**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **
| **ý** | **Quarterly Report Pursuant to  Section 13 or 15(d) of The Securities Exchange Act of 1934.** |
|------------|---------------------------------------------------------------------------------------------------------|
|       |                                                                                                    |
|       | **For the  quarterly period ended: June 30, 2005**                                                 |
|       |                                                                                                    |
| **OR**     |
|       |                                                                                                    |
| ** ** | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |

 

**CommissionFile Number: 333-57201**

 

**Advanstar, Inc.**

(Exact name ofregistrant as specified in its charter)

 

##### **Delaware**

(State or otherjurisdiction of

incorporation ororganization)

 

**94-3243499**

(I.R.S. Employer

IdentificationNo.)

 

**One ParkAvenue, New York, NY**

(Address ofprincipal executive offices)

 

**10016**

(Zip Code)

 

**Registrant’s Telephone Number,Including Area Code: (212) 951-6600**

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes  ý  No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes  o  No  ý

 

As of August 15,2005, 100 shares of the registrant’s common stock were outstanding.

 

 

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| **PART I**  | **FINANCIAL INFORMATION**                                                                                            | ** **   |
|------------------|----------------------------------------------------------------------------------------------------------------------|--------------|
|             |                                                                                                                 |         |
| **Item 1.**      | ***Financial  Statements:***                                                                                         |         |
|             |                                                                                                                 |         |
|             | Condensed Consolidated  Balance Sheets at June 30, 2005  (unaudited) and December 31, 2004                 |         |
|             |                                                                                                                 |         |
|             | Condensed Consolidated  Statements of Operations (unaudited)  for the three months ended June 30, 2005 and 2004 |         |
|             |                                                                                                                 |         |
|             | Condensed Consolidated  Statements of Operations (unaudited)  for the six months ended June 30, 2005 and 2004   |         |
|             |                                                                                                                 |         |
|             | Condensed Consolidated  Statements of Cash Flows (unaudited)  for the six months ended June 30, 2005 and 2004   |         |
|             |                                                                                                                 |         |
|             | Notes to Condensed  Consolidated Financial Statements  (unaudited)                                                   |         |
|             |                                                                                                                 |         |
| **Item  2.**     | ***Management’s Discussion and Analysis of Financial  Condition and Results of Operations***                    |         |
| ** **       | *** ***                                                                                                         | *** *** |
| **Item  3.**     | ***Quantitative and Qualitative Disclosures About Market  Risk***                                                    |         |
| ** **       | *** ***                                                                                                         | *** *** |
| **Item 4.**      | ***Controls and Procedures***                                                                                        | *** *** |
|             |                                                                                                                 |         |
| **PART II** | **OTHER INFORMATION**                                                                                                | ** **   |
|             |                                                                                                                 |         |
| **Item  6.**     | ***Exhibits***                                                                                                       | *** *** |
| ** **       | *** ***                                                                                                         | *** *** |
| **Signatures**   | ** **                                                                                                           | ** **   |
|                  |                                                                                                                      |              |  |

 

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**PART I FINANCIAL INFORMATION**

 

**Advanstar,Inc.**

**CondensedConsolidated Balance Sheets**

(In thousands,except share and per share data)

 
| ** **                                                                                                                                   | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                   | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                   | ** ** | ** **              | ** ** | ** **                  | ** ** |
| Current assets:                                                                                                                              |       |                    |       |                        |       |
| Cash and cash  equivalents                                                                                                                   |       | $                       | 38,393     |                        | $          | 41,328 |   |
| Accounts  receivable, net of allowance of $741 and $675 at June 30, 2005 and  December 31, 2004                                    |       | 28,170                  |       | 27,047                      |       |
| Prepaid expenses                                                                                                                             |       | 7,129                   |       | 6,417                       |       |
| Other                                                                                                                                        |       | 2,778                   |       | 2,450                       |       |
| Current assets  of discontinued operations and assets held for sale                                                                          |       | 694                     |       | 2,690                       |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Total current  assets                                                                                                                        |       | 77,164                  |       | 79,932                      |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Due from parent                                                                                                                              |       | 334                     |       | 256                         |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Property, plant  and equipment, net                                                                                                          |       | 17,788                  |       | 19,331                      |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Intangible and  other assets:                                                                                                                |       |                    |       |                        |       |
| Goodwill                                                                                                                                     |       | 585,553                 |       | 586,967                     |       |
| Intangibles and  other, net                                                                                                                  |       | 72,509                  |       | 92,587                      |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Total intangible  and other assets, net                                                                                                      |       | 658,062                 |       | 679,554                     |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Non current  assets of discontinued operations and assets held for sale                                                                      |       | 8,794                   |       | 135,837                     |       |
|                                                                                                                                         |       | $                       | 762,142    |                        | $          | 914,910 |   |
|                                                                                                                                         |       |                    |       |                        |       |
| **LIABILITIES AND STOCKHOLDER’S EQUITY**                                                                                                |       |                    |       |                        |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Current  liabilities:                                                                                                                        |       |                    |       |                        |       |
| Current  maturities of long-term debt                                                                                                        |       | $                       | 201        |                        | $          | 1,300 |   |
| Accounts payable                                                                                                                             |       | 14,644                  |       | 13,578                      |       |
| Accrued  compensation                                                                                                                        |       | 3,893                   |       | 7,494                       |       |
| Other accrued  expenses                                                                                                                      |       | 28,412                  |       | 32,981                      |       |
| Deferred revenue                                                                                                                             |       | 37,453                  |       | 39,323                      |       |
| Current  liabilities of discontinued operations and assets held for sale                                                                     |       | 870                     |       | 15,886                      |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Total current  liabilities                                                                                                                   |       | 85,473                  |       | 110,562                     |       |
|                                                                                                                                         |       |                    |       |                        |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Long-term debt,  net of current maturities                                                                                                   |       | 612,936                 |       | 752,019                     |       |
| Deferred income  taxes                                                                                                                       |       | 29,190                  |       | 8,506                       |       |
| Other long-term  liabilities                                                                                                                 |       | 3,652                   |       | 4,229                       |       |
| Long term  liabilities of discontinued operations and assets held for sale                                                                   |       | —                  |       | 13,371                      |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Commitments and  contingencies                                                                                                               |       |                    |       |                        |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Stockholder’s  equity:                                                                                                                  |       |                    |       |                        |       |
| Common stock,  $.01 par value, 10,000 shares authorized; 100 shares issued and outstanding  at June 30, 2005 and December 31, 2004 |       | —                  |       | —                      |       |
| Capital in  excess of par value                                                                                                              |       | 370,424                 |       | 370,424                     |       |
| Accumulated  deficit                                                                                                                         |       | (345,804                | )          | (350,446                    | )          |
| Accumulated  other comprehensive income                                                                                                      |       | 6,271                   |       | 6,245                       |       |
|                                                                                                                                         |       |                    |       |                        |       |
| Total  stockholder’s equity                                                                                                             |       | 30,891                  |       | 26,223                      |       |
|                                                                                                                                         |       | $                       | 762,142    |                        | $          | 914,910 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

2

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**Advanstar,Inc.**

**CondensedConsolidated Statements of Operations**

(In thousands)

 
| ** **                                                              | ** ** | **For the  Three Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                              | ** ** | **2005**                                       | ** ** | **2004** | ** ** |
| ** **                                                              | ** ** | **(unaudited)**                                | ** ** |
| ** **                                                              | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Revenue                                                                 |       | $                                              | 55,990     |   | $ | 56,445 |   |
|                                                                    |       |                                           |       |   |   |
| Operating  expenses:                                                    |       |                                           |       |   |   |
| Cost of  production (excluding depreciation)                            |       | 11,293                                         |       | 9,935 |   |
| Selling,  editorial and circulation (excluding depreciation)            |       | 26,912                                         |       | 27,814 |   |
| General and  administrative (excluding depreciation)                    |       | 9,866                                          |       | 9,643 |   |
| Restructuring  charge                                                   |       | 2,015                                          |       | (3,895 | ) |
| Amortization of  intangibles                                            |       | 7,627                                          |       | 8,754 |   |
| Depreciation                                                            |       | 1,893                                          |       | 2,202 |   |
|                                                                    |       |                                           |       |   |   |
| Total operating  expenses                                               |       | 59,606                                         |       | 54,453 |   |
|                                                                    |       |                                           |       |   |   |
| Operating (loss)  income                                                |       | (3,616                                         | )          | 1,992 |   |
|                                                                    |       |                                           |       |   |   |
| Other income  (expense):                                                |       |                                           |       |   |   |
| Interest  expense, net                                                  |       | (23,141                                        | )          | (22,619 | ) |
| Loss on  extinguishment of debt (see Note 6)                            |       | (12,581                                        | )          | — |   |
| Other income  (expense), net                                            |       | (35                                            | )          | (264 | ) |
|                                                                    |       |                                           |       |   |   |
| Loss from  continuing operations before income taxes                    |       | (39,373                                        | )          | (20,891 | ) |
|                                                                    |       |                                           |       |   |   |
| Benefit for  income taxes                                          |       | (5,730                                         | )          | (795 | ) |
| Loss from  continuing operations                                        |       | (33,643                                        | )          | (20,096 | ) |
|                                                                    |       |                                           |       |   |   |
| Discontinued  operations (see Note 3):                                  |       |                                           |       |   |   |
| Income (loss)  from operations of discontinued businesses, net of taxes |       | 42,802                                         |       | (7,468 | ) |
|                                                                    |       |                                           |       |   |   |
| Net income  (loss)                                                      |       | $                                              | 9,159      |   | $ | (27,564 | ) |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

3

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**Advanstar,Inc.**

**CondensedConsolidated Statements of Operations**

(In thousands)

 
| ** **                                                       | ** ** | **For the  Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| ** **                                                       | ** ** | **(unaudited)**                              | ** ** |
| ** **                                                       | ** ** | ** **                                   | ** ** | ** ** | ** ** |
| Revenue                                                          |       | $                                            | 146,562    |   | $ | 142,053 |   |
|                                                             |       |                                         |       |   |   |
| Operating  expenses:                                             |       |                                         |       |   |   |
| Cost of  production (excluding depreciation)                     |       | 27,519                                       |       | 25,129 |   |
| Selling,  editorial and circulation (excluding depreciation)     |       | 57,103                                       |       | 55,005 |   |
| General and  administrative (excluding depreciation)             |       | 22,659                                       |       | 20,098 |   |
| Restructuring  charge                                            |       | 2,015                                        |       | (3,895 | ) |
| Amortization of  intangibles                                     |       | 15,296                                       |       | 16,549 |   |
| Depreciation                                                     |       | 4,181                                        |       | 4,182 |   |
|                                                             |       |                                         |       |   |   |
| Total operating  expenses                                        |       | 128,773                                      |       | 117,068 |   |
|                                                             |       |                                         |       |   |   |
| Operating income                                                 |       | 17,789                                       |       | 24,985 |   |
|                                                             |       |                                         |       |   |   |
| Other income  (expense):                                         |       |                                         |       |   |   |
| Interest  expense, net                                           |       | (46,421                                      | )          | (45,772 | ) |
| Loss on  extinguishment of debt (see Note 6)                     |       | (12,581                                      | )          | — |   |
| Other income  (expense), net                                     |       | (18                                          | )          | 1,030 |   |
|                                                             |       |                                         |       |   |   |
| Loss from  continuing operations before income taxes             |       | (41,231                                      | )          | (19,757 | ) |
|                                                             |       |                                         |       |   |   |
| (Benefit)  provision for income taxes                       |       | (3,935                                       | )          | 1,076 |   |
| Loss from  continuing operations                                 |       | (37,296                                      | )          | (20,833 | ) |
|                                                             |       |                                         |       |   |   |
| Discontinued  operations (see Note 3):                           |       |                                         |       |   |   |
| Income from  operations of discontinued businesses, net of taxes |       | 41,938                                       |       | 4,571 |   |
|                                                             |       |                                         |       |   |   |
| Net income  (loss)                                               |       | $                                            | 4,642      |   | $ | (16,262 | ) |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

4

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**Advanstar,Inc.**

**CondensedConsolidated Statements of Cash Flows**

(In thousands)

 
| ** **                                                                       | ** ** | **For the  Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                                     | ** ** | **2004** | ** ** |
| ** **                                                                       | ** ** | **(unaudited)**                              | ** ** |
| Operating  activities:                                                           |       |                                         |       |   |   |
| Net income  (loss)                                                               |       | $                                            | 4,642      |   | $ | (16,262 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                                         |       |   |   |
| Impairment of  intangible assets                                                 |       | 2,272                                        |       | — |   |
| Impairment of  goodwill                                                          |       | —                                       |       | 9,420 |   |
| Depreciation and  amortization                                                   |       | 22,431                                       |       | 24,548 |   |
| Restructuring  charge                                                            |       | —                                       |       | (3,895 | ) |
| Write-off of  deferred financing costs                                           |       | 3,517                                        |       | — |   |
| Gain on  derivative financial instruments                                        |       | (52                                          | )          | (1,264 | ) |
| Losses of  minority interest holders                                             |       | 566                                          |       | 689 |   |
| Noncash interest  expense                                                        |       | 13,575                                       |       | 11,809 |   |
| Gain on sale of  business and other assets                                       |       | (53,053                                      | )          | (906 | ) |
| Deferred income  taxes                                                           |       | 10,940                                       |       | 3,740 |   |
| Provision for  bad debts                                                         |       | 471                                          |       | 806 |   |
| Changes in  operating assets and liabilities                                     |       | (19,005                                      | )          | (32,366 | ) |
|                                                                             |       |                                         |       |   |   |
| Net cash used in  operating activities                                      |       | (13,696                                      | )          | (3,681 | ) |
|                                                                             |       |                                         |       |   |   |
| Investing  activities:                                                           |       |                                         |       |   |   |
| Additions to  property, plant and equipment                                      |       | (2,740                                       | )          | (4,022 | ) |
| Acquisitions of  publications and trade shows, net of cash acquired              |       | (476                                         | )          | (8,088 | ) |
| Proceeds from  sale of business and other assets                                 |       | 166,739                                      |       | 19,511 |   |
|                                                                             |       |                                         |       |   |   |
| Net cash  provided by investing activities                                       |       | 163,523                                      |       | 7,401 |   |
|                                                                             |       |                                         |       |   |   |
| Financing  activities:                                                           |       |                                         |       |   |   |
| Proceeds from  revolving credit loan                                             |       | —                                       |       | 6,000 |   |
| Payments on  revolving credit loan                                               |       | —                                       |       | (14,000 | ) |
| Payments of long-term  debt                                                      |       | (152,117                                     | )          | (2,050 | ) |
| Deferred  financing costs                                                        |       | (129                                         | )          | (302 | ) |
| Dividends paid  to minority interest holders                                     |       | (900                                         | )          | — |   |
|                                                                             |       |                                         |       |   |   |
| Net cash used in  financing activities                                           |       | (153,146                                     | )          | (10,352 | ) |
|                                                                             |       |                                         |       |   |   |
| Effect of  exchange rate changes on cash                                         |       | 384                                          |       | (545 | ) |
| Net decrease in  cash and cash equivalents                                       |       | (2,935                                       | )          | (7,177 | ) |
|                                                                             |       |                                         |       |   |   |
| Cash and cash  equivalents, beginning of period                                  |       | 41,328                                       |       | 29,721 |   |
|                                                                             |       |                                         |       |   |   |
| Cash and cash  equivalents, end of period                                        |       | $                                            | 38,393     |   | $ | 22,544 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

 

5

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**Advanstar,Inc.**

**Notes toCondensed Consolidated Financial Statements (Unaudited)**

 

**1.****                          Basis ofPresentation**

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared by Advanstar, Inc. (“Advanstar”), its wholly owned subsidiary,Advanstar Communications Inc. (“Communications”), and Communications’ majorityowned subsidiaries (collectively, the “Company”) in accordance with theinstructions to Form 10-Q and, therefore, do not include all theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements. Management believes that all adjustments, consisting solely of normalrecurring items considered necessary for a fair statement of financial positionand results of operations, have been included. These condensed consolidated financial statements, however, should beread in conjunction with the audited financial statements and the related notesincluded in the Company’s annual report on Form 10-K filed with theSecurities and Exchange Commission on March 29, 2005 and the amendment toannual report on Form 10-K filed on Form 10-K/A on June 28,2005.  The results of operations for thethree and six months ended June 30, 2005 are not necessarily indicative ofthe operating results that may be expected for the entire year ending December 31,2005.

 

**2.**                          Summary of Significant Interim Accounting Policies

** **

**Stock-basedcompensation**

 

As permitted by Statementof Financial Accounting Standards (“SFAS”) No. 123, *Accounting for Stock-Based Compensation*,the Company has elected to account for stock options and awards to employeesunder the provisions of Accounting Principles Board (“APB”) Opinion No. 25,*Accounting for Stock Issued to Employees,*and related interpretations.

 

If the Company hadelected to recognize compensation costs based on the fair value of the optionsgranted as prescribed by SFAS No. 123, net income (loss) would have beendecreased (increased) to the unaudited pro forma amounts indicated in the tablebelow (in thousands):

 
| ** **                                         | ** ** | **For the  Three Months Ended  June 30,** | ** ** | **For the  Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                       | ** ** | **2004**                                     | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                               |       |                                           |       |                                         |       |   |   |   |   |
| Net income  (loss) —as reported               |       | $                                              | 9,159      |                                         | $          | (27,564 | ) | $ | 4,642 |   | $ | (16,262 | ) |
| Less: pro forma  stock based employee compensation |       | (1,970                                         | )          | (705                                         | )          | (2,806 | ) | (1,382 | ) |
| Net income  (loss) —pro forma                 |       | $                                              | 7,189      |                                         | $          | (28,269 | ) | $ | 1,836 |   | $ | (17,644 | ) |

 

**Interim income tax expense**

 

The Company determinesits quarterly income tax provision based upon an estimated annual effectiveincome tax rate.  In determining the effective income tax rate applicableto interim periods, the Company excludes tax jurisdictions where no tax expenseor benefit is expected for the entire year.

 

**Recently issued accounting standards**

 

In December 2004,the Financial Accounting Standards Board issued SFAS No. 123R, *Share-Based Payment*, which revises SFAS123 and supersedes APB 25.  Thisstatement establishes

 

6

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standards relatingto accounting for transactions in which equity instruments are exchanged forgoods or services, such as the granting of employee stock options.  Under this statement, the Company mustmeasure the cost of employee services received in exchange for an award ofequity instruments based upon the fair value of the award on the date ofgrant.  This cost must be recognized overthe period during which an employee is required to provide the service (usuallythe vesting period).  The Company isrequired to adopt the provisions of this standard effective January 1,2006.  The adoption of this standard willresult in an increase in compensation expense in future periods.

 

**3.**                          Acquisitions and Divestitures

** **

**Acquisitions**

 

On March 8, 2004,the Company purchased a portfolio of pharmaceutical industry conferences andmagazines from the Institute of Validation Technology, Inc. (‘‘IVT’’) for$7.9 million in cash.  In addition, theCompany may pay additional contingent cash consideration to the formershareholder based on 2004 and 2005 operating results of the acquired assets andtheir continued employment with the Company. As of June 30, 2005, the Company has accrued $1.2 million ofcompensation expense payable to these former shareholders, of which $0.3million and $0.6 million was expensed in the three and six months ended June 30,2005. The payable is included in other accrued liabilities in the accompanyingconsolidated balance sheet as of June 30, 2005.

 

**Divestitures and assets held for sale**

 

The results and any gainsor losses of the following divestitures (collectively, the “Disposed Businesses”)and assets held for sale have been reported in discontinued operations in theconsolidated statements of operations for the three and six months ended June 30,2005 and 2004.

 

The assets andliabilities of the following Disposed Businesses and assets held for sale arereported as assets and liabilities of discontinued operations and assets heldfor sale in the condensed consolidated balance sheet as of June 30, 2005and December 31, 2004.

 

*Art Group*

 

On March 12, 2004,the Company completed the sale of its art industry tradeshows and magazines(the “Art Group”) for a total selling price of $19.6 million in cash.  The portfolio included three tradeshows andtwo publications.  The Company recorded again on the sale of $1.0 million.

 

Revenues of the ArtGroup, included in discontinued operations in the condensed consolidatedstatements of operations, were $8.5 million for the period from January 1,2004 to March 12, 2004.

 

*SeCA*

 

On August 5, 2004,the Company completed the sale of its 65% ownership in its French joint venture(“SeCA”), which consisted of the operation of one tradeshow, for a totalselling price of $3.1 million in cash. In connection with the sale, the Company recorded a goodwill impairmentcharge of $14.5 million, before minority interest effect of $5.1 million ($9.4million, net of minority interest), in the second quarter of 2004.  The impairment charge relates to the Company’stradeshow reporting segment and was determined based upon the excess of thecarrying value of the Company’s interest in SeCA over the selling price, lessthe costs incurred by the Company to sell SeCA. This charge is reported separately as a component of discontinuedoperations for the three and six months ended June 30, 2004.

 

7

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SeCA had $2.9 million inrevenues, included in discontinued operations in the condensed consolidatedstatements of operations, for the three and six months ended June 30,2004.

 

*DMS*

 

On September 8,2004, the Company sold its German tradeshow business (“DMS”) for $1.7 millionin cash.  In connection with the sale,the Company recorded a goodwill impairment charge of $6.2 million in the thirdquarter of 2004.  The amount of theimpairment charge was determined based upon the excess of the carrying value ofDMS over the selling price, less the costs incurred by the Company to sell DMS.  The Company is continuing to incur accountingand legal fees in connection with the closure of its DMS office. These costswill be reported in income (loss) from discontinued operations.

 

Revenues of DMS, includedin discontinued operations in the condensed consolidated statements ofoperations, were $0.1 million for the six months ended June 30, 2004. DMShad no revenues for the three months ended June 30, 2004.

 

*Portfolio Group*

 

On May 23, 2005, theCompany and certain affiliates (Communications, Advanstar Expositions CanadaLimited and Advanstar.com) completed the sale of virtually all business assetsand liabilities associated with its tradeshows and conferences, tradepublications and direct marketing products in the following primary industries:Information Technology & Communications, Travel/Hospitality, Beauty,Home Entertainment, Abilities and Portfolio, including the shares of theCompany’s Hong Kong subsidiaries (“the Sold Portfolio Group”).  The shares of the Company’s Braziliansubsidiary were sold to the same buyer in July 2005 after final regulatoryapproval. Collectively, the Sold Portfolio Group and Brazilian subsidiary arereferred to as “the Portfolio Group.” The Company recorded a gain on the saleof $53.0 million.

 

The sale price for theseassets and shares was $185 million in cash, plus the assumption by thepurchaser of certain liabilities (including, without limitation, deferredrevenue liabilities), less a $7 million working capital adjustment payable tothe purchaser plus a post-closing distribution to the Company from itsBrazilian subsidiary, subject to regulatory approval.  Approximately $7.8 million of the purchaseprice was held in escrow until the completion of the sale of the Company’sBrazilian subsidiary.  The Companyreceived the $7.8 million from escrow in August 2005.

 

Revenues of the PortfolioGroup, included in discontinued operations in the condensed consolidatedstatements of operations, were $25.5 million and $49.0 million for the threeand six months ended June 30, 2005, and $26.5 million and $57.7 million forthree and six months ended June 30, 2004.

 

*EastCoast Fashion*

 

In the second quarter of2005, the Company discontinued its East Coast Fashion group (“East CoastFashion”) and recognized an impairment of the related intangibles at net bookvalue of $2.3 million. This charge is reported separately as a component ofdiscontinued operations for the three and six months ended June 30, 2005.

 

Revenues of theEast Coast Fashion group included in discontinued operations in the condensedconsolidated statements of operations were $0.9 million for the three and sixmonths ended June 30, 2005 and $2.0 million and $5.2 million for three andsix months ended June 30, 2004.

 

8

----

 

*Otherassets*

 

In the second quarter of2005, the Company committed to a plan to sell its Cleveland office building andland (“the Cleveland Office”) as a result of the sale of the Portfolio Group.At June 30, 2005, the Company reported this building and land as assetsheld for sale and ceased depreciation of these assets, effective second quarterof 2005.

 

The financial results ofthe Disposed Businesses included in discontinued operations in the accompanyingcondensed consolidated statements of operations are as follows:

 
| ** **                                                                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                              | ** ** | **2004**                            | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                       |       |                                  |       |                                |       |   |   |   |   |
| Income (loss)  before income taxes (including goodwill impairment charge and gain on sale) |       | $                                     | 57,329     |                                | $          | (7,690 | ) | $ | 58,765 |   | $ | 3,692 |   |
| Income tax  provision                                                                      |       | 14,607                                |       | 4,654                               |       | 16,261 |   | 3,504 |   |
| Minority  interests                                                                        |       | 80                                    |       | 4,876                               |       | (566 | ) | 4,383 |   |
|                                                                                       |       |                                  |       |                                |       |   |   |   |   |
| Income (loss)  from operations of discontinued businesses                                  |       | $                                     | 42,802     |                                | $          | (7,468 | ) | $ | 41,938 |   | $ | 4,571 |   |

 

The Company allocatedgoodwill to the Disposed Businesses and included the allocated goodwill in itsdetermined gain or loss on disposal. Goodwill allocated to the Art Group and the Portfolio Group is based onthe relative fair values of the disposed business to the entire reporting unitprior to disposal.  SeCA and DMS were never integrated into the Company’s broaderreporting units. Thus, the carrying amount of acquired goodwill for thosebusinesses were included in the calculation of any gain or loss on disposal.

 

Goodwill allocated to thebusinesses disposed of and used in the calculation of the gain or loss on saleof the Disposed Businesses by reporting segment was as follows (in thousands):

 
| ** **                             | ** ** | **Tradeshows  and  Conferences** | ** ** | **Trade  Publications** | ** ** | **Direct  Marketing  Products  and Other** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|----------------------------------|------------|-------------------------|------------|--------------------------------------------|------------|---------------|------------|-----------|------------|
|                                   |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Three months ended  June 30, 2005 |       | $                                | 62,857     |                    | $          | 52,873                                     |       | $             | 6,082      |      | $          | — |   | $ | 121,812 |   |
|                                   |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Three months  ended June 30, 2004 |       |                             | 3,296      |                    |       | —                                     |       |          | —     |      |       | — |   |   | 3,296 |   |
|                                   |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Six months ended  June 30, 2005   |       |                             | 62,857     |                    |       | 52,873                                     |       |          | 6,082      |      |       | — |   |   | 121,812 |   |
|                                   |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Six months ended  June 30, 2004   |       |                             | 16,560     |                    |       | 3,346                                      |       |          | —     |      |       | — |   |   | 19,906 |   |

 

9

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The assets held for saleand discontinued operations of the Portfolio Group, East Coast Fashion and theCleveland Office included in the condensed consolidated balance sheets as of June 30,2005 and December 31, 2004 are as follows (in thousands):

 
| ** **                                                                       | ** ** | **June 30, 2005**    | ** ** | **December 31, 2004** | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------|------------|----------------------------|------------|
| ** **                                                                       | ** ** | **Assets Held  For Sale** | ** ** | **Assets Held  For Sale**  | ** ** | **Discontinued  Operations** | ** ** | **Total** | ** ** |
| ** **                                                                       | ** ** | ** **                | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets                                                                           |       |                      |       |                       |       |   |   |   |   |
| Accounts  receivable                                                             |       | $                         | 45         |                       | $          | 23 |   | $ | 219 |   | $ | 242 |   |
| Prepaid expenses  and other                                                      |       | 649                       |       | 980                        |       | 1,468 |   | 2,448 |   |
| Total current  assets of discontinued operations and assets held for sale        |       | 694                       |       | 1,003                      |       | 1,687 |   | 2,690 |   |
|                                                                             |       |                      |       |                       |       |   |   |   |   |
| Property, plant  and equipment, net                                              |       | 4,746                     |       | 4,791                      |       | 1,031 |   | 5,822 |   |
| Goodwill                                                                         |       | 3,484                     |       | 2,462                      |       | 118,327 |   | 120,789 |   |
| Intangibles and  other, net                                                      |       | 564                       |       | 710                        |       | 8,516 |   | 9,226 |   |
| Total non  current assets of discontinued operations and assets held for sale    |       | 8,794                     |       | 7,963                      |       | 127,874 |   | 135,837 |   |
|                                                                             |       |                      |       |                       |       |   |   |   |   |
| Liabilities                                                                      |       |                      |       |                       |       |   |   |   |   |
| Accounts payable  and other accrued expenses                                     |       | 391                       |       | 438                        |       | 2,374 |   | 2,812 |   |
| Deferred revenue                                                                 |       | 479                       |       | 1,677                      |       | 11,397 |   | 13,074 |   |
| Total current  liabilities of discontinued operations and assets held for sale   |       | 870                       |       | 2,115                      |       | 13,771 |   | 15,886 |   |
|                                                                             |       |                      |       |                       |       |   |   |   |   |
| Deferred income  taxes                                                           |       | —                    |       | —                     |       | 9,744 |   | 9,744 |   |
| Other long term  liabilities                                                     |       |                      |       | —                     |       | 48 |   | 48 |   |
| Minority  interests                                                              |       | —                    |       | —                     |       | 3,579 |   | 3,579 |   |
| Total long term  liabilities of discontinued operations and assets held for sale |       | —                    |       | —                     |       | 13,371 |   | 13,371 |   |
| Net assets of  discontinued operations and assets held for sale                  |       | $                         | 8,618      |                       | $          | 6,851 |   | $ | 102,419 |   | $ | 109,270 |   |

 

The Portfolio Group, EastCoast Fashion and the Cleveland Office assets included in assets held for saleand discontinued operations in the Company’s reportable segments as of June 30,2005 and December 31, 2004 are as follows (in thousands):

 
| ** **                                | ** ** | **Tradeshows  and  Conferences** | ** ** | **Trade  Publications** | ** ** | **Direct  Marketing  Products  and Other** | ** ** | **Corporate** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|--------------------------------------------|------------|---------------|------------|-----------|------------|
|                                      |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Segment assets  at June 30, 2005     |       | $                                | 4,742      |                    | $          | —                                     |       | $             | —     |      | $          | 4,746 |   | $ | 9,488 |   |
|                                      |       |                             |       |                    |       |                                       |       |          |       |      |       |
| Segment assets  at December 31, 2004 |       |                             | 71,997     |                    |       | 54,626                                     |       |          | 6,082      |      |       | 5,822 |   |   | 138,527 |   |

 

10

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**4.**                          Goodwill and OtherIntangible Assets

 

Thechanges in the carrying amount of goodwill by operating segment are as follows(in thousands):

 
| ** **                                                    | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** ** | ** ** |
|---------------------------------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|------------|------------|
| ** **                                                    | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** ** | ** ** |
| ** **                                                    | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Total**  | ** ** |
|                                                          |       |            |       |             |       |          |       |       |       |
| Balance as of  December 31, 2004                         |       | $               | 398,582    |             | $          | 163,595       |       | $          | 24,790     |   | $ | 586,967 |   |
| Goodwill  acquired or completion of purchase price allocation |       | 169             |       | —           |       | —        |       | 169        |       |
| Foreign currency  translation                                 |       | (566            | )          | (978             | )          | (39           | )          | (1,583     | )          |
|                                                          |       |            |       |             |       |          |       |       |       |
| Balance as of  June 30, 2005                             |       | $               | 398,185    |             | $          | 162,617       |       | $          | 24,751     |   | $ | 585,553 |   |

 

Trade exhibitorand advertiser lists are amortized on a double-declining balance method oversix years and five years, respectively, subscriber lists and other intangibleassets are amortized on a straight-line basis over three to ten years, andtrademarks and trade names are amortized on a straight-line basis over twentyyears.  These intangible assets consistof the following (in thousands):

 
| ** **                              | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2005**          | ** ** | **2004**              | ** ** |
|                                    |       |              |       |                  |       |
| Trade exhibitor  lists                  |       | $                 | 129,349    |                  | $          | 129,691 |   |
| Advertiser lists                        |       | 46,783            |       | 46,712                |       |
| Subscriber lists                        |       | 15,230            |       | 15,238                |       |
| Trade names and  trademarks             |       | 17,982            |       | 17,982                |       |
| Other intangible  assets                |       | 20,258            |       | 19,928                |       |
| Deferred  financing costs               |       | 19,750            |       | 23,379                |       |
|                                    |       |              |       |                  |       |
|                                    |       | 249,352           |       | 252,930               |       |
| Accumulated  amortization               |       | (176,843          | )          | (160,343              | )          |
|                                    |       |              |       |                  |       |
| Total intangible  and other assets, net |       | $                 | 72,509     |                  | $          | 92,587 |   |

 

Estimated amortizationexpense of identified intangible and other assets for the remaining six monthsof 2005 and for the next five years is as follows (in thousands):

 
| 2005 |   | $      | 16,210 |   |
|------|--------|--------|--------|--------|
| 2006 |   | 23,974 |   |
| 2007 |   | 9,962  |   |
| 2008 |   | 6,479  |   |
| 2009 |   | 2,704  |   |
| 2010 |   | 1,784  |   |

 

11

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**5.**                          Financial Derivative Instruments

** **

The Company periodicallyuses derivative instruments to manage exposure to interest rates.  The Company’s objectives for holdingderivatives are to minimize the risks using the most effective methods toeliminate or reduce the impact of these exposures.

 

**Interest rate risk**

 

Variable rate debtinstruments are subject to interest rate risk. In 2001 the Company entered into an interest rate collar agreementexpiring February 2004 to manage its exposure to interest rate movementson a portion of its variable rate debt obligations.  The effective portion of the cumulative gainor loss on the interest rate collar agreement was reported as a component ofaccumulated other comprehensive income in stockholder’s equity and wasrecognized in earnings as the underlying interest expense is incurred.  The ineffective portion of the interest ratecollar and swap agreements was recognized in current earnings.  The Company used a portion of theseagreements as hedges of the Company’s second priority senior secured floatingrate notes described below.  Gains andlosses on the undesignated portion of these agreements at the end of eachfiscal quarter (which are calculated as the net amount payable upon terminationat the date of termination) were recognized in current earnings until expired.

 

In May 2003 theCompany entered into an interest rate swap agreement expiring November 2005,and subsequently terminated the agreement in December 2003.  The net gain at termination of approximately$0.2 million will continue to be reported in accumulated other comprehensiveincome and amortized into earnings over the original contract term.

 

The Company had noderivatives in the consolidated balance sheet as of June 30, 2005.

 

**Statementof operations**

 

The following tablesummarizes the effects of SFAS No. 133 on the Company’s statement ofoperations related to the ineffective portion of the Company’s interest ratecollar agreements and changes in the fair value of foreign exchange contractsnot designated as hedging instruments for the three and six months ended June 30,2005 and 2004:

 
| ** **                             | ** ** | **Interest Rate** | ** ** | **Foreign**   | ** ** | ** ** | ** ** |
|----------------------------------------|------------|-------------------|------------|---------------|------------|------------|------------|
| ** **                             | ** ** | **Collar**        | ** ** | **Exchange**  | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Agreements**    | ** ** | **Contracts** | ** ** | **Total**  | ** ** |
| ** **                             | ** ** | ** **        | ** ** | ** **    | ** ** | ** ** | ** ** |
| Three months  ended June 30, 2005 |       | $                 | 25         |          | $          | —     |       | $ | 25 |   |
|                                   |       |              |       |          |       |       |       |
| Three months  ended June 30, 2004 |       |              | —     |          |       | (16        | )          |   | (16 | ) |
|                                   |       |              |       |          |       |       |       |
| Six months ended  June 30, 2005   |       |              | 51         |          |       | —     |       |   | 51 |   |
|                                   |       |              |       |          |       |       |       |
| Six months ended  June 30, 2004   |       |              | 1,273      |          |       | (9         | )          |   | 1,264 |   |

 

12

----

 

**6.****                          Debt**

 

**Creditfacility**

 

Communications is partyto a credit facility (the “Credit Facility”) with a group of financialinstitutions acting as lenders.  Thecredit facility is collateralized by Communications’ domestic subsidiaries andthe Company and is collateralized by first priority liens on substantially allof the assets of the Company and the guarantors.  The Credit Facility contains restrictivecovenants, including limitations on certain asset dispositions, dividends,investments and other restricted payments. In addition, the Credit Facility requires minimum fixed chargecoverage ratio (asdefined).  Failure to comply with thecovenants could cause an event of default under the Credit Facility.

 

Prior to the June 2005transaction described below, the Credit Facility consisted of (i) $25.0million of term B due October 11, 2008, and (ii) $60.0 million ofrevolving loan availability through April 11, 2007.

 

InJune 2005, Communications repaid the outstanding term B loans withproceeds from the sale of the Portfolio Group and amended the Credit Facilityto allow Communications to retain its revolving loan availability at $60million while allowing for repayment of second lien and junior debt withproceeds from the sale of the Portfolio Group (see Note 3).  The amendment also revised the fixed chargecoverage ratio to exclude from the calculation any interest expense related todebt repaid prior to July 31, 2005 with the proceeds from the sale of thePortfolio Group.

 

**Senior secured notes**

 

Communications’Senior Secured Notes consist of: $130.0 million of Second Priority SeniorSecured Floating Rate Notes due 2008, which will require quarterly amortizationequal to 0.25% of the principal amount thereof (the “floating rate notes”), and$300.0 million of 10.75% Second Priority Senior Secured Notes due 2010 (the “fixedrate notes”).  Interest on the floatingrate notes is payable at a rate equal to three-month LIBOR, which is resetquarterly, plus 7.5%.  Each tranche ofthe notes is collateralized by second priority liens on substantially all thecollateral pledged against borrowings under Communications’ Credit Facility(other than the capital stock of certain of its subsidiaries and assets of itsparent companies, including Advanstar). The notes contain restrictive covenants that, among other things, limitCommunications’ ability to incur debt, pay dividends and make investments.  Communications entered into a registrationrights agreement in connection with the private placement pursuant to which theCompany has registered substantially all of the notes under the Securities Actof 1933, as amended.

 

The Senior Secured Noteswere fully and unconditionally guaranteed on a senior basis, jointly andseverally, by Communications’ wholly owned domestic subsidiaries.  The financial covenants under the notesinclude limitations on certain asset dispositions, payments, debt incurrence,dividends and other restricted payments. After the completion of the repurchaseof the floating rate notes described below, the First Supplemental Indenturegoverning the fixed and floating rate notes became effective. The FirstSupplemental Indenture eliminates substantially all of the restrictive andreporting covenants, certain events of default and certain other provisionswith respect to the floating rate notes. The First Supplemental Indenture also releases the floating rate notes’security in the collateral under the indenture. The fixed rate notes remained collateralized by the collateral andsubject to the restrictive covenants in the indenture.

 

In June 2005,Communications repurchased $8.7 million of the fixed rate notes pursuant to anoffer to purchase at an offer price of 100% of principal amount tendered, plusaccrued and unpaid

 

13

----

 

interest to the date of settlement. Communications also repurchased $117.8 million of the floating ratenotes pursuant to a cash tender offer for $1,043 plus a consent payment of $30per $1,000 principal amount tendered, plus accrued and unpaid interest to thedate of settlement.

 

Communications recognized $12.6 million in costs relatedto the purchase, including $8.6 million in tender offer premium and consentfees, write-off of $3.5 million in unamortized deferred financing costs, and$0.5 million in legal fees and expenses.

 

**Senior subordinated debt and discount notes**

 

Communications’$160.0 million unsecured, 12% senior subordinated notes due 2011 (the “SeniorSubordinated Notes”) bear interest payable semiannually on February 15 andAugust 15 of each year.  The SeniorSubordinated Notes are fully and unconditionally guaranteed on a seniorsubordinated basis, jointly and severally, by Communications’ wholly owneddomestic subsidiaries.  The financialcovenants under the Senior Subordinated Notes include limitations on certainasset dispositions, payments, debt incurrence, dividends and other restrictedpayments.

 

The Company’s seniordiscount notes due October 2011 (the “Discount Notes”) with a principalamount at maturity of $171.8 million bear interest at 15%, payablesemiannually beginning October 2005, and have an implied yield to maturityof approximately 17.2%.  The notes areredeemable at the Company’s option at specified premiums through 2007 and atpar thereafter.  The notes may also beredeemed at a premium upon a qualifying change of control of the Company.

 

The Discount Notes arenot guaranteed by the Company’s subsidiaries, do not require cash interestpayments until April 2006 and contain restrictive covenants that, amongother things, limit the Company’s ability and that of its subsidiaries to incurdebt, pay dividends and make investments. Since the Company is a holding company and its subsidiaries serve as itsonly source of cash flow, its ability to pay interest on these notes will bedependent upon the receipt of dividends from its subsidiaries.  The Credit Facility, the Senior Secured Notesand the Senior Subordinated Notes impose substantial restrictions on theCompany’s subsidiaries’ ability to pay dividends to the Company.

 

The restricted payments covenants in Communications’senior secured notes indenture and senior subordinated notes indenture, providethat Communications can pay dividends only if its leverage ratio (as defined)is 6.00 to 1 or better and only from the amount by which its cumulative EBITDA(as defined) since January 1, 2001 exceeds 150% of its cumulative interestexpense in that same period. As of June 30, 2005 Communications’ leverageratio under the most restrictive of these indentures was 6.6 to1.00. Communications’ results are subject to a variety of factors,including general economic conditions and conditions in its markets, and theCompany cannot assure you Communications’ results will allow it to makedistributions in light of these restrictions. Failure to pay interest on these notes will result in a default underCommunications’ Credit Facility, which could have a material adverse effect onthe Company’s financial position, results of operations, and cash flows and/orcould impact the Company’s ability to continue to operate without an amendmentor restructuring of its credit facility. Notwithstanding the leverage ratiolimitation on restricted payments, Communications can make restrictedpayments  in an aggregate amount of up to $20 million to us.

 

Accretion of the debtdiscount on the Discount Notes was $6.2 million and $5.2 million during thethree months ended June 30, 2005 and 2004 and $11.9 million and $10.1million during the six

 

14

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months ended June 30,2005 and 2004.  These amounts areincluded in interest expense in the respective accompanying consolidatedstatements of operations.

 

Long-termdebt consists of the following (in thousands):

 
| ** **                                                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **2005**          | ** ** | **2004**              | ** ** |
| ** **                                                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| Term loan B,  interest at LIBOR plus 4.50%                                                                                                                                                 |       | $                 | —     |                  | $          | 25,000 |   |
| Revolving credit  loan, interest at LIBOR plus 3.75%; due April 11, 2007                                                                                                              |       | —            |       | —                |       |
| Second priority  senior secured floating rate notes, interest at LIBOR plus 7.5%; 10.84% at  June 30, 2005, due 2008                                                                  |       | 9,923             |       | 128,375               |       |
| 10.75% Second  priority senior secured notes, due 2010, plus unamortized premium of $753 and  $844 at June 30, 2005 and December 31, 2004, respectively                          |       | 292,089           |       | 300,844               |       |
| Senior  subordinated notes, interest at 12.00%, due 2011                                                                                                                                   |       | 160,000           |       | 160,000               |       |
| Senior discount  notes, interest at 15.00%, due October 11, 2011, net of unamortized  discount of $20,767 and $32,692 at June 30, 2005 and December 31,  2004, respectively |       | 151,025           |       | 139,100               |       |
| Acquisition  notes payable, due June 2006                                                                                                                                             |       | 100               |       | —                |       |
|                                                                                                                                                                                       |       |              |       |                  |       |
|                                                                                                                                                                                       |       | 613,137           |       | 753,319               |       |
| Less current  maturities                                                                                                                                                                   |       | (201              | )          | (1,300                | )          |
|                                                                                                                                                                                       |       | $                 | 612,936    |                  | $          | 752,019 |   |

 

**7.**                          Comprehensive Income

** **

The table below presentscomprehensive income, defined as changes in the equity of the Company excludingchanges resulting from investments by and distributions to shareholders (inthousands):

 
| ** **                                                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                       | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                       | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                             |       |                   |       |                 |       |   |   |   |   |
| Net income  (loss)                                               |       | $                      | 9,159      |                 | $          | (27,564 | ) | $ | 4,642 |   | $ | (16,262 | ) |
| Change in  cumulative translation adjustment                     |       | 535                    |       | (1,402               | )          | 77 |   | (1,554 | ) |
| Change in  unrealized losses on derivative financial instruments |       | (25                    | )          | —               |       | (51 | ) | 192 |   |
|                                                             |       |                   |       |                 |       |   |   |   |   |
| Comprehensive  income (loss)                                     |       | $                      | 9,669      |                 | $          | (28,966 | ) | $ | 4,668 |   | $ | (17,624 | ) |

 

**8.**                          Segments

** **

The Company follows theprovisions of SFAS No. 131, “Disclosures about Segments of an Enterpriseand Related Information,” and has three reportable segments: tradeshows andconferences, trade publications and direct marketing products and other.

 

The Company evaluates theperformance of, and allocates resources to, its segments based on contributionmargin – defined as net revenue less cost of production and selling,editorial and

 

15

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circulation costs.  The accounting policies of the reportablesegments are the same as those described in the summary of significantaccounting policies.  There are nointer-segment sales or transfers. Segment assets are primarily intangible assets, prepaid expenses andaccounts receivable.  Revenues,contribution margins and segment assets of the Company’s reportable segmentsare as follows (in thousands):

 
| ** **                             | ** ** | ** **      | ** ** | ** **       | ** ** | **Direct**    | ** ** | ** **    | ** ** | ** ** | ** ** |
|----------------------------------------|------------|-----------------|------------|------------------|------------|---------------|------------|---------------|------------|------------|------------|
| ** **                             | ** ** | **Tradeshows**  | ** ** | ** **       | ** ** | **Marketing** | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **and**         | ** ** | **Trade**        | ** ** | **Products**  | ** ** | ** **    | ** ** | ** ** | ** ** |
| ** **                             | ** ** | **Conferences** | ** ** | **Publications** | ** ** | **and Other** | ** ** | **Corporate** | ** ** | **Total**  | ** ** |
|                                   |       |            |       |             |       |          |       |          |       |       |       |
| Three months  ended June 30, 2005 |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                               |       | $               | 11,886     |             | $          | 39,545        |       | $             | 4,559      |       | $          | — |   | $ | 55,990 |   |
| Contribution  margin (loss)            |       | 3,607           |       | 13,193           |       | 2,905         |       | (1,920        | )          |       |       |
| Segment assets  (at period end)        |       | 427,498         |       | 234,074          |       | 26,768        |       | 73,802        |       | 762,142    |       |
|                                   |       |            |       |             |       |          |       |          |       |       |       |
| Three months  ended June 30, 2004 |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                               |       | $               | 10,282     |             | $          | 42,057        |       | $             | 4,106      |       | $          | — |   | $ | 56,445 |   |
| Contribution  margin (loss)            |       | 3,999           |       | 14,307           |       | 2,186         |       | (1,796        | )          |       |       |
| Segment assets  (at period end)        |       | 525,786         |       | 305,752          |       | 33,283        |       | 66,679        |       | 931,500    |       |
|                                   |       |            |       |             |       |          |       |          |       |       |       |
| Six months ended  June 30, 2005   |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                               |       | $               | 64,201     |             | $          | 73,645        |       | $             | 8,716      |       | $          | — |   | $ | 146,562 |   |
| Contribution  margin (loss)            |       | 36,911          |       | 22,958           |       | 5,290         |       | (3,219        | )          |       |       |
| Segment assets  (at period end)        |       | 427,498         |       | 234,074          |       | 26,768        |       | 73,802        |       | 762,142    |       |
|                                   |       |            |       |             |       |          |       |          |       |       |       |
| Six months ended  June 30, 2004   |       |            |       |             |       |          |       |          |       |       |       |
| Revenues                               |       | $               | 57,875     |             | $          | 76,547        |       | $             | 7,631      |       | $          | — |   | $ | 142,053 |   |
| Contribution  margin (loss)            |       | 34,894          |       | 25,173           |       | 4,221         |       | (2,369        | )          |       |       |
| Segment assets  (at period end)        |       | 525,786         |       | 305,752          |       | 33,283        |       | 66,679        |       | 931,500    |       |

 

The reconciliation oftotal segment contribution margin to consolidated income from continuingoperations before income taxes is as follows (in thousands):

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                           | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                           | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| Total segment  contribution margin                   |       | $                      | 17,785     |                 | $          | 18,696 |   | $ | 61,940 |   | $ | 61,919 |   |
| General and  administrative expense             |       | (9,866                 | )          | (9,643               | )          | (22,659 | ) | (20,098 | ) |
| Restructuring  charge                                |       | (2,015                 | )          | 3,895                |       | (2,015 | ) | 3,895 |   |
| Depreciation and  amortization                       |       | (9,520                 | )          | (10,956              | )          | (19,477 | ) | (20,731 | ) |
| Other expense  (primarily interest)                  |       | (35,757                | )          | (22,883              | )          | (59,020 | ) | (44,742 | ) |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| Loss from  continuing operations before income taxes |       | $                      | (39,373    | )                    | $          | (20,891 | ) | $ | (41,231 | ) | $ | (19,757 | ) |

 

16

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**9.**                          Related-Party Transactions

** **

**Financial advisory fees**

 

The Company has agreed topay Credit Suisse First Boston Corporation (“CSFB”), an affiliate of the DLJMerchant Banking funds, an annual advisory fee of $0.5 million until theearlier of (i) an initial public offering of Holdings, (ii) the datewhen the DLJ Merchant Banking funds own less than 16-2/3% of the sharesof Holdings’ common stock held by them on the closing date of the DLJ Acquisitionor (iii) October 11, 2005.  Thisamount is expensed as incurred.

 

In May 2005,the Company paid CSFB fees of $1.5 million relating to the sale of thePortfolio Group.  See Note 3.

 

In June 2005,the Company alsorepurchased $7.1 million of Communications’ fixed rate notes at par, and $4.6million of Communications’ floating rate notes at a price equal to 107.3% ofprincipal, from CSFB pursuant to Communications’ tender offer.  See Note 6.

 

**10.**                   RestructuringActivity

** **

Relatedto the sale of the Portfolio Group (see Note 3), in May 2005, the Companyceased use of certain leased office space in New York, NY, Milford, CT, andSanta Ana, CA, resulting in a second quarter 2005 charge of $0.8 million. Thischarge consists of the discounted future minimum lease payments, net ofestimated future sublease income. These lease commitments expire at variousdates through 2010.

 

Inconnection with the sale of the Portfolio Group and the reorganization of ourhealthcare group management team, during the second quarter of 2005, theCompany notified 89 employees that they will be severed from the Company. TheCompany took a charge to operations in the second quarter of $1.2 million forseverance and other termination costs. As of June 30, 2005, 37 employees have been terminated. Theremaining employees are expected to be terminated by the fourth quarter of2005, with severance payments continuing into 2006.

 

Thebalance of the accrual for these costs and for those restructuring chargesincurred in 2003 is $3.3 million at June 30, 2005, of which $1.9 millionis included in other accrued expenses and $1.4 million in other long termliabilities in the accompanying condensed consolidated balance sheet.

 

17

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**Item 2.   *Management’s Discussionand Analysis of Financial Condition and Results of Operations:***

 

This quarterly report on Form 10-Qcontains forward-looking statements made pursuant to the safe harbor provisionsof the Private Securities Litigation Reform Act of 1995.  Investors are cautioned not to place unduereliance on these forward-looking statements, including statements about plansand objectives of management, potential acquisitions, market growth andopportunity.  These forward-lookingstatements are neither promises nor guarantees and involve risks anduncertainties that could cause actual results to differ materially from thoseindicated by such forward-looking statements. You should not expect that these forward-looking statements will beupdated or supplemented as a result of changing circumstances or otherwise, andwe disavow and disclaim any obligation to do so.  Important cautionary statements and riskfactors that would affect actual results are discussed in the our periodicreports and registration statements filed with the Securities and ExchangeCommission, including those under the caption entitled “Factors Which May AffectFuture Results” in our 2004 annual report on Form 10-K filed withthe Securities and Exchange Commission on March 29, 2005.

 

**Overview**

 

We are a worldwideprovider of integrated communications products and services for targetedindustry sectors, principally through trade and consumer shows, conferences,and through controlled circulation trade, business and professional magazines.  We also provide a broad range of other marketdevelopment products, including classified advertising, direct mail services,reprints, database marketing, guides, and reference books.

 

We report our business inthree segments:

 

•                  shows and conferences, which consistsprimarily of the management of trade and consumer shows and seminars held inconvention and conference centers;

 

•                  trade publications, which consistsprimarily of the creation and distribution of controlled circulation trade,business and professional magazines; and

 

•                  direct marketing products and other,which consists primarily of sales of a variety of direct mail and databaseproducts, magazine editorial reprints and classified advertising.

 

Inaddition to our shows, trade publications and market development, we deliverour integrated B-to-B marketing communications products and services to ourcustomers using the internet.  Fordiscussion purposes, we have included our internet activity in our directmarketing products and other segment.

 

Showsand conferences accounted for approximately 44% and 41% of total revenue forthe six months ended June 30, 2005 and 2004, respectively.  Trade publications accounted forapproximately 50% and 54% of total revenue for the six months ended June 30,2005 and 2004, respectively, while direct marketing products and otheraccounted for approximately 6% and 5% of total revenue for the six months endedJune 30, 2005 and 2004, respectively. Our revenue reaches its highest levels during the first and thirdquarters of the year due to the timing of the MAGIC tradeshows and our otherlarge tradeshows and conferences. Because tradeshow and conference revenue is recognized when a particularevent is held, we may experience fluctuations in quarterly revenue based on themovement of tradeshow dates from one quarter to another.

 

18

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** **

**Recent Developments**

 

In May 2005, wecompleted the sale of business assets and liabilities associated with ourtradeshows and conferences, trade publications and direct marketing products inour: Information Technology & Communications, Travel/Hospitality,Beauty, Home Entertainment, Abilities and Portfolio groups, including theshares of our Hong Kong subsidiaries (the “Sold Portfolio Group”).  The shares of our Brazilian subsidiary weresold after receipt of final regulatory approval in July 2005.Collectively, the Sold Portfolio Group and Brazilian subsidiary are referred toas the “Portfolio Group.” We recorded a gain on the sale of $53.0 million.

 

The sale price for theseassets and shares was $185 million in cash, of which $7.8 million was held inescrow until the completion of the sale of our Brazilian subsidiary, plus theassumption by the purchaser of certain liabilities (including, without limitation,deferred revenue liabilities), less a $7 million working capital adjustmentpayable to the purchaser, and a post-closing distribution to us from ourBrazilian subsidiary, subject to regulatory approval.  In August 2005, we received the $7.8million from escrow.

 

Revenues of the PortfolioGroup, included in discontinued operations, were $25.5 million and $49.0million for the three and six months ended June 30, 2005 and $26.5 millionand $57.7 million for the three and six months ended June 30, 2004.

 

Inconnection with the sale of the Portfolio Group, Communications repaid alloutstanding term debt under Communications’ credit facility and amended thecredit facility to retain revolving loan availability at $60 million whileallowing for repayment of second lien and junior debt with a portion of theproceeds from the sale of the Portfolio Group. The amendment also revised the fixed charge coverage ratio to excludefrom the calculation any interest expense related to debt repaid prior to July 31,2005 with the proceeds from the sale of the Portfolio Group.

 

Asa result of the sale of the Portfolio Group, Communications’ second prioritysenior secures notes indenture required that Communications either use theremaining net proceeds (after repayment of the Credit Facility borrowings) toinvest in Communications’ business or to offer to purchase Communications’second priority senior secured notes at par plus accrued interest.  In June 2005, Communications offered topurchase up to $140 million of the these notes. Holders of $8,665,000 principal amount of the 10.75% Second PrioritySenior Secured Notes (the “fixed rate notes”) tendered their notes forpurchase, and Communications purchased all such notes.

 

Alsoin June 2005, Communications completed a cash tender offer for any and allof Communications’ outstanding Second Priority Senior Secured Floating RateNotes due 2008 (the “floating rate notes”). Holders of $117,801,750 aggregate outstanding principal amount of thefloating rate notes tendered their notes for purchase, and Communicationspurchased all such notes at a price equal to 107.3% (including a 3% consentfee) of outstanding principal plus accrued interest.  In connection with the tender offer,Communications received consents to proposed amendments to the indenturegoverning the notes, resulting in the elimination of substantially all of therestrictive covenants and certain default provisions with respect to thefloating rate notes.

 

Underour indentures, any net proceeds from the sale of the Portfolio Group not usedto reinvest in the business or to purchase second priority senior secured noteswithin one year after closing of the sale will be required to be used to offerto repurchase the subordinated notes and then the discount notes.  After application of the net proceeds of thesale of the Portfolio Group to repay the Credit Facility borrowings and financethe tender offers, Communications has net proceeds of approximately $13.4million remaining.

 

19

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## **Trends and Developments**

##  

Our first half 2005results from continuing operations were impacted by the sale of the Portfolio Group to Questex Media Group in the second quarter andrelated $2.0 million restructuring charge, $12.6 million in costs related tothe repayment of a portion of our debt, new product launches,investments in our Life Sciences and Powersports operating groups, and softerthan expected sales in our healthcare special projects group as we restructuredour operations.

 

Net income in the firsthalf of 2005 includes theresults for approximately five months of the groups sold to Questex Media Groupin May 2005, a $53.0 million gain on the sale of these assets and a $2.3million intangible asset impairment charge related to the closing of our EastCoast Fashion events, all of which are reported as discontinued operations.

 

The sale of the PortfolioGroup allows us to concentrate our resources on three markets in which we haveour strongest product and market positions, including fashion and licensing,healthcare, and the motorcycle and automotive aftermarket markets.  In the first six months of 2005 we investedin these core markets through existing product development, launching of newevents and conferences and development of continuing education capabilities inour healthcare, dental and veterinary markets.

 

Our tradeshows andconferences continued to perform well in 2005. Revenue in the first half of 2005 from our three largest events, MAGIC,Dealer Expo and Licensing International, increased $4.9 million, or 10.5%,compared to the first half of 2004. ** **We also launched the Off RoadImpact tradeshow and conference, complementing our 2004 launches of *Dirt Sports* and *Off-Road Business* magazines, 11 new IVT pharmaceuticalconferences and a dental conference.

 

The decline in revenue inour publishing segment in the first half of 2005 is the result of softer thanexpected sales in our healthcare custom projects as we restructured ouroperations.

 

We have identified newopportunities and initiatives that we will be pursuing through the balanceof  2005 and into 2006, includingopportunities to expand customer relationships and our market position in ourMAGIC events and the development of a stand alone continuing medical educationbusiness and other diversified customer offerings in our healthcaresector.  We also recently announced thelaunch of our Arenacross Championship Motorcycle Racing series in conjunctionwith our existing international motorcycle show series.

 

## **Presentation of FinancialInformation**

##  

*Acquisitions and divestitures*

 

On March 8,2004, we purchased a portfolio of pharmaceutical industry specific magazinesand conferences from the Institute of Validation Technology, Inc. (“IVT”)for $7.9 million in cash.  In addition,we may pay additional contingent cash consideration to the prior owners basedupon 2004 and 2005 operating results generated from the acquired assets andtheir continued employment with us. Operating results for the three and six months ended June 30, 2005include $0.3 million and $0.6 million in compensation expense, respectively, toreflect the accrual of the 2005 component of the expected contingent payment.

 

We have accounted for thisacquisition under the purchase method of accounting.  Accordingly, our results of operationsinclude the effect of the acquisition from the date of purchase.

 

20

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In May 2005, we soldour Portfolio Group.  See “–RecentDevelopments” for additional information regarding this sale.

 

In the second quarter of2005, we closed the last remaining East Coast Fashion events (the “East CoastFashion Group”) as part of our ongoing strategy and evaluation of the fashionmarket.  Revenue of the East CoastFashion Group included in discontinued operations was $0.9 million and $2.0million for the second quarter of 2005 and 2004, respectively, and $0.9 millionand $5.2 million for the first half of 2005 and 2004, respectively.  We also recorded a $2.3 million impairmentcharge for the remaining intangible assets of this business.

 

In the third quarter of2004, we sold our German tradeshow business (“DMS”) for $1.7 million incash.  As a result of the sale of DMS werecorded a goodwill impairment of $6.2 million. Total revenue in the three and six months ended June 30, 2004 werenot material.

 

In the secondquarter of 2004, we sold our 65% ownership in our French joint venture (“SeCA”),which consisted of one tradeshow, for $3.1 million in cash.  In conjunction with our sale of SeCA werecorded a goodwill impairment charge of $9.4 million, net of minorityinterest.  SeCA had $2.9 million inrevenues, included in discontinued operations for the three and six monthsended June 30, 2004.

 

In the first quarter of2004, we sold our art industry tradeshows and magazines for a total sales price of $19.6 million incash (“Art Group”).  Total revenue forthe Art Group in the six months ended June 30, 2004, included indiscontinued operations, was $8.5 million. We recorded a gain on the sale of $1.0 million.

 

The financial results ofthe businesses included in discontinued operations in the accompanyingcondensed consolidated statements of operations are as follows:

 
| ** **                                                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                 | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                                                 | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                                       |       |                   |       |                 |       |   |   |   |   |
| Income (loss)  before income taxes (including goodwill impairment charge and gain on sale) |       | $                      | 57,329     |                 | $          | (7,690 | ) | $ | 58,765 |   | $ | 3,692 |   |
| Income tax  provision                                                                      |       | 14,607                 |       | 4,654                |       | 16,261 |   | 3,504 |   |
| Minority  interests                                                                        |       | 80                     |       | 4,876                |       | (566 | ) | 4,383 |   |
|                                                                                       |       |                   |       |                 |       |   |   |   |   |
| Income (loss)  from operations of discontinued businesses                                  |       | $                      | 42,802     |                 | $          | (7,468 | ) | $ | 41,938 |   | $ | 4,571 |   |

 

21

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**Selected Financial Data**

 

The following table setsforth selected statements of operations and other financial data.

 
| ** **                                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                              | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                                              | ** ** | **2005**               | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                              | ** ** | **(in thousands)**     | ** ** | **(in thousands)**   | ** ** |
| **Income  Statement Data:**                                             |       |                   |       |                 |       |   |   |   |   |
| Revenue                                                                 |       |                   |       |                 |       |   |   |   |   |
| Tradeshows and  conferences                                             |       | $                      | 11,886     |                 | $          | 10,282 |   | $ | 64,201 |   | $ | 57,875 |   |
| Publications                                                            |       | 39,545                 |       | 42,057               |       | 73,645 |   | 76,547 |   |
| Direct marketing  products and other                                    |       | 4,559                  |       | 4,106                |       | 8,716 |   | 7,631 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Total revenue                                                           |       | 55,990                 |       | 56,445               |       | 146,562 |   | 142,053 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Cost of  production and selling                                         |       |                   |       |                 |       |   |   |   |   |
| Trade shows and  conferences                                            |       | 8,279                  |       | 6,283                |       | 27,290 |   | 22,981 |   |
| Publications                                                            |       | 26,352                 |       | 27,750               |       | 50,687 |   | 51,374 |   |
| Direct marketing  products and other                                    |       | 3,574                  |       | 3,716                |       | 6,645 |   | 5,779 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Total cost of  production and selling                                   |       | 38,205                 |       | 37,749               |       | 84,622 |   | 80,134 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| General and  administrative expenses                                    |       | 9,866                  |       | 9,643                |       | 22,659 |   | 20,098 |   |
| Restructuring  charge                                                   |       | 2,015                  |       | (3,895               | )          | 2,015 |   | (3,895 | ) |
| Depreciation and  amortization                                          |       | 9,520                  |       | 10,956               |       | 19,477 |   | 20,731 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Operating (loss)  income                                                |       | (3,616                 | )          | 1,992                |       | 17,789 |   | 24,985 |   |
| Other income  (expense):                                                |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                                        |       | (23,141                | )          | (22,619              | )          | (46,421 | ) | (45,772 | ) |
| Loss on  extinguishment of debt                                         |       | (12,581                | )          | —               |       | (12,581 | ) | — |   |
| Other income  (expense), net                                            |       | (35                    | )          | (264                 | )          | (18 | ) | 1,030 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Loss from  continuing operations before income taxes                    |       | (39,373                | )          | (20,891              | )          | (41,231 | ) | (19,757 | ) |
| (Benefit)  provision for income taxes                                   |       | (5,730                 | )          | (795                 | )          | (3,935 | ) | 1,076 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Loss from  continuing operations                                        |       | (33,643                | )          | (20,096              | )          | (37,296 | ) | (20,833 | ) |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Discontinued  operations (see Note 3):                                  |       |                   |       |                 |       |   |   |   |   |
| Income (loss)  from operations of discontinued businesses, net of taxes |       | 42,802                 |       | (7,468               | )          | 41,938 |   | 4,571 |   |
|                                                                    |       |                   |       |                 |       |   |   |   |   |
| Net income  (loss)                                                      |       | $                      | 9,159      |                 | $          | (27,564 | ) | $ | 4,642 |   | $ | (16,262 | ) |

 

22

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**Results of Operations**

 

# **THREE MONTHSENDED JUNE 30, 2005 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2004**

# ** **

# ***Revenue***

# ** **

Revenue in the secondquarter of 2005 declined 0.8% to $56.0 million from $56.4 million in the secondquarter of 2004.

 

Revenuefrom trade shows and conferences increased 15.6%, or $1.6 million, to $11.9million from $10.3 million in the second quarter of 2004 primarily due to ourLicensing International trade show and conferences in our Life Sciencesgroup.  Licensing Internationalrevenue increased $1.0 million, or 13.7% on a 6.7% increase in square footageto 194,385 sq ft  with strong conferenceprograms and sponsorship support.  Welaunched nine new IVT pharmaceutical conferences and our first dentalconference, Digital Radiography Congress, adding to our growing portfolio ofconferences.  These launches contributed$2.0 million to revenue in the second quarter of 2005.  The increased revenue generated from thesetradeshows and conferences was partially offset by the shift of fourconferences from the second quarter of 2004 to the last half of 2005.

 

Revenue from publicationsin the second quarter of 2005 declined 6.0%, or $2.5 million, to $39.5 millionfrom $42.1 million in the second quarter of 2004.  Revenue from healthcare custom projectsdeclined $3.1 million in the quarter, due to a continued commercial impact from therestructuring of our Life Sciences operating group.  Wealso saw a softening of market spending in the veterinary and specialtyhealthcare markets in the first half of 2005. These revenue declines were partially offset by a $1.6 millionincrease in revenue from our publications serving the automotive,pharmaceutical and dental markets, and the $0.4 million from launch in September 2004of *Dirt Sports* and *Off-Road Business*magazines.

 

In the secondquarter of 2005, revenue from the direct marketing products and other segmentincreased 11.0%, or $0.5 million, to $4.6 million from $4.1 million in thesecond quarter of 2004.  This increase isprimarily due to web initiatives in our Life Sciences group.

 

# ***Cost ofproduction and selling***

# ** **

Cost of production andselling expenses in the second quarter of 2005 increased 1.2% to $38.2 millionfrom $37.7 million in the second quarter of 2004.

 

Expenses of tradeshowsand conferences in the second quarter of 2005 increased 31.8%, or $2.0 million,to $8.3 million from $6.3 million in the second quarter of 2004.  Staffing and other direct costs to support our first quarter launch of theOff Road Impact tradeshow and conference and our newly launched IVT and dentalconferences contributed approximately $1.4 million to this increase.  We also incurred an additional $0.5 millionof expenses to support the growth in our Licensing International event.

 

Expenses of tradepublications in the second quarter of 2005 declined 5.0%, or $1.4 million, to$26.4 million from $27.8 million in the second quarter of 2004.  The decline is primarily due to the declinein healthcare custom projects as discussed above, partially offset by increasedin paper costs and $0.5 million of costs associated with the launch of *Dirt Sports* and *Off-Road Business* as discussed above.

 

Expenses of directmarketing products and other declined 3.8%, or $0.1 million, to $3.6 millionfrom $3.7 million in the second quarter of 2004.  This decline is principally the result ofsavings in our operating support departments.

 

23

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# ***Generaland administrative expenses***

# ** **

General andadministrative costs increased 2.3%, or $0.2 million, to $9.9 million in thesecond quarter of 2005 from $9.6 million in the second quarter of 2004 due to$0.3 million in contingent employee compensation related to the IVT acquisitionearn-out.

 

# ***Restructuringcharge***

# ** **

Relatedto the sale of the Portfolio Group, in May 2005, we ceased use of certainleased office space in New York, NY, Milford, CT, and Santa Ana, CA, resultingin a second quarter 2005 charge of $0.8 million. This charge consists of thediscounted future minimum lease payments, net of estimated future subleaseincome. These lease commitments expire at various dates through 2010.

 

 In connection with the sale of thePortfolio Group and the reorganization of our healthcare group management teamwe notified 89 employees that they will be severed from the Company. We accruedthe resulting severance payments, resulting in a second quarter 2005 charge tooperations of $1.2 million.  As of June 30,2005, 37 employees have been terminated. The remaining employees are expectedto be terminated by the fourth quarter of 2005, with severance paymentscontinuing into 2006.

 

Weexpect an additional $0.7 million charge to be taken in the last half of 2005as we vacate additional office space and terminate the remaining identifiedemployees pursuant to our restructuring plan.

 

# ***Interestexpense***

# ** **

Interest expense in thesecond quarter of 2005 increased $0.5 million, or 2.3%, to $23.1 million from$22.6 million in the second quarter of 2004 due to the non cash accretion ofthe Discount Notes, partially offset by the repayment of $20.4 million of ourterm loans in May 2005 with the proceeds from the sale of the PortfolioGroup.

 

In June 2005, Communications repurchased$8.7 million of its fixed rate notes pursuant to an offer to purchase at anoffer price of 100% of principal amount tendered, plus accrued and unpaidinterest to the date of settlement. Communications also repurchased $117.8 million of its floating ratenotes pursuant to a cash tender offer for $1,043 plus a consent payment of $30per $1,000 principal amount tendered, plus accrued and unpaid interest to thedate of settlement.  Our interest expensewill be lower in future periods as a result of these activities.  See “–Recent Developments” for additionalinformation.

 

Communications incurred$12.6 million in costs related to the repurchase.  These costs include $8.6 million in tenderoffer premium and consent fees, $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

 

At June 30, 2005,$603.2 million, or 98%, of our total debt is at a fixed rate with the balancesubject to interest rate fluctuations.

 

# ***Provision(benefit) for income taxes***

# ** **

The benefit for incometaxes before discontinued operations was $5.7 million in the second quarter of2005 compared to $0.8 million in the second quarter of 2004.  The provision for the second quarter of 2005 and 2004 includes a taxbenefit representing the tax benefit provided by losses from continuing operationsto the extent that such losses offset the income from divested operations. Thistax benefit is offset by a tax provision included in discontinued operations.

 

24

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This benefit was partially offset by adeferred tax provision related to the basis of goodwill for tax purposes beingless than the carrying value of goodwill for financial reporting purposes.  We recorded no income tax benefit related tothe net operating losses we generated during 2005 or 2004 because we haveestablished a valuation allowance to offset any related tax benefits due touncertainty about realization of these benefits.

 

# ***Discontinuedoperations***

# ** **

In August 2004, we sold SeCA for $3.1 million incash.

 

In September 2004, we sold DMS for $1.7 millionin cash.

 

In May 2005, we sold the Portfolio Group for $185million in cash, of which $7.8 million was held in escrow until the completionof the sale of our Brazilian subsidiary, plus the assumption by the purchaserof certain liabilities (including, without limitation, deferred revenueliabilities), less a $7 million working capital adjustment payable to thepurchaser, and a post-closing distribution to us from our Brazilian subsidiary,subject to regulatory approval.  Werecorded a gain on the sale of $53.0 million.

 

In May 2005 we closed our East Coast FashionGroup as part of our ongoing strategy and evaluation of the fashion market.

 

See further information regarding discontinuedoperations in “–Presentation of Financial Information–Acquisitions andDivestitures.”

 

# **SIX MONTHSENDED JUNE 30, 2005 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004**

# ** **

# ***Revenue***

# ** **

Revenue in the first halfof 2005 increased 3.2% to $146.6 million from $142.1 million in the first halfof 2004.

 

Revenuefrom trade shows and conferences increased 10.9%, or $6.3 million, to $64.2million from $57.9 million in the first half of 2004.  Revenue from our three largest events,MAGIC, Dealer Expo, and Licensing International, increased $4.9 million, or10.5%, compared to the first half of 2004. ** ** Squarefootage of our MAGIC event grew by 3.8% over the spring of 2004 to897,400 sq ft, Licensing International increased 6.7% to 194,400 sq ft andDealer Expo increased 1.7% to 328,300 sq ft. We also launched the Off-Road Impact tradeshow and conferencecomplementing our 2004 launches of *DirtSports* and *Off-Road Business*magazines, 11 new IVT pharmaceutical conferences and a dental conference,Digital Radiography Congress.  Theselaunches generated revenue of $2.8 million in the first half of 2005.  The increased revenue generated from thesetrade shows and conferences was partially offset by the shift of threeconferences from the second quarter of 2004 to the last half of 2005 andholding one less IMS motorcycle event in the first half of 2005.

 

Revenuefrom publications in the first half of 2005 declined 3.8%, or $2.9 million, to$73.6 million from $76.5 million in the first half of 2004.  Advertising pages declined by 58 pages or0.5% in the first half.  Revenue fromhealthcare custom projects declined $3.6 million in the first half, caused by adecline in healthcare custom projects due to a continued commercial impact from therestructuring of our Life Sciences operating group.  Wealso saw a softening in the pace of market spending in the veterinary andhealthcare specialty markets.  Theserevenue declines were partially offset by a $2.7 million or 11.7%

 

25

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increase in revenue from our publications serving the automotive, dentaland pharmaceutical markets, and $0.6 million from *Dirt Sports* and *Off-RoadBusiness* magazines, which were launched in September 2004.

 

In the first half of2005, revenue from our direct marketing products and other segment increased14.2%, or $1.1 million, to $8.7 million from $7.6 million in the first half of2004.  This increase is due to webinitiatives in our Life Sciences group.

 

# ***Cost ofproduction and selling***

# ** **

Cost of production andselling expenses in the first half of 2005 increased 5.6% to $84.6 million from$80.1 million in the first half of 2004.

 

Expenses of tradeshowsand conferences in the first half of 2005 increased 18.8%, or $4.3 million, to$27.3 million from $23.0 million in the first half of 2004.  Staffing and other direct costs to support our first quarter launch of theOff-Road Impact tradeshow and conference and our newly launched IVT and dentalconferences contributed approximately $2.7 million to this increase.  We also incurred an additional $1.6 millionof expenses to support the growth in our MAGIC and Licensing Internationalevents.

 

Expenses of tradepublications in the first half of 2005 declined 1.3%, or $0.7 million, to $50.7million from $51.4 million in the first half of 2004.  The decline is primarily due to the decline inhealthcare custom projects as discussed further above, partially offset by anincrease in paper costs and $1.1 million of costs associated with the launch of*Dirt Sports* and *Off-Road Business* as discussed above.

 

Expenses of directmarketing products and other in the first half of 2005 increased 15.0%, or $0.9million, to $6.6 million from $5.8 million in the first half of 2004.  The increase is primarily due to additional$0.8 million in staffing and consulting costs related to a realignment of ourhealthcare project business and the launches of publications and tradeshowsserving the powersports markets.

 

# ***Generaland administrative expenses***

# ** **

General andadministrative costs increased 12.7%, or $2.6 million, to $22.7 million in thefirst half of 2005 from $20.1 million in the first half of 2004 due primarilyto $0.7 million of additional investments in our group management team andstaff, primarily related to our Life Sciences group, $0.8 million of costsrelated to strategic consulting and marketing initiatives, $0.6 million ofcontingent employee compensation related to the IVT acquisition earn-out and anincrease of $0.4 million for audit, tax, legal and Sarbanes-Oxley consultingservices.

 

# ***Restructuringcharge***

# ** **

Relatedto the sale of the Portfolio Group, in May 2005, we ceased use of certainleased office space in New York, NY, Milford, CT, and Santa Ana, CA, resultingin a second quarter 2005 charge of $0.8 million. This charge consists of thediscounted future minimum lease payments, net of estimated future subleaseincome. These lease commitments expire at various dates through 2010.

 

 In connection with the sale of thePortfolio Group and reorganization of our healthcare group management team,during the second quarter of 2005, we notified 89 employees that they will besevered from the Company. We accrued the resulting severance payments,resulting in a second quarter 2005 charge to operations of $1.2 million.  As of June 30, 2005, 37 employees havebeen terminated. The

 

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remaining employees are expected to be terminatedby the fourth quarter of 2005, with severance payments continuing into 2006.

 

Weexpect an additional $0.7 million charge to be taken in the last half of 2005as we vacate additional office space and terminate the remaining identifiedemployees pursuant to our restructuring plan.

 

# ***Interestexpense***

# ** **

Interest expense in thefirst half of 2005 increased $0.6 million, or 1.4%, to $46.4 million from $45.8million in the first half of 2004, due to the non cash accretion of theDiscount Notes, partially offset by a reduction in cash payments on ourinterest rate collar agreement and the repayment of $20.4 million of our termloans in May 2005 with the proceeds from the sale of the Portfolio Group.  In the first quarter of 2004, we madepayments of $0.9 million on this agreement, which expired in February 2004.

 

In June 2005, Communications repurchased$8.7 million of its fixed rate notes pursuant to an offer to purchase at anoffer price of 100% of principal amount tendered, plus accrued and unpaidinterest to the date of settlement. Communications also repurchased $117.8 million of its floating ratenotes pursuant to a cash tender offer for $1,043 per $1,000 principal amounttendered, plus a consent payment of $30 per $1,000 principal amount tendered,plus accrued and unpaid interest to the date of settlement.  Our interest expense will be lower in futureperiods as a result of these activities. See “–Recent Developments” for additional information.

 

Communications incurred$12.6 million in costs related to the repurchase.  These costs include $8.6 million in tenderoffer premium and consent fees, $3.5 million in unamortized deferred financingcosts, and $0.5 million in legal fees and expenses.

 

At June 30, 2005,$452.2 million, or 98%, of our total debt is at a fixed rate with the balancesubject to interest rate fluctuations.

 

*Other income (expense), net*

 

Other income in the firsthalf of 2004 includes a gain of $1.3 million related to our interest rateprotection agreements, which expired in February 2004.

 

# ***Provision(benefit) for income taxes***

# ** **

The provision for income taxes was a benefit of $3.9million in the first half of 2005 compared to a provision of $1.1 million inthe first half of 2004.  The provision for the first half of 2005includes a tax benefit representing the tax benefit provided by losses fromcontinuing operations to the extent that such losses offset the income from discontinuedoperations. This tax benefit is offset by a tax provision included indiscontinued operations. This benefit was partially offset by a deferredtax provision related to the basis of goodwill for tax purposes being less thanthe carrying value of goodwill for financial reporting purposes.  We recorded no income tax benefit related tothe net operating losses we generated during 2005 or 2004 because we haveestablished a valuation allowance to offset any related tax benefits due touncertainty about realization of these benefits.

 

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# ***Discontinuedoperations***

# ** **

In March 2004, we sold the Art Group for $19.6million in cash and recorded a gain on the sale of $1.0 million.

 

In August 2004, we sold SeCA for $3.1 million incash.

 

In September 2004, we sold DMS for $1.7 millionin cash.

 

In May 2005, we sold the Portfolio Group for $185million in cash, of which $7.8 million was held in escrow until the completionof the sale of our Brazilian subsidiary, plus the assumption by the purchaserof certain liabilities (including, without limitation, deferred revenueliabilities), less a $7 million working capital adjustment payable to thepurchaser, and a post-closing distribution to us from our Brazilian subsidiary,subject to regulatory approval.  Werecorded a gain on the sale of $53.0 million.

 

In May 2005 we closed our East Coast FashionGroup as part of our ongoing strategy and evaluation of the fashion market.

 

See further information regarding discontinuedoperations in “–Presentation of Financial Information–Acquisitions andDivestitures.”

 

**Liquidityand Capital Resources**

 

Thefollowing discussion presents our liquidity and capital resources on aconsolidated basis, including our subsidiaries.

 

We area holding company and have no direct material operations.  Our principal assets are our ownership ofCommunications and Advanstar.com, and our only material liabilities are thesenior discount notes and our guarantee of the Communications CreditFacility.  Our principal liquidity needsare for debt service on the senior discount notes and investments inAdvanstar.com, which currently does not generate positive cash flow.

 

Communications’principal cash needs are for debt service, capital expenditures and strategicacquisitions, as well as to provide us with cash to finance our cashneeds.  Its principal sources ofliquidity will be cash flow from operations and borrowings under its creditfacility.

 

*Sourcesand uses of funds*

 

Wegenerally operate with negative working capital, excluding cash and currentmaturities of long-term debt, due to the impact of deferred revenue fromtradeshows, which is billed and collected as deposits up to one year in advanceof the respective tradeshow. Consequently, our existing operations are expected to maintain very lowor negative working capital balances, excluding cash and current maturities oflong-term debt.

 

Operatingcash flows may be significantly affected by the working capital fluctuations ofour business, in particular the tradeshows and conferences business.  Deferred revenue increases on the balancesheet in the quarters immediately preceding our busy first quarter tradeshowseason as we collect deposits for booth space several months in advance of thetradeshows.  Revenue and contributionmargin are recognized in the quarter that the events are held, releasing thedeferred revenue from the balance sheet, which results in a reduction to ouroperating cash flow.

 

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Weanticipate that our operating cash flow, together with borrowings under thecredit facility (assuming continued compliance with the covenants containedtherein or a modification thereof) and other future financings andrefinancings, will be sufficient to fund our anticipated future operatingexpenses, capital expenditures, debt service and other obligations as theybecome due.  However, our ability to makescheduled payments of principal, to pay interest on or to refinance ourindebtedness and to satisfy our other debt obligations will depend upon ourfuture operating performance, which will be affected by general economic,financial, competitive, legislative, regulatory, business and other factorsbeyond our control.

 

As of June 30, 2005, we had cash and cashequivalents of $38.4 million.  Thefollowing table shows our cash flow activity for the six months ended June 30,2005 and 2004, and should be read in conjunction with the condensedconsolidated statements of cash flows (in thousands):

 
| ** **                                  | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------|------------|
| ** **                                  | ** ** | **June 30,**    | ** ** |
| ** **                                  | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                        |       |                 |       |   |   |
| Net cash used in  operating activities |       | $                    | (13,696    | ) | $ | (3,681 | ) |
| Net cash  provided by investing activities  |       | 163,523              |       | 7,401 |   |
| Net cash used in  financing activities      |       | (153,146             | )          | (10,352 | ) |
| Effect of  exchange rate changes on cash    |       | 384                  |       | (545 | ) |
|                                        |       |                 |       |   |   |
| Net decrease in  cash and cash equivalents  |       | $                    | (2,935     | ) | $ | (7,177 | ) |

 

The $10.0 million increase in cash used inoperating activities in the first half of 2005 as compared to the first half of2004 was due primarily to $9.1 million of cash fees and expenses related to ourrepurchase of a portion of our outstanding debt in June 2005.  Cash provided by operating activities in thefirst half of 2005 was negatively impacted by a decline in net income lessnon-cash expenses.  Cash inflowsgenerated by operating income, tradeshow receipts and deposits and proceedsfrom the sale of the Portfolio Group in the first half of 2005 less non-cashexpenses and accruals were used primarily to pay cash interest of $43.4million, debt principal of $152.1 million and to fund capital purchases of $2.7million.  Cash provided by operatingactivities in the first half of 2004 was negatively impacted by tradeshowtiming as cash for events held in the first half of 2004 was collected in thefourth quarter of 2003.

 

Netcash provided by investing activities increased $156.2 million to $163.5 million in the first half of 2005, from$7.4 million in the first half of 2004. This increase was principally due to the proceeds received in thesecond quarter of 2005 from the sale of the Portfolio Group.  In the first quarter of 2004, we sold our ArtGroup for $19.5 million in cash, and acquired IVT for $8.0 million in cash. Our business strategy includes the consummation of strategicacquisitions.  In connection with anyfuture acquisitions, we may require additional funding, which may be providedin the form of additional debt or equity financing or a combinationthereof.  There can be no assurance thatany additional financing will be available to us on acceptable terms or in amanner that complies with the restrictive covenants in our debtinstruments.  Consistent with ourlongstanding strategy, we continue to pursue potential acquisitions ofcomplementary businesses.

 

Weincurred capital expenditures of $2.7 million and $4.0 million in the firsthalf of 2005 and 2004, respectively.  Weanticipate that we will spend less than $10.0 million on capitalexpenditures in 2005, which will be funded by cash flows from operations.  The majority of these expenditures arerelated to expansions and enhancements to our IT and communicationsinfrastructure and management and operating group information systems.  We believe that this amount of capitalexpenditure will be adequate to grow our business according to our businessstrategy and to maintain the key tradeshows, publications and business thatremain following the sale of the Portfolio Group.

 

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Cashused in financing activities in the first half of 2005 was $153.1 million compared to $10.4 million in thefirst half of 2004.  In the first quarterof 2005, Communications repaid $4.6 million of its outstanding Term Loan B withthe proceeds from the sale in the first quarter of 2004 of the Art Group.  In the second quarter of 2005, Communicationsrepaid its outstanding Term Loan B and repurchased $126.5 million of itsfloating rate and fixed rate notes, using the proceeds from the sale of thePortfolio Group.  During the first halfof 2004, Communications paid $10.1 million of outstanding principal, including$8.0 million on its revolving credit facility.

 

*Debtservice*

 

As of June 30,2005, we had total indebtedness of $613.1 million and $59.2 million ofborrowings available under Communications’ Credit Facility, subject tocustomary conditions.

 

Our principal debtobligations are described below.

 

*Creditfacility*

 

Communications’Credit Facility consists of a $60.0 million revolving credit facilitywhich will terminate in April 2007. Borrowings under the Credit Facility generally bear interest based on amargin over, at Communications’ option, the base rate or LIBOR.  The applicable margin for revolving creditloans varies based upon Communications’ ratio of consolidated debt to EBITDA(as defined) and is currently 3.75% over LIBOR and 2.50% over the baserate.  Communications’ obligations underthe credit facility are guaranteed by Advanstar Holdings Corp. (“AdvanstarHoldings”), our parent company, us and all Communications’ existing and futuredomestic subsidiaries and are collateralized by substantially all of the assetsof Communications’ and the subsidiary guarantors, including a pledge of thecapital stock of all Communications’ existing and future domestic subsidiaries,a pledge of no more than 65% of the voting stock of any foreign subsidiarydirectly owned by Communications or any domestic subsidiary, a pledge of allintercompany indebtedness in favor of Communications and our domesticsubsidiaries, a pledge of Communications’ and Advanstar IH, Inc.’s capitalstock held by us, and a pledge of our capital stock by Advanstar Holdings.  The Credit Facility contains restrictivecovenants, which require Communications to, among other things, maintain aminimum fixed charge coverage ratio.

 

*Secondpriority senior secured notes*

 

Communications’$9.9 million of floating rate notes mature in 2008.  The floating rate notes bear interest at anannual rate equal to the three-month LIBOR, which is reset quarterly, plus7.50%.  Interest on the floating ratenotes, along with amortization of 0.25% of the principal of such floating ratenotes, is payable quarterly in cash.  In June 2005, holders of $117,801,750aggregate outstanding principal amount of the floating rate notes tenderedtheir notes for purchase, and Communications purchased all such notes at aprice equal to 107.3% (including a 3% consent fee) of principal plus accruedinterest.  In connection withthe tender offer, Communications and the trustee entered into asupplemental indenture that eliminated substantially all of the restrictive andreporting covenants, certain events of default and certain other provisionswith respect to the floating rate notes and released the floating rate notes’lien on the collateral under the indenture. The fixed rate notes remain secured by the collateral and subject to therestrictive covenants in the indenture. See “–Recent Developments” for additional information.

 

Communications’$292.1 million of fixed rate notes mature in 2010.  The notes are guaranteed by each ofCommunications’ existing and future domestic restricted subsidiaries andcollateralized by second-priority liens on the assets collateralizingCommunications’ credit facility (other than certain subsidiary stock and assetsof its parent companies).  The fixed ratenotes bear interest at an annual rate of 10.75%, which is payable semi-annuallyin cash.  The notes contain restrictivecovenants that, among other

 

30

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things, limit Communications’ ability to incur debt, pay dividends andmake investments.  In June 2005,holders of $8,665,000 principal amount of the fixed rate notes tendered theirnotes for purchase, and Communications purchased all such notes.  See “–Recent Developments” foradditional information.

 

*Seniorsubordinated notes*

 

Communications’$160 million 12% senior subordinated notes mature in 2011 and areguaranteed by each of Communications’ existing and future domestic restrictedsubsidiaries.  Interest on the notes ispayable semi-annually in cash.  The notescontain restrictive covenants that, among other things, limit Communications’ability to incur debt, pay dividends and make investments.

 

*Seniordiscount notes*

 

Aspart of the financing for the acquisition of substantially all of the commonstock of Holdings, our parent company, by certain DLJ Merchant Banking funds inOctober 2000, we issued senior discount notes due October 2011 with aprincipal amount at maturity of $103.2 million.  Concurrently with the closing of the offeringof Communications’ 12% senior subordinated notes, we sold additional seniordiscount notes due October 2011 with an additional aggregate principalamount at maturity of $68.6 million. These notes do not require cash interest payments until April 2006and contain restrictive covenants that, among other things, limit our abilityand that of our subsidiaries to incur debt, pay dividends and makeinvestments.  However, we are a holdingcompany and our ability to pay interest on these notes will be dependent uponthe receipt of dividends from our subsidiaries. Communications’ credit facility, the senior subordinated notes andsecond priority senior secured notes impose substantial restrictions on oursubsidiaries’ ability to pay dividends.

 

Therestricted payments covenants in Communications’ senior secured notes indentureand senior subordinated notes indenture, provide that Communications can paydividends only if its leverage ratio (as defined) is 6.00 to 1 or better andonly from the amount by which its cumulative EBITDA (as defined) since January 1,2001 exceeds 150% of its cumulative interest expense in that same period. As ofJune 30, 2005 Communications’ leverage ratio under the most restrictiveof these indentures was 6.6 to 1.00.  Communications anticipates improvements in its operating results thatwould improve its ratio prior to the time that the discount notes requirepayment of interest in cash.  However,Communications’ results are subject to a variety of factors, including generaleconomic conditions and conditions in its markets, and we cannot assure youCommunications’ results will in fact improve to a point where Communicationscan make distributions under these restrictions.  In that case, unless Communications were to  repay additional indebtedness or invest in a business thatgenerates additional EBITDA (as defined), Communications’ leverage ratio wouldnot meet the requirements for it to be permitted to pay dividends, which couldhave a material adverse effect on the Company’s financial position, results ofoperations, and cash flows and/or could impact the Company’s ability tocontinue to operate without an amendment or restructuring of its creditfacility. Notwithstanding the leverage ratio limitation on restricted payments,Communications can make restricted payments  in an aggregateamount of up to $20 million to us.

 

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* *

*Contractualand contingent obligations*

 

Ourcontractual obligations (excluding accounts payable and accrued expenses), asof June 30, 2005 are as set forth below (in millions):

 
| ** **                          | ** ** | **Payments Due By Period** | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **2005 (1)**               | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2010** | ** ** | **Total** | ** ** |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Indebtedness                        |       | $                          | —     |   | $ | 0.2 |   | $ | 0.1 |   | $ | 9.7 |   | $ | — |   | $ | 292.1 |   | $ | 331.8 |   | $ | 633.9 |   |
| Interest on  indebtedness (2)       |       | 42.0                       |       | 78.2 |   | 78.2 |   | 77.4 |   | 76.4 |   | 78.8 |   | 49.2 |   | 480.2 |   |
| Operating lease  obligations        |       | 5.2                        |       | 6.3 |   | 5.1 |   | 4.6 |   | 3.0 |   | 1.2 |   | 0.5 |   | 25.9 |   |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  contractual cash obligations |       | $                          | 47.2       |   | $ | 84.7 |   | $ | 83.4 |   | $ | 91.7 |   | $ | 79.4 |   | $ | 372.1 |   | $ | 381.5 |   | $ | 1,140.0 |   |

 

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(1)                                  Forthe period from July 1, 2005 through December 31, 2005.

 

(2)                                  Intereston our variable rate debt is calculated using LIBOR of 3.34%, the rate in effect on July 1, 2005.  Because our variable rate debt bears interestat a variable rate, actual payments could differ.

 

We have nomaterial capital lease obligations or purchase obligations.  Our contingent obligations are primarilycomposed of $0.8 million of letters of credit.

 

*Off-balancesheet arrangements*

 

We have nomaterial off-balance sheet arrangements.

 

**RecentlyIssued Accounting Standards**

 

In December 2004,the Financial Accounting Standards Board issued SFAS No. 123R, “Share-BasedPayment” which revises SFAS 123 and supersedes APB 25.  This statement establishes standards relatingto accounting for transactions in which equity instruments are exchanged forgoods or services.  Under this statement,the Company must measure the cost of employee services received in exchange foran award of equity instruments based upon the fair value of the award on thedate of grant.  This cost must berecognized over the period during which an employee is required to provide theservice (usually the vesting period).  Weare required to adopt the provisions of this standard effective January 1,2006.  The adoption of this standard willresult in an increase in compensation expense.

 

# **Item 3.*  Quantitativeand Qualitative Disclosures about******MarketRisk*

# ** **

We are exposed tovarious market risks, which are the potential losses arising from adversechanges in market rates and prices, such as foreign currency exchange andinterest rates.  We do not enter intoderivatives or other financial instruments for trading or speculativepurposes.  However, we do enter intofinancial instruments to manage and reduce the impact of changes in interestrates and foreign currency exchange rates.

 

# **Interest Rates**

# ** **

At June 30,2005, we had fixed rate debt of $603.2 million and variable rate debt of$9.9 million.  A change in interestrates of 1% would not be material to us.

 

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# **Currencies**

# ** **

Outside of theUnited States, we maintain assets and operations in Europe.  The results of operations and financialposition of our foreign operations are principally measured in their respectivecurrency and translated into U.S. dollars. As a result, exposure to foreign currency gains and losses exists.  The reported income of these subsidiarieswill 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 andservices in various currencies.  As aresult, we may be exposed to cost increases relative to the local currencies inthe markets in which we sell.

 

A portion of ourassets are based in our foreign locations and are translated into U.S. dollarsat foreign currency exchange rates in effect as of the end of each period, withthe effect of such translation reflected in other comprehensive income(loss).  Accordingly, our consolidatedstockholder’s equity will fluctuate depending upon the weakening orstrengthening of the U.S. dollar against the respective foreign currency.

 

Our strategy formanagement of currency risk relies primarily on conducting our operations in acountry’s respective currency and may, from time to time, involve currencyderivatives, primarily forward exchange contracts, to reduce our exposure tocurrency fluctuations.  As of June 30,2005, we had no open foreign exchange derivative contracts.

 

# **Item**4.  *Controlsand Procedures*

# ** **

*Evaluationof disclosure controls and procedures.*  Advanstar’sChief Executive Officer and Chief Financial Officer, after evaluating theeffectiveness of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”)) as of the end of theperiod covered by this report (the “Evaluation Date”), have concluded that asof the Evaluation Date, our disclosure controls and procedures were effectiveand designed to ensure that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission’s rules and forms.

 

*Changesin internal controls.*  There were no changes during the second fiscal quarter in our internalcontrols over financial reporting that have materially affected or arereasonably likely to materially affect the Company’s internal controls overfinancial reporting.

 

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# **PART II**   OTHER INFORMATION

# ** **

| **Item 6.** | ** ** | **Exhibits**                                                                                                              |
|-------------|------------|---------------------------------------------------------------------------------------------------------------------------|
| 31.1        |       | Certification  of principal executive officer required by Rule 13a-14(a) or  15d-14(a) of the Exchange Act |
|        |       |                                                                                                                      |
| 31.2        |       | Certification of  principal financial officer required by Rule 13a-14(a) or 15d-14(a) of  the Exchange Act |
|        |       |                                                                                                                      |
| 32.1        |       | Certification of  principal executive officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act |
|        |       |                                                                                                                      |
| 32.2        |       | Certification of  principal financial officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act |

 

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**SIGNATURES**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|       | ADVANSTAR, INC.      |
|------------|----------------------|
|       |                 |
|       |                 |
|       | August 15, 2005 | /s/ DAVID W. MONTGOMERY |   |
| ** ** | ** **           | **David W. Montgomery** |
| ** ** | ** **           | **Vice President-Finance, Secretary and** |
| ** ** | ** **           | **Chief Financial Officer** |
| ** ** | ** **           | **(Principal Financial Officer and Authorized** |
| ** ** | ** **           | Representative of the Registrant) |
|            |                      |  |  |  |

 

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**Exhibit Index**

 
| **Exhibit No.** | ** ** | **Document**                                                                                                                    |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                            |
| 31.1                 |       | Certification  of principal executive officer required by Rule 13a-14(a) or  15d-14(a) of the Exchange Act       |
|                 |       |                                                                                                                            |
| 31.2                 |       | Certification of  principal financial officer required by Rule 13a-14(a) or 15d–  14(a) of the Exchange Act |
|                 |       |                                                                                                                            |
| 32.1                 |       | Certification of  principal executive officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act       |
|                 |       |                                                                                                                            |
| 32.2                 |       | Certification of principal  financial officer required by Rule 13a-14(b) or 15d-14(b) of  the Exchange Act  |

 

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