<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934.
For the Quarterly Period Ended: March 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 _____________________
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)
(617) 267-6500
----------------------------------------------------
(Registrant's telephone number, including area code)
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 May 14, 1999, 33,630,000 shares of the Registrant's common stock were
outstanding.
<PAGE>
PART I Financial Information
Item 1. Financial Statements:
Page in this
Quarterly
Report
------------
Condensed Consolidated Balance Sheets at March 31, 1999
(unaudited) and December 31, 1998................................... F-2
Condensed Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and 1998.......................... F-3
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and 1998.......................... F-4
Notes to Consolidated Financial Statements............................ F-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 1
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds................. 7
Item 4. Submissions of Matters to a Vote of Security Holders...... 7
Item 6(a). Exhibits.................................................. 7
Item 6(b). Reports on Form 8-K....................................... 7
Signature................................................. 8
Exhibit Index............................................. 9
Exhibits..................................................
F-1
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 12,930 $ 14,016
Accounts receivable, net............................................................. 26,412 27,976
Prepaid expenses..................................................................... 11,860 14,784
Other................................................................................ 1,912 2,097
-------- --------
Total current assets.............................................................. 53,114 58,873
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net..................................................... 13,897 14,125
-------- --------
GOODWILL AND INTANGIBLE ASSETS, net.................................................... 576,327 587,228
-------- --------
Total Assets...................................................................... $643,338 $660,226
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt................................................. $ 10,609 $ 8,253
Accounts payable..................................................................... 15,682 13,311
Accrued liabilities.................................................................. 19,994 19,135
Deferred revenue..................................................................... 26,380 45,643
-------- --------
Total current liabilities......................................................... 72,665 86,342
-------- --------
LONG-TERM DEBT, net of current maturities.............................................. 408,384 418,615
OTHER LONG-TERM LIABILITIES............................................................ 2,086 3,227
MINORITY INTEREST...................................................................... 17,675 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 March 31, 1999 and December 31, 1998, respectively....... 336 335
Capital in excess of par............................................................. 186,038 183,042
Accumulated deficit.................................................................. (39,596) (47,745)
Accumulated other comprehensive loss................................................. (4,250) (872)
-------- --------
Total stockholder's equity........................................................ 142,528 134,760
-------- --------
$643,338 $660,226
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-2
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
Three Months Ended
March 31,
1999 1998
-----------------------
Net revenue............................................. $99,084 $62,063
------- -------
Operating expenses:
Cost of production................................ 20,515 13,189
Selling, editorial and circulation................ 37,956 26,412
General and administrative........................ 13,129 8,207
Depreciation and amortization..................... 10,378 6,236
------- -------
Total operating expenses.................... 81,978 54,044
------- -------
Operating income........................................ 17,106 8,019
Other income (expense)
Interest expense, net............................. (8,827) (3,814)
Other income (expense), net..................... (15) (14)
------- -------
Income before income taxes and minority interest........ 8,264 4,191
Provision for income taxes.............................. (494) (54)
Minority interest in losses of subsidiary............... 379 304
------- -------
Net income.............................................. $ 8,149 $ 4,441
======= =======
Earnings per share
Basic and diluted................................ $ 0.24 $ 0.20
======= =======
Weighted average shares outstanding
Basic............................................ 33,494 21,800
Diluted.......................................... 34,486 21,800
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-3
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................... $ 8,149 $ 4,441
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization................................ 10,524 6,347
Non-cash interest............................................ 266 238
Non-cash stock compensation.................................. 2,997 --
(Gain) loss on sales of assets and other..................... 396 (304)
Changes in operating assets and liabilities.................. (12,603) (7,353)
-------- --------
Net cash provided by operating activities.................. 9,729 3,369
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment................ (791) (1,240)
Change in notes receivable.................................... 102 47
Acquisition of publications and trade shows, net.............. (2,621) (25,901)
Proceeds from sale of publishing and other assets............. 13 30
-------- --------
Net cash used in investing activities....................... (3,297) (27,064)
-------- --------
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan......... (7,000) 26,500
Payments of long-term debt.................................... (885) (3,726)
-------- --------
Net cash provided by (used in) financing activities....... (7,885) 22,774
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................ 367 (168)
NET DECREASE IN CASH AND CASH EQUIVALENTS...................... (1,086) (1,089)
CASH AND CASH EQUIVALENTS, beginning of period................. 14,016 7,024
-------- --------
CASH AND CASH EQUIVALENTS, end of period....................... $ 12,930 $ 5,935
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-4
<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 period ended March 31,
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. Earnings Per Share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards (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:
Three Months Ended
March 31,
----------------------
1999 1998
------ ------
(in thousands, except
per share data)
Net income
Basic and diluted earnings per share................ $ 8,149 $ 4,441
Weighted Average Share
Basic............................................... 33,494 21,800
Adjustments for dilutive securities:
Employee stock options........................ 992 -
------- -------
Diluted............................................. 34,486 21,800
======= =======
Earnings per share, basic and diluted.................... $ 0.24 $ 0.20
======= =======
4. Debt
Amended Credit Facility
In August 1998, the Company amended its credit facility. The Amended Credit
Facility consists of three components: Tranche A, a 5 1/2 -year term loan in an
aggregate principal amount equal to $100.0 million; Tranche B, a 7-year term
loan in an aggregate principal amount equal to $150.0 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 cap agreements for a notional
amount of $75.0 million to fix its interest rate exposure at 8.0-8.5%.
F-5
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
will also have 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.
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 March 31, 1999.
Senior Subordinated Notes
The senior subordinated notes (Notes) issued in conjunction with the MAGIC
acquisition are unsecured obligations of Advanstar Communications, Inc.,
(Communications) a wholly-owned subsidiary or the Company, 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 the Company.
Restrictive financial covenants under the 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 March 31, 1999.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31.
1999 1998
---------------------------
<S> <C> <C>
(in thousands)
Tranche A term loan, interest at LIBOR plus 2.25%, 7.19% at March 31, 1999
due October 31, 2003...................................................... $ 97,794 $ 98,529
Tranche B term loan, interest at LIBOR plus 2.50%, 7.44% at March 31, 1999
due April 30, 2005........................................................ 149,550 149,700
Revolving credit loan, interest at LIBOR plus 2.25%, 7.19% at March 31, 1999
due October 31, 2003...................................................... 22,000 29,000
Senior subordinated notes at 9.25%, due May 31, 2008, Net of discount......... 149,649 149,639
-------- --------
418,993 426,868
Less-Current maturities....................................................... (10,609) (8,253)
-------- --------
$408,384 $418,615
======== ========
</TABLE>
F-6
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Comprehensive Income
The table below presents comprehensive income, defined as changes in the
equity of the Company excluding changes resulting from investments by and
distributions to shareholders.
Three Months Ended
March 31,
------------------
1999 1998
------ ------
(in thousands)
Net income (loss)................................. $ 8,149 $ 4,441
Change in cumulative translation adjustment....... (3,378) (168)
------- -------
Comprehensive income (loss)....................... $ 4,771 $ 4,273
------- -------
6. Segment Information
<TABLE>
<CAPTION>
Trade Shows Corporate
Trade and Marketing and
Publications Conferences Services Other Totals
------------ ----------- --------- --------- ------------
(in thousands)
Three months ended March 31, 1999
<S> <C> <C> <C> <C> <C>
Revenues............................... $33,272 $61,573 $4,084 $ 155 $ 99,084
Gross profit........................... 6,872 32,101 1,630 10 40,613
Segment assets......................... 28,549 8,146 2,133 604,510 643,338
------- ------- ------ -------- --------
Three months ended March 31, 1998
Revenues............................... 26,132 32,302 3,395 234 62,063
Gross profit........................... 5,195 15,714 1,407 146 22,462
Segment assets......................... 20,169 4,825 1,662 303,167 329,823
------- ------- ------ -------- --------
</TABLE>
Intangible assets represent 95.3% and 93.3% of corporate and other assets at
March 31, 1999 and 1998, respectively.
The reconciliation of total segment gross profit to consolidated pre-tax
income for the three months ended March 31, 1999 and 1998 is as follows:
March 31, March 31,
1999 1998
------------ ------------
(in thousands)
Total segment gross profit................ $ 40,613 $22,462
General and administrative expense........ (13,129) (8,207)
Depreciation and amortization............. (10,378) (6,236)
Other expense............................. (8,842) (3,828)
-------- -------
Consolidated income before minority
interest and taxes................. $ 8,264 $ 4,191
======== =======
F-7
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. 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 Communications' wholly-owned domestic
subsidiaries and by the Company. 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; 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.
F-8
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At March 31, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
---------- -------------- ---------- --------- ---------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ -- $ 6,156 $ 116 $ 6 $ (11)
Accounts receivable, net................. -- 22,946 (124) (24) (41)
Prepaid expenses......................... -- 6,033 1,877 69 793
Intercompany receivable (payable)........ 99 (30,071) 38,769 (219) 345
Other.................................... -- 1,600 -- -- --
---------- -------- -------- ------- -------
Total current assets.................... 99 6,664 40,638 (168) 1,086
---------- -------- -------- ------- -------
Property, plant and equipment, net........ -- 12,140 359 41 489
Investments in subsidiaries............... 142,528 311,986 -- -- --
Net intangible assets, net................ -- 287,514 206,884 18,020 11,184
---------- -------- -------- ------- -------
$142,627 $618,304 $247,881 $17,893 $12,759
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt........ $ -- $ 10,609 $ -- $ -- $ --
Accounts payable......................... 124 8,307 3,171 194 --
Deferred revenue......................... -- 14,193 1,390 1,793 4,592
Accrued liabilities...................... (25) 14,522 2,481 599 73
---------- -------- -------- ------- -------
Total current liabilities............... 99 47,631 7,042 2,586 4,665
---------- -------- -------- ------- -------
Long term debt, net of current maturities. -- 408,384 -- -- --
Other long term liabilities............... -- 2,086 -- -- --
Minority interest......................... -- 17,675 -- -- --
Stockholder interest
Common stock............................. 336 10 1 2 1
Capital in excess of par value........... 186,038 186,364 220,627 15,739 9,593
Retained earnings (deficit).............. (39,596) (39,596) 20,211 (434) (1,500)
Translation adjustment................... (4,250) (4,250) -- -- --
---------- -------- -------- ------- -------
Total stockholder's equity.............. 142,528 142,528 240,839 15,307 8,094
---------- -------- -------- ------- -------
$142,627 $618,304 $247,881 $17,893 $12,759
========== ======== ======== ======= =======
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------- ------------- ------------ -------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 111 $ 6,663 $ -- $ 12,930
Accounts receivable, net.................. (189) 3,655 -- 26,412
Prepaid expenses.......................... 2,739 3,088 -- 11,860
Intercompany receivable (payable)......... 38,895 (8,824) (99) --
Other..................................... -- 312 -- 1,912
-------- ------- --------- --------
Total current assets..................... 41,556 4,894 (99) 53,114
-------- ------- --------- --------
Property, plant and equipment, net......... 889 868 13,897
Investments in subsidiaries................ -- -- (454,514) --
Net intangible assets, net................. 236,088 52,725 -- 576,327
-------- ------- --------- --------
$278,533 $58,487 $(454,613) $643,338
-------- ------- --------- --------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt........ $ -- $ -- $ -- $ 10,609
Accounts payable......................... 3,365 4,010 (124) 15,682
Deferred revenue......................... 7,775 4,412 -- 26,380
Accrued liabilities...................... 3,153 2,319 25 19,994
-------- ------- --------- --------
Total current liabilities............... 14,293 10,741 (99) 72,665
-------- ------- --------- --------
Long term debt, net of current maturities. -- -- -- 408,384
Other long term liabilities............... -- -- -- 2,086
Minority interest......................... -- -- -- 17,675
Stockholder interest
Common stock............................. 4 332 (346) 336
Capital in excess of par value........... 245,959 45,861 (478,184) 186,038
Retained earnings (deficit).............. 18,277 1,553 19,766 (39,596)
Translation adjustment................... -- -- 4,250 (4,250)
-------- ------- --------- --------
Total stockholder's equity.............. 264,240 47,746 (454,514) 142,528
-------- ------- --------- --------
$278,533 $58,487 $(454,613) $643,338
======== ======= ========= ========
</TABLE>
F-10
<PAGE>
ADVANSTAR, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Art
Company Communications Expo Magic ABC Expocon
-------- -------------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.......................... $ -- $57,969 $ -- $27,683 $ 829 $ --
-------- ------- ------ ------- ------ -----
Operating expenses
Cost of sales and selling, editorial
and circulation.................... -- 38,740 -- 9,522 942 428
General and administrative.......... -- 11,236 -- 569 -- 163
Depreciation and amortization....... -- 6,287 -- 2,774 234 332
-------- ------- ------ ------- ------ -----
Total operating expenses........... -- 56,263 -- 12,865 1,176 923
-------- ------- ------ ------- ------ -----
Operating income (loss).............. -- 1,706 -- 14,818 (347) (923)
Other income (expense):
Interest income (expense), net...... -- (8,518) -- 1 -- --
Other income (expense), net......... -- 813 -- -- -- --
-------- ------- ------ ------- ------ -----
Income (loss) before income taxes.... -- (5,999) -- 14,819 (347) (923)
Provision for income tax............. -- (21) -- -- -- --
Minority interest in earnings........ -- 379 -- -- -- --
Equity in (loss) of subsidiaries..... 8,149 13,790 -- -- -- --
-------- ------- ------ ------- ------ -----
Net income (loss).................... $8,149 $ 8,149 $ -- $14,819 $ (347) $(923)
======== ======= ====== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenue........................... $28,512 $12,603 $ -- $99,084
------- ------- -------- -------
Operating expenses
Cost of sales and selling, editorial
and circulation..................... 10,892 8,839 -- 58,471
General and administrative........... 732 1,161 -- 13,129
Depreciation and amortization........ 3,340 751 -- 10,378
------- ------- -------- -------
Total operating expenses............ 14,964 10,751 -- 81,978
------- ------- -------- -------
Operating income (loss)............... 13,548 1,852 -- 17,106
Other income (expense):
Interest income (expense), net....... 1 (310) -- (8,827)
Other income (expense), net.......... -- (828) -- (15)
------- ------- -------- -------
Income (loss) before income taxes..... 13,549 714 -- 8,264
Provision for income tax.............. -- (473) -- (494)
Minority interest in earnings......... -- -- -- 379
Equity in (loss) of subsidiaries...... -- -- (21,939) --
------- ------- -------- -------
Net income (loss)..................... $13,549 $ 241 $(21,939) $ 8,149
======= ======= ======== =======
</TABLE>
F-11
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Art Expo Magic ABC
-------- -------------- -------- ----- ---
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)...................... $ 8,149 $ 8,149 $ -- $ 14,819 $(347)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... -- 6,433 -- 2,774 234
Non cash Items........................ -- 3,659 -- -- --
Change in working capital
items................................. -- (11,741) -- (17,346) (644)
------- -------- ------ -------- -----
Net cash provided by (used in)
operating activities.................. 8,149 6,500 -- 247 (757)
------- -------- ------ -------- -----
Investment Activities:
Net loss in investment in
subsidiaries.......................... (8,149) -- -- -- --
Additions to property, plant and
equipment, net........................ -- (642) -- -- --
Acquisitions of publications and
trade shows........................... -- (454) -- (27) 755
------- -------- ------ -------- -----
Net cash provided by (used in)
investing activities.................. (8,149) (1,096) -- (27) 755
------- -------- ------ -------- -----
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................................... -- (7,885) -- -- --
------- -------- ------ -------- -----
Net cash provided by (used in)
financing activities.................. -- (7,885) -- -- --
======= ======== ====== ======== =====
EFFECT OF EXCHANGE RATE ON CASH 367
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:.................. -- (2,114) -- 220 (2)
CASH AND CASH EQUIVALENTS,
beginning of period:................... -- 8,270 -- (104) 8
------- -------- ------ -------- -----
CASH AND CASH EQUIVALENTS,
end of period:......................... $ -- $ 6,156 $ -- $ 116 $ 6
======= ======== ====== ======== =====
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Expocon Subsidiaries Subsidiaries Elimination Total
------- ------------ ------------ ------------ -------------
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)...................... $(923) $ 13,549 $ 241 $(21,939) $ 8,149
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 332 3,340 751 -- 10,524
Non cash Items........................ -- -- -- -- 3,659
Change in working capital
items................................. 954 (17,036) 2,384 13,790 (12,603)
----- -------- ------ ------- --------
Net cash provided by (used in)
operating activities.................. 363 (147) 3,376 (8,149) 9,729
----- -------- ------ ------- --------
Investment Activities:
Net loss in investment in
subsidiaries.......................... -- -- -- 8,149 --
Additions to property, plant and
equipment, net........................ (2) (2) (134) -- (778)
Acquisitions of publications and
trade shows........................... -- 728 (2,793) -- (2,519)
----- -------- ------ ------- --------
Net cash provided by (used in)
investing activities.................. (2) 726 (2,927) 8,149 (3,297)
----- -------- ------ ------- --------
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................................... -- -- -- -- (7,885)
----- -------- ------ ------- --------
Net cash provided by (used in)
financing activities.................. -- -- -- -- (7,885)
===== ======== ====== ======= ========
EFFECT OF EXCHANGE RATE ON CASH 367
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:.................. 361 579 449 -- (1,086)
CASH AND CASH EQUIVALENTS,
beginning of period:................... (372) (468) 6,214 -- 14,016
----- -------- ------ ------- --------
CASH AND CASH EQUIVALENTS,
end of period:......................... $ (11) $ 111 $ 6,663 $ -- $12,930
===== ======== ====== ======= ========
</TABLE>
F-13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
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 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 62.1% and 52.0% of total revenue
for the three months ended March 31, 1999 and 1998, respectively. Publications
accounted for 33.6% and 42.1% of total revenue for the three months ended March
31, 1999 and 1998, respectively. Marketing services accounted for 4.3% and 5.8%
of total revenue for the three months ended March 31, 1999 and 1998,
respectively. On a relative basis, our revenue reaches its highest levels
during the first and third quarters of the year largely due to the timing of the
MAGIC trade shows and our other large trade shows and conferences. 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.
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, readership studies 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,
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
1
<PAGE>
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 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.
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 March 31, 1999 and 1998, we
adjusted operating income by $0.2 million and $0.3 million, respectively, to
reflect minority interest.
Three Months Ended
March 31,
--------------------
1999 1998
--------- --------
(in thousands)
Net revenue
Trade shows and conferences............................. $61,573 $32,302
Publications............................................ 33,272 26,132
Marketing services and other............................ 4,239 3,629
------- -------
Total net revenues................................... 99,084 62,063
Production, selling and other direct expenses
Trade shows and conferences............................. 29,472 16,588
Publications............................................ 26,400 20,937
Marketing services and other............................ 2,599 2,076
------- -------
Total production, selling and other direct expenses.. 58,471 39,601
General and administrative expenses....................... 10,854 8,791
Non-cash stock option compensation........................ 2,997 --
Amortization.............................................. 9,656 5,652
------- -------
Operating income..................................... 17,106 8,019
Other income (expense):
Interest expense (net).................................. (8,827) (3,814)
Other income (expense).................................. 364 290
Provision for income taxes................................ 494 54
------- -------
Net income................................................ $ 8,149 $ 4,441
======= =======
EBITDA.................................................... $27,807 $14,670
2
<PAGE>
Three Months Ended March 31, 1999 Compared to the Three Months Ended
March 31, 1998
Revenue
Revenue increased $37.0 million or 59.7% from $62.1 million for the first
three months of 1998 to $99.1 million for the comparable period in 1999.
Revenue from trade shows and conferences increased $29.3 million or 90.6%
from $32.3 million for the first three months of 1998 to $61.6 million for the
first three months of 1999. The increase in revenue was attributable to
acquisitions and new launches, such as MAGIC and iEC Europe and the growth in
our existing product portfolio. Acquisitions that we completed after March 31,
1998 accounted for 47.2% of our total revenue from trade shows and conferences
for the first three months of 1999 and new launches after March 31, 1998
accounted for 4.1%. In 1998 Advanstar acquired MAGIC, TeleCon, Telexpo,
SCANTECH and eight other trade shows and conferences.
Revenue from publications increased $7.2 million or 27.3% from $26.1
million for the first three months of 1998 to $33.3 million for the first three
months of 1999. The increase in revenue was attributable primarily to
acquisitions that we made in 1998 and a modest increase in 1998 of advertising
pages and advertising revenue per page. Acquisitions that we completed after
March 31, 1998 accounted for 23.6% of total revenue from publications for the
first three months of 1999 and new launches after March 31, 1998 accounted for
1.3%. In 1998, Advanstar acquired Travel Agent and six other trade publications,
including TeleProfessional and Post.
Revenue from marketing services increased $0.6 million or 16.8% from $3.6
million for the first three months of 1998 to $4.2 million for the first three
months of 1999. Growth in revenue from list rentals, classified advertising and
books was primarily responsible for the increase.
Production, selling and other direct expenses
Production, selling and other direct expenses increased $18.9 million or
47.7% from $39.6 million for the first three months of 1998 to $58.5 million for
the first three months of 1999.
Trade shows and conferences production, selling and other direct expenses
increased $12.9 million or 77.7% from $16.6 million for the first three months
of 1998 to $29.5 million for the first three months of 1999. This increase was
primarily due to increases in operation, promotion and management costs
associated with acquisitions that we completed after March 31, 1998 as well as
costs attributable to new launches and growth in existing events.
Publications production, selling and other direct expenses increased $5.5
million or 26.1% from $20.9 million for the first three months of 1998 to $26.4
million for the first three months of 1999. Direct costs related to
acquisitions of publications that we completed after March 31, 1998 were
primarily responsible for the increase.
Marketing services production, selling and other direct expenses increased
$0.5 million or 25.2% from $2.1 million for the first three months of 1998 to
$2.6 million for the first three months 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 $5.1 million or 57.6% from
$8.8 million for the first three months of 1998 to $13.9 million for the first
three months of 1999. This increase was primarily attributable to a $3.0
million non-cash charge related to our stock option plan and to increased
overheads acquired with acquisitions that we made after March 31, 1998.
3
<PAGE>
Amortization
Amortization expense increased $4.0 million from $5.7 million for the first
three months of 1998 to $9.7 million for the first three months of 1999
primarily attributable to increased amortization of intangible assets related
to the acquisitions that we completed after March 31, 1998.
Operating income
Operating income increased $9.1 million or 113.3% from $8.0 million for the
first three months of 1998 to $17.1 million for the first three months of 1999
primarily attributable to acquisitions made during 1998, partially offset by a
$3.0 million non-cash charge for stock option related compensation expense and
increased amortization expense.
Interest expense
Net interest expense increased $5.0 million or 131.4% from $3.8 million for
the first three months of 1998 to $8.8 million for the first three months of
1999 due to the additional indebtedness necessary to fund acquisitions that we
made after March 31, 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
1/4% 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 $3.7 million or 83.5% from $4.4 million for the first
three months of 1998 to $8.1 million for the first three months of 1999
primarily due to the changes described above.
EBITDA
EBITDA increased $13.1 million or 89.6% from $14.7 million for the first
three months of 1998 to $27.8 million for the first three months of 1999. The
increase was due primarily to an 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 under revolving
credit facilities and, in 1998, term loan borrowings and the issuance of $150.0
million of our 9 1/4% Senior Subordinated Notes due 2008.
Cash flows from operating activities. Net cash provided by operations for
the first three months of 1999 increased $6.3 million or 188.8% from $3.4
million for the first three months of 1998 to $9.7 million for the first three
months of 1999. The increase was due to an increase in our net income of $3.7
million adjusted for the increase of $4.9 million of depreciation, amortization
and other charges, offset by an increase in working capital items of $5.3
million relating primarily to higher deferred revenue balances from MAGIC and
other acquisitions. Additionally, for the first three months of 1999, a non-cash
charge of $3.0 million was taken as compensation expense to reflect the value of
certain stock options held by our senior management.
Cash flows from investing activities. Net cash used in investing activities
decreased $23.8 million from $27.1 million to $3.3 million for the first three
months of 1999. The decrease is primarily due to cash that we used for
acquisitions during the first quarter of 1998.
Cash flows from financing activities. Net cash provided by financing
activities decreased $30.7 million from a source of $22.8 million for the first
three months of 1998 to a use of $7.9 million for the first three months of
1999. The decrease is due primarily to net borrowings during the first quarter
of 1998 used to finance acquisitions partially offset with repayments during the
first quarter of 1999.
4
<PAGE>
Capital expenditures. Capital expenditures decreased $0.4 million from
$1.2 million for the first three months of 1998 to $0.8 million for the first
three months of 1999. 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 the resultant increase in the size
of our overall business and information system requirements. Expenditures
include additions for desktop replacement 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 credit line under our credit
facility available for funding capital expenditures, working capital needs,
acquisitions or for other general corporate purposes. As of March 31, 1999, we
have approximately $38.0 million of availability under our revolving credit
line. We generally operate with negative working capital, excluding cash and
current maturities of long-term debt, due to the impact of deferred revenue from
trade shows, which is billed and collected as deposits up to one year in advance
of the respective trade show. Consequently, our existing operations are expected
to maintain very low or negative working capital balances, excluding cash and
current maturities of long-term debt. Management believes that we have
sufficient capital resources for ongoing operating requirements. For our long-
term capital requirements beyond December 31, 2000, we will continue to rely on
operating cash flows and believe that we will be able to access capital markets.
We make no assurance that we will have access to these markets on terms
favorable 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 and 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 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. The interest rates under
our 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 our total long-term debt by the issuance of our 9 1/4% Senior Subordinated
Notes due 2008 and the purchase of interest rate cap agreements ranging from
8.0% to 8.5%.
Our credit facility contains certain restrictive financial covenants,
including a minimum fixed charge coverage ratio and a maximum leverage ratio.
Restrictive financial covenants under our 9 1/4% Senior Subordinated Notes due
2008 include a minimum fixed charge coverage ratio and limitations on certain
asset dispositions and dividends, distributions and other restricted payments.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company. The Company was in compliance
with all covenants as of March 31, 1999.
We are currently engaged in discussions with our lenders under the credit
facility to refinance our indebtedness. We believe that we may obtain more
favorable interest rates and modifications to other terms under our credit
facility as a result.
5
<PAGE>
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 and, or to fund our other liquidity needs.
Year 2000
We have conducted a review of our computer systems and software
infrastructure to identify risks related to processing Year 2000 information,
and have begun 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 $1.1 million had been incurred as of March 31,
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. We are conducting a review of the
Year 2000 compliance of these service providers, vendors and suppliers. The
outcome of our Year 2000 readiness review depends on a number or 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 would 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 results of operations.
6
<PAGE>
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds.
(c) On March 17, 1999, the Company issued 163,334 shares (giving effect to
the two-for-one stock split effected on April 21, 1999 in the form of a stock
dividend) shares of its common stock, par value $.01 per share, to AHI Advanstar
LLC for a total consideration of $980,000.
No underwriters were involved in the foregoing sale of the Company's common
stock. Such sale was 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. All of the foregoing common stock sold is deemed
restricted securities for the purposes of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On March 17, 1999, the sole stockholder of the Company approved by
written consent the amendment of Article FIRST of the Certificate of
Incorporation of the Company to change the name of the Company from Advanstar
Holdings, Inc. to Advanstar, Inc.
Item 6. Exhibits and Reports filed on Form 8-K
Item 6(a). Exhibits
27 Financial Data Schedule for the three months ended March 31,
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.
7
<PAGE>
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/ David W. Montgomery
Date: May 14,1999
David W. Montgomery
Vice President-Finance and
Chief Financial Officer
8
<PAGE>
Advanstar, Inc.
Exhibit Index
Exhibit No.
27 Financial Data Schedule for the three months ended March 31, 1999.
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements for the quarter ended March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,930
<SECURITIES> 0
<RECEIVABLES> 26,968
<ALLOWANCES> 556
<INVENTORY> 1,555
<CURRENT-ASSETS> 53,114
<PP&E> 22,824
<DEPRECIATION> 8,927
<TOTAL-ASSETS> 643,338
<CURRENT-LIABILITIES> 72,665
<BONDS> 408,384
0
0
<COMMON> 336
<OTHER-SE> 142,192
<TOTAL-LIABILITY-AND-EQUITY> 643,338
<SALES> 0
<TOTAL-REVENUES> 99,084
<CGS> 0
<TOTAL-COSTS> 58,252
<OTHER-EXPENSES> 23,507
<LOSS-PROVISION> 219
<INTEREST-EXPENSE> 8,827
<INCOME-PRETAX> 8,643
<INCOME-TAX> (494)
<INCOME-CONTINUING> 8,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,149
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
