<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, 2000
Commission File Number: 333-57201
Advanstar, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-3243499
(I.R.S. Employer
Identification No.)
545 Boylston Street, Boston, Massachusetts
(Address of principal executive offices)
02116
(Zip Code)
Registrant's telephone number, including area code: (617) 267-6500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _______
-------
As of August 14, 2000, 33,630,000 shares of the Registrant's common stock were
outstanding.
<PAGE>
<TABLE>
<CAPTION>
PART I Financial Information
Page in this
Item 1. Financial Statements: Quarterly
Report
------
<S> <C>
Condensed Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999.......................................................... 2
Condensed Consolidated Statements of Operations (unaudited) for the three
months ended June 30, 2000 and 1999............................................ 3
Condensed Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 2000 and 1999............................................ 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended June 30, 2000 and 1999...................................... 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 2000 and 1999........................................ 6
Notes to Condensed Consolidated Financial Statements (unaudited)................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 17
PART II Other Information
Item 4. Submissions of Matters to a Vote of Security Holders............................. 26
Item 6(a). Exhibits......................................................................... 26
Item 6(b). Reports on Form 8-K.............................................................. 26
Signature........................................................................ 27
Exhibit Index.................................................................... 28
Exhibits.........................................................................
</TABLE>
1
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 12,629 $ 11,237
Investments.......................................................................... 8,072 52,456
Accounts receivable, net............................................................. 36,724 29,447
Prepaid expenses..................................................................... 17,972 15,380
Other................................................................................ 1,652 2,220
-------- --------
Total current assets.............................................................. 77,049 110,740
-------- --------
DEFERRED INCOME TAXES.................................................................. 16,442 16,442
PROPERTY, PLANT AND EQUIPMENT, net..................................................... 25,728 20,866
GOODWILL AND INTANGIBLE ASSETS, net.................................................... 669,359 684,547
-------- --------
Total Assets...................................................................... $788,578 $832,595
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt................................................. $ 17,647 $ 13,740
Accounts payable..................................................................... 25,862 18,691
Accrued liabilities.................................................................. 24,805 39,495
Deferred revenue..................................................................... 64,227 69,483
-------- --------
Total current liabilities......................................................... 132,541 141,409
-------- --------
LONG-TERM DEBT, net of current maturities.............................................. 503,610 509,414
OTHER LONG-TERM LIABILITIES............................................................ 6,418 6,645
MINORITY INTEREST...................................................................... 15,872 15,161
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 40,000 shares authorized; 33,630 shares
issued and outstanding at June 30, 2000 and December 31, 1999...................... 336 336
Capital in excess of par............................................................. 186,362 186,578
Accumulated deficit.................................................................. (51,961) (49,772)
Accumulated other comprehensive income (loss)........................................ (4,600) 22,824
-------- --------
Total stockholder's equity........................................................ 130,137 159,966
-------- --------
Total liabilities and stockholder's equity........................................ $788,578 $832,595
======== ========
</TABLE>
The accompanying notes are an integral part of these 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,
2000 1999
-------- --------
<S> <C> <C>
Net revenue......................................................................... $ 74,759 $ 71,090
-------- --------
Operating expenses:
Costs of production........................................................... 14,058 13,457
Selling, editorial and circulation............................................ 35,038 33,875
General and administrative.................................................... 14,234 11,581
Depreciation and amortization................................................. 12,739 10,724
-------- --------
Total operating expenses................................................ 76,069 69,637
-------- --------
Operating income (loss)............................................................. (1,310) 1,453
Other income (expense):
Interest expense, net......................................................... (12,087) (8,564)
Other expense, net............................................................ (2,950) (79)
-------- --------
Loss before income taxes and minority interest...................................... (16,347) (7,190)
Provision (benefit) for income taxes................................................ (1,598) 200
Minority interest in earnings of subsidiary......................................... (348) (314)
-------- --------
Net loss............................................................................ $(15,097) $ (7,704)
======== ========
Earnings per share:
Basic and Diluted............................................................ $ (0.45) $ (0.23)
======== ========
Weighted average shares outstanding:
Basic and diluted............................................................ 33,630 33,630
</TABLE>
The accompanying notes are an integral part of these 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,
2000 1999
-------- --------
<S> <C> <C>
Net revenue......................................................................... $208,107 $170,174
-------- --------
Operating expenses:
Costs of production........................................................... 42,139 33,972
Selling, editorial and circulation............................................ 84,686 71,685
General and administrative.................................................... 27,375 24,710
Depreciation and amortization................................................. 24,984 21,248
-------- --------
Total operating expenses................................................ 179,184 151,615
-------- --------
Operating income.................................................................... 28,923 18,559
Other income (expense):
Interest expense, net......................................................... (24,446) (17,391)
Other income (expense), net................................................... 766 (94)
-------- --------
Income before income taxes and minority interest.................................... 5,243 1,074
Provision for income taxes.......................................................... 6,721 694
Minority interest in losses (earnings) of subsidiary............................... (711) 65
-------- --------
Net (loss) income................................................................... $ (2,189) $ 445
======== ========
Earnings per share:
Basic and Diluted............................................................ $ (0.07) $ 0.01
======== ========
Weighted average shares outstanding:
Basic........................................................................ 33,630 33,562
Diluted...................................................................... 33,630 34,525
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss........................................................................ $(15,097) $ (7,704)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization.................................................. 12,739 10,724
Non-cash interest.............................................................. 300 273
Non-cash stock option compensation............................................. (294) 1,698
Loss on sales of assets and other.............................................. 348 402
Loss on investments............................................................ 2,891 --
Changes in operating assets and liabilities.................................... (885) 15,865
-------- --------
Net cash provided by operating activities.................................... 2 21,258
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment..................................... (4,095) (2,347)
Change in notes receivable..................................................... (16) 6
Acquisition of publications and trade shows, net............................... (625) (4,217)
Proceeds from sale of investments and other assets............................. (17) 9
-------- --------
Net cash used in investing activities........................................ (4,753) (6,549)
-------- --------
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit loan............................... 3,000 (12,000)
Payments on long-term debt..................................................... (2,941) (885)
-------- --------
Net cash provided by (used in) financing activities.......................... 59 (12,885)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......................................... 450 (224)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (4,242) 1,600
CASH AND CASH EQUIVALENTS, beginning of period................................... 16,871 12,930
-------- --------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 12,629 $ 14,530
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income............................................................... $ (2,189) $ 445
Adjustments to reconcile net (loss) income to net cash provided by
operating activities
Depreciation and amortization.................................................. 24,984 21,248
Non-cash interest.............................................................. 599 539
Non-cash stock option compensation............................................. (183) 4,695
Loss on sales of assets and other.............................................. 1,211 798
Gain on investments............................................................ (771)
Changes in operating assets and liabilities.................................... (8,720) 3,262
-------- --------
Net cash provided by operating activities.................................... 14,931 30,987
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment..................................... (8,275) (3,138)
Change in notes receivable..................................................... (103) 108
Acquisition of publications and trade shows, net............................... (9,296) (6,838)
Proceeds from sale of investments and other assets............................. 5,688 22
-------- --------
Net cash used in investing activities........................................ (11,986) (9,846)
-------- --------
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit loan............................... 3,000 (19,000)
Payments on long-term debt..................................................... (4,916) (1,770)
-------- --------
Net cash used in financing activities........................................ (1,916) (20,770)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......................................... 363 143
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 1,392 514
CASH AND CASH EQUIVALENTS, beginning of period................................... 11,237 14,016
-------- --------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 12,629 $ 14,530
======== ========
</TABLE>
The accompanying notes are an integral part of these 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, these condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and the related notes, included in the Company's Form 10-K
for the year ended December 31, 1999. The results of operations for the three
and six month periods ended June 30, 2000, are not necessarily indicative of the
operating results that may be expected for the entire year ending December 31,
2000.
2. Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, is effective for
fiscal years beginning after June 15, 2000. Because of the Company's minimal
use of derivatives, management does not anticipate that the adoption of the new
statement will have a significant effect on earnings or the financial position
of the Company.
3. Investments
As part of an agreement with PurchasePro.com, Inc., a developer and
operator of web-based e-commerce solutions, to provide business-to-business
electronic commerce services, Advanstar IH, Inc., a wholly owned subsidiary of
the Company, received stock purchase warrants to purchase 525,000 shares of
PurchasePro.com, Inc. common stock at an exercise price of $37.58 per share, to
expire in May 2000. The Company has classified these warrants as available for
sale under the provisions of SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." In January 2000, Advanstar IH, Inc. exercised
141,000 warrants and subsequently sold the common stock received upon exercise
for proceeds of $5.7 million. A gain of $3.7 million was recorded on the sale
and is included in other income in the consolidated financial statements.
On June 1, 2000, the agreement with PurchasePro.com, Inc., as more fully
described in the Company's 1999 Form 10-K, was amended. This amendment included
revisions to PurchasePro's responsibilities under the agreement, the timing and
amount of payments, extending the terms of the remaining 384,000 warrants to
December 1, 2000 and adjusting the exercise price to $27.00 per share. As a
result of the amendment, the Company recorded a loss of $2.9 million, included
in other expense in the consolidated financial statements. At June 30, 2000 the
warrants are recorded at their fair value as estimated using the Black-Scholes
option pricing model using quoted market prices, resulting in an unrealized gain
of $2.6 million, net of applicable taxes, reported in other comprehensive
income.
On March 31, 2000 the Company entered into an on-line ad network
agreement and a stock purchase agreement with a third party advertising broker.
As part of the stock purchase agreement, Advanstar IH, Inc. received 497,500
shares of common stock which the Company has classified as available for sale
under the provisions of SFAS No. 115. The Company has valued these shares on the
date of issuance at their fair value of $1.2 million and has recorded this
amount as deferred revenue which is being amortized over the contract period. At
June 30, 2000, the fair value of the shares remains at $1.2 million.
7
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Acquisitions
On July 28, 1999, the Company acquired certain trade show and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin) which operates apparel trade shows. The purchase price
was approximately $135.4 million in cash and assumed liabilities. Concurrent
with the Larkin acquisition, the Company amended and restated its credit
agreement to provide additional borrowing capacity to finance the acquisition.
From January 1, 1999 through December 31, 1999, the Company completed
three other acquisitions of trade shows, conferences and publishing properties,
with a cumulative purchase price totaling approximately $17.3 million in cash
and assumed liabilities.
On January 7, 2000, the Company acquired the Documents, Messaging and
Security (DMS) tradeshow and Info 21 magazine from Gruppe 21 Informations-GmbH
for approximately $7.8 million in cash and assumed liabilities.
The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at their fair values as of the dates of the acquisitions. The
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed has been recorded as goodwill. Certain of the liabilities
assumed have been recorded based upon preliminary estimates as of the dates of
acquisition. The Company does not believe the final allocation of purchase price
will be materially different from preliminary allocations. Any changes to the
preliminary estimates during the allocation period will be reflected as an
adjustment to goodwill. Results of operations for these acquisitions have been
included in the accompanying consolidated financial statements since their
respective dates of acquisition.
The following are unaudited pro forma operating results as if the
acquisitions had taken place at January 1, 1999 (in thousands, except per share
amounts):
Six months ended
June 30,
2000 1999
---- ----
Total revenues................................. $208,107 $195,873
Operating income............................... 28,923 24,336
Net income (loss).............................. (2,189) 1,041
Earnings per share, Diluted.................... $ (0.07) $ 0.30
5. Earnings Per Share
Earnings per share are calculated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share".
8
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table is a reconciliation of the earnings numerator and
the weighted-average shares denominator used in the calculations of basic and
diluted earnings per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)
Basic and diluted................................... $(15,097) $ (7,704) $ (2,189) $ 445
Weighted Average Shares
Basic 33,630 33,630 33,630 33,562
Adjustments for dilutive securities:
Employee stock options........................... -- -- -- 963
-------- -------- -------- --------
Diluted............................................. 33,630 33,630 33,630 34,525
======== ======== ======== ========
Earnings per share, Basic and Diluted.................. $ (0.45) $ (0.23) $ (0.07) $ 0.01
======== ======== ======== ========
</TABLE>
6. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31.
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Tranche A term loan, interest at LIBOR plus 2.00%, 8.62% at June 30, 2000
due October 31, 2003................................................................. $ 85,294 $ 90,210
Tranche B term loan, interest at LIBOR plus 2.50%, 9.03% at June 30, 2000
due April 30, 2005................................................................... 147,223 147,223
Tranche C term loan, Interest at LIBOR plus 3.00%, 9.62% at June 30, 2000
due June 30, 2007.................................................................... 136,043 136,043
Revolving credit loan, interest at LIBOR plus 2.00%, 8.62% at June 30, 2000
due October 31, 2003................................................................. 3,000 --
Senior subordinated notes at 9.25%, due May 31, 2008, Net of discount................... 149,697 149,678
-------- --------
521,257 523,154
Less--Current maturities................................................................ (17,647) (13,740)
-------- --------
$503,610 $509,414
======== ========
</TABLE>
The Amended Credit Facility contains certain financial covenants,
including a minimum fixed charge coverage ratio and a maximum leverage ratio.
The Company was in compliance with all covenants as of June 30, 2000.
Certain financial covenants under the senior subordinated notes (the
Notes) issued by Advanstar Communications Inc. (Communications), a wholly-owned
subsidiary of the Company, include a maximum leverage ratio, a minimum fixed
charge coverage ratio, limitations on certain asset dispositions, dividends and
other restricted payments. The Company was in compliance with all covenants as
of June 30, 2000.
9
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net loss................................................ $(15,097) $ (7,704) $ (2,189) $ 445
Change in cumulative translation adjustment............. (593) (1,051) (1,531) (4,429)
Change in unrealized gains on securities arising
during the period, net of tax........................ 128 -- (22,231) --
Less reclassification adjustment for losses included
in net income, net of tax............................ -- -- (3,663) --
-------- -------- -------- --------
Comprehensive loss...................................... $(15,562) $ (8,755) $(29,614) $ (3,984)
======== ======== ======== ========
</TABLE>
8. Segment Information
<TABLE>
<CAPTION>
Trade Shows Corporate
and Trade Marketing and
Conferences Publications Services Other Totals
----------- ------------ --------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Three months ended June 30, 2000
Revenues.................................... $ 25,411 $ 43,936 $4,794 $ 618 $ 74,759
Gross profit................................ 6,387 16,224 2,426 626 25,663
Segment assets.............................. 466,173 236,293 2,536 83,576 788,578
Three months ended June 30, 1999
Revenues.................................... 25,570 40,733 4,558 229 71,090
Gross profit................................ 6,197 14,893 2,518 150 23,758
Segment assets.............................. 347,290 241,205 2,356 52,483 643,334
Six months ended June 30, 2000
Revenues.................................... 119,040 78,910 9,088 1,069 208,107
Gross profit................................ 53,432 23,474 4,091 285 81,282
Segment assets.............................. 466,173 236,293 2,536 83,576 788,578
Six months ended June 30, 1999
Revenues.................................... 87,143 74,005 8,642 384 170,174
Gross profit................................ 38,444 21,765 4,148 160 64,517
Segment assets.............................. 347,290 241,205 2,356 52,483 643,334
</TABLE>
10
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The reconciliation of total segment gross profit to consolidated pre-tax
income for the three and six months ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Total segment gross profit...................... $ 25,663 $ 23,758 $ 81,282 $ 64,517
General and administrative expense.............. (14,234) (11,581) (27,375) (24,710)
Depreciation and amortization................... (12,739) (10,724) (24,984) (21,248)
Other expense................................... (15,037) (8,643) (23,680) (17,485)
-------- -------- -------- --------
Consolidated income (loss) before
minority interest and taxes................... $(16,347) $ (7,190) $ 5,243 $ 1,074
======== ======== ======== ========
</TABLE>
9. Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of presentation
The Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by the Company and the wholly-owned
domestic subsidiaries of Communications. With the exception of Advanstar IH,
Inc., Communications is the only direct subsidiary of the Company. Both
Advanstar IH, Inc. and Communications are wholly-owned by the Company. Advanstar
IH, Inc., a non-guarantor, was created for the purpose of operating and
developing the Company's internet business. The subsidiary guarantors are Mens
Apparel Guild In California, Inc. (MAGIC); and Applied Business
TeleCommunications, Inc. (ABC). Communications, the subsidiary guarantors and
the non-guarantor subsidiaries comprise all of the direct and indirect
subsidiaries of the Company. The condensed consolidated financial statements of
the guarantors are presented below and should be read in connection with the
consolidated financial statements of the Company. Separate financial statements
of the guarantors are not presented because the guarantors are jointly,
severally and unconditionally liable under the guarantees and the Company
believes the condensed consolidated financial statements presented are more
meaningful in understanding the financial position of the guarantors and
management has determined that such information is not material to investors.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company.
11
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At June 30, 2000
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Communica- Non- Consoli-
---------- Guarantor Guarantor dated
Company tions Magic ABC Subsidiaries Subsidiaries Eliminations Total
-------- ----- -------- ------- ------------ ------------ ------------ --------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ -- $ 3,432 $ 43 $ -- $ 43 $ 9,154 $ -- $ 12,629
Investments -- -- -- -- -- 8,072 -- 8,072
Accounts receivable, net -- 32,339 24 47 71 4,314 -- 36,724
Prepaid expenses -- 9,865 3,683 428 4,111 3,996 -- 17,972
Intercompany receivable (payable) 193 (83,361) 94,965 1,208 96,173 (12,812) (193) --
Other -- 1,382 -- -- -- 270 -- 1,652
-------- --------- -------- ------- ------------ ------------ ------------ --------
Total current assets 193 (36,343) 98,715 1,683 100,398 12,994 (193) 77,049
-------- --------- -------- ------- ------------ ------------ ------------ --------
Deferred taxes -- 16,442 -- -- -- -- -- 16,442
Property, plant and equipment, net -- 21,689 712 16 728 3,311 -- 25,728
Investment in subsidiaries 134,737 322,541 -- -- -- (3,904) (453,374) --
Net intangible assets, net -- 408,641 192,314 16,537 208,851 51,867 -- 669,359
-------- --------- -------- ------- ------------ ------------ ------------ --------
$134,930 $ 732,970 $291,741 $18,236 $ 309,977 $ 64,268 $ (453,567) $788,578
======== ========= ======== ======= ============ ============ ============ ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 17,647 $ -- $ -- $ -- $ -- $ -- $ 17,647
Accounts payable 124 18,713 1,220 (7) 1,213 5,936 (124) 25,862
Deferred revenue -- 22,213 23,580 2,917 26,497 15,517 -- 64,227
Accrued liabilities 69 10,665 10,129 (144) 9,985 4,155 (69) 24,805
-------- --------- -------- ------- ------------ ------------ ------------ --------
Total current liabilities 193 69,238 34,929 2,766 37,695 25,608 (193) 132,541
-------- --------- -------- ------- ------------ ------------ ------------ --------
Long term debt, net of current
maturities -- 503,610 -- -- -- -- -- 503,610
Other long term liabilities -- 6,418 -- -- -- -- -- 6,418
Minority interest -- 15,872 -- -- -- -- -- 15,872
Stockholder interest
Common stock 336 10 1 2 3 436 (449) 336
Capital in excess of par value 186,362 186,698 220,627 15,739 236,366 57,924 (480,988) 186,362
Retained earnings (deficit) (51,961) (48,877) 36,184 (271) 35,913 (15,099) 28,063 (51,961)
Accumulated other comprehensive income -- 1 -- -- -- (4,601) -- (4,600)
-------- --------- -------- ------- ------------ ------------ ------------ --------
Total stockholder's equity 134,737 137,832 256,812 15,470 272,282 38,660 (453,374) 130,137
-------- --------- -------- ------- ------------ ------------ ------------ --------
$134,930 $ 732,970 $291,741 $18,236 $ 309,977 $ 64,268 $ (453,567) $788,578
======== ========= ======== ======= ============ ============ ============ ========
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, 2000
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Communications Magic ABC Subsidiaries Subsidiaries
---------- --------------- --------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ -- $ 60,998 $ 230 $ 380 $ 610 $13,151
--------- -------- ------- ----- ------- -------
Operating expenses:
Cost of sales and selling, editorial 37,313 570 465 1,035 10,748
And circulation....................... --
General and administrative............. -- 10,280 248 -- 248 3,706
Depreciation and amortization.......... -- 8,583 2,957 225 3,182 974
--------- -------- ------- ----- ------- -------
Total operating expenses.............. -- 56,176 3,775 690 4,465 15,428
--------- -------- ------- ----- ------- -------
Operating income (loss)................. -- 4,822 (3,545) (310) (3,855) (2,277)
Other income (expense):
Interest income (expense), net......... -- (11,788) -- (299)
Other income (expense), net............ -- 425 -- (3,375)
--------- -------- ------- ----- ------- -------
Income (loss) before income taxes....... -- (6,541) (3,545) (310) (3,855) (5,951)
Provision (benefit) for income tax...... -- (2,463) (146) (130) (276) 1,141
Minority interest in earnings........... -- (348) -- -- -- --
Equity in earnings of subsidiaries...... (15,097) (5,490) -- -- -- (2,340)
--------- -------- ------- ----- ------- -------
Net income (loss)....................... $(15,097) $ (9,916) $(3,399) $(180) $(3,579) $(9,432)
========= ======== ======= ===== ======= =======
Consolidated
Eliminations Total
------------ -------------
<S> <C> <C>
Net revenue............................. $ -- $ 74,759
------------ --------
Operating expenses:
Cost of sales and selling, editorial 49,096
And circulation....................... --
General and administrative............. -- 14,234
Depreciation and amortization.......... -- 12,739
------------ --------
Total operating expenses.............. -- 76,069
------------ --------
Operating income (loss)................. -- (1,310)
Other income (expense):
Interest income (expense), net......... -- (12,087)
Other income (expense), net............ -- (2,950)
------------ --------
Income (loss) before income taxes....... -- (16,347)
Provision (benefit) for income tax...... -- (1,598)
Minority interest in earnings........... -- (348)
Equity in earnings of subsidiaries...... 22,927 --
------------ --------
Net income (loss)....................... $22,927 $(15,097)
============ ========
</TABLE>
13
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2000
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Communications Magic ABC Subsidiaries Subsidiaries
--------- --------------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............................. $ -- $146,876 $30,063 $1,422 $31,485 $29,746
-------- -------- ------- ------ ------- -------
Operating expenses:
Cost of sales and selling, editorial 93,377 8,758 1,662 10,420 23,028
And circulation....................... --
General and administrative............. -- 19,922 441 -- 441 7,012
Depreciation and amortization.......... -- 16,748 5,957 450 6,407 1,829
-------- -------- ------- ------ ------- -------
Total operating expenses.............. -- 130,047 15,156 2,112 17,268 31,869
-------- -------- ------- ------ ------- -------
Operating income (loss)................. -- 16,829 14,907 (690) 14,217 (2,123)
Other income (expense):
Interest income (expense), net......... -- (23,804) -- (642)
Other income (expense), net............ -- 1,500 -- (734)
-------- -------- ------- ------ ------- -------
Income (loss) before income taxes....... -- (5,475) 14,907 (690) 14,217 (3,499)
Provision (benefit) for income tax...... -- (1,908) 7,554 (160) 7,394 1,235
Minority interest in earnings........... -- (711) -- -- -- --
Equity in earnings of subsidiaries...... (2,189) 5,173 -- -- -- (3,904)
-------- -------- ------- ------ ------- -------
Net income (loss)....................... $(2,189) $ 895 $ 7,353 $ (530) $ 6,823 $(8,638)
======== ======== ======= ====== ======= =======
Consolidated
Eliminations Total
------------ -------------
<S> <C> <C>
Net revenue............................. $ -- $208,107
------------ --------
Operating expenses:
Cost of sales and selling, editorial 126,825
And circulation....................... --
General and administrative............. -- 27,375
Depreciation and amortization.......... -- 24,984
------------ --------
Total operating expenses.............. -- 179,184
------------ --------
Operating income (loss)................. -- 28,923
Other income (expense):
Interest income (expense), net......... -- (24,446)
Other income (expense), net............ -- 766
------------ --------
Income (loss) before income taxes....... -- 5,243
Provision (benefit) for income tax...... -- 6,721
Minority interest in earnings........... -- (711)
Equity in earnings of subsidiaries...... 920 --
------------ --------
Net income (loss)....................... $920 $ (2,189)
============ ========
</TABLE>
14
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended June 30, 2000
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Communications Magic ABC Subsidiaries Subsidiaries
---------- --------------- --------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)............................... $(15,097) $(9,916) $(3,399) $(180) $(3,579) $(9,432)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Undistributed earnings of subsidiaries......... 15,097 5,490 - - - 2,340
Depreciation and amortization.................. - 8,583 2,957 225 3,182 974
Non cash Items................................. - 354 - - - 2,891
Change in working capital
items.......................................... - (5,488) 7 (45) (38) 4,641
---------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
operating activities........................... - (977) (435) - (435) 1,414
---------- --------------- --------- ------- ------------- --------------
Investment Activities:
Investment in subsidiaries...................... - 541 - - - -
Additions to property, plant and
equipment, net................................. - (2,141) (61) - (61) (1,893)
Acquisitions of publications and
trade shows and other adjustments.............. - 36 500 - 500 (1,177)
Proceeds from sale of assets.................... - (17) - - - -
---------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
investing activities........................... - (1,581) 439 - 439 (3,070)
---------- --------------- --------- ------- ------------- --------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions................ - - - - - (541)
Borrowings of long-term debt,
net............................................ - 59 - - - -
---------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
financing activities........................... - 59 - - - (541)
---------- --------------- --------- ------- ------------- --------------
EFFECT OF EXCHANGE RATE ON CASH.................. - - - - - 450
NET INCREASE IN CASH AND CASH
EQUIVALENTS..................................... - (2,499) 4 - 4 (1,747)
CASH AND CASH EQUIVALENTS,
beginning of period:............................ - 5,931 39 - 39 10,901
---------- --------------- --------- ------- ------------- --------------
CASH AND CASH EQUIVALENTS,
end of period:.................................. $ - $ 3,432 $ 43 $ - $ 43 $ 9,154
========== =============== ========= ======= ============= ==============
Consolidated
Eliminations Total
------------- -------------
<S> <C> <C>
Operating Activities:
Net income (loss)............................... $ 22,927 $(15,097)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Undistributed earnings of subsidiaries......... (22,927) -
Depreciation and amortization.................. - 12,739
Non cash Items................................. - 3,245
Change in working capital
items.......................................... - (885)
------------- -------------
Net cash provided by (used in)
operating activities........................... - 2
------------- -------------
Investment Activities:
Investment in subsidiaries...................... (541) -
Additions to property, plant and
equipment, net................................. - (4,095)
Acquisitions of publications and
trade shows and other adjustments.............. - (641)
Proceeds from sale of assets.................... - (17)
------------- -------------
Net cash provided by (used in)
investing activities........................... (541) (4,753)
------------- -------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions................ 541 -
Borrowings of long-term debt,
net............................................ - 59
------------- -------------
Net cash provided by (used in)
financing activities........................... 541 59
------------- -------------
EFFECT OF EXCHANGE RATE ON CASH.................. - 450
NET INCREASE IN CASH AND CASH
EQUIVALENTS..................................... - (4,242)
CASH AND CASH EQUIVALENTS,
beginning of period:............................ - 16,871
------------- -------------
CASH AND CASH EQUIVALENTS,
end of period:.................................. $ - $ 12,629
============= =============
</TABLE>
15
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2000
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Communications Magic ABC Subsidiaries Subsidiaries
--------- --------------- --------- ------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)............................... $(2,189) $ 895 $ 7,353 $(530) $ 6,823 $(8,638)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Undistributed earnings of subsidiaries......... 2,189 (5,173) - - - 3,904
Depreciation and amortization.................. - 16,748 5,957 450 6,407 1,829
Non cash Items................................. - 1,627 - - - (771)
Change in working capital
items.......................................... - 5,242 (13,585) 80 (13,505) (457)
--------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
operating activities........................... - 19,339 (275) - (275) (4,133)
--------- --------------- --------- ------- ------------- --------------
Investment Activities:
Investment in subsidiaries...................... - (13,089) - - - -
Additions to property, plant and
equipment, net................................. - (5,871) (215) - (215) (2,189)
Acquisitions of publications and
trade shows and other adjustments.............. - (643) 500 - 500 (9,256)
Proceeds from sale of assets.................... - - - - - 5,688
--------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
investing activities........................... - (19,603) 285 - 285 (5,757)
--------- --------------- --------- ------- ------------- --------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions................ - - - - - 13,089
Borrowings of long-term debt,
net............................................ - (1,916) - - - -
--------- --------------- --------- ------- ------------- --------------
Net cash provided by (used in)
financing activities........................... - (1,916) - - - 13,089
--------- --------------- --------- ------- ------------- --------------
EFFECT OF EXCHANGE RATE ON CASH.................. - - - - - 363
NET INCREASE IN CASH AND CASH
EQUIVALENTS:.................................... - (2,180) 10 - 10 3,562
CASH AND CASH EQUIVALENTS,
beginning of period:............................ - 5,612 33 - 33 5,592
--------- --------------- --------- ------- ------------- --------------
CASH AND CASH EQUIVALENTS,
end of period:.................................. $ - $ 3,432 $ 43 $ - $ 43 $ 9,154
========= =============== ========= ======= ============= ==============
Consolidated
Eliminations Total
------------- -------------
<S> <C> <C>
Operating Activities:
Net income (loss)............................... $ 920 $ (2,189)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Undistributed earnings of subsidiaries......... (920)
Depreciation and amortization.................. - 24,984
Non cash Items................................. - 856
Change in working capital
items.......................................... - (8,720)
------------- -------------
Net cash provided by (used in)
operating activities........................... - 14,931
------------- -------------
Investment Activities:
Investment in subsidiaries...................... 13,089 -
Additions to property, plant and
equipment, net................................. - (8,275)
Acquisitions of publications and
trade shows and other adjustments.............. - (9,399)
Proceeds from sale of assets.................... - 5,688
------------- -------------
Net cash provided by (used in)
investing activities........................... 13,089 (11,986)
------------- -------------
Financing Activities:
Proceeds from sale of common
stock and capital contributions................ (13,089) -
Borrowings of long-term debt,
net............................................ - (1,916)
------------- -------------
Net cash provided by (used in)
financing activities........................... (13,089) (1,916)
------------- -------------
EFFECT OF EXCHANGE RATE ON CASH.................. - 363
NET INCREASE IN CASH AND CASH
EQUIVALENTS:.................................... - 1,392
CASH AND CASH EQUIVALENTS,
beginning of period:............................ - 11,237
------------- -------------
CASH AND CASH EQUIVALENTS,
end of period:.................................. $ - $ 12,629
============= ============
</TABLE>
16
<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 Advanstar's periodic reports and registration statements filed with
the Securities and Exchange Commission, including those under the caption
entitled "Factors That May Affect Future Results" in Advanstar's Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 30,
2000.
General
Advanstar is a worldwide provider of integrated, business-to-business
marketing communications solutions for targeted industry sectors, principally
through trade shows and conferences and through controlled circulation trade,
business and professional magazines. We also provide a broad range of other
marketing services products, including classified advertising, direct mail
services, reprints, database marketing, directories, guides, reference books and
internet based advertising, sponsorships and custom projects.
Advanstar reports its business in three segments: trade shows and
conferences, which consists primarily of the management of 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 57.2% and 51.2% of total
revenue for the six months ended June 30, 2000 and 1999, respectively.
Publications accounted for 37.9% and 43.5% of total revenue for the six months
ended June 30, 2000 and 1999, respectively. Marketing services accounted for
4.4% and 5.1% of total revenue for the six months ended June 30, 2000 and 1999,
respectively. Our quarterly 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.
In late 1999, we began a development and launch program to extend our
market communities to the online environment of the Internet and deepen our
involvement in the commercial transactions within these communities. This
development program includes strategic alliances with developers of Web-based e-
commerce software and operators of Web community and exchange sites. In 2000
we incorporated a wholly-owned subsidiary, Advanstar IH, Inc. and its wholly-
owned subsidiary, Advanstar.com Inc. to operate our internet business. We
anticipate that development of the first market communities will be completed
during 2000.
Sources of Revenue
Trade shows and conferences. The trade shows and conferences segment
derives revenue principally from the sale of exhibit space and conference
attendance fees generated at its events. Events are generally held on an annual
basis in major metropolitan or convention areas such as New York City or Las
Vegas. At many of our trade shows, a portion of exhibit space is reserved and
partial payment is received as much as a year in advance. For example, over 70%
of exhibit space at our MAGIC, ScanTech, ICCM and TeleCon shows is reserved
prior to the end of the preceding show. The sale of exhibit space is affected by
the on-going quality and quantity of attendance, venue selection and
availability, industry life cycle and general market conditions. Revenue and
related direct event expenses are recognized in the month in which the event is
held. Cash is collected in advance of an event and is recorded on our balance
sheet as deferred revenue.
17
<PAGE>
Publications. The publications segment derives revenue principally from
the sale of advertising in its business-to-business magazines. Additionally,
certain publications derive revenue from paid subscriptions, custom publishing,
and internet based advertising and sponsorship activities. Paid subscriptions
comprise less than 5% of total publishing revenue. Most publications are
produced monthly with advertising sold both on an annual schedule and single
insertion basis. The sale of advertising is affected by new product releases,
circulation quality, readership and general market conditions. Advertising
revenue is recognized on the publication issue date, and subscription revenue,
if any, is recognized over the subscription period, typically one year.
Marketing services. The marketing services segment derives its revenue
from the sale of value-added marketing products such as classified advertising,
both print and internet based, direct mail services, reprints, database
marketing, directories, guides and reference books. These products complement
and, in many cases, utilize the content or databases generated by our trade
shows, conferences and publications. The sale of these products is affected by
the success of the event or publication from which these products are derived,
the quality of the sales team and general market conditions. Revenue is
generally recognized when the applicable product is shipped.
Components of Expenses
Trade shows and conferences. Costs incurred by the trade shows and
conferences segment include facility rent, outsourced services such as
registration, security and decorator, and attendee and exhibitor promotion.
Exhibitors generally contract directly with third parties for on-site services
such as electrical, booth set-up and drayage. Staff salaries and related payroll
expenses are treated as monthly period expenses. All other direct costs are
expensed in the month the event occurs. General and administrative costs are not
allocated to the segments. Our trade shows normally contract for event venue
space one to two years in advance of the given events. We currently are
contracted with our venue for facility rent for MAGIC, our largest trade show,
through the fall 2005 event.
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, sales,
production, editorial and circulation staff costs, with related payroll taxes
and benefits, are charged to the publications. We outsource the actual printing
of our publications. General and administrative costs are not allocated to the
segments.
Marketing services. Costs of the marketing services segment include
printing and distribution costs, database administration fees and selling and
product development salaries and related payroll taxes and benefits. General and
administrative costs are not allocated to the segments.
Selected Financial Data
The following table sets forth selected statements of operations and
other financial data.
We define "EBITDA" as operating income plus amortization and
depreciation. EBITDA does not represent, and should not be considered to be, an
alternative to net income or cash flow from operations as determined in
accordance with GAAP, and our calculation thereof may not be comparable to that
reported by other companies. We believe that EBITDA provides useful information
regarding our ability to service and/or incur indebtedness and is used by many
other companies. Our key financial covenants under our existing credit facility,
which impact the amount of indebtedness we are permitted to incur, are based, in
part, on our EBITDA. EBITDA does not take into account our working capital
requirements, debt service requirements and other commitments. Accordingly,
EBITDA is not necessarily indicative of amounts that may be available to us for
discretionary uses.
To calculate EBITDA for the three months ended June 30, 2000 and 1999,
we adjusted operating income by $(0.5) million and $(0.5) million, respectively,
to reflect minority interest. To calculate EBITDA for the six months ended June
30, 2000 and 1999, we adjusted operating income by $(1.4) million and $(0.4)
million, respectively, to reflect minority interest.
18
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
(In thousands)
Net revenue:
Trade shows and conferences................................ $ 25,411 $25,570 $119,040 $ 87,143
Publications............................................... 43,936 40,733 78,910 74,005
Marketing services and other............................... 5,412 4,787 10,157 9,026
-------- ------- -------- --------
Total net revenues...................................... 74,759 71,090 208,107 170,174
Production, selling and other direct expenses:
Trade shows and conferences................................ 19,024 19,373 65,608 48,699
Publications............................................... 27,712 25,840 55,436 52,240
Marketing services and other............................... 2,360 2,119 5,781 4,718
-------- ------- -------- --------
Total production, selling and other direct expenses..... 49,096 47,332 126,825 105,657
General and administrative expenses.......................... 16,040 10,770 30,390 21,770
Non-cash stock option compensation........................... (294) 1,698 (183) 4,695
Amortization................................................. 11,227 9,837 22,152 19,493
-------- ------- -------- --------
Operating income........................................ (1,310) 1,453 28,923 18,559
Other income (expense):
Interest expense (net)..................................... (12,087) (8,564) (24,446) (17,391)
Other income (expense)..................................... (3,298) (393) 55 (29)
Provision (benefit) for income taxes......................... (1,598) 200 6,721 694
-------- ------- -------- --------
Net income (loss)............................................ $(15,097) $(7,704) $ (2,189) $ 445
======== ======= ======== ========
EBITDA....................................................... $ 10,953 $11,650 $ 52,548 $ 39,457
</TABLE>
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999
Revenue
Revenue increased $3.7 million or 5.2% from $71.1 million for the quarter
ended June 30, 1999 to $74.8 million for the comparable period in 2000.
Revenue from trade shows and conferences experienced an overall decrease of
$0.1 million or 0.6% from $25.6 million in the second quarter of 1999 to $25.4
million for the second quarter of 2000. Revenue was impacted by a $10.4 million
decrease caused by the shift in the timing of when events are held. There were
many events held in the second quarter of 1999 that were moved to the first
quarter of 2000, with some events scheduled for the third quarter of 2000. This
decrease was partially offset by $6.4 million due to the full year effect of
acquisitions completed in 1999. Major acquisitions in 1999 include Larkin,
Sensors and Art Miami, among others. In addition to acquisitions and the
movement of events, the second quarter of 2000 was impacted by a number of
events that were discontinued in the last six months of 1999. Revenue from these
properties in the second quarter of 1999 was $1.0 million for which there was no
comparable revenue in 2000. Adjusting for these items, total revenue from trade
shows and conferences increased by $4.9 million or 44.8% during the second
quarter of 2000.
Revenue from publications increased $3.2 million or 7.9% from $40.7 million
in the second quarter of 1999 to $43.9 million for the comparable period in
2000. Of this increase, $1.1 million was due to the full year effect of
acquisitions completed in 1999. In addition to acquisitions, the first quarter
of 2000 was impacted by the discontinuation of a small number of publications in
the last half of 1999 and and the first quarter of 2000. Revenue from these
properties in the first quarter of 1999 was $1.2 million for which there was no
comparable revenue in 2000. Adjusting for these items, total revenue grew by
$3.3 million or 8.4% during the second quarter of 2000. Our publishing
properties operate in many different markets and industries which are subject to
economic conditions prevalent in those industries. Accordingly, publishing
properties' advertising pages and revenues may fluctuate in connection with the
markets in which they operate.
19
<PAGE>
Marketing services and other revenue increased $0.6 million or 13.1% from
$4.8 million for the second quarter of 1999 to $5.4 million for second quarter
of 2000. Growth in revenue from list rentals, reprints and directories was
primarily responsible for the increase.
Production, Selling and Other Direct Expenses
Production, selling and other direct expenses increased $1.8 million or
3.7% from $47.3 million for the second quarter of 1999 to $49.1 million for the
second quarter of 2000.
Expenses of trade shows and conferences decreased $0.4 million or 1.8% from
$19.4 million for the second quarter of 1999 to $19.0 million for the comparable
period in 2000. This decrease was primarily due to decreased costs associated
with the movement of events between quarters and discontinued events. Increases
in operations and management costs associated with our acquisitions as well as
costs attributable to growth in existing events served to partially offset these
decreases.
Publications production, selling and other direct expenses increased $1.9
million or 7.2% from $25.8 million for the second quarter of 1999 to $27.7
million for the second quarter of 2000. This increase was primarily
attributable to direct costs related to acquisitions as well as normal increases
in line with the growth in revenue.
Marketing services production, selling and other direct expenses increased
$0.3 million or 11.4% from $2.1 million for the second quarter of 1999 to $2.4
million for the second quarter of 2000. This increase was primarily due to
increased selling expenses incurred as a result of our efforts to market these
products as well as increased costs of production in line with the revenue
growth in those respective product lines.
General and Administrative Expenses
General and administrative expenses before non-cash stock option
compensation charges increased $5.2 million or 48.9% from $10.8 million for the
three months ended June 30, 1999 to $16.0 million for the three months ended
June 30, 2000. Of this increase, approximately $2.1 million is related to the
development of our internet management infrastructure and Web-based e-commerce
communities. The balance of the increase was primarily due to the consolidation
of our New York metro area offices and office expansion in several locations due
to acquisitions and growth; decrease in vendor rebates from our trade shows and
conferences caused by event timing shifts; full year depreciation effect of the
development and expansion of our information technology infrastructure and
continued implementation of the Company's market focused cluster management
structure.
Total general and administrative expense, including non-cash stock option
compensation charges, was partially offset by a $2.0 million reduction in
non-cash stock option compensation expense.
Amortization
Amortization expense increased $1.4 million from $9.8 million for the three
months ended June 30, 1999 to $11.2 million for the three months ended June 30,
2000. This increase was primarily due to increased amortization of intangible
assets related to the acquisitions, completed during the third quarter of 1999
and the first quarter of 2000.
Operating Income
Operating income decreased $2.8 million or 190.2% from $1.5 million for the
three months ended June 30, 1999 to an operating loss of $1.3 million for the
three months ended June 30, 2000. This decrease was primarily a result of the
effect of event timing shifts and increases in general and administrative
expenses more fully described above.
Interest Expense
Net interest expense increased $3.5 million or 41.1% from $8.6 million for
the three months ended June 30, 1999 to $12.1 million for the three months ended
June 30, 2000 due to the additional indebtedness necessary to fund acquisitions
and an aggregate increase in interest rates of approximately 1.0%. In July
1999, we obtained an
20
<PAGE>
additional $138.0 million in term debt financing that was used to fund Larkin
and other acquisitions during the year.
Other Expense
Other expense increased $2.9 million from $0.4 million for the three months
ended June 30, 1999 to $3.3 million for the three months ended June 30, 2000.
This increase was primarily due to the amendment of the PurchasePro warrants.
The terms of these warrants were amended to extend the cancellation date and
reduce the exercise price. We recorded a loss of $2.9 million on the
transaction.
Income Taxes
We recorded an income tax benefit of $1.6 million during the quarter ended
June 30, 2000 compared to a provision of $0.2 million during the comparable
period of 1999. This increase was primarily due to the utilization in 1999 of a
significant portion of the Company's net operating loss carryforward and a
decrease in taxable earnings.
Net Loss
Net loss increased $7.4 million from $7.7 million for the three months ended
June 30, 1999 to $15.1 million for the comparable period of 2000 primarily due
to the effect of event timing shifts and increases in general and administrative
expenses more fully described above.
EBITDA
EBITDA decreased $0.7 million from $11.7 million for the three months ended
June 30, 1999 to $11.0 million for the three months ended June 30, 2000. The
decrease was primarily due to the effect of event timing shifts and increases in
general and administrative expenses more fully described above.
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30,
1999
Revenue
Revenue increased $37.9 million or 22.3% from $170.2 million for the six
months ended June 30, 1999 to $208.1 million for the comparable period in 2000.
Revenue from trade shows and conferences increased $31.9 million or 36.6%
from $87.1 million for the first six months of 1999 to $119.0 million for
comparable period of 2000. Of this increase, $21.7 million was due to the full
year effect of acquisitions completed in 1999, partially offset by $2.4 million
caused by the shift in the timing of events held in the first half of 1999 to
the second half of 2000. Major acquisitions in 1999 included Larkin, Sensors and
Art Miami, among others. In addition to acquisitions and the movement of events,
the first six months of 2000 was impacted by a number of events that were
discontinued in the last half of 1999. Revenue from these properties in the
first six months ended June 30, 1999 was $2.3 million for which there was no
comparable revenue in 2000. Adjusting for these items, total revenue from trade
shows and conferences grew by $14.9 million or 18.3% during the first six months
of 2000.
Revenue from publications increased $4.9 million or 6.6% from $74.0 million
in the first six months of 1999 to $78.9 million for the comparable period in
2000. Of this increase, $1.9 million was due to the full year effect of
acquisitions completed in 1999. In addition to acquisitions, the first six
months of 2000 was impacted by the discontinuation of a small number of
publications in the last half of 1999 and the first half of 2000. Revenue from
these properties in the first six months of 1999 was $2.4 million for which
there was no comparable revenue in 2000. Adjusting for these items, total
revenue grew by $5.4 million or 7.6% during the first six months of 2000. Our
publishing properties operate in many different markets and industries which are
subject to economic conditions prevalent in those industries. Accordingly,
publishing properties' advertising pages and revenues may fluctuate in
connection with the markets in which they operate.
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Marketing services and other revenue increased $1.1 million or 12.5% from
$9.0 million in the first six months of 1999 to $10.1 million in the first six
months of 2000. Growth in revenue from list rentals, reprints and directories
was primarily responsible for the increase.
Production, Selling and Other Direct Expenses
Production, selling and other direct expenses increased $21.2 million or
20.0% from $105.6 million for the first six months of 1999 to $126.8 million for
the comparable period of 2000.
Expenses of trade shows and conferences increased $16.9 million or 34.7%
from $48.7 million for the first six months of 1999 to $65.6 million for the
comparable period in 2000. This increase was primarily due to increases in
operations, promotion and management costs associated with our acquisitions as
well as costs attributable to growth in existing events. These increases were
partially offset by costs associated with the movement of events between
quarters and discontinued events.
Publications' production, selling and other direct expenses increased $3.2
million or 6.1% from $52.2 million for the first six months of 1999 to $55.4
million for the comparable period of 2000. This increase was primarily
attributable to direct costs related to acquisitions as well as normal increases
in line with the growth in revenue.
Marketing services production, selling and other direct expenses increased
$1.1 million or 22.5% from $4.7 million for the first six months of 1999 to $5.8
million for the comparable period of 2000. This increase was primarily due to
increased selling expenses incurred as a result of our efforts to market these
products as well as increased costs of production in line with revenue growth in
those respective product lines.
General and Administrative Expenses
General and administrative expenses before non-cash stock option
compensation charges increased $8.6 million or 39.6% from $21.8 million for the
six months ended June 30, 1999 to $30.4 million for the six months ended June
30, 2000. Of this increase, approximately $3.7 million is related to the
development of our internet management infrastructure and Web-based e-commerce
communities. The balance of the increase was primarily due to the consolidation
of our New York metro area offices and office expansion in several locations due
to acquisitions and growth; full year depreciation effect of the development and
expansion of our information technology infrastructure; continued implementation
of the Company's market focused cluster management structure; increases in
central services groups such as finance, legal and human resources in line with
the Company's growth in scale and complexity, offset by changes in the timing of
when we receive vendor rebates related to our trade shows and conferences.
Total general and administrative expense, including non-cash stock option
compensation charges, was partially offset by a $4.9 million reduction in
non-cash stock option compensation expense.
Amortization
Amortization expense increased $2.7 million from $19.5 million for the six
months ended June 30, 1999 to $22.2 million for the six months ended June 30,
2000. This increase was primarily due to increased amortization of intangible
assets related to the acquisitions completed during the middle of 1999 and the
first quarter of 2000.
Operating Income
Operating income increased $10.3 million or 55.8% from $18.6 million for
the six months ended June 30, 1999 to $28.9 million for the six months ended
June 30, 2000. The increase was primarily due to revenue growth across our
segments partially offset by increased general and administrative expenses as
more fully described above.
Interest Expense
Net interest expense increased $7.0 million or 40.6% from $17.4 million for
the six months ended June 30, 1999 to $24.4 million for the six months ended
June 30, 2000 due to the additional indebtedness necessary to fund
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acquisitions and an aggregate increase in interest rates of approximately 0.9%.
In July 1999, we obtained an additional $138.0 million in term debt financing
that was used to fund the Larkin and other acquisitions during the year.
Income Taxes
Provision for income taxes increased $6.0 million from $0.7 million for the
six months ended June 30, 1999 to $6.7 million for the six months ended June 30,
2000. This increase was primarily due to the utilization in 1999 of a
significant portion of the Company's net operating loss carryforward and an
increase in taxable earnings.
Net Loss
Net income decreased $2.6 million from $0.4 million for the six months ended
June 30, 1999 to a net loss of $2.2 million for the comparable period of 2000.
This decrease was primarily due to revenue growth across our segments partially
offset by increased general and administrative expenses as more fully described
above.
EBITDA
EBITDA increased $13.1 million or 33.2% from $39.5 million for the six
months ended June 30, 1999 to $52.6 million for the six months ended June 30,
2000. The increase was primarily due to revenue growth across our segments
partially offset by increased general and administrative expenses as more fully
described above.
Liquidity and Capital Resources
Historically, our financing requirements have primarily been funded through
cash generated by operating activities and the use of our revolving credit
facility. Financing for certain larger acquisitions has been funded through
expansion of our senior term loan borrowings and, in 1998, the issuance of
$150.0 million of the Senior Subordinated Notes.
Cash flows from operating activities. Net cash provided by operations for
the six months ended June 30, 2000 decreased $16.1 million from $31.0 million
for the six months ended June 30, 1999 to $14.9 million for the comparable
period in 2000. The decrease was due primarily to a decrease in earnings of
$2.6 million, an increase in working capital items of $11.9 million, a reduction
of non-cash stock option compensation of $4.9 million and a reduction in losses
on the sale of assets of $0.4 million. Additional depreciation and amortization
of $3.7 million served to offset the impact to our cash flows described above.
Cash flows used in investing activities. Net cash used in investing
activities increased $2.2 million from $9.8 million in 1999 to $12.0 million for
the first six months of 2000. The increase is primarily due to an increase in
acquisition activity, adjustments to intangible assets and capital expenditures
as discussed below. During the six months ended June 30, 2000 we acquired the
Documents, Messaging and Security tradeshow and Info 21 magazine from Gruppe 21
Informations-GmbH for approximately $7.8 million in cash and assumed
liabilities. These outlays were partially offset by proceeds of $5.7 million
from the sale of investments obtained from the Company exercising 141,000 of its
525,000 stock purchase warrants received in connection with its agreement with
PurchasePro.com, Inc.
Cash flows used in financing activities. Net cash used in financing
activities decreased $18.9 million from $20.8 million for the six months ended
June 30, 1999 to $1.9 million for the comparable period of 2000. This decrease
was principally due to repayments on our revolving line of credit in 1999.
Capital expenditures. Capital expenditures increased $5.2 million from
$3.1 million for the first six months of 1999 to $8.3 million for the comparable
period of 2000. The increase was due primarily to the consolidation of
multiple office locations in New York into a single office location and other
strategic investments. Capital expenditures have been financed by our cash
flows from operations.
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We expect that 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, 2000, we had $57.0 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. We believe that we have sufficient
capital resources for ongoing operations requirements. For our long-term
capital requirements beyond December 31, 2001, we will continue to rely on
operating cash flows and we believe that we will be able to access capital
markets. We make no assurance that we will have access to these markets or will
be able to negotiate terms favorable to us.
Interest payments on our Notes 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 three tranches,
$100.0 million of tranche A term loans amortizing over 5.5 years maturing
October 31, 2003, $150.0 million of tranche B term loans with modest
amortization over the initial 5.5 years of its term maturing with balloon
payments in 2004 and 2005 and $138.0 million of tranche C term loans with modest
amortization over the initial 7 years of its term maturing with balloon payments
in 2006 and 2007. The Chase Manhattan Bank, as administrative agent, leads our
lenders which include FleetBoston Financial Corp., Bank of New York, Dresdner
Bank AG, Heller Financial, First Source Financial LLP, Pacific Century Bank and
Trust Company of the West as well as several other institutional funds. The
$60.0 million revolving credit facility matures on October 31, 2003. Interest
rates under our senior term debt and revolving credit facility fluctuate and
significant increases in LIBOR could adversely impact our liquidity. To
mitigate such risk, we have capped our interest rate exposure by fixing interest
rates on approximately $260.3 million of long-term debt by the issuance of our
Notes and the purchase of interest rate cap agreements ranging from 8.0% to
8.5%.
We believe that cash flow from operations and borrowings under the
revolving credit facility will provide adequate funds for our working capital
needs, including the development of our Web-based e-commerce activities, planned
capital expenditures, debt service obligations (including our Notes) and other
needs. We believe such liquidity will also enable us to make selective
acquisitions to the extent of available free cash flow and remaining
availability under our revolving credit facility. There can be no assurance
that our business will generate sufficient revenue growth, or that future
borrowings will be available to enable us to service our indebtedness or to fund
our other liquidity needs.
Market Risk
We are exposed to various market risks, which is the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in interest rates and
foreign currency exchange rates.
Interest. We rely significantly on long-term floating rate and fixed rate
debt in our capital structure. At June 30, 2000, our debt totaled $521.3
million of which $260.3 million was either fixed rate debt or covered by
interest rate cap agreements limiting our interest rate exposure at 10.25% -
11.5%.
At June 30, 2000, we had fixed rate debt of $150.0 million and floating rate
debt of $371.3 million. Holding other variables constant (such as debt levels),
a one percentage point decrease in interest rates would have a net increase in
the fair market value of the fixed rate debt of approximately $9.0 million. The
pre-tax earnings and cash flows impact for the next year resulting from a one
percentage point increase in interest rates on variable rate debt would be a
reduction of $3.7 million, holding other variables constant and excluding the
impact of our interest rate cap agreements.
Currencies. We maintain assets and operations in Europe, South America and
Asia. The results of operations and financial position of the our foreign
operations are principally measured in their respective currency and translated
into U. S. dollars. As a result, exposure to foreign currency gains and losses
exists. The reported income
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of these subsidiaries will be higher or lower depending on a weakening or
strengthening of the US dollar against the respective foreign currency. Our
subsidiaries and affiliates also purchase and sell products and services in
various currencies. As a result, we may be exposed to cost increases relative to
the local currencies in the markets in which it sells.
A portion of our assets are based in our foreign locations and are
translated into U. S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected in other
comprehensive income. Accordingly, our consolidated stockholder's equity will
fluctuate depending upon the weakening or strengthening of the U S dollar
against the respective foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting our operations in a country's respective currency and may, from time
to time, involve currency derivatives, primarily forward exchange contracts, to
reduce our exposure to currency fluctuations. At June 30, 2000 there were open
foreign exchange derivative contracts with a notional amount totaling $7.3
million. The potential loss in fair value resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates amounts to $0.5
million. Actual results may differ. There were no material forward exchange
contracts outstanding at June 30, 1999.
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PART II Other Information
Item 4. Submissions of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports filed on Form 8-K
Item 6(a). Exhibits
27 Financial Data Schedule for the three and six months ended
June 30, 2000.
Item 6(b). Reports on Form 8-K
Advanstar filed no reports on Form 8-K during the quarter ended
June 30, 2000.
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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.
Date: August 14, 2000 By: /s/ David W. Montgomery
------------------------------
David W. Montgomery
Vice President - Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
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Advanstar, Inc.
Exhibit Index
Exhibit No.
27 Financial Data Schedule for the three and six months ended
June 30, 2000.
28
