SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ended September 30, 1998.
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 333-50119
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 Park Avenue South
New York, New York 10010
(Address of principal executive offices)
Telephone Number (212) 779-9200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Note: This is a voluntary filing;
Registrant not yet subject to Section 13 or 15(d).
Yes ______ No ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES ______ NO ______
As of November 1, 1998 there were 120,000 shares of the registrant's
Common Stock outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I
FINANCIAL INFORMATION .................................................... 4
ITEM 1. FINANCIAL STATEMENTS ........................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .................. 34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 39
PART II
OTHER INFORMATION ........................................................ 39
ITEM 1. LEGAL PROCEEDINGS .............................................. 39
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ...................... 40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................ 40
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 40
ITEM 5. OTHER INFORMATION .............................................. 40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 40
<PAGE>
INDEX TO FINANCIAL INFORMATION
Page
----
Consolidated Financial Statements of American Lawyer Media Holdings, Inc.
Consolidated Balance Sheets at September 30, 1998 and December 31, 1997 4
Consolidated Statements of Operations for the Three months and
Nine Months Ended September 30, 1998 ................................. 5
Consolidated Statement of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 1998 ............................. 6
Consolidated Statements of Cash Flows for the Three Months and
Nine Months Ended September 30, 1998 ................................. 7
Notes to Consolidated Financial Statements at September 30, 1998 ....... 8-13
Financial Statements of American Lawyer Media Holdings, Inc. (Successor
of Cranberry Partners, LLC)
Consolidated Balance Sheet at September 30, 1997 ....................... 14
Consolidated Statement of Operations for the Two Months Ended
September 30, 1997 ................................................... 15
Consolidated Statement of Changes in Stockholders' Equity for
the Two Months Ended September 30, 1997 .............................. 16
Consolidated Statement of Cash Flows for the Two Months
Ended September 30, 1997 ............................................. 17
Notes to the Consolidated Financial Statements at September 30, 1997 ... 18-20
Financial Statements of American Lawyer Media, L.P. (Predecessor)
Statement of Operations for the Seven Months Ended July 31, 1997 ....... 21
Statement of Changes in Partners' Capital and Accumulated Deficit
for the Seven Months Ended July 31, 1997 ............................. 22
Statement of Cash Flows for the Seven Months Ended July 31, 1997 ....... 23
Notes to the Financial Statements at July 31, 1997 ..................... 24-26
Consolidated Financial Statements of National Law Publishing
Company, Inc. (Predecessor)
Consolidated Balance Sheet at September 30, 1997 ....................... 27
Consolidated Statement of Operations for the Three and Nine
Month Period Ended September 30, 1997 ................................ 28
Consolidated Statement of Changes in Stockholders' Equity for the
Nine Month Period Ended September 30, 1997 ........................... 29
Consolidated Statement of Cash Flows for the Three and Nine
Month Period Ended September 30, 1997 ................................ 30
Notes to the Consolidated Financial Statements at September 30, 1997 ... 31-33
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 617 $ 9,442
Accounts receivable, net of allowance for doubtful
accounts and returns of $3,562 and $3,236, respectively ...... 12,326 12,560
Inventories, net ............................................. 1,570 1,482
Other current assets ......................................... 2,332 2,716
--------- ---------
Total current assets ............................ 16,845 26,200
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation and amortization of $2,041 and $613, respectively 5,636 5,630
INTANGIBLE ASSETS, net of accumulated amortization of
$10,113 and $1,855, respectively ............................. 155,047 163,305
GOODWILL, net of accumulated amortization of $9,630
and $498, respectively ........................................ 182,371 159,623
DEFERRED FINANCING COSTS net of accumulated amortization
of $749 and $0, respectively .................................. 8,708 7,678
DEFERRED INCOME TAXES .......................................... 2,878 2,934
OTHER ASSETS ................................................... 278 158
--------- ---------
Total Assets .................................... $ 371,763 $ 365,528
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable ............................................. $ 2,495 $ 3,466
Accrued expenses ............................................. 10,608 12,130
Accrued interest payable ..................................... 5,267 474
Deferred income (including deferred subscription income
of $17,074 and $16,502, respectively) ........................ 19,224 17,172
--------- ---------
Total current liabilities 37,594 33,242
--------- ---------
SENIOR NOTES ................................................... 175,000 175,000
--------- ---------
SENIOR DISCOUNT NOTES .......................................... 38,400 35,119
--------- ---------
DEFERRED INCOME TAXES .......................................... 48,835 51,515
--------- ---------
OTHER NONCURRENT LIABILITIES (including deferred
subscription income of $446 and $312, respectively) .......... 3,345 3,363
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock -- $.01 par value; 200,000 shares authorized;
120,000 issued and outstanding at September 30, 1998 and
100,000 issued and outstanding at December 31, 1997 .......... 1 1
Additional paid-in-capital ................................... 89,999 74,999
Accumulated deficit .......................................... (21,411) (7,711)
--------- ---------
Total stockholders' equity 68,589 67,289
--------- ---------
Total liabilities and
stockholders' equity ............................ 371,763 365,528
--------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
NET REVENUES:
Periodicals
Advertising .................. $ 16,750 $ 49,810
Subscription ................. 5,763 16,930
Ancillary Products and Services . 6,055 19,132
Internet Services ............... 650 2,014
-------- --------
Total net revenues ..... 29,218 87,886
-------- --------
OPERATING EXPENSES:
Editorials ...................... 4,028 11,169
Production and Distribution ..... 6,494 18,804
Selling ......................... 4,383 13,528
General and Administrative ...... 6,948 21,421
Internet Services ............... 1,207 3,349
Depreciation and Amortization ... 6,438 18,797
-------- --------
Total operating expenses 29,498 87,068
-------- --------
Operating income (loss) (280) 818
INTEREST EXPENSE, net ................ (5,873) (17,101)
-------- --------
Loss before income taxes (6,153) (16,283)
BENEFIT FOR INCOME TAXES ............. 836 2,583
-------- --------
Net loss ............... $ (5,317) $(13,700)
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 .... 100,000 $ 1 $ 74,999 $ (7,711) $ 67,289
Net Loss ........................ -- -- -- (13,700) (13,700)
Capital Contribution ............ 20,000 -- 15,000 -- 15,000
------- ------ -------- -------- --------
BALANCE AT SEPTEMBER 30, 1998 ... 120,000 $ 1 $ 89,999 $(21,411) $ 65,589
======= ====== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (5,317) $(13,700)
-------- --------
Adjustments to reconcile net loss to net cash provided
by operating activities .................................... -- --
Depreciation and amortization .............................. 6,438 18,797
Decrease (increase) in -
Accounts receivable, net ................................ 1141 2,015
Inventories ............................................. (60) 77
Other current assets .................................... 208 441
Deferred financing costs ................................ 242 (1,030)
Other assets ............................................ (73) (64)
Increase (decrease) in -
Accounts payable ........................................ (347) (1,575)
Accrued expense ......................................... (691) (2,376)
Accrued interest payable ................................ 4,390 4,793
Deferred income ......................................... (45) 649
Other noncurrent liabilities ............................ (983) (2,698)
-------- --------
Total adjustments ................................. 10,220 19,029
-------- --------
Net cash provided by operating activities ......... 4,903 5,329
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (405) (963)
Purchase of business:
Working capital, other than cash ........................... -- 426
Property plant and equipment ............................... -- (450)
Cost in excess of net assets of company acquired ........... 100 (31,880)
Acquisition related costs and expenses ..................... -- 432
-------- --------
Net cash used in investing activities ............. (305) (32,435)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution .......................................... -- 15,000
Net Repayments on Revolver .................................... (7,000) --
Accretion of interest on Senior Discount Notes ................ 1,137 3,281
-------- --------
Net cash (used in) provided by financing activities (5,863) 18,281
-------- --------
Net decrease in cash and cash equivalents ......... (1,265) (8,825)
CASH AND CASH EQUIVALENTS, beginning of period .................. 1,882 9,442
-------- --------
CASH AND CASH EQUIVALENTS, end of period ........................ $ 617 $ 617
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Income taxes ............................................... $ 25 $ 280
-------- --------
Interest ................................................... $ 105 $ 8,402
-------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
7
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ACQUISITIONS
Pursuant to an Asset Purchase Agreement dated as of March 3, 1998, among
Corporate Presentations, Inc., its sole stockholder and LegalTech, LLC, a
wholly-owned indirect subsidiary of American Lawyer Media Holdings, Inc.,
("Holdings") LegalTech, LLC agreed to purchase substantially all of the assets
and assume certain of the liabilities of Corporate Presentations, Inc. for
approximately $10.8 million (the "LegalTech Acquisition"). Corporate
Presentations, Inc. is a producer of trade shows and conferences for the legal
community. For advisory services rendered to the Company (as defined below) in
connection with the LegalTech Acquisition, the Company paid WP Management
Partners, LLC ("WPMP"), an affiliate of Holdings, a fee of 1% of the purchase
price of the LegalTech Acquisition.
On April 22, 1998, effective as of April 1, 1998, the Company consummated
the acquisition of substantially all of the legal publishing-related assets and
assumed certain liabilities of Legal Communications, Ltd ("LCL") for an
aggregate purchase price of approximately $20.1 million (the "LCL Acquisition").
LCL is a publisher of regional legal publications. For advisory services
rendered to the Company in connection with the LCL Acquisition, the Company paid
WPMP, an affiliate of Holdings, a fee of 1% of the purchase price of the LCL
Acquisition.
The LegalTech Acquisition and LCL Acquisition have been accounted for
under the purchase method of accounting and the results of operations of the
acquired businesses have been included in the financial statements since the
effective dates of the respective acquisitions. The excess of the purchase price
over net assets acquired was allocated to goodwill. In the accompanying
consolidated statements of operations, the excess of purchase price over net
assets acquired is being amortized over fifteen years.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the LegalTech
Acquisition and LCL Acquisition had occurred on January 1, 1998 (in thousands):
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30, 1998
------------------
Net revenues ............................... $ 91,926
Net loss ................................... $(13,242)
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill. They do not purport to be indicative of the
results of operations which actually would have resulted had the combination
been in effect on January 1, 1998, or of future results of operations of the
consolidated entities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings and
its wholly-owned subsidiary, American Lawyer Media, Inc. which, unless the
context otherwise requires, are collectively referred to herein as the
"Company." The accounts of American Lawyer Media, Inc. include the accounts of
its wholly-owned subsidiaries,
8
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ALM, LLC, Counsel Connect, LLC, National Law Publishing Company, Inc. ("NLP"),
and ALM IP, LLC. The accounts of NLP include its wholly-owned subsidiaries NLP
IP Company. Intercompany transactions and balances have been eliminated in
consolidation.
The unaudited consolidated financial statements for the three and nine
month periods ended September 30, 1998 have been prepared in accordance with the
instructions to Form 10-Q and include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for such periods. They do not,
however, include all of the information and disclosures required by generally
accepted accounting principles for audited financial statements.
For further information, reference is made to the consolidated financial
statements for the fiscal year ended December 31, 1997 and the footnotes related
thereto included in the Company's 1997 Annual Report on Form 10-K from which the
December 31, 1997 balances presented herein have been derived. The results of
operations for the three and nine month periods ended September 30, 1998 are not
necessarily indicative of the results of operations for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
exposed to a certain level of credit concentration risk in this area, for which
the Company believes it has adequately provided.
Revenue Recognition
Periodical Advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in the
Company's publications. Advertising revenue is recognized upon release of the
related publications.
Periodical Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary Products and Services revenues consist principally of
third-party printing revenues, newsletter subscriptions, sales of professional
books, seminar and conference income, income from a daily fax service of court
decisions and income from electronic products. Printing revenue is recorded upon
shipment. Book revenues are
9
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
recognized upon shipment and are reflected net of estimated returns. Newsletter
revenues are recognized on the same basis as subscription revenues. Seminar and
conferences revenues are recognized when the seminar or conference is held.
Daily fax service revenue is recognized upon fulfillment of orders. Income from
electronic products is recognized monthly as the service is provided.
Internet Services revenues consist primarily of revenues from
subscriptions and advertising. Internet subscription income is recognized on a
pro-rata basis over the life of a subscription, generally one year. Internet
advertising revenues are recognized upon the release of an advertisement on the
website.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $2,460,000 and $1,772,000 are included in accounts
receivable in the accompanying consolidated September 30, 1998 and December 31,
1997 balance sheets, respectively.
Advertising and Promotion Costs
Advertising and promotion expenditures, which totaled approximately
$1,272,000 and $4,035,000 for the three and nine month periods ended September
30, 1998, respectively, are expensed as the related advertisements or campaigns
are released.
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are stated at the lower of cost,
as determined by the average cost method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, with the exception of
fixed assets acquired as part of the acquisition on August 27, 1997, effective
as of August 1, 1997, of substantially all of the publishing-related assets and
assumption of certain of the liabilities of American Lawyer Media, L.P. by the
Company (the "ALM Acquisition"), the acquisition on December 22, 1997 of all of
the issued and outstanding capital stock of NLP (the "NLP Acquisition"), and the
LCL Acquisition, which are stated at approximate fair market value as of the
date of the acquisitions. Significant improvements are capitalized, while
expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated
remaining useful lives of the assets acquired as part of the ALM Acquisition,
the NLP Acquisition and the LCL
10
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Acquisition. Assets purchased after the ALM Acquisition, the NLP Acquisition and
the LCL Acquisition are depreciated using the straight-line method over the
following estimated useful lives:
Buildings ............................................... 25 years
Furniture, machinery and equipment ...................... 5-9 years
Computer equipment and software ......................... 3-6 years
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
net assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. The Company
periodically assesses the recoverability of goodwill by determining whether the
amortization of goodwill over its estimated remaining life can be recovered
through projected undiscounted future consolidated operating cash flows.
Intangible Assets
Intangible assets represent advertiser commitments, trademarks, customer
and subscriber lists and non-compete agreements. They are stated at cost less
accumulated amortization and are amortized on a straight-line basis over a
weighted average useful life of fifteen years.
Income Taxes
Deferred income taxes are provided for the temporary differences between
the financial reporting and the tax basis of the Company's assets and
liabilities and principally consist of nondeductible goodwill and identified
intangibles relating to NLP, accelerated depreciation, allowance for doubtful
accounts, certain accrued liabilities not currently deductible for tax purposes
and net operating loss carry forwards.
Reporting Comprehensive Income
Effective with fiscal years beginning after December 15, 1997, companies
are required to adopt the Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which comprises certain specific items
reported directly in stockholders' equity. Other comprehensive income comprises
items such as unrealized gains and losses on debt and equity securities
classified as available-for-sale securities, minimum pension liability
adjustments, and foreign currency translation adjustments. Since the Company
does not currently have any of these other comprehensive income items, the
Company's comprehensive income equals its net income. Therefore, SFAS No. 130
has no impact on the way the Company reports or has reported its financial
statements.
11
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting for Derivatives Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June 15, 1999. SFAS
133 cannot be applied retroactively. SFAS 133 must be applied to (a) derivative
instruments, and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998).
The Company currently does not have any derivative instruments, and
therefore the Company believes that SFAS 133 will have no impact.
3. DEBT
On December 22, 1997, Holdings issued $63,275,000 principal amount at
maturity of 12.25% Senior Discount Notes (the "Senior discount Notes") due
December 15, 2008, at a discount rate of $553.14 per Senior Discount Note. Net
proceeds for Holdings were $33,775,000, net of discounts and commissions of
$1,225,000. The Senior Discount Notes accrue interest compounded semi-annually
at a rate of 12.25% to an aggregate principal amount of $63,275,000 by December
15, 2002. Commencing June 15, 2003, cash interest will be payable semi-annually
until maturity each June 15 and December 15. The Senior Discount Notes are
senior, unsecured obligations of Holdings. The Senior Discount Notes may be
redeemed at any time by Holdings, in whole or in part, at various redemption
prices that include accrued and unpaid interest as well as any existing
liquidating damages. The Senior Discount Notes contain certain covenants that,
among other things, limit the incurrence of /additional indebtedness by the
Company and its subsidiaries, the payment of dividends and other restricted
payments by the Company and its subsidiaries, restrictions on distributions from
Restricted Subsidiaries, asset sales, transactions with affiliates, incurrence
of liens and mergers and consolidations. Financing costs associated with the
debt have been capitalized and are being amortized over the term of the Senior
Discount Notes. Amortization of deferred financing costs is recorded as interest
expense in the accompanying consolidated statement of operations. Assuming that
there is no redemption of the Senior Discount Notes prior to maturity, the
entire principal will be payable on December 15, 2008.
On December 22, 1997, the Company issued $175,000,000 of 9.75% senior
notes ("Senior Notes") due December 15, 2007. The Senior Notes accrue interest
at 9.75% which is payable in cash semi-annually on June 15 and December 15 (the
first interest payment was made on June 15, 1998). The Senior Notes are fully
and unconditionally guaranteed on a joint and several and senior unsecured basis
by each of the Company's existing and future subsidiaries. The Senior Notes may
be redeemed at any time by the Company, in whole or in part, at various
12
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1998
3. DEBT (continued)
redemption prices that include accrued and unpaid interest as well as any
existing liquidated damages. The Senior Notes contain certain covenants that,
among other things, limit the incurrence of additional indebtedness by the
Company and its subsidiaries, the payment of dividends and other restricted
payments by the Company and its subsidiaries, asset sales, transactions with
affiliates, the incurrence of liens, and mergers and consolidations. Financing
costs associated with this debt have been capitalized and are being amortized
over the term of the Senior Notes. Amortization of deferred financing costs is
recorded as interest expense in the accompanying consolidated statements of
operations. Assuming there is no redemption of the Senior Notes prior to
maturity, the entire principal will be payable on December 15, 2007.
On March 25, 1998, Holdings and the Company (as the "Borrower") entered
into a credit agreement with various banks that established a combined revolving
loan commitment in the initial principal amount of $40,000,000 (the "Revolving
Credit Facility"). Financing costs associated with the Revolving Credit Facility
have been capitalized and are being amortized over the term of the agreement.
The Revolving Credit Facility is guaranteed by Holdings and, on a joint and
several basis, by all subsidiaries of the Company. In addition, the Revolving
Credit Facility is secured by a first priority security interest in
substantially all of the properties and assets of the Company and its domestic
subsidiaries, including a pledge of the equity securities of such subsidiaries,
and a pledge by Holdings of all of the stock of the Company. The Revolving
Credit Facility bears interest at a fluctuating rate determined by reference to
(i) the Base Rate (as defined in the Revolving Credit Facility) plus a margin
ranging from .25% to 1.5%, or (ii) the Eurodollar Rate (as defined in the
Revolving Credit Facility) plus a margin ranging from 1.25% to 2.5%, as the case
may be. The applicable margin is based on the Company's consolidated total
leverage ratio. The Base Rate equals the higher of (a) the rate of interest
publicly announced from time to time by Bank of America as its reference rate,
or (b) the Federal funds rate plus .5%. The Eurodollar Rate is based on (i) the
interest rate per annum at which deposits in U.S. Dollars are offered by Bank of
America's applicable lending office to major banks in the offshore market in an
aggregate principal amount approximately equal to the amount of the loan made to
the Company, and (ii) the maximum reserve percentage in effect under regulations
issued from time to time by the Federal Reserve Board. The Company is also
required to pay customary fees with respect to the Revolving Credit Facility,
including an up-front arrangement fee, annual administrative agency fees, and
commitment fees on the unused portion of the Revolving Credit Facility. The
Revolving Credit Facility includes both affirmative and negative covenants that
include meeting certain financial ratios. As of September 30, 1998, there is no
outstanding debt under the Revolving Credit Facility.
13
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(In Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 698
Accounts receivable, net of allowance for
doubtful accounts of $1,875 .................................. 5,822
Inventories, net .............................................. 465
Other current assets .......................................... 726
--------
Total current assets ....................................... 7,711
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $210 ........................................... 5,029
INTANGIBLE ASSETS AND GOODWILL, net of accumulated
amortization of $1,128 ......................................... 66,557
OTHER ASSETS .................................................... 119
--------
Total assets ............................................... $ 79,416
========
LIABILITIES AND MEMBER'S EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 528
Accrued expenses .............................................. 11,689
Deferred income (including deferred subscription
income of $7,147) ............................................ 7,818
Notes payable ................................................. 64,061
--------
Total current liabilities .................................. 84,096
--------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock - $.01 par value; 200 shares authorized;
100 issued and outstanding ................................... --
Accumulated Deficit ........................................... (4,680)
--------
Total stockholders' equity .................................... (4,680)
--------
Total liabilities and stockholders' equity ................. $ 79,416
--------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
14
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWO MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands)
NET REVENUES:
Periodicals
Advertising ........................................ $ 4,997
Subscription ....................................... 1,894
Ancillary Products and Services ....................... 1,371
--------
Total Net Revenues ............................ 8,262
--------
OPERATING EXPENSES
Editorial ............................................. 1,154
Production and Distribution ........................... 1,980
Selling ............................................... 1,326
General and Administrative ............................ 2,882
Depreciation and Amortization ......................... 1,338
Shutdown of Internet Services ......................... 3,701
--------
Total Operating Expenses ...................... 12,381
--------
Operating Loss ................................ (4,119)
Interest Expense ...................................... 561
--------
Net Loss ...................................... $ (4,680)
========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
15
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TWO MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES PAR VALUE DEFICIT TOTAL
------ --------- ------- -----
<S> <C> <C> <C> <C>
BALANCE AT INCEPTION ................ -- $ -- $ -- $ --
Common Stock Issued ................. 100 -- -- --
Net Loss ............................ -- -- (4,680) (4,680)
--- -------- ------- -------
BALANCE AT SEPTEMBER 30, 1997 ....... 100 $ -- $(4,680) $(4,680)
=== ======== ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
16
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWO MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $ (4,680)
--------
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation and amortization ............................ 1,338
Allowance for doubtful accounts .......................... 214
Decrease (increase) in -
Accounts receivable and due from affiliates ......... (34)
Inventories ......................................... (66)
Other current assets ................................ (115)
Other assets ........................................ 37
Increase (decrease) in -
Accounts payable .................................... (216)
Accrued expenses .................................... 3,939
Deferred income ..................................... (275)
--------
Total adjustments ............................... 4,822
--------
Net cash provided by operating activities ....... 142
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................ (90)
Purchase of business:
Working capital, other than cash .................... 6,125
Plant, property and equipment ....................... (4,704)
Cost in excess of net tangible assets of
acquired company ................................... (67,685)
Other noncurrent assets ............................. (156)
Acquisition reserve ................................. 3,005
--------
Net cash used in investing activities ........... (63,505)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from affiliate ................................... 32,268
Borrowings from former owner of Old ALM ..................... 31,793
--------
Net cash provided by financing activities ....... 64,061
--------
Net increase in cash ............................ 698
CASH, at inception ............................................ --
--------
CASH, end of period ........................................... $ 698
========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
17
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The unaudited financial statements for the two months ended September 30,
1997 have been prepared in accordance with the instructions to Form 10-Q and
include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such periods. They do not, however, include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. For further information, reference is made to
the financial statements for the fiscal year ended December 31, 1997 and the
footnotes related thereto included in American Lawyer Media, Inc.'s 1997 Annual
Report on form 10-K. The results of operations for the two months ended
September 30, 1997 are not necessarily indicative of the results of operations
for the full year.
Revenue Recognition
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers. Allowances for estimated doubtful accounts are
provided based upon historical experience.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary Product and Services revenues consist principally of third-party
printing revenues, newsletter subscriptions, sales of professional books and
directories, Lexis/Nexis royalty income, seminar income, and income from a daily
fax service of court decisions.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
Circulation Promotion (Subscription Direct Mail) Costs
Circulation promotion costs are charged to expense upon the release of the
campaign.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
18
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at net carrying value as of the
date of the acquisition. Significant improvements are capitalized, while
expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets as follows:
Buildings ........................................ 25 years
Furniture, machinery and equipment ............... 5 years
Computer equipment and software .................. 3-5 years
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life. The cost and accumulated depreciation
of property sold or retired are removed from the accounts upon deposition.
2. SHUTDOWN OF COUNSEL CONNECT
The Company has operated Counsel Connect, a major legal internet site,
since 1993. Counsel Connect operated as a subscription based service offering
users the opportunity to exchange legal information such as court opinions,
insights about judges and legal opinions and special written work. The Company,
through Counsel Connect, provided general internet access (as an "internet
service provider") to its subscribers.
Since its inception, Counsel Connect has incurred substantial operating
losses. The Company has determined that it will cease to operate Counsel Connect
and has begun the wind down of its operations. Staff reductions and curtailments
of operating activities have already taken place commencing with the acquisition
of Old ALM in August, 1997. In connection with the pending NLP Acquisition, the
Company will acquire Law Journal EXTRA!, a legal Internet site. The Company will
transfer certain Counsel Connect assets (e.g., tradename, customer lists) to a
new combined service. The accompanying statement of operations includes a net
expense of $3,701,000 related to the shutdown of Counsel Connect. This amount
includes Counsel Connect revenues and expenses before depreciation of $487,000
and $1,188,000, respectively, and a provision of $3,000,000 to cover severance
costs of $200,000, uncollectible receivables of $500,000, writedown of computer
and network equipment of $2,000,000 and termination of contracts related to
network services which provided Internet access of $300,000. The provision is a
preliminary estimate of the total costs associated with these items.
The net assets of Counsel Connect at September 30, 1997, principally
consist of the following (In Thousands):
19
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997
2. SHUTDOWN OF COUNSEL CONNECT (continued)
Accounts receivable, net of allowance for doubtful accounts .. $1,164
Property, plant and equipment, net of accumulated depreciation 2,720
Accounts payable & accrued expenses .......................... 720
Due to ALM ................................................... 8,820
3. NOTES PAYABLE
The Company financed the acquisition of Old ALM through two promissory
notes. The first note of $32.0 million is a subordinated demand note payable to
Wasserstein and Co., Inc. The note accrues interest at 9% and is due upon
demand. The second promissory note of $31.5 million is payable to the former
partners of Old ALM. The note accrues interest at 10% and matures on December
31, 1997.
4. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107--FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and notes payable. The
carrying amount of these accounts approximates fair value.
20
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF OPERATIONS
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(In Thousands)
NET REVENUES:
Periodicals
Advertising ............................................ $ 18,146
Subscription ........................................... 6,719
Ancillary Products and Services .......................... 4,532
Internet Services ........................................ 2,148
--------
Total Net Revenues .............................. 31,545
--------
OPERATING EXPENSES:
Editorial ................................................ 4,023
Production and Distribution .............................. 6,919
Selling .................................................. 4,640
General and Administrative ............................... 9,531
Internet Services ........................................ 6,464
Depreciation and Amortization ............................ 1,590
--------
Total Operating Expenses ........................ 33,167
--------
Operating Loss .................................. (1,622)
INTEREST EXPENSE, net ...................................... 1,420
--------
Net Loss (Note 2) ............................... $ (3,042)
--------
The accompanying notes to financial statements are an integral part of this
statement.
21
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(In Thousands)
Partners'
Contributed Net Accumulated
Capital Loss Deficit
------- ---- -------
BALANCE AT DECEMBER 31, 1996 ........ $31,677 $(57,977) $(26,300)
Net Loss ...................... -- (3,042) (3,042)
------- -------- --------
BALANCE AT JULY 31, 1997 ............ $31,677 $(61,019) $(29,342)
======= ======== ========
The accompanying notes to financial statements are an integral part of this
statement.
22
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1997
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(3,042)
-------
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization .......................... 1,590
Interest expense ....................................... 1,420
Allowance for doubtful accounts ........................ 304
Decrease (increase) in-
Accounts receivable and due from affiliate ........... 1,057
Inventories .......................................... 121
Other current assets ................................. (21)
Other assets ......................................... (56)
Increase (decrease) in-
Accounts payable ..................................... (1,137)
Accrued expenses ..................................... (998)
Deferred income ...................................... 85
-------
Total adjustments ............................... 2,365
-------
Net cash used in operating activities ........... (677)
-------
CASH FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (1,971)
-------
Net cash used in investing activities ........... (1,971)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner ...................... 3,173
-------
Net cash provided by financing activities ....... 3,173
-------
Net increase in cash ............................ 525
CASH, beginning of period .................................. 90
-------
CASH, end of period ........................................ $ 615
=======
The accompanying notes to financial statements are an integral part of this
statement.
23
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The unaudited financial statements for the seven months ended July 31,
1997 have been prepared in accordance with the instructions to Form 10-Q and
include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for such periods. They do not, however, include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. For further information, reference is made to
the financial statements for the fiscal year ended December 31, 1996 and the
footnotes related thereto included in American Lawyer Media, Inc.'s 1997 Annual
Report on Form 10-K. The results of operations for the seven months ended July
31, 1997 are not necessarily indicative of the results of operations for the
full year.
Revenue Recognition
Periodicals Advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in the
Company's publications. Advertising revenue is recognized upon release of the
related publications to subscribers. Allowances for estimated doubtful accounts
are provided based upon historical experience.
Periodicals Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary Products and Services revenues consist principally of a
third-party printing services, newsletter subscriptions, sales of professional
books and directories, Lexis/Nexis royalty income, seminary income, and a daily
fax service of court decisions.
Internet Services revenues consist of income earned from Counsel Connect
subscriptions and usage fees.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
Circulation Promotion (Subscription Direct Mail) Costs
Circulation promotion costs are charged to expense upon the release of the
campaign.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
24
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (continued)
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
Machinery and equipment ............................ 5 years
Buildings .......................................... 25 years
Furniture and fixtures ............................. 5 years
Computer equipment and software .................... 3-5 years
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life. The cost and accumulated depreciation
of property sold or retired are removed from the accounts upon disposition.
Intangibles and Goodwill
Intangible assets, consisting primarily of noncompete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
Accounts payable
Included in accounts payable are $425,000 of bank overdrafts as of July
31, 1997.
25
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
JULY 31, 1997
2. INCOME TAXES
No provision has been made in the accompanying statement of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
loss appearing on the accompanying statement of operation is reportable by each
of the partners on their individual tax returns.
3. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long-term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
4. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107--FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and due to general
partner. The carrying amount of these accounts approximates fair value.
26
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(In Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 714
Accounts receivable, net of allowances for doubtful accounts and
sales returns of $851 .................................. 6,945
Inventories, net ................................................ 877
Deferred tax benefits ........................................... 2,373
Prepaid expenses and other current assets ....................... 617
---------
Total current assets ................................... 11,526
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net .............. 2,566
INTANGIBLE ASSETS, net ............................................ 123,857
OTHER ASSETS ...................................................... 1,664
---------
Total assets ........................................... $ 139,613
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................... $ 3,751
Deferred revenue ................................................ 9,473
---------
Total current liabilities .............................. 13,224
---------
LONG-TERM DEBT .................................................... 62,300
---------
DEFERRED INCOME TAXES ............................................. 428
---------
OTHER NONCURRENT LIABILITIES ...................................... 1,630
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 125,000 shares authorized; 89,609
shares issued and outstanding .......................... 1
Additional paid-in capital ...................................... 66,165
Accumulated deficit ............................................. (4,135)
---------
Total stockholders' equity ............................. 62,031
---------
Total liabilities and stockholders' equity ............. $ 139,613
=========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
27
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
(In Thousands)
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
REVENUES:
Periodicals
Advertising ............................... $ 6,615 $ 19,563
Subscription .............................. 2,578 7,376
Ancillary Products and Services ............... 3,061 10,119
Internet Services ............................. 280 831
-------- --------
Total Revenues ...................... 12,534 37,889
-------- --------
OPERATING COSTS AND EXPENSES:
Editorial ..................................... 1,458 4,446
Production and Distribution ................... 2,387 7,313
Selling ....................................... 2,047 6,536
General and Administrative .................... 2,067 6,608
Internet Services ............................. 405 1,233
Depreciation and amortization ................. 1,892 5,671
-------- --------
Total operating Costs and Expenses .. 10,256 31,807
-------- --------
Operating Income .................... 2,278 6,082
INTEREST EXPENSE, NET ........................... (1,252) (3,965)
-------- --------
INCOME BEFORE INCOME TAXES ...................... 1,026 2,117
PROVISION FOR INCOME TAXES ...................... (2,000) (3,253)
-------- --------
NET LOSS ........................................ $ (974) $ (1,136)
======== ========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
28
<PAGE>
NATIONAL LAW PUBLISHING, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Treasury
Stock Capital Deficit Stock Total
----- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 .............. 1 $66,165 ($2,999) $ -- $ 63,167
Net (loss) for the nine month period
ended September 30, 1997 ......... - -- (1,136) -- (1,136)
--- ------- ------- ----- --------
BALANCE, September 30, 1997 ........... 1 $66,165 ($4,135) $ -- $ 62,031
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
29
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE AND NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... ($ 974) ($1,136)
------- -------
Adjustments to reconcile net (loss) to net
cash provided by operating activities ....................
Depreciation and amortization ............................ 1,892 5,671
Deferred income taxes .................................... 2,925 2,925
Changes in operating assets and liabilities-
Decrease in accounts receivable ........................ 355 443
Decrease (increase) in inventories ..................... 2 (41)
Decrease in prepaid expenses and other current assets .. 97 161
(Increase) in other assets ............................. (146) (103)
(Decrease) increase in accounts payable and accrued
expenses ........................................ (1,987) 235
(Decrease) increase in other noncurrent liabilities .... (100) 384
------- -------
Total adjustments ........................... 3,038 9,675
------- -------
Net cash provided by operating activities ....... 2,064 8,539
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements (109) (413)
------- -------
Net cash used in investing activities ........... (109) (413)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit ........................... (1,900) (8,000)
------- -------
Net cash used in financing activities .................. (1,900) (8,000)
------- -------
Net increase in cash and cash equivalents .............. 55 126
CASH AND CASH EQUIVALENTS, beginning of period ................ 659 588
------- -------
CASH AND CASH EQUIVALENTS, end of period ...................... $ 714 $ 714
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest ................................................. $ 2,147 $ 4,096
======= =======
Income taxes ............................................. $ 119 $ 331
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
30
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Presentation
The unaudited financial statements for the three and nine month periods
ended September 30, 1997 have been prepared in accordance with the instructions
to Form 10-Q and include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the results of operations for such periods. They do not, however, include all
of the information and disclosures required by generally accepted accounting
principles for audited financial statements. For further information, reference
is made to the financial statements for the fiscal year ended December 31, 1996
and the footnotes related thereto included in American Lawyer Media, Inc.'s 1997
Annual Report on Form 10-K. The results of operations for the three and nine
month periods ended September 30, 1997 are not necessarily indicative of the
results of operations for the full year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estates.
Concentrations of Credit Risk
National Law Publishing Company, Inc.'s ("NLP's") financial instruments
that are exposed to concentration of credit risk consist primarily of cash and
cash equivalents and trade accounts receivable. NLP believes it is not exposed
to any significant credit risk related to cash and cash equivalents.
Concentrations of credit risk with respect to trade accounts receivables are,
except for amounts due from legal advertising ad agents ("Legal Ad Agents"),
generally limited due to the large number of customers comprising NLP's customer
base. Such Legal Ad Agents do not have significant liquid net worth and, as a
result, NLP is exposed to a certain level of credit concentration risk in this
area, for which NLP believes it has adequately provided.
Revenue Recognition
Periodical Advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in NLP's
publications. Advertising revenue is recognized upon release of the related
publications.
Periodical Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary Products and Services revenues consist principally of newsletter
subscriptions, sales of professional books, seminar income and income from
electronic products. Book revenues are recognized upon shipment and are
reflected net of estimated returns. Newsletter revenues are recognized on the
same basis as subscription revenues. Seminar revenues are recognized when the
seminar is held. Income from electronic products is recognized monthly as the
service is provided.
Internet Services revenues consist primarily of revenues from
subscriptions and advertising. Internet subscription income is recognized on a
pro-rata basis over the life of a subscription, generally one year. Internet
advertising revenues are recognized upon the release of an advertisement on the
website.
31
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Subscription Income
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately 1,290,000 are included in accounts receivable in
the accompanying consolidated balance sheet as of September 30, 1997.
Expense Recognition
Advertising and Promotion Costs -- Advertising expenditures are expensed
when the particular advertisement is released. The Company capitalizes direct
response promotion costs. At September 30, 1997 approximately $1,519,000 of
direct response promotional costs, net of accumulated amortization of
$1,105,000, was recorded in other assets on the accompanying consolidated
balance sheet. Advertising expense was approximately $770,000 and $2,589,000 for
the three and nine month periods ended September 30, 1997, respectively. The
amortization of direct response promotion expenditures is included in selling
expense in the accompanying consolidated statement of operations.
Editorial Costs -- All editorial costs are expensed as incurred.
Cash and Cash Equivalents
NLP considers time deposits and certificates of deposit with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of professional books published and sold
by NLP and related binding materials utilized. Inventories are stated at the
lower of cost, as determined by the average cost method, or market.
Property, Plant and Equipment
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
Intangible Assets
Intangible assets include deferred financing costs with the amortization
and/or write-off of such costs classified as part of amortization expense.
Goodwill represents the excess of purchase price over the fair value of net
assets acquired.
32
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassification
Certain amounts contained in the accompanying statements have been
reclassified to conform with the current year presentation.
2. LONG-TERM DEBT
On December 1, 1995, NLP entered into a revolving credit facility
agreement (the "Credit Agreement") with the First National Bank of Boston (the
"Bank"), as a lender and as an agent for other lenders, under which NLP
Acquisition Co., Inc. ("NAI") borrowed $15,674,061 and The New York Law
Publishing Company ("NYLP") borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of NLP. Upon NAI's merger into NLP,
NYLP assumed the $15,674,061 of Bank debt, in the form of a dividend from NYLP
to NLP. NLP's borrowing capacity under the Credit Agreement, including cash
loans and standby letters of credit of up to $6.0 million, is $70.5 million at
September 30, 1997, and decreases semi-annually to $67.0 million at December 31,
1997. As of September 30, 1997, $62.3 million was outstanding under the Credit
Agreement.
The Credit Agreement requires, among other things, that NLP maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flows, consolidated operating cash flow to interest expense and consolidated
adjusted operating cash flow to consolidated fixed charges, as defined. The
Credit Agreement contains other restrictive covenants, including limitations on
indebtedness, investments and acquisitions, the disposition of assets,
transactions with affiliates and distributions to stockholders.
33
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING THE COMPANY'S BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY,
REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; TOGETHER WITH OTHER
STATEMENTS THAT ARE NOT HISTORICAL FACTS, ARE "FORWARD-LOOKING STATEMENTS"
AS THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH
STATEMENTS. SUCH RISKS, UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, CHANGES IN THE LEVELS OF ADVERTISING REVENUES, CHANGES AND
DELAYS IN NEW PRODUCT INTRODUCTION, CUSTOMER ACCEPTANCE OF NEW PRODUCTS,
GENERAL ECONOMIC CONDITIONS, AS WELL AS OTHER RISKS DETAILED IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
In August 1997, the Investors, through ALM (as defined in the Holding's
Registration Statement on Form S-4 (File No. 333-50119) (the "Registration
Statement"), consummated the acquisition of substantially all of the
publishing-related assets and assumptions of certain of the liabilities of
American Lawyer Media, L.P. ("Old ALM"), referred to herein as the ALM
Acquisition, and in December 1997, ALM consummated the NLP Acquisition. The ALM
Acquisition and NLP Acquisition (the "Acquisitions") have been accounted for
using the purchase method of accounting. The results of operations of Old ALM
have been included in the financial statements of the Company since August 1,
1997, the effective date of the ALM Acquisition, and the results of operations
of NLP have been included in the financial statements of the Company since
December 22, 1997, the closing date of the NLP Acquisition. As a result, the
Acquisitions will prospectively affect the Company's results of operations in
certain significant respects. In connection with the ALM Acquisition, the
purchase price was $63.0 million and the excess of the purchase price over the
book value of net tangible assets acquired was $67.7 million. The aggregate
purchase price for the NLP Acquisition was $203.2 million, and the excess of the
purchase price over the book value of net tangible assets acquired was $257.6
million. The excess purchase price of both Acquisitions has been allocated to
the tangible and intangible assets acquired by the Company based upon their
respective fair values as of the applicable acquisition date.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
The following discussion compares the financial results of the Company for
the nine months ended September 30, 1998, which includes the financial results
of the acquisitions of LegalTech and LCL, to financial information for the nine
months ended September 30, 1997 which was derived from the combination of Old
ALM, ALM and NLP. As a result, the financial information for the combined nine
months ended September 30, 1997 has not been prepared on a basis in conformity
with GAAP. The following table presents the calculation for such combined period
and for the nine months ended September 30, 1998 (in thousands):
34
<PAGE>
<TABLE>
<CAPTION>
AMERICAN
LAWYER
NLP FOR THE COMBINED MEDIA, INC.
OLD ALM ALM FOR 2 NINE FOR THE NINE FOR THE NINE
FOR 7 MONTHS MONTHS MONTHS MONTHS
MONTHS ENDED ENDED ENDED ENDED
ENDED JULY SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
31, 1997 30, 1997 30, 1997 30, 1997 30, 1998
---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals
Advertising ............... $ 18,146 $ 4,997 $19,563 $42,706 $49,810
Subscription .............. 6,719 1,894 7,376 15,989 16,930
Ancillary Products and Services 4,532 1,371 10,119 16,022 19,132
Internet Services .............. 2,148 -- 831 2,979 2,014
-------- -------- ------- ------- -------
Total revenues ........ 31,545 8,262 37,889 77,696 87,886
-------- -------- ------- ------- -------
Operating Costs and Expenses:
Editorial ...................... 4,023 1,154 4,446 9,623 11,169
Production and Distribution .... 6,919 1,980 7,313 16,212 18,804
Selling ........................ 4,640 1,326 6,536 12,502 13,528
General and Administrative ..... 9,531 2,882 6,608 19,021 21,421
Internet Services .............. 6,464 3,701 1,233 11,398 3,349
Depreciation and Amortization .. 1,590 1,338 5,671 8,599 18,797
-------- -------- ------- ------- -------
Total Operating Costs
and Expenses .......... 33,167 12,381 31,807 77,355 87,068
-------- -------- ------- ------- -------
Operating income/(loss) $ (1,622) $ (4,119) $ 6,082 $ 341 $ 818
======== ======== ======= ======= =======
</TABLE>
Overview. Net revenues increased by $10.2 million, or 13.1%, from $77.7 million
for the nine months ended September 30, 1997 to $87.9 million for the nine
months ended September 30, 1998. Total operating costs and expenses increased
$9.7 million, or 12.6%, from $77.4 million for the nine months ended September
30, 1997 to $87.1 million for the nine months ended September 30, 1998,
primarily due to a $10.2 million increase in depreciation and amortization
resulting from the ALM and NLP acquisitions. As a result, operating income
increased $0.5 million or 139.9%, from $0.3 million for the nine months ended
September 30, 1997 to $0.8 million for the nine months ended September 30, 1998,
while EBITDA increased $10.7 million, or 119.4%, from $8.9 million for the nine
months ended September 30, 1997 to $19.6 million for the nine months ended
September 30, 1998. Excluding from the third quarter of 1997 a $3.0 million one
time cost to shut down Counsel Connect, EBITDA increased $7.7 million or 64.4%.
Internet Services revenues decreased $1.0 million, or 32.4%, from $3.0 million
for the nine months ended September 30, 1997 to $2.0 million for the nine months
ended September 30, 1998. Internet Services expenses decreased $8.1 million, or
70.6%, from $11.4 million for the nine months ended September 30, 1997 to $3.3
million for the nine months ended September 30, 1998. Accordingly, excluding the
results from Internet Services, operating income decreased $6.6 million, or
75.4%, from $8.8 million for the nine months ended September 30, 1997 to $2.2
million for the nine months ended September 30, 1998, while EBITDA increased
$3.6 million, or 20.7%, from $17.4 million to $21.0 million over the same
periods.
Revenues. Advertising revenues increased $7.1 million, or 16.6%, from
$42.7 million for the nine months ended September 30, 1997 to $49.8 million for
the nine months ended September 30, 1998. The acquisition of LCL accounted for
$2.6 million of this increase. Without LCL, revenues increased $4.5 million, or
10.6%, due principally to an increase in advertising rates as well as an overall
increase in advertising pages.
35
<PAGE>
Subscription revenues increased $0.9 million, or 5.9%, from $16.0 million
for the nine months ended September 30, 1997 to $16.9 million for the nine
months ended September 30, 1998. This increase was primarily due to the addition
of LCL.
Revenues from ancillary products and services increased $3.1 million, or
19.4%, from $16.0 million for the nine months ended September 30, 1997 to $19.1
million for the nine months ended September 30, 1998. The additions of LCL and
Legal Tech accounted for $1.8 million of the increase. The $1.3 million balance
of this increase was due to an increase in the number of book updates released
along with increased royalty income. In addition, a portion of book sales
historically recorded in the fourth quarter were shipped and included in the
first quarter results of 1998.
Revenues from Internet Services decreased $1.0 million, or 32.4%, from
$3.0 million for the nine months ended September 30, 1997 to $2.0 million for
the nine months ended September 30, 1998. This decrease is attributable
primarily to the shutdown of Counsel Connect, Old ALM's Internet service.
Operating Expenses. Total operating costs and expenses increased $9.7
million, or 12.6%, from $77.4 million for the nine months ended September 30,
1997 to $87.1 million for the nine months ended September 30, 1998. This
increase is due to a $10.2 million increase in depreciation and amortization
resulting from the ALM and NLP acquisitions. The inclusion of $4.0 million in
expenses from LCL and LegalTech as well as other normal operating expense
increases were offset by the reduction in Internet service expenses.
Editorial expenses increased by $1.6 million, or 16.1%, from $9.6 million
for the nine months ended September 30, 1997 to $11.2 million for the nine
months ended September 30, 1998 as a number of key vacant positions were filled.
The addition of LCL accounted for $0.4 million of the increase.
Production and distribution expenses increased $2.6 million, or 16.0%,
from 16.2% for the nine months ended September 30, 1997 to $18.8 million for the
nine months ended September 30, 1998. The addition of LCL and LegalTech
accounted for $1.3 million of the increase. The remainder of this increase is
primarily the result of the increased book sales recorded as well as higher
paper usage at ALM's printing facilities.
Selling expenses increased $1.0 million, or 8.2%, from $12.5 million for
the nine months ended September 30, 1997 to $13.5 million for the nine months
ended September 30, 1998. This increase is primarily the result of the additions
of LCL and LegalTech.
General and administrative expenses increased $2.4 million, or 12.6%, from
$19.0 million for the nine months ended September 30, 1997 to $21.4 million for
the nine months ended September 30, 1998. This increase reflects $1.3 million of
costs associated with the additions of LCL and LegalTech. The balance of the
increase is primarily the result of costs, associated with one time charges,
transitional factors and salary increases.
Internet Services expenses decreased $8.1 million, or 70.6%, from $11.4
million for the nine months ended September 30, 1997 to $3.3 million for the
nine months ended September 30, 1998. This decrease is the direct result of the
shutdown of Counsel Connect.
Depreciation and amortization expenses increased $10.2 million, or 118.6%,
from $8.6 million for the nine months ended September 30, 1997 to $18.8 million
for the nine months ended September 30, 1998. These expenses are not comparable
for the two periods due to purchase accounting adjustments related to the ALM
and NLP acquisition.
Operating Income. As a result of the above factors, operating income
increased $0.5 million, or 139.9%, from $0.3 million for the nine months ended
September 30, 1997 to $0.8 million for the nine months ended September 30, 1998,
while EBITDA increased $10.7 million, or 119.4%, from $8.9 million for the nine
months ended September 30, 1997 to $19.6 million for the nine months ended
September 30, 1998. Excluding the LCL
36
<PAGE>
LegalTech Acquisitions, EBITDA increased $9.5 million, or 105.7%, from $8.9
million for the nine months ended September 30, 1997 to $18.4 million for the
nine months ended September 30, 1998.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997.
The following discussion compares the financial results of the Company for
the quarter ended September 30, 1998, which includes financial results of the
acquisitions of LegalTech and LCL, to financial information for the quarter
ended September 30, 1997 which was derived from the combination of Old ALM, ALM
and NLP. As a result, the financial information for the combined quarter ended
September 30, 1997 has not been prepared on a basis in conformity with GAAP. The
following table presents the calculation for such combined period and for the
quarter ended September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
AMERICAN
LAWYER
NLP FOR COMBINED MEDIA
OLD ALM ALM FOR 2 THE 3 FOR THE 3 FOR THE
FOR ONE MONTHS MONTHS MONTHS 3 MONTHS
MONTH ENDED ENDED ENDED ENDED
ENDED JULY SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
31, 1997 30, 1997 30, 1997 30, 1997 30, 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals
Advertising .......... $2,624 $ 4,997 $ 6,615 $ 14,236 $ 16,750
Subscription ......... 920 1,894 2,578 5,392 5,763
Ancillary Products and Services 859 1,371 3,061 5,291 6,055
Internet Services ............. 252 -- 280 532 650
------ -------- ------- -------- --------
Total Revenues ....... 4,655 8,262 12,534 25,451 29,218
------ -------- ------- -------- --------
Operating Costs and Expenses:
Editorial ..................... 638 1,154 1,458 3,250 4,028
Production and Distribution ... 898 1,980 2,387 5,265 6,494
Selling ....................... 688 1,326 2,047 4,061 4,383
General and Administrative .... 1,141 2,882 2,067 6,090 6,948
Internet Services ............. 773 3,701 405 4,879 1,207
Depreciation and Amortization . 276 1,338 1,892 3,506 6,438
Total Operating Costs
and Expenses ......... 4,414 12,381 10,256 27,051 29,498
------ -------- ------- -------- --------
Operating
income/(loss) ........ $ 241 $ (4,119) $ 2,278 $ (1,600) $ (280)
====== ======== ======= ======== ========
</TABLE>
Overview. Net revenues increased by $3.7 million, or 14.8%, from $25.5
million for the quarter ended September 30, 1997 to $29.2 million for the
quarter ended September 30, 1998. Total operating costs and expenses increased
$2.4 million, or 9.0%, from $27.1 million for the quarter ended September 30,
1997 to $29.5 million for the quarter ended September 30, 1998 due to a $2.9
million increase in depreciation and amortization resulting from the ALM and NLP
acquisitions. As a result, the operating loss decreased $1.3 million, from $1.6
million for the quarter ended September 30, 1997 to $0.3 million for the quarter
ended September 30, 1998, while EBITDA increased $4.3 million, or 223.1%, from
$1.9 million for the quarter ended September 30, 1997 to $6.2 million for the
quarter ended September 30, 1998. Excluding from the third quarter of 1997 a
$3.0 million one time cost to shut down Counsel Connect, EBITDA increased $1.3
million or 25.5%. Internet Services revenues increased $0.2 million, or 22.2%,
from $0.5 million for the quarter ended September 30, 1997 to $0.7 million for
the quarter ended
37
<PAGE>
September 30, 1998. Internet Services expenses decreased $3.7 million, or 75.3%,
from $4.9 million for the quarter ended September 30, 1997 to $1.2 million for
the quarter ended September 30, 1998. Accordingly, excluding the results from
Internet Services, operating income decreased $2.4 million, or 89.9%, from $2.7
million for the quarter ended September 30, 1997 to $0.3 million for the quarter
ended September 30, 1998, while EBITDA increased $0.4 million, or 7.4%, from
$6.3 million to $6.7 million over the same periods.
Revenues. Advertising revenues increased $2.6 million, or 17.7%, from
$14.2 million for the quarter ended September 30, 1997 to $16.8 million for the
quarter ended September 30, 1998. The acquisition of LCL accounted for $1.3
million of this increase. Without LCL, revenues increased $1.3 million, or 8.5%,
due principally to an increase in advertising rates as well as an overall
increase in advertising pages.
Subscription revenues increased $0.4 million, or 6.9%, from $5.4 million
for the quarter ended September 30, 1997 to $5.8 million for the quarter ended
September 30, 1998. This increase was primarily due to the acquisition of LCL.
Revenues from ancillary products and services increased $0.8 million, or
14.4%, from $5.3 million for the quarter ended September 30, 1997 to $6.1
million for the quarter ended September 30, 1998. This increase was due to the
additions of LCL and LegalTech as well as an increase in the number of book
updates in the quarter.
Revenues from Internet Services increased $0.2 million, or 22.2%, from
$0.5 million for the quarter ended September 30, 1997 to $0.7 million for the
quarter ended September 30, 1998. This increase is attributable primarily to an
increase in advertising revenue.
Operating Expenses. Total operating costs and expenses increased $2.4
million, or 9.0%, from $27.1 million for the quarter ended September 30, 1997 to
$29.5 million for the quarter ended September 30, 1998. This increase is due to
a $2.9 million increase in depreciation and amortization resulting from the ALM
and NLP acquisitions as well as in the inclusion of $2.0 million in expenses
from LCL and LegalTech.
Editorial expenses increased by $0.7 million, or 23.9%, from $3.3 million
for the quarter ended September 30, 1997 to $4.0 million for the quarter ended
September 30, 1998 as a number of key vacant positions were filled. The addition
of LCL accounted for $0.2 million of the increase.
Production and distribution expenses increased $1.2 million, or 23.3%,
from $5.3 million for the quarter ended September 30, 1997 to $6.5 million for
the quarter ended September 30, 1998. The addition of LCL and LegalTech
accounted for $0.6 million of the increase. The remainder of this increase is
primarily the result of the increased book sales recorded in the third quarter
as well as higher paper usage at ALM's printing facilities.
Selling expenses increased $0.3 million, or 7.9%, from $4.1 million for
the quarter ended September 30, 1997 to $4.4 million for the quarter ended
September 30, 1998. This increase is primarily the result of the additions of
LCL and LegalTech.
General and administrative expenses increased $0.8 million, or 14.1%, from
$6.1 million for the quarter ended September 30, 1997 to $6.9 million for the
quarter ended September 30, 1998. This increase reflects $0.6 million of costs
associated with the addition of LCL and LegalTech. Transition costs associated
with the Company's new corporate structure contributed to the increase.
Internet Services expenses decreased $3.7 million, or 75.3%, from $4.9
million for the quarter ended September 30, 1997 to $1.2 million for the quarter
ended September 30, 1998. This decrease is the direct result of the shutdown of
Counsel Connect.
Depreciation and amortization expenses increased $2.9 million, or 83.6%,
from $3.5 million for the quarter ended September 30, 1997 to $6.4 million for
the quarter ended September 30, 1998. These expenses are not comparable for the
two periods due to purchase accounting adjustments related to the ALM and NLP
acquisitions.
38
<PAGE>
Operating Income. As a result of the above factors, the operating loss
decreased $1.3 million, or 82.5%, from $1.6 million for the quarter ended
September 30, 1997 to $0.3 million for the quarter ended September 30, 1998,
while EBITDA increased $4.3 million, or 223.1%, from $1.9 million for the
quarter ended September 30, 1997 to $6.2 million for the quarter ended September
30, 1998. Excluding the LCL and LegalTech acquisitions, EBITDA increased $3.7
million, or 191.5% from $1.9 million for the quarter ended September 30, 1997 to
$5.6 million for the quarter ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures. The Company's operations are not capital intensive.
Capital expenditures were $1.0 million for the nine months ended September 30,
1998. Capital spending in 1998 is expected to be approximately $5.5 million.
This is higher than historical and expected future spending due to the
anticipated consolidation of ALM and NLP offices in 1998.
Net Cash Provided By Operating Activities. Net cash provided by operating
activities was $19.0 million for the nine months ended September 30, 1998, as a
net loss of $13.7 million, along with reductions in accounts payable and accrued
expenses of $1.6 million and $2.3 million respectively, were more than offset by
depreciation and amortization of $18.8 million and an increase in accrued
interest payable of $4.8 million.
Net Cash Used In Investing Activities. Net cash used in investing
activities was $32.4 million for the nine months ended September 30, 1998. In
March 1998, the Company acquired Corporate Presentations, Inc. for $10.8 million
in cash and incurred $0.2 million in deal costs. In April 1998, the Company
acquired LCL for $20.1 million in cash and incurred $0.5 million of deal costs.
In addition, capital expenditures were $1.0 million through the first nine
months.
Net Cash Provided By Financing Activities. Net cash provided by financing
activities totaled $18.3 million for the nine months ended September 30, 1998
which was the direct result of a capital contribution made by Holdings.
Year 2000 Compliance. The Company is in the process of modifying,
upgrading or replacing its computer software applications and systems which the
Company expects will accommodate the "Year 2000" dating changes necessary to
permit correct recording of year dates for 2000 and later years. The Company
does not expect that the cost of its Year 2000 compliance program will be
material to its financial condition or results of operations. The Company
believes that it will be able to achieve compliance by the end of 1999, and does
not currently anticipate any material disruption in its operations as the result
of any failure by the Company to be in compliance. The Company does not
currently have any adverse information concerning the compliance status of its
suppliers and customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
39
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule for American Lawyer Media Holdings, Inc.
(b) Reports on Form 8-K.
None.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
AMERICAN LAWYER MEDIA
HOLDINGS, INC.
November 11, 1998
/s/ William L. Pollak
------------------------------------------
William L. Pollak
President and Chief Executive Officer
November 11, 1998
/s/ Leslye G. Katz
------------------------------------------
Leslye G. Katz
Vice President and Chief Financial Officer
41
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FILING AT SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001059496
<NAME> AMERICAN LAWYER MEDIA HOLDINGS, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUN-30-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 617 617
<SECURITIES> 0 0
<RECEIVABLES> 15,888 15,888
<ALLOWANCES> 3,562 3,562
<INVENTORY> 1,570 1,570
<CURRENT-ASSETS> 16,845 16,845
<PP&E> 7,677 7,677
<DEPRECIATION> 2,041 2,041
<TOTAL-ASSETS> 371,763 371,763
<CURRENT-LIABILITIES> 37,594 37,594
<BONDS> 213,400 213,400
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 68,589 68,589
<TOTAL-LIABILITY-AND-EQUITY> 371,763 371,763
<SALES> 29,218 87,886
<TOTAL-REVENUES> 29,218 87,886
<CGS> 10,522 29,973
<TOTAL-COSTS> 29,498 87,068
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (5,873) (17,101)
<INCOME-PRETAX> (6,153) (16,283)
<INCOME-TAX> (836) (2,583)
<INCOME-CONTINUING> (5,317) (13,700)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,317) (13,700)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
