock options, and income taxes. Changes in facts and circumstances
may result in revised estimates.
FOREIGN CURRENCY TRANSLATION
The Company accounts for translation investments in foreign entities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation."
DERIVATIVES
The Company periodically enters into forward exchange contracts principally
to hedge the eventual dollar results of foreign currency denominated
transactions (primarily British Pounds and Brazilian Real). Gains and losses on
forward exchange contracts entered into to hedge foreign currency transactions
are included in revenue in the consolidated statements of income when the
underlying transaction is closed.
The Company's accounting policy for these contracts is based on the Company's
designation of foreign currency contracts as hedging transactions. The Company
does not use derivative financial instruments for speculative or trading
purposes. The criteria the Company uses for designating a contract as a hedge
include the contract's effectiveness in risk reduction and matching of contracts
to underlying transactions. At December 31, 1999, there were open hedge
contracts with a notional amount totaling $23.3 million and an unrealized gain
of $0.1 million. On December 31, 1998, there were no open hedge contracts.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, due to the variable features of option grants under the Company's
stock option plan, the Company measures compensation cost as the difference
between the exercise price of the options and the fair value of the shares under
option at the end of each period, and recognizes compensation expense to provide
for such differences.
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement established rules for the reporting of
comprehensive income and its components. Comprehensive income reflects the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. Comprehensive income
consists of net income and foreign currency translation adjustments and is
presented in the consolidated statement of stockholder's equity. The adoption of
SFAS No. 130 had no impact on total shareholder's equity. Prior year financial
statements have been reclassified to conform to the SFAS No. 130 requirements.
F-8
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported in prior years
in order to conform to the current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended, is effective for fiscal years beginning after June 15,
2000. Because of the Company's minimal use of derivatives, management does not
anticipate that the adoption of the new statement will have a significant effect
on earnings or the financial position of the Company.
3. STOCK SPLIT
On April 20, 1999, the Company's Board of Directors approved a
two-for-one stock split, which was effected as a stock dividend. On April 21,
1999, the stockholder was issued one additional share of common stock for each
share of common stock held on the record date of April 20, 1999. All references
to the number of common shares and per share amounts have been adjusted to
reflect the stock split on a retroactive basis.
4. NON-RECURRING CHARGE
Beginning in the quarter ended March 31, 1999, the Company began
capitalizing direct costs related to an initial public offering. During the
quarter ended September 30, 1999, the Company determined not to move forward at
that time with the initial public offering. As a result, the Company recognized
a charge of $1.4 million related to all costs of the initial public offering
that had been previously capitalized.
5. ACQUISITIONS
During 1997, the Company purchased certain trade shows and publishing
properties for an aggregate purchase price of $39.7 million. The cost of these
acquired entities in excess of the fair market value of net assets acquired has
been recorded as goodwill and intangibles. Due to the timing of these
acquisitions, the incremental pro forma effect on the consolidated results of
operations was not material.
On April 30, 1998, the Company acquired Men's Apparel Guild in California,
Inc. (MAGIC), which operates apparel trade shows (the MAGIC Acquisition). The
acquisition was accounted for as a purchase. The purchase price was
approximately $234.3 million in cash and assumed liabilities. Concurrent with
the MAGIC Acquisition, the Company renegotiated its credit agreement to provide
additional borrowing capacity. The Company also received an additional equity
contribution of approximately $71.0 million.
On August 17, 1998, the Company acquired certain travel-related publication
and trade show assets of Universal Media Inc., including Travel Agent
(collectively, Travel Agent). The acquisition was accounted for as a purchase.
The purchase price was approximately $68.0 million in cash plus approximately
$1.0 million in assumed liabilities. Concurrent with the Travel Agent
Acquisition, the Company undertook an additional amendment to its credit
agreement to further increase its borrowing capacity thereunder by $40.0 million
(as so amended, the Second Amended Credit Facility, and together with the
Original Credit Facility and the First Amended Credit Facility, the
F-9
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amended Credit Facility), and financed the balance of the cash purchase price
with its available cash and revolving credit facility.
From January 1, 1998 through December 31, 1998, the Company completed 11
other acquisitions of trade shows, conferences and publishing properties, with a
cumulative purchase price totaling approximately $89.1 million. Certain entities
acquired in 1998 have minority ownership interests.
On July 28, 1999, the Company acquired certain trade shows and
publishing properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin), which operates apparel trade shows. The acquisition was
accounted for as a purchase. The purchase price was approximately $135.4 million
in cash and assumed liabilities. Concurrent with the Larkin acquisition, the
Company amended and restated its credit agreement to provide additional
borrowing capacity to finance the acquisition.
From January 1, 1999 through December 31, 1999, the Company completed
three other acquisitions of trade shows, conferences and publishing properties,
with a cumulative purchase price totaling approximately $17.3 million in cash
and assumed liabilities.
The following are unaudited pro forma operating results as if the
acquisitions had taken place at January 1, 1997 (in thousands, except per share
amounts):
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
------------------------------------
Total revenues................................................. $ 353,862 $ 343,525 $ 304,062
Operating income............................................... 31,133 19,678 17,583
Net loss....................................................... (1,382) (29,385) (28,487)
Loss per share--diluted........................................ $ (0.04) $ (0.99) $ (1.31)
The unaudited pro forma financial information is provided for informational
purposes only. It is based on historical information and does not purport to be
indicative of the results that would have occurred had the acquisitions been
made at January 1, 1997, or of future results.
6. EARNINGS PER SHARE
Earnings per share is calculated in accordance with SFAS No. 128
"Earnings per Share."
The following table is a reconciliation of the earnings numerator and
the weighted average shares denominator used in the calculations of basic and
diluted earnings per share (in thousands, except per share data):
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
-----------------------------------
Net loss:
Basic and diluted earnings per share............... $ (2,027) $ (28,436) $ (8,895)
===================================
Weighted average shares:
Basic and diluted.................................. 33,596 29,652 21,768
===================================
Loss per share:
Basic and diluted .................................. $ (0.06) $ (0.96) $ (0.41)
===================================
F-10
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DEBT
AMENDED CREDIT FACILITY
In July 1999, the Company amended its credit facility. The Amended Credit
Facility consists of four components: Tranche A, a 5 1/2-year term loan in an
aggregate principal amount equal to $100.0 million; Tranche B, a seven-year term
loan in an aggregate principal amount equal to $150.0 million; Tranche C, a
seven-year term loan in an aggregate principal amount equal to $138.0 million;
and a 5 1/2-year revolving credit facility in the maximum amount of $60.0
million. In addition, the Company has purchased interest rate protection
agreements for a notional amount of $113.8 million to limit its interest rate
exposure at 8.0%-8.5%.
The obligations of the Company under the Amended Credit Facility are
guaranteed by the domestic wholly-owned subsidiaries of the Company and are
collateralized by substantially all tangible and intangible assets of the
Company and pledges of the Company and substantially all of its subsidiaries'
capital stock.
The Amended Credit Facility requires the Company to apply certain amounts
to prepay the term loans, including (i) proceeds from certain issuances of
equity or indebtedness by the Company; (ii) the net cash proceeds of certain
sales or other dispositions by the Company of any assets; and (iii) 50% of
excess cash flow (as defined) for each fiscal year starting on January 1, 2000.
The Company also has the right to optionally prepay the loans, without premium,
in whole or in part. Amounts applied as prepayments of the revolving credit
facility may be reborrowed; amounts prepaid in respect of the term loans may
not. Optional prepayments on the term loans were $4.0 million at December 31,
1999.
The Amended Credit Facility contains certain financial covenants, including a
minimum fixed charge coverage ratio and a maximum leverage ratio. The Company
was in compliance with all covenants as of December 31, 1999.
SENIOR SUBORDINATED NOTES
The senior subordinated notes (Notes) issued in conjunction with the MAGIC
acquisition are unsecured obligations of Communications, limited to $150.0
million aggregate principal amount, and will mature on May 1, 2008. Each Note
bears interest at 9 1/4%, payable semiannually. The Notes are redeemable at
Communications' option after May 1, 2003 through April 30, 2006 at specified
premiums, and at par thereafter. A portion of the Notes may be redeemed at a
premium prior to May 1, 2001 with proceeds of certain equity offerings made by
the Company, and the Notes may also be redeemed at a premium prior to May 1,
2003 upon a qualifying change of control of Advanstar.
Financial covenants under the Notes include a maximum leverage ratio,
limitations on certain asset dispositions, dividends and other restricted
payments. The Company was in compliance with all covenants as of December 31,
1999.
F-11
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term debt consists of the following (in thousands):
AT DECEMBER 31,
----------------------
1999 1998
----------------------
Tranche A term loan, interest at LIBOR plus 2.25%, 8.75% at December 31,
1999, due October 31, 2003.................................................... $ 90,210 $ 98,529
Tranche B term loan, interest at LIBOR plus 2.50%, 9.00% at December 31,
1999, due April 30, 2005...................................................... 147,223 149,700
Tranche C term loan, interest at LIBOR plus 3.00%, 9.50% at December 31,
1999, due June 30, 2007...................................................... 136,043 --
Revolving credit loan, interest at LIBOR plus 2.25%, 8.75% at December 31,
1999, due October 31, 2003.................................................... -- 29,000
Senior subordinated notes at 9.25%, due May 31, 2008, net of discount............ 149,678 149,639
----------------------
523,154 426,868
Less--Current maturities......................................................... (13,740) (8,253)
----------------------
$ 509,414 $ 418,615
======================
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt was substantially the same as its carrying value at December 31, 1999 and
1998. Cash paid during 1999, 1998 and 1997 for interest was $38.8 million, $25.3
million and $15.4 million, respectively.
Annual maturities of long-term debt for the next five years are as follows
(in thousands):
2000..... $13,740
2001..... 20,189
2002..... 23,965
2003..... 38,082
2004..... 73,300
8. STOCKHOLDER'S EQUITY
STOCK OPTION PLAN
The Company maintains a non-qualified stock option plan (the Plan) in which
certain members of the Company's management are eligible to participate. The
term of the options runs for ten years, with options vesting 20% in each of the
first five years of the option term. The exercise price for these options
increases at a 10% annually compounded rate. Options become immediately
exercisable upon a change of control of the Company, or at the discretion of the
Company's Board of Directors. If the Company does not complete an initial public
offering by January 1, 2001, option holders may agree with the Company to sell
the shares under option to the Company at a fair market value price to be
determined by the Board of Directors. However, the Company is not obligated to
agree to any such repurchase under the terms of the Plan. In addition, the
Company has certain repurchase rights under the Plan. Under the Plan, up to
2,051,124 options may be granted at the discretion of the Company's Board of
Directors.
The Company accounts for the options using the intrinsic value method
outlined in APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, and because of the variable features of the Plan, the Company
measures compensation cost as the difference between the exercise price of the
options and the fair value of the shares under option at the end of each period,
and recognizes compensation expense to provide for such
F-12
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
difference. As of December 31, 1999 and 1998, compensation expense of $3.9
million and $3.4 million, respectively, was recognized under the Plan. No
compensation expense was recognized during 1997 because the fair value of the
shares was less than the exercise price of the related options. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below
(in thousands, except per share data):
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
-----------------------------------
Net loss - as reported ............. $ (2,027) $ (28,436) $(8,895)
===================================
Net loss - pro forma ............... (2,858) (29,005) (8,895)
===================================
Loss per share - as reported:
Basic and diluted .............. (0.06) (0.96) (0.41)
===================================
Loss per share - pro forma
Basic and diluted .............. (0.08) (0.98) (0.41)
===================================
For purposes of computing compensation cost of stock options granted, the
fair value of each stock option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-----------------------------
Expected dividend yield........... -- -- --
Expected stock price volatility... 34.7% 30.6% 32.4%
Risk-free interest rate........... 6.5% 5.6% 5.8%
Expected life of options.......... 5 years 5 years 5 years
A summary of stock option activity under the Plan is as follows:
Options Weighted Average
Outstanding Exercise Price
-----------------------------
Outstanding at January 1, 1997........ 1,247,400 $ 5.00
Granted.......................... 223,400 5.50
Exercised........................ -- --
Cancelled........................ -- --
Outstanding at December 31, 1997...... 1,470,800 5.82
Granted.......................... 720,300 6.09
Exercised........................ -- --
Cancelled........................ (380,000) 5.87
Outstanding at December 31, 1998...... 1,811,100 6.42
Granted.......................... 410,000 12.68
Cancelled........................ (190,000) 6.67
--------------------------
Outstanding at December 31, 1999...... 2,031,100 $ 8.24
==========================
As of December 31, 1999, the outstanding stock options had a weighted
average exercise price of $8.24 and a weighted average remaining contractual
life of 8.1 years. 703,900 options were exercisable with a weighted average
exercise price of $7.04. The weighted average fair value of grants during 1999,
as estimated using the Black-Scholes option pricing model, was $3.14 per option.
F-13
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 401(K) PLAN
The Company has an Employees' 401(k) Plan and Trust (the 401(k) Plan)
available to employees of the Company and its domestic subsidiaries. All current
and future domestic employees who have completed one year of service and are at
least 21 years of age are eligible to participate in the 401(k) Plan. The
Company is required to make a matching contribution to the Plan and may, at its
discretion, make discretionary contributions to the 401(k) Plan. Eligible
employees are vested 100% in their own contributions. Contributions made by the
Company vest in equal installments over five years. Total contribution expense
was $1.2 million, $1.0 million and $0.9 million for the years ended December 31,
1999, 1998 and 1997, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following (in
thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
------------------------------
Current
Federal............................ $ 268 $ -- $ --
State.............................. 65 217 78
Foreign............................ 867 1,047 505
Deferred.............................. (12,631) -- --
------------------------------
Total income tax provision (benefit).. $(11,431) $ 1,264 $ 583
==============================
The Company utilizes the liability method for calculating deferred income
taxes, and deferred tax assets and liabilities are determined based on the
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities pursuant to the provisions of enacted tax
laws. Significant components of the Company's deferred tax assets were as
follows (in thousands):
AT DECEMBER 31,
------------------------
1999 1998
------------------------
Deferred tax liabilities:
Unrealized gain on investments............ $ (16,492) $ --
Prepaid expenses.......................... (2,570) (1,674)
------------------------
Total deferred tax liabilities....... (19,062) (1,674)
Deferred tax assets:
Net operating loss carryforwards.......... 1,205 8,510
Foreign tax credit carryforwards.......... 1,593 1,159
Depreciation and amortization............. 8,819 5,128
Stock options and warrants................ 5,397 1,290
Other, primarily accrued expenses......... 2,110 997
------------------------
Total deferred tax assets............ 19,124 17,084
Valuation allowance............................ (1,593) (15,410)
------------------------
Net deferred tax liability..................... $ (1,531) $ --
========================
During 1999, the Company established a deferred tax liability related to its
warrants to purchase common stock of PurchasePro.com, Inc., which resulted in a
reduction in other comprehensive income. The Company also established deferred
tax assets of $2.3 million related to its acquisitions. Due to the difference in
the income tax and
F-14
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
financial reporting bases of assets acquired and liabilities assumed in these
acquisitions, the tax benefit has been reflected as a reduction of goodwill in
the accompanying consolidated balance sheet as of December 31, 1999.
The valuation allowance for deferred tax assets decreased by $13.8 million
in 1999. The decrease in this allowance is primarily attributable to increased
domestic earnings of the Company. A valuation allowance has been provided on
foreign tax credit carryforwards which substantially expire in 2001. Based on
management's assessment, it is more likely than not that all the deferred tax
assets, net of the valuation allowance at December 31, 1999, will be realized.
The Company's net operating loss carryforwards expire through 2012.
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before the provision for income
taxes. The sources and tax effects of the differences are as follows (in
thousands):
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
----------------------------------
Income tax benefit at the federal statutory rate of 35%.. $ (4,710) $(9,510) $(2,909)
Change in valuation allowance............................ (13,817) 9,060 3,070
Nondeductible amortization............................... 4,127 2,875 --
Foreign operations....................................... 468 220 505
Change in deferred tax rates............................. 488 -- --
State taxes net of federal benefit....................... 102 143 51
Other ................................................... 1,911 (1,524) (134)
----------------------------------
Total income tax provision (benefit)..................... $ (11,431) $ 1,264 $ 583
==================================
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has long-term operating leases for office space and office
equipment. The leases generally require the Company to pay maintenance,
insurance, taxes and other expenses in addition to minimum annual rentals.
Building and equipment rent expense was $5.2 million, $3.4 million and $3.0
million for 1999, 1998 and 1997, respectively. Future minimum lease commitments
under operating leases with initial terms of one year or more are as follows (in
thousands):
2000........... $6,729
2001........... 6,375
2002........... 5,755
2003........... 4,565
2004........... 3,601
Thereafter..... 18,709
EMPLOYMENT AGREEMENTS
Three senior executives of the Company entered into employment agreements
dated as of September 1, 1999 which terminate on May 31, 2003. Pursuant to the
agreements, the executives are entitled to annual base salaries and annual
bonuses based on the Company's EBITDA for any year. The agreements also provide
for severance benefits equal to one year's base salary and benefits (and a pro
rated bonus) upon termination of employment by the Company without "cause" or by
the executive for "good reason." The executives also entered into
non-competition and confidentiality agreements with the Company. Compensation
expense for these executives is included in general and administrative expenses
of the Company.
F-15
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LITIGATION
The Company is a defendant in legal proceedings arising in the ordinary
course of business. Although the outcome of these proceedings cannot presently
be determined, in the opinion of management, disposition of these proceedings
will not have a material effect on the results of operations or financial
position of the Company.
12. E-COMMERCE DEVELOPMENT AGREEMENT
The Company entered into an agreement with PurchasePro.com Inc.,
(PurchasePro), a developer and operator of web-based e-commerce solutions, to
provide business-to-business electronic commerce services. Under the terms of
the agreement, PurchasePro will develop, host and maintain a series of vertical
trade community marketplaces. In exchange for these services, the Company will
pay PurchasePro various fees to develop and host the sites and, through a
marketing services agreement, the Company will provide advertising and
promotional services in the Company's traditional products. The Company and
PurchasePro will also share in various portions of the transactional and
advertising revenues created by each of these marketplaces.
As part of the agreement, the Company received warrants for 525,000 shares
of PurchasePro.com, Inc. common stock at an exercise price of $37.58 per share
to expire six months from the date granted. The Company has valued these
warrants on the date of grant at $7.5 million, as estimated using the
Black-Scholes option pricing model, and has recorded this amount as deferred
revenue. The Company has classified these warrants as available-for-sale under
the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and, accordingly, is carrying the warrants at fair market
value on December 31, 1999 as determined by quoted market prices, resulting in
an unrealized gain of $28.4 million, net of applicable taxes, reported in other
comprehensive income.
13. SEGMENTS
The Company has three reportable segments: trade shows and conferences,
trade publications and marketing services. The trade show and conference segment
allows exhibitors a cost-effective means to showcase and sell products and
services while developing business relationships with many potential customers
in a short time period. The Company's trade publications segment provides key
new product and educational information to readers and allows advertisers to
reach highly targeted and select business audiences. The marketing services
segment offers customers mailing lists from the Company's subscriber and
attendee databases; editorial and advertising reprints; direct mail postcards;
and classified, recruitment and industry directory advertising.
F-16
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company evaluates the performance of, and allocates resources to, its
segments based on gross profit. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. There are no intersegment sales or transfers. Segment
assets are primarily intangible assets, prepaid expenses and accounts
receivables (all amounts in thousands).
TRADE
SHOWS CORPORATE
AND TRADE MARKETING AND
CONFERENCES PUBLICATIONS SERVICES OTHER TOTALS
----------- ------------ --------- --------- ------
YEAR ENDED DECEMBER 31, 1999
Revenues...................................... $161,007 $ 147,714 $18,581 $1,070 $328,372
Gross profit.................................. 71,593 41,991 9,290 393 123,267
Segment assets................................ 468,802 237,674 3,020 123,099 832,595
YEAR ENDED DECEMBER 31, 1998
Revenues...................................... $113,066 $ 130,442 $15,647 $ 670 $259,825
Gross profit.................................. 45,020 37,715 8,102 445 91,282
Segment assets................................ 356,655 248,291 2,254 53,026 660,226
YEAR ENDED DECEMBER 31, 1997
Revenues...................................... $ 61,608 $ 111,611 $13,900 $ 537 $187,656
Gross profit.................................. 20,035 33,801 7,180 537 61,553
Segment assets................................ 101,718 152,039 1,832 42,908 298,497
The reconciliation of total segment gross profit to consolidated pre-tax
income are as follows (in thousands):
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------------------------------
Total segment gross profit............... $123,267 $ 91,282 $ 61,553
General and administrative expense....... (43,527) (36,883) (27,514)
Depreciation and amortization............ (53,258) (51,823) (27,526)
Other expense............................ (39,940) (29,748) (14,825)
--------------------------------
Consolidated pre-tax loss................ $(13,458) $(27,172) $ (8,312)
================================
Financial information relating to the Company's operations by geographic
area are as follows (in thousands):
REVENUES
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-----------------------------
United States...... $287,850 $225,104 $164,197
International...... 40,522 34,721 23,459
-----------------------------
$328,372 $259,825 $187,656
=============================
Revenues are primarily attributed to countries based on the location of
customers.
LONG-LIVED ASSETS (IN THOUSANDS)
AT DECEMBER 31,
-------------------------------
1999 1998 1997
-------------------------------
United States...... $688,112 $573,734 $257,057
International...... 17,301 27,619 3,734
-------------------------------
$705,413 $601,353 $260,791
===============================
F-17
ADVANSTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Notes are fully and unconditionally guaranteed on a senior subordinated
basis, jointly and severally, by the Company and the wholly-owned domestic
subsidiaries of Communications. Communications is the only direct subsidiary of
the Company and is wholly-owned by the Company. The subsidiary guarantors are
Art Expositions International, Inc., MAGIC, and Applied Business
TeleCommunications. Communications, the subsidiary guarantors and the
non-guarantor subsidiaries comprise all of the direct and indirect subsidiaries
of the Company. The condensed consolidating financial statements of the
guarantors are presented below and should be read in connection with the
consolidated financial statements of the Company. Separate financial statements
of the guarantors are not presented because the guarantors are jointly,
severally and unconditionally liable under the guarantees and the Company
believes the condensed consolidating financial statements presented are more
meaningful in understanding the financial position of the guarantors. Management
has determined that such information is not material to investors.
THERE ARE NO SIGNIFICANT RESTRICTIONS ON THE ABILITY OF THE SUBSIDIARY
GUARANTORS TO MAKE DISTRIBUTIONS TO THE COMPANY.
F-18
ADVANSTAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999
(IN THOUSANDS)
COMPANY COMMUNICATIONS MAGIC ABC
--------- -------------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ............. $ -- $ 5,612 $ 33 $ --
Accounts receivable, net .............. -- 26,129 (356) 55
Prepaid expenses ...................... -- 9,774 2,107 161
Investments ............................. -- -- -- --
Intercompany receivable (payable) ....... 142 (38,165) 74,797 927
Other ................................. -- 1,940 -- --
--------- --------- --------- ---------
Total current assets ................ 142 5,290 76,581 1,143
--------- --------- --------- ---------
Non-current assets
Deferred taxes ........................ -- 16,442 -- --
Property, plant and equipment, net ...... -- 18,859 649 24
Investments in subsidiaries ............. 159,966 304,279 -- --
Intangible assets, net .................. -- 423,020 198,618 16,985
--------- --------- --------- ---------
$ 160,108 $ 767,890 $ 275,848 $ 18,152
========= ========= ========= =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ..... $ -- $ 13,740 $ -- $ --
Accounts payable ...................... 124 13,748 852 28
Deferred revenue ...................... -- 30,933 22,462 2,114
Accrued liabilities ................... 18 18,273 3,075 10
--------- --------- --------- ---------
Total current liabilities ........... 142 76,694 26,389 2,152
--------- --------- --------- ---------
Long-term debt, net of current maturities -- 509,414 -- --
Other long-term liabilities ............. -- 6,645 -- --
Minority interest ....................... -- 15,161 -- --
Stockholder's equity
Common stock .......................... 336 10 1 2
Capital in excess of par value ........ 186,578 186,914 220,627 15,739
Retained earnings (deficit) ........... (49,772) (49,772) 28,831 259
Accumulated other comprehensive income 22,824 22,824 -- --
--------- --------- --------- ---------
Total stockholder's equity .......... 159,966 159,976 249,459 16,000
--------- --------- --------- ---------
$ 160,108 $ 767,890 $ 275,848 $ 18,152
========= ========= ========= =========
GUARANTOR NON-GUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents .............. $ 33 $ 5,592 $ -- $ 11,237
Accounts receivable, net ............... (301) 3,619 -- 29,447
Prepaid expenses ....................... 2,268 3,338 -- 15,380
Investments .............................. -- 52,456 -- 52,456
Intercompany receivable (payable) ........ 75,724 (37,559) (142) --
Other .................................. -- 280 -- 2,220
--------- --------- --------- ---------
Total current assets ................. 77,724 27,726 (142) 110,740
--------- --------- --------- ---------
Non-current assets
Deferred taxes ......................... -- -- -- 16,442
Property, plant and equipment, net ....... 673 1,334 -- 20,866
Investments in subsidiaries .............. -- -- (464,245) --
Intangible assets, net ................... 215,603 45,924 -- 684,547
--------- --------- --------- ---------
$ 294,000 $ 74,984 $(464,387) $ 832,595
========= ========= ========= =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ...... $ -- $ -- $ -- $ 13,740
Accounts payable ....................... 880 4,063 (124) 18,691
Deferred revenue ....................... 24,576 13,974 -- 69,483
Accrued liabilities .................... 3,085 18,137 (18) 39,495
--------- --------- --------- ---------
Total current liabilities ............ 28,541 36,174 (142) 141,409
--------- --------- --------- ---------
Long-term debt, net of current maturities. -- -- -- 509,414
Other long-term liabilities .............. -- -- -- 6,645
Minority interest ........................ -- -- -- 15,161
Stockholder's equity
Common stock ........................... 3 382 (395) 336
Capital in excess of par value ......... 236,366 44,890 (468,170) 186,578
Retained earnings (deficit) ............ 29,090 (6,462) 27,144 (49,772)
Accumulated other comprehensive income.. -- -- (22,824) 22,824
--------- --------- --------- ---------
Total stockholder's equity ........... 265,459 38,810 (464,245) 159,966
--------- --------- --------- ---------
$ 294,000 $ 74,984 $(464,387) $ 832,595
========= ========= ========= =========
F-19
ADVANSTAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
GUARANTOR NON-GUARANTOR CONSOLIDATED
COMPANY COMMUNICATIONS MAGIC ABC SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
--------- -------------- --------- --------- ------------ ------------- ----------- ------------
Net revenue ....................... $ -- $ 223,042 $ 53,684 $ 4,537 $ 58,221 $ 47,109 $ -- $ 328,372
-----------------------------------------------------------------------------------------------
Operating expenses:
Cost of sales and selling,
editorial and circulation ..... -- 150,114 17,066 3,291 20,357 34,634 -- 205,105
General and administrative ...... -- 35,742 1,955 -- 1,955 5,830 -- 43,527
Depreciation and amortization ... -- 33,676 11,228 901 12,129 7,453 -- 53,258
-----------------------------------------------------------------------------------------------
Total operating expenses ...... -- 219,532 30,249 4,192 34,441 47,917 -- 301,890
-----------------------------------------------------------------------------------------------
Operating income (loss) ........... -- 3,510 23,435 345 23,780 (808) -- 26,482
Other income (expense):
Interest income (expense), net .. -- (38,578) 2 -- 2 (1,312) -- (39,888)
Other income (expense), net ..... -- 3,265 2 -- 2 (4,907) -- (1,640)
-----------------------------------------------------------------------------------------------
Income (loss) before income taxes . -- (31,803) 23,439 345 23,784 (7,027) -- (15,046)
Provision (benefit) for
income tax .................... -- (12,180) -- -- -- 749 -- (11,431)
Minority interest in earnings ... -- 1,588 -- -- -- -- -- 1,588
Equity in (loss) of subsidiaries. (2,027) 16,008 -- -- -- -- (13,981) --
-----------------------------------------------------------------------------------------------
Net income (loss) ................. $ (2,027) $ (2,027) $ 23,439 $ 345 $ 23,784 $ (7,776) $ (13,981) $ (2,027)
===============================================================================================
F-20
ADVANSTAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
COMPANY COMMUNICATIONS MAGIC ABC
---------- -------------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss) ................................ $ (2,027) $ (2,027) $ 23,439 $ 345
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization ...................... -- 33,665 11,225 913
Non cash Items ..................................... -- (8,163) -- --
Change in working capital items .................... -- 27,395 (34,054) (2,394)
--------------------------------------------------
Net cash provided by (used in) operating
activities ....................................... (2,027) 50,870 610 (1,136)
--------------------------------------------------
INVESTMENT ACTIVITIES:
Net loss in investment in subsidiaries ........... 2,027 -- -- --
Additions to property, plant and equipment,
net ............................................. -- (8,287) (444) --
Acquisitions of publications and trade shows ....... -- (139,472) (29) 1,128
--------------------------------------------------
Net cash provided by (used in) investing
activities ....................................... 2,027 (147,759) (473) 1,128
--------------------------------------------------
FINANCING ACTIVITIES:
Dividends paid to minority interest holders ...... -- (1,344) -- --
Borrowings of long-term debt, net
activities....................................... -- 96,248 -- --
--------------------------------------------------
Net cash provided by (used in) Financing activities. -- 94,904 -- --
--------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ -- (301) -- --
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............................ -- (2,286) 137 (8)
CASH AND CASH EQUIVALENTS,
Beginning of period: ............................. -- 7,898 (104) 8
--------------------------------------------------
CASH AND CASH EQUIVALENTS,
End of period: ................................... $ -- $ 5,612 $ 33 $ --
==================================================
GUARANTOR NON-GUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
------------ ------------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) ................................ $ 23,784 $ (7,776) $ (13,981) $ (2,027)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization ...................... 12,138 7,455 -- 53,258
Non cash Items ..................................... -- 7 -- (8,156)
Change in working capital items .................... (36,448) 3,490 16,008 10,445
----------------------------------------------------
Net cash provided by (used in) operating
activities ....................................... (526) 3,176 2,027 53,520
----------------------------------------------------
INVESTMENT ACTIVITIES:
Net loss in investment in subsidiaries ........... -- -- (2,027) --
Additions to property, plant and equipment,
net ............................................. (444) (887) -- (9,618)
Acquisitions of publications and trade shows ....... 1,099 (2,911) -- (141,284)
----------------------------------------------------
Net cash provided by (used in) investing
activities ....................................... 655 (3,798) (2,027) (150,902)
----------------------------------------------------
FINANCING ACTIVITIES:
Dividends paid to minority interest holders ...... -- -- -- (1,344)
Borrowings of long-term debt, net
activities....................................... -- -- -- 96,248
----------------------------------------------------
Net cash provided by (used in) Financing activities. -- -- -- 94,904
----------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ -- -- -- (301)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............................ 129 (622) -- (2,779)
CASH AND CASH EQUIVALENTS,
Beginning of period: ............................. (96) 6,214 -- 14,016
----------------------------------------------------
CASH AND CASH EQUIVALENTS,
End of period: ................................... $ 33 $ 5,592 $ -- $ 11,237
====================================================
F-21
ADVANSTAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1998
(IN THOUSANDS)
COMPANY COMMUNICATIONS MAGIC MAGICKIDS ABC
--------- -------------- ---------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........ $ -- $ 8,270 $ (108) $ 4 $ 8
Accounts receivable, net ......... -- 22,620 597 -- 430
Prepaid expenses ................. -- 7,818 3,600 54 190
Intercompany receivable (payable). 124 (22,330) 31,811 3,493 (1,189)
Other ............................ -- 1,556 -- -- --
Total current assets ........... 124 17,934 35,900 3,551 (561)
Property, plant and equipment, net . -- 12,173 396 10 84
Investments in subsidiaries ........ 134,760 298,689 -- -- --
Intangible assets, net ............. -- 293,146 209,613 -- 19,009
---------------------------------------------------------------
$ 134,884 $ 621,942 $ 245,909 $ 3,561 $ 18,532
===============================================================
LIABILITIES AND
SHAREHOLDER's EQUITY
Current liabilities:
Current portion of long-term debt. $ -- $ 8,253 $ -- $ -- $ --
Accounts payable ................. 124 9,109 1,439 27 48
Deferred revenue ................. -- 17,672 16,713 805 2,189
Accrued liabilities .............. -- 13,024 2,854 182 641
---------------------------------------------------------------
Total current liabilities ...... 124 48,058 21,006 1,014 2,878
Long term debt, net of current
maturities ....................... -- 418,615 -- -- --
Other long term liabilities ........ -- 3,227 -- -- --
Minority interest .................. -- 17,282 -- -- --
Stockholder's equity
Common stock ..................... 335 10 1 -- 2
Capital in excess of par value ... 183,042 183,367 220,627 1,430 15,739
Retained earnings (deficit) ...... (47,745) (47,745) 4,275 1,117 (87)
Accumulated other comprehensive
loss ........................... (872) (872) -- -- --
---------------------------------------------------------------
Total stockholder's equity 134,760 134,760 224,903 2,547 15,654
---------------------------------------------------------------
$ 134,884 $ 621,942 $ 245,909 $ 3,561 $ 18,532
===============================================================
NON-
GUARANTOR GUARANTOR CONSOLIDATED
EXPOCON SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
---------- ------------ ------------ ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents ........ $ (372) $ (468) $ 6,214 $ -- $ 14,016
Accounts receivable, net ......... 1,138 2,165 3,191 -- 27,976
Prepaid expenses ................. 451 4,295 2,671 -- 14,784
Intercompany receivable (payable). (2,181) 31,934 (9,604) (124) --
Other ............................ -- -- 541 -- 2,097
Total current assets ........... (964) 37,926 3,013 (124) 58,873
Property, plant and equipment, net . 513 1,003 949 -- 14,125
Investments in subsidiaries ........ -- -- -- (433,449) --
Intangible assets, net ............. 11,492 240,114 53,968 -- 587,228
-------------------------------------------------------------
$ 11,041 $ 279,043 $ 57,930 $(433,573) $ 660,226
=============================================================
LIABILITIES AND
SHAREHOLDER's EQUITY
Current liabilities:
Current portion of long-term debt. $ -- $ -- $ -- $ -- $ 8,253
Accounts payable ................. 17 1,531 2,671 (124) 13,311
Deferred revenue ................. 1,911 21,618 6,353 -- 45,643
Accrued liabilities .............. 96 3,773 2,338 -- 19,135
-------------------------------------------------------------
Total current liabilities ...... 2,024 26,922 11,362 (124) 86,342
Long term debt, net of current
maturities ....................... -- -- -- -- 418,615
Other long term liabilities ........ -- -- -- -- 3,227
Minority interest .................. -- -- -- -- 17,282
Stockholder's equity
Common stock ..................... 1 4 332 (346) 335
Capital in excess of par value ... 9,593 247,389 44,924 (475,680) 183,042
Retained earnings (deficit) ...... (577) 4,728 1,312 41,705 (47,745)
Accumulated other comprehensive
loss ........................... -- -- -- 872 (872)
-------------------------------------------------------------
Total stockholder's equity 9,017 252,121 46,568 (433,449) 134,760
-------------------------------------------------------------
$ 11,041 $ 279,043 $ 57,930 $(433,573) $ 660,226
=============================================================
F-22
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
COMPANY COMMUNICATIONS MAGIC MAGICKIDS ABC
--------- -------------- --------- --------- ---------
Net revenue ..................... $ -- $ 181,709 $ 22,232 $ 1,999 $ 3,304
-----------------------------------------------------------
Operating expenses
Cost of sales and selling,
editorial and circulation ... -- 123,426 8,162 852 2,395
General and administrative .... -- 27,818 1,520 27 346
Depreciation and amortization . -- 38,713 8,335 3 641
-----------------------------------------------------------
Total operating expenses .... -- 189,957 18,017 882 3,382
-----------------------------------------------------------
Operating income (loss) ......... -- (8,248) 4,215 1,117 (78)
Other income (expense):
Interest income (expense), net. -- (27,602) 60 -- --
Other income (expense), net ... -- 2,812 -- -- 4
-----------------------------------------------------------
Income (loss) before income taxes -- (33,038) 4,275 1,117 (74)
Provision for income tax ........ -- 288 -- -- 13
Minority interest in loss ....... -- 40 -- -- --
Equity in (loss) of subsidiaries. (28,436) 4,850 -- -- --
-----------------------------------------------------------
Net income (loss) ............... $ (28,436) $ (28,436) $ 4,275 $ 1,117 $ (87)
===========================================================
NON-
GUARANTOR GUARANTOR CONSOLIDATED
EXPOCON SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
--------- ------------ ------------ ----------- ------------
Net revenue ..................... $ 8,165 $ 35,700 $ 42,416 -- $ 259,825
------------------------------------------------------------
Operating expenses
Cost of sales and selling,
editorial and circulation ... 5,672 17,081 28,528 -- 168,543
General and administrative .... 865 2,758 6,307 -- 36,883
Depreciation and amortization . 1,262 10,241 2,377 -- 51,823
------------------------------------------------------------
Total operating expenses .... 7,799 30,080 37,212 -- 257,249
------------------------------------------------------------
Operating income (loss) ......... 366 5,620 5,204 -- 2,576
Other income (expense):
Interest income (expense), net. -- 60 (320) -- (27,862)
Other income (expense), net ... (888) (884) (3,854) -- (1,926)
------------------------------------------------------------
Income (loss) before income taxes (522) 4,796 1,030 -- (27,212)
Provision for income tax ........ -- 13 963 -- 1,264
Minority interest in loss ....... -- -- -- -- 40
Equity in (loss) of subsidiaries. -- -- -- 23,586 --
------------------------------------------------------------
Net income (loss) ............... $ (522) $ 4,783 $ 67 $ 23,586 $ (28,436)
============================================================
F-23
ADVANSTAR, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31, 1998
(in thousands)
COMPANY COMMUNICATIONS MAGIC MAGICKIDS ABC
--------- -------------- --------- --------- ---------
Operating Activities:
Net income (loss) ................ $ (28,436) $ (28,436) $ 4,275 $ 1,117 $ (87)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization .. -- 39,205 8,335 3 641
Non cash Items ................. -- 6,305 -- -- --
Change in working capital
items ........................ -- (247,166) 194,992 (1,784) 17,884
-------------------------------------------------------------
Net cash provided by (used in)
operating activities .......... (28,436) (230,092) 207,602 (664) 18,438
-------------------------------------------------------------
Investment Activities:
Net loss in investment in
subsidiaries ................... 28,436 -- -- -- --
Additions to property, plant and
equipment, net ................. -- 1,367 (171) (5) (49)
Acquisitions of publications and
trade shows .................... -- (99,093) (207,539) 673 (18,381)
-------------------------------------------------------------
Net cash provided by (used in)
investing activities ......... 28,436 (97,726) (207,710) 668 (18,430)
-------------------------------------------------------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ...................... -- 70,980 -- -- --
Dividends paid to minority
interest holders ............... -- -- -- -- --
Borrowings of long-term debt,
net ............................ -- 262,620 -- -- --
-------------------------------------------------------------
Net cash provided by (used in)
financing activities ......... -- 333,600 -- -- --
-------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH .................. -- (915) -- -- --
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS: ....... -- 4,867 (108) 4 8
CASH AND CASH EQUIVALENTS,
beginning of period: ............. -- 3,403 -- -- --
-------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period: ................... $ -- $ 8,270 $ (108) $ 4 $ 8
=============================================================
GUARANTOR NON-GUARANTOR CONSOLIDATED
EXPOCON SUBSIDIARIES SUBSIDIARIES ELIMINATION TOTAL
--------- ------------ ------------- ----------- -----------
Operating Activities:
Net income (loss) ................ $ (522) $ 4,783 $ 67 $ 23,586 $ (28,436)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization .. 1,262 10,241 2,377 -- 51,823
Non cash Items ................. 20 20 -- -- 6,325
Change in working capital
items ........................ 3,469 214,561 31,611 4,850 3,856
--------------------------------------------------------------
Net cash provided by (used in)
operating activities .......... 4,229 229,605 34,055 28,436 33,568
--------------------------------------------------------------
Investment Activities:
Net loss in investment in
subsidiaries ................... -- -- -- (28,436) --
Additions to property, plant and
equipment, net ................. (446) (671) (518) -- 178
Acquisitions of publications and
trade shows .................... (3,838) (229,085) (30,261) -- (358,439)
--------------------------------------------------------------
Net cash provided by (used in)
investing activities ......... (4,284) (229,756) (30,779) (28,436) (358,261)
--------------------------------------------------------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ...................... -- -- -- -- 70,980
Dividends paid to minority
interest holders ............... -- -- (1,000) -- (1,000)
Borrowings of long-term debt,
net ............................ -- -- -- -- 262,620
--------------------------------------------------------------
Net cash provided by (used in)
financing activities ......... -- -- (1,000) -- 332,600
--------------------------------------------------------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH .................. -- -- -- -- (915)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS: ....... (55) (151) 2,276 -- 6,992
CASH AND CASH EQUIVALENTS,
beginning of period: ............. (317) (317) 3,938 -- 7,024
--------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period: ................... $ (372) $ (468) $ 6,214 $ -- $ 14,016
==============================================================
F-24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, INC.
By: /s/ ROBERT L. KRAKOFF
--------------------------------------
Robert L. Krakoff
Date: March 30, 2000 Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Advanstar, Inc., hereby
severally constitute and appoint Robert L. Krakoff, James M. Alic and David W.
Montgomery, and each of them singly, our true and lawful attorneys, with the
power to them and each of them singly, to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities to
enable Advanstar, Inc. to comply with the provisions of the Securities Exchange
Act of 1934, as amended, and all the requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities indicated, on the 31st day of March 1999.
Signature Title(s)
- ------------------------------ ---------------------------------------------
/s/ ROBERT L. KRAKOFF Chairman of the Board and Chief Executive
- ------------------------------ Officer (Principal Executive Officer)
Robert L. Krakoff
/s/ DAVID W. MONTGOMERY Vice President--Finance, Chief Financial Officer
- ------------------------------ and Secretary (Principal Financial Officer and
David W. Montgomery Principal Accounting Officer)
/s/ JAMES M. ALIC Director
- ------------------------------
James M. Alic
/s/ KENNETH T. BERLINER Director
- ------------------------------
Kenneth T. Berliner
/s/ MITCHELL R. COHEN Director
- ------------------------------
Mitchell R. Cohen
/s/ JOHN M. PASQUESI Director
- ------------------------------
John M. Pasquesi
II-1
Schedule II
ADVANSTAR, INC.
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- ----------- ----------- -----------
Year ended December 31, 1999:
Allowance for doubtful accounts..... $ 575,000 $1,878,000 - $1,744,000(1) $ 709,000
Year ended December 31, 1998:
Allowance for doubtful accounts..... $ 553,000 $1,148,000 - $1,127,000(1) $ 574,000
Year ended December 31, 1997:
Allowance for doubtful accounts..... $ 541,000 $ 807,000 - $ 795,000(1) $ 553,000
- ---------------
(1) Uncollectible accounts written off.
S-1