PROSPECTUS SUPPLEMENT Filed Pursuant to Rule
(To Prospectus dated May 1, 2001) 424(b)(3) of the Rules and
Regulations Under the
Securities Act of 1933
Registration Statement No.
333-59284
ADVANSTAR COMMUNICATIONS INC.
12% Series B Senior Subordinated Notes Due 2011
----------------------
RECENT DEVELOPMENTS
- -------------------
We have attached to this prospectus supplement, and incorporated by
reference into it, the Form 10-Q Quarterly Report of Advanstar Communications
Inc. for the quarterly period ended June 30, 2001.
----------------------
This prospectus supplement, together with the prospectus, is to be used by
Credit Suisse First Boston Corporation in connection with offers and sales of
the notes in market-making transactions at negotiated prices related to
prevailing market prices at the time of the sale. Credit Suisse First Boston
Corporation may act as principal or agent in such transactions.
August 15, 2001
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, 2001
Commission File Number: 333-57201
Advanstar Communications Inc.
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of
incorporation or organization)
59-2757389
(I.R.S. Employer
Identification No.)
545 Boylston Street, Boston, Massachusetts
(Address of principal executive offices)
02116
(Zip Code)
Registrant's telephone number, including area code: (617) 267-6500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
-------
As of August 14, 2001, 1,000,000 shares of the Registrant's common stock were
outstanding.
PART I Financial Information
Item 1. Financial Statements:
Page in this
Quarterly
Report
------
Condensed Consolidated Balance Sheets at June 30, 2001 (unaudited)
and December 31, 2000................................................... 2
Condensed Consolidated Statements of Operations (unaudited) for the three
months ended June 30, 2001 and 2000..................................... 3
Condensed Consolidated Statements of Operations (unaudited) for the six
months ended June 30, 2001 and 2000..................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 2001 and 2000................................. 5
Notes to Condensed Consolidated Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 20
Item 3. Qualitative and Quantitative Disclosure about Market Risk....................... 28
PART II Other Information
Item 4. Submissions of Matters to a Vote of Security Holders...................... 29
Item 6(a). Exhibits.................................................................. 29
Item 6(b). Reports on Form 8-K....................................................... 29
Signature................................................................. 29
Exhibit Index............................................................. 30
Exhibits..................................................................
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
2001 2000
---- ----
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 14,461 $ 17,675
Accounts receivable, net............................................................. 32,550 31,158
Prepaid expenses..................................................................... 8,401 15,721
Other................................................................................ 1,668 1,832
-------- --------
Total current assets.............................................................. 57,080 66,386
-------- --------
DUE FROM AFFILIATE..................................................................... 32,271 19,769
PROPERTY, PLANT AND EQUIPMENT, net..................................................... 26,077 25,767
GOODWILL AND INTANGIBLE ASSETS, net.................................................... 819,866 836,755
DEFERRED INCOME TAXES.................................................................. 7,743 7,743
OTHER ASSETS........................................................................... 509 785
-------- --------
Total Assets...................................................................... $943,546 $957,205
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt................................................. $ 6,700 $ 13,150
Accounts payable..................................................................... 20,462 22,007
Accrued liabilities.................................................................. 26,432 21,350
Deferred revenue..................................................................... 47,001 67,955
-------- --------
Total current liabilities......................................................... 100,595 124,462
-------- --------
LONG-TERM DEBT, net of current maturities.............................................. 545,300 551,850
OTHER LONG-TERM LIABILITIES............................................................ 4,457 5,448
MINORITY INTEREST...................................................................... 8,899 10,434
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 40,000,000 shares authorized; 1,000,000 shares
issued and outstanding at June 30, 2001 and December 31, 2000...................... 10 10
Capital in excess of par............................................................. 315,617 280,842
Accumulated deficit.................................................................. (26,508) (16,745)
Accumulated other comprehensive income (loss)........................................ (4,824) 904
-------- --------
Total stockholder's equity ...................................................... 284,295 265,011
-------- --------
Total liabilities and stockholder's equity........................................ $943,546 $957,205
======== ========
The accompanying notes to financial statements are an integral part of these
consolidated statements.
2
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
Successor Predecessor
-----------------------------------
Three Months Three Months
Ended Ended
June 30, June 30,
2001 2000
-----------------------------------
Net revenue................................................................... $ 75,481 $ 74,400
-------- --------
Operating expenses:
Costs of production......................................................... 15,598 14,548
Selling, editorial and circulation.......................................... 38,159 34,557
General and administrative.................................................. 11,633 12,283
Depreciation and amortization............................................... 14,658 12,668
-------- --------
Total operating expenses................................................. 80,048 74,056
-------- --------
Operating income (loss)....................................................... (4,567) 344
Other income (expense):
Interest expense, net....................................................... (13,518) (12,136)
Other income (expense), net........................................... 2,488 (58)
-------- --------
Loss before income taxes and minority interest................................ (15,597) (11,850)
Income tax benefit............................................................ (4,192) (2,243)
Minority interest............................................................. (632) (348)
-------- --------
Net loss...................................................................... $(12,037) $ (9,955)
======== ========
The accompanying notes to financial statements are an integral part of these
consolidated statements.
3
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
Successor Predecessor
-----------------------------------
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
-----------------------------------
Net revenue.................................................................. $204,128 $207,467
-------- --------
Operating expenses:
Costs of production ........................................................... 41,004 42,137
Selling, editorial and circulation ............................................ 83,842 83,904
General and administrative .................................................... 24,108 23,693
Depreciation and amortization ................................................. 30,446 24,903
-------- --------
Total operating expenses ................................................... 179,400 174,637
-------- --------
Operating income ............................................................... 24,728 32,830
Other income (expense):
Interest expense, net ......................................................... (28,192) (24,495)
Other income (expense), net ................................................... 1,550 (3)
-------- --------
Income (loss) before income taxes and minority interest ......................... (1,914) 8,332
Provision for income taxes ..................................................... 3,975 6,726
Minority interest .............................................................. (766) (711)
-------- --------
Income (loss) before extraordinary item and accounting change..................... (6,655) 895
Extraordinary item - early extinguishment of debt, net............................ (2,556) -
Cumulative effect of accounting change, net....................................... (552) -
-------- --------
Net income (loss)................................................................. $ (9,763) $ 895
======== ========
The accompanying notes to financial statements are an integral part of these
consolidated statements.
4
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
Successor Predecessor
---------------------------------------
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
---------------------------------------
OPERATING ACTIVITIES
Net income (loss) ............................................................ $ (9,763) $ 895
Adjustments to reconcile net income to net cash provided by
operating activities
Extraordinary item - early extinguishment of debt............................. 2,538 -
Depreciation and amortization ............................................... 30,446 24,903
Non-cash interest ........................................................... 1,110 599
Non-cash stock option compensation .......................................... - (183)
Loss on sales of assets and other ........................................... 770 1,211
Changes in operating assets and liabilities................................... (14,618) (9,448)
--------- --------
Net cash provided by operating activities ................................. 10,483 17,977
--------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment ................................... (4,950) (6,463)
Acquisition of publications and trade shows, net ............................. (9,214) (8,146)
Increase in long-term receivable from affiliate................................ (12,535) -
Proceeds from sale of assets and other......................................... 18 (1,103)
--------- --------
Net cash used in investing activities ...................................... (26,681) (15,712)
--------- --------
FINANCING ACTIVITIES
Net proceeds from revolving credit facility .................................. 22,000 3,000
Borrowings of long-term debt................................................... 160,000 -
Payments of long-term debt..................................................... (195,000) (4,916)
Long-term debt financing costs................................................. (9,001) -
Capital contributions ........................................................ 34,775 -
--------- --------
Net cash provided by (used in) financing activities ....................... 12,774 (1,916)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH......................................... 210 363
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (3,214) 712
CASH AND CASH EQUIVALENTS, beginning of period ................................ 17,675 11,237
--------- --------
CASH AND CASH EQUIVALENTS, end of period ...................................... $ 14,461 $ 11,949
========= ========
The accompanying notes to financial statements are an integral part of these
consolidated statements.
5
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared by Advanstar Communications Inc. ( Communications, the Company) in
accordance with the instructions to Form 10-Q and, therefore, do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. Management believes that the
disclosures are adequate to make the information presented not misleading.
However, 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, 2000. The
results of operations for the three and six month periods ended June 30, 2001,
are not necessarily indicative of the operating results that may be expected for
the entire year ending December 31, 2001.
2. Derivative Financial Instruments
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which requires that derivative instruments be recorded in the
balance sheet at fair value. Changes in the fair value of derivative financial
instruments must be recognized currently in earnings unless specific hedge
accounting criteria are met. For those which meet the criteria, gains and
losses may be recognized in other comprehensive income rather than in current
earnings.
The adoption of SFAS 133 on January 1, 2001, resulted in the pre-tax cumulative
effect of an accounting change of a reduction to income of approximately $0.9
million and a $0.2 million reduction to other comprehensive income.
The Company uses derivative instruments to manage exposures to foreign currency
and interest rate risks. The Company's objectives for holding derivatives are
to minimize the risks using the most effective methods to eliminate or reduce
the impacts of these exposures.
Certain forecasted transactions are exposed to foreign currency risk. Principal
currencies hedged include the Euro, British Pound and Brazilian Real. Forward
contracts used to hedge forecasted international revenue for up to 15 months in
the future are designated as cash flow hedging instruments. Forwards not
designated as hedging instruments under SFAS 133 are also used to manage the
impact of the variability in exchange rates.
Variable rate debt instruments are subject to interest rate risk. The Company
has entered into interest rate collar and cap agreements with remaining
maturities of up to 33 months to manage its exposure to interest rate movements
on a portion of its variable rate debt obligations.
Other expense includes income of $2.0 million and $0.9 million for the three and
six months ended June 30, 2001 representing the amount of hedge ineffectiveness
and changes in fair value of derivative instruments not designated as hedging
instruments. Other comprehensive income includes net losses of $2.0 million and
$2.5 million, respectively, for the three and six months ended June 30, 2001.
6
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Debt
On January 9, 2001, in connection with the acquisition of the Company's parent,
Advanstar, Inc. by a group of investors, including DLJ Merchant Banking Partners
III L.P., the 9.25% senior subordinated notes due 2008 (Notes) were tendered at
an offer price in cash equal to 101% of the aggregate principal amount, plus
accrued interest. The Company financed the repurchase of the Notes with bridge
financing. The premium paid on the tender of the Notes of $1.5 million is
reflected, net of income tax, as an extraordinary item in the accompanying 2001
condensed consolidated statement of operations.
On February 21, 2001, the Company issued $160.0 million of unsecured, 12% senior
subordinated notes, due 2011(Replacement Notes). Interest on the Replacement
Notes is payable semi-annually on February 15th and August 15th of each year
commencing on August 15, 2001. The Replacement Notes are fully and
unconditionally guaranteed on a senior subordinated basis, by the Company and
its wholly-owned domestic subsidiaries.
Concurrently, Advanstar, Inc. issued units comprised of 15% senior discount
notes (the Discount Notes) with an aggregate principal amount at maturity of
approximately $68.6 million, and warrants to purchase shares of common stock of
its parent, Advanstar Holdings Corp., for consideration of approximately $34.8
million. The Company used the proceeds from issuance of the Replacement Notes
and the Discount Notes to repay and terminate the bridge financing and to repay
approximately $45.0 million of term loan borrowings under the credit facility.
The contribution of the proceeds from the Discount Notes by Advanstar, Inc. to
the Company was treated as a capital contribution. The Company charged-off
deferred financing costs of approximately $1.6 million, net of income taxes,
during the first quarter of 2001. This charge is reflected as an extraordinary
item in the accompanying 2001 condensed consolidated statement of operations.
Long-term debt consists of the following:
June 30, December 31,
2001 2000
--------------- ---------------
Term loan A, interest at LIBOR plus 3.00%, 7.00% at June 30, 2001, due $ 89,200 $100,000
quarterly through April 11, 2007
Term loan B, interest at LIBOR plus 3.50%, 7.50% at June 30, 2001, due 280,800 315,000
quarterly through October 11, 2008
Revolving credit facility, interest at LIBOR plus 3.00%, 7.19% at June 30, 22,000 -
2001, due April 11, 2007
12.00% Senior subordinated notes, due 2011 160,000 -
9.25% Senior subordinated notes, due 2008 - 150,000
--------------- ---------------
552,000 565,000
Less- Current maturities (6,700) (13,150)
--------------- ---------------
$545,300 $551,850
=============== ================
7
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company's credit facility contains certain financial covenants, including a
minimum fixed charge coverage ratio and a maximum leverage ratio.
Additionally, certain financial covenants under the Replacement Notes include a
maximum leverage ratio, limitations on certain asset dispositions, dividends and
other restricted payments. The Company was in compliance with all covenants as
of June 30, 2001.
4. Comprehensive Income
The tables below presents comprehensive income, defined as changes in the equity
of the Company excluding changes resulting from investments by and distributions
to shareholders. (in thousands)
Successor Predecessor
--------- -----------
Three Three
Months Months
Ended Ended
June 30, June 30,
2001 2000
---- ----
Net loss................................................................... $(12,037) $ (9,955)
Change in cumulative translation adjustment................................ (981) (593)
Change in unrealized losses on derivative financial instruments,
net of tax............................................................. (1,975) -
--------- ---------
Comprehensive loss......................................................... $(14,993) $(10,548)
========= =========
Successor Predecessor
--------- -----------
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
---- ----
Net loss................................................................... $ (9,763) $ 895
Change in cumulative translation adjustment................................ (3,179) (1,531)
Change in unrealized losses on derivative financial instruments, net of tax
net of tax............................................................. (2,549) -
--------- --------
Comprehensive loss......................................................... $(15,491) $ (636)
========= ========
8
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Trade Shows Corporate
and Trade Marketing and
Conferences Publications Services Other Totals
----------- ------------ --------- --------- -------
(In thousands)
Three months ended June 30, 2001 (Successor)
Revenues........................................ $ 30,110 $ 40,733 $4,476 $ 162 $ 75,481
Gross profit.................................... 7,105 12,116 2,409 94 21,724
Segment assets.................................. 8,332 32,450 2,241 900,523 943,546
- -----------------------------------------------------------------------------------------------------------
Three months ended June 30, 2000
(Prececessor)
Revenues........................................ $ 25,411 $ 43,936 $4,794 $ 259 $ 74,400
Gross profit.................................... 6,385 15,948 2,703 259 25,295
Segment assets.................................. 15,942 35,345 2,536 724,121 777,944
Trade Shows Corporate
and Trade Marketing and
Conferences Publications Services Other Totals
----------- ------------ -------- ----- --------
(In thousands)
Six months ended June 30, 2001 (Successor)
Revenues........................................ $119,674 $ 75,373 $8,646 $ 435 $ 204,128
Gross profit.................................... 55,310 19,340 4,265 367 79,282
Segment assets.................................. 8,332 32,450 2,241 900,523 943,546
- -------------------------------------------------------------------------------------------------------------
Six months ended June 30, 2000 (Prececessor)
Revenues........................................ $119,040 $ 78,910 $9,088 $ 429 $ 207,467
Gross profit.................................... 53,395 22,993 4,609 429 81,426
Segment assets.................................. 15,942 35,345 2,536 724,121 777,944
9
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The reconciliation of total segment gross profit to consolidated pre-tax
income is as follows (in thousands):
Successor Predecessor
-----------------------------
Three Three
Months Months
Ended Ended
June 30, June 30,
2001 2000
-------- --------
Total segment gross profit.................................... $ 21,724 $ 25,295
General and administrative expense............................ (11,633) (12,283)
Depreciation and amortization................................. (14,658) (12,688)
Other expense................................................. (11,030) (12,194)
-------- --------
Loss before minority interest and income taxes................ $(15,597) $(11,850)
======== ========
Successor Predecessor
-----------------------------
Six Six
Months Months
Ended Ended
June 30, June 30,
2001 2000
-------- --------
Total segment gross profit.................................... $ 79,282 $ 81,426
General and administrative expense............................ (24,108) (23,693)
Depreciation and amortization................................. (30,446) (24,903)
Other expense................................................. (26,642) (24,498)
-------- --------
Income (loss) before minority interest and income taxes....... $ (1,914) $ 8,332
======== ========
6. Related Party Transactions
Financial Advisory Fees and Agreements
Credit Suisse First Boston Corporation (CSFB), an affiliate of the DLJ Merchant
Banking funds, acted as the Company's financial advisor and was an initial
purchaser of the Replacement Notes and the Discount Notes. The Company paid
customary fees to CSFB as compensation for those services. DLJ Capital Funding,
an affiliate of the DLJ Merchant Banking funds, received customary fees and
reimbursement of expenses in connection with the bridge financing. The aggregate
amount of all fees paid to the CSFB entities in connection with these financings
for the six months ended June 30, 2001 was approximately $7.3 million, plus out-
of-pocket expenses.
10
ADVANSTAR COMMUNICATIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Relationship with Advanstar.com
Advanstar.com, Inc. (Advanstar.com) an affiliate, is operating the Company's
event and publication-related web sites and is developing selected enhanced web
opportunities to serve the Company's customers in selected industries. The
Company provides Advanstar.com with certain administrative support services and
charges for these services based on a general overhead charge. In addition,
selected sales, editorial, marketing and production staff in the Company are
shared with Advanstar.com. The Company also provides Advanstar.com with
marketing and promotional support through advertising pages in its trade
publications and exhibit space in its trade shows. In return, Advanstar.com
provides support on its web sites for the Company's trade publications and trade
shows. The Company has a long-term receivable of approximately $26.7 million
from Advanstar.com as of June 30, 2001.
7. Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of presentation
The Replacement Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by the Company and the wholly-owned
domestic subsidiaries. The subsidiary guarantors are Mens Apparel Guild In
California, Inc. (MAGIC) and Applied Business TeleCommunications, Inc. (ABC).
The subsidiary guarantors and the non-guarantor subsidiaries comprise all of the
direct and indirect subsidiaries of the Company. The condensed consolidated
financial statements of the guarantors are presented below and should be read in
connection with the consolidated financial statements of the Company. Separate
financial statements of the guarantors are not presented because the guarantors
are jointly, severally and unconditionally liable under the guarantees and the
Company believes the condensed consolidated financial statements presented are
more meaningful in understanding the financial position of the guarantors and
management has determined that such information is not material to investors.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company.
11
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
-------------- ------------ --------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,733 $ - $ 8,728 $ - $ 14,461
Accounts receivable, net 29,173 41 3,336 - 32,550
Prepaid expenses 3,678 2,657 2,066 - 8,401
Investments - - - - -
Intercompany receivable (payable) (121,767) 134,159 (12,392) - -
Other (2,613) - 4,281 - 1,668
-------------- ------------ --------------- ------------ -------------
Total current assets (85,796) 136,857 6,019 - 57,080
Due from affiliate: 32,271 32,271
Property, plant and equipment, net 24,100 860 1,117 - 26,077
Investments in subsidiaries: 512,705 - - (512,705) -
Intangible assets, net: 394,190 353,163 72,513 - 819,866
Deferred income taxes: 7,743 - - - 7,743
Other assets: 509 - - - 509
-------------- ------------ --------------- ------------ -------------
885,722 490,880 79,649 (512,705) 943,546
============== ============ =============== ============ =============
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current liabilities
Current portion of long-term debt $ 6,700 $ - $ - $ - $ 6,700
Accounts payable 13,696 1,469 5,297 - 20,462
Deferred revenue 9,144 32,052 5,805 - 47,001
Accrued liabilities 11,956 12,069 2,407 - 26,432
-------------- ------------ --------------- ------------ -------------
Total current liabilities 41,496 45,590 13,509 - 100,595
Long term debt, net of current
maturities: 545,300 - - - 545,300
Other long term liabilities: 4,241 - 216 - 4,457
Minority interest 8,115 - 784 - 8,899
Shareholder interest
Common stock 10 3 472 (475) 10
Capital in excess of par value 315,617 438,117 71,296 (509,413) 315,617
Retained earnings (deficit) (26,508) 7,170 (4,353) (2,817) (26,508)
Accum other comprehensive income (2,549) - (2,275) - (4,824)
-------------- ------------ --------------- ------------ -------------
Total shareholders' equity 286,570 445,290 65,140 (512,705) 284,295
-------------- ------------ --------------- ------------ -------------
$ 885,722 $ 490,880 $ 79,649 $ (512,705) $ 943,546
============== ============ =============== ============ =============
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
---------------- -------------- --------------- ------------- --------------
Net revenue $ 65,104 $ 1,795 $ 8,582 $ - $ 75,481
---------------- -------------- --------------- ------------- --------------
Operating expenses
Cost of sales and selling, editorial and
circulation 43,124 2,634 7,999 - 53,757
General and administrative 9,771 289 1,573 - 11,633
Depreciation and amortization 6,066 6,764 1,828 - 14,658
---------------- -------------- --------------- ------------- --------------
Total operating expenses 58,961 9,687 11,400 - 80,048
---------------- -------------- --------------- ------------- --------------
Operating income (loss) 6,143 (7,892) (2,818) - (4,567)
Other income (expense):
Interest income (expense), net (13,118) - (400) - (13,518)
Other income (expense), net 1,560 - 928 - 2,488
---------------- -------------- --------------- ------------- --------------
Loss before minority interest and income taxes (5,415) (7,892) (2,290) - (15,597)
Provision (benefit) for income tax (4,105) (484) 397 - (4,192)
Minority interests 180 - (812) - (632)
Equity in loss of subsidiaries (10,907) - - 10,907
---------------- -------------- --------------- ------------- --------------
Net loss $ (12,037) $ (7,408) $ (3,499) $ 10,907 $ (12,037)
================ ============== =============== ============= ==============
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
-------------- -------------- -------------- ------------ ----------------
Net revenue $ 142,346 $ 35,800 $ 25,982 $ - $ 204,128
-------------- -------------- -------------- ------------ ----------------
Operating expenses
Cost of sales and selling, editorial and
circulation 92,170 11,883 20,793 - 124,846
General and administrative 20,242 563 3,303 - 24,108
Depreciation and amortization 19,606 7,700 3,140 - 30,446
-------------- -------------- -------------- ------------ ----------------
Total operating expenses 132,018 20,146 27,236 - 179,400
-------------- -------------- -------------- ------------ ----------------
Operating income (loss) 10,328 15,654 (1,254) - 24,728
Other income (expense):
Interest income (expense), net (27,506) - (686) - (28,192)
Other income (expense), net 575 - 975 - 1,550
-------------- -------------- -------------- ------------ ----------------
Income (loss) before minority interest and income taxes (16,603) 15,654 (965) - (1,914)
Provision (benefit) for income tax (6,389) 8,434 1,930 - 3,975
Minority interests 46 - (812) - (766)
Equity in (loss) of subsidiaries 3,513 - - (3,513)
-------------- -------------- -------------- ------------ ----------------
Income before extraordinary and
accounting change (6,655) 7,220 (3,707) (3,513) (6,655)
Extraordinary item (2,556) - - - (2,556)
Cumulative effect of change in
accounting, net (552) - - - (552)
-------------- -------------- -------------- ------------ ----------------
Net income (loss) $ (9,763) $ 7,220 $ (3,707) $ (3,513) $ (9,763)
============== ============== ============== ============ ================
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
----------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (9,763) $ 7,220 $ (3,707) $ (3,513) $ (9,763)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Undistributed earnings of subsidiaries (3,513) - - 3,513 -
Extraordinary item 2,538 - - - 2,538
Depreciation and amortization 19,606 7,700 3,140 - 30,446
Non cash items 1,880 - - - 1,880
Change in working capital items (3,405) (14,355) 3,142 - (14,618)
------------- ----------- ----------- ------------ ---------
Net cash provided by (used in) operating
activities 7,343 565 2,575 - 10,483
------------- ----------- ----------- ------------ ---------
INVESTMENT ACTIVITIES:
Additions to property, plant and equipment,
net (4,215) (566) (169) - (4,950)
Acquisitions of publ and trade shows (8,370) - (826) - (9,196)
Intercompany (12,535) - - - (12,535)
------------- ----------- ----------- ------------ ---------
Net cash provided by (used in) investing
activities (25,120) (566) (995) - (26,681)
------------- ----------- ----------- ------------ ---------
FINANCING ACTIVITIES:
Capital contributions 34,775 - - - 34,775
Long-term debt financing costs (9,001) - - - (9,001)
Borrowings of long-term debt, net (13,000) - - - (13,000)
------------- ----------- ----------- ------------ ---------
Net cash provided by (used in) financing
activities 12,774 - - - 12,774
------------- ----------- ----------- ------------ ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - 210 - 210
------------- ----------- ----------- ------------ ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS: (5,003) (1) 1,790 - (3,214)
------------- ----------- ----------- ------------ ---------
CASH AND CASH EQUIVALENTS, beginning of period 10,736 1 6,938 - 17,675
------------- ----------- ----------- ------------ ---------
CASH AND CASH EQUIVALENTS, end of period $ 5,733 $ - $ 8,728 $ - $ 14,461
============= =========== =========== ============ =========
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At December 31, 2000
(in thousands)
Guarantor Non-Guarantor Consolidated
Communications subsidiaries subsidiaries Eliminations total
---------------- -------------- -------------- -------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,736 $ 1 $ 6,938 $ - $ 17,675
Accounts receivable, net 28,061 329 2,768 - 31,158
Prepaid expenses 8,223 2,712 4,786 - 15,721
Intercompany receivable
(payable) (72,727) 100,811 (28,084) - -
Other 1,491 - 341 - 1,832
---------------- -------------- -------------- -------------- ---------------
Total current assets (24,216) 103,853 (13,251) - 66,386
Noncurrent assets:
Due from affiliate 19,769 - - - 19,769
Property, plant and
equipment, net 23,654 713 1,400 - 25,767
Intangible assets, net 701,250 56,435 79,070 - 836,755
Deferred income taxes and
other 8,446 - 82 - 8,528
Investments in
subsidiaries 182,395 - - (182,395) -
---------------- -------------- -------------- -------------- ---------------
$911,298 $161,001 $ 67,301 $ (182,395) $957,205
================ ============== ============== ============== ================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of $ 13,150 $ - $ - $ - $ 13,150
long-term debt
Accounts payable 13,800 1,793 6,414 - 22,007
Deferred revenue 37,389 21,526 9,040 - 67,955
Accrued liabilities 15,120 3,707 2,523 - 21,350
---------------- -------------- -------------- -------------- ---------------
Total current
liabilities 79,459 27,026 17,977 - 124,462
Long-term debt, net of
current maturities 551,850 - - - 551,850
Other long-term liabilities 5,448 - - - 5,448
Minority interest 10,434 - - - 10,434
Stockholder's equity:
Common stock 10 3 403 (406) 10
Capital in excess of par
value 280,842 134,110 49,988 (184,098) 280,842
Accumulated deficit (16,745) (138) (1,971) 2,109 (16,745)
Accumulated other
comprehensive income - - 904 - 904
---------------- -------------- -------------- -------------- ---------------
Total stockholder's
equity 264,107 133,975 49,324 (182,395) 265,011
---------------- -------------- -------------- -------------- ---------------
$911,298 $161,001 $ 67,301 $ (182,395) $957,205
================ ============== ============== ============== ===============
13
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
-------------- ------------ ------------ ----------- ------------
Net revenue $ 60,999 $ 610 $ 12,791 $ - $ 74,400
-------------- ------------ ------------ ----------- ------------
Operating expenses
Cost of sales and selling, editorial and
circulation 37,313 1,035 10,757 - 49,105
General and administrative 10,319 248 1,716 - 12,283
Depreciation and amortization 8,584 3,182 902 - 12,668
-------------- ------------ ------------ ----------- ------------
Total operating expenses 56,216 4,465 13,375 - 74,056
-------------- ------------ ------------ ----------- ------------
Operating income (loss) 4,783 (3,855) (584) - 344
Other income (expense):
Interest income (expense), net (11,789) - (347) - (12,136)
Other income (expense), net 426 - (484) - (58)
-------------- ------------ ------------ ----------- ------------
Loss before minority interest and income taxes (6,580) (3,855) (1,415) - (11,850)
-------------- ------------ ------------ ----------- ------------
Provision (benefit) for income tax (2,463) (276) 496 - (2,243)
Minority interest in earnings (348) - - - (348)
Equity in (loss) of subsidiaries (5,490) - - 5,490
-------------- ------------ ------------ ----------- ------------
Net loss $ (9,955) $ (3,579) $ (1,911) $ 5,490 $ (9,955)
============== ============ ============ =========== ============
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
---------------- --------------- --------------- -------------- ------------
Net revenue $ 146,877 $ 31,485 $ 29,105 $ - $ 207,467
---------------- --------------- --------------- -------------- ------------
Operating expenses
Cost of sales and selling, editorial and
circulation 93,376 10,420 22,245 - 126,041
General and administrative 19,924 441 3,328 - 23,693
Depreciation and amortization 16,748 6,407 1,748 - 24,903
---------------- --------------- --------------- -------------- ------------
Total operating expenses 130,048 17,268 27,321 - 174,637
---------------- --------------- --------------- -------------- ------------
Operating income (loss) 16,829 14,217 1,784 - 32,830
Other income (expense):
Interest expense, net (23,805) - (690) - (24,495)
Other income (expense), net 1,501 - (1,504) - (3)
---------------- --------------- --------------- -------------- ------------
Income (loss) before minority interest and income taxes (5,475) 14,217 (410) - 8,332
---------------- --------------- --------------- -------------- ------------
Provision (benefit) for income tax (1,908) 7,394 1,240 - 6,726
Minority interest in earnings (711) - - - (711)
Equity in (loss) of subsidiaries 5,173 - - (5,173) -
---------------- --------------- --------------- -------------- ------------
Net income (loss) $ 895 $ 6,823 $ (1,650) $ (5,173) $ 895
================ =============== =============== ============== ============
ADVANSTAR COMMUNICATIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 31, 2000
(in thousands - unaudited)
Guarantor Non-Guarantor Consolidated
Communications Subsidiaries Subsidiaries Elimination Total
-------------- ------------ ------------- ------------- ------------
OPERATING ACTIVITIES:
Net income (loss) $ 895 $ 6,823 $ (1,650) $ (5,173) $ 895
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Undistributed earnings of subsidiaries (5,173) - - 5,173 -
Depreciation and amortization 16,748 6,407 1,748 - 24,903
Non cash Items 1,627 - - - 1,627
Change in working capital items 6,242 (13,505) (2,185) - (9,448)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities 20,339 (275) (2,087) - 17,977
-------- -------- -------- -------- --------
INVESTMENT ACTIVITIES:
Investment in subsidiaries (13,089) - - 13,089 -
Additions to property, plant and equipment, net (5,871) (215) (377) - (6,463)
Acquisitions of publ and trade shows (540) 500 (8,106) - (8,146)
Intercompany (1,103) - - - (1,103)
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities (20,603) 285 (8,483) 13,089 (15,712)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from sale of common stock and
capital contributions and other - - 13,089 (13,089) -
Borrowings of long-term debt, net (1,916) - - - (1,916)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities (1,916) - 13,089 (13,089) (1,916)
-------- -------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS - - 363 - 363
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,180) 10 2,882 - 712
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, beginning of period 5,612 33 5,592 - 11,237
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,432 $ 43 $ 8,474 $ - $ 11,949
======== ======== ======== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
This quarterly report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned not to place undue reliance on
these forward-looking statements, including statements about plans and
objectives of management and market growth and opportunity. These forward-
looking statements involve risks and uncertainties that could cause actual
results to differ materially from those indicated by such forward-looking
statements. Important cautionary statements and risk factors that would affect
actual results are discussed in the Company's periodic reports and registration
statements filed with the Securities and Exchange Commission, including those
under the caption entitled "Factors That May Affect Future Results" in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 16, 2001.
General
Advanstar Communications Inc. 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, guides and reference books.
We report our business in three segments:
. trade shows and conferences, which consists primarily of the management of
trade shows and seminars held in convention and conference centers;
. trade publications, which consists primarily of the creation and
distribution of controlled circulation trade, business and professional
magazines; and
. marketing services, which consists primarily of sales of a variety of direct
mail and database products, magazine editorial reprints, and classified
advertising.
Trade shows and conferences accounted for approximately 59% and 57% of total
revenue in the six months ended June 30, 2001 and 2000, respectively. Trade
publications accounted for approximately 37% and 38% of total revenue in the six
months ended June 30, 2001 and 2000, respectively, while marketing services
accounted for approximately 4% and 5% of total revenue in the six months ended
June 30, 2001 and 2000, respectively. Our revenue reaches its highest levels
during the first and third quarters of the year due to the timing of the MAGIC
trade shows and our other large trade shows and conferences. Because trade show
and conference 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.
We provide our affiliate Advanstar.com with administrative support services in
accounting, finance, legal, human resource management, information technology
and business development. We also provide Advanstar.com with marketing and
promotional support through advertising pages in our trade publications and
exhibit space in our trade shows. In return, Advanstar.com provides promotional
support on its web sites for our trade publications and trade shows.
In March 2001, our parent, Advanstar, Inc. announced plans to more tightly
focus the activities of Advanstar.com. These plans will have the effect of more
closely integrating many of the sales, marketing, technology and operating
functions of Advanstar.com with our core activities in publishing, tradeshows,
and marketing services. Also, Advanstar.com will reduce the number of internet
products originally scheduled for introduction in 2001.
20
The Acquisition. As a result of the acquisition of our company by the DLJ
Merchant Banking funds (the DLJ Acquisition), we have higher indebtedness and
interest expense than reflected in our 2000 historical results of operations. In
addition, our acquisition was accounted for under the purchase method of
accounting resulting in non-cash depreciation and amortization charges in future
periods that will be significantly higher than that reflected in our 2000
historical financial information.
During the first quarter of 2001, we recorded an extraordinary charge of
approximately $2.6 million, net of a deferred tax benefit of approximately $1.5
million, in connection with the repayment of the 9.25% senior subordinated notes
and the write-off of deferred financing fees related to the bridge facility.
The 9.25% senior subordinated notes were refinanced with the proceeds of the
12.00% senior subordinated notes and the concurrent offering of additional
senior discount notes. See notes to condensed consolidated financial statements
in Item 1 for further details.
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. The sale of exhibit space is
affected by the on-going quality and quantity of attendance, venue selection and
availability, industry life cycle and general market conditions. Revenue and
related direct event expenses are recognized in the month in which the event is
held. Cash is collected in advance of an event and is recorded on our balance
sheet as deferred revenue.
Publications. The publications segment derives revenue principally from the
sale of advertising in its business-to-business magazines. Additionally,
certain publications derive revenue from paid subscriptions, custom publishing,
and 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.
Publications. Costs incurred by the trade 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.
21
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, 2001 and 2000, we
reduced operating income by $0.8 million and $0.5 million, respectively, to
reflect minority interest. To calculate EBITDA for the six months ended June
30, 2001 and 2000, we reduced operating income by $1.1 million and $1.4
million, respectively, to reflect minority interest.
Successor Predecessor
-------------------------------------------------------------------
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2001 2001 2000 2000
---- ---- ---- ----
In thousands
Net revenue:
Trade shows and conferences..................... $ 30,110 $119,674 $ 25,411 $119,040
Publications.................................... 40,733 75,373 43,936 78,910
Marketing services and other.................... 4,638 9,081 5,053 9,517
-------- -------- -------- --------
Total net revenues........................... 75,481 204,128 74,400 207,467
Production, selling and other direct expenses:
Trade shows and conferences..................... 23,005 64,364 19,026 65,645
Publications.................................... 28,617 56,033 27,988 55,917
Marketing services and other.................... 2,135 4,449 2,091 4,479
-------- -------- -------- --------
Total production, selling and other direct
expenses................................... 53,757 124,846 49,105 126,041
General and administrative expenses............... 13,893 28,643 14,018 26,627
Non-cash stock option compensation................ -- -- (294) (183)
Amortization...................................... 12,398 25,911 11,227 22,152
-------- -------- -------- --------
Operating income (loss)...................... (4,567) 24,728 344 32,830
Other income (expense):
Interest expense, net........................... (13,518) (28,192) (12,136) (24,495)
Other income (expense).......................... 1,856 784 (406) (714)
Provision (benefit) for income taxes.............. (4,192) 3,975 (2,243) 6,726
-------- -------- -------- --------
Income (loss) before extraordinary item and
accounting change............................... $(12,037) $ (6,655) $ (9,955) $ 895
-------- ======== ======== ========
EBITDA............................................ $ 9,320 $ 54,122 $ 12,535 $ 56,373
22
Results of Operations
The following discussion compares our results for the three months and six
months ended June 30, 2001 to that of our predecessor's results in 2000.
Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30,
2000
Revenue
Total revenue increased $1.1 million or 1.5% to $75.5 million in the second
quarter of 2001 from $74.4 million for the quarter ended June 30, 2000.
Revenue from trade shows and conferences increased $4.7 million or 18.5% to
$30.1 million for the second quarter of 2001 from $25.4 million in the second
quarter of 2000. This increase was primarily attributable to a shift in the
timing of when events take place, revenue growth in our core trade shows and new
event launches, partially offset by the discontinuation of several events in the
technology and healthcare/pharmaceutical markets and the repositioning and
consolidation of our east coast fashion events. Second quarter 2001 results
were impacted by a net shift in timing of nine trade shows, including three
major trade shows, SeCA, iEB and e-Learning Conference and Expo. The SeCA and
iEB shows were held in the first quarter of 2000, but moved to the second
quarter this year, while e-Learning was held in the third quarter of 2000, but
moved to the second quarter this year. Adjusting second quarter 2000 results
for all such movements, second quarter 2001 trade show revenue decreased by
$2.6 million, or 7.9%, primarily due to the realignment of our east coast
fashion events.
Revenue from publications decreased $3.2 million or 7.3% to $40.7 million for
the second quarter in 2001 from $43.9 million in the second quarter of 2000.
This decrease was attributable to the overall slowdown in the economy and the
resulting reduction in marketing spending by our customers as they adjust to
slowing growth in their respective industry sectors. Advertising pages decreased
approximately 6.9% while advertising revenue per page decreased approximately
1.2% in the second quarter of 2001. The economic outlook in the publishing
sector continues to be challenging, and forward visibility on our advertising
revenue and pages is limited, due to the concerns of our customers related to
the overall business environment. We also discontinued publication of certain
magazines published in 2000. These declines were offset by revenue from our
acquisition of Motor Age and Auto Body Repair News magazines.
Revenue from marketing services was $4.6 million in the second quarter of 2001
compared to $5.1 million in the comparable period of 2000. Marketing services
revenue is closely linked to our publishing operations and the results are in
line with the results of our publishing segment.
Production, Selling and Other Direct Expenses
Production, selling and other direct expenses increased $4.7 million or 9.5%
to $53.8 million for the second quarter of 2001 from $49.1 million for the
second quarter of 2000.
Expenses of trade shows and conferences increased $4.0 million or 20.9% to
$23.0 million for the second quarter of 2001 from $19.0 million in the second
quarter of 2000. This increase was primarily due to costs associated with the
movement of events between quarters, partially offset by cost savings associated
with discontinued events. Adjusting second quarter 2000 results for these
movements, trade show and conference expenses in 2001 decreased by $0.6 million,
or 2.6%.
Publications production, selling and other direct expenses increased $0.6
million or 2.3% to $28.6 million in the second quarter of 2001 from $28.0
million in the second quarter of 2000. This increase was primarily attributable
to our acquisitions described above, the launch of e-Learning magazine late in
the second quarter of 2000, and a 15% postage increase effective January, 2001,
partially offset by our ongoing cost management reduction program.
23
Marketing services production, selling and other direct expenses were
unchanged at $2.1 million in the second quarter of 2001 and 2000, respectively.
General and Administrative Expenses
General and administrative expenses decreased $0.1 million, or 0.9%, to $13.9
million in the second quarter of 2001 from $14.0 million in the second quarter
of 2000. Depreciation expense increased $0.6 million related to the development
and expansion of our information technology infrastructure, offset by cost
savings in our industry-focused infrastructure and our central service groups,
such as publishing operations, business development and finance.
Amortization
Amortization expense increased $1.2 million from $11.2 million in the second
quarter of 2000 to $12.4 million in the second quarter of 2001 primarily due to
increased amortization of intangible assets related to the DLJ Acquisition.
Interest Expense
Net interest expense increased $1.4 million or 11.4% to $13.5 million in the
second quarter of 2001 from $12.1 million in the second quarter of 2000 due to
the additional indebtedness necessary to fund the DLJ Acquisition. In February
2001, we replaced our existing $150.0 million, 9.25% senior subordinated notes
with $160.0 million, 12.00% senior subordinated notes.
Other Income and Expense
Other income increased $2.3 million to $1.9 million in the second quarter of
2001 from a net expense of $0.4 million in the second quarter of 2000. As a
result of the provisions of SFAS 133, the Company recorded a $2.0 million gain
during the quarter, primarily due to an increase in the effectiveness of our
interest rate protection agreements related to an overall decline in interest
rates. Under SFAS 133, our derivative financial instruments are required to be
marked-to-market each period to reflect the current fair value. See the notes to
condensed consolidated financial statements in Item 1 for further details.
Income Taxes
Income tax benefit increased $2.0 million in the quarter to $4.2 million in
the second quarter of 2001 from $2.2 million in the second quarter of 2000.
This increase was primarily due to a decrease in taxable earnings related to
increased interest expense and other expenses as more fully described above,
partially offset by an increase in non-deductible amortization resulting from
the DLJ Acquisition.
EBITDA
EBITDA decreased $3.2 million or 25.6% to $9.3 million in the second quarter
of 2001 from $12.5 million in the second quarter of 2000. The decrease was
primarily due to a general economic downturn in our publishing segment as more
fully discussed above. Adjusting second quarter 2000 for the movement of trade
shows from one quarter to another, EBITDA in the second quarter of 2001
decreased by $5.3 million, or 36.3% from the second quarter of 2000.
24
Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
Revenue
Total revenue decreased $3.4 million or 1.6% to $204.1 million in the first
half of 2001 from $207.5 million for the comparable period in 2000.
Revenue from trade shows and conferences increased $0.7 million or 0.5% to
$119.7 million in the first half of 2001 from $119.0 million for the comparable
period in 2000. Strong performances in our larger first quarter events, such as
New York art and beauty shows, our motorcycle shows, MAGIC fashion and apparel
events and our Brazil telecom show were partially offset by the impact of our
east coast fashion realignment and cancellation of three call center events in
Europe and the United States. Event timing shifts did not significantly impact
our year-to-date results.
Revenue from publications decreased $3.5 million or 4.5% to $75.4 million in
the first half of 2001 from $78.9 million for the comparable period in 2000.
This decrease was primarily attributable to a slowdown in our existing product
portfolio due to a general economic downturn and the discontinuation of certain
magazines published in 2000, partially offset by our acquisition of Motor Age
and Auto Body Repair News magazines and launches in the first half of 2001.
Advertising pages decreased approximately 4.4% while advertising revenue per
page remained steady. The economic outlook in the publishing sector continues
to be challenging, and forward visibility on our advertising revenue and pages
is limited, due to the concerns of our customers related to the overall business
environment.
Revenue from marketing services was $9.1 million in the first half of 2001
compared to $9.5 million in the comparable period of 2000. Marketing services
revenue is closely linked to our publishing operations, but performed slightly
better than the related publications.
Production, Selling and Other Direct Expenses
Production, selling and other direct expenses decreased $1.2 million or 1.0%
to $124.8 million in the first half of 2001from $126.0 million in the first half
of 2000.
Expenses of trade shows and conferences decreased $1.2 million or 2.0% to
$64.4 million in the first half of 2001 from $65.6 million in the comparable
period in 2000. This decrease was primarily due to cost savings associated with
discontinued events, partially offset by costs related to growth in our existing
events and new product launches. Event timing shifts did not significantly
impact trade show costs year-to-date.
Publications production, selling and other direct expenses increased $0.1
million or 0.2% to $56.0 million in the first half of 2001 from $55.9 million in
the first half of 2000. This increase was primarily attributable to our
acquisitions described above and a 15% postal rate increase in January, 2001,
partially offset by ongoing cost management strategies.
Marketing services production, selling and other direct expenses was $4.5
million in the first half of 2001 and 2000, respectively.
General and Administrative Expenses
General and administrative expenses increased $2.0 million, or 7.6% to $28.6
million in the first half of 2001 from $26.6 million in the first half of 2000.
Of this increase, approximately $1.3 million was related to the full-period
depreciation effect of the development and expansion of our information
technology infrastructure. We also experienced increases related to the
consolidation of our New York metropolitan area offices and the full year effect
of staffing and salary increases in our central service groups, such as
publishing operations, finance and legal administration.
25
Amortization
Amortization expense increased $3.7 million to $25.9 million in the first half
of 2001 from $22.2 million in the first half of 2000 primarily due to increased
amortization of intangible assets related to the DLJ Acquisition in October
2000.
Interest Expense
Net interest expense increased $3.7 million or 15.1% to $28.2 million in the
first half of 2001from $24.5 million in the first half of 2000 due to the
additional indebtedness necessary to fund the DLJ Acquisition. In February
2001, we replaced our existing $150.0 million, 9.25% senior subordinated notes
with $160.0 million, 12.00% senior subordinated notes.
Income Taxes
Provision for income taxes decreased $2.7 million to $4.0 million in the first
half of 2001 from $6.7 million in the first half of 2000. This decrease was
primarily due to a decrease in taxable earnings related to increased interest
expense and other expenses as more fully described above, partially offset by an
increase in non-deductible amortization resulting from the DLJ Acquisition.
EBITDA
EBITDA decreased $2.3 million or 4.0% to $54.1 million in the first half of
2001 from $56.4 million in the first half of 2000. The decrease was primarily
due to a general economic downturn in our publishing segment as more fully
discussed above. Event timing shifts did not significantly impact our year-to-
date results.
Liquidity and Capital Resources
As of June 30, 2001, we had total indebtedness of $552.0 million and
approximately $58 million of borrowings available under our credit facility,
subject to customary conditions.
Credit facility. The term loan facility under the credit facility consists of
a $100.0 million amortizing term loan A maturing April 11, 2006 and a $315.0
million amortizing term loan B maturing October 11, 2008. The credit facility
also includes an $80.0 million revolving credit facility. The revolving credit
facility will terminate six and one-half years after the closing date. The
credit facility may be increased by up to $50.0 million at our request, with the
consent of the lenders or other financial institutions providing the increase.
In February, 2001, we repaid $10.8 million of term loan A and $34.2 million of
term loan B at the closing of our 12.00% senior subordinated notes.
Borrowings under the credit facility generally bear interest based on a margin
over, at our option, the base rate or the reserve-adjusted London-interbank
offered rate, or LIBOR. The applicable margin, until approximately six months
after the closing date, is 3.00% over LIBOR and 1.75% over the base rate for
borrowings under the revolving credit facility and for term loan A, and 3.50%
over LIBOR and 2.25% over the base rate for term loan B. Thereafter, the
applicable margin for revolving credit loans and term loan A will vary based
upon our ratio of consolidated debt to EBITDA, as defined in the credit
facility, and the applicable margin for term loan B will remain 3.50% over LIBOR
and 2.25% over the base rate. Our obligations under the credit facility are
guaranteed by Advanstar Holdings, Corp, our ultimate parent company and all our
existing and future domestic subsidiaries and are secured by substantially all
of the assets of our company and the subsidiary guarantors, including a pledge
of the capital stock of all our existing and future domestic subsidiaries, a
pledge of no more than 65% of the voting stock of any foreign subsidiary
directly owned by our company or any domestic subsidiary, a pledge of all
intercompany indebtedness in favor of Advanstar, Inc, our company and our
domestic subsidiaries, a pledge of our company's and Advanstar IH, Inc.'s
capital stock by our parent company and a pledge of our parent company's capital
stock by Advanstar Holdings, Corp. The credit facility contains customary
covenants, including covenants that limit our ability to incur debt, pay
dividends and make investments, and customary events of default.
26
Notes. The 12.00% senior subordinated notes (Notes) mature in 2011 and are
guaranteed by each of our existing and future domestic restricted subsidiaries.
Interest on the notes is payable semi-annually in cash. The notes contain
customary covenants and events of default, including covenants that limit our
ability to incur debt, pay dividends and make investments.
Parent company notes. As part of the financing for the DLJ Acquisition, our
parent, Advanstar, Inc. issued senior discount notes due October 2011 with a
principal amount at maturity of $103.2 million. Concurrently with the closing of
the offering of the Notes, Advanstar, Inc. sold additional senior discount notes
due October 2011 with an additional aggregate principal amount at maturity of
$68.6 million. These notes will not require cash interest payments until 2006
and contain customary covenants and events of default, including covenants that
limit the ability of Advanstar, Inc. and its subsidiaries, including the
Company, to incur debt, pay dividends and make investments. Neither we nor any
of our subsidiaries guaranteed the notes. However, Advanstar, Inc. is a holding
company and its ability to pay interest on these notes will be dependent upon
the receipt of dividends from its subsidiaries, including our company.
Capital expenditures
Capital expenditures in the first half of 2001 were approximately $5.0 million
and we anticipate that we will spend approximately $10.0 million on capital
expenditures in 2001, primarily for expenditures related to our desktop
computers and management information systems. Based on current estimates,
management believes that the amount of capital expenditures permitted to be made
under the credit facility will be adequate to grow our business according to our
business strategy and to maintain the properties and business of our continuing
operations.
Acquisitions and Investments
We have provided funding to Advanstar.com, our affiliate and a subsidiary of
Advanstar, Inc., to support its operations. We provided funding of approximately
$12.5 million in the first half of 2001 and anticipate that we will provide an
aggregate of $5.0 million of additional funding in 2001. Our debt instruments
limit the total amount we can invest in Advanstar.com, but, based on current
estimates, we anticipate that we will be able to make these investments within
those limitations.
Our business strategy includes the consummation of strategic acquisitions. In
connection with any future acquisitions, we may require additional funding,
which may be provided in the form of additional debt or equity financing or a
combination thereof. There can be no assurance that any additional financing
will be available to us on acceptable terms or in a manner that complies with
the restrictive covenants in our debt instruments. Consistent with our strategy
since 1996, we continue to pursue potential acquisitions of complementary
businesses.
Source of funds
We generally operate with negative working capital, excluding cash and current
maturities of long-term debt, due to the impact of deferred revenue from trade
shows, which is billed and collected as deposits up to one year in advance of
the respective trade show. Consequently, our existing operations are expected to
maintain very low or negative working capital balances, excluding cash and
current maturities of long-term debt. We anticipate that our operating cash
flow, together with borrowings under the credit facility, will be sufficient to
meet our anticipated future operating expenses, capital expenditures and debt
service obligations as they become due. However, our ability to make scheduled
payments of principal, to pay interest on or to refinance our indebtedness and
to satisfy our other debt obligations will depend upon our future operating
performance, which will be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our control.
From time to time we will continue to explore additional financing methods and
other means to lower our cost of capital, which could include stock issuance or
debt financing and the application of the proceeds therefrom to the repayment of
bank debt or other indebtedness.
27
Historically, our financing requirements have been funded primarily through
cash generated by operating activities and borrowings under our revolving credit
facility. From time to time we have also raised additional funds through sales
of common stock, high yield offerings and term borrowings under our credit
facility for purposes of completing strategic acquisitions.
Cash flows from operating activities. Net cash provided by operations
decreased $7.5 million, or 41.7%, to $10.5 million in the first half of 2001
from $18.0 million in the comparable period of 2000. The decrease was primarily
due to the decrease in operating results more fully described above, an increase
in working capital items, partially offset by a net reduction in cash interest
expense during the period.
Cash flows used in investing activities. Net cash used in investing activities
increased $11.0 million for the first half of 2001 to $26.7 million, from $15.7
million in 2000. This increase was principally due to an increase in our
funding of Advanstar.com during 2001, partially offset by a decrease in capital
expenditures.
Cash flows from financing activities. Net cash provided by financing
activities increased $14.8 million in the first half of 2001 to $12.8 million,
from a use of cash of $2.0 million in the comparable period of 2000. This
increase was principally due to the effect of refinancing the Notes, as more
fully discussed above, and additional borrowings under our operating line of
credit.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
We are exposed to various market risks, which is the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in interest rates and
foreign currency exchange rates.
Interest. We rely significantly on variable rate and fixed rate debt in our
capital structure. At June 30, 2001, we had fixed rate debt of $160.0 million
and variable rate debt of $392.0 million. The pre-tax earnings and cash flows
impact for the next year resulting from a 100 basis point increase in interest
rates on variable rate debt would be a reduction of pre-tax earnings of $3.9
million, holding other variables constant and excluding the impact of our
interest rate protection agreements. Under the credit facility, we are required
to enter into interest rate protection agreements that have the effect of
causing at least half of the outstanding term loan borrowings and senior
subordinated notes to be fixed-rate borrowings. We have entered into agreements
to cap the interest rate on $250.5 million of borrowings under our credit
facility, which would have the effect of reducing the impact of interest rate
increases on our earnings and cash flows.
Currencies. Outside of the United States, we maintain assets and operations in
Europe, South America and Asia. The results of operations and financial position
of our foreign operations are principally measured in their respective currency
and translated into U.S. dollars. As a result, exposure to foreign currency
gains and losses exists. The reported income of these subsidiaries will be
higher or lower depending on a weakening or strengthening of the U.S. dollar
against the respective foreign currency. Our subsidiaries and affiliates also
purchase and sell products and services in various currencies. As a result, we
may be exposed to cost increases relative to the local currencies in the markets
in which we sell.
A portion of our assets are based in our foreign locations and are translated
into U.S. dollars at foreign currency exchange rates in effect as of the end of
each period, with the effect of such translation reflected in other
comprehensive income. Accordingly, our consolidated stockholder's equity will
fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
28
Our strategy for management of currency risk relies primarily upon conducting
our operations in a country's respective currency and may, from time to time,
involve currency derivatives, primarily forward exchange contracts, to reduce
our exposure to currency fluctuations. As of June 30, 2001 there were open
foreign exchange derivative contracts with a notional amount totaling $6.7
million. The potential loss in fair value resulting from a hypothetical 10%
adverse change in quoted foreign currency exchange rates amounts to
approximately $0.7 million. Actual results may differ.
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
Item 6(b). Reports on Form 8-K
Advanstar filed no reports on Form 8-K during the quarter ended June
30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advanstar Communications Inc.
By: /s/ David W. Montgomery
Date: August 14, 2001
David W. Montgomery
Vice President - Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
29
Advanstar Communications Inc.
Exhibit Index
Exhibit No.
10.1 Employment Agreement, dated June 20,2001 between Advanstar,
Inc. and Joseph Loggia.
30
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
June 20, 2001 by and between Advanstar, Inc., a Delaware corporation (the
"Company"), and Joseph Loggia ("Executive"), with effectiveness from the
Effective Date (as defined below in Section 8).
WHEREAS, the Company currently operates certain trade exposition and
publishing businesses; and
WHEREAS, the Company wishes to continue to employ Executive and Executive
is prepared to continue to serve in those capacities required by the Company.
NOW, THEREFORE, the parties agree as follows:
1. Position and Authority. The Company agrees to employ the Executive,
----------------------
and the Executive accepts such employment and agrees to serve the Company as
President and Chief Operating Officer of the Company, Advanstar Communications
Inc. ("ACI") and any of their respective Subsidiaries as may from time to time
be requested by the Company, for the compensation and benefits detailed in
Sections 3 and 4 hereof. The Executive will report to the Chairman and Chief
Executive Officer of the Company. A "Subsidiary" shall be any company in which
the Company beneficially owns more than 50% of the voting power of such
company's outstanding voting securities.
2. Duties and Privileges. Executive shall devote substantially all of his
---------------------
business time (subject to four weeks of vacation, or such greater amount as is
authorized by the Board of Directors) to the affairs of the Company during the
employment term, except as may be consented to by the Board of Directors.
Executive shall perform such duties and responsibilities and have such authority
as is consistent with the duties and responsibilities of a President and Chief
Operating Officer, including, without limitation, (a) create the operating plan
(including budget), strategic plan, and related organization for the Company and
ACI and submit such plans for approval by the CEO and the Board of Directors,
(b) implement the approved operating plan, strategic plan and related
organization of the Company and ACI, and (c) such other duties and
responsibilities as the Board of Directors or Chief Executive Officer of the
Company may determine from time to time. All senior management of the Company
and ACI shall report, directly or indirectly as determined by Executive, to
Executive, except for the Company's Chairman, Vice Chairman, Chief Financial
Officer (for his Company duties and responsibilities), and Executive Vice
President - Business Development. Subject to travel requirements from time to
time, Executive will report for work to the Company's offices in the greater Los
Angeles area. Executive will not be required to relocate his permanent residence
outside of greater Los Angeles, California; provided that, if Executive and the
Company agree that Executive will relocate his permanent residence to another
city (a "New Location") and perform his duties and responsibilities pursuant to
the terms of this contract at the Company's offices in the New
1
Location, then Executive will not be required to relocate his permanent
residence outside the New Location unless Executive and the Company agree.
Executive shall have the right to attend the regular and special meetings of the
Board of Directors as a non-voting observer. Executive shall receive notices of
such meetings at approximately the same time as the members of the Board of
Directors.
3. Base Compensation and Bonus.
---------------------------
(a) Base Compensation. Commencing as of the Effective Date, Executive
-----------------
will be compensated at a base salary rate of $500,000.00 per year (or such
higher rate as may be set from time to time by the Chief Executive Officer in
his discretion) during the employment term ("Base Salary") Base compensation
will be paid in installments on the same schedule as the Company's Subsidiaries
generally pay their employees. All compensation and benefits will be subject to
reduction by all federal, state, local and other withholdings and similar taxes
and payments required by applicable law.
(b) Bonus for any Fiscal Year. Executive shall receive bonus
-------------------------
compensation based on the relationship between the Company's actual earnings
before interest, taxes, depreciation and amortization and non-cash compensation
expense ("EBITDA") for each fiscal year starting with the fiscal year ending
December 31, 2001 (determined based on the Company's audited financial
statements for such fiscal year) and the EBITDA set for such year in the Company
"Adjusted Business Plan" (as defined below) as follows:
Actual EBITDA Bonus
as a Percentage as a Percentage
of Plan of Base Salary
----------------------- --------------
Less than 80% No bonus
100% 50% of Base Salary
120% or more 100% of Base Salary
If actual EBITDA as a percentage of the Adjusted Business Plan falls between 80%
and 120%, the amount of bonus shall be pro rated on a straight-line basis. In no
case shall bonus payable under this Section 3(b) exceed 100% of Base Salary
unless agreed to by the Board of Directors in its absolute discretion.
The "Adjusted Business Plan" shall be the Company's business plan for
the fiscal year in question as approved by the Board of Directors, appropriately
adjusted for acquisitions or dispositions during the year as determined by the
Board of Directors. For greater certainty, the business plan for 2001 (off which
any adjustments for acquisitions and dispositions shall be made) shall be the
business plan for such year approved by the Board in December 2000.
Any bonus payable under this Section 3(b) shall be paid not later than
90 days after the applicable fiscal year end.
2
4. Benefits.
--------
(a) During Executive's employment by the Company, Executive will
receive the same (or substantially similar) employee benefits to those provided
by the Company or its Subsidiaries to other members of senior management from
time to time.
(b) During and after the employment term the Company agrees that if
Executive is made a party, or compelled to testify or otherwise participate in,
any action, suit or proceeding (a "Proceeding"), by reason of the fact that he
is or was a director or officer of the Company or any of its Subsidiaries,
Executive shall be indemnified by the Company as provided in Section 145 of the
Delaware General Corporation Law or (but not to any lesser extent) as authorized
by the Company's certificate of incorporation or bylaws or resolutions of the
company's Board of Directors against all cost, expense, liability, damage and
loss reasonably incurred or suffered by Executive in connection therewith, and
such indemnification shall continue as to Executive even if he has ceased to be
a director or officer of the Company or Subsidiary for the period of any
applicable statute of limitations or, if longer, for the period in which any
such Proceeding which commenced within the period of any such statute of
limitations is pending. The Company shall advance to Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an itemized list of the costs and expenses and an
undertaking by Executive to repay the amount of such advance if it shall
ultimately be determined, in a final judgment for which the time to appeal has
expired, that, pursuant to applicable law, he is not entitled to be indemnified
against such costs and expenses.
(c) The Company will reimburse Executive for his reasonable and
customary business expenses, including travel, accommodations and meals.
5. Stock Options. Subject to the terms, conditions and restrictions
-------------
(including performance-based vesting) of the 2000 Management Incentive Plan of
Advanstar Holdings Corp. ("Parent"), and the option agreement with respect
------
thereto, the Company will grant the Executive an option to purchase up to
400,000 shares of Parent's Common Stock at $10.00 per share.
6. Term. This Agreement shall have a term equal to the period from the
----
Effective Date through December 31, 2003 (the "Employment Term"), provided that
--------
Sections 9 and 10 shall survive such expiration in accordance with their terms.
In addition, in the event that this Agreement is not renewed (or replaced by a
new agreement) after such expiration, Executive's employment with the Company
shall continue on no less favorable terms to Executive until terminated in
accordance with Section 7, which shall survive such expiration.
3
7. Termination.
-----------
(a) This Agreement may be terminated by the Company at any time for
Cause upon written notice to Executive, which notice shall specify the reason
for termination. Such notice shall be given at any time prior to termination in
the case of matters described in clauses (B) or (C), and shall be given not less
than 30 days prior to the date of termination, in the case of matters described
in clauses (A), (D) or (E), and in the case of matters described in clauses (A),
(D) or (E) shall be rescinded if the Executive cures any misconduct, negligent
act, breach or failure giving rise to such notice to the reasonable satisfaction
of the Board of Directors, including curing any damage suffered by the Company
as a result thereof. As used herein, "Cause" shall mean (A) willful misconduct
or gross negligence by Executive in respect of his material obligations under
this Agreement, (B) conviction of a felony involving moral turpitude, (C) theft
of Company property or other disloyal or dishonest conduct of the Executive that
materially harms the Company or its business or (in the case of dishonest
conduct) undermines the confidence of the Board or the Chief Executive Officer
in the Executive, (D) willful breach of this Agreement, or (E) willful failure
to observe Company policies or carry out the directives of the Board of
Directors or the Chief Executive Officer of the Company consistent with the
terms of this Agreement.
(b) Executive may terminate this Agreement for Good Reason by giving
sixty (60) days prior written notice to the Company specifying such Good Reason;
provided that the Company has not cured the condition giving rise to the
- --------
Executive's right to terminate this Agreement pursuant to this Section 7(b)
within 30 days of the Company's receipt of the written notice in accordance with
this Section 7(b). "Good Reason" shall exist only if (i) Executive is removed or
is not re-appointed as President and Chief Operating Officer, except in
connection with termination of this Agreement by the Company for Cause or due to
death or Disability (as defined below) or (ii) breach by the Company of any
material obligation of the Company under this Agreement. Executive may terminate
this Agreement without Good Reason by giving sixty (60) days prior written
notice to the Company.
(c) Should the Executive terminate this Agreement for Good Reason, or
should the Company terminate this Agreement without Cause, then the Executive
shall be entitled to receive such bonus payable under Section 3(b) hereof,
provided that any bonus under Section 3(b) will be payable only with respect to
- --------
that portion of the fiscal year in which Executive's employment was terminated
(or any prior fiscal year for which bonus remains unpaid)); bonus for any
partial fiscal year shall be determined by multiplying the bonus Executive would
have received had he continued to work for the Company during the entire fiscal
year by a fraction, the numerator of which is the number of days in the fiscal
year during which Executive was employed by the Company, and the denominator of
which is 365 (such amount the "Pro Rata Bonus Amount").
(d) This Agreement shall terminate automatically upon Executive's
death. This Agreement may be terminated by the Company upon written notice to
Executive, or by Executive upon written notice to the Company, upon Executive's
Disability. For purposes of this Agreement, "Disability" means the Executive's
suffering of a disability which shall have prevented him from performing his
obligations hereunder for a period of at least 90 consecutive
4
days or 120 non-consecutive days in any 365 day period. In the event of
termination of this Agreement due to Executive's death or Disability, in
addition to any salary due to Executive as of the date of death or Disability
and remaining unpaid, Executive shall be entitled to receive, at such time as
Executive would otherwise would have received such sum, the Pro Rata Bonus
Amount for the portion of the fiscal year in which Executive's death or
Disability occurred during which Executive was employed by the Company.
(e) If the Company terminates this Agreement with Cause or if the
Executive terminates this Agreement without Good Reason, or if this Agreement is
terminated under clause (d) above, then the Executive shall, from the date of
such termination, no longer be entitled to any compensation or any bonus under
Sections 3 or 4 (other than, (i) in the case of termination for Disability,
disability benefits as provided pursuant to Section 4; (ii) in the case of
termination for death or Disability, any bonus payable pursuant to clause (d)
above; and (iii) in the case of the Executive terminating without Good Reason,
as provided in the letter agreement referenced in Section 9). Nothing in this
clause (e) shall affect Executive's rights under Company health and disability
plans in which Executive participates to the extent such plans provide for
benefits to be paid following the termination of employment.
(f) Termination of this Agreement shall not discharge any liability
(of either the Company or the Executive) existing at the date of termination.
Further, notwithholding any termination, the provisions of Sections 9 and 10
shall survive in accordance with their terms.
8. Effective Date. This Agreement shall take effect as of June 20, 2001
--------------
(the "Effective Date").
9. Non-Competition and Confidentiality. Executive shall execute and
-----------------------------------
deliver a letter agreement in the form of Exhibit A hereto.
10. Arbitration. Any claim arising out of or relating to this Agreement
-----------
(including disputes regarding the presence or absence of "Cause" or "Good
Reason" in the event of a termination), or otherwise arising out of or relating
to the Executive's employment by the Company, will be subject to arbitration in
New York, New York, in accordance with the Federal Arbitration Act and the rules
of the American Arbitration Association relating to commercial disputes. The
prevailing party in any such arbitration shall be entitled to recover from the
other party its reasonable expenses incurred in connection with such
arbitration, including the reasonable fees and expenses of counsel.
11. Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, it shall be adjusted rather than voided, to achieve
the intent of the parties to the extent possible, and the remainder of the
Agreement shall be enforced to the maximum extent possible.
12. Entire Agreement. This Agreement (along with the letter agreement
----------------
referenced in Section 9) constitutes the entire agreement between Executive and
the Company with respect to the terms and conditions of the employment of
Executive by the Company, and supersedes all
5
prior or concurrent arrangements, discussions, agreements or understandings with
respect to your employment.
13. Governing Law. This Agreement shall be governed by the laws of the
-------------
state in which Executive has his principal residence at the time an enforcement
action is initiated without regard to principles of conflicts of law.
14. Notice. Any notice, or other written communication to be given
------
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage pre-paid, return receipt requested, three (3) days after
the date of mailing, addressed to the above parties as follows:
If to the Company:
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
Attn: Robert L. Krakoff, Chairman and Chief Executive Officer
and Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
Attn: Eric I. Lisman, Vice President & General Counsel
If to Executive:
Joseph Loggia
5742 Hilltop Road
Hidden Hills, CA 91302
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
ADVANSTAR, INC.
By:
--------------------------------------
Robert. L. Krakoff
Chairman and Chief Executive Officer
-----------------------------------------
Joseph Loggia
6
Exhibit A
---------
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
__________, 2001
Joseph Loggia
5742 Hilltop Road
Hidden Hills, CA 91302
Dear Mr. Loggia:
You are to be employed by Advanstar, Inc. (the "Company" and, together with
its subsidiaries "Advanstar") pursuant to an Employment Agreement of even date
herewith (the "Employment Agreement"). In consideration of your employment with
the Company, you and the Company agree as follows:
1. Non-Competition. You agree that you will not, during the course of
---------------
your employment with the Company or for the one year period following the
termination of such employment (the "Non-Compete Period"), compete with
Advanstar, as defined in paragraph 4 below. If there is any conflict between the
provisions of this letter agreement and the provisions of any other agreement
between you and the Company in respect of the subject matter hereof, the
provisions of this agreement shall govern.
2. Confidentiality. You acknowledge that your association with Advanstar
---------------
will bring you into close contact with many confidential affairs of Advanstar,
including information about costs, profits, markets, sales, publications, key
personnel, pricing policies, operational methods, other business affairs,
methods and other information not readily available to the public, and plans for
future development. In recognition of the foregoing, you covenant and agree that
you will keep confidential all material confidential to Advanstar that is not
otherwise in the public domain and that you will not intentionally disclose any
such information to anyone outside Advanstar or make any use thereof for your
own benefit or for any purpose other than the advancement of the business of
Advanstar at any time except with the prior written consent of Advanstar as
evidenced by a certified resolution of the Chief Executive Officer or the Board
of Directors of the Company. For purposes of this Agreement, the following
information shall be deemed not to constitute confidential information of
Advanstar:
(a) Any information developed independently by you;
7
(b) Information that was received by you from a third-party, which,
to your knowledge, is not bound by an agreement of
confidentiality with Advanstar; or
(c) Any information that is in the public domain or generally
available to the public.
3. No Solicitation of Employees. You covenant that, for the duration of
----------------------------
the Non-Compete Period, you will not, and no person, corporation, partnership,
or other entity over which you exercise control (whether as an officer,
director, sole proprietor, holder, debt or equity securities, consultant,
partner, or otherwise) will, directly or indirectly (a) enter into any written
or oral agreement or understanding relating to the services of any person who is
then employed by Advanstar or, in the case of any employee other than
secretaries, clerks and similar employees fulfilling merely clerical functions,
who has been so employed within the preceding six months, or (b) solicit, or bid
against Advanstar in an attempt to be awarded, any trade show or exposition
business, or any publishing contract, from any party sponsoring or arranging any
trade show or exposition, or publishing or sponsoring any publication, in either
case with which Advanstar then has such a relationship or contract. If there is
any conflict between the provisions of this letter agreement and the provisions
of any other agreement between you and the Company in respect of the subject
matter hereof, the provisions of this agreement shall govern.
4. Certain Definitions. For purposes of this Letter Agreement,
-------------------
competition with Advanstar shall include carrying on any business that is
competitive with the business of Advanstar's Fashion Group of trade exhibitions
(including without limitation, MAGIC International, WWD MAGIC, MAGIC Kids, the
Edge and the former Larkin events). Nothing in this Letter Agreement shall
prohibit you from being a passive owner of not more than 2% of the outstanding
stock of any class or a corporation which is publicly traded, so long as you
have no active participation in the management or business of such corporation.
5. Consideration. As consideration for the continued fulfillment of your
-------------
covenants under this Letter Agreement, you shall be entitled to continue during
the Non-Compete Period to receive (in the normal bi-weekly course in accordance
with the Company's standard payroll practices) your base salary as provided in
Section 3(a) of the Employment Agreement; provided that (a) no such payments
shall be due to you or made by the Company if your employment was terminated (i)
by the Company for Cause (as defined in Section 7(a) of the Employment
Agreement) or (ii) due to your death or Disability (as defined in Section 7(d)
of the Employment Agreement); and (b) your entitlement to receive such payments
and the Company's obligation to make such payments shall cease upon your failure
to comply with any of your covenants under this Letter Agreement; provided that
in the case of clause (b) the Company shall give you written notice describing
such failure not less than ten business days prior to the proposed date of
cessation of payments, and such notice shall be rescinded (and the payments
shall not cease) if you reasonably cure such failure prior to the conclusion of
the notice period. The termination of the payment obligation pursuant to clause
(a) or (b) of the foregoing sentence shall not release you from your covenants
under this Letter Agreement.
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6. Severability. The scope and effect of the terms and provisions
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contained in this Letter Agreement (including the noncompetition covenant
contained in Section 1) will be as broad in time (but not beyond the time
periods specified herein), geography, and all other respects as is permitted by
applicable law. If arbitrators, a court, or another body of competent
jurisdiction determine that any term or provision of this Agreement is excessive
in scope, then if possible such term or provision will be adjusted (rather than
voided) in accordance with the purpose stated in the preceding sentence and with
applicable law, but in such a manner as to minimize the change in the provision.
If such term or provision cannot be so adjusted, then it will be struck. All
other terms and provisions of this Letter Agreement will be deemed valid and
enforceable to the full extent possible. The provisions of Section 5(b) shall
continue to remain applicable (based on compliance with the terms of this Letter
Agreement) regardless of whether any such terms are adjusted or struck in regard
to legal enforceability.
7. Remedies. If any of the covenants or agreements in Sections 1, 2 or 3
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are violated or threatened to be violated, you agree and acknowledge that such
violation or threatened violation will cause irreparable injury to Advanstar,
and that the remedy at law of Advanstar for any such violation or threatened
violation will be inadequate and that Advanstar will be entitled to obtain any
injunction prohibiting a continuance or occurrence of such violations or
threatened violations in addition to (not in limitation of) any other rights or
remedies available at law or in equity. Your services hereunder are of a
special, unique, unusual, extraordinary character which gives them peculiar
value, the loss of which cannot be reasonably or adequately computed in damages.
The provisions of this Letter Agreement will be binding upon and inure to
the benefit of our respective heirs, executives, administrators, successors and
assigns. This Letter Agreement will be governed by and construed in accordance
with the laws of the state in which you have your principal residence at the
time an enforcement action is initiated without regard to principles of
conflicts of law.
Very truly yours,
ADVANSTAR, INC.
By:
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Robert L. Krakoff
Chairman and Chief Executive Officer
ACCEPTED AND AGREED:
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Joseph Loggia
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