<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the Quarterly Period Ended: June 30, 1999
or
X Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the transition period from to
-------------------- ----------------------
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
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
------- -------
As of July 30, 1999, 33,630,000 shares of the Registrant's common stock were
outstanding.
<PAGE>
PART I Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
Page in this
Quarterly
Report
--------
<S> <C> <C>
Condensed Consolidated Balance Sheets at June 1999 (unaudited)
and December 31, 1998 ................................... 2
Condensed Consolidated Statements of Operations (unaudited) for
the three months ended June 30, 1999 and 1998 ........... 3
Condensed Consolidated Statements of Operations (unaudited) for
the six months ended June 30, 1999 and 1998 .............. 4
Condensed Consolidated Statements of Cash Flows (unaudited) for
the three months ended June 30, 1999 and 1998 ............. 5
Condensed Consolidated Statements of Cash Flows (unaudited) for
the six months ended June 30, 1999 and 1998 ............... 6
Notes to Condensed Consolidated Financial Statements .......... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 20
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds....................... 30
Item 4. Submissions of Matters to a Vote of Security Holders............ 30
Item 6(a). Exhibits........................................................ 30
Item 6(b). Reports on Form 8-K............................................. 30
Signature....................................................... 31
Exhibit Index................................................... 32
Exhibits........................................................ 33
</TABLE>
1
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................................................. $ 14,530 $ 14,016
Accounts receivable, net ............................................................... 30,944 27,976
Prepaid expenses......................................................................... 11,890 14,784
Other.................................................................................... 1,093 2,097
-------- --------
Total current assets ................................................................ 58,457 58,873
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net ....................................................... 15,297 14,125
-------- --------
GOODWILL AND INTANGIBLE ASSETS, net........................................................ 569,580 587,228
-------- --------
Total Assets.......................................................................... $643,334 $660,226
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ................................................... $ 12,965 $ 8,253
Accounts payable ....................................................................... 14,362 13,311
Accured liabilities .................................................................... 18,581 19,135
Deferred revenue ....................................................................... 48,611 45,643
-------- --------
Total current liabilities ........................................................... 94,519 86,342
-------- --------
LONG-TERM DEBT, net of current maturities ................................................ 393,152 418,615
OTHER LONG-TERM LIABILITIES .............................................................. 2,350 3,227
MINORITY INTEREST ........................................................................ 17,990 17,282
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 40,000 shares authorized; 33,630 and 33,466 shares
issued and outstanding at June 30, 1999 and December 31, 1998, respectively .......... 336 335
Capital in excess of par ............................................................... 187,588 183,042
Accumulated deficit .................................................................... (47,300) (47,745)
Accumulated other comprehensive loss ................................................... (5,301) (872)
-------- --------
Total Stockholder's Equity .......................................................... 135,323 134,760
-------- --------
$643,334 $660,226
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
2
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------------------------------
<S> <C> <C>
Net revenue $71,090 $59,149
------- -------
Operating expenses:
Cost of production .................................................... 13,457 12,186
Selling, editorial and circulation .................................... 34,022 29,190
General and administrative ............................................ 11,581 9,630
Depreciation and amortization ......................................... 10,577 9,391
------- -------
Total operating expenses ........................................ 69,637 60,397
------- -------
Operating income ........................................................... 1,453 (1,248)
Other income (expense)
Interest expense, net ................................................. (8,564) (6,677)
Other income (expense), net ......................................... (79) (1,880)
------- -------
Income before income taxes and minority interest ............................ (7,190) (9,805)
Provision for income taxes ................................................. 200 175
Minority interest in (earnings) losses of subsidiary ........................ (314) 369
------- -------
Net loss $(7,704) $(9,611)
======= =======
Loss per share
Basic.................................................................. $(0.23) $(0.32)
======= =======
Diluted................................................................ $(0.22) $(0.32)
======= =======
Weighted average shares outstanding
Basic.................................................................. 33,630 29,749
Diluted................................................................ 34,565 29,749
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------------------------------
<S> <C> <C>
Net revenue ................................................................... $170,174 $121,212
-------- --------
Operating expenses:
Cost of production ...................................................... 33,972 25,375
Selling, editorial and circulation ...................................... 71,978 55,602
General and administrative .............................................. 24,710 17,837
Depreciation and amortization ........................................... 20,955 15,627
-------- --------
Total operating expenses .......................................... 151,615 114,441
-------- --------
Operating income ............................................................. 18,559 6,771
Other income (expense)
Interest expense, net ................................................... (17,391) (10,491)
Other income (expense), net ........................................... (94) (1,894)
-------- --------
Income before income taxes and minority interest .............................. 1,074 (5,614)
Provision for income taxes ................................................... 694 229
Minority interest in losses of subsidiary ..................................... 65 673
-------- --------
Net income (loss) ........................................................... $ 445 $ (5,170)
======== ========
Earnings (loss) per share
Basic and diluted...................................................... $0.01 $(0.20)
======== ========
Weighted average shares outstanding
Basic.................................................................... 33,562 25,774
Diluted.................................................................. 34,525 25,774
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ............................................................ ($7,704) ($9,611)
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ....................................... 10,724 9,503
Non-cash interest ................................................... 273 230
Non-cash stock compensation........................................... 1,698 --
Loss on sales of assets and other ................................... 402 1,931
Changes in operating assets and liabilities........................... 15,865 9,097
-------- ---------
Net cash provided by operating activities ......................... 21,258 11,150
-------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment............................ (2,347) (438)
Change in notes receivable ........................................... 6 (33)
Acquisition of publications and trade shows, net ..................... (4,217) (247,002)
Proceeds from sale of publishing and other assets .................... 9 3,991
-------- ---------
Net cash used in investing activities .............................. (6,549) (243,482)
-------- ---------
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan ................ (12,000) (22,500)
Proceeds from sale of stock............................................ -- 70,000
Net proceeds from (payments on) long-term debt ....................... (885) 201,116
-------- ---------
Net cash provided by (used in) financing activities .............. (12,885) 248,616
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. (224) (245)
NET DECREASE IN CASH AND CASH EQUIVALENTS............................... 1,600 16,039
CASH AND CASH EQUIVALENTS, beginning of period ........................ 12,930 5,935
-------- ---------
CASH AND CASH EQUIVALENTS, end of period .............................. $ 14,530 $ 21,974
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ................................................... $ 445 ($5,170)
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ....................................... 21,248 15,850
Non-cash interest ................................................... 539 468
Non-cash stock compensation........................................... 4,695 --
Loss on sales of assets and other ................................... 798 1,627
Changes in operating assets and liabilities........................... 3,262 1,744
-------- ---------
Net cash provided by operating activities ......................... 30,987 14,519
-------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment............................. (3,138) (1,678)
Change in notes receivable ........................................... 108 14
Acquisition of publications and trade shows, net ..................... (6,838) (272,903)
Proceeds from sale of publishing and other assets .................... 22 4,021
-------- ---------
Net cash used in investing activities .............................. (9,846) (270,546)
-------- ---------
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan ................ (19,000) 4,000
Proceeds from sale of stock............................................ 70,000
Net proceeds from (payments on) long-term debt ....................... (1,770) 197,390
-------- ---------
Net cash provided by (used in) financing activities .............. (20,770) 271,390
-------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................. 143 (413)
NET DECREASE IN CASH AND CASH EQUIVALENTS............................... 514 14,950
CASH AND CASH EQUIVALENTS, beginning of period ........................ 14,016 7,024
-------- ---------
CASH AND CASH EQUIVALENTS, end of period .............................. $ 14,530 $ 21,974
======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
6
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared by Advanstar, Inc. (the Company) in accordance with the
instructions to Form 10-Q and, therefore, do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Although management believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these condensed consolidated financial statements be read in conjunction with
the audited financial statements and the related notes, included in the
Company's Form 10-K. The results of operations for the three month and six
month periods ended June 30, 1999, are not necessarily indicative of the
operating results that may be expected for the entire year ending December 31,
1999.
2. 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
stockholders were 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.
3. Subsequent Acquisition
On July 28, 1999, the Company acquired certain apparel industry trade
shows and publishing properties of Larkin-Pluznik-Larkin, LLC and LPL/Style
Group, LLC, (collectively Larkin). The acquisition will be accounted for as a
purchase. The purchase price was approximately $133.0 million in cash and
assumed liabilities. Concurrent with the Larkin acquisition, the Company
amended its Amended Credit Facility (as defined below) to provide additional
borrowing capacity to finance the acquisition.
The following are unaudited pro forma operating results as if the
acquisition had taken place at January 1, 1998 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1999 1998
----------- ----------
<S> <C> <C>
Total revenues....................................... $191,932 $139,546
Net income (loss).................................... 262 (10,835)
Income (loss) per share diluted...................... $ 0.01 $ (0.42)
</TABLE>
7
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
4. 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ----------- ------------
(in thousands, except (in thousands, except
per share data) per share data)
<S> <C> <C> <C> <C>
Net income (loss)
Basic and diluted earnings.......................... $(7,704) $(9,611) $ 445 $ (5,170)
Weighted Average Share
Basic . 33,630 29,749 33,562 25,774
Adjustments for dilutive securities:
Employee stock options........................ 935 -- 963 --
------- ------- ------- ---------
Diluted............................................. 34,565 29,749 34,525 25,774
======= ======= ======= =========
Earnings (loss) per share diluted....................... $ (0.22) $( 0.32) $ 0.01 $ ( 0.20)
======= ======= ======= =========
</TABLE>
5. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------------
<S> <C> <C>
(in thousands)
Tranche A term loan, interest at LIBOR plus 2.00%, 6.93% at June 30, 1999
due October 31, 2003 ......................................................... $ 97,059 $ 98,529
Tranche B term loan, interest at LIBOR plus 2.50%, 7.43% at June 30, 1999......... 149,400 149,700
due April 30, 2005. .
Revolving credit loan, interest at LIBOR plus 2.00%, 6.93% at June 30, 1999
due October 31, 2003 ......................................................... 10,000 29,000
Senior subordinated notes at 9.25%, due May 31, 2008, Net of discount ........... 149,658 149,639
-------- --------
406,117 426,868
Less--Current maturities ........................................................ (12,965) (8,253)
-------- --------
$393,152 $418,615
======== ========
</TABLE>
The Amended Credit Facility contains certain restrictive financial
covenants, including a minimum fixed charge coverage ratio and a maximum
leverage ratio. The Company was in compliance with all covenants as of June
30, 1999.
Restrictive financial covenants under the senior subordinated notes
include a minimum fixed charge coverage ratio and limitations on certain asset
dispositions and dividend, distribution, and other restricted payments. The
Company was in compliance with all covenants as of June 30, 1999.
8
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
6. Comprehensive Loss
The table below presents comprehensive income, defined as changes in the
equity of the Company excluding changes resulting from investments by and
distributions to Stockholders.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
(in thousands)
Net income (loss)................................................................ $ (7,704) ($9,611)
Change in cumulative translation adjustment...................................... (1,051) (245)
-------- -------
($8,755) ($9,856)
Comprehensive income (loss)...................................................... -------- -------
<CAPTION>
Six Months Ended
June 30,
------------------------
1999 1998
----------- ----------
(in thousands)
Net income (loss)................................................................ $ 445 ($5,170)
Change in cumulative translation adjustment...................................... (4,429) (327)
-------- -------
($3,984) ($5,497)
Comprehensive income (loss)...................................................... -------- -------
</TABLE>
9
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
7. Segment Information
<TABLE>
<CAPTION>
Trade Shows Corporate
and Trade Marketing and
Conferences Publications Services Other Totals
------------ ----------- --------- --------- -----------
(in thousands)
Three months ended June 30, 1999
<S> <C> <C> <C> <C> <C>
Revenues ..................................... $25,570 $40,733 $4,558 $ 229 $ 71,090
Gross profit ................................. 6,050 14,893 2,518 150 23,611
Segment assets ............................... 9,278 31,876 2,356 599,824 643,334
------- ------- ------ -------- --------
Three months ended June 30, 1998
Revenues ..................................... 22,088 33,045 3,752 264 59,149
Gross profit ................................. 4,578 11,019 1,965 211 17,773
Segment assets ............................... 9,264 23,765 1,998 564,431 599,458
------- ------- ------ -------- --------
Six months ended June 30, 1999
Revenues .................................... $87,143 $74,005 $8,642 $ 384 $170,174
Gross profit ................................ 38,151 21,765 4,148 160 64,224
Segment assets .............................. 9,278 31,876 2,356 599,824 643,334
------- ------- ------ -------- --------
Six months ended June 30, 1998
Revenues .................................... 54,390 59,177 7,147 498 121,212
Gross profit ................................ 20,292 16,214 3,372 357 40,235
Segment assets .............................. 9,264 23,765 1,998 564,431 599,458
------- ------- ------ -------- --------
</TABLE>
10
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Segment assets are primarily prepaid expenses and accounts receivable.
Intangible assets represent 95.0% and 93.6% of corporate and other assets at
June 30, 1999 and 1998, respectively.
The reconciliation of total segment gross profit to consolidated pre-tax
income for the three and six months ended June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------- ------------- ------------ -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Total segment gross profit .............. $ 23,611 $17,773 $ 64,224 $ 40,235
General and administrative expense ...... (11,581) (9,630) (24,710) (17,837)
Depreciation and amortization ........... (10,724) (9,503) (21,248) (15,850)
Other expense ........................... (8,496) (8,445) (17,192) (12,162)
-------- ------- -------- --------
Consolidated income before minority
interest and taxes $ (7,190) $(9,805) $ 1,074 $ (5,614)
======== ======= ======== ========
</TABLE>
8. Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of presentation
Advanstar Communications, Inc. (Communications), is the only direct
subsidiary of the Company and is wholly-owned by the Company. The Notes are
fully and unconditionally guaranteed on a senior subordinated basis, jointly and
severally, by Communications' wholly-owned domestic subsidiaries and the
Company. The subsidiary guarantors are Art Expositions International, Inc.;
MAGIC; Applied Business TeleCommunications; and Expocon Management Associates,
Inc. 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 and management has determined that such
information is not material to investors.
There are no significant restrictions on the ability of the Subsidiary
Guarantors to make distributions to the Company.
11
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
---------- --------------- ---------- --------- ---------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............... $ -- $ 6,223 $ 11 $ -- $ (5)
Accounts receivable, net ................ -- 25,918 (68) (27) (18)
Prepaid expenses ........................ -- 5,990 2,930 152 361
Intercompany receivable (payable) ....... 96 (50,878) 58,842 (299) 1,712
Other ................................... -- 1,305 -- -- --
-------- -------- -------- ------- -------
Total current assets .................. 96 (11,442) 61,715 (174) 2,050
-------- -------- -------- ------- -------
Property, plant and equipment, net ........ -- 13,333 320 38 471
Investments in subsidiaries ............... 135,323 309,620 -- -- --
Net intangible assets, net ................ -- 285,974 204,131 17,400 10,880
-------- -------- -------- ------- -------
$135,419 $597,485 $266,166 $17,264 $13,401
-------- -------- -------- ------- -------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ....... $ -- $ 12,965 $ -- $ -- $ --
Accounts payable ........................ 124 8,341 1,174 34 1,267
Deferred revenue ........................ -- 14,068 24,341 2,412 1,379
Accrued liabilities ..................... (28) 13,296 3,463 61 85
-------- -------- -------- ------- -------
Total current liabilities ............. 96 48,670 28,978 2,507 2,731
-------- -------- -------- ------- -------
Long term debt, net of current maturities . -- 393,152 -- -- --
Other long term liabilities ............... -- 2,350 -- -- --
Minority interest ......................... -- 17,990 -- -- --
Stockholder equity
Common stock ............................ 336 10 1 2 1
Capital in excess of par value .......... 187,588 187,914 220,627 15,739 9,593
Retained earnings (deficit) ............. (47,300) (47,300) 16,560 (984) 1,076
Translation adjustment .................. (5,301) (5,301) -- -- --
-------- -------- -------- ------- -------
Total stockholder's equity ............ 135,323 135,323 237,188 14,757 10,670
-------- -------- -------- ------- -------
$135,419 $597,485 $266,166 $17,264 $13,401
======== ======== ======== ======= =======
</TABLE>
12
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------- ------------- ------------ -------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ............... $ 6 $ 8,301 $ -- $ 14,530
Accounts receivable, net ................ (113) 5,139 -- 30,944
Prepaid expenses ........................ 3,443 2,457 -- 11,890
Intercompany receivable (payable) ....... 60,255 (9,377) (96) --
Other ................................... -- (212) -- 1,093
-------- ------- --------- --------
Total current assets .................. 63,591 6,308 (96) 58,457
-------- ------- --------- --------
Property, plant and equipment, net ........ 829 1,135 -- 15,297
Investments in subsidiaries ............... -- -- (444,943) --
Net intangible assets, net ................ 232,411 51,195 -- 569,580
-------- ------- --------- --------
$296,831 $58,638 $(445,039) $643,334
-------- ------- --------- --------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ....... $ -- $ -- $ -- $ 12,965
Accounts payable ........................ 2,475 3,546 (124) 14,362
Deferred revenue ........................ 28,132 6,411 -- 48,611
Accrued liabilities ..................... 3,609 1,676 28 18,581
-------- ------- --------- --------
Total current liabilities ............. 34,216 11,633 (96) 94,519
-------- ------- --------- --------
Long term debt, net of current maturities . -- -- -- 393,152
Other long term liabilities ............... -- -- -- 2,350
Minority interest ......................... -- -- -- 17,990
Stockholder equity
Common stock ............................ 4 332 (346) 336
Capital in excess of par value .......... 245,959 45,625 (479,498) 187,588
Retained earnings (deficit) ............. 16,652 1,048 29,600 (47,300)
Translation adjustment .................. -- -- 5,301 (5,301)
-------- ------- --------- --------
Total stockholder's equity ............ 262,615 47,005 (444,943) 135,323
-------- ------- --------- --------
$296,831 $58,638 $(445,039) $643,334
======== ======== ======== ========
</TABLE>
13
<PAGE>
ADVANSTAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Art
Company Communications Expo Magic ABC Expocon
--------- --------------- ---- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue .......................... $ -- $50,527 $ -- $ 30 $ 88 $6,190
-------- ------- ---- ------- ----- ------
Operating expenses
Cost of sales and selling, editorial
And circulation .................... -- 33,073 -- 491 401 3,126
General and administrative .......... -- 9,351 -- 418 -- 159
Depreciation and amortization ....... -- 6,436 -- 2,774 237 328
-------- ------- ---- ------- ----- ------
Total operating expenses ........... -- 48,860 -- 3,683 638 3,613
-------- ------- ---- ------- ----- ------
Operating income (loss) .............. -- 1,667 -- (3,653) (550) 2,577
Other income (expense):
Interest income (expense), net ...... -- (8,214) -- 1 -- --
Other income (expense), net ......... -- 1,308 -- -- -- --
-------- ------- ---- ------- ----- ------
Income (loss) before income taxes .... -- (5,239) -- (3,652) (550) 2,577
Provision for income tax ............. -- (22) -- -- -- --
Minority interest in earnings ........ -- (314) -- -- -- --
Equity in (loss) of subsidiaries ..... (7,704) (2,129) -- -- -- --
-------- ------- ---- ------- ----- ------
Net income (loss) .................... $(7,704) $(7,704) $ -- $(3,652) $(550) $2,577
======== ======= ==== ======= ===== ======
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue .......................... $ 6,308 $14,255 $ -- $71,090
------- ------- ------ -------
Operating expenses
Cost of sales and selling, editorial
And circulation .................... 4,018 10,388 -- 47,479
General and administrative .......... 577 1,653 -- 11,581
Depreciation and amortization ....... 3,339 802 -- 10,577
------- ------- ------ -------
Total operating expenses ........... 7,934 12,843 -- 69,637
------- ------- ------ -------
Operating income (loss) .............. (1,626) 1,412 -- 1,453
Other income (expense):
Interest income (expense), net ...... 1 (351) -- (8,564)
Other income (expense), net ......... -- (1,387) -- (79)
------- ------- ------ -------
Income (loss) before income taxes .... (1,625) (326) -- (7,190)
Provision for income tax ............. -- (178) -- (200)
Minority interest in earnings ........ -- -- -- (314)
Equity in (loss) of subsidiaries ..... -- -- 9,833 --
------- ------- ------ -------
Net income (loss) .................... $(1,625) $ (504) $9,833 $(7,704)
======= ======= ====== =======
</TABLE>
14
<PAGE>
ADVANSTAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Art
Company Communications Expo Magic ABC Expocon
------- --------------- ---- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue ........................ $ -- $108,496 $ -- $27,713 $ 917 $6,190
------- -------- ---- ------- ------ ------
Operating expenses
Cost of sales and selling, editorial
and circulation .................. -- 71,813 -- 10,013 1,343 3,554
General and administrative ........ -- 20,587 -- 987 -- 322
Depreciation and amortization ..... -- 12,723 -- 5,548 471 660
------- -------- ---- ------- ------ ------
Total operating expenses ......... -- 105,123 -- 16,548 1,814 4,536
------- -------- ---- ------- ------ ------
Operating income (loss) ............ -- 3,373 -- 11,165 (897) 1,654
Other income (expense):
Interest income (expense), net .... -- (16,732) -- 2 -- --
Other income (expense), net ....... -- 2,121 -- -- -- --
------- -------- ---- ------- ------ ------
Income (loss) before income taxes .. -- (11,238) -- 11,167 (897) 1,654
Provision for income tax ........... -- (43) -- -- -- --
Minority interest in earnings ...... -- 65 -- -- -- --
Equity in (loss) of subsidiaries ... 445 11,661 -- -- -- --
------- -------- ---- ------- ------ ------
Net income (loss) .................. $ 445 $ 445 $ -- $11,167 $ (897) $1,654
======= ======== ==== ======= ====== ======
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net revenue ........................ $34,820 $26,858 $ -- $170,174
------- ------- ----------- --------
Operating expenses
Cost of sales and selling, editorial
and circulation .................. 14,910 19,227 105,950
General and administrative ........ 1,309 2,814 -- 24,710
Depreciation and amortization ..... 6,679 1,553 -- 20,955
------- ------- ----------- -------
Total operating expenses ......... 22,898 23,594 -- 151,615
------- ------- ----------- -------
Operating income (loss) ............ 11,922 3,264 -- 18,559
Other income (expense):
Interest income (expense), net .... 2 (661) -- (17,391)
Other income (expense), net ....... -- (2,215) -- (94)
------- ------- ----------- --------
Income (loss) before income taxes .. 11,924 388 -- 1,074
Provision for income tax ........... -- (651) -- (694)
Minority interest in earnings ...... -- -- -- 65
Equity in (loss) of subsidiaries ... -- -- (12,106) --
------- ------- ----------- --------
Net income (loss) .................. $11,924 $ (263) $(12,106) $ 445
======= ======= =========== ========
</TABLE>
15
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Art Expo Magic ABC Expocon
--------- --------------- -------- --------- ------- --------
Operating Activities:
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ................ $(7,704) $ (7,704) --$ $(3,652) $(550) $ 2,577
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ... -- 6,519 -- 2,830 239 329
Non cash Items .................. -- 2,373 -- -- -- --
Change in working capital
Items ............................ -- 18,294 -- 727 (78) (2,890)
-------- -------- ------- ----- ------- -------
Net cash provided by (used in)
Operating activities ............ (7,704) 19,482 -- (95) (389) 16
Investment Activities:
Net loss in investment in
Subsidiaries .................... 7,704 -- -- -- -- --
Additions to property, plant and
Equipment, net .................. -- (1,869) -- (8) -- (6)
Acquisitions of publications and
Trade shows ..................... -- (4,437) -- (2) 383 (4)
-------- -------- ------- ----- ------- -------
Net cash provided by (used in)
Investing activities ............ 7,704 (6,306) -- (10) 383 (10)
-------- -------- ------- ------- ----- -------
Financing Activities:
Proceeds from sale of common
Stock and capital contributions
And other ....................... -- -- -- -- -- --
Dividends paid to minority interest
Holders ......................... -- -- -- -- -- --
Borrowings of long-term debt,
Net ............................. -- (12,885) -- -- -- --
-------- -------- -------- ------- ----- -------
Net cash provided by (used in)
Financing activities ............ -- (12,885) -- -- -- --
======== ======== ======== ======= ===== =======
EFFECT OF EXCHANGE RATE ON CASH..... (224)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............ -- 67 -- (105) (6) 6
CASH AND CASH EQUIVALENTS,
Beginning of period: ............. -- 6,156 -- 116 6 (11)
-------- -------- -------- ------- ----- -------
CASH AND CASH EQUIVALENTS,
end of period: ................... $ -- $ 6,223 -- $ 11 -- (5)
======== ======== ======== ======= ====== =======
</TABLE>
16
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------- ------------ ------------ -------------
Operating Activities:
<S> <C> <C> <C> <C>
Net income (loss) ................. $(1,625) $ (504) $ 9,833 $ (7,704)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .... 3,398 807 -- 10,724
Non cash Items ................... -- -- -- 2,373
Change in working capital
Items ............................ (2,241) 1,941 (2,129) 15,865
------- ------ ------- --------
Net cash provided by (used in)
Operating activities ............. (468) 2,244 7,704 21,258
------- ------ ------- --------
Investment Activities:
Net loss in investment in
Subsidiaries ..................... -- -- (7,704) --
Additions to property, plant and
Equipment, net ................... (14) (455) -- (2,338)
Acquisitions of publications and
Trade shows ...................... 377 (151) -- (4,211)
------- ------- ------ --------
Net cash provided by (used in)
Investing activities ............. 363 (606) (7,704) (6,549)
------- ------ ------- --------
Financing Activities:
Proceeds from sale of common
Stock and capital contributions
And other ........................ -- -- -- --
Dividends paid to minority interest
Holders .......................... -- -- -- --
Borrowings of long-term debt,
Net .............................. -- -- -- (12,885)
------- ------ ------- --------
Net cash provided by (used in)
Financing activities ............. -- -- -- (12,885)
======= ====== ======= ========
EFFECT OF EXCHANGE RATE ON CASH...... (224)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............. (105) 1,638 -- 1,600
CASH AND CASH EQUIVALENTS,
Beginning of period: .............. 111 6,663 -- 12,930
------- ------ ------- --------
CASH AND CASH EQUIVALENTS,
end of period: .................... $ 6 $8,301 $ -- $ 14,530
======= ====== ======= ========
</TABLE>
17
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Art Expo Magic ABC Expocon
-------- --------------- -------- --------- -------- --------
Operating Activities:
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ................ $ 445 $ 445 $ -- $ 11,167 $ (897) $ 1,654
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .... -- 12,952 -- 5,604 473 661
Non cash Items ................... -- 6,032 -- -- -- --
Change in working capital
Items ............................ -- 6,553 -- (16,619) (722) (1,936)
------- ------- -------- -------- ------- -------
Net cash provided by (used in)
Operating activities ............. 445 25,982 -- 152 (1,146) 379
------- -------- -------- -------- ------- -------
Investment Activities:
Net loss in investment in
Subsidiaries ..................... (445) -- -- -- -- --
Additions to property, plant and
Equipment, net ................... -- (2,511) -- (8) -- (8)
Acquisitions of publications and
Trade shows ...................... -- (4,891) -- (29) 1,138 (4)
------- -------- -------- -------- ------- -------
Net cash provided by (used in)
Investing activities ............. (445) (7,402) -- (37) 1,138 (12)
------- -------- -------- -------- ------- -------
Financing Activities:
Proceeds from sale of common
Stock and capital contributions
And other ........................ -- -- -- -- -- --
Dividends paid to minority interest
Holders .......................... -- -- -- -- -- --
Borrowings of long-term debt,
Net .............................. -- (20,770) -- -- -- --
------- -------- -------- -------- ------- -------
Net cash provided by (used in)
Financing activities ............. -- (20,770) -- -- -- --
======= ======== ======== ======== ======= =======
EFFECT OF EXCHANGE RATE ON CASH...... 143
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............. -- (2,047) -- 115 (8) 367
CASH AND CASH EQUIVALENTS,
Beginning of period: .............. -- 8,270 -- (104) 8 (372)
------- -------- -------- -------- ------- -------
CASH AND CASH EQUIVALENTS,
End of period: .................... $ -- $ 6,223 $ -- $ 11 $ -- $ (5)
======= ======== ======== ======== ======= =======
</TABLE>
18
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Non
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------ ------------- ------------ -------------
Operating Activities:
<S> <C> <C> <C> <C>
Net income (loss) ................. $ 11,924 $ (263) $(12,106) $ 445
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .... 6,738 1,558 -- 21,248
Non cash Items ................... -- -- -- 6,032
Change in working capital
Items ............................ (19,277) 4,325 11,661 3,262
-------- -------- -------- -------
Net cash provided by (used in)
Operating activities ............. (615) 5,620 (445) 30,987
-------- -------- -------- --------
Investment Activities:
Net loss in investment in
Subsidiaries ..................... -- -- 445 --
Additions to property, plant and
Equipment, net ................... (16) (589) -- (3,116)
Acquisitions of publications and
Trade shows ...................... 1,105 (2,944) -- (6,730)
-------- -------- -------- -------
Net cash provided by (used in)
Investing activities ............. 1,089 (3,533) 445 (9,846)
-------- -------- -------- --------
Financing Activities:
Proceeds from sale of common
Stock and capital contributions
And other ........................ -- -- -- --
Dividends paid to minority interest
Holders .......................... -- -- -- --
Borrowings of long-term debt,
Net .............................. -- -- -- (20,770)
-------- ------- -------- --------
Net cash provided by (used in)
Financing activities ............. -- -- -- (20,770)
======== ======= ======== ========
EFFECT OF EXCHANGE RATE ON CASH...... 143
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ............. 474 2,087 -- 514
CASH AND CASH EQUIVALENTS,
Beginning of period: .............. (468) 6,214 -- 14,016
-------- ------- -------- --------
CASH AND CASH EQUIVALENTS,
end of period: .................... $ 6 $ 8,301 $ -- $ 14,530
======== ======= ======== ========
</TABLE>
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
This quarterly report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned not to place undue reliance on these
forward-looking statements, including statements about plans and objectives of
management and market growth and opportunity. These forward-looking statements
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 the Company'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 Form 10-K filed with the Securities and Exchange Commission on March 31,
1999.
General
Advanstar is a worldwide provider of integrated, business-to-business
marketing communications products and services for targeted industry sectors,
principally through trade shows and conferences and through controlled
circulation trade, business and professional magazines. We also provide a broad
range of other marketing services products, including classified advertising,
direct mail services, reprints, database marketing, directories, guides and
reference books.
Advanstar reports and manages its business in three segments: trade shows
and conferences, which consists primarily of the management of expositions 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 36.0% and 37.3% of total revenue
for the three months, and 51.2% and 44.9% of total revenue for the six months
ended June 30, 1999 and 1998, respectively. Publications accounted for 57.3% and
55.9% of total revenue for the three months, and 43.5% and 48.8% of total
revenue for the six months ended June 30, 1999 and 1998, respectively. Marketing
services accounted for 6.7% and 6.8% of total revenue for the three months, and
5.3% and 6.3% of total revenue for the six months ended June 30, 1999 and
1998,respectively. On a relative basis, 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.
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, Dealernews and Call Center 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.
20
<PAGE>
Publications. The publications segment derives revenue principally from the
sale of advertising in its business-to-business magazines. 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, editorial quality and general and industry 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,
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 effectiveness of the
sales and marketing effort and general market conditions. Revenue is generally
recognized when the applicable product or service is delivered.
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 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 sales and
marketing staff 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
adjusted for minority interest. EBITDA does not represent, and should not be
considered to be, an alternative to net income or cash flow from operations as
determined in accordance with GAAP, and our calculation thereof may not be
comparable to that reported by other companies. We believe that EBITDA provides
useful information regarding our ability to service and/or incur indebtedness
and is used by many other companies. Our lenders have indicated that the amount
of indebtedness we will be permitted to incur will be 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 the three months ended June 30, 1999 and 1998, we
adjusted operating income by $(0.6) million and $0.2 million, respectively,
to reflect minority interest. To calculate EBITDA for the six months ended
June 30, 1999 and 1998, we adjusted operating income by $(0.4) million and
$0.5 million, respectively, to reflect minority interest.
21
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------ ------------ -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net revenue
Trade shows and conferences............................... $25,570 $22,088 $ 87,143 $ 54,390
Publications.............................................. 40,733 33,045 74,005 59,177
Marketing services and other.............................. 4,787 4,016 9,026 7,645
------- ------- -------- --------
Total net revenues..................................... 71,090 59,149 170,174 121,212
Production, selling and other direct expenses
Trade shows and conferences............................... 19,520 17,510 48,992 34,098
Publications.............................................. 25,840 22,026 52,240 42,963
Marketing services and other.............................. 2,119 1,840 4,718 3,916
------- ------- -------- --------
Total production, selling and other direct expenses.... 47,479 41,376 105,950 80,977
General and administrative expenses......................... 10,623 10,220 21,477 19,011
Non-cash stock option compensation.......................... 1,698 -- 4,695 --
Amortization................................................ 9,837 8,801 19,493 14,453
------- ------- -------- --------
Operating income....................................... 1,453 (1,248) 18,559 6,771
Other income (expense):
Interest expense (net).................................... (8,564) (6,677) (17,391) (10,491)
Other income (expense).................................... (393) (1,511) (29) (1,221)
Provision for income taxes.................................. 200 175 694 229
------- ------- -------- --------
Net income (loss)........................................... $(7,704) $(9,611) $ 445 $ (5,170)
======= ======= ======== ========
EBITDA...................................................... $11,650 $ 8,429 $ 39,457 $ 23,099
</TABLE>
22
Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998
Revenue
Revenue increased $11.9 million or 20.1% from $59.2 million for the second
quarter of 1998 to $71.1 million for the comparable period in 1999.
Revenue from trade shows and conferences increased $3.5 million or 15.8 %
from $22.1 million in the second quarter of 1998 to $25.6 million for the second
quarter of 1999. The increase in revenue was attributable to acquisitions such
as newMedia, Telebusiness and SeCa and growth in existing events, partially
offset by discontinued events and the shifting of annual events from one quarter
to another.
Revenue from publications increased $7.7 million or 23.3% from $33.0 million
in the second quarter of 1998 to $40.7 million for the comparable period in
1999. The increase in revenue was primarily attributable to acquisitions,
such as POST and Travel Agent, and modest increases in price and quantity of
pages sold in the second quarter of 1999.
Revenue from marketing services increased $0.8 million or 20.0% from $4.0
million for the second quarter of 1998 to $4.8 million for second quarter of
1999. Growth in revenue from list rentals, card decks and fractional page
advertising was primarily responsible for the increase.
Production, selling and other direct expense
Production, selling and other direct expenses increased $6.1 million or
14.7% from $41.4 million for the second quarter of 1998 to $47.5 million for the
second quarter of 1999.
23
<PAGE>
Trade shows and conferences production, selling and other direct expenses
increased $2.0 million or 11.4% from $17.5 million for the second quarter of
1998 to $19.5 million for the comparable period in 1999. This increase was
primarily due to increases in operation, promotion and management costs
associated with the acquisitions that we completed after June 30, 1998 as well
as costs attributable to growth in existing events.
Publications production, selling and other direct expenses increased $3.8
million or 17.3% from $22.0 million for the second quarter of 1998 to $25.8
million for the second quarter of 1999. Direct costs related to acquisitions of
publications that we completed after June 30, 1998 were primarily responsible
for the increase.
Marketing services production, selling and other direct expenses increased
$0.3 million or 17.0% from $1.8 million for the second quarter of 1998 to $2.1
million for the second quarter of 1999. This increase was primarily due to
increased selling expenses incurred as a result of our efforts to market these
products as well as increased costs of production due to the growth in those
respective product lines.
General and administrative expenses
General and administrative expenses increased $.4 million or 3.9% from
$10.2 million for the three months ended June 30, 1998 to $10.6 million for
the three months ended June 30, 1999. This increase was primarily attributable
to overheads acquired with the acquisitions that we made after June 30,
1998. Additionally, we incurred a $1.7 million non-cash compensation charge
related to our stock option plan.
Amortization
Amortization expense increased $1.0 million from $8.8 million for the three
months ended June 30, 1998 to $9.8 million for the three months ended June 30,
1999 primarily attributable to increased amortization of intangible assets
related to the acquisitions that we completed after June 30, 1998.
Operating income
Operating income increased $2.7 million from a loss of $1.2 million for
the three months ended June 30, 1998 to income of $1.5 million for the three
months ended June 30, 1999 primarily attributable to acquisitions that we made
during 1998, partially offset by a $1.7 million non-cash charge for stock option
related compensation expense and increased amortization expense.
Interest expense
Net interest expense increased $1.9 million or 28.4% from $6.7 million
for the three months ended June 30, 1998 to $8.6 million for the three months
ended June 30, 1999 due to the additional indebtedness incurred to fund
acquisitions made after June 30, 1998. In April 1998, we issued our 9 1/4%
Senior Subordinated Notes due 2008 in the amount of $150.0 million at a fixed
rate of 9.25% to fund a portion of our acquisition of MAGIC. Interest on our
9 1/4% Senior Subordinated Notes due 2008 is payable semi-annually with the
first payment made on November 1, 1998.
Net loss
Net loss decreased $1.9 million or 19.8% from $9.6 million for the three
months ended June 30, 1998 to $7.7 million for the three months ended June 30,
1999 primarily due to the changes described above.
24
<PAGE>
EBITDA
EBITDA increased $3.2 million or 38.1% from $8.4 million for the three
months ended June 30, 1998 to $11.6 million for the three months ended June
30, 1999. The increase was due primarily to the increase in our revenue and
resulting increase in operating performance as described above.
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
Revenue
Revenue increased $49.0 million or 40.4% from $121.2 million for the
first six months of 1998 to $170.2 million for the comparable period in 1999.
Revenue from our trade shows and conferences increased $32.7 million or
60.1% from $54.4 million for the first six months of 1998 to $87.1 million for
the first six months of 1999. The increase in revenue was attributable to
acquisitions, new launches and growth in our existing product portfolio. The
company completed 12 acquisitions in 1998, which contained at least one trade
show or conference. Acquisitions such as MAGIC, SeCA and Starform helped account
for 37.2% or $32.4 million of our total revenue from trade shows and conferences
for the first six months of 1999. The company launched eight trade shows and
conferences in the first six months of 1999. Growth in existing trade shows and
conferences and new launches such as MAGIC East, iEC Europe and Int'l Motorcycle
Show-Atlanta contributed $4.8 million of the total revenue increase. These
revenue increases were partially offset by discontinued events which had
generated $3.2 million in 1998 and the shifting of events from one quarter to
another of $1.3 million.
Revenue from our publications increased $14.8 million or 25.0% from $59.2
million for the first six months of 1998 to $74.0 million for the first six
months of 1999. The increase in revenue was attributable primarily to
acquisitions that we made in 1998, such as Travel Agent, TeleProfessional and
Post.
Revenue from our marketing services increased $1.4 million or 18.4% from
$7.6 million for the first six months of 1998 to $9.0 million for the first six
months of 1999. Growth in revenue from list rentals, fractional page 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 $25.0 million or
30.9% from $81.0 million for the first six months of 1998 to $106.0 million
for the first six months of 1999.
Trade shows and conferences production, selling and other direct expenses
increased $14.9 million or 43.7% from $34.1 million for the first six months of
1998 to $49.0 million for the first six months of 1999. This increase was
primarily due to increases in our operation, promotion and management costs
associated with the acquisitions the were completed in 1998 as well as to costs
attributable to new launches and growth in our existing events.
Publications production, selling and other direct expenses increased $9.2
million or 21.4% from $43.0 million for the first six months of 1998 to $52.2
million for the first six months of 1999. Direct costs related to acquisitions
of publications that we completed in 1998 were primarily responsible for the
increase.
Marketing services production, selling and other direct expenses increased
$0.8 million or 20.5% from $3.9 million for the first six months of 1998 to 4.7
for the first six months of 1999. This increase was primarily due to increased
selling expenses as well as increased costs of production due to the
growth in those respective product lines.
25
<PAGE>
General and administrative expenses
General and administrative expenses increased $2.5 million or 13.2% from
$19.0 million for the first six months of 1998 to $21.5 million for the first
six months of 1999. This increase was primarily attributable to increased
overheads acquired with the acquisitions that we made after June 30,1998.
Additionally, we incurred a $4.7 million non-cash compensation charge related to
our stock option plan.
Amortization
Amortization expense increased $5.0 million from $14.5 million for the first
six months of 1998 to $19.5 million for the first six months of 1999 primarily
attributable to increased amortization of intangible assets related to the
acquisitions that we completed after June 30, 1998.
Operating income
Operating income increased $11.8 million or 173.5% from $6.8 million for
the first six months of 1998 to $18.6 million for the first six months of 1999
primarily attributable to acquisitions that we made during 1998, partially
offset by a $4.7 million non-cash charge for stock option related compensation
expense and increased amortization expense.
Interest expense
Net interest expense increased $6.9 million or 65.7% from $10.5 million for
the first six months of 1998 to $17.4 million for the first six months of 1999
due to the additional indebtedness incurred to fund acquisitions made after
June 30, 1998. In April 1998, we issued our 9 1/4% Senior Subordinated Notes
due 2008 in the amount of $150.0 million at a fixed rate of 9.25% to fund a
portion of our acquisition of MAGIC. Interest on our 9 1/4% Senior Subordinated
Notes due 2008 is payable semi-annually with the first payment made on November
1, 1998.
Net income
Net income increased $5.6 million or 107.7% from a net loss of $5.2 million
for the first six months of 1998 to a net income of $0.4 million for the first
six months of 1999 primarily due to the changes described above.
EBITDA
EBITDA increased $16.4 million or 71.0% from $23.1 million for the first six
months of 1998 to $39.5 million for the first six months of 1999. The increase
was due primarily to the increase in our 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 existing stockholders, revolving and term loan borrowings and, in 1998, the
issuance of $150.0 million of 9 1/4% Senior Subordinated Notes due 2008.
Cash flows from operating activities. Net cash provided by operations in
the first six months of 1999 increased $16.5 million, or 113.8%, to $31.0
million in 1999 from $14.5 million in the first six months of 1998. The
increase was due to a net income increase of $5.6 million adjusted for the
increase of $4.7 million of depreciation, amortization and other charges and
a decrease in working capital items of $1.5 million relating primarily to
higher deferred revenue balances from MAGIC and other acquisitions.
Additionally, for the first six months of 1999, a non-cash charge of $4.7
million was taken as compensation expense to reflect the value of certain
stock options held by our senior management.
26
<PAGE>
Cash flows from investing activities. Net cash used in investing activities
decreased $260.7 million, from $270.5 million to $9.8 million for the first six
months of 1999. The decrease is primarily due to cash that we used for MAGIC
and other acquisitions in the first six months of 1998, offset by an increase in
fixed asset expenditures in 1999 and proceeds of $4.0 million from the sale of
certain publishing properties in April 1998.
Cash flows from financing activities. Net cash provided by financing
activities decreased $292.2 million from a source of $271.4 million for the
first six months of 1998 to a use of $20.8 million for the first six months of
1999. The decrease is primarily due to net borrowings during the first half of
1998 used to finance acquisitions partially offset with repayments during the
first six months of 1999.
Capital expenditures. Capital expenditures increased $1.4 million from
$1.7 million for the first six months of 1998 to $3.1 million for the first six
months of 1999. The increase was due primarily to upgrades and expansion of
certain of Advanstar's computer networks and servers as part of our Y2K solution
and to expand our infrastructure to accommodate the recent growth and expansion
of our business. Annual capital expenditures have historically included
approximately $1.5 million for routine replacement or maintenance level
requirements for expenditures related to our desktop computers and management
information systems. Capital expenditures have been financed by our cash flows
from operations. We anticipate our capital expenditures will increase from 1998
levels to approximately $5.0 million to $5.5 million in 1999 as a result of our
recent acquisition activity and resultant increase in the size of our overall
business and information systems requirements. Expenditures include additions
for desktop replacements programs, various software upgrades and enhancements,
and the expansion of our communication networks and systems. Capital
expenditures after 1999 are expected to drop back to levels of approximately
$4.0 million to $4.5 million annually. Management further believes that our
operating cash flows will be sufficient to fund anticipated levels of capital
expenditures.
Management expects our primary source of liquidity will be cash flow from
operations. We also have a $60.0 million revolving line of credit available for
funding capital expenditures, working capital needs, acquisitions, or for other
general corporate purposes. As of June 30, 1999, we have approximately $47.0
million of availability under the revolving credit facility. We generally
operate with negative working capital, excluding cash and current maturities of
long-term debt, due to the impact of deferred revenue from expositions, which
are 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. Management believes that we have
sufficient capital resources for ongoing operations requirements. For our long-
term capital requirements beyond December 31, 2000, we will continue to rely on
operating cash flows and believe that we may be able to access capital markets
on terms acceptable to us. We make no assurance that we will have access to
these markets on terms acceptable to us or at all.
Interest payments on our 9 1/4% Senior Subordinated Notes due 2008 and
interest and principal payments under our credit facility will 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 two tranches, $100.0 million of tranche A term loans
amortizing over 5.5 years maturing October 31, 2003 and $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. The Chase Manhattan Bank,
as administrative agent, leads our lenders under the tranche A term loans, which
include Bank of New York, BankBoston, N.A., Dresdner Bank AG, Fleet National
Bank, Heller Financial and First Source Financial LLP. Our lenders under the
tranche B term loans also include 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 $225.0 million of long-term debt by the issuance of its 9 1/4%
Senior Subordinated Notes due 2008 and the purchase of interest rate cap
agreements ranging from 8.0% to 8.5%.
27
<PAGE>
On July 28, 1999, we completed the acquisition of certain assets of
Larkin-Pluznick-Larkin, LLC, and LPL/Style Group, LLC, each a limited liability
company organized under the laws of the State of Delaware (collectively
"Larkin"). Larkin, headquartered in Newton, Massachusetts, is a producer,
promoter and provider of trade shows for the fashion industry. In connection
with the Larkin acquisition, we negotiated an amendment and restatement of our
Senior Credit Facility to provide an additional $138 million tranche C term
loan to fund the purchase.
Management believes 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 9
1/4% Senior Subordinated Notes due 2008) and other needs. Management believes
such liquidity also will 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.
Year 2000 Issues
We have conducted a review of our computer systems and software
infrastructure to identify risks related to processing Year 2000 information,
and are implementing our plan to correct any failures to be Year 2000 compliant.
We believe that the implementation will be completed by September 1999 and that
the total cost to implement the plan should be no more than $4.3 million of
which approximately $2.6 million had been incurred as of June 30, 1999. Because
most of these costs relate to the purchase of capital equipment, most of these
costs will be capitalized. Management believes that, with modifications or
upgrades to existing software, Year 2000 compliance will not pose significant
operational issues. We have identified significant service providers, vendors
and suppliers that we believe will be critical to our business operations after
December 31, 1999 and are conducting a review of their Year 2000 compliance.
The outcome of our Year 2000 readiness review depends on a number of risks
and uncertainties, some of which are beyond our control. Based on our review
and assessment to date, management does not believe that any Year 2000 issues
will have a material adverse effect on our business, financial condition or
results of operations. If we are not able to resolve any unforeseen Year 2000
issues, there could be a delay in providing services to new subscribers of our
publications and in our trade show operations, such as invoicing exhibitors. If
our services were delayed, we could continue to mail our publications to our
subscribers as of December 31, 1999 and manually invoice exhibitors at our trade
shows until we could take remedial action. We do not believe a delay caused by
failure to resolve unforeseen Year 2000 issues would have a material impact on
our revenue.
Market Risk
Advanstar is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. Advanstar does not enter into derivatives
or other financial instruments for trading or speculative purposes. Advanstar
enters into financial instruments to manage and reduce the impact of changes in
interest rates and foreign currency exchange rates.
28
Interest. Advanstar relies significantly on long-term floating rate and fixed
rate debt in its capital structure. At June 30, 1999, Advanstar had debt
totaling $393.2 million of which $222.8 million is either fixed rate debt or
covered by interest rate cap agreements. Interest rate cap agreements are
entered into as a hedge of underlying debt instruments to effectively change the
characteristics of the interest rate without actually changing the debt
instrument. The Company's interest rate cap agreements limit the interest rate
on its outstanding floating rate debt for a period of time. For fixed rate debt,
interest rate changes affect the fair market value but do not impact earnings
and cash flows. Conversely for floating rate debt, interest rate changes
generally do not affect the fair market value but do impact future earnings and
cash flows, assuming other factors are held constant.
At June 30, 1999, the Company had fixed rate debt of $150.0 million and
floating rate debt of $243.2 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 $12.6
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 approximately a reduction of $2.4 million, holding other variables
constant.
Currencies. Advanstar maintains assets and operations in Europe, South
America and Asia. The results of operations and financial position of the
Advanstar's 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. The subsidiaries and affiliates of
Advanstar also purchase and sell products and services in various currencies. As
a result, Advanstar may be exposed to cost increases relative to the local
currencies in the markets in which it sells.
A portion of Advanstar's assets are based in its foreign operations 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 as a
separate component of stockholders' investment. Accordingly, Advanstar's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U. S. dollar against the respective foreign
currency.
Advanstar's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, enter into forward exchange contracts to reduce the Company's exposure
to currency fluctuations. There are no material forward exchange contracts
outstanding during the periods presented. For the six months ended June 30,
1999, a hypothetical 10% strengthening of the U.S. dollar relative to the
currencies of foreign countries in which Advanstar operates was not material.
29
<PAGE>
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds.
On April 21, 1999 the Company effected an amendment of Article
FOURTH of its Certificate of Incorporation to increase the
authorized capital stock of the Company from 20,000,000 to
40,000,000 shares of its Common Stock, par value $.01 per share.
Item 4. Submissions of Matters to a Vote of Security Holders.
On April 20, 1999, the sole stockholder of the Company approved
by written consent: (i) the amendment of Article FOURTH of the
Certificate of Incorporation of the Company to increase the
authorized capital stock of the Company from 20,000,000 to
40,000,000 shares of its Common Stock, par value $.01 per share
and (ii) a two-for-one stock split in the form of a stock
dividend for each share of Common Stock then outstanding.
Item 6. Exhibits and Reports filed on Form 8-K
Item 6(a). Exhibits Required by Item 601 of Regulation S-K:
3.1 Certificate of Amendment to the Certificate of Incorporation
of the Company dated April 21, 1999 (filed as Exhibit 3.1 to
Amendment No. 2 to the Company's Registration Statement of Form
S-1 filed with the Securities and Exchange Commission and
incorporated by reference herein).
27 Financial Data Schedule for the three months ended June 30,
1999.
Item 6(b). Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advanstar, Inc.
By: /s/ David W. Montgomery
-------------------------------
Date: August 13, 1999 David W. Montgomery
Vice President Finance and
Chief Financial Officer
31
<PAGE>
Advanstar, Inc.
Exhibit Index
Exhibit No.
3.1 Certificate of Amendment to the Certificate of Incorporation of
the Company dated April 21, 1999 (filed as Exhibit 3.1 to
Amendment No. 2 to the Company's Registration Statement of Form
S-1 filed with the Securities and Exchange Commission and
incorporated by reference herein).
27 Financial Data Schedule for the three months ended March 31, 1999.
32
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTH PERIOD ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 14,530 14,530
<SECURITIES> 0 0
<RECEIVABLES> 31,620 31,620
<ALLOWANCES> 676 676
<INVENTORY> 742 742
<CURRENT-ASSETS> 58,457 58,457
<PP&E> 21,594 21,594
<DEPRECIATION> 6,297 6,297
<TOTAL-ASSETS> 643,334 643,334
<CURRENT-LIABILITIES> 94,519 94,519
<BONDS> 393,152 393,152
0 0
0 0
<COMMON> 336 336
<OTHER-SE> 134,987 134,987
<TOTAL-LIABILITY-AND-EQUITY> 643,334 643,334
<SALES> 0 0
<TOTAL-REVENUES> 71,090 170,174
<CGS> 0 0
<TOTAL-COSTS> 47,479 105,950
<OTHER-EXPENSES> 21,549 44,837
<LOSS-PROVISION> 609 828
<INTEREST-EXPENSE> 8,564 17,391
<INCOME-PRETAX> (7,504) 1,139
<INCOME-TAX> 200 694
<INCOME-CONTINUING> (7,704) 445
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,704) 445
<EPS-BASIC> (0.23) 0.01
<EPS-DILUTED> (0.22) 0.01
</TABLE>
