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 June 30, 1999.
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 333-50117
AMERICAN LAWYER MEDIA HOLDINGS, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980414
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) 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 August 1, 1999 there were 100 shares of the registrant's Common Stock
outstanding.
1
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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.........................16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................21
PART II
OTHER INFORMATION........................................................22
ITEM 1 LEGAL PROCEEDINGS...........................................22
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........22
ITEM 5. OTHER INFORMATION...........................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................22
2
<PAGE>
INDEX TO FINANCIAL INFORMATION
PAGE
----
Consolidated Financial Statements of American Lawyer Media Holdings, Inc.
Consolidated Balance Sheets at June 30, 1999 and
December 31, 1998....................................................4
Consolidated Statements of Operations for the Six Months
Ended June 30, 1999 and 1998.........................................5
Consolidated Statements of Operations for the Three Months
Ended June 30, 1999 and 1998.........................................6
Consolidated Statement of Changes in Stockholder's Equity
for the Six Months Ended June 30, 1999...............................7
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1999 and 1998........................................8
Notes to Consolidated Financial Statements at June 30, 1999............... 9-15
3
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 285 $ 514
Accounts receivable, net of allowance for doubtful accounts
and returns of $4,259 and $3,595, respectively .................... 18,322 14,850
Inventories, net ..................................................... 1,406 1,849
Other current assets ................................................. 1,751 1,361
--------- ---------
Total current assets .............................................. 21,764 18,574
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization of $4,685 and
$3,441, respectively ................................................. 10,877 7,146
INTANGIBLE ASSETS, net of accumulated amortization of
$19,560 and $13,579, respectively .................................... 159,862 165,843
GOODWILL, net of accumulated amortization of $18,166 and
$12,231, respectively ................................................ 161,467 167,402
DEFERRED FINANCING COSTS, net of accumulated
amortization of $1,490 and $997, respectively ........................ 7,981 8,474
DEFERRED INCOME TAXES ................................................... -- --
OTHER ASSETS ............................................................ 418 421
--------- ---------
Total assets ...................................................... $ 362,369 $ 367,860
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 2,161 $ 2,527
Accrued expenses ..................................................... 11,705 11,580
Accrued interest payable ............................................. 1,128 1,076
Deferred income (including deferred subscription income of
$18,269 and $16,997, respectively) ................................ 19,804 18,241
--------- ---------
Total current liabilities ......................................... 34,798 33,424
--------- ---------
LONG TERM DEBT .......................................................... 14,000 8,500
--------- ---------
SENIOR NOTES ............................................................ 175,000 175,000
--------- ---------
SENIOR DISCOUNT NOTES ................................................... 42,100 39,538
--------- ---------
DEFERRED INCOME TAXES ................................................... 42,148 43,834
--------- ---------
OTHER NONCURRENT LIABILITIES ............................................ 3,801 5,031
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock - $.01 par value; 1,000 shares authorized; 100 issued and
outstanding at June 30, 1999 and December 31, 1998 ................ 1 1
Paid-in-capital ...................................................... 89,999 89,999
Accumulated deficit .................................................. (39,478) (27,467)
--------- ---------
Total stockholder's equity ........................................ 50,522 62,533
--------- ---------
Total liabilities and stockholder's equity ........................ $ 362,369 $ 367,860
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
4
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
1999 1998
-------- --------
NET REVENUES:
Periodicals
Advertising .............................. $ 37,388 $ 33,060
Subscription ............................. 11,643 11,167
Ancillary Products and Services ............. 16,035 13,077
Internet Services ........................... 973 1,363
-------- --------
Total net revenues ....................... 66,039 58,667
-------- --------
OPERATING EXPENSES:
Editorial ................................... 10,152 7,140
Production and Distribution ................. 14,582 12,310
Selling ..................................... 11,978 9,145
General and Administrative .................. 15,058 14,472
Internet Services ........................... 2,813 2,142
Depreciation and Amortization ............... 13,162 12,359
-------- --------
Total operating expenses ................. 67,745 57,568
-------- --------
Operating (loss) income .................. (1,706) 1,099
INTEREST EXPENSE, net .......................... (11,980) (11,229)
-------- --------
Loss before income taxes .................... (13,686) (10,130)
BENEFIT FOR INCOME TAXES ....................... 1,675 1,747
-------- --------
Net loss .................................... $(12,011) $ (8,383)
======== ========
The accompanying notes to the consolidated financial
statements are an integral part of these financial statements.
5
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(IN THOUSANDS)
1999 1998
-------- --------
NET REVENUES:
Periodicals
Advertising .............................. $ 19,414 $ 18,106
Subscription ............................. 5,997 6,027
Ancillary Products and Services ............. 8,106 7,449
Internet Services ........................... 496 709
-------- --------
Total net revenues ....................... 34,013 32,291
-------- --------
OPERATING EXPENSES:
Editorial ................................... 5,269 3,779
Production and Distribution ................. 7,212 6,838
Selling ..................................... 5,918 4,895
General and Administrative .................. 7,703 7,371
Internet Services ........................... 1,550 1,032
Depreciation and Amortization ............... 6,659 6,413
-------- --------
Total operating expenses ................. 34,311 30,328
-------- --------
Operating (loss) income .................. (298) 1,963
INTEREST EXPENSE, net .......................... (6,065) (5,742)
-------- --------
Loss before income taxes .................... (6,363) (3,779)
BENEFIT FOR INCOME TAXES ....................... 832 810
-------- --------
Net loss .................................... $ (5,531) $ (2,969)
======== ========
The accompanying notes to the consolidated financial
statements are an integral part of these financial statements.
6
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 .... 100 $ 1 $ 89,999 $(27,467) $ 62,533
Net Loss ........................ -- -- -- (12,011) (12,011)
-------- ------ -------- -------- --------
BALANCE AT JUNE 30, 1999 ........ 100 $ 1 $ 89,999 $(39,478) $ 50,522
======== ====== ======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial
statements are an integral part of this financial statement.
7
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(12,011) $ (8,383)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities
Depreciation and amortization ..................................... 13,162 12,359
Non-cash interest ................................................. 495 --
Decrease (increase) in -
Accounts receivable, net ..................................... (3,472) 874
Inventories .................................................. 443 137
Other current assets ......................................... (392) 233
Deferred financing costs ..................................... -- (1,272)
Other assets ................................................. 3 9
Increase (decrease) in -
Accounts payable ............................................. (366) (1,228)
Accrued expenses ............................................. 121 (1,523)
Accrued interest payable ..................................... 52 403
Deferred income .............................................. 1,563 694
Other noncurrent liabilities ................................. (2,916) (1,715)
-------- --------
Total adjustments ............................................ 8,693 8,971
-------- --------
Net cash (used in) provided by operating activities .......... (3,318) 588
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................. (4,975) (558)
Purchase of business:
Working capital, other than cash ............................. -- 426
Property plant and equipment ................................. -- (450)
Cost in excess of net assets of company acquired ............. -- (31,980)
Acquisition related costs and expenses ....................... -- 270
-------- --------
Net cash used in investing activities ........................ (4,975) (32,292)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution .............................................. -- 15,000
Issuance of debt................................................... -- 7,000
Borrowings on Revolver ............................................ 5,500 --
Accretion of interest on senior discount notes .................... 2,564 2,144
-------- --------
Net cash (used in) provided by financing activities .......... 8,064 24,144
-------- --------
Net increase (decrease) in cash and cash equivalents ......... (229) (7,560)
CASH AND CASH EQUIVALENTS, beginning of period .......................... 514 9,442
-------- --------
CASH AND CASH EQUIVALENTS, end of period ................................ $ 285 $ 1,882
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Income taxes ................................................. $ 55 $ 255
======== ========
Interest ..................................................... $ 8,847 $ 8,297
======== ========
</TABLE>
The accompanying notes to the consolidated financial
statements are an integral part of these financial statements.
8
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION & OPERATIONS
American Lawyer Media Holdings, Inc. ("Holdings") is the parent company of
American Lawyer Media, Inc. ("Media"). Holdings was formerly named Cranberry
Partners, LLC ("Cranberry").
Cranberry, a Delaware limited liability company, was formed on August 1,
1997. On August 27, 1997 (the "ALM Acquisition Closing"), Cranberry acquired
substantially all of the assets and liabilities of American Lawyer Media L.P.
("Old ALM") for $63,000,000 ("ALM Acquisition"). The acquisition was effective
retroactively to July 31, 1997. As of the ALM Acquisition Closing, all of the
membership interests of Cranberry were held by W.P. Management Partners, LLC on
behalf of U.S. Equity Partners, L.P. and certain of its affiliates. Old ALM is a
publisher of legal publications, which includes primarily The American Lawyer,
Corporate Counsel, AmLaw Tech, The Connecticut Law Tribune, Legal Times, New
Jersey Law Journal, The Recorder, Texas Lawyer, Fulton County Daily Report, and
Miami Daily Business Review. In addition, Old ALM operated Counsel Connect, a
membership-based internet service exclusively for lawyers and legal
professionals. Holdings' operations are based in New York with regional offices
in seven states and the District of Columbia.
Prior to the ALM Acquisition Closing, Cranberry formed ALM Holdings, LLC,
a Delaware limited liability company, and ALM Holdings, LLC formed two
wholly-owned subsidiaries, ALM, LLC (a New York limited liability company) and
Counsel Connect, LLC (a Delaware limited liability company) and one 99% owned
subsidiary (the remaining 1% of which was, as of the ALM Acquisition Closing,
held by W.P. Management Partners, LLC on behalf of U.S. Equity Partners, L.P.
and certain of its affiliates), ALM IP, LLC (a Delaware limited liability
company). On the ALM Acquisition Closing, Cranberry transferred all of the
non-intellectual property publishing assets and liabilities acquired from Old
ALM to ALM, LLC, all the non-intellectual property Counsel Connect assets and
liabilities acquired from Old ALM to Counsel Connect, LLC, and all of the
intellectual property assets acquired from Old ALM to ALM IP, LLC.
On November 26, 1997, Cranberry was merged with and into ALM Capital Corp.
(a Delaware corporation), and ALM Capital Corp. was simultaneously renamed
American Lawyer Media Holdings, Inc. Also on November 26, 1997, ALM Holdings,
LLC was merged with and into ALM Capital Corp. II (a Delaware corporation), and
ALM Capital Corp. II was simultaneously renamed American Lawyer Media, Inc.
In December 1997, Holdings received capital contributions from its
stockholders, Wasserstein & Co., Inc., U.S. Equity Partners L.P. and U.S. Equity
Partners (Offshore) L.P., totaling $75 million. On December 22, 1997, Holdings
issued $35 million of 12.25% Senior Discount Notes in an offering under Rule
144A promulgated under the Securities Act of 1933, as amended (the "Act").
Simultaneously, Holdings contributed capital of $108.8 million to Media. Also on
December 22, 1997, Media issued $175 million of 9.75% Senior Notes in an
offering under Rule 144A promulgated under the Act. Media used a portion of the
capital and the proceeds from Media's 144A offering to acquire all of the
outstanding capital stock of National Law Publishing Company, Inc. (a Delaware
corporation) ("Old NLP") for approximately $203 million (the "NLP Acquisition")
through a wholly owned subsidiary, NLP Acquisition Co., Inc., (a New York
corporation) ("Acquisition"). Old NLP was then, on December 22, 1997, merged
with and into Acquisition with Acquisition surviving. Subsequent to the merger,
Acquisition was renamed National Law Publishing Company, Inc. ("NLP"). At the
closing of the NLP Acquisition, all intellectual property of NLP and its
subsidiaries was transferred to NLP IP
9
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 30, 1999
1. ORGANIZATION & OPERATIONS (continued)
Company, a Delaware Corporation, a wholly-owned subsidiary of NLP. Old NLP is a
publisher of legal publications, which include New York Law Journal, The
National Law Journal Journal and Law Technology News. In addition, Old NLP
operated Law Journal Extra!, a membership-based internet service for lawyers and
legal professionals, publishes legal text and provides seminars targeted at the
U.S. legal community.
On April 2, 1998, the Board of Directors authorized Holdings to issue
shares of Holdings' $.01 par value per share common stock to U.S. Equity
Partners, L.P., in consideration of payment by U.S. Equity Partners, L.P., of
$15,000,000.
On December 29, 1998, Media enacted an internal plan of reorganization
(the "Plan") approved by a subcommittee of Holdings' Board of Directors
appointed by the Board of Directors at its quarterly meeting on November 9,
1998. Pursuant to the Plan, Holdings and its subsidiaries entered into the
following transactions: (i) ALM, LLC merged with and into The New York Law
Publishing Company, a New York corporation, and a wholly-owned indirect
subsidiary of Holdings ("NYLP"), with NYLP surviving; (ii) ALM IP, LLC merged
with and into NLP IP Company, with NLP IP Company surviving; (iii) ALM Counsel
Connect , Inc. merged with and into Counsel Connect, LLC, with Counsel Connect
LLC surviving; (iv) ALM formed a new, wholly-owned subsidiary, Professional On
Line, Inc., a Delaware corporation ("POL"); (v) Counsel Connect LLC merged with
and into POL with POL surviving; (vi) Law Journal Extra, Inc., a New York
corporation, and wholly-owned indirect subsidiary of Holdings, merged with and
into POL with POL surviving; and (vii) Legal Tech, LLC, a Delaware limited
liability company, and a wholly-owned indirect subsidiary of Holdings, merged
with and into NYLP with NYLP surviving.
Effective March 5, 1999, ALM Intermediate Offshore Holdings, Inc. ("ALM
Intermediate") was merged with and into Media with Media surviving (the
"Reorganization Merger"). Immediately prior to the effectiveness of the
Reorganization Merger, (i) ALM Intermediate owned a record 14,411 shares of
Common Stock, par value $.01 per share, of Media (the "ALM Intermediate Shares")
and (ii) all of the issued and outstanding capital stock of ALM Intermediate was
owned of record by U.S. Equity Partners (Offshore), L.P. ("Offshore"). In
connection with the Reorganization Merger, the ALM Intermediate Shares became
treasury shares of Media and were simultaneously reissued directly to Offshore.
The beneficial ownership of the capital stock of Media has not changed as a
result of the Reorganization Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of American
Lawyer Media Holdings, Inc. and its wholly-owned subsidiaries which, unless the
context otherwise requires, are collectively referred to herein as "Holdings".
Intercompany transactions and balances have been eliminated in consolidation.
10
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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
Holdings' financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. Holdings 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 Holdings' customer base. Such Legal Ad Agents do not have
significant liquid net worth and, as a result, Holdings is exposed to a certain
level of credit concentration risk in this area, for which Holdings 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 Holdings'
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 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 $5,078,600 and $2,602,000 are included in accounts
receivable in the accompanying consolidated June 30, 1999 and December 31, 1998
balance sheets, respectively.
11
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising and Promotion Costs
Advertising and promotion expenditures, which totaled approximately
$1,790,900 and $1,448,000 for the three month periods ended June 30, 1999 and
1998, respectively, and $2,910,000 and $2,763,000 for the six months ended June
30, 1999 and 1998, respectively, are expensed as the related advertisements or
campaigns are released.
Cash and Cash Equivalents
Holdings 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 Holdings and its outside printers and professional books published
and sold by Holdings. 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 ALM and NLP Acquisitions, 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 and NLP Acquisitions. Assets purchased after the ALM
and NLP Acquisitions 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. Holdings'
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.
12
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Deferred income taxes are provided for the temporary differences between
the financial reporting and the tax basis of Holdings' 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.
Reclassifications
Certain 1998 amounts have been reclassified to conform with the current
year presentation.
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 accrete 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, Media issued $175,000,000 of 9.75% Senior Notes (the
"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 Media's existing and future subsidiaries other than POL (Professional On
Line, Inc.). The Senior Notes may be redeemed at any time by Media, in whole or
in part, at various redemption prices that include accrued and unpaid interest.
The Senior Notes contain certain covenants that, among other things, limit the
incurrence of additional indebtedness by Media and its subsidiaries, the payment
of dividends and other restricted payments by Media 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
13
<PAGE>
redemption of the Senior Notes prior to maturity, the entire principal will be
payable on December 15, 2007.
On March 25, 1998, Holdings and Media (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 existing and future subsidiaries of Media other than POL. In
addition, the Revolving Credit Facility is secured by a first priority security
interest in substantially all of the properties and assets of Media 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 Media. The
Revolving Credit Facility bears interest at a fluctuating rate determined by
reference to (i) the Base Rate plus a margin ranging from .25% to 1.5%, or (ii)
the Eurodollar Rate plus a margin ranging from 1.25% to 2.5%, as the case may
be. The applicable margin is based on Media'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
14
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
JUNE 30, 1999
3. DEBT (continued)
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 Media, and (ii) the maximum reserve percentage in effect under regulations
issued from time to time by the Federal Reserve Board. Media 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.
On April 26, 1999, Holdings and Media amended the Revolving Credit
Facility, effective as of March 29, 1999. This amendment limits Media's ability
to borrow in excess of $20,000,000 under the Revolving Credit Facility until
certain ratios are achieved. This amendment also adjusted certain covenants
contained in the original Revolving Credit Facility.
As of June 30, 1999, the unused commitment is approximately $26,000,000. A
10% increase in the average rate during the first six months of 1999 would have
increased Holdings' net loss to approximately $(12,043,000).
4. SUBSEQUENT EVENT
On July 27, 1999, Media sold all of the common stock, par value $.01 per
share, of POL, to which Media had previously transferred substantially all of
its and its subsidiaries' internet and electronic commerce business, to Law.Com
Acquisition Corp. ("Law.Com") for $1,000,000 in cash. Law.Com is a leading web
destination for law information, e-commerce and e-services and is owned
primarily by the stockholders' of Holdings. Media owns all of the preferred
stock of Law.Com, Inc. (successor to Law.Com).
15
<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 HOLDINGS, INCLUDING THE NOTES THERETO,
INCLUDED ELSEWHERE IN THIS FORM 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING HOLDINGS' 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
HOLDINGS' FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
The following discussion compares the financial results of Holdings for the six
months ended June 30, 1999, which includes the acquisitions of LegalTech and LCL
(as defined below), to financial information for the six months ended June 30,
1998. On March 3, 1998, a newly formed wholly-owned subsidiary of Media
purchased all the assets and assumed certain of the liabilities related to
Corporate Presentations, Inc. ("Legal Tech"), a producer of trade shows and
conferences relating to law practice technology. On March 31, 1998 (effective
April 1, 1998), Media and a wholly-owned subsidiary of Media purchased all of
the legal publishing-related assets and assumed certain liabilities related to
Legal Communications, Ltd. ("LCL"), which is now the Philadelphia division of
Media.
Overview. Net revenues increased by $7.4 million, or 12.6%, from $58.6 million
for the six months ended June 30, 1998 to $66.0 million for the six months ended
June 30, 1999. Total operating costs and expenses increased $10.2 million, or
17.7%, from $57.6 million for the six months ended June 30, 1998 to $67.7
million for the six months ended June 30, 1999. As a result, operating profit
decreased $2.8 million, or 254.2%, from $1.1 million for the six months ended
June 30, 1998 to a loss of $1.7 million for the six months ended June 30, 1999.
EBITDA decreased $2.0 million, or 14.8%, from $13.5 million for the six months
ended June 30, 1998 to $11.5 million for the six months ending June 30, 1999.
Internet Services revenues decreased $0.4 million, or 28.6%, from $1.4 million
for the six months ended June 30, 1998 to $1.0 million for the six months ending
June 30, 1999. Internet Services expenses increased $0.7 million, or 31.3%, from
$2.1 million for the six months ended June 30, 1998 to $2.8 million for the six
months ended June 30, 1999. Accordingly, excluding the results from Internet
Services, operating profit decreased $1.7 million, or 92.2%, from $1.9 million
for the six months ended June 30, 1998 to $0.2 million for the six months ended
June 30, 1999. See note 5 to the Consolidated Financial Statements.
Revenues. Advertising revenues increased $4.3 million, or 13.1%, from $33.1
million for the six months ended June 30, 1998 to $37.4 million for the six
months ended June 30, 1999. The acquisition of LCL accounted for $2.0 million of
this increase. Without LCL, revenues increased $2.3 million, or 7.0%, due
16
<PAGE>
principally to an increase in advertising rates as well as an overall increase
in advertising pages.
Subscription revenues increased $0.5 million, or 4.3%, from $11.2 million for
the six months ended June 30, 1998 to $11.6 million for the six months ended
June 30, 1999. This increase was due primarily to the acquisition of LCL.
Revenues from Ancillary Products and Services increased $3.0 million, or 22.6%,
from $13.1 million for the six months ended June 30, 1998 to $16.0 million for
the six months ended June 30, 1999. The acquisitions of LCL and LegalTech
accounted for $2.5 million, or 86%, of this increase.
Revenues from Internet Services decreased $0.4 million, or 28.6%, from $1.4
million for the six months ended June 30, 1998 to $1.0 million for the six
months ended June 30, 1999. This decrease is primarily due to the shutdown of
the Counsel Connect website.
Operating Expenses. Total operating expenses increased $10.2 million, or 17.7%,
from $57.6 million for the six months ended June 30, 1998 to $67.7 million for
the six months ended June 30, 1999. This increase is due primarily to $3.3
million of LCL and LegalTech expenses, as well as Holdings' investment in new
products, product extensions and expanded Internet presence.
Editorial expenses increased $3.0 million, or 42.2%, from $7.1 million for the
six months ended June 30, 1998 to $10.1 million for the six months ended June
30, 1999. The acquisition of LCL and start up costs for new initiatives (The
Daily Deal) and High End Newsletters (a new division which produces weekly
newsletters) accounted for $0.8 million with general salary increases and the
filling of a number of key vacant positions accounting for the remaining
increase.
Production and Distribution expenses increased $2.3 million, or 18.5%, from
$12.3 million for the six months ended June 30, 1998 to $14.6 million for the
six months ended June 30, 1999. The acquisitions of LCL and LegalTech increased
expenses by $1.3 million, or 10.0%. The remaining increase is due primarily to
the introduction of a new weekly publication in California (Cal Law Weekly) and
for start up costs associated with new initiatives (The Daily Deal) and High End
Newsletters.
Selling expenses increased $2.8 million, or 31.0%, from $9.1 million for the six
months ended June 30, 1998 to $11.9 million for the six months ended June 30,
1999. LCL and LegalTech accounted for $1.0 million, new initiatives accounted
for $0.4 million and the Core Business (total business excluding new
initiatives) increased $1.4 million primarily due to increased volume.
General and Administrative expenses increased $0.6 million, or 4.0%, from $14.5
million for the six months ended June 30, 1998 to $15.1 million for the six
months ended June 30, 1999. This increase is due primarily to the acquisitions
of LCL and LegalTech.
Internet Services expenses increased $0.7 million, or 31.3%, from $2.1 million
for the six months ended June 30, 1998 to $2.8 million for the six months ended
June 30, 1999. This increase is due primarily to the launching of Holdings' new
website, Law News Network.
17
<PAGE>
Depreciation and Amortization increased $0.8 million, or 6.5%, from $12.4
million for the six months ended June 30, 1998 to $13.2 million for the six
months ended June 30, 1999. Amortization of goodwill associated with the
acquisitions of LCL and LegalTech accounts for the majority of this increase.
Operating Income. As a result of the above factors, operating income decreased
$2.8 million, or 254.2%, from a profit of $1.1 million for the six months ended
June 30, 1998 to a loss of $1.7 million for the six months ended June 30, 1999.
See note 5 to the Consolidated Financial Statements.
FOR THE THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1998
The following discussion compares the financial results of Holdings for the
quarter ended June 30, 1999 to financial information for the quarter ended June
30, 1998.
Overview. Net revenues increased by $1.7 million, or 5.3%, from $32.3 million
for the quarter ended June 30, 1998 to $34.0 million for the quarter ended June
30, 1999. Total operating costs and expenses increased $4.0 million, or 13.1%,
from $30.3 million for the quarter ended June 30, 1998 to $34.3 million for the
quarter ended June 30, 1999. As a result, operating profit decreased $2.3
million, or 115.2%, from $2.0 million for the quarter ended June 30, 1998 to a
loss of $0.3 million for the quarter ended June 30, 1999. EBITDA decreased $2.0
million, or 24.1%, from $8.4 million for the quarter ended June 30, 1998 to $6.4
million for the quarter ending June 30, 1999. Internet Services revenues
decreased $0.2 million, or 30.0%, from $0.7 million for the quarter ended June
30, 1998 to $0.5 million for the quarter ending June 30, 1999. Internet Services
expenses increased $0.5 million, or 50.2%, from $1.0 million for the quarter
ended June 30, 1998 to $1.5 million for the quarter ended June 30, 1999.
Accordingly, excluding the results from Internet Services, operating profit
decreased $1.5 million, or 66.9%, from $2.3 million for the quarter ended June
30, 1998 to $0.8 million for the quarter ended June 30, 1999.
Revenues. Advertising revenues increased $1.3 million, or 7.2%, from $18.1
million for the quarter ended June 30, 1998 to $19.4 million for the quarter
ended June 30, 1999. This increase was due principally to an increase in
advertising rates as well as an overall increase in advertising pages.
Subscription revenues remained static for the quarter ended June 30, 1998
compared to the quarter ended June 30, 1999.
Revenues from Ancillary Products and Services increased $0.7 million, or 8.8%,
from $7.4 million for the quarter ended June 30, 1998 to $8.1 million for the
quarter ended June 30, 1999. This is due primarily to $0.2 million for
additional products offered by Law Journal Seminars and to $0.3 million in book
sales in the Philadelphia region.
Revenues from Internet Services decreased $0.2 million, or 30.0%, from $0.7
million for the quarter ended June 30, 1998 to $0.5 million for the quarter
ended June 30, 1999. This decrease is primarily due to the shutdown of the
Counsel Connect website.
18
<PAGE>
Operating Expenses. Total operating costs and expenses increased $4.0 million,
or 13.1%, from $30.3 million for the quarter ended June 30 1998 to $34.3 million
for the quarter ended June 30, 1999. This increase is primarily due to startup
costs for two of the new initiatives, High End Newsletters and The Daily Deal,
and to volume increases and additional investment in Core Business Units.
Editorial expenses increased $1.5 million, or 39.4%, from $3.8 million for the
quarter ended June 30, 1998 to $5.3 million for the quarter ended June 30, 1999.
New initiatives accounted for $0.4 million of this increase and the remaining
increase was due to the hiring of key personnel in the Core Business Units.
Production and Distribution expenses increased $0.4 million, or 5.5%, from $6.8
million for the quarter ended June 30, 1998 to $7.2 million for the quarter
ended June 30, 1999. The increase is primarily due to general salary increases.
Selling expenses increased $1.0 million, or 20.9%, from $4.9 million for the
quarter ended June 30, 1998 to $5.9 million for the quarter ended June 30, 1999.
New initiatives accounted for $0.3 million with the remainder due to increased
marketing efforts in the Core Business Units.
General and Administrative expenses increased $0.3 million, or 4.5%, from $7.4
million for the quarter ended June 30, 1998 to $7.7 million for the quarter June
30, 1999. This is due primarily to the addition of key personnel in the
corporate division.
Internet Services expenses increased $0.5 million, or 50.3%, from $1.0 million
for the quarter ended June 30, 1998 to $1.5 million for the quarter ended June
30, 1999. This increase is due primarily to the launching of Holdings' new
website, Law News Network.
Depreciation and Amortization increased $0.2 million, or 3.8%, from $6.4 million
for the quarter ended June 30, 1998 to $6.6 million for the quarter ended June
30, 1999. This is due primarily to the upgrading of computer equipment
throughout Holdings.
Operating Income. As a result of the above factors, operating income decreased
$2.3 million, or 115.2%, from $2.0 million for the quarter ended June 30, 1998
to a loss of $0.3 million for the quarter ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Holdings' operations are not usually capital
intensive. Capital expenditures were $5.0 million for the six months ended June
30, 1999. Capital spending in 1999 is expected to be between $7.0 million and
$8.0 million. This is higher than historical and expected future spending due to
new editorial and advertising systems to support new initiatives and facilities.
NET CASH USED BY OPERATING ACTIVITIES. Net cash used by operating
activities was $3.3 million for the six months ended June 30, 1999, as a net
loss of $12.0 million, a reduction in other non current liabilities of $2.9
million and an increase in accounts receivable of $3.5 million were only
partially offset by depreciation and amortization of $ 13.2 million and an
increase of deferred income of $1.6 million.
19
<PAGE>
NET CASH USED IN INVESTING ACTIVITIES. Net cash used in investing
activities was $5.0 million for the six months ended June 30, 1999 all due to
capital expenditures.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by financing
activities was $8.1 million for the six months ended June 30, 1999 due to
borrowings on the Revolving Credit Facility and accretion of interest on senior
discount notes.
YEAR 2000 COMPLIANCE. Holdings is in the process of modifying, upgrading
or replacing its computer software applications and systems which Holdings
expects will accommodate the "Year 2000" dating changes necessary to permit
correct recording of year dates for 2000 and later years. Holdings has developed
a technology plan, which Holdings is currently implementing, to replace all
client and server based software systems necessary to be Year 2000 compliant.
The applications that Holdings is installing and upgrading include, but are not
limited to, its Editorial and workflow systems (QPS), Classified/Display (Atex),
Accounting (Solomon), Payroll (ADP), circulation/fulfillment (Multi-pub), e-mail
(MS Exchange) and its business suite applications (MS Office 97 and 98). All
vendors have assured Holdings in writing that their respective software packages
are Year 2000 compliant.
Holdings has also upgraded its network infrastructure with a
100baseT-switched environment. Layer three switches form the backbone of
Holdings' new infrastructure that also incorporates gigabit technology. Holdings
has also purchased new servers (Compaq Proliants) and implemented failover
systems such as a Compaq Standby Recovery Server in an effort to both ensure
complete redundancy, and Year 2000 compliance. With respect to desktop
applications, Holdings is continuing its efforts to replace all systems
purchased before 1999 with new systems. This includes both PC and Mac clients.
Both Dell (PCs) and Apple (Macs) have committed to Holdings in writing that
their systems are Year 2000 compliant.
Holdings is working with its software vendors to ensure that necessary
patches are installed to make Holdings Year 2000 compliant. These vendors
include, but are not limited to: Microsoft (Window NT workstation and Server),
Novell (Netware 4.x), Sun (Solaris 2.4), and Apple (Mac OS 8.5). Following
completion of all current work, Holdings intends to hire a Year 2000 consultant
to help verify the integrity of all systems; hardware (networking and desktop),
and software (application and system). Holdings does not expect that the cost of
its Year 2000 compliance program will be material to its financial condition or
results of operations. Holdings 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 Holdings to be in
compliance. Holdings does not currently have any adverse information concerning
the compliance status of its suppliers and customers.
Holdings' management is currently working on Year 2000 contingency plans
that include a description of the resources, staff roles, procedures, and
timetables needed for its implementation. These plans will include the following
strategies for meeting minimum acceptable output requirements for each critical
business process: quick fix, partial replacement, full redundancy and
outsourcing. The basic implementation modes for the quick fix, partial, and full
replacement of functionally provided by failed mission-critical systems are
manual replacement, semi-automated replacement and automated replacement. These
plans will be completed for each critical business process no later than three
months prior to the date management currently projects the process to be Year
2000 compliant.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
21
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Holdings is a party to various litigation matters incidental to the
conduct of its business. Holdings 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.
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.
22
<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 hereunto duly authorized.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
August 11, 1999 /s/ William L. Pollak
------------------------------------------
William L. Pollak
President and Chief Executive Officer
August 11, 1998 /s/ Leslye G. Katz
------------------------------------------
Leslye G. Katz
Vice President and Chief Financial Officer
23
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form 10Q
Filing at June 30, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 285
<SECURITIES> 0
<RECEIVABLES> 22,851
<ALLOWANCES> 4,259
<INVENTORY> 1,406
<CURRENT-ASSETS> 21,764
<PP&E> 15,562
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<TOTAL-ASSETS> 362,369
<CURRENT-LIABILITIES> 34,798
<BONDS> 217,100
0
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<COMMON> 1
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<TOTAL-LIABILITY-AND-EQUITY> 362,369
<SALES> 66,039
<TOTAL-REVENUES> 66,039
<CGS> 41,305
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<INCOME-PRETAX> (13,686)
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