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Business Description The Company We are a worldwide provider of integrated, business-to-business marketing communications solutions for targeted industry sectors, principally through trade shows and conferences and through controlled circulation trade, business and professional magazines. We also provide a broad range of marketing services products, including classified advertising, direct mail services, reprints, database marketing, directories, guides and reference books. We operate over 70 web sites which provide an interactive component to our core products. We currently own and manage 81 trade shows, most of which we believe are the largest events in their respective national or regional markets, and 26 conferences for business, professional and consumer audiences worldwide. We currently publish 71 specialized business magazines and professional journals and 39 directories and other publications. Of our 61 magazines and journals for which competitive data is available, we believe that over 70% rank either first or second in their respective markets. Since May 31, 1996, we have completed 24 acquisitions and joint ventures. Our total revenue has increased from approximately $151.0 million in 1996 to $306.7 million in 1998 on a pro forma basis. We serve a number of industry sectors in North America, Latin America, Europe, Asia and Australia. We market our broad range of products and services in certain niche markets of the following industry clusters in which we believe we have developed scale and expertise: . Retail, Hospitality & Fashion, . Healthcare, Science & Pharmaceuticals, . Information Technology & Communications and . Manufacturing & Processing. Within each of these clusters, we operate trade shows and publications targeted at businesses or professionals in specific or niche market segments. We believe our industry-focused cluster structure, rather than a product- focused approach, allows us to cross-sell our products and services effectively and to capture a larger share of our customers' marketing budgets. In each of our niche markets, many of the same customers advertise in our publications, exhibit at our trade shows and use our marketing services to reach their buyers. We have rapidly expanded our trade show, conference and publication products within each cluster through new product introductions and strategic acquisitions. This expansion further enhances our competitive position in each cluster and maximizes our existing marketing and customer service infrastructure and industry expertise. Trade shows and conferences. In 1998, we held 107 events. An event is a stand-alone trade show or conference. We believe that most of our events are the largest in their respective national or regional markets. For example, in our Retail, Hospitality & Fashion cluster, we produce MAGIC, the world's largest trade show dedicated to the men's apparel industry; WWDMAGIC, the second largest women's apparel trade show in the United States; and MAGICKids, a children's apparel trade show. In addition, we produce Artexpo New York, the largest mid-market art trade show in the United States; IBS New York, the largest exhibition and educational event on the East Coast for the beauty salon market; and Dealernews International Powersports Dealer Expo, the largest U.S. motorcycle accessories aftermarket trade show. Our largest trade shows and conferences in other clusters include Telexpo, the largest telecommunications trade show in Latin America, and Incoming Call Center Management Conference & Exhibition, the largest U.S. trade show and conference for the call center market. As is typical in the trade show industry, we rank our trade shows and conferences against the trade shows of our competitors based on an internally conducted analysis of net square feet of exhibition space. This data is typically reported by exhibitors and published in the Tradeshow Week Data Book, a publication that lists trade shows grouped by industrial classification codes. We include both direct and indirect competitors in such comparisons. Direct competitors are the trade shows within the same industrial classification code and geographic region as our trade shows. Direct competitors are also determined in some cases by the time of the year during which a trade show is held. Indirect competitors are subjectively determined by us on a case-by-case basis. These indirect competitors include (1) broad-based trade shows that the we know from prior experience display, among other products, products displayed at our trade shows and (2) trade shows identified by our current exhibitors as other trade shows in which they participate. Many of our trade shows have a commanding market presence. Some of our trade shows have insignificant or no direct competition, such as IBS New York, Licensing International, Dealernews International Powersports Dealer Expo and the TeleCon shows. Publications. In 1998, we published 110 publications. A publication is a magazine, newsletter, directory or other publication. Our largest magazines include Travel Agent, Video Store, Pharmaceutical Technology, Hotel & Motel MANAGEMENT and CADALYST. Travel Agent is the second largest non-computer U.S. trade magazine and the #1 trade periodical for the travel industry based on advertising revenue in 1997, according to the June 15, 1998 edition of Crain's Advertising Age. We utilize the industry-standard method of number of advertising pages to rank our publications against competitive publications. For purposes of these rankings, we have defined our markets narrowly as the niche of businesses or professionals at which a publication is exclusively or specifically targeted. Except where otherwise specifically referenced, we have based the rankings of our publications on the number of advertising pages in our publications compared to their competitors as determined by Inquiry Management Systems Ltd. or PERQ/HQI Research, a branch of VNU Business Information Services, Inc., each an independent third party. Marketing services. Within each industry-focused cluster, we offer our customers classified advertising, direct mail services, reprints, database marketing, directories, guides and reference books to support their business- to-business marketing communications programs. Our marketing services, particularly our direct mail services and directories, reinforce our efforts to cross-sell our events and publications and, we believe, further our goal of providing our customers "one-stop shopping" for their business-to-business marketing communications needs. Internet. We operate over 70 web sites which provide an interactive component of our core products. These web sites promote our trade shows, conferences and publications as well as our marketing services. Over 80% of our web sites either enable exhibitors and attendees to register on-line for our trade shows and conferences or permit prospective readers to subscribe on-line to our controlled circulation publications. In addition, many of our web sites provide attendees of our trade shows and conferences and readers of our publications the opportunity to receive additional product information through links to our customers' web sites. In 1998, after giving effect to the pro forma adjustments, we would have generated total revenue of approximately $306.7 million and EBITDA of approximately $72.8 million. Our pro forma EBITDA in 1998 includes a $3.4 million non-cash charge for stock option compensation. Our total pro forma revenue was derived primarily from sale of exhibition space at trade shows and from sales of advertising in our publications. In 1998, trade shows and conferences represented approximately 45.5% of our total pro forma revenue and approximately 54.1% of our total pro forma contribution, or gross profit before general and administrative expenses and amortization. Publications accounted for approximately 49.2% of our total pro forma revenue and approximately 38.8% of our total pro forma contribution. Other revenue components, including direct mail and database products and services, generated approximately 5.3% of our total pro forma revenue and approximately 7.1% of our total pro forma contribution. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Operating Strategy Advanstar's objective is to be the leading business-to-business marketing communications company in the niche market segments which we choose to serve. Our strong market position serves as a platform to launch new products and services and to extend our existing products and services on a cost-effective basis. To achieve our objective, we operate our businesses based on the following strategies. . Operate Leading Trade Shows and Publish Leading Magazines in Attractive Niche Markets. We will continue to focus on owning and managing businesses that are the leading sources of information for businesses and professionals in specific niches. We believe that leading publications or trade shows serve as unique forums for business-to-business communication and provide substantial value to industry participants resulting in an attractive, high margin business for Advanstar. Niche markets, which are narrowly defined to include markets such as call centers or power sports, are often attractive publishing and trade show opportunities because of the difficulty in reaching industry leaders through general interest publications or at general expositions. We believe over 70% of our magazines and most of our trade shows are ranked either first or second in their respective niche markets. We intend to continue to focus on operating leading properties and may from time to time divest properties that do not meet this standard. . Maximize Our Share of Our Customers' Marketing Expenditures. We will continue to employ our integrated, solution-driven marketing approach to create cross-selling opportunities across existing and newly-launched or acquired products and services. We believe our industry-focused cluster structure enables us to better serve our customers' business-to-business marketing communications needs. In addition, we believe this approach facilitates the development of deeper relationships with our customers. We offer our customers a range of communications methods to attain their specific business- to-business marketing goals. For example, our customers can choose to benefit from face-to-face meetings at trade shows and conferences, achieve cost effective advertising through controlled circulation trade publications and seek to diversify and expand revenues through customized marketing services, including Internet links from our web sites. . Continue to Realize Economies of Scale Through Our Centralized Administrative and Production Facilities. We believe that our organizational structure creates opportunities (1) to launch new events and publications by building upon our existing products and services, (2) to generate attractive margins through centralized functional cost management and (3) to integrate and improve the profitability of acquired events and titles. To enhance operating flexibility and to deliver trade show and conference services cost effectively, we established a centrally-managed event operations structure in both the U.S. and Europe in 1997. In addition, we have an efficient and centralized publishing infrastructure in both the United States and Europe. We focus on continually improving our systems and processes to provide effective, low-cost operations in circulation, fulfillment, production and print and paper vendor management. Centralized support also exists in finance and accounting, information technology and communications, human resources and strategic planning. . Attract and Retain Superior Management. We will continue to reinforce our management team with experienced, talented individuals. Our senior managers have on average over 15 years of industry experience and an established record of growing revenue and EBITDA, developing new products, penetrating new markets and integrating acquisitions. Advanstar is led by Robert L. Krakoff, our Chairman and Chief Executive Officer, and James M. Alic, our Vice Chairman. Messrs. Krakoff and Alic joined Advanstar in July 1996. Prior to joining Advanstar, Mr. Krakoff was Chief Executive Officer of Reed Publishing USA and a director of its parent company, Reed-Elsevier plc. During Mr. Krakoff's 23-year tenure, he managed a trade show business, which became one of the largest worldwide event management companies. Prior to joining Advanstar, Mr. Alic served as Vice President and Controller of IBM Corporation, and prior thereto was the Chairman of Reed Exhibition Companies. Messrs. Krakoff and Alic and other members of Advanstar's management collectively, subject to vesting, own or have options to acquire approximately 8.9%, giving effect to the offerings, of Advanstar's common stock on a fully-diluted basis. Growth Strategy Building upon our operating strategies, we continue to pursue the following growth strategies to expand our business. . Identify and Consummate Strategic Acquisitions. We intend to expand further in our existing industry sectors through strategic acquisitions and joint ventures designed to maintain and achieve market leading positions in particular niche markets. In addition, building upon our existing international infrastructure, we intend to make strategic acquisitions internationally and enter into joint ventures with local operating partners. We believe that we can enhance the value of acquired businesses by (1) integrating acquisitions and joint ventures into our efficient infrastructure, (2) applying our industry experience and (3) cross-selling new products and services. Since May 31, 1996, we have completed 24 acquisitions and joint ventures. . Launch New Products and Services Within Existing Clusters. We will continue to introduce new products and services to extend our market position and add fill-in products within our existing industry clusters. Also, we plan to expand internationally by introducing country-specific versions of our trade shows, conferences and publications. We believe that we can enhance our position in international markets by leveraging our widely recognized brands, our experience in international operations and our existing customers' demand for increased global marketing. We have a successful track record of developing new products and services within our existing industry clusters. In 1998, we launched eight expositions and conferences and four magazines in existing industry sectors to supplement our existing products and services. For example, in our call center sector, we have launched two trade shows since May 31, 1996, and we currently plan to launch two additional trade shows and one publication in 1999. . Enter Attractive New Industry Sectors. We will selectively enter new industry sectors in which we believe we can establish a strong market position and operate profitably. In identifying potential new sectors, we consider the size of the market, potential growth rates and the competitive environment. For example, through the acquisition of MAGIC, we became a leading participant in the U.S. men's apparel business-to-business market and increased revenue and improved margins by applying our extensive trade show experience. Industry Overview Market-focused, business-to-business communications products and services are designed to enable companies to: . increase sales; . build brand loyalty; . market new products and services to select target audiences; and . learn about recent industry developments. According to the October 1998 Veronis, Suhler & Associates Communications Industry Forecast, business-to-business communications was the fifth fastest growing segment of the overall communications industry for the period from 1992 to 1997, with total spending growing at a compound annual growth rate, or otherwise referred to as CAGR, of 8.0% during that period. Total spending in business-to-business communications was $17.1 billion in 1997, according to the Veronis, Suhler & Associates report. The report forecasts a 10.1% CAGR for trade shows and exhibitions from 1997 to 2002, and a 8.0% CAGR for business magazines (which includes both general circulation magazines and controlled circulation magazines) over the same period. The business-to-business communications industry remains highly fragmented. In the United States and Canada, there are approximately 4,500 trade shows each year. Of these trade shows, approximately 55% are operated by media companies and independent event operators, and the remainder are operated by trade associations. According to Tradeshow Week Data Book '99, the top ten trade show producers will operate an aggregate of 629 trade shows in 1999, approximately 14% of the total number of trade shows expected to be held that year. In addition, the business-to-business communications industry currently includes approximately 4,800 trade magazine publishing companies that publish approximately 9,400 titles. Trade shows and conferences. A trade show or conference provides an opportunity for industry participants to conduct direct selling efforts, transact business and receive product information in the form of exhibits, conferences, workshops and other face-to-face forums. Trade show attendees include executives, manufacturers and developers, sales and marketing personnel, industry analysts, middle-level managers and other industry professionals. According to the Veronis, Suhler & Associates report, spending on exhibition space in trade shows and conferences amounted to $7.2 billion in 1997, a 10.8% increase from 1996. Trade show attendance grew by 6.4% in 1997. We believe that the increase in trade show spending and attendance reflects a growing awareness among companies of the numerous benefits of trade shows. As new products and services proliferate, both suppliers and their customers need efficient forums to interact and transact business with one another. For attendees, trade shows and conferences provide the opportunity to survey market trends, network with industry professionals and create relationships with new vendors. For exhibitors, trade shows and conferences represent cost effective means to position their company, products and services within the industry, introduce new products and cultivate relationships with new and existing customers. According to The Center for Exhibition Industry Research, in 1996, the cost of making a sales call at a trade show was 39% of the cost of making a field sales call. Moreover, the percentage of time spent actually selling in a given day equaled 67% at a trade show versus 32% on a field call. In addition, trade shows and conferences enable exhibitors to measure directly the return on their marketing investment based on actual sales and sales leads gathered at the event. Publications. Trade publications are generally published monthly and provide information about a specific industry or market segment within an industry. Business magazines have become one of the most dynamic advertising media in recent years, with advertising revenues expanding at a 9.5% CAGR for the period between 1994-1997, according to the Veronis, Suhler & Associates report. In general, trade publications are circulated free-of-charge to readers and generate revenues primarily from the sale of advertising. We believe that the increase in the advertising revenues of trade publications reflects a growing awareness among companies of the numerous benefits of advertising in specialized or controlled circulation publications. For readers, trade publications provide relevant and up-to-date industry- specific information. For advertisers, trade publications generally provide highly focused and targeted audiences of qualified, interested readers and a cost-effective means to disseminate information about their products. Marketing services. In recent years, many companies have sought complementary ways to reach their customers in addition to trade shows and trade publications. We believe that these companies are increasingly utilizing highly targeted marketing services such as classified advertising, direct mail, list rentals, reprints, database marketing, directories, guides and reference books. Internet. The rapidly growing number of users of the World Wide Web makes the Internet an increasingly effective advertising and brand-building vehicle. The Internet enables marketers to deliver product information and advertising to a targeted audience, track user behavior and process transactions on-line. Products and Services We provide integrated solutions to our customers' business-to-business marketing communications needs. Within each cluster, we provide a comprehensive set of industry-focused marketing communications products, services and support, which include trade shows, conferences, publications and marketing services, to facilitate our customers' business-to-business marketing and communications programs. Our comprehensive set of trade shows, conferences, publications and marketing services positions Advanstar to better serve our customers' business-to-business marketing communications needs and to capture a larger share of their marketing expenditures. Trade Shows and Conferences. Our trade shows and conferences are an essential part of our overall portfolio of products and services. In 1998, we held 107 events. Our trade shows typically include an extensive conference program, which provides a forum for the exchange and dissemination of information relevant to a particular event niche. Our conferences typically have one or more keynote speakers drawn from industry leaders. The sales cycle for a future trade show typically begins shortly before the current show, with pricing, preliminary floor plans and exhibitor promotion mailed in advance of the current show so that selling for the future show can begin at the current show. Typically, this "upfront" selling includes floor space reservations with exhibitors executing a contract and making deposits for the future show. At many of our trade shows, a commitment for a large portion of exhibit space for the next event is reserved by the end of the current event. For example, at each of the MAGIC, Dealernews and Call Center trade shows, over 70% of the exhibit space for the future show is reserved by the end of the current show, and a portion of the fees is collected shortly thereafter. The sales cycle continues with selling to new exhibitors and collecting the balance of payments due. In general, we require exhibitor payments in full prior to a trade show as a condition to participation. In addition to the sale of exhibit space, we market to exhibitors a wide range of promotional opportunities to raise their visibility at an event, including directory and preview advertising, banners, sponsorships of related functions and a wide variety of other products or services. We also produce related conferences and workshops, which play a crucial strategic role in trade show development. Conferences, workshops and other ancillary forums all stimulate interest in the industry and drive attendance at the trade show. While show attendance is typically free for qualified attendees, participation in conferences at these shows can be a significant revenue source. Event promotion is undertaken through direct mail, using both in-house, exhibitor-provided and rented lists of pre-qualified industry participants. In those industry sectors for which we also have complementary publications, our publications play a key role in event promotion by providing lists from circulation files and editorial coverage for the upcoming show. Other industry magazines may also be involved, as the goal of any event is to represent the entire industry or market. The "show issue" of an industry magazine for a related event is often the biggest issue of the year, as the advertisers want to reinforce their show presence. In operating trade shows and conferences, we function in a capacity similar to a general contractor. Through our central trade show and conference operations, we select and manage venues, hotels, and vendors for decorating, registration, travel and housing, audio-visual services and other services. In many cases, venue and hotel reservations are made several years in advance, particularly for primary markets such as New York, Chicago, Las Vegas, Los Angeles and San Francisco. While the production of a show may involve hundreds of workers, we employ very few of the workers on-site. We therefore are able to have increased control over our overhead and permanent staffing costs. Publications. Our publications generally are controlled circulation, business-to-business trade magazines which are distributed free-of-charge to qualified recipients. We build readership and maintain the quality and quantity of our circulation based on delivering high quality, professional coverage of relevant industry information. Because we offer our advertisers access to a highly targeted, industry-specific subscriber base, our advertisers are willing to pay higher rates per reader than they would typically pay in the case of general circulation magazines. Recipients of our publications are targeted through market research designed to determine the market coverage and purchasing authority desired by prospective advertisers. Based on existing and acquired mail lists, the targeted recipient is then solicited through promotions offering free subscriptions to the relevant publications. High-quality circulation is achieved when a high percentage of the circulation list is recently qualified (within one or two years) and the publication is delivered at the direct request of the recipient. Recipients are qualified and re-qualified on a regular basis through direct mail, qualification cards included in the publication and, increasingly, the Internet. We attract recipients and improve the effectiveness of our advertising by maintaining and continuously improving the quality of the editorial content of our publications. Our advertising sales and editorial functions are dispersed throughout North America, Asia, Europe and Brazil advertising sales are predominantly conducted by our dedicated sales force. Editorial content for our publications is primarily staff-written, with some editorial contribution by freelance writers and industry or professional participants in selected markets. Our advertising materials and editorial content are integrated in our Duluth, Minnesota and Chester, United Kingdom production facilities, where layout, ad insertion and output to film is completed. All printing is outsourced to vendors, but printing contracts are negotiated and managed centrally. We purchase paper centrally through a relationship with one of the industry's largest paper brokers. This broker ships paper directly from the mills to the printers at our request. We maintain our own central U.S. fulfillment operations in Duluth to generate mailing labels and mailing instructions for the printers. Our production workforce is highly experienced and is based in relatively low-cost locations in Duluth and Chester. Marketing services. As a value-added supplement to our trade shows, conferences and publications, we offer our customers a variety of marketing services to support their business-to-business marketing communications programs. We believe that our marketing services highlight our commitment to be a "one stop" provider of business-to-business marketing communications solutions. Within each cluster, we provide classified advertising, direct mail services, reprints, database marketing, directories, guides and reference books. Our marketing services, particularly our direct mail services, support our efforts to cross-sell events and publications and customize our integrated products and services, thus enabling us to capture a larger share of our customers' marketing budgets. Our marketing services business enjoys attractive operating margins because of the low incremental product cost of reusing our existing data content and utilizing our centralized telephone sales approach. Internet. In addition to our trade shows, conferences, publications and marketing services, we are increasingly using the World Wide Web to deliver our integrated business-to-business marketing communications solutions to our customers. We operate a centralized web site that serves as a portal to our event- and publication-related web sites. We also believe that the Internet can be utilized on a customized basis to serve our customers' business-to-business marketing communication needs more efficiently and effectively by offering information 24 hours a day, seven days a week. For example, we are completing development on a web site, Travel Agent University, to serve as an on-line information and education resource for travel agents. Our Markets Our comprehensive business-to-business marketing communications solutions for our four industry-related clusters--Retail, Hospitality & Fashion, Healthcare, Science & Pharmaceuticals, Information Technology & Communications and Manufacturing & Processing--and our Market Development cluster are set forth below. Retail, Hospitality & Fashion Our Retail, Hospitality & Fashion cluster serves the fashion, art, beauty, travel and hospitality, entertainment and marketing, and motor vehicle industry sectors. In 1998, we delivered our business-to-business marketing communications solutions to our customers in these industry sectors through 34 trade shows, four conferences, 15 magazines, 13 directories and other publications, 46 marketing services products and 19 related web sites. Our trade shows and publications include: ^ MAGIC (the world's largest trade show dedicated to the men's apparel industry), WWDMAGIC (the second largest trade show for the women's apparel industry in the United States) and MAGICKids (a trade show for the children's apparel industry); ^ Artexpo New York (the largest mid-market art trade show in the United States); ^ IBS New York (the largest trade show and educational event on the East Coast for the beauty salon market; it has no significant direct competitors) and American Salon (the #2 publication for the professional beauty and hair care industry); ^ Travel Agent (the second largest non-computer U.S. trade magazine and #1 trade periodical for the travel industry based on advertising revenue in 1997, according to the June 15, 1998 edition of Crain's Advertising Age) and Hotel & Motel MANAGEMENT (the #2 publication for the hospitality management market); . Licensing International (the largest trade show for the merchandise licensing industry; it has no significant direct competitors); and . Dealernews International Powersports Dealer Expo (the largest aftermarket accessories trade shows in the United States targeted at motorcycle dealers; it has no significant direct competitors) and Dealernews (the #1 magazine targeted at retailers in the powersports market--motorcycles, snowmobiles and personal watercraft). The following table sets forth pro forma information relating to trade shows, conferences and publications in our Retail, Hospitality & Fashion cluster in 1998. Events Magazines Number of our Net square magazines footage Advertising ranked Sector Number (1) Number pages #1 or #2 (2)(3) Fashion..................... 7 1,729,000 1 281 1 of 1 Art......................... 3 186,000 1 703 0 of 1 Beauty...................... 9 455,000 2 906 1 of 2 Travel/Hospitality.......... 3 38,000 4 7,165 3 of 3 Entertainment/Marketing..... 5 280,000 5 2,235 3 of 4 Motor Vehicle............... 11 666,000 2 1,278 2 of 2 Total..................... 38 3,354,000 15 12,568 10 of 13 (1) Rounded to the nearest thousand. (2) Of those for which data is available. For example, in the Entertainment/Marketing sector, there is competitive data available for four of our five publications and three of those four are either #1 or #2 in the market segment served. Data is generally available only for U.S. and major European markets. (3) For purposes of these rankings, we have defined our markets narrowly as the niche of businesses or professionals at which a publication is exclusively or specifically targeted. Except where otherwise specifically referenced, we have based the rankings of our publications on the number of advertising pages determined by Inquiry Management Systems Ltd., an independent third party. While we believe our market definitions are appropriate, no independent source has verified them. We have identified numerous opportunities to grow our Retail, Hospitality & Fashion cluster by using our trade shows, conferences and publications as platforms to expand geographically and launch related products and services. We expect to launch four new events and two new publications in 1999. In addition, we believe that our MAGIC trade shows create opportunities to expand our strong market position into new segments of the fashion sector and, as in the case of MAGICEast, into new geographic regions. Similarly, our publications for the travel and hospitality sector, including Travel Agent, provide a strong foundation to launch related trade shows and services as well as to develop custom-publishing products and establish a stronger Internet presence, as with Travel Agent University. Healthcare, Science & Pharmaceuticals Our Healthcare, Science & Pharmaceuticals cluster serves the healthcare, science and pharmaceuticals industry sectors. In 1998, we delivered our business-to-business marketing communications solutions to our customers in these industry sectors through six trade shows, nine conferences, 23 magazines, three directories and other publications, 58 marketing services products and 20 related web sites. We serve the healthcare sector in areas such as geriatrics, dermatology, ophthalmology and veterinary medicine, the science sector in areas such as spectroscopy and liquid and gas chromatography and the pharmaceutical sector in areas such as research and development, manufacturing, packaging and marketing. Our trade shows, conferences and publications include: . Abilities Expo (the largest consumer-oriented events targeting individuals with disabilities; they have no significant direct competitors); . Geriatrics (the #1 magazine for the geriatrics segment of the primary care market), Formulary (the #1 magazine for the drug selection market) and dvm THE NEWSMAGAZINE OF VETERINARY MEDICINE (the #1 magazine for veterinarians); and . Pharmaceutical Technology (the #1 publication targeted at pharmaceutical scientists, engineers and operation managers) and PHARMACEUTICAL EXECUTIVE (the #1 magazine for pharmaceutical company product managers and marketing professionals). The following table sets forth pro forma information relating to our trade shows, conferences and publications in our Healthcare, Science & Pharmaceuticals cluster in 1998: Events Magazines Number of our magazines ranked Net square Advertising #1 or #2 Sector Number footage (1) Number pages (2)(3) Healthcare................. 5 131,000 11 4,080 5 of 9 Science.................... 3 N/A(4) 5 1,432 3 of 3 Pharmaceuticals............ 7 40,000(4) 7 3,262 5 of 6 Total.................... 15 171,000 23 8,774 13 of 18 (1) Rounded to the nearest thousand. (2) Of those for which data is available. For example, in the Healthcare sector, there is competitive data available for nine of our 11 publications and five of those nine are either #1 or #2 in the market segment served. Data is generally available only for U.S. and major European markets. (3) For purposes of these rankings, we have defined our markets narrowly as the niche of businesses or professionals at which a publication is exclusively or specifically targeted. Except where otherwise specifically referenced and in the case of our nine healthcare publications, we have based the rankings of our publications on the number of advertising pages determined by Inquiry Management Systems Ltd., an independent third party. In the case of our nine healthcare publications, we have based the rankings of our publications on the number of advertising pages determined by PERQ/HCI Research, a branch of VNU Business Information Services, Inc. and an independent third party. While we believe our market definitions are appropriate, no independent source has verified them. (4) The three science events and six of the seven pharmaceutical events are conferences. At a conference, there is no exhibition space. Our publication portfolio for our Healthcare, Science & Pharmaceuticals cluster positions us to expand geographically and launch related products as well as demonstrates an opportunity to develop related trade shows, conferences, sponsored projects and Internet services. We expect to launch four new conferences in 1999. We have begun to leverage the success of Pharmaceutical Technology, the #1 publication in its niche market segment, through Pharmaceutical Technology Europe, Pharmaceutical Technology Asia and a series of U.S. and European conferences. In addition to expanding our trade shows and conferences, we plan to extend our publications to the Internet and to expand special projects. Moreover, as government regulation of marketing by pharmaceutical companies becomes more permissive, product managers and marketing professionals are increasingly targeting advertising and promotions directly to consumers. According to Competitive Media Reporting, pharmaceutical companies spent approximately $1.2 billion in 1998 on direct to consumer marketing efforts. We believe this trend towards consumer advertising and marketing presents another opportunity to serve our customers' needs for education, research and information. We have launched DTC Times, a supplement to PHARMACEUTICAL EXECUTIVE, to provide education, research and information and, if demand warrants, we may launch a stand-alone publication. Information Technology & Communications Our Information Technology & Communications cluster serves the information technology, telecommunications and call center and computer telephony industry sectors. In 1998, we operated in these industry sectors through 23 trade shows, 12 conferences, 16 magazines, four directories and other publications, 31 marketing services products and 16 related web sites. In the information technology sector, we are a highly targeted niche exhibition organizer and publisher. The rapidly evolving, newly competitive telecommunications sector is one of our most important and fastest growing targeted markets. Through its global reach and rapid growth, our call center and computer telephony sector serves as a primary example of our successful market-focused expansion strategy. Our trade shows, conferences and publications include: . On Demand Digital Printing & Publishing Conference and Expo (the second largest trade show and conference for the digital print and publishing market) and CADALYST (the #2 publication targeted at end users, managers and executives in the computer-aided design and visualization market); . the TeleCon shows (the largest trade shows in the United States and Europe for the video conferencing and long distance learning markets; they have no significant competitors); . Incoming Call Center Management Conference & Exhibition (the largest U.S. trade show and conference for the call center market) and Call Center Conference & Exposition. (a large U.S. trade show and conference for the computer telephony market); and . iEC, Internet and Electronic Commerce Conference and Exposition (one of the largest U.S. trade shows and conferences serving the rapidly growing market for electronic commerce through the Internet, produced in partnership with The Gartner Group, Inc.). The following table sets forth pro forma information relating to trade shows, conferences and publications in our Information Technology and Communications cluster in 1998: Events Magazines Number of our magazines ranked Net square Number Advertising #1 or #2 Sector Number footage (1) per year pages (2)(3) Information Technology.. 7 231,000 5 2,137 2 of 3 Telecommunications...... 10 235,000(4) 7 2,451 6 of 6 Call Center/Computer Technology............. 18 472,000 4 1,484 2 of 4 Total................. 35 938,000 16 6,072 10 of 13 (1) Rounded to the nearest thousand. (2) Of those for which data is available. For example, in the Information Technology sector, there is competitive data available for three of our five publications and two of those three are either #1 or #2 in the market segment served. Data is generally available only for U.S. and major European markets. (3) For purposes of these rankings, we have defined our markets narrowly as the niche of businesses or professionals at which a publication is exclusively or specifically targeted. Except where otherwise specifically referenced, we have based the rankings of our publications on the number of advertising pages determined by Inquiry Management Systems Ltd., an independent third party. While we believe our market definitions are appropriate, no independent source has verified them. (4) Nine of the ten events are conferences. There is no exhibition space at a conference. Our Information Technology & Communications cluster serves some of our fastest growing and most exciting industry sectors. We believe that we enjoy many opportunities to grow this cluster by building on our trade shows to expand geographically and into new market segments and to launch new products. For example, we believe that our strong market position in the call center industry provides an opportunity to extend and serve the customer relationship management market segment. In addition, we believe that we are well positioned to serve the needs of the rapidly growing digital media and professional content creation market. We enhanced our position in this market in 1998 by acquiring POST, a publication focused on film and video post-production, repositioning PC Graphics & Video, formerly a monthly magazine covering PC applications involving digital graphics and video, as Digital Content Creation, a magazine targeted at computer software developers engaged in digital graphics creation and video capture and manipulation, and launching Digital Content Creation Expo, a directly related trade show and conference. In the telecommunications sector, we are focused on international expansion and increasing coverage of international markets as most major vendors in this sector operate globally. We believe that our TeleCon trade shows will serve as a platform for developing a more comprehensive set of business-to-business marketing communications products and services, including publications, for the video conferencing and long distance learning markets. Manufacturing & Processing Our Manufacturing & Processing cluster serves several niche market segments of the applications technology industry sector and the OEM and processing sector. In 1998, we delivered our business-to-business marketing communications solutions to our customers in these industries through 13 trade shows, one conference, ten magazines, eight directories and other publications, 28 marketing services products and 14 related web sites. In the application technology sector, we focus on the automatic data capture, identification and tracking systems (bar coding, magnetic stripe, smart cards, biometrics and the associated systems) market and geospacial market (global positioning systems and geographic information systems). For the OEM and processing sector, we offer exhibitions and conferences and publications focused on equipment, materials and intermediate products used in the manufacturing and processing of a wide range of products. Our trade shows, conferences and publications include: . SCANTECH and SCANTECH EXPO Europe (the largest U.S. and European trade show and conference, respectively, for the automatic data capture, identification and tracking systems market) and AUTOMATIC ID NEWS (the #2 publication in the U.S. and Europe for the automatic data capture, identification and tracking systems market); and . Medical Device Technology Trade Show & Conference (a large European trade show and conference for the medical device equipment market). The following table sets forth pro forma information relating to trade shows, conferences and publications in our Manufacturing and Processing cluster in 1998: Events Magazines Number of our magazines ranked Net square Advertising #1 or #2 Sector Number footage (1) Number pages (2)(3) Application Technology...... 4 162,000 7 1,352 5 of 6 OEM/Processing.............. 10 258,000 3 1,084 2 of 3 Total..................... 14 420,000 10 2,436 7 of 9 (1) Rounded to the nearest thousand. (2) Of those for which data is available. For example, in the Application Technology sector, there is competitive data available for six of our seven publications and five of those six are either #1 or #2 in the market segment served. Data is generally available only for U.S. and major European markets. (3) For purposes of these rankings, we have defined our markets narrowly as the niche of businesses or professionals at which a publication is exclusively or specifically targeted. Except where otherwise specifically referenced, we have based the rankings of our publications on the number of advertising pages determined by Inquiry Management Systems Ltd., an independent third party. While we believe our market definitions are appropriate, no independent source has verified them. Our Manufacturing & Processing cluster currently focuses on basic products and technologies in the application technology and OEM and processing sectors. We believe that these sectors will grow because of the introduction of new technologies and applications. Therefore, we plan to grow the Manufacturing & Processing cluster by leveraging our trade shows and publications and widening our focus from basic products and technologies to applications and systems. For example, our worldwide presence in the data capture market, through our SCANTECH trade shows and conference and AUTOMATIC I.D. NEWS publications, allows us to serve the data capture market and positions us to provide business-to-business marketing communications solutions to developers of integrated applications such as supply-chain management. In addition, we believe that many of our products and services for the OEM and processing sector, particularly Global Cosmetic Industry and Medical Device TECHNOLOGY, focus on markets that are global and provide natural opportunities for international expansion. Market Development We have grouped the balance of our products and services into a Market Development cluster to focus on growing these products and services through internal development or acquisitions. The Market Development cluster addresses large and attractive market sectors in which we provide products and services but do not have a significant presence. For example, prior to the acquisition of MAGIC, our only participation in the fashion sector and specifically in the apparel industry was in the intimate apparel market through the magazine BFiA (body fashion/intimate apparel). We are in the process of integrating this magazine and its related products into the Retail, Hospitality & Fashion cluster. Our Market Development cluster serves the energy, landscape, pest control, paper and building industry sectors. In 1999, we expect to launch one new publication in our Market Development cluster. In 1998, we delivered our business-to-business marketing communications solutions to our customers in these industry sectors through five trade shows, seven magazines, 11 directories and other publications, 27 marketing services products and three related web sites. Competition The market for our products and services is intensely competitive. In the trade show and conference segment, we compete for trade show and conference expenditures and attendees. In the publication segment, we compete for advertising expenditures and readers. The competition is highly fragmented, both by product offering and geography. On a global level, larger international firms operate in many geographic markets and have broad product offerings in trade shows, conferences, publications and marketing services. In several industries, such as information technology and healthcare, we also compete with large firms with a single-industry focus. Many of these large international and single-industry firms are better capitalized than we are and have substantially greater financial and other resources than we have. Within each particular industry sector, in addition to large firms, we compete with a large number of small to medium-sized firms. While most small to medium-sized firms operate in a single geographic market, in some cases, our small to medium-size competitors operate in several geographic markets. In the trade show and conference segment, we compete with trade associations and, in several international markets, with exposition hall owners and operators. Trade show and conference competition in each industry sector and geographic market occurs on many levels. The venues and dates of trade shows drive competition. Historically, successful shows have been held at desirable locations and on desirable dates. Given the availability of alternative venues and the ability to define events for particular market segments, the range of competition for exhibitor dollars, sponsorships, attendees and conferees is extensive. In the publications segment, we typically have between two and five direct competitors which target the same industry sector and many indirect competitors which define industry segments differently than we do and thus may be alternatives for either readers or advertisers. The significance of the content to readers and the efficiency of the target audience to advertisers determine the competitive performance of a publication. Historically, publications which deliver relevant and up-to-date industry-specific information attract audiences to which business-to-business advertisers seek to disseminate information about their products. Intellectual Property We have developed strong brand awareness for our principal products and services. Accordingly, we consider our trademarks, service marks, copyrights, trade secrets and similar intellectual property as important to our success, and we rely on trademark, servicemark, copyright and trade secret laws, as well as licensing and confidentiality agreements, to protect our intellectual property rights. We generally register our material trademarks and service marks in the United States and in other key countries in which these trademarks and service marks are used. Effective trademark, service mark and trade secret protection may not be available in every country in which our products and services are available. Employees As of March 31, 1999, we had approximately 1,300 full-time equivalent employees. None of our U.S. employees is represented by a labor union. We consider our relationships with our employees to be good. Facilities Our finance and administration, circulation, fulfillment, production and other necessary operational support facilities are located in Duluth, Minnesota. We have executive marketing, sales and editorial offices in other cities in the United States, including: Boston, Massachusetts; Chicago, Illinois; Cleveland, Ohio; Coral Gables, Florida; Edison, New Jersey; Eugene, Oregon; Honolulu, Hawaii; Los Angeles, California; Marrietta, Georgia; Milford, Connecticut; New York, New York; Orlando, Florida; Santa Ana, California; Sherman Oaks, California; Washington, District of Columbia; Waterloo, Iowa; and Woodland Hills, California. In addition, we have offices in Sao Paulo and Rio de Janeiro, Brazil; Toronto, Canada; Hong Kong, China; Mexico City, Mexico; and Chester and London, United Kingdom. We generally lease our offices from third parties. In addition, we own our operations offices in Duluth and Cleveland. We believe that our properties are in good operating condition and that suitable additional or alternative space will be available on commercially reasonable terms for future expansion. Legal Proceedings We are not a party to any legal proceedings other than ordinary course, routine litigation which is not material to our business, financial condition or results of operations.