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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 333-50117
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-3980414
<S> <C>
(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) (Zip Code)
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Registrant's telephone number, including area code (212) 779-9200
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
APPLICABLE ONLY TO REGISTRANTS 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 / /
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of March 31, 1999, 120,000 shares of common stock, par value $.01 per
share, were outstanding, the majority of which were held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
SEE EXHIBIT INDEX
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PART I.
ITEM 1. BUSINESS
ON AUGUST 27, 1997, BUT EFFECTIVE AS OF AUGUST 1, 1997, ALM ACQUIRED
SUBSTANTIALLY ALL OF THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED
TO AMERICAN LAWYER MEDIA, L.P. (THE "ALM ACQUISITION"). ON DECEMBER 22, 1997,
ALM ACQUIRED ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF NATIONAL LAW
PUBLISHING COMPANY, INC. (THE "NLP ACQUISITION"). ON MARCH 3, 1998, A NEWLY
FORMED WHOLLY-OWNED SUBSIDIARY OF ALM PURCHASED ALL OF THE ASSETS AND ASSUMED
CERTAIN OF THE LIABILITIES RELATED TO CORPORATE PRESENTATIONS, INC. (THE "LEGAL
TECH ACQUISITION"). ON MARCH 31, 1998 (EFFECTIVE APRIL 1, 1998), ALM AND A
WHOLLY-OWNED SUBSIDIARY OF ALM PURCHASED ALL OF THE LEGAL PUBLISHING-RELATED
ASSETS AND ASSUMED CERTAIN LIABILITIES RELATED TO LEGAL COMMUNICATIONS, LTD.
(THE "LCL ACQUISITION"). ON OCTOBER 28, 1998, ALM PURCHASED SUBSTANTIALLY ALL OF
THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED TO THE DELAWARE LAW
MONTHLY (THE "DELAWARE ACQUISITION", AND TOGETHER WITH THE ALM ACQUISITION, THE
NLP ACQUISITION, THE LEGALTECH ACQUISITION, AND THE LCL ACQUISITION, THE
"ACQUISITIONS"). REFERENCES HEREIN TO THE COMPANY'S ESTIMATED CIRCULATION
INCLUDE TOTAL PAID AND FREE CIRCULATION FOR ALL OF THE COMPANY'S PERIODICALS.
REFERENCES HEREIN TO READERSHIP INCLUDE ESTIMATED CIRCULATION PLUS COMBINED
PASS-ALONG READERSHIP UNADJUSTED FOR ANY OVERLAP WHICH EXISTS AMONG READERS OF
THE COMPANY'S VARIOUS PUBLICATIONS. UNLESS THE CONTEXT OTHERWISE REQUIRES: (I)
"HOLDINGS" REFERS TO AMERICAN LAWYER MEDIA HOLDINGS, INC., WHICH IS THE PARENT
COMPANY OF THE COMPANY, AND TO HOLDINGS' PREDECESSOR, CRANBERRY PARTNERS, LLC;
(II) THE "COMPANY" REFERS TO AMERICAN LAWYER MEDIA, INC. AND ITS SUBSIDIARIES
AFTER GIVING EFFECT TO THE ACQUISITIONS; (III) "ALM" REFERS TO AMERICAN LAWYER
MEDIA, INC. AND ITS SUBSIDIARIES (AND TO ITS PREDECESSOR, ALM HOLDINGS, LLC)
SINCE THE CONSUMMATION OF THE ALM ACQUISITION BUT PRIOR TO THE NLP ACQUISITION
AND, WHERE APPLICABLE, TO AMERICAN LAWYER MEDIA, L.P. AND ITS SUBSIDIARIES PRIOR
TO THE ALM ACQUISITION; (IV) "OLD ALM" REFERS TO AMERICAN LAWYER MEDIA, L.P. AND
ITS SUBSIDIARIES PRIOR TO THE ALM ACQUISITION; (V) "NLP" REFERS TO NATIONAL LAW
PUBLISHING COMPANY, INC. AND ITS SUBSIDIARIES PRIOR TO THE NLP ACQUISITION; AND
(VI) "INVESTORS" REFERS TO U.S. EQUITY PARTNERS, L.P. ("USEP") AND ITS
AFFILIATES AND CERTAIN OTHER INVESTORS CONTROLLED BY OR MANAGED BY WP MANAGEMENT
PARTNERS, LLC ("WPMP"), THE MERCHANT BANKING ARM OF WASSERSTEIN PERELLA GROUP,
INC. ("WPG").
COMPANY OVERVIEW
Holdings is a holding Company, the principal asset of which consists of all
the outstanding capital stock of the Company. All of Holdings's operations are
conducted through the Company. The Company publishes 21 periodicals, including
several leading national periodicals and regional publications serving four of
the five largest state legal markets. The Company's nationally-recognized
periodicals include THE AMERICAN LAWYER-REGISTERED TRADEMARK-, a monthly
magazine containing articles and features targeted to attorneys practicing in
large law firms, and THE NATIONAL LAW JOURNAL-REGISTERED TRADEMARK-, the
nation's largest selling legal newspaper, which covers the law, lawyers and the
business of the legal profession. The Company's regional publications are led by
the NEW YORK LAW JOURNAL-REGISTERED TRADEMARK-, which has the largest paid
circulation of any regional legal newspaper in the United States. In addition to
the NEW YORK LAW JOURNAL, the Company publishes six other daily newspapers
serving Philadelphia, Northern California, Miami, Fort Lauderdale and Palm
Beach, as well as seven weekly newspapers serving New Jersey, Texas, Washington,
D.C., Connecticut, California, Georgia and Pennsylvania.
In addition to the periodicals referred to above, the Company publishes
CORPORATE COUNSEL-TM- (formerly known as CORPORATE COUNSEL MAGAZINE OR CCM) a
leading magazine for corporate in-house attorneys, LAW TECHNOLOGY NEWS-TM-
(formerly known as LAW TECHNOLOGY PRODUCT NEWS) and AMLAW TECH-TM-, two leading
legal technology magazines, as well as IP WORLDWIDE-TM-, a leading specialty
magazine focusing on intellectual property.
The Company has also successfully established a Professional Information
Services Division that creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
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newsletters and 123 books on topics of national and regional interest. The
Company also provides case tracking and monitoring services and publishes
various directories used by legal professionals.
The Company, through its LegalTech and Seminars division, is a leading
producer of trade shows and conferences relating to law practice technology. In
addition, the division organizes and sponsors numerous professional seminars and
conferences that cover issues of current legal interest.
In addition, the Company, through a newly formed subsidiary, sponsors the
leading national legal website, Law News Network (www.lawnewsnetwork.com) and
currently has a number of law-related internet regional websites including
NYLJ.COM-TM-, CAL LAW-TM-, ILLINOIS LAW-TM-, TEX LAW-TM-, PALAWNET-TM- and DELAW
NET-TM-. These websites give attorneys online access to news and other legal
materials and facilitate the exchange of information among members of the legal
community.
The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated by its Professional
Information Services and LegalTech/Seminars divisions. For the twelve months
ended December 31, 1998, approximately 56% of the Company's revenues were from
advertising, 19% were from subscriptions, 23% were from ancillary products and
services and 2% were from internet services.
PRODUCT LINES
PERIODICALS. The Company's newspaper and magazine business publishes 21
national, regional and local periodicals that serve legal and business
professionals. The Company's periodicals have a combined circulation of
approximately 260,000. The subscription renewal rate for the Company's
periodicals averages approximately 80%.
NEWSPAPERS. The Company's newspapers provide news, features, analysis and
commentary about the world of law and advocacy. Feature articles and stories
covering the local, state and federal courts and law firms are supplemented by
reports and analyses of cutting-edge legal issues. The Company is committed to
providing high quality and balanced coverage of its local markets. Most of the
Company's newspapers serve as the newspaper of record for their respective legal
markets. Lawyers look to the newspapers for reports on local court rulings and
opinions, as well as information regarding local court dockets.
The Company publishes sixteen newspapers including THE NATIONAL LAW JOURNAL,
the leading national legal newspaper in the United States, NEW YORK LAW JOURNAL,
which has the largest circulation of any regional legal newspaper, as well as
fourteen other daily and weekly newspapers. In aggregate, the Company's
newspapers serve nine state markets and the District of Columbia, including New
York, New Jersey, Pennsylvania, Washington, D.C., Georgia, Florida, Texas,
California, Connecticut and Delaware, which cover approximately 46% of all
active attorneys in the United States. Each of the Company's regional newspapers
has a significant presence in its respective market.
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The following table sets forth information regarding the Company's
newspapers:
NEWSPAPERS
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ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
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WEEKLY NEWSPAPERS
THE NATIONAL LAW JOURNAL........................ National 1978 37,622 168,800
NEW JERSEY LAW JOURNAL.......................... New Jersey 1878 9,569 59,700
TEXAS LAWYER.................................... Texas 1985 10,341 65,100
LEGAL TIMES..................................... Washington, D.C. 1978 10,776 75,600
THE CONNECTICUT LAW TRIBUNE..................... Connecticut 1974 3,228 23,800
DELAWARE LAW WEEKLY............................. Delaware 1998 N/A(3) N/A(3)
PENNSYLVANIA LAW WEEKLY......................... Pennsylvania 1978 3,100 13,020
CALIFORNIA LAW WEEKLY........................... California 1998 N/A(3) N/A(3)
DAILY NEWSPAPERS
NEW YORK LAW JOURNAL............................ New York 1888 15,425 66,700
THE RECORDER.................................... Northern California 1877 8,027 48,500
THE LEGAL INTELLIGENCER......................... Pennsylvania 1843 3,050 12,810
FULTON COUNTY DAILY REPORT...................... Georgia 1890 6,615 37,700
MIAMI DAILY BUSINESS REVIEW..................... South Florida 1926 5,148 37,800
BROWARD DAILY BUSINESS REVIEW................... South Florida 1926 2,772 20,400
PALM BEACH DAILY BUSINESS REVIEW................ South Florida 1926 1,990 14,700
</TABLE>
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) For these recently launched publications, insufficient information is
currently available.
MAGAZINES. THE AMERICAN LAWYER anchors the Company's magazine portfolio.
Founded in 1979, THE AMERICAN LAWYER is a glossy magazine that features stories
on the strategies, successes, failures and personalities of the most important
figures in the legal world. The target audience for the publication is attorneys
practicing in large law firms and corporate legal departments across the United
States. THE AMERICAN LAWYER has been the winner of National Magazine awards
granted by the American Society of Magazine Editors four times, and has been
nominated for 22 such awards since its founding.
The Company's other magazines focus on specific practice areas or segments
within the legal profession and certain topics applicable to the business of
law. The Company's specialty legal magazines include CORPORATE COUNSEL, one of
the nation's largest magazines focused on issues of importance to in-house
lawyers at large and mid-size corporations, and IP WORLDWIDE, which covers
developments in intellectual property law. The Company also publishes the two
leading technology magazines targeted to the legal community, AMLAW TECH and LAW
TECHNOLOGY NEWS, which focus on information technology and its applications to
the practice of law. AMLAW TECH is targeted toward partners at law firms with
purchase-making authority, while LAW TECHNOLOGY NEWS is targeted toward
attorneys and information services departments in law offices.
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The Company publishes the following five magazines:
MAGAZINES
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ESTIMATED
YEAR OF TOTAL TOTAL
TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2)
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THE AMERICAN LAWYER....................... 1979 11 times per year 17,005 126,800
AMLAW TECH................................ 1996 4 times per year 30,000 60,000(3)
CORPORATE COUNSEL......................... 1994 10 times per year 38,200 76,400(3)
IP WORLDWIDE.............................. 1995 6 times per year 10,000 20,000(3)
LAW TECHNOLOGY NEWS....................... 1993 14 times per year 55,000 110,000(3)
</TABLE>
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) These magazines are distributed primarily free of charge. For these
publications, the Company assumes only two readers per copy.
NEWSLETTERS. The Company's newsletter division publishes 32 newsletters
which cover specialized legal practice areas. Circulation for the Company's
newsletters ranges from approximately 300 to 1,700, with an average circulation
of over 700. The total number of paid subscribers for all newsletters was
approximately 18,700 as of December 31, 1998. The following table sets forth a
list of the Company's newsletters:
NEWSLETTERS
Accounting for Law Firms
The Bankruptcy Strategist
Business Crimes Bulletin: Compliance and Litigation
Cable TV and New Media
Commercial Leasing Law & Strategy
Computer Law Strategist
Corporate Control Alert
The Corporate Counsellor
Delaware Corporate Law Reporter
Employment Law Strategist
Entertainment Law & Finance
Environmental Compliance and Litigation Strategy
Equipment Leasing
eSecurities
Fen Phen Litigation Strategist
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Healthcare Fraud and Abuse
The Intellectual Property Strategist
The Internet Newsletter: Legal & Business Aspects
Law Firm Partnership & Benefits Report
Leader's Franchising Business & Law Alert
Legal Online
Legal Tech
Marketing for Lawyers
The Matrimonial Strategist
Medical Malpractice Law & Strategy
Medical/Legal Aspects of Breast Implants
Money Laundering Law Report
Multimedia and Web Strategist
New York Real Estate Law Reporter
Personal Injury Reporter
Product Liability Law & Strategy
Y2K Counselor
BOOKS. The Company currently publishes 123 books on a broad array of legal
topics. These books generally focus on practical legal subjects that arise in
the daily professional lives of lawyers. Most of the Company's books are updated
once or twice per year with inserts to keep the material current. The Company
focuses on publishing books that cover particularly dynamic areas of law that
lend themselves to frequent supplementation.
The Company most often develops the concept for a new book and then solicits
an author to write the text. However, in certain cases, the Company has received
unsolicited manuscripts which it has ultimately published. Authors who have
written books for the Company include prominent attorneys and judges such as
Martin Lipton, Judge Jed Rakoff, James Freund and James Goodale.
Historically, most of ALM's books have focused on state issues, while NLP's
books have dealt primarily with national legal topics. The following tables set
forth the Company's current offering of books:
BOOKS
State and Local Subjects
Connecticut Appellate Practice and Procedure
Connecticut Criminal Caselaw Handbook
Connecticut Foreclosures: An Attorney's Manual of Practice and Procedure
Connecticut Labor and Employment Law
Connecticut Summary Process Manual
Connecticut Unfair Trade Practices Act
Connecticut Uninsured and Underinsured Motorist
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Courtroom Success: A View From the Bench
Dallas County Bench Book (Texas)
Encyclopedia of New Jersey Causes of Action
Georgia Bench Book
Guide to Connecticut Limited Liability Companies
Handbook of Forms for the Connecticut Family Lawyer
Harris County Bench Book (Texas)
Insurance Laws
Marketing and Maintaining a Family Law Mediation Practice
Mediation: A Texas Practice Guide
New Jersey Brownfields Law
New Jersey Employment Law
New Jersey Insurance Law
New Jersey Product Liability Law
Pennsylvania Tax Handbook
Pennsylvania District and County Reports
Pennsylvania Court Rules
Pennsylvania: The Legal Directory
Pleadings and Pretrial Practice (Connecticut)
Representing Clients in Mediation
Tarrant County Bench Book (Texas)
Travis County Bench Book (Texas)
Texas Criminal Codes and Rules
Texas Legal Malpractice & Lawyer Discipline
Texas Legal Research
The Perfect Plea
Visiting Judges Bench Book
BOOKS
NATIONAL SUBJECTS
A Practical Guide to Equal Employment Opportunity
A Practical Guide to the Occupational Safety and Health Act
Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act
All About Cable
Alternative Dispute Resolution in the Workplace
Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate
Acquisitions
Antitrust Basics
Antitrust: An Economic Approach
Changing the Situs of a Trust
Class Actions: The Law of 50 States
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Communications Law and Practice
Computer Law: Drafting and Negotiating Forms and Agreements
Corporate Internal Investigations
Corporate Sentencing Guidelines: Compliance and Mitigation
Divorce, Separation and the Distribution of Property
Doing Business on the Internet: Forms and Analysis
Due Diligence in Business Transactions
Employee Benefits Law: ERISA and Beyond
Raoul Felder's Encyclopedia of Matrimonial Clauses
Environmental Enforcement: Civil and Criminal
Environmental Law Lexicon
Environmental Regulation of Real Property
Estate Planning
Executive Compensation
Executive Stock Options and Stock Appreciation Rights
Federal Bank Holding Company Law
Federal Rules of Civil Procedure
Federal Taxation of Intellectual Property Transfers
Federal Taxation of Real Estate
Federal Taxation of S Corporations
Federal Trade Commission: Law, Practice and Procedure
Ferrara on Insider Trading and The Wall
Franchising: Realities and Remedies
Franchising: Realities and Remedies Forms Volume
Going Private
Grand Jury Practice
Ground Leases and Land Acquisition Contracts
Health Care Fraud
Hospital Liability
"I'd Rather Do It Myself": How to Set Up Your Own Law Firm
Insurance Coverage Disputes
Intellectual Property Law: Commercial, Creative and Industrial Property
Internet and Online Law
Law and Business in the European Single Market
Law Firm Accounting and Financial Management
Law Firm Partnership Agreements
Lawyering: A Realistic Approach to Legal Practice
Legal Research and Law Library Management
Lender Liability and Banking Litigation
Licensing of Intellectual Property
Limited Liability Companies and Limited Liability Partnerships
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Marketing the Law Firm: Business Development Techniques
Maximizing Law Firm Profitability: Hiring, Training and Developing Productive
Lawyers
Merit Systems Protection Board: Rights and Remedies
Model Terms of Engagement
Modern Visual Evidence
Multifamily Housing: Federal Programs for the Private Sector
Multimedia Law: Forms and Analysis
Negotiated Acquisitions of Companies, Subsidiaries and Divisions
Negotiating and Drafting Office Leases
Negotiation: Strategies for Law and Business
Partnership and Joint Venture Agreements
Private Real Estate Syndications
Product Liability
Product Liability: Winning Strategies and Techniques
Products Liability: Recreation and Sports Equipment
Real Estate, A Guide for the Profession
Real Estate Financing
Reducing Personal Income Taxes: A Guide to Deductions and Credits
Reorganizations under Chapter 11 of the Bankruptcy Code
RICO: Civil and Criminal, Law and Strategy
Savings Institutions: Mergers, Acquisitions and Conversions
Securities Practice and Electronic Technology
Securities Regulation: Liabilities and Remedies
Sex Discrimination and Sexual Harassment in the Workplace
Shareholder Derivative Litigation: Besieging the Board
Shopping Center and Store Leases
Start-Up and Emerging Companies: Planning, Financing and Operating the
Successful Business
State Antitrust Law
Structured Settlements and Periodic Payment Judgments
Takeovers and Freezeouts
Tax Aspects of Divorce and Separation
The Law and Practice of Secured Transactions: Working with Article 9
The Preparation and Trial of Medical Malpractice Cases
Trade Secrets
Travel Law
Use of Statistics in Equal Employment Opportunity Litigation
White Collar Crime: Business and Regulatory Offenses
Winning Attorney's Fees from the U.S. Government
CONFERENCES AND SEMINARS. Under its LegalTech-Registered Trademark-
tradename, the Company produces conferences and exhibitions relating to law
practice technology in New York, Los Angeles, Chicago, Washington, D.C.,
Atlanta, and Houston. The conferences are generally three-day events that
include vendor exhibits, a
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seminar program, and a variety of workshops and focus sessions. Attendees
typically include attorneys in private practice, corporate counsel, law firm
administrators and information technology personnel, while exhibitors include a
variety of software, hardware, publishing and other technology product related
companies. The Company conducts a number of seminars and conferences for lawyers
and other professionals in related fields. The Company's seminars complement its
other products and services both by serving as powerful marketing vehicles for
the Company's existing books and newsletters, and by generating ideas for new
seminars, books and newsletters. Seminars also introduce the Company to lawyers
who may subsequently write articles or books for the Company.
In addition to its seminar business, the Company operates a small number of
conferences. While its seminars typically involve one or more speakers making
presentations to groups of 75-250 people, conferences generally feature an array
of booths and presentations from various participants over the course of several
days. The Company plans to coordinate additional related conferences in the
coming years.
The following table sets forth the seminars and conferences held in 1998:
SEMINARS
Fen-Phen
Civil Litigation Practice
Legal Tech Internet
Year 2000 Litigation
Acquisitions Of Subsidiaries
Distribution and Dealer Termination
Failure to Diagnose Breast Cancer
Computer Law
General Counsel Conference
Negotiating Joint Ventures and Strategic Alliances
Securities in the Electronic Era
Failure to Diagnose Fetal Distress
Negotiating the Modern Lease
Positioning Your Law Firm for The New Millennium
Negotiating Contracts in the Entertainment Industry
Sports Law
Representing Start Up and Emerging Companies
Review of New Jersey Civil Case Law
Trial of a Failure to Diagnose Breast Cancer Case
Legal and Business Aspects of The Internet
The Employment Litigation Problem
Negotiating Corporate Acquisitions
Baker on No Fault
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CONFERENCES
LegalTech New York (January)
LegalTech Net Washington, D.C.
LegalTech Los Angeles
LegalTech New York (September)
LegalTech Chicago
LegalTech Houston
LegalTech Atlanta
OTHER PRODUCTS AND SERVICES. The Company's uniquely focused customer base
and extensive access to legal information has enabled the Company to create a
wide array of additional ancillary businesses, including: (i)
MA/3000-Registered Trademark-, a case tracking and docketing software package
that allows litigators in New York to track court activity published in the NEW
YORK LAW JOURNAL-Registered Trademark-, and (ii) QDS-TM-, DAILY DECISION
SERVICE-TM- and PICS-TM-, a service which offers subscribers faxed copies on
request of both published and unpublished state and federal court opinions for
New York, New Jersey and Pennsylvania, respectively.
INTERNET SERVICES. In December 1998, the Company launched the Internet's
most extensive daily national legal newsource through its Law News Network site
(www.lawnewsnetwork.com). Law News Network provides updated legal news and
information from the Company's publications as well as original content, online
advertising and specialized legal subscription services. In addition, the site
acts as a convenient gateway to other legal information on the Internet. In
addition, the Company operates several leading regional legal websites including
NYLJ.COM-TM-, CAL LAW-TM-, ILLINOIS LAW-TM-, PALAWNET-TM-, and TEX LAW-TM- and
DELAWNET-TM-.
PRINTING AND DISTRIBUTION
Layouts for the Company's publications are prepared in-house, while the
large majority of the Company's printing activities, and all of its distribution
activities, are outsourced.
COMPETITION
The Company competes for advertising and subscription revenues with
publishers of special-interest legal newspapers and magazines with similar
editorial content. However, in most of the Company's markets, its newspaper is
the only newspaper focused on serving the legal community. The Company also
competes for advertising revenues with other national legal publications, as
well as general-interest magazines and other forms of media, including broadcast
and cable television, radio, direct marketing and electronic media. Factors
which may affect competition for advertisers include effective costs of such
advertising compared to other forms of media, and the size and characteristics
of the readership of the Company's publications. The Company also faces
significant competition from other legal publishers and legal service providers
in its on-line and professional information services divisions.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with its business, including trademarks in the titles of its major
periodicals such as THE AMERICAN LAWYER-Registered Trademark-, CORPORATE
COUNSEL-TM-, THE NATIONAL LAW JOURNAL-Registered Trademark-, and NEW YORK LAW
JOURNAL-Registered Trademark-. Provided that trademarks remain in continuous use
in connection with similar goods or services, their term can be perpetual,
subject, with respect to registered trademarks, to the timely renewal of such
registrations in the United States Patent and Trademark Office.
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The Company approaches copyright ownership with respect to its publications
in the same manner as is customary within the publishing industry generally.
Consequently, the Company owns the copyright in all of its newspapers, magazines
and newsletters, as compilations, and also owns the copyright in most of its
books. With respect to the specific articles in its publications, the Company
generally obtains the assignment of all right, title and interest in original
materials created by the Company's full-time journalists and editors as well as
by paid contributors. For articles authored by outside contributors, the Company
generally obtains only the exclusive "first-time publication" and non-exclusive
republication rights. Judicial opinions, court schedules and docketing
information are provided to the Company directly by the courts, on a
non-exclusive basis, and is public information. The Company also claims
ownership of the copyright in its MA/3000-Registered Trademark- tracking and
docketing software. See "--Product Lines." Copyrights in software can be
enforced against plagiarists of the source code or the copyrightable "look and
feel" of the program, but do not protect the concepts and ideas contained in the
program, nor do they prevent others from developing a competing case tracking
and docketing program.
The Company licenses the content of certain of its publications and forms to
third parties, including West Publishing Company, and LEXIS/NEXIS, on a
non-exclusive basis, for republication and dissemination on electronic databases
marketed by the licensees. After the expiration of their initial terms (the
latest of which is April, 2001), the licenses automatically renew, subject to
either parties' right to terminate at the end of each subsequent term.
Some of the Company's products, such as QDS, the DAILY DECISION SERVICE and
PICS, utilize the extensive databases of court decisions compiled by the
Company. The Company also has extensive subscriber and other customer databases
which it believes would be extremely difficult to replicate. The Company
attempts to protect these databases and lists as trade secrets by restricting
access thereto and/or by the use of non-disclosure agreements. There can be no
assurance, however, that the means taken to protect the confidentiality of these
items will be sufficient, or that others will not independently develop similar
databases and customer lists.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1998, the Company employed approximately 870 full-time
employees, 21 of whom are subject to a single collective bargaining agreement.
The Company believes that its relations with its employees are satisfactory.
SIGNIFICANT TRANSACTIONS
LEGALTECH ACQUISITION. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased all of the assets and assumed certain of the
liabilities related to Corporate Presentations, Inc. ("LegalTech" or "Corporate
Presentations") for approximately $10.8 million in cash (the "LegalTech
Acquisition"). The Company funded the LegalTech Acquisition with available cash
flow.
LEGAL COMMUNICATIONS, LTD. ACQUISITION. On March 31, 1998, the Company and
a wholly-owned subsidiary of the Company entered into a definitive agreement
with Legal Communications, Ltd. ("LCL"), to acquire, effective as of April 1,
1998, substantially all of the legal publishing-related assets and to assume
certain liabilities of LCL for an aggregate purchase price of $20 million in
cash subject to changes in the net worth of LCL between December 31, 1997 and
March 31, 1998 (the "LCL Acquisition").
On October 28, 1998, ALM purchased substantially all of the assets and
assumed certain of the liabilities related to the DELAWARE LAW MONTHLY from the
partnership which owned the DELAWARE LAW MONTHLY. The aggregate purchase price
for the assets was $280,000 payable in four equal annual installments of $70,000
per year.
REVOLVING CREDIT FACILITY. On March 25, 1998, the Company entered into a
$40 million, five-year senior secured revolving credit facility (the "Revolving
Credit Facility") with a group of banks to be
12
<PAGE>
available for working capital and general corporate purposes, including
acquisitions and capital expenditures.
The Revolving Credit Facility is guaranteed by Holdings and by all existing
and future 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 existing and future domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. The Revolving Credit
Facility contains customary covenants commensurate with the size of the
Revolving Credit Facility that restrict the ability of the Company and its
subsidiaries to take certain actions.
ADDITIONAL EQUITY CONTRIBUTION. On April 14, 1998, Holdings contributed an
aggregate of $15 million to the equity capital of the Company. The proceeds of
the equity contribution were used to fund acquisitions and to provide capital
for aggressive internal growth.
ITEM 2. PROPERTIES
The Company operates from various locations throughout the United States.
Its corporate headquarters are based in New York. Information relating to the
Company's corporate headquarters and other significant regional offices which
are owned or leased is set forth in the following table:
<TABLE>
<CAPTION>
LEASE
STREET ADDRESS CITY/STATE SQUARE FOOTAGE EXPIRATION
- ------------------------------------------------------- ----------------------- --------------- ---------------
<S> <C> <C> <C>
345 Park Avenue South.................................. New York, NY 55,000 Sept. 2008
105 Madison Avenue..................................... New York, NY 37,500 Sept. 2008
238 Mulberry Street.................................... Newark, NJ 7,022 Dec. 2006
625 Polk Street........................................ San Francisco, CA 7,100 Apr. 2000
900 Jackson Street..................................... Dallas, TX 10,190 Dec. 2003
1005 Congress Street................................... Austin, TX 1,992 May 1999
815 Walker Street...................................... Houston, TX 1,724 May 2001
190 Pryor Street, S.W.................................. Atlanta, GA 20,000 Owned
1730 M Street, N.W..................................... Washington, DC 8,856 Mar. 2001
1 Post Road............................................ Fairfield, CT 6,520 Dec. 2002
1 S.E. Third Avenue.................................... Miami, FL 19,742 Sept. 2004
150 N.E. 7th Street.................................... Miami, FL 17,001 Sept. 2004
633 South Andrews Avenue............................... Fort Lauderdale, FL 3,408 Jan. 2003
330 Clematis Street.................................... W. Palm Beach, FL 2,927 Jan. 2004
901 Market Street...................................... Wilmington, DE 1,089 Aug. 2001
1617 JFK Blvd.......................................... Philadelphia, PA 11,997 July 2001
</TABLE>
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
A majority of the Company's common stock is owned by U.S. Equity Partners,
L.P. and its affiliates. There is no public trading market for the Company's
common stock.
The Company has never paid any cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected historical financial information (i)
for Old ALM, as of and for the years ended December 31, 1994, 1995 and 1996,
(ii) for NLP, as of and for the years ended December 31, 1994, 1995 and 1996,
(iii) for Old ALM, as of and for the seven months ended July 31, 1997, (iv) for
Holdings, as of and for the five months ended December 31, 1997 and the year
ended December 31, 1998, and (v) for NLP, as of and for the period from January
1, 1997 through December 21, 1997. The financial data for Holdings, as of and
for the year ended December 31, 1998, the five months ended December 31, 1997
and the financial data for Old ALM for the seven months ended July 31, 1997 and
the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Arthur Andersen LLP. The financial data for NLP as of and
for the period from January 1, 1997 through December 21, 1997 were derived from
financial statements audited by Arthur Andersen LLP and financial data for NLP
for the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Leslie Sufrin and Company, P.C. The audited financial
statements and the related notes thereto are included elsewhere in this Report.
Unaudited financial data include (i) Old ALM financial data for the year ended
December 31, 1994 and (ii) NLP financial data for the year ended December 31,
1994. In the opinion of management such unaudited financial data have been
prepared on the same basis as the audited financial statements included
elsewhere herein, and include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
periods. Results of operations for the interim periods presented are not
necessarily indicative of the results of operations for the full year. The
selected financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and notes thereto included elsewhere in this
Report. See "Index to Financial Statements."
14
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
AND AMERICAN LAWYER MEDIA HOLDINGS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA HOLDINGS,
PREDECESSOR COMPANY INC.
---------------------------------------------- --------------------------------
SEVEN
MONTHS FIVE MONTHS TWELVE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
--------------------------------- JULY 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1997 1998
----------- --------- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising.............................. $ 23,872 $ 25,037 $ 26,659 $ 18,146 $ 13,410 $ 67,510
Subscription............................. 10,483 10,884 11,304 6,719 5,260 23,172
Ancillary Products and Services............ 7,980 8,387 8,467 4,532 4,142 28,208
Internet Services.......................... 685 3,238 5,474 2,148 1,162 2,639
----------- --------- --------- ----------- ------- ---------------
Total Revenues......................... 43,020 47,546 51,904 31,545 23,974 121,529
----------- --------- --------- ----------- ------- ---------------
Operating Costs and Expenses:
Editorial.................................. 7,075 7,073 7,141 4,023 3,323 15,523
Production and Distribution................ 11,170 12,587 12,469 6,919 5,766 26,266
Selling.................................... 7,208 6,913 7,479 4,640 3,656 19,002
General and Administrative................. 15,790 16,506 16,829 9,531 7,145 30,012
Internet Services.......................... 7,760 10,854 11,886 6,464 2,988 4,667
Depreciation and Amortization.............. 3,506 2,680 2,488 1,590 3,273 26,302
Shutdown of ALM Internet Services.......... -- -- -- -- 3,000 --
----------- --------- --------- ----------- ------- ---------------
Total Operating Costs and Expenses..... 52,509 56,613 58,292 33,167 29,151 121,772
----------- --------- --------- ----------- ------- ---------------
Operating (loss)....................... (9,489) (9,067) (6,388) (1,622) (5,177) (243)
Interest expense, net........................ (667) (1,384) (1,972) (1,420) (2,534) (22,916)
Benefit for Income Tax....................... -- -- -- -- -- 3,403
----------- --------- --------- ----------- ------- ---------------
(Loss) before minority interest.............. (10,156) (10,451) (8,360) (3,042) (7,711) (19,756))
Minority interest............................ 1,847 2,334 172 -- -- --
----------- --------- --------- ----------- ------- ---------------
Net loss..................................... $ (8,309) $ (8,117) $ (8,188) $ (3,042) $ (7,711) $ (19,756)
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit).................... $ (6,376) $ (7,066) $ (7,009) $ (5,895) $ (8,322) $ (14,850)
Total assets................................. 20,931 19,313 19,482 18,982 361,314 367,860
Long-term debt (including current
maturities)................................ 13,524 22,114 30,150 34,742 210,119 223,038
Partners' (deficit) and Stockholder's
equity..................................... (11,647) (19,759) (26,300) (29,342) 67,289 62,533
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and
Services................................. $ 1,092 $ 1,229 $ 2,512 $ 4,284 $ 2,922 $ 28,087
Internet Services.......................... (7,075) (7,616) (6,412) (4,316) (4,826) (2,028)
----------- --------- --------- ----------- ------- ---------------
Total.................................. $ (5,983) $ (6,387) $ (3,900) $ (32) $ (1,904) $ 26,059
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
Capital Expenditures:
Periodicals and Ancillary Products and
Services................................. $ 1,102 $ 864 $ 1,118 $ 439 $ 357 $ 3,767
Internet Services.......................... 386 617 1,084 1,532 7 144
----------- --------- --------- ----------- ------- ---------------
Total.................................. $ 1,488 $ 1,481 $ 2,202 $ 1,971 $ 364 $ 3,911
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
</TABLE>
- ------------------------
(1) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). Items
excluded from income in calculating EBITDA are significant components in
understanding and evaluating Old ALM's and ALM's financial performance.
While EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP or as a measure of
profitability or liquidity, management understands that EBITDA is
customarily used in evaluating publishing companies. The EBITDA measures
presented herein may not be comparable to similarly title measures of other
companies.
15
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEARS ENDED DECEMBER 31, JANUARY 1, 1997
------------------------------- THROUGH
1994 1995 1996 DECEMBER 21, 1997
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising............................................................ $ 18,612 $ 21,387 $ 23,319 $ 26,402
Subscription........................................................... 9,105 9,694 9,759 9,504
Ancillary Products and Services.......................................... 11,437 12,729 13,398 13,926
Internet Services........................................................ -- 264 747 1,109
--------- --------- --------- --------
Total Revenues....................................................... 39,154 44,074 47,223 50,941
--------- --------- --------- --------
Operating Costs and Expenses:
Editorial................................................................ 5,451 5,778 5,929 5,837
Production and Distribution.............................................. 7,621 8,146 8,679 9,872
Selling.................................................................. 8,831 9,776 8,991 8,211
General and Administrative............................................... 7,726 7,620 8,047 8,722
Internet Services........................................................ -- 2,947 1,704 1,657
Depreciation and Amortization............................................ 3,130 6,329 7,487 7,283
Special Compensation Charge.............................................. -- -- -- 6,926
--------- --------- --------- --------
Total Operating Costs and Expenses................................... 32,759 40,596 40,837 48,508
--------- --------- --------- --------
Operating income..................................................... 6,395 3,478 6,386 2,433
Interest expense, net...................................................... (4,734) (5,458) (6,013) (5,137)
Other income (expense)..................................................... (320) (211) 181 --
--------- --------- --------- --------
Income (loss) before income taxes.......................................... 1,341 (2,191) 554 (2,704)
Benefit (provision) for income taxes....................................... (763) 523 (3,007) (2,508)
--------- --------- --------- --------
Net income (loss).......................................................... $ 578 $ (1,668) $ (2,453) $ (5,212)
--------- --------- --------- --------
--------- --------- --------- --------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit).................................................. $ (2,868) $ (4,717) $ (2,081) $ (2,204)
Total assets............................................................... 21,217 154,125 147,311 139,610
Long-term debt (including current maturities).............................. 54,600 70,900 70,300 59,500
Stockholders' equity (deficit)............................................. (44,842) 65,620 63,167 64,782
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and Services.......................... $ 9,525 $ 12,490 $ 14,830 $ 10,264
Internet Services........................................................ -- (2,683) (957) (548)
--------- --------- --------- --------
Total................................................................ $ 9,525 $ 9,807 $ 13,873 $ 9,716
--------- --------- --------- --------
--------- --------- --------- --------
Capital Expenditures:
Periodicals and Ancillary Products and Services.......................... $ 1,511 $ 436 $ 486 $ 473
Internet Services........................................................ 296 172 26 42
--------- --------- --------- --------
Total................................................................ $ 1,807 $ 608 $ 512 $ 515
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating NLP's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the "Selected
Financial Data" and the historical consolidated financial statements of the
Company, including the notes thereto, included elsewhere in this Form 10-K.
OVERVIEW
In March 1998, the Company acquired all the assets and certain liabilities
of LegalTech for approximately $10.8 million. The excess purchase price over the
net liabilities acquired was $11.3 million. In April 1998, the Company acquired
the assets and certain liabilities of LCL for approximately $20.1 million. The
excess purchase price over the net assets acquired was allocated $14.3 million
and $6.3 million to identified intangibles and goodwill, respectively. The
allocation was based on the assets' respective fair values at acquisition date.
The results of operations of the acquisitions have been included in the
Company's results of operations since the respective acquisition dates.
In August 1997, the Investors, through ALM, consummated the ALM Acquisition,
and in December 1997, ALM consummated the 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 acquisition date.
17
<PAGE>
The following table presents the results of operations for the year ended
December 31, 1998, the calculation for the combined period ended December 31,
1997 and the results for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA, INC.
OLD ALM
------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR SEVEN MONTHS FIVE MONTHS COMBINED NLP
ENDED ENDED ENDED YEAR ENDED JAN. 1, 1997 TOTAL
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, THROUGH COMBINED
1996 1997 1997 1997 DEC. 21, 1997 1997
------------- --------------- ------------- ------------- --------------- -----------
Operating Data:
Revenues:
Periodicals
Advertising........................ 26,659 18,146 13,410 31,556 26,402 57,958
Subscription....................... 11,304 6,719 5,260 11,979 9,504 21,483
Ancillary Products and Services...... 8,467 4,532 4,142 8,674 13,926 22,600
Internet Services.................... 5,474 2,148 1,162 3,310 1,109 4,419
------ ------ ------ ------ ------ -----------
Total revenues................... 51,904 31,545 23,974 55,519 50,941 106,460
------ ------ ------ ------ ------ -----------
Operating Costs and Expenses:
Editorial............................ 7,141 4,023 3,323 7,346 5,837 13,183
Production and Distribution.......... 12,469 6,919 5,766 12,685 9,872 22,557
Selling.............................. 7,479 4,640 3,656 8,296 8,211 16,507
General and Administrative........... 16,829 9,531 7,145 16,676 8,722 25,398
Internet Services.................... 11,886 6,464 2,988 9,452 1,657 11,109
Depreciation and Amortization........ 2,488 1,590 3,273 4,863 7,283 12,146
Shutdown of ALM Internet Services.... -- -- 3,000 3,000 -- 3,000
Special Compensation Charge.......... -- -- -- -- 6,926 6,926
------ ------ ------ ------ ------ -----------
Total Operating Costs and
Expenses......................... 58,292 33,167 29,151 62,318 48,508 110,826
------ ------ ------ ------ ------ -----------
Operating (loss)................. (6,388) (1,622) (5,177) (6,799) 2,433 (4,366)
------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ -----------
<CAPTION>
<S> <C>
YEAR ENDED
DECEMBER 31,
1998
-------------
Operating Data:
Revenues:
Periodicals
Advertising........................ 67,510
Subscription....................... 23,172
Ancillary Products and Services...... 28,208
Internet Services.................... 2,639
-------------
Total revenues................... 121,529
-------------
Operating Costs and Expenses:
Editorial............................ 15,523
Production and Distribution.......... 26,266
Selling.............................. 19,002
General and Administrative........... 30,012
Internet Services.................... 4,667
Depreciation and Amortization........ 26,302
Shutdown of ALM Internet Services.... --
Special Compensation Charge.......... --
-------------
Total Operating Costs and
Expenses......................... 121,772
-------------
Operating (loss)................. (243)
-------------
-------------
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following discussion includes the year ended December 31, 1997 which is
derived from the financial information for Old ALM for the seven months ended
July 31, 1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from January 1, 1997 through December 21, 1997, presented above. As a
result, the financial information for the combined year ended December 31, 1997
has not been prepared on a basis in conformity with GAAP.
For the year ended December 31, 1998, the financial results include the
acquisitions of LegalTech, LCL and the Delaware Acquisition, since acquisition
dates .
OVERVIEW. Net revenues increased by $15.1 million, or 14.2%, from $106.5
million for the year ended December 31, 1997 to $121.5 million for the year
ended December 31, 1998. Total operating costs and expenses increased $10.9
million, or 9.9%, from $110.8 million for the year ended December 31, 1997 to
$121.8 million for the year ended December 31, 1998 due primarily to a $14.2
million increase in depreciation and amortization resulting from the ALM and NLP
acquisitions. As a result, the operating loss decreased $4.1 million, or 94.4%,
from a loss of $4.4 million for the year ended December 31, 1997 to a loss of
$0.2 million for the year ended December 31, 1998, while EBITDA increased $18.3
million, or 234.9%, from $7.8 million for the year ended December 31, 1997 to
$26.1 million for the year ended December 31, 1998. Internet Services revenues
decreased $1.8 million, or 40.3%, from $4.4 million for the year ended December
31, 1997 to $2.6 million for the year ended December 31, 1998. Internet Services
expenses decreased $6.4 million, or 58.0%, from $11.1 million for the year ended
December 31, 1997 to
18
<PAGE>
$4.7 million for the year ended December 31, 1998. Also included in the
operating costs for 1997 was a special compensation charge of $6.9 million
reflecting stock option and bonus payments related to the sale of NLP.
Accordingly, excluding the net operating loss from Internet Services, the
shutdown charge, and the one time special compensation charge, operating income
decreased $10.5 million, or 85.4%, from $12.2 million for the year ended
December 31, 1997 to $1.8 million for the year ended December 31, 1998, while
EBITDA increased $3.7 million, or 15.1%, from $24.4 million to $28.1 million
over the same periods.
REVENUES. Advertising revenues increased $9.6 million, or 16.5%, from $58.0
million for the year ended December 31, 1997 to $67.5 million for the year ended
December 31, 1998. The acquisition of LCL accounted for $3.9 million of this
increase. Without LCL, revenues increased $5.7 million, or 9.8%, due principally
to an increase in advertising rates as well as an overall increase in
advertising pages.
Subscription revenues increased $1.7 million, or 7.9%, from $21.5 million
for the year ended December 31, 1997 to $23.2 million for the year ended
December 31, 1998. This increase was primarily due to the acquisition of LCL.
Revenues from ancillary products and services increased $5.6 million, or
24.8%, from $22.6 million for the year ended December 31, 1997 to $28.2 million
for the year ended December 31, 1998. The additions of LCL and LegalTech
accounted for $3.1 million of the increase. The $2.5 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 $1.8 million, or 40.3%, from $4.4
million for the year ended December 31, 1997 to $2.6 million for the year ended
December 31, 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 $10.9
million, or 9.9%, from $110.8 million for the year ended December 31, 1997 to
$121.8 million for the year ended December 31, 1998. This increase is due to a
$14.2 million increase in depreciation and amortization resulting from the ALM
and NLP acquisitions. The inclusion of $7.1 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 $2.3 million, or 17.8%, from $13.2 million
for the year ended December 31, 1997 to $15.5 million for the year ended
December 31, 1998 as a number of key vacant positions were filled. The addition
of LCL accounted for $0.7 million of the increase.
Production and distribution expenses increased $3.7 million, or 16.4%, from
$22.6 million for the year ended December 31, 1997 to $26.3 million for the year
ended December 31, 1998. The addition of LCL and LegalTech accounted for $2.0
million of the increase. The remainder of this increase is primarily the result
of the increased book sales as well as higher paper usage at ALM's printing
facilities.
Selling expenses increased $2.5 million, or 15.1%, from $16.5 million for
the year ended December 31, 1997 to $19.0 million for the year ended December
31, 1998. This increase is primarily the result of the additions of LCL and
LegalTech.
General and administrative expenses increased $4.6 million, or 18.2%, from
$25.4 million for the year ended December 31, 1997 to $30.0 million for the year
ended December 31, 1998. This increase reflects $2.0 million of costs associated
with the addition of LCL and LegalTech. The balance of the increase is primarily
the result of transition costs associated with the Company's new corporate
structure and salary increases.
Internet Services expenses decreased $6.4 million, or 58.0%, from $11.1
million for the year ended December 31, 1997 to $4.7 million for the year ended
December 31, 1998. This decrease is the direct result of the shutdown of Counsel
Connect.
19
<PAGE>
Depreciation and amortization expenses increased $14.2 million, or 116.5%,
from $12.1 million for the year ended December 31, 1997 to $26.3 million for the
year ended December 31, 1998. These expenses are not comparable for the two
periods due to purchase accounting adjustments related to the ALM and NLP
acquisitions.
OPERATING INCOME. As a result of the above factors, the operating loss
decreased $4.1 million, or 94.4%, from $4.4 million for the year ended December
31, 1997 to $0.2 million for the year ended December 31, 1998. EBITDA increased
$18.3 million, or 234.9%, from $7.8 million for the year ended December 31, 1997
to $26.1 million for the year ended December 31, 1998. Excluding the one-time
charges in 1997 related to the shutdown of Counsel Connect and special
compensation charge, EBITDA increased $8.4 million, or 47.2%, from $17.7 million
for the year ended December 31, 1997 to $26.1 million for the year ended
December 31, 1998. Excluding all Internet Services and the special compensation
charge, EBITDA increased $3.7 million, or 15.1%, from $24.4 million for the year
ended December 31, 1997 to $28.1 million for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion for the year ended December 31, 1997 is derived
from the financial information for Old ALM for the seven months ended July 31,
1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from December 22, 1997 through December 31, 1997, presented above. As a
result, the financial information for the combined year ended December 31, 1997,
has not been prepared on a basis in conformity with GAAP.
INTERNET SERVICES. ALM's prior Internet service, Counsel Connect, incurred
material expenses for the years ended December 31, 1996 and December 31, 1997
due to the nature of the service. Counsel Connect was a service which attempted
to serve all the Internet needs of its lawyer subscribers: security,
connectivity, customer service and editorial content. The technology necessary
to provide and support these services necessitated material spending on
connectivity costs, outside system providers and internal personnel to do
programming and handle customer inquiries. The ambitious editorial content,
which included seminars and discussion forums also resulted in spending material
amounts on editorial staff and outside content providers. In an attempt to
enroll enough subscribers to cover these costs there was also a material amount
spent on advertising and sales efforts.
Due to these costs and the lack of sufficient associated revenues, the
Company decided to shut down Counsel Connect and transfer certain remaining
components into a new combined service. These components include trademarks,
trade names, customer lists, and certain Counsel Connect employees. The new
service will not be an Internet service provider. The Company has also made the
decision to eliminate the high level of Internet security which was an integral
part of Counsel Connect's intended appeal to its lawyer subscribers. This
decision creates a simpler Internet site and eliminates the need for technical
and customer service employees.
The Company's decision to shut down Counsel Connect was made in light of the
NLP acquisition and the changes discussed above have since been implemented. The
contracts with Counsel Connect's Internet providers have been or are in the
process of being renegotiated or terminated. The following comparison of the
years ended December 31, 1996 and 1997 excludes operating data relating to
Counsel Connect. Management believes that a comparison which excludes such
operating data provides a more meaningful discussion of ALM's results of
operations for such periods.
Net operating losses for Internet Services were $6.4 million for the year
ended December 31, 1996 and $9.1 million for the year ended December 31, 1997.
The historical financial data for ALM for the five months ended December 31,
1997 includes expenses of $5.9 million related to the shut down. This amount
includes Internet Services operating expenses of $2.9 million as well as a
provision of $3.0 million to cover
20
<PAGE>
severance costs, uncollectible receivables, writedown of computer and network
equipment and the termination or restructuring of certain contracts related to
network services that provided internet access.
OVERVIEW. Net revenues (excluding Internet Services) increased $5.8
million, or 12.4%, from $46.4 million for the year ended December 31, 1996 to
$52.2 million for the year ended December 31, 1997. Total operating costs and
expenses (excluding Internet Services) increased $3.5 million, or 7.5%, from
$46.4 million to $49.9 million over the same period. Operating income (excluding
Internet Services) increased $2.3 million from breakeven for the year ended
December 31, 1996 to $2.3 million for the year ended December 31, 1997 while
EBITDA increased $4.7 million from $2.5 million to $7.2 million over the same
period.
REVENUES. Advertising revenues increased $4.9 million, or 18.4%, from $26.7
million for the year ended December 31, 1996 to $31.6 million for the year ended
December 31, 1997. The increase in advertising revenues was primarily
attributable to an increase in the total volume of advertising pages stemming,
in part, from both an increase in the frequency of CORPORATE COUNSEL and from
strong legal industry trends.
Subscription revenues increased $0.7 million, or 6.0%, from $11.3 million
for the year ended December 31, 1996 to $12.0 million for the year ended
December 31, 1997. While total paid circulation remained essentially constant,
subscription rates increased relative to the same period in 1996. A portion of
the increase in subscription revenues was also attributable to ALM's newly
initiated efforts to convert its CORPORATE COUNSEL MAGAZINE from free
distribution to a paid subscriber base as well as the inclusion of NLP's
subscription revenue for the period from December 22, 1997 through December 31,
1997 of $0.3 million.
Revenues from ancillary products and services increased $0.2 million, or
2.4%, from $8.5 million for the year ended December 31, 1996 to $8.7 million for
the year ended December 31, 1997. The increase is due to the inclusion of NLP's
ancillary revenue of $0.5 million for the period from December 22, 1997 through
December 31, 1997.
OPERATING EXPENSES. Total operating costs and expenses (excluding Internet
Services) increased $3.5 million, or 7.5%, from $46.4 million for the year ended
December 31, 1996 to $49.9 million for the year ended December 31, 1997.
Editorial expenses increased $0.2 million, or 2.9%, from $7.1 million for the
year ended December 31, 1996 to $7.4 million for the year ended December 31,
1997 due to the inclusion of NLP's editorial expenses of $0.2 million for the
period from December 22, 1997 through December 31, 1997. Production and
distribution expenses increased $0.2 million, or 1.7%, from $12.5 million for
the year ended December 31, 1996 to $12.7 million for the year ended December
31, 1997 due to the inclusion of NLP's production and distribution cost of $0.3
million for the period from December 22, 1997 through December 31, 1997. Selling
expenses increased $0.8 million, or 10.9%, from $7.5 million for the year ended
December 31, 1996 to $8.3 million for the year ended December 31, 1997. This
increase was a direct result of increased advertising sales and associated
commissions as well as inclusion of $0.4 million of NLP expenses for the period
from December 22, 1997 through December 31, 1997. General and administrative
expenses decreased $0.2 million, or 0.9%, from $16.8 million to $16.7 million
over the same periods. This decrease was due, in part, to the elimination in
1997 of certain executive bonus compensation for the former Chairman of Old ALM,
who resigned prior to the ALM Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$2.5 million for the year ended December 31, 1996 and $4.9 million for the year
ended December 31, 1997. These expenses are not comparable for the two periods
due to purchase accounting adjustments related to the ALM and NLP Acquisitions.
Amortization of goodwill and intangibles related to the acquisitions for the
five months ended December 31, 1997 was $2.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating income
(excluding Internet Services) increased $2.3 million from breakeven for the year
ended December 31, 1996 to $2.3 million for
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the year ended December 31, 1997. EBITDA increased $4.7 million from $2.5
million for the year ended December 31, 1996 to $7.2 million for the year ended
December 31, 1997.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1997 were $0.8 million excluding $1.5 million for Internet Services. The
majority of such expenditures related to ongoing activities. Capital
expenditures for the year ended December 31, 1996 were $1.1 million excluding
$1.1 million for Internet Services.
RESULTS OF OPERATIONS--NLP
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
The following discussion for the year ended December 31, 1997 is derived
from the financial information for NLP until the consummation of the NLP
Acquisition, which occurred on December 22, 1997. As a result, the financial
information for the year ended December 31, 1996 is compared to the period from
January 1, 1997 through December 21, 1997.
OVERVIEW. Net revenues increased by $3.7 million, or 7.9%, from $47.2
million for the year ended December 31, 1996 to $50.9 million for the year ended
December 31, 1997. Total operating costs and expenses increased $7.7 million, or
18.8%, from $40.8 million to $48.5 million. As a result, operating income
decreased $4.0 million, or 61.9%, from $6.4 million to $2.4 million. Included in
the operating costs for 1997, however, was a special compensation charge of $6.9
million reflecting stock option and bonus payments related to the sale of NLP,
which were paid by the sellers. Without this charge, total operating costs and
expenses increased at a rate substantially less than the rate of increase in
revenues over the same period, increasing only $0.8 million, or 1.8%, from $40.8
million to $41.6 million with operating income increasing $3.0 million, or
46.6%, from $6.4 million to $9.4 million. Internet Services revenues increased
$0.4 million, or 48.5%, from $0.7 million for the year ended December 31, 1996
to $1.1 million for the year ended December 31, 1997, while Internet Services
expenses remained essentially constant at $1.7 million for the same periods.
Accordingly, excluding both the special compensation charge and the net
operating loss from Internet Services, operating income would have increased
$2.6 million, or 34.9%, from $7.3 million to $9.9 million, while EBITDA would
have increased $2.4 million, or 15.9%, from $14.8 million to $17.2 million over
the same periods.
REVENUES. Advertising revenues increased $3.1 million, or 13.2%, from $23.3
million for the year ended December 31, 1996 to $26.4 million for the year ended
December 31, 1997. This increase was due principally to an increase in
advertising rates, an overall increase in advertising pages and the publication
of three additional issues of LAW TECHNOLOGY NEWS partially offset by the
inclusion of the results from the final eleven days of 1997 in the Company's
figures. In relation to advertising revenues, this period includes seven issues
of the NEW YORK LAW JOURNAL and two issues of THE NATIONAL LAW JOURNAL.
Subscription revenues decreased $0.3 million, or 2.6%, from $9.8 million for
the year ended December 31, 1996 to $9.5 million for the year ended December 31,
1997 due to the inclusion of the results from the final eleven days of 1997 in
the Company's figures. Otherwise, increases in subscription rates at both the
NEW YORK LAW JOURNAL and THE NATIONAL LAW JOURNAL were largely offset by
decreases in paid circulation at both publications.
Revenues from ancillary products and services increased $0.5 million, or
3.9%, from $13.4 million for the year ended December 31, 1996 to $13.9 million
for the year ended December 31, 1997. Significant growth was realized in
newsletters, seminars, books (driven by the addition of four new titles) and
MA/3000, NLP's case tracking and docketing service, as well as a 31.4% increase
in royalty income from licensing NLP's proprietary content to third party
information providers. Overall however, the increase was partially offset by the
inclusion of the results from the final eleven days of 1997 in the Company's
figures. In addition, a change in the revenue recognition policy for books
resulted in a portion of the sales, which under the traditional policy would
have been realized in 1997, being included in the results for 1998.
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Revenues from Internet Services increased $0.4 million, or 48.5%, from $0.7
million for the year ended December 31, 1996 to $1.1 million for the year ended
December 31, 1997. This increase is attributable primarily to strong growth in
display advertising on LAW JOURNAL EXTRA!. Internet advertising revenues have
grown rapidly since the conversion of LAW JOURNAL EXTRA! from a proprietary
online system to a predominantly advertising-supported web-based service at the
end of 1995.
OPERATING EXPENSES. Total operating costs and expenses increased $7.7
million, or 18.8%, from $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996 to $48.5 million, or 95.2% of revenues, for the year ended
December 31, 1997. Included in the operating costs for 1997 however, was a
special compensation charge of $6.9 million reflecting stock option and bonus
payments related to the sale of NLP which were paid by the sellers. Without this
charge, total operating costs and expenses increased at a rate substantially
less than the rate of increase in revenues over the same period, increasing only
$0.8 million, or 1.8% from $40.8 million to $41.6 million. Due to the nature of
the business, incremental revenue growth often does not require corresponding
increases in operating expenses. Editorial expenses decreased slightly, by $0.1
million, or 1.6%, from $5.9 million for the year ended December 31, 1996 to $5.8
million for the year ended December 31, 1997, reflecting the inclusion of the
results from the final eleven days of 1997 in the Company's figures. Editorial
expenses consist primarily of salaries of editorial staff and fees paid to
outside contributors. While the overall change in editorial expenses was
insignificant, changes were made to the mix of editorial staff to add coverage
of certain areas that have strong advertiser support.
Production and distribution expenses increased $1.2 million, or 13.7%, from
$8.7 million for the year ended December 31, 1996 to $9.9 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of fulfillment costs of $1.0 million from selling to
production and distribution. Otherwise, the marginal increase of $0.2 million,
or 1.9%, was attributable primarily to LAW TECHNOLOGY NEWS, which experienced an
increase in production and distribution expenses of 39.2% due to the addition of
three issues and an increase in controlled circulation of 10,000 per issue,
partially offset by the final seven issues of the NEW YORK LAW JOURNAL and two
issues of THE NATIONAL LAW JOURNAL which are included in the Company's results.
Selling expenses decreased $0.8 million, or 8.7% from $9.0 million for the
year ended December 31, 1996 to $8.2 million for the year ended December 31,
1997. This decrease is primarily the result of a change in the expense
classification of fulfillment costs of $1.0 million from selling to production
and distribution and of bad debt expense of $0.7 million from selling to general
and administrative. Without these changes, the increase of $0.9 million, or
10.8%, is primarily due to a change in method of accounting for deferred
subscriber acquisition costs, an increase in efforts designed to update and
improve the controlled circulation list of LAW TECHNOLOGY NEWS, and a 17.3%
increase in commission expense directly related to the increase in advertising
sales.
General and administrative expenses increased $0.7 million, or 8.4%, from
$8.0 million for the year ended December 31, 1996 to $8.7 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of bad debt expenses of $0.7 million from selling to
general and administrative. Without this change, general and administrative
expenses remained essentially constant despite the increase in revenues.
Internet Services expenses remained essentially constant at $1.7 million for
the years ended December 31, 1996 and 1997. Such expenses are comprised
primarily of website maintenance costs, advertising sales expenses and expenses
related to editorial staff for the LAW JOURNAL EXTRA! service.
Depreciation and amortization expenses decreased by $0.2 million, or 2.7%,
from $7.5 million for the year ended December 31, 1996 to $7.3 million for the
year ended December 31, 1997.
OPERATING INCOME. As a result of the above factors, and without the special
compensation charge of $6.9 million, operating income would have increased $3.0
million, or 46.6%, from $6.4 million, or 13.5% of
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revenues, for the year ended December 31, 1996 to $9.4 million, or 18.4% of
revenues, for the year ended December 31, 1997 and EBITDA would have increased
$2.8 million, or 20.0%, from $13.9 million, or 29.4% of revenues, for the year
ended December 31, 1996 to $16.6 million, or 32.7% of revenues, for the year
ended December 31, 1997. The increase in operating margins was due to NLP's
ability to hold increases in operating costs and expenses to 1.8% while revenues
grew at 7.9%.
CAPITAL EXPENDITURES. Capital expenditures remained essentially constant at
$0.5 million for the years ended December 31, 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. The Company's operations are not usually capital
intensive. Capital expenditures were $3.9 million for the year ended December
31, 1998. Capital spending in 1999 is expected to be approximately $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 PROVIDED BY OPERATING ACTIVITIES. Net cash provided by operating
activities was $0.6 million for the year ended December 31, 1998 as a net loss
of $19.8 million, along with reductions in accounts payable, accrued expenses
and other non-current liabilities of $1.5 million, $3.0 million and $1.9 million
respectively, were more than offset by depreciation and amortization of $26.3
million.
NET CASH USED IN INVESTING ACTIVITIES. Net cash used in investing
activities was $35.7 million for the year ended December 31, 1998. In March
1998, the Company acquired LegalTech 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 $3.9 million for the year.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by financing
activities totaled $26.1 million for the year ended December 31, 1998, which
primarily reflects a $15.0 million capital contribution made by Holdings, a
drawdown of $8.5 million under the revolving credit agreement and accretion of
interest on senior discount notes of $4.4 million.
WORKING CAPITAL. The Company has favorable cash flow characteristics
resulting from its high level of advance payments by subscribers, low working
capital investment, minimal capital expenditure needs, predictable cost
structure and high margins. Because cash receipts associated with subscriptions
are received toward the beginning of a subscription cycle, the Company's
periodicals business requires minimal investment in working capital.
LIQUIDITY. Holdings is a holding company which has no significant assets
other than its investments in its direct and indirect subsidiaries, and
therefore, its ability to make payments with respect to the Exchange Discount
Notes is dependent upon the receipt or dividends or other payments from the
Company. The Company's principal sources of funds are anticipated to be cash
flows from operating activities, which may be supplemented by borrowings under
the Revolving Credit Facility. The Company believes that these funds will be
sufficient to meet its current and future financial obligations, including the
payment of principal and interest on the Notes, working capital, capital
expenditures and other obligations. No assurance can be given, however, that
this will be the case. The Company's future operating performance and ability to
service or refinance the Notes and to repay, extend or refinance any credit
agreements to which it is a party will be subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control.
The Senior Note Indenture and the Revolving Credit Facility significantly
restrict the distribution of funds by Holdings' subsidiaries. There can be no
assurance that the agreements governing indebtedness of Holdings' subsidiaries
will permit such subsidiaries to distribute funds to Holdings in amounts
sufficient to pay the Accreted Value or the principal or interest on the
Exchange Discount Notes when the same becomes due (whether at maturity, upon
acceleration or redemption or otherwise). The Exchange
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Discount Notes will be effectively subordinated in right of payment to all
existing and future claims of creditors of subsidiaries of Holdings, including
the holders of the Senior Notes and trade creditors. As of December 31, 1997,
the subsidiaries of Holdings had approximately $208.4 million aggregate
principal amount of liabilities outstanding.
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 has
developed a technology plan which the Company is currently implementing, to
replace all client and server based software systems necessary to be Year 2000
compliant. The applications that the Company is installing and upgrading
include, but are not limited to, our 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 the Company in
writing that their respective software packages are Year 2000 compliant.
The Company has also upgraded its network infrastructure with a 100baseT
switched environment. Layer three switches form the backbone of the Company's
new infrastructure, that also incorporates gigabit technology. The Company 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, the
Company 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 the Company in writing that their systems are
Year 2000 compliant.
The Company is working with its system software vendors to ensure that
necessary patches are installed to make the Company 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, the Company intends to hire a Year
2000 consultant to help verify the integrity of all systems; hardware
(networking and desktop), and software (application and system). 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.
The Company's management is currently working on Y2K 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
functionality 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 Y2K compliant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On March 25, 1998, Holdings and the Company (as the "Borrower") signed a
Credit Agreement with various banks that has a combined Revolving Commitment in
the initial principal amount of $40,000,000. The Revolving Credit Facility is
guaranteed by Holdings and 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 all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. Each revolving loan shall
bear interest on the outstanding principal amount from the borrowing date until
it becomes due
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at a rate per annum equal to the "Base Rate" or the Eurodollar rate plus the
"Applicable Margin" of 1.5% for base rate loans and 2.5% for Eurodollar rate
loans. The Base Rate is the higher of the Bank of America publicly announced
"Reference Rate" or the Federal Funds Rate plus 0.5%. The amount outstanding
under the Revolving Credit Facility was $8,500,000 at December 31, 1998. The
interest rate at December 31, 1998, was 7.75%. A 10% increase in the average
rate, during 1998, would have increased the Company's net loss to approximately
$(19,771,000).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Exhibits, which appears on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The following table sets forth certain information regarding each of the
executive officers, directors and certain other key employees of the Company and
Holdings, as of March 15, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF
THE COMPANY AND HOLDINGS
Bruce Wasserstein.................................... 51 Chairman and Director
William L. Pollak.................................... 43 President, Chief Executive Officer and Director
Anup Bagaria......................................... 26 Director
Bruce Barnes......................................... 37 Director
Michael J. Biondi.................................... 41 Director
Robert C. Clark...................................... 55 Director
Donald G. Drapkin.................................... 51 Director
James A. Finkelstein................................. 50 Director
Andrew G.T. Moore, II................................ 63 Director
Jack Berkowitz....................................... 52 Vice President, Strategic Planning
Steven Farbman....................................... 38 Vice President and Chief Operating Officer
Stephen C. Jacobs.................................... 37 Vice President, General Counsel and Secretary
Leslye G. Katz....................................... 44 Vice President and Chief Financial Officer
Paul Mastronardi..................................... 40 Vice President, Finance
Peter E. Scheer...................................... 48 Vice President, Electronic Publishing
Winthrop Stevens..................................... 57 Vice President, Consumer Advertising
Kevin Vermuelen...................................... 35 Vice President National Advertising
</TABLE>
Each Director is elected annually and serves until the next annual meeting
of stockholders or until his or her successor is duly elected and qualified. The
Independent Directors are each compensated $20,000 per year for their service as
Directors and receive reimbursement of expenses incurred from their attendance
at Board of Directors meetings. Directors will also be eligible to participate
in an equity participation plan to be established.
The Board has established an executive committee (the "Executive Committee")
consisting of three members, currently Bruce Wasserstein, Bruce Barnes and Anup
Bagaria. The Executive Committee has been delegated the authority to approve (i)
the acquisition and divestiture by the Company of an affiliate of the Company of
all or a portion of one or more business entities for a price of up to $25
million, (ii) the appointment of senior officers of the company or its
affiliates and termination of such employment, (iii) the preparation and
approval of short-term and long-term budgets, and (iv) other material
policy-level decisions to the extent permitted by the Delaware General
Corporation Law.
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF THE COMPANY AND HOLDINGS
Bruce Wasserstein is Chairman of the Board of Directors of the Company and
Holdings. He is Chairman, Chief Executive Officer and founder of WPG.
Previously, Mr. Wasserstein served as a Director and the Chairman of Maybelline,
Inc. and as a Director of Collins & Aikman Corp. Before establishing WPG, Mr.
Wasserstein was Co-Head of Investment Banking at The First Boston Corporation,
and a Managing Director and Member of its Management Committee. Prior to joining
First Boston in 1977, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore
in New York City. Mr. Wasserstein graduated with honors from the University of
Michigan in 1967. In 1971 he graduated from Harvard Business School as a Baker
Scholar with high distinction, and earned a J.D., CUM LAUDE, from Harvard Law
School. In 1972 he was a Knox Traveling Fellow at Cambridge University. Mr.
Wasserstein is a member of
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the Council on Foreign Relations. He has served as a member of the SEC's
Advisory Committee on Tender Offers and as a member of the Visiting Committees
of Harvard Law School and the University of Michigan.
William L. Pollak has served as President, Chief Executive Officer and
Director since March 1998. Before joining the Company, Mr. Pollak spent 16 years
at the New York Times, where he held a variety of positions, most recently as
Executive Vice President, Circulation. Mr. Pollak received an M.B.A. from
Harvard Business School in 1982 and a B.A. from Harvard College in 1978.
Anup Bagaria has served as a Director of the Company and Holdings since
their founding. He is a Vice President of Wasserstein Perella & Co., Inc. He
graduated from the Massachusetts Institute of Technology.
Bruce R. Barnes has served as a director of the Company and Holdings since
November 1998. Dr. Barnes has been Managing Director of Wasserstein Perella &
Co., Inc. since February 1997 and has been a senior member of its Merchant
Banking Group since September 1998. He was Executive Vice President of Ziff
Brothers Investments, L.L.C., a private investment company, from January 1995 to
June 1996. Prior to that, at Ziff Communications Company, a privately-held
publishing and media company, Dr. Barnes was Senior Vice President and Chief
Financial Officer from September 1993 to December 1994 and was Vice President
and Special Assistant to the Chairman from November 1992 to September 1993. Dr.
Barnes received a B.A. in Economics MAGNA CUM LAUDE and a Ph.D. in Economics
from the University of Pennsylvania. Dr. Barnes is also a director of Collins &
Aikman Corporation.
Michael J. Biondi has served as a Director of the Company and Holdings since
March 1998. He is Chairman and Chief Executive Officer of Wasserstein Perella &
Co., Inc. Mr. Biondi holds M.B.A. and J.D. degrees from the Wharton School and
the University of Pennsylvania Law School, respectively. Prior to joining
Wasserstein Perella, Mr. Biondi was a member of the First Boston Mergers &
Acquisitions Group, and practiced law at Skadden, Arps, Slate, Meagher & Flom.
Robert C. Clark has served as a Director of the Company and Holdings since
their founding. He has been Dean of the Harvard Law School since 1989 and is
Royall Professor of Law. Mr. Clark joined Harvard Law School in 1979 after four
years at Yale Law School, where he was a tenured professor. Mr. Clark is a
corporate law specialist and author of numerous texts and legal articles. Prior
to his academic career, he was an attorney with Ropes & Gray. Professor Clark
has a Ph.D. from Columbia University and a J.D. MAGNA CUM LAUDE from Harvard Law
School. He is a trustee of Teachers' Insurance Annuity Association (TIAA). He is
currently a Director of Collins & Aikman Corp. and of Household International,
Inc. He was previously a Director of Maybelline, Inc.
Donald G. Drapkin has served as a Director of the Company and Holdings since
their founding. He has been a Director and Vice Chairman and Director of
MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987. Mr.
Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
for more than five years prior to 1987. Mr. Drapkin also is a Director of the
following corporations which file reports pursuant to the Exchange Act: Algos
Pharmaceutical Corporation, Anthracite Capital, Inc., BlackRock Asset Investors,
Cardio Technologies, Inc., The Molson Companies, Limited, Revlon Consumer
Products Corporation, Revlon, Inc., Playboy Enterprises, Inc., Weider Nutrition
International, Inc., and VIMR Pharmaceuticals Inc. (On December 27, 1996,
Marvel, Marvel Holdings, Marvel Parent, and Marvel III, of which Mr. Drapkin was
a Director on such date and several subsidiaries of Marvel filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)
James A. Finkelstein has served as a Director of the Company and Holdings
since March 1998. He has been President and Chief Executive Officer of JAF
Communications, LLC since July 1998. Prior to that, Mr. Finkelstein served as
President and Chief Executive Officer of NLP and its predecessor companies since
1974. He joined the New York Law Publishing Company in 1970. He was the former
publisher of the
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<PAGE>
NEW YORK LAW JOURNAL and the founder and publisher of THE NATIONAL LAW JOURNAL.
Mr. Finkelstein holds a B.A. from New York University and an Honorary Doctor of
Laws degree from Hofstra Law School. He currently serves on the Faculty of Arts
and Sciences Board of Overseers at New York University.
Andrew G. T. Moore, II has served as a Director of the Company and Holdings
since their founding. He is a Managing Director of Wasserstein Perella and is a
former Justice of the Delaware Supreme Court. Justice Moore served on the
Delaware Supreme Court for 12 years until 1994. Justice Moore has served as the
Lehmann Distinguished Visiting Professor of Law at Washington University in St.
Louis. He has also served as an adjunct professor of law at the Georgetown
University Law Center, University of Iowa College of Law and Widener University
School of Law, where he taught seminars in advanced corporation law. He also
teaches comparative principles of international corporation law at the Tulane
University Institute of European Legal Studies in Paris, and has been a guest
lecturer at various law schools and national corporate law programs in the
United States, Canada and Europe. He graduated from Tulane University with
B.B.A. and J.D. degrees. He served as law clerk to Delaware Chief Justice
Charles L. Terry, Jr. in 1963. From 1964-1982 Justice Moore practiced law in
Wilmington, Delaware, primarily in the field of corporate litigation. He was a
partner of the firm of Connolly, Bove, Lodge & Hutz.
Jack Berkowitz has served as Vice President, Strategic Planning of the
Company since January, 1999. Mr. Berkowitz had served as a consultant to the
Company for the past year. Mr. Berkowitz is a 25 year veteran of the publishing
industry. As a consultant, in addition to the Company, his client roster has
included Cowles Business Media, Hearst Magazines, Time Inc., Felker Media,
Associated Newspapers and Adweek. Mr. Berkowitz had previously served as
Executive Vice President of the Village Voice and President of The Nation.
Steven Farbman has been Vice President and Chief Operating Officer of the
Company since 1998. He served in a variety of capacities at NLP since January
1986, including President of Law Journal Seminars-Press and Senior Vice
President and Chief Operating Officer. Prior to joining NLP, Mr. Farbman spent
two years as Business Manager of NEW YORK CONSTRUCTION NEWS, a weekly newspaper
based in New York City and worked in marketing for Warner Communications, Inc.
Mr. Farbman graduated from The George Washington University in Washington, D.C.
Stephen C. Jacobs has served as Vice President, General Counsel and
Secretary of the Company since May 1998. Prior to joining the Company, Mr.
Jacobs was Assistant General Counsel, Global Transactions for American
International Group, Inc. Previously, he was in private practice at Winthrop
Stimson Putnam & Roberts and at Hunton & Williams, both in New York. Mr. Jacobs
holds a B.A., CUM LAUDE, from the University of Pennsylvania and a J.D. from
Columbia University.
Leslye G. Katz has served as Vice President and Chief Financial Officer of
the Company since September 1998. Prior to joining the Company, Ms. Katz served
as Vice President and Treasurer of IMS Health, Inc. Previously, she held senior
financial management positions for 18 years in the publishing industry, most
recently as Senior Vice President and Chief Financial Officer of Reuben H.
Donnelley. Ms. Katz began her career at The Dun and Bradstreet Corporation where
she held a variety of financial management positions. She received a bachelor's
degree from Brown University and a master's degree in business administration
from the Wharton School of the University of Pennsylvania.
Paul Mastronardi has been Vice President, Finance of the Company since 1998.
He joined NLP in March 1996 as Chief Financial Officer and was elected Vice
President, Finance in April 1996. He served as Director of Financial Planning
for Bantam Doubleday Bell, a division of Bertelsmann Inc., from April 1995 to
March 1996. Prior to that time, Mr. Mastronardi spent fourteen years at Gruner &
Jahr USA Publishing, where he served in a variety of capacities, including Staff
Accountant, Manager of Information Systems, Senior Financial Manager and
Director of Financial Planning. Mr. Mastronardi holds a B.S. in Accounting and
an M.S. in Finance from St. John's University.
29
<PAGE>
Winthrop Stevens has served as Vice President, Consumer Advertising for the
Company since April 1998. Previously, Mr. Stevens had been Senior Vice
President, Sales and Marketing for VNU (United Dutch Publishing Companies). His
career in publishing and advertising sales has included 14 years at the New York
Times Magazine Group and 15 years at Readers Digest.
Kevin Vermuelen has been Vice President, National Advertising of the Company
since 1998. Prior to that he was a Vice President of Sales for NLP since 1996.
Mr. Vermuelen joined NLP in October 1992. He previously worked for Miller
Freeman and Gordon Publications as a Regional Manager. Mr. Vermuelen graduated
from Brockport State University in 1985.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table includes individual compensation
information for the Chief Executive Officer and certain other executive officers
of the Company for the year ended December 31, 1998 (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company
during the year ended December 31, 1998. There were no options to purchase
capital stock of the Company or Holdings granted to or held by the Named
Executive Officers during or at the end of the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) SALARY ($) BONUS ($) ($)
- ---------------------------------------------------- --------- ----------- ----------- ------------- -------------
William Pollak, President and Chief Executive
Officer(1)........................................ 1998 325,000 333,000 539,256(2)
Steven Farbman, Vice President-Chief Operating
Officer(3)........................................ 1998 244,200 75,000
Leslye G. Katz, Vice President and Chief Financial
Officer(4)........................................ 1998 100,000 50,000 204,200(5)
Stephen C. Jacobs, Vice President, General Counsel
and Secretary(6) 1998 133,333 33,333
Paul Mastronardi, Vice President-Finance............ 1998 137,250 65,000
</TABLE>
- ------------------------
(1) Executive's employment with the Company pursuant to his employment agreement
commenced as of March 9, 1998. See "Employment Agreements".
(2) Represents payments made by the Company to Mr. Pollak pursuant to the terms
of his employment agreement with the Company to reimburse him for the value
of options forfeited upon his resignation from his former employer.
(3) Executive's employment with the Company pursuant to his employment agreement
commenced as of August 1, 1998. See "Employment Agreements."
(4) Executive's employment with the Company pursuant to her employment agreement
commenced as of September 1, 1998. See "Employment Agreements".
(5) Represents payment made by the Company to Ms. Katz pursuant to the terms of
her employment agreement with the Company to reimburse her for the value of
options forfeited upon her resignation from her previous employer.
(6) Executive's employment with the Company pursuant to his employment agreement
commenced as of May 4, 1998. See "Employment Agreements."
30
<PAGE>
EMPLOYMENT AGREEMENTS
Effective March 9, 1998, the Company hired Mr. Pollak as its President and
Chief Executive Officer pursuant to a five year employment agreement. The
employment agreement provides for an annual base salary of $400,000, subject to
increases of 5% annually during the term. In addition, the employment agreement
provides for a bonus of $400,000 after the first year of the term and a bonus of
between 50% and 150% of the base salary, as determined by the Board of
Directors, in each of the remaining years of the term. Mr Pollak is also
entitled to payments for options granted to him and forfeited upon his
resignation from his former employer. The employment agreement provides that if
Mr. Pollak's employment is terminated by the Company without cause or by Mr.
Pollak with good reason, Mr. Pollak will be entitled to severance equal to the
amount of Mr. Pollak's salary and bonus accrued but unpaid through the
termination date and one year's salary commencing on the termination date,
together with any accrued but unpaid bonus. The employment agreement also
provides that the Company will adopt a stock option plan and will issue options
to purchase shares of common stock of the Company pursuant to the terms and
conditions to be set forth in a stock option award agreement between Mr. Pollack
and the Company.
The Company has an employment agreement with Mr. Farbman which provides for
the employment of Mr. Farbman with the Company as Vice President and Chief
Operating Officer expiring on December 31, 1999. The employment agreement
provides for an annual base salary of $250,000. In addition, the employment
agreement provides for contingent bonuses during the term. The employment
agreement provides that if Mr. Farbman's employment is terminated by the Company
without cause or by Mr. Farbman with good reason, Mr. Farbman will be entitled
to severance equal to the amount of Mr. Farbman's salary through the termination
date and bonus accrued but unpaid, and six months' salary commencing on the
termination date, together with any accrued but unpaid bonus.
Effective September 1, 1998, the Company hired Ms. Katz as its Vice
President and Chief Financial Officer pursuant to a five year employment
agreement. The employment agreement provides for an annual base salary of
$300,000 subject to increases of 5% annually during the term. In addition, the
employment agreement provides for a bonus of $150,000 after the first year of
the term and a bonus of between 25% and 75% of the base salary, as determined by
the Board of Directors, in each of the remaining years of the term. Ms. Katz is
also entitled to payments for options granted to her and forfeited upon her
resignation from her prior employer. The employment agreement provides that if
Ms. Katz's employment is terminated by the Company without cause or by Ms. Katz
with good reason, Ms. Katz will be entitled to severance equal to the amount of
Ms. Katz's salary and bonus accrued but unpaid through the termination date and
one year's salary commencing on the termination date, together with any accrued
but unpaid bonus. The employment agreement also provides that the Company will
adopt a stock option plan and will issue options to purchase shares of common
stock of the Company pursuant to terms and conditions to be set forth in a stock
option award agreement between Ms. Katz and the Company.
Effective May 4, 1998, the Company hired Stephen C. Jacobs as its Vice
President, General Counsel and Secretary pursuant to a five year employment
agreement. The employment agreement provides for an annual base salary of
$200,000 subject to increases of 5% annually during the term. In addition, the
employment agreement provides for a bonus of $50,000 after the first year of the
term and a bonus of up to $50,000, as determined by the Board of Directors, in
each of the remaining years of the term. The employment agreement provides that
if Mr. Jacob's employment is terminated by the Company without cause or by Mr.
Jacobs with good reason, Mr. Jacobs will be entitled to severance equal to the
amount of Mr. Jacobs's salary and bonus accrued but unpaid through the
termination date and three months' salary commencing on the termination date,
together with any accrued but unpaid bonus. The employment agreement also
provides that the Company will adopt a stock option plan and will issue options
to purchase shares of common stock of the Company pursuant to terms and
conditions to be set forth in a stock option award agreement between Mr. Jacobs
and the Company.
31
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of the Company are beneficially owned by
Holdings. The following table sets forth certain information regarding
beneficial ownership of Holdings as of December 31, 1998 by (i) each person (or
group of affiliate persons) known by the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock of Holdings, (ii) each Director,
Director nominee, and the Chief Executive Officer and Vice President of the
Company, and (iii) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF TOTAL SHARES
OF BENEFICIAL OWNER OF COMMON STOCK OF COMMON STOCK OUTSTANDING
- ----------------------------------------------------------------- ----------------- ----------------------------
<S> <C> <C>
U.S. Equity Partners, L.P. (1)................................... 56,996 47.497%
ALM Offshore Intermediate Holdings, Inc. (2)..................... 14,411 12.009%
Wasserstein & Co., Inc........................................... 48,593 40.494%
------- -------
Total............................................................ 120,000 100.000%
</TABLE>
- ------------------------
(1) Includes approximately 2.9% of the issued and outstanding common stock of
Holdings held by a coinvestor of USEP which has granted WPMP, the general
partner of USEP, an irrevocable proxy to vote such shares of common stock.
(2) ALM Offshore Intermediate Holdings, Inc., is a wholly-owned subsidiary of
U.S. Equity Partners (Offshore) L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a wholly-owned subsidiary of Holdings. A majority of
Holdings' equity securities are held by USEP and its affiliates. USEP is a
Delaware limited partnership investment fund of which WPMP is the general
partner. WPMP is controlled by Wasserstein Perella & Co., Inc. WPMP is entitled
to receive a monitoring fee in an amount not to exceed $1.0 million in respect
of any year. For advisory services rendered by WPMP to the Company in connection
with the LegalTech Acquisition, the Company paid WPMP a fee of 1% of the
purchase price for LegalTech. For advisory services rendered by WPMP to the
Company in connection with the LCL Acquisition, the Company paid WPMP a fee of
1% of the purchase price for LCL at the closing of the LCL Acquisition.
The Company may engage in transactions with its affiliates, including
entities owned or controlled by certain of its principal shareholders. The
Company believes that such transactions will be no more favorable to the Company
than similar transactions with non-affiliates.
32
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
See Index to Financial Statements which appears on page F-1 hereof. No
Schedules are provided as the Schedules are either not applicable, or the
information has been otherwise provided in the Financial Statements.
(B) REPORTS ON FORM 8-K
The Company has filed no reports on Form 8-K.
(C) EXHIBITS
The exhibits listed on the Exhibit Index following the signature page hereof
are filed herewith in response to this Item.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA HOLDINGS, INC.
Report of Independent Public Accountants as of and for the Year Ended December 31, 1998 and the Five Months
Ended December 31, 1997 of American Lawyer Media Holdings, Inc. ......................................... F-3
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 of American Lawyer Media
Holdings, Inc. .......................................................................................... F-4
Consolidated Statements of Operations for the Year Ended December 31, 1998 and the Five Months Ended
December 31, 1997 of American Lawyer Media Holdings, Inc. ............................................... F-5
Consolidated Statements of Changes in Stockholder's Equity for the Year Ended December 31, 1998 and the
Five Months Ended December 31, 1997 of American Lawyer Media Holdings, Inc. ............................. F-6
Consolidated Statements of Cash Flows for the Year Ended December 31, 1998 and the Five Months Ended
December 31, 1997 of American Lawyer Media Holdings, Inc. ............................................... F-7
Notes to the Consolidated Financial Statements as of December 31, 1998 and 1997 of American Lawyer Media
Holdings, Inc. .......................................................................................... F-8
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Report of Independent Public Accountants as of and for the Seven Months Ended July 31, 1997 of American
Lawyer Media, L.P. ...................................................................................... F-18
Balance Sheet as of July 31, 1997 of American Lawyer Media, L.P. .......................................... F-19
Statement of Operations for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P. ........... F-20
Statement of Changes in Partners' Capital and Accumulated Deficit for the Seven Months Ended July 31, 1997
of American Lawyer Media, L.P. .......................................................................... F-21
Statement of Cash Flows for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P. ........... F-22
Notes to the Financial Statements as of July 31, 1997 of American Lawyer Media, L.P. ...................... F-23
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Report of Independent Public Accountants as of and for the Year Ended December 31, 1996 of American Lawyer
Media, L.P. ............................................................................................. F-27
Balance Sheet as of December 31, 1996 of American Lawyer Media, L.P. ...................................... F-28
Statement of Operations for the Year Ended December 31, 1996 of American Lawyer Media, L.P. ............... F-29
Statement of Changes in Partners' Capital and Accumulated Deficit for the Year Ended December 31, 1996 of
American Lawyer Media, L.P. ............................................................................. F-30
Statement of Cash Flows for the Year Ended December 31, 1996 of American Lawyer Media, L.P. ............... F-31
Notes to the Financial Statements as of December 31, 1996 of American Lawyer Media, L.P. .................. F-32
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Report of Independent Public Accountants as of and for the Period from January 1, 1997 through December 21,
1997 of National Law Publishing Company, Inc. ........................................................... F-36
Consolidated Balance Sheet as of December 21, 1997 of National Law Publishing Company, Inc. ............... F-37
Consolidated Statement of Operations for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc. ................................................................... F-38
Consolidated Statement of Stockholders' Equity for the Period from January 1, 1997 through December 21,
1997 of National Law Publishing Company, Inc. ........................................................... F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statement of Cash Flows for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc. ................................................................... F-40
Notes to the Consolidated Financial Statements as of December 21, 1997 of National Law Publishing Company,
Inc. .................................................................................................... F-41
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Independent Auditor's Report of the Consolidated Financial Statements as of and for the Year Ended December
31, 1996 of National Law Publishing Company, Inc. ....................................................... F-47
Consolidated Balance Sheet as of December 31, 1996 of National Law Publishing Company, Inc. ............... F-48
Consolidated Statement of Operations for the Year Ended December 31, 1996 of National Law Publishing
Company, Inc. ........................................................................................... F-49
Consolidated Statement of Stockholders' Equity (Deficiency) for the Year Ended December 31, 1996 of
National Law Publishing Company, Inc. ................................................................... F-50
Consolidated Statement of Cash Flows for Year Ended December 31, 1996 of National Law Publishing Company,
Inc. .................................................................................................... F-51
Notes to the Consolidated Financial Statements as of December 31, 1996 of National Law Publishing Company,
Inc. .................................................................................................... F-52
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of American
Lawyer Media Holdings, Inc. (a Delaware corporation) as of December 31, 1998 and
1997 and the related consolidated statements of operations, changes in
stockholder's equity and cash flows for the year ended December 31, 1998 and the
five months ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media
Holdings, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998 and the five
months ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 30, 1999
F-3
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 514 $ 9,442
Accounts receivable, net of allowance for doubtful accounts and returns of $3,595 and
$3,236, respectively.................................................................. 14,850 12,298
Inventories, net........................................................................ 1,849 1,482
Other current assets.................................................................... 1,361 1,698
---------- ----------
Total current assets.................................................................. 18,574 24,920
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $3,441
and $613, respectively.................................................................. 7,146 5,630
INTANGIBLE ASSETS, net of accumulated amortization of $13,579 and $1,855, respectively.... 165,843 163,305
GOODWILL, net of accumulated amortization of $12,231 and $498,
respectively............................................................................ 167,402 159,623
DEFERRED FINANCING COSTS, net of accumulated amortization of $997 and $0, respectively.... 8,474 7,678
OTHER ASSETS.............................................................................. 421 158
---------- ----------
Total assets.......................................................................... $ 367,860 $ 361,314
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................................................... $ 2,527 $ 3,466
Accrued expenses.......................................................................... 11,580 12,130
Accrued interest payable.................................................................. 1,076 474
Deferred income (including deferred subscription income of $16,997 and $16,502,
respectively)........................................................................... 18,241 17,172
---------- ----------
Total current liabilities............................................................. 33,424 33,242
---------- ----------
LONG TERM DEBT............................................................................ 8,500 --
---------- ----------
SENIOR NOTES.............................................................................. 175,000 175,000
---------- ----------
SENIOR DISCOUNT NOTES..................................................................... 39,538 35,119
---------- ----------
DEFERRED INCOME TAXES..................................................................... 43,834 47,301
---------- ----------
OTHER NONCURRENT LIABILITIES.............................................................. 5,031 3,363
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock--$.01 par value; 200,000 shares authorized; 120,000 and 100,000 issued and
outstanding as of December 31, 1998 and 1997, respectively.............................. 1 1
Paid-in-capital........................................................................... 89,999 74,999
Accumulated deficit....................................................................... (27,467) (7,711)
---------- ----------
Total stockholder's equity............................................................ 62,533 67,289
---------- ----------
Total liabilities and stockholder's equity............................................ $ 367,860 $ 361,314
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
TWELVE FOR THE FIVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
NET REVENUES:
Periodicals
Advertising....................................................................... $ 67,510 $ 13,410
Subscription...................................................................... 23,172 5,260
Ancillary Products and Services..................................................... 28,208 4,142
Internet Services................................................................... 2,639 1,162
------------- ------------
Total net revenues............................................................ 121,529 23,974
------------- ------------
OPERATING EXPENSES:
Editorial........................................................................... 15,523 3,323
Production and Distribution......................................................... 26,266 5,766
Selling............................................................................. 19,002 3,656
General and Administrative.......................................................... 30,012 7,145
Internet Services................................................................... 4,667 2,988
Depreciation and Amortization....................................................... 26,302 3,273
Shutdown of ALM Internet Services................................................... -- 3,000
------------- ------------
Total operating expenses...................................................... 121,772 29,151
------------- ------------
Operating loss................................................................ (243) (5,177)
INTEREST EXPENSE, net............................................................... 22,916 2,534
------------- ------------
Loss before income taxes...................................................... (23,159) (7,711)
BENEFIT FOR INCOME TAXES............................................................ (3,403) --
------------- ------------
Net loss...................................................................... $ (19,756) $ (7,711)
------------- ------------
------------- ------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
AND THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SHARES PAR VALUE CAPITAL NET LOSS TOTAL
--------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
COMMON STOCK
------------------------
INCEPTION............................................... -- -- $ -- $ -- $ --
Issuance of common stock.............................. 100,000 $ 1 74,999 -- 75,000
Net loss for the five months ended.................... -- -- -- (7,711) (7,711)
--
--------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1997............................ 100,000 $ 1 $ 74,999 $ (7,711) $ 67,289
Capital contribution.................................. 20,000 -- 15,000 -- 15,000
Net loss for the twelve months ended.................. -- -- -- (19,756) (19,756)
--
--------- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1998............................ 120,000 $ 1 $ 89,999 $ (27,467) $ 62,533
--
--
--------- ----------- ---------- ----------
--------- ----------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FIVE
FOR THE MONTHS
TWELVE ENDED
MONTHS ENDED DECEMBER
DECEMBER 31, 31,
1998 1997
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................ $ (19,756) $ (7,711)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization..................................................... 26,302 3,273
Non-cash interest................................................................. 997 --
(Increase) decrease in-
Accounts receivable, net.............................................................. (772) 388
Inventories........................................................................... (202) (74)
Other current assets.................................................................. 394 1,470
Other assets.......................................................................... (207) 3,023
(Decrease) increase in-
Accounts payable...................................................................... (1,544) 1,200
Accrued expenses...................................................................... (3,012) (1,014)
Accrued interest payable.............................................................. 602 593
Deferred income....................................................................... (334) (466)
Other noncurrent liabilities.......................................................... (1,854) 1,035
------------- -----------
Total adjustments............................................................... 20,370 9,428
------------- -----------
Net cash provided by operating activities....................................... 614 1,717
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................. (3,911) (364)
Purchase of businesses:
Working capital, other than cash...................................................... 426 9,229
Property, plant and equipment......................................................... (450) (8,058)
Intangible assets..................................................................... (14,262) (165,160)
Deferred income taxes................................................................. -- 45,893
Other noncurrent assets............................................................... -- (595)
Cost in excess of net assets of company acquired...................................... (19,512) (160,121)
Acquisition related costs and expenses................................................ 2,041 9,579
------------- -----------
Net cash used in investing activities........................................... (35,668) (269,597)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution................................................................ 15,000 75,000
Net borrowing on revolver........................................................... 8,500 --
Accretion of interest on Senior Discount Notes...................................... 4,419 --
Issuance of notes, net of fees and expenses of $7,678 in 1997....................... (1,793) 202,322
Assumption of affiliate note in connection with acquisition......................... -- 32,000
Repayment of affiliate note......................................................... -- (32,000)
Note payable assumed in connection with acquisition................................. -- 31,500
Repayment of note payable........................................................... -- (31,500)
------------- -----------
Net cash provided by financing activities....................................... 26,126 277,322
------------- -----------
Net (decrease) increase in cash................................................. (8,928) 9,442
CASH, beginning of period............................................................. 9,442 --
------------- -----------
CASH, end of period................................................................... $ 514 $ 9,442
------------- -----------
------------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period:
Income taxes........................................................................ $ 280 $ --
------------- -----------
------------- -----------
Interest............................................................................ $ 17,039 $ 1,954
------------- -----------
------------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND 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"). Herein, Holdings, together with Media, are referred
to as the "Company."
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 MAGAZINE, 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 operates Counsel
Connect, a membership-based online service exclusively for lawyers and legal
professionals. The Company's 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. ("Holdings"). 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 the Company.
Also on December 22, 1997, the Company issued $175 million of 9.75% Senior Notes
in an offering under Rule 144A promulgated under the Act. The Company used a
portion of the capital and the proceeds from the Company'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 Company, a wholly-owned
subsidiary of NLP. Old NLP is a publisher of legal publications, which include
NEW YORK LAW JOURNAL, THE
F-8
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND OPERATIONS (CONTINUED)
NATIONAL LAW JOURNAL and LAW TECHNOLOGY NEWS. In addition, Old NLP operates 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, the Company 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 a wholly-owned indirect subsidiary of Holdings, merged with and
into POL with POL surviving; and (vii) LegalTech, LLC, a Delaware limited
liability company, and a wholly-owned indirect subsidiary of Holdings, merged
with and into NYLP with NYLP surviving.
2. 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, Inc., 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"). Approximately $11.3 million was recorded as
goodwill for the excess purchase price over the net liabilities acquired.
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 American Lawyer Media
Holdings, Inc. ("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").
The excess purchase price over the net liabilities acquired was allocated $6.3
million to goodwill and $14.3 million to identified intangibles based upon the
appraisal done. 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.
F-9
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. ACQUISITIONS (CONTINUED)
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the LegalTech
Acquisition and the LCL Acquisition had occurred on January 1, 1998 (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
------------------
<S> <C>
Net revenues.......................................... $ 125,569
Net loss.............................................. $(19,529)
</TABLE>
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.
On October 28, 1998, the Company consummated the acquisition of all of the
assets, properties and rights of the Delaware Law Monthly ("DLM") for an
aggregate purchase price of $280,000 (the "DLM Acquisition"). DLM is a publisher
of a monthly magazine.
The LegalTech Acquisition, the LCL Acquisition and the DLM 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 ALM Acquisition has been accounted for under the purchase method and the
results of operations of the acquired publishing business have been included in
the financial statements since the date of acquisition (August 1, 1997). The
excess of the purchase price over net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Total purchase price............................................. $ 63,000
Reimbursement from seller...................................... (110)
---------
Adjusted purchase price.......................................... 62,890
Historical net liabilities at July 31, 1997.................... 29,342
Elimination of historical intangible assets.................... 5,545
Assets and liabilities not assumed/acquired.................... (34,702)
Adjustment to record fixed assets at fair value................ (365)
Writeoff of leasehold improvements............................. 445
---------
Net liabilities assumed.......................................... 265
Adjustment for acquisition related costs and expenses............ 4,546
---------
67,701
Identified intangibles........................................... (59,770)
---------
Excess of purchase price over net assets acquired................ $ 7,931
---------
---------
</TABLE>
F-10
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. ACQUISITIONS (CONTINUED)
In the accompanying statements of operations, the excess of purchase price
over net assets acquired is being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to ALM IP, LLC and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years. ALM IP, LLC licenses the identified intangibles, ALM IP, LLC's
only principal asset, to ALM, LLC and Counsel Connect, LLC at a market royalty
rate.
The NLP Acquisition has been accounted for under the purchase method and the
results of operations of the acquired publishing business have been included in
the financial statements since the date of acquisition (December 22, 1997). The
excess of the purchase price over net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Total purchase price............................................ $ 203,218
Historical net assets at December 22, 1997.................... (63,173)
Elimination of historical intangible assets................... 122,351
Elimination of historical debt................................ (59,500)
Adjustment to record assets at fair value..................... 1,153
---------
Net liabilities acquired........................................ 831
Provision of deferred income taxes principally related to
identified intangibles........................................ 50,107
Adjustment for acquisition related costs and expenses........... 5,033
---------
259,189
Identified intangibles.......................................... (105,390)
---------
Excess of purchase price over net assets acquired............... $ 153,799
---------
---------
</TABLE>
In the accompanying statements of operations, the excess of purchase price
over net assets acquired are being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to NLP IP Company and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years. NLP IP Company licenses the identified intangibles, NLP IP
Company's only principal asset, to the Company at a market royalty rate.
The results of operations of NLP are included in the accompanying
consolidated statement of operations for the period from December 22, 1997 to
December 31, 1997. The following unaudited pro forma information presents a
summary of consolidated results of operations of the Company as if the NLP
Acquisition had occurred on August 1, 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Net revenues............................................... $ 45,766
Net loss................................................... $ (6,960)
</TABLE>
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 and other intangible assets, and interest
expense on acquisition debt. They do not purport to be indicative of the results
of
F-11
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. ACQUISITIONS (CONTINUED)
operations which actually would have resulted had the combination been in effect
on August 1, 1997, or of future results of operations of the consolidated
entities.
3. 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 the
"Company." Intercompany transactions and balances have been eliminated in
consolidation.
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, which the
Company believes it has adequately provided for.
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 recognized upon shipment and are reflected net of
estimated returns. Newsletter revenues are recognized on the same basis as
subscription revenues. Seminar and conference 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.
F-12
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $2,602,000 and $1,772,000 at December 31, 1998 and 1997,
respectively, are included in accounts receivable in the accompanying
consolidated balance sheet.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion expenditures totaled approximately $6.2 million
and $778,500 for the years ended December 31, 1998 and the five months ended
December 31, 1997, respectively. These are expensed as the related advertisement
or campaign is 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 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:
<TABLE>
<S> <C>
Buildings and improvements........................................ 25 years
Furniture, machinery and equipment................................ 5-9 years
Computer equipment and software................................... 3-6 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life.
F-13
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 life of fifteen years.
RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform with the current year
presentation.
4. SHUTDOWN OF COUNSEL CONNECT
The Company had 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.
During 1998, the Company essentially completed its shutdown of Counsel
Connect and is currently migrating customers to Law News Network, its new
national internet site. The 1997 accompanying statement of operations includes a
provision of $3,000,000 related to the shutdown of Counsel Connect to cover
severance, costs of uncollectible receivables, writedown of computer and network
equipment and termination of contracts related to network services which
provided Internet access. Through December 31, 1998, $2,600,000 was charged
against the reserve established in 1997 for the costs listed above.
5. 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 identified intangibles relating to NLP, accelerated
depreciation, allowance for doubtful accounts, certain accrued liabilities not
currently deductible for tax purposes and net operating loss carryforwards.
F-14
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. INCOME TAXES (CONTINUED)
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to loss before income
taxes is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Federal statutory income taxes................................... $ (6,506) $ (2,582)
Permanent differences (principally goodwill and intangible
amortization).................................................. 2,680 194
State and local income taxes..................................... -- (456)
Other............................................................ -- (126)
Valuation allowance.............................................. 423 2,970
------------ ------------
$ (3,403) $ --
------------ ------------
------------ ------------
</TABLE>
The Company had a deferred tax liability of $43,834 and $47,301 at December
31, 1998 and 1997, respectively. These deferred income tax liabilities primarily
relate to the identified intangibles from the NLP Acquisition which were
recorded at the acquisition date as an increase in goodwill. The liability was
calculated on the identified intangibles from the NLP Acquisition using the
effective tax rate of the Company.
The Company has recorded a 100% valuation allowance against its net deferred
tax liabilities consisting primarily of net operating losses. The valuation
allowance was provided as management cannot be sure of when or if they will be
able to utilize these net operating losses.
F-15
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land........................................................................................... $ 207 $ 207
Buildings and improvements..................................................................... 2,826 790
Furniture, machinery, and equipment............................................................ 2,793 2,739
Computer equipment and software................................................................ 4,761 2,507
--------- ---------
10,587 6,243
Accumulated depreciation and amortization...................................................... (3,441) (613)
--------- ---------
Net property, plant and equipment............................................................ $ 7,146 $ 5,630
--------- ---------
--------- ---------
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
USEFUL
1998 1997 LIVES
---------- ---------- -------------
<S> <C> <C> <C>
Advertiser commitments.................................................... $ 880 $ 880 6 months
Trademarks................................................................ 87,678 82,650 20 years
Customer and subscriber lists............................................. 76,872 69,670 5-17 years
Non-compete agreements.................................................... 13,992 11,960 3 years
---------- ----------
179,422 165,160
Accumulated amortization.................................................. (13,579) (1,855)
---------- ----------
Net intangible assets................................................... $ 165,843 $ 163,305
---------- ----------
---------- ----------
</TABLE>
8. OTHER CURRENT ASSETS
Other current assets consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Prepaid expenses........................................................... $ 1,235 $ 485
Other...................................................................... 126 1,213
--------- ---------
Total...................................................................... $ 1,361 $ 1,698
--------- ---------
--------- ---------
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company and CourtRoom Television Network ("CourtTV"), an affiliate of
Old ALM's general partner, shared certain administrative resources and employees
in 1997 only. In addition, the Company had advertising revenue from Court TV
under an agreement made by the former owner of Old ALM. This agreement was
terminated in October 1997. The cost associated with Court TV employees who
devoted a portion of their time to the Company's activities was charged to the
Company based on an estimate of the time spent on such activities. These charges
amounted to $99,191, while the revenue was $44,730 for the five months ended
December 31, 1997. In addition, the Company had a receivable from CourtTV of
F-16
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. RELATED PARTY TRANSACTIONS (CONTINUED)
$118,500 and $262,600 at December 31, 1998 and 1997, respectively, reflected in
accounts receivable on the accompanying balance sheet.
Included in accrued expenses on the accompanying balance sheets is $0 and
$45,000 at December 31, 1998 and 1997, respectively, due to Wasserstein and Co.,
Inc. for payment of certain costs related to the acquisition of Old ALM.
Approximately $6,500,000 of financing costs related to the Senior Notes as
defined in Note 12 and Senior Discount Notes were paid to Wasserstein Perella,
an affiliate of the Company. In addition, approximately $4,150,000 of
acquisition related fees and expenses were paid to Wasserstein Perella.
10. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $3,580,000 and
$783,000 for the year ended December 31, 1998 and the five months ended December
31, 1997. This amount includes the monthly rent payments for corporate
headquarters discussed below.
At December 31, 1998, minimum rental commitments under noncancellable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL
ESTATE OTHER TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1999............................................................. $ 2,772 $ 197 $ 2,969
2000............................................................. 3,633 183 3,816
2001............................................................. 4,045 105 4,150
2002............................................................. 3,651 42 3,693
2003 and thereafter.............................................. 19,987 39 20,026
--------- --------- ---------
$ 34,088 $ 566 $ 34,654
--------- --------- ---------
--------- --------- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. Approximately $1,924,000 and
$1,800,000, representing accrued pro rata future payments, net of receipts, is
included in other noncurrent liabilities in the accompanying balance sheets as
of December 31, 1998 and 1997, respectively.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
The Company has letters of credit outstanding totaling approximately
$983,000 and $533,000 for security deposits on its corporate office space as of
December 31, 1998 and 1997, respectively.
11. EMPLOYEE BENEFITS
NLP has a 401(k) profit sharing plan (the "NLP Plan") for all eligible
employees who have completed one year of service. Under the NLP Plan, NLP has
the option of making a matching contribution of up to 3% of a participant's
compensation. NLP may also annually contribute additional discretionary amounts
to
F-17
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
11. EMPLOYEE BENEFITS (CONTINUED)
participants. For the year ended December 31, 1998 and the five months ended
December 31, 1997, NLP did not make any matching discretionary contributions to
the NLP Plan. In addition, approximately twenty NLP employees are covered by
certain defined contribution retirement plans sponsored by the Typographical
Union. NLP made contributions to these retirement plans of $11,719 and $0 for
the year ended December 31, 1998 and the five months ended December 31, 1997,
respectively.
ALM, LLC sponsors a 401(k) salary deferral plan (the "ALM Plan").
Participation in the ALM Plan is available for substantially all ALM, LLC and
Counsel Connect, LLC employees. The ALM Plan provides for employer matching of
employees' contributions, as defined. The cost of the ALM Plan for the year
ended December 31, 1998 and the five months ended December 31, 1997 was $276,400
and $137,400, respectively.
ALM, LLC also sponsored a defined benefit plan covering substantially all
ALM, LLC and Counsel Connect, LLC employees. This plan was frozen effective
December 31, 1997, resulting in an insignificant curtailment gain.
F-18
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
11. EMPLOYEE BENEFITS (CONTINUED)
Pension benefits for 1998 and 1997 for the Plan consist of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected Benefit Obligation, at beginning of year......................................... $ 3,424 $ 3,518
Service Cost............................................................................... -- 174
Interest Cost.............................................................................. 226 101
Participant Contributions.................................................................. -- --
Plan amendments............................................................................ -- --
Actuarial (gain)/loss...................................................................... (82) 682
Benefits paid.............................................................................. (22) (11)
Curtailments............................................................................... -- (1,040)
Settlements................................................................................ -- --
Special termination benefits............................................................... -- --
--------- ---------
Projected Benefit Obligation, at end of year............................................... $ 3,546 $ 3,424
--------- ---------
--------- ---------
CHANGE IN PLAN ASSETS
Fair value of assets, at beginning of year................................................. $ 2,613 $ 2,253
Actual return on plan assets............................................................... 534 312
Employer contributions..................................................................... 100 59
Participant contributions.................................................................. -- --
Benefits paid.............................................................................. (22) (11)
Settlements................................................................................ -- --
--------- ---------
Fair value of assets, at end of year....................................................... $ 3,225 $ 2,613
--------- ---------
--------- ---------
FUNDED STATUS
Projected Benefit Obligation............................................................... $ (3,546) $ (3,424)
Fair value of plan assets.................................................................. 3,225 2,613
Unrecognized transitional (asset)/obligation............................................... -- --
Unamortized prior service cost............................................................. -- --
Unrecognized net actuarial (gain)/loss..................................................... (382) --
Intangible asset........................................................................... -- --
Amount included in comprehensive income.................................................... -- --
--------- ---------
Accrued benefit cost....................................................................... $ (703) $ (811)
--------- ---------
--------- ---------
COMPONENTS OF NET PERIODIC PENSION COST
Service Cost............................................................................... $ -- $ 174
Interest Cost.............................................................................. 226 101
Expected return on plan assets............................................................. (237) (86)
Amortization of unrecognized transition (asset)/obligation................................. -- 25
Amortization of unrecognized prior service cost............................................ -- 4
Amortization of unrecognized net actuarial (gain)/loss..................................... 3 --
Curtailment (gain)/loss.................................................................... -- 57
Settlement (gain)/loss..................................................................... -- --
--------- ---------
Net Periodic Pension Cost/(Income)......................................................... $ (8) $ 275
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
11. EMPLOYEE BENEFITS (CONTINUED)
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1998 and 1997, the discount rate was 6.75%, and
the expected long-term rate of return on assets was 9.00% as of December 31,
1998 and 1997.
ALM, LLC also sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan. This plan was also frozen as of December 31, 1997.
ALM, LLC and Counsel Connect, LLC sponsor a comprehensive medical and dental
insurance plan, which is available to substantially all employees. ALM, LLC and
Counsel Connect, LLC are self insured for claims submitted under this plan up to
predetermined amounts above which third party insurance applies.
12. NOTES PAYABLE
On December 22, 1997, Holdings issued $63,275,000 of 12.25% Senior Discount
Notes (the "Discount Notes") due December 15, 2008, at a discount rate of
$553.14 per Discount Note. Net proceeds for Holdings were $33,775,000, net of
discounts and commissions of $1,225,000. The Discount Notes will 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 Discount Notes are senior, unsecured obligations of Holdings. The
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 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, totaling $1,693,000,
have been capitalized on the accompanying December 31, 1998, balance sheet and
are being amortized over the term of the Discount Notes. Amortization of
deferred financing costs is recorded as interest expense. Assuming that there is
no redemption of the 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
(beginning June 15, 1998). The Senior Notes are unsecured general obligations of
the Company and are fully and unconditionally guaranteed, on a joint and several
and senior unsecured basis, by each of the Company's existing and future
Subsidiaries. Separate financial statements of, and other disclosures
concerning, the Guarantors are not included herein because of the Guarantors'
full and unconditional guarantee of the Senior Notes and management has
determined that separate financial statements and other disclosures concerning
the Guarantors are not material and would not provide any additional meaningful
disclosure. The Senior Notes may be redeemed at any time by the Company, in
whole or in part, at various redemption prices that includes accrued and unpaid
interest as well as any existing liquidating 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, totaling $7,236,000, have been
F-20
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
12. NOTES PAYABLE (CONTINUED)
capitalized on the accompanying December 31, 1998 balance sheet and are being
amortized over the term of the Senior Notes. Amortization of deferred financing
costs is recorded as interest expense. 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") signed a
Credit Agreement with various banks that has a combined Revolving Commitment in
the initial principal amount of $40,000,000 and capitalized $542,000 of
financing costs, which are being amortized over the term of the revolver,
reflected in the accompanying 1998 balance sheet. The Revolving Credit Facility
is guaranteed by Holdings and 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 all of the stock of such
subsidiaries, and a pledge by Holdings of all of the stock of the Company. Each
revolving loan shall bear interest on the outstanding principal amount from the
borrowing date until it becomes due at a rate per annum equal to the "Base Rate"
or the Eurodollar rate plus the "Applicable Margin" of 1.5% for base rate loans
and 2.5% for Eurodollar rate loans. The Base Rate is the higher of the Bank of
America publicly announced "Reference Rate" or the Federal Funds Rate plus 0.5%.
A commitment fee must be paid on the daily unused portion of the revolving
commitment. As of December 31, 1998, the unused commitment is approximately
$30,500,000. The Credit Agreement includes both affirmative and negative
covenants that include meeting certain financial ratios. The Company received a
waiver on one of the financial covenants of The Revolving Credit Facility on
March 30, 1999 to make them compliant at December 31, 1998.
13. FASB 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
Company believes that the carrying amount for these accounts approximates fair
value.
14. SUBSEQUENT EVENTS
Effective March 5, 1999, ALM Intermediate Offshore Holdings, Inc. ("ALM
Intermediate") was merged with and into the Company with the Company surviving
(the "Reorganization Merger"). Immediately prior to the effectiveness of the
Reorganization Merger, (i) ALM Intermediate owned of record 14,411 shares of
Common Stock, par value $.01 per share, of the Company (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 the Company and were simultaneously reissued
directly to Offshore. The beneficial ownership of the capital stock of the
Company has not changed as a result of the Reorganization Merger.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheet of American Lawyer Media,
L.P. as of July 31, 1997 and the related statements of operations, changes in
partners' capital and accumulated deficit and cash flows for the seven months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of July 31, 1997, and the results of its operations and its cash flows for
the seven months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-22
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEET
JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 615
Accounts receivable, net of allowance for doubtful accounts of $1,661............. 5,726
Due from affiliate................................................................ 390
Inventories, net.................................................................. 399
Other current assets.............................................................. 557
---------
Total current assets........................................................ 7,687
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $7,354.......... 5,594
INTANGIBLE ASSETS, net of accumulated amortization of $20,665..................... 4,488
GOODWILL, net of accumulated amortization of $247................................. 1,057
OTHER ASSETS...................................................................... 156
---------
Total assets................................................................ $ 18,982
---------
---------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 744
Accrued expenses.................................................................. 4,745
Deferred income (including deferred subscription income of $7,466)................ 8,093
---------
Total current liabilities................................................... 13,582
DUE TO GENERAL PARTNER............................................................ 34,742
---------
Total liabilities........................................................... 48,324
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' ACCUMULATED DEFICIT..................................................... (29,342)
---------
Total liabilities and partners' accumulated deficit......................... $ 18,982
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-23
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF OPERATIONS (NOTE 3)
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
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 3).............................................................. $ (3,042)
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-24
<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)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
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)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-25
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
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 FLOWS 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
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-26
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 revenues consist principally of third-party printing services,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar 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.
F-27
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
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.
3. 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 operations is reportable by each
of the partners on their individual tax returns.
F-28
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at July 31, 1997
(In Thousands):
<TABLE>
<S> <C>
Machinery and equipment............................................ $ 10,323
Buildings and improvements......................................... 1,430
Furniture and fixtures............................................. 823
Land............................................................... 300
Automobiles........................................................ 72
---------
12,948
Accumulated depreciation and amortization.......................... (7,354)
Net property, plant and equipment................................ $ 5,594
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
totaled approximately $149,000 for the seven months ended July 31, 1997.
Advertising revenues from Court TV totaled approximately $122,000 for the seven
months ended July 31, 1997. In addition, the Company and Court TV share certain
editorial and administrative resources and employees, as well as office
facilities. The cost associated with employees who devote all or a portion of
their time to Court TV activities is charged to Court TV based on an estimate of
their time spent on such activities. These charges, which include an allocation
for the chairman of the Company, amounted to $321,000 for the seven months ended
July 31, 1997. Court TV is also charged a flat annual fee of $195,000 for use of
the Company's reporters for on-camera appearances and background reports.
Finally, an allocation is made to Court TV to cover general overhead costs
(e.g., rent, utilities, etc.) which amounted to approximately $53,000 for the
seven months ended July 31, 1997. Amounts due from Court TV are reflected as due
from affiliate on the accompanying balance sheet.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $47,000 for the seven months ended July 31, 1997.
6. 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.
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,046,500 for
the seven months ended July 31, 1997, including rent accruals in excess of
payments of $6,600.
F-29
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum rental commitments under noncancellable leases as of July 31, 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1997.................................................... $ 1,450 $ (650) $ 28 $ 828
1998.................................................... 3,161 (1,443) 70 1,788
1999.................................................... 3,094 (1,473) 59 1,680
2000.................................................... 3,087 (1,473) 44 1,658
2001.................................................... 2,906 (1,473) 33 1,466
2002 and thereafter..................................... 17,424 (10,823) 5 6,606
--------- ---------- ----- ---------
$ 31,122 $ (17,335) $ 239 $ 14,026
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $6,600,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan was
$177,000 for the seven months ended July 31, 1997.
The Company has a defined benefit plan covering substantially all employees.
The Company's general funding policy is to contribute annual amounts that
satisfy the Internal Revenue Code funding requirements. The components of net
periodic pension cost for the year ended December 31, 1996 were as follows:
<TABLE>
<S> <C>
Service cost...................................................... $ 361,216
Interest cost on projected benefit obligation..................... 188,428
Actual return on assets........................................... (260,515)
Net amortization and deferral..................................... 178,602
---------
$ 467,731
---------
---------
</TABLE>
F-30
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
8. EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31,
1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................................... $1,756,139
---------
Accumulated benefit obligation.................................. $1,988,235
---------
Projected benefit obligation.................................... $3,031,741
Plan assets at fair value....................................... 1,965,782
---------
Projected benefit obligation in excess of plan assets........... $1,065,959
Unrecognized net gain........................................... 155,802
Unrecognized net transition obligation.......................... (728,462)
---------
Accrued pension liability....................................... $ 493,299
---------
---------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1996, the discount rate was 7.5%, the rate of
increase in future compensation levels was 6%, and the expected long-term rate
of return on assets was 9%.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
The Company also sponsors a comprehensive medical and dental insurance plan
which is available to substantially all employees. The Company is self insured
for claims submitted under this plan up to predetermined amounts, above which
third party insurance applies.
9. 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.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheets of American Lawyer Media,
L.P. as of December 31, 1996, and the related statements of operations, changes
in partner's capital and accumulated deficit and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of December 31, 1996 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-32
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................ $ 90
Accounts receivable, net of allowance for doubtful accounts of $1,357............ 6,496
Due from affiliate............................................................... 981
Inventories, net................................................................. 520
Other current assets............................................................. 536
---------
Total current assets......................................................... 8,623
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $6,469........... 4,533
INTANGIBLE ASSETS, net of accumulated amortization of $19,911...................... 5,242
GOODWILL, net of accumulated amortization of $229.................................. 984
OTHER ASSETS....................................................................... 100
---------
Total assets................................................................. $ 19,482
---------
---------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable................................................................. $ 1,881
Accrued expenses................................................................. 5,743
Deferred income (including deferred subscription income of $7,221)............... 8,008
---------
Total current liabilities.................................................... 15,632
DUE TO GENERAL PARTNER............................................................. 30,150
---------
Total liabilities............................................................ 45,782
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP (Note 1)............................. --
PARTNERS' ACCUMULATED DEFICIT...................................................... (26,300)
---------
Total liabilities and partners' accumulated deficit.......................... $ 19,482
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-33
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
NET REVENUES:
Periodicals
Advertising.................................................................... $ 26,659
Subscription................................................................... 11,304
Ancillary Products and Services.................................................. 8,467
Internet Services................................................................ 5,474
---------
Total net revenues........................................................... 51,904
---------
OPERATING EXPENSES:
Editorial........................................................................ 7,141
Production and Distribution...................................................... 12,469
Selling.......................................................................... 7,479
General and Administrative....................................................... 16,829
Internet Services................................................................ 11,886
Depreciation and Amortization.................................................... 2,488
---------
Total operating expenses..................................................... 58,292
---------
Operating loss............................................................... (6,388)
---------
INTEREST EXPENSE, net.............................................................. 1,972
Loss before minority interest................................................ (8,360)
MINORITY INTEREST IN LOSS OF CONSOLIDATED PARTNERSHIP (Note 1)..................... 172
---------
Net loss (Note 3).................................................................. $ (8,188)
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-34
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995............................................... $ 30,030 $ (49,789) $ (19,759)
Contribution of capital from minority partner............................ 1,647 -- 1,647
Net loss................................................................. -- (8,188) (8,188)
----------- ---------- ------------
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-35
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (8,188)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization.................................................. 2,488
Minority share................................................................. (172)
Allowance for doubtful accounts................................................ 259
Decrease (increase) in-
Accounts receivable and due from affiliate................................... (1,548)
Inventories.................................................................. 109
Other current assets......................................................... (60)
Other assets................................................................. 95
Increase (decrease) in-
Accounts payable............................................................. 1,045
Accrued expenses............................................................. 1,043
Deferred income.............................................................. 377
---------
Total adjustments.......................................................... 3,636
---------
Net cash used in operating activities...................................... (4,552)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (2,202)
---------
Net cash used in investing activities...................................... (2,202)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner.............................................. 6,064
---------
Net cash provided by financing activities.................................. 6,064
---------
Net (decrease) increase in cash............................................ (690)
---------
CASH, beginning of year............................................................ 780
---------
CASH, end of year.................................................................. $ 90
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-36
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar 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.
F-37
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
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 non-compete 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 $1,537,000 of bank overdrafts as of
December 31, 1996.
3. INCOME TAXES
No provision has been made in the accompanying statements of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
losses appearing on the accompanying statement of operations is reportable by
each of the partners on their individual tax returns.
F-38
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1996 (in thousands):
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Machinery and equipment.............................................................. $ 8,469
Buildings and improvements........................................................... 1,398
Furniture and fixtures............................................................... 763
Land................................................................................. 300
Automobiles.......................................................................... 72
---------
11,002
Accumulated depreciation and amortization............................................ (6,469)
---------
Net property, plant and equipment.................................................... $ 4,533
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
were fixed at approximately $255,000 in 1996. Advertising revenues from Court TV
totaled approximately $244,000 for 1996. In addition, the Company and Court TV
share certain editorial and administrative resources and employees, as well as
office facilities. The cost associated with employees who devote all or a
portion of their time to Court TV activities is charged to Court TV based on an
estimate of their time spent on such activities. These charges, which include an
allocation for the chairman of the Company, amounted to $1,266,000 in 1996.
Court TV is also charged a flat annual fee of $195,000 for use of the Company's
reporters for on-camera appearances and background reports. Finally, an
allocation is made to Court TV to cover general overhead costs (e.g., rent,
utilities, etc.) which amounted to approximately $90,000 in 1996. Amounts due
from Court TV at December 31, 1996 are reflected as due from affiliate on the
accompanying balance sheets.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $97,000 in 1996.
6. 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.
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,757,000 for
the year ended December 31, 1996 and included rent accruals in excess of
payments of $12,000 for the year ended December 31, 1996.
F-39
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1996, minimum rental commitments under noncancellable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1997.................................................... $ 3,481 $ (1,560) $ 67 $ 1,988
1998.................................................... 3,161 (1,443) 70 1,788
1999.................................................... 3,094 (1,473) 59 1,680
2000.................................................... 3,087 (1,473) 44 1,658
2001.................................................... 2,906 (1,473) 33 1,466
2002 and thereafter..................................... 17,424 (10,823) 5 6,606
--------- ---------- ----- ---------
$ 33,153 $ (18,245) $ 278 $ 15,186
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $12,400,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet as of December 31, 1996.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan for the
year ended December 31, 1996 was $308,000.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
F-40
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
8. EMPLOYEE BENEFITS (CONTINUED)
The Company also has a defined benefit plan covering substantially all
employees. The Company's general funding policy is to contribute annual amounts
that satisfy the Internal Revenue Code funding requirements. The components of
net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Service cost...................................................................... $ 361,216
Interest cost on projected benefit obligation..................................... 188,428
Actual return on assets........................................................... (260,515)
Net amortization and deferral..................................................... 178,602
----------
$ 467,731
----------
----------
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................................................... $ 1,756,139
------------
Accumulated benefit obligation.................................................. $ 1,988,235
------------
Projected benefit obligation.................................................... $ 3,031,741
Plan assets at fair value....................................................... 1,965,782
------------
Projected benefit obligation in excess of plan assets........................... $ 1,065,959
Unrecognized net gain (loss).................................................... 155,802
Unrecognized net transition obligation.......................................... (728,462)
------------
Accrued pension liability....................................................... $ 493,299
------------
------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the discount rate was 7.5% as of December 31, 1996; the rate of
increase in future compensation levels was 6% as of December 31, 1996 and the
expected long-term rate of return on assets was 9% as of December 31, 1996.
The Company sponsors a comprehensive medical and dental insurance plan which
is available to substantially all employees. The Company is self insured for
claims submitted under this plan up to predetermined amounts, above which third
party insurance applies.
9. 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.
F-41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the National Law Publishing Company, Inc.:
We have audited the accompanying consolidated balance sheet of National Law
Publishing Company, Inc. (a New York corporation) and subsidiaries as of
December 21, 1997 and the related consolidated statement of operations,
stockholders' equity and cash flows for the period from January 1, 1997 through
December 21, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Law Publishing
Company, Inc. and subsidiaries as of December 21, 1997, and the results of their
operations and their cash flows for the period from January 1, 1997 through
December 21, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
F-42
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 21, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 584
Accounts receivable, net of allowances for doubtful accounts and sales returns
of $1,014..................................................................... 7,402
Inventories, net................................................................ 1,010
Deferred income taxes........................................................... 800
Other current assets............................................................ 741
---------
Total current assets.......................................................... 10,537
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of
$2,250.......................................................................... 2,544
INTANGIBLE ASSETS, net of accumulated amortization of $14,306..................... 122,351
DEFERRED INCOME TAXES............................................................. 2,934
OTHER ASSETS...................................................................... 1,244
---------
Total assets.................................................................. $ 139,610
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 1,522
Accrued expenses................................................................ 1,674
Deferred income (including deferred subscription income of $9,041).............. 9,545
---------
Total current liabilities..................................................... 12,741
---------
LONG-TERM DEBT.................................................................... 59,500
DEFERRED INCOME TAXES............................................................. 926
---------
OTHER NONCURRENT LIABILITIES...................................................... 1,661
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued
and outstanding............................................................... 1
Paid-in capital................................................................. 72,993
Accumulated (deficit)........................................................... (8,212)
---------
Total stockholders' equity.................................................... 64,782
---------
Total liabilities and stockholders' equity.................................... $ 139,610
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet
F-43
<PAGE>
\
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Periodicals......................................................................
Advertising.................................................................... $ 26,402
Subscription................................................................... 9,504
Ancillary products and services.................................................. 13,926
Internet services................................................................ 1,109
---------
Total net revenues........................................................... 50,941
---------
OPERATING EXPENSES:
Editorial........................................................................ 5,837
Production and distribution...................................................... 9,872
Selling.......................................................................... 8,211
General and administrative....................................................... 8,722
Internet services................................................................ 1,657
Depreciation and amortization.................................................... 7,283
Special compensation charge...................................................... 6,926
---------
Total operating costs and expenses........................................... 48,508
---------
Operating income............................................................. 2,433
INTEREST EXPENSE, NET............................................................ (5,137)
---------
Loss before income taxes..................................................... (2,704)
PROVISION FOR INCOME TAXES....................................................... (2,508)
---------
Net loss..................................................................... $ (5,212)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-44
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
------------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................. $ 1 $ 66,165 $ (3,000) $ -- $ 63,166
Contribution from Stockholder.......................... 6,828 6,828
Net loss for the period from January 1, 1997 through
December 21, 1997.................................... -- -- (5,212) -- (5,212)
--
--------- ------------ --- ---------
BALANCE AT DECEMBER 21, 1997............................. $ 1 $ 72,993 $ (8,212) $ -- $ 64,782
--
--
--------- ------------ --- ---------
--------- ------------ --- ---------
</TABLE>
The accompanying notes are an integral part of this statement
F-45
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (5,212)
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization................................................. 7,283
Decrease in deferred income taxes........................................... 1,134
Special compensation charges.................................................. 6,828
Changes in operating assets and liabilities-
(Increase) in accounts receivable........................................... (405)
(Increase) in inventories................................................... (174)
Decrease in prepaid expenses and other current assets....................... 37
Decrease in other assets.................................................... 317
(Decrease) in accounts payable and accrued expenses......................... (320)
Increase in deferred income................................................. 788
Increase in other noncurrent liabilities.................................... 1,016
---------
Net cash provided by operating activities................................. 11,292
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements, net of loss on
disposal of fixed assets of $19............................................... (496)
---------
Net cash used in investing activities..................................... (496)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.............................................................. (10,800)
---------
Net cash used in financing activities..................................... (10,800)
---------
Net decrease in cash and cash equivalents................................. (4)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 588
---------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 584
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest...................................................................... $ 5,528
Income taxes.................................................................. 341
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-46
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 21, 1997
1. ORGANIZATION
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP" or the
"Company") is considered a leading publisher of periodicals, books and
newsletters as well as a provider of seminars and electronic information
services targeted to the U.S. legal community. NYLP's principal periodical
publications are the New York Law Journal (a daily newspaper), The National Law
Journal (a weekly publication) and Law Technology Product News (published
approximately fifteen times per year). NYLP also wholly owns Law Journal EXTRA!,
Inc. ("LJX"). LJX is an on-line service available on the World Wide Web
providing access to various legal information and related services including
electronic versions of NYLP's principal periodicals.
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000.
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional 6,461 shares of
National which vest, subject to certain employment and operating performance
criteria, over a five year period (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, which the
Company believes it has adequately provided for.
F-47
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of newsletter subscriptions, sales of
professional books, software, royalty income and seminar income.
Internet services 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 $734,000 are included in accounts receivable in the accompanying
consolidated balance sheet.
EXPENSE RECOGNITION
ADVERTISING AND PROMOTION COSTS--Advertising expenditures are expensed when
the particular advertisement is released. The Company capitalizes direct
response promotional costs. At December 21, 1997 approximately $1,152,000 of
direct response promotional costs was recorded in other assets on the
accompanying consolidated balance sheet. Advertising expense was approximately
$3,018,000 for the period ended December 21, 1997. The amortization of direct
response promotion expenditures is included in selling expense in the
accompanying consolidated statements of operations.
Editorial costs--All editorial costs are expensed as incurred.
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 professional books published and sold by
the Company 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.
F-48
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property, plant and equipment at December 21,
1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
(IN THOUSANDS) LIVES
-------------- ---------------
<S> <C> <C>
Computer equipment and purchased software.................... $ 2,971 6 years
Furniture and office equipment............................... 1,210 5 to 9 years
Leasehold improvements....................................... 613 7 to 10 years
-------
4,794
Less--accumulated depreciation and amortization.............. (2,250)
-------
$ 2,544
-------
-------
</TABLE>
4. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets at December 21, 1997:
<TABLE>
<CAPTION>
AMORTIZATION
(IN THOUSANDS) PERIODS
-------------- ------------
<S> <C> <C>
Goodwill....................................................... $ 135,519 20 years
Deferred financing costs....................................... 1,138 7 years
--------------
136,657
Less--accumulated amortization................................. (14,306)
--------------
$ 122,351
--------------
--------------
</TABLE>
Total amortization expense of intangibles was approximately $6,709,000 for
the period ended December 21, 1997.
5. LONG-TERM DEBT
Long-term debt was comprised of the following at December 21, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Revolving credit facilities................................................... $ 59,500
Less-current portion of revolving credit facilities reduction amount.......... --
-------
$ 59,500
-------
-------
</TABLE>
F-49
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. The Company's borrowing capacity under the
revolving credit facility, including cash loans and standby letters of credit of
up to $6 million, was $70.5 million through December 21, 1997, and decreases
semi-annually until final maturity on December 31, 2002 as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
January 1, 1998 through June 29, 1998......................................... $ 67,000
June 30, 1998 through December 30, 1998....................................... 63,250
December 31, 1998 through June 29, 1999....................................... 59,500
June 30, 1999 through December 30, 1999....................................... 55,250
December 31, 1999 through June 29, 2000....................................... 51,000
June 30, 2000 through December 30, 2000....................................... 45,750
December 31, 2000 through June 29, 2001....................................... 40,500
June 30, 2001 through December 30, 2001....................................... 33,750
December 31, 2001 through June 29, 2002....................................... 27,000
June 30, 2002 through final maturity date..................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the Company's consolidated
funded debt to consolidated operating cash flow, as defined. Outstanding
borrowings under the facility bear interest at a fluctuating rate, subject to
the Company's elected pricing option, at either the Base Rate, Eurodollar Rate,
and/or CD Rate, plus a variable margin based on the Company's ratio of
consolidated funded debt to consolidated operating cash flow, as defined. The
interest rate under this revolving credit facility approximated 8.0% for the
period ended December 21, 1997. Commitment fees are charged and payable
quarterly at either a .375% or .500% annual rate, depending on the Company's
ratio of consolidated funded debt to consolidated operating cash flow for the
immediately preceding quarter (the "Quarterly Funded Debt Ratio") and on the
average daily unused portion of the revolving credit facility. In addition,
letter of credit usage fees are payable at rates which range between 1.25% and
2.5% depending on the Quarterly Funded Debt Ratio and on the daily letter of
credit exposure during the three month period or portion thereof ending on such
payment date. The revolving credit facility is secured by the assets of National
and NYLP and the stock of NYLP and its subsidiaries.
The Credit Agreement requires, among other things, that the Company 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
F-50
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
other restrictive covenants, including limitations on indebtedness, investments
and acquisitions, the disposition of assets, transactions with affiliates and
distributions to stockholders.
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
6. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 21, 1997,
National had a net operating loss carryforwards available to offset future
taxable income for Federal income tax purposes of approximately $2.0 million.
These carryforwards expire in the years 2004 through 2010 and, as a result of
the change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 21, 1997, National had
approximately $75,000 of operating loss carryforwards for New York State and New
York City income tax purposes.
The provision for income taxes is comprised of the following for the period
from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Current--
Federal........................................................... $ 1,830
State and local................................................... 610
---------
$ 2,440
---------
Deferred--
Federal........................................................... 50
State and local................................................... 18
---------
$ 68
---------
$ 2,508
---------
---------
</TABLE>
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss before income
taxes is as follows for the period from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Federal statutory income taxes...................................... $ (947)
Permanent differences (principally goodwill amortization)........... 2,391
State and local income taxes, net of Federal benefit................ 352
Other............................................................... 712
---------
$ 2,508
---------
---------
</TABLE>
F-51
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein being employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the nonrenewal of his employment, as defined in his employment agreement to
require the Company to purchase all of his shares and liquidate and cash out his
vested option shares for fair value. The Company's obligation to acquire
Finkelstein's shares is subject to it being permitted by the Credit Agreement
and applicable law to do so. In addition, the stockholders' agreement gives the
Company, along with Boston Ventures, the right of first refusal with respect to
Finkelstein's shares.
8. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. The Company may also annually contribute additional discretionary
amounts to participants. For the period ended December 21, 1997, the Company did
not make any matching discretionary contributions to the Plan.
In addition, approximately twenty Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for the period ended December
21, 1997 were approximately $474,000.
F-52
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under non-cancelable operating leases which
expire at various dates through October 2008. At December 21, 1997, the future
minimum payments due under these leases, net of sublease income are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
1998.......................................................................... $ 1,093
1999.......................................................................... 1,173
2000.......................................................................... 1,177
2001.......................................................................... 1,177
Thereafter.................................................................... 8,611
-------
$ 13,231
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,153,000 for the
period ended December 21, 1997.
At December 21, 1997, the Company had a letter of credit outstanding of
approximately $533,000 for the security deposit on its corporate office space.
EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for, among other things, an
annual base salary which, beginning on June 30, 1996, and annually thereafter,
is to be increased by the greater of (i) 5% or (ii) the annual increase in the
consumer price index for all urban consumers not in excess of 8%.
LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and cash
equivalents, long-term debt and interest rate protection agreements. The Company
estimates that the fair value of all financial instruments at December 21, 1997
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
F-53
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
11. SUBSEQUENT EVENT
On December 22, 1997, Boston Ventures and Mr. James A. Finkelstein completed
a Stock Purchase Agreement with American Lawyer Media, LLC for the sale of NLP.
The purchase price for the NLP acquisition was approximately $203,200,000 in
cash. In connection with the sale of the Company, Boston Ventures cashed out
options held by certain management employees with a portion of the proceeds of
the sale. The payment totaled approximately $6,926,000 which is included as a
special compensation charge in the accompanying consolidated statement of
operations (see Note 7).
F-54
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
National Law Publishing Company, Inc.
We have audited the consolidated balance sheet of National Law Publishing
Company, Inc. (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
LESLIE SUFRIN AND COMPANY, P.C.
February 19, 1997, except as to Note 7
which date is March 27, 1997
F-55
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 588
Accounts receivable, net of allowances for doubtful accounts and sales returns of
$1,086 in 1996.................................................................. 6,997
Inventories, net.................................................................. 836
Deferred tax benefits (Note 9).................................................... 4,293
Prepaid expenses and other current assets......................................... 778
---------
Total current assets.......................................................... 13,492
Furniture, equipment and leasehold improvements, net (Note 4)..................... 2,621
Intangible assets, net (Note 5)................................................... 129,060
Deferred tax benefits (Note 9).................................................... 577
Other assets (Note 6)............................................................. 1,561
---------
$ 147,311
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................. $ 3,516
Current portion of long-term debt................................................. 3,300
Due to stockholder (Note 7)....................................................... --
Deferred revenue.................................................................. 8,757
---------
Total current liabilities..................................................... 15,573
Long-term debt (Note 7)........................................................... 67,000
Other non-current liabilities..................................................... 1,571
Commitments and contingencies
Stockholders' equity (Note 10):
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued and
outstanding..................................................................... 1
Additional paid-in capital........................................................ 66,165
Accumulated (deficit)............................................................. (2,999)
---------
Total stockholders' equity.................................................... 63,167
---------
$ 147,311
---------
---------
</TABLE>
See accompanying notes.
F-56
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Periodicals
Advertising...................................................................... $ 23,319
Subscription..................................................................... 9,759
Ancillary products and services.................................................. 13,398
Internet services................................................................ 747
---------
Total net revenues........................................................... 47,223
---------
OPERATING COSTS AND EXPENSES:
Editorial........................................................................ 5,929
Production and distribution...................................................... 8,679
Selling.......................................................................... 8,991
General and administrative....................................................... 8,047
Internet services................................................................ 1,704
Depreciation and amortization.................................................... 7,487
---------
Total operating costs and expenses........................................... 40,837
---------
Operating income............................................................... 6,386
INTEREST EXPENSE, NET.............................................................. (6,013)
OTHER INCOME (EXPENSE)(Note 11).................................................... 181
---------
Total other (expense)........................................................ (5,832)
---------
INCOME (LOSS) BEFORE INCOME TAXES.................................................. 554
(PROVISION) BENEFIT FOR INCOME TAXES (Note 9)...................................... (3,007)
---------
NET (LOSS)......................................................................... $ (2,453)
---------
---------
</TABLE>
See accompanying notes.
F-57
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON CAPITAL ACCUMULATED TREASURY
STOCK PAID-IN (DEFICIT) STOCK TOTAL
------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996................................ 1 66,165 (546) -- 65,620
Net (loss) for the year ended January 1, 1996........... -- -- (2,453) -- (2,453)
--
----------- ------------ --- ---------
Balance, December 31, 1996.............................. $ 1 $ 66,165 $ (2,999) $ -- $ 63,167
--
--
----------- ------------ --- ---------
----------- ------------ --- ---------
</TABLE>
See accompanying notes.
F-58
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net (loss)....................................................................... $ (2,453)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization.................................................. 7,487
Provision for deferred rent.................................................... 136
Deferred income taxes.......................................................... 2,692
Loss on disposal of fixed assets............................................... 9
Changes in operating assets and liabilities:
(Increase) in accounts receivable............................................ (335)
(Increase) in inventories.................................................... (52)
(Increase) decrease in prepaid expenses and other current assets............. 82
(Increase) in other assets................................................... (641)
Increase (decrease) in accounts payable and accrued expenses................. (737)
Increase (decrease) in deferred revenue...................................... 432
(Decrease) in other non current liabilities.................................. (4)
---------
Net cash provided by operating activities.................................. 6,616
---------
Cash flows from investing activities:
Additions to furniture, equipment and leasehold improvements..................... (512)
Additions to intangible assets................................................... (17)
---------
Net cash (used in) investing activities.................................... (529)
---------
Cash flows from financing activities:
Payments on line of credit..................................................... (8,524)
Payment of stockholder debt.................................................... (5,000)
Proceeds from line of credit................................................... 7,924
Payment of deferred financing costs............................................ --
Payment of acquisition costs................................................... --
Payment of subordinated debt................................................... --
Issuance of long-term debt..................................................... --
Purchase of stock, warrants and options........................................ --
---------
Net cash (used in) financing activities.................................... (5,600)
---------
Net increase (decrease) in cash and cash equivalents............................. 487
Cash and cash equivalents--beginning of year..................................... 101
---------
Cash and cash equivalents--end of year........................................... $ 588
---------
---------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest....................................................................... $ 6,198
---------
---------
Income taxes....................................................................... $ 117
---------
---------
Supplemental disclosure of non-cash investing activities:
Purchase price adjustment related principally to the revaluation of deferred
subscription income at the acquisition date resulting in a corresponding
increase to goodwill.......................................................... $ 1,246
---------
---------
</TABLE>
See accompanying notes.
F-59
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF BUSINESS AND CHANGE IN OWNERSHIP
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP") is a
leading publisher of periodicals, books and newsletters as well as a provider of
seminars and electronic information services targeted to the U.S. legal
community. NYLP's principal periodical publications are NEW YORK LAW JOURNAL (a
daily newspaper), THE NATIONAL LAW JOURNAL (a weekly publication) and LAW
TECHNOLOGY PRODUCT NEWS (published 12 times per year). NYLP also wholly owns Law
Journal EXTRA!, Inc. ("LJX"). LJX is an online service available on the World
Wide Web providing access to various legal information and related services
including electronic versions of NYLP's principal periodicals. In addition to
NYLP, National also owns all outstanding shares of PPC Publishing Corporation
("PPC"), whose sole asset is 25,000 shares of National's common stock. National
and its subsidiaries are collectively referred to as the "Company".
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively, "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000.
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional approximate 6,461
shares of National which vest, subject to certain employment and operating
performance criteria, over a five year period (See Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of National and
its direct and indirect wholly-owned subsidiaries.
All significant intercompany items and transactions have been eliminated in
consolidation.
B) USE OF ESTIMATES
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles and, accordingly,
include certain amounts that are based, in part, on management's best estimates
and judgments. These estimates and judgments affect the reported amounts of
assets and liabilities and the amount of reported revenues and expenses. Actual
results could differ from these estimates and judgments.
C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
F-60
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D) 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's cash and cash equivalent balances are principally
maintained with one financial institution. At times, such balances may be in
excess of Federally insured limits; however, the Company believes it is not
exposed to any significant credit risk in this area. 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. Approximately
$8.4 million of 1996 advertising revenues relate to legal advertising in New
York Law Journal. A significant portion of such revenue is generated through
Legal Ad Agents. 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, which it believes it has adequately provided
for.
The Company's recurring provision for doubtful accounts, which is based on a
review of its customer accounts, is included in selling and shipping expense in
the accompanying consolidated statements of operations.
E) INVENTORIES
Inventories, consisting of book texts and related binding materials, are
stated at the lower of cost or market, after appropriate reserves for obsolete
inventories. Cost is determined by the average cost method.
F) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
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.
G) INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Intangible assets are amortized on a straight-line basis over their respective
useful lives. Intangible assets include deferred financing costs with the
amortization and/or write-off of such costs classified as part of amortization
expense rather than as interest expense. Goodwill represents the excess of
purchase price over the fair value of net assets acquired. 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. The
amount of goodwill impairment, if any, is charged to operations at the time
impairment is determined by management. At December 31, 1996, management
determined that there was no impairment of goodwill.
H) SOFTWARE DEVELOPMENT COSTS
The Company capitalizes directly related software development costs incurred
from the period technological feasibility is established until the product is
ready for release. Amounts capitalized are amortized over the estimated useful
life of the product and are evaluated by management, as to
F-61
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recoverability, based upon whether the estimated future undiscounted net cash
flows from the product are sufficient to fully recover the unamortized remaining
book value related to such product.
I) REVENUE AND COST RECOGNITION
REVENUES:
(i) Advertising--Advertising revenues are recognized, net of related
advertising agency commissions, on the date publications are released for
sale. Revenues billed and/or received for advertisements to be released in
future months are included in deferred revenue.
(ii) Subscriptions--Sales of publication subscriptions are deferred and
recognized as revenues over the term of the related subscriptions,
principally one year.
(iii) Books and related updates--Revenues are recognized upon shipment
date and are reflected net of estimated returns.
(iv) Seminars--Seminar revenues are recognized when the seminar is held.
COST AND EXPENSES
(i) Advertising and promotion costs--Advertising expenditures are
expensed when the particular advertisement is released. Beginning in 1995,
direct response promotion costs are capitalized, subject to a net
recoverability evaluation, and amortized, on a straight-line basis, over
their estimated future benefit period. The amortization of direct response
promotion expenditures is included in selling and shipping expense in the
accompanying consolidated statements of operations. Prior to 1995, direct
response promotional costs were expenses upon advertisement and/or promotion
release date (See Note 3).
(ii) Editorial costs--All editorial costs are expensed as incurred.
(iii) Rent expense--In accordance with generally accepted accounting
principles, rent expense reflects the straight-line amortization, over the
terms of the respective leases, of scheduled rent payments over such lease
terms. The excess of recognized rent expense over rent payments made to date
is included in the accompanying consolidated sheets as a deferred rent
obligation, included as part of other non current liabilities.
(iv) Barter revenue and expenses--Revenue from barter transactions
(advertising space provided in exchange for goods and/or services) is
recognized as income when the advertisement is run. Costs and expenses
related to barter transactions are recognized when the merchandise and/or
service is received. Barter revenue and barter expense is reflected net in
the accompanying consolidated statements of operations.
J) INTEREST EXPENSE
Interest expense includes letter of credit usage and commitment fees and
excludes the amortization and/or other charges related to deferred financing
costs. With respect to interest rate swap agreements, the differential to be
paid or received is accrued as interest rates change and is recognized as an
adjustment to interest expense.
F-62
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K) INCOME TAXES
The Company, for financial statement purposes, reports certain items of
income and expense in periods different from when such items are reported for
income tax purposes. The principal differences relate to the timing and
deductibility of bad debt allowances and book returns, the capitalization of
certain direct response promotional and inventory costs, depreciation of fixed
assets, and the straight-line expense recognition of office space rentals.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and income tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. In addition, the tax benefit related to net
operating loss carryforwards and alternative minimum tax ("AMT") credit
carryforwards are reflected as deferred tax assets when the realization of such
tax benefit is more likely than not. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Income tax expense for a particular period is equal to the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
L) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the current year presentation.
3. DIRECT RESPONSE PROMOTIONAL COSTS
Effective January 1, 1995, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-7. "Reporting on
Advertising Costs" (the "SOP"). The statement requires, among other things, that
direct response advertising costs, whose primary purpose is to elicit sales to
customers, be reported as an asset and amortized over the estimated period of
future benefit. Under the Company's previous accounting policy, promotional and
subscription acquisition costs were capitalized prior to the launching of a
direct marketing or subscription acquisition campaign and then expensed when the
promotional materials were mailed.
At December 31, 1996, approximately $1,203,000 of direct response
promotional costs, net of accumulated amortization of $1,255,000 was recorded in
other assets on the accompanying consolidated balance sheet. Advertising expense
was approximately $2,707,000 for 1996.
F-63
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
The following is a summary of furniture, equipment and leasehold
improvements:
<TABLE>
<CAPTION>
ESTIMATED
(IN THOUSANDS) USEFUL LIVES
--------------- ---------------
<S> <C> <C>
Computer equipment and purchase software..................... $ 2,558 6 years
Furniture and office equipment............................... 1,187 5 to 9 years
Leasehold improvements....................................... 589 7 to 10 years
------
4,334
Less accumulated depreciation and amortization............... (1,713)
------
$ 2,621
------
------
</TABLE>
5. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets:
<TABLE>
<CAPTION>
AMORTIZATION
(IN THOUSANDS) PERIODS
-------------- ------------
<S> <C> <C>
Goodwill....................................................... $ 135,519 (*)
Deferred financing costs....................................... 1,138 7 years
--------------
............................................................... 136,657
Less accumulated amortization.................................. (7,597)
--------------
$ 129,060
--------------
--------------
</TABLE>
- ------------------------
(*) 38 years for periods prior to December 1, 1995 and 20 years thereafter.
Total amortization expense of intangibles was $6,941,000 and $5,303,000 for
the years ended December 31, 1996 and 1995, respectively. The 1995 amortization
expense includes an approximate $2 million charge relating to the unamortized
deferred financing cost attributable to the Predecessor Credit Facility which
was paid off as part of the Boston Ventures' December 1, 1995 acquisition.
During 1996, the Company implemented systems which, among other operational and
financial reporting enhancements, better quantify its deferred subscription
obligation for certain publications. As permitted by generally accepted
accounting principles, the Company has restated by approximately $1.3 million
the goodwill recorded on December 1, 1995 to reflect the difference between the
Company's deferred subscription obligation computed under its upgraded reporting
systems and the amount estimated by management on that date.
F-64
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
6. OTHER ASSETS
Other assets is comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Deferred direct response promotional costs (a)................................ $ 1,203
Capitalized software (b)...................................................... 204
Security deposits (c)......................................................... 97
Officers' life insurance--cash surrender value (d)............................ 43
Other......................................................................... 14
------
$ 1,561
------
------
</TABLE>
- ------------------------
(a) Represents direct mail promotional costs that relate to SOP 93-7 (See Note
3).
(b) During 1996, the Company introduced a CD-ROM Product. All development costs
incurred capitalized and are being amortized over a three year period.
(c) Represents security deposits required for leased properties.
(d) Represents the cash value of life insurance purchased on a former officer.
7. LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Revolving Credit Facilities (a)............................................... $ 70,300
Less: current portion of Revolving Credit Facilities reduction amount......... (3,300)
-------
$ 67,000
-------
-------
</TABLE>
(A) REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. Therefore, at December 31, 1995, the entire Bank
debt of $70.9 million was reflected as a NYLP borrowing. In addition, on January
2, 1996, NYLP borrowed approximately $5,022,000 from the Bank to pay the
Finkelstein $5 million note and related accrued interest. The Finkelstein $5
million note was issued in connection with the December 1, 1995 acquisition of
the Company (See Note 1). The Finkelstein note and related accrued interest was
secured by an irrevocable letter of credit issued by the Bank. The Company's
borrowing capacity under the revolving credit facility, including cash loans and
standby letters
F-65
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. LONG-TERM DEBT (CONTINUED)
of credit of up to $6 million, was $80 million through December 30, 1996, and
decreases semi-annually until final maturity on December 31, 2002 as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
December 31, 1996 through June 29, 1997....................................... $ 74,000
June 30, 1997 through December 30, 1997....................................... 70,500
December 31, 1997 through June 29, 1998....................................... 67,000
June 30, 1998 through December 30, 1998....................................... 63,250
December 31, 1998 through June 29, 1999....................................... 59,500
June 30, 1999 through December 30, 1999....................................... 55,250
December 31, 1999 through June 29, 2000....................................... 51,000
June 30, 2000 through December 30, 2000....................................... 45,750
December 31, 2000 through June 29, 2001....................................... 40,500
June 30, 2001 through December 30, 2001....................................... 33,750
December 31, 2001 through June 29, 2002....................................... 27,000
June 30, 2002 through final maturity date..................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the Company's consolidated
funded debt to consolidated operating cash flow, as defined. Outstanding
borrowings under the facility bear interest at a fluctuating rate, subject to
the Company's elected pricing option, at either the Base Rate, Eurodollar Rate,
and/or CD Rate, plus a variable margin based on the Company's ratio of
consolidated funded debt to consolidated operating cash flow, as defined. The
interest rate under this revolving credit facility approximated 8.1% for the
year ended December 31, 1996. Commitment fees are charged and payable quarterly
at either a .375% or .500% annual rate, depending on the Company's ratio of
consolidated funded debt to consolidated operating cash flow for the immediately
preceding quarter (the "Quarterly Funded Debt Ratio") and on the average daily
unused portion of the revolving credit facility. In addition, letter of credit
usage fees are payable at rates which range between 1.25% and 2.5% depending on
the Quarterly Funded Debt Ratio and on the daily letter of credit exposure
during the three month period or portion thereof ending on such payment date.
The revolving credit facility is secured by the assets of National and NYLP and
the stock of NYLP and its subsidiaries.
The Credit Agreement requires, among other things, the Company maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flow, 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.
(B) INTEREST RATE PROTECTION AGREEMENTS
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
F-66
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
7. LONG-TERM DEBT (CONTINUED)
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities was comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Deferred rent (a)............................................................. $ 1,536
Rent Security and deposit--sublease........................................... 23
Deferred compensation......................................................... 12
------
$ 1,571
------
------
</TABLE>
- ------------------------
(a) Represents the cumulative excess of rent expense recognized in accordance
with generally accepted accounting principles over cumulative cash rental
payments made.
9. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 31, 1996,
National had net operating loss carryforwards available to offset future taxable
income for Federal income tax purposes of approximately $11.2 million. These
carryforwards expire in the years 2004 through 2010 and, as a result of the
change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 31, 1996, National had net
operating loss carryforwards of approximately $5.3 million available to offset
future taxable income for New York State and New York City income tax purposes
which expire in the years 2005 through 2010.
The benefit (provision) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Current:
Federal..................................................................... $ (110)
State and local............................................................. (205)
-------
(315)
-------
Deferred:
Federal..................................................................... (1,621)
State and local............................................................. (1,071)
-------
(2,692)
-------
$ (3,007)
-------
-------
</TABLE>
F-67
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
9. INCOME TAXES (CONTINUED)
Net deferred tax assets were comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Deferred tax assets:
Accounts receivable reserves................................................ $ 268
Inventory capitalization.................................................... 372
Deferred rent............................................................... 715
Federal, state and local operating loss carryforwards....................... 4,472
Federal AMT credit.......................................................... 139
------
5,966
------
Deferred tax liabilities:
Depreciation................................................................ $ 442
Deferred promotional costs.................................................. 559
Product development costs................................................... 95
------
1,096
------
Net deferred tax assets....................................................... $ 4,870
------
------
</TABLE>
The presentation of deferred tax assets and liabilities on the accompanying
consolidated balance sheet is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Deferred tax benefits, current................................................ $ 4,293
Deferred tax liabilities, current............................................. --
------
Net deferred tax benefits, current............................................ 4,293
------
Deferred tax benefits, non-current............................................ 1,673
Deferred tax liabilities, non-current......................................... (1,096)
------
Net deferred tax benefits, non-current........................................ 577
------
Net deferred tax assets....................................................... $ 4,870
------
------
</TABLE>
The reconciliation between total tax expense (benefit) and the amount
computed by applying the statutory Federal income tax rate to income before
income taxes is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Federal statutory income taxes................................................ $ 188
Permanent differences (principally goodwill amortization)..................... 2,181
State and local income taxes, net of federal benefit.......................... 842
Other......................................................................... (204)
------
$ 3,007
------
------
</TABLE>
F-68
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
A) STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein been employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
B) STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the non-renewal of his employment, as defined in his employment agreement (See
Note 13) to require the Company to purchase all of his shares and liquidate and
cash out his vested option shares for fair value. The Company's obligation to
acquire Finkelstein's shares is subject to it being permitted by the Credit
Agreement and applicable law to do so. In addition, the stockholders' agreement
gives the Company, along with Boston Ventures, the right of first refusal with
respect to Finkelstein's shares.
11. OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following items:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------
<S> <C>
Insurance claim recovery (a).................................................. $ 235
Litigation settlement......................................................... --
Barter income (loss).......................................................... (54)
Apollo management fee......................................................... --
-----
$ 181
-----
-----
</TABLE>
- ------------------------
(a) Represents an insurance reimbursement of approximately $287,000 relating to
employee theft, net of legal and professional costs of $52,000.
12. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. During 1996, the Company did not make any matching discretionary
contributions to the Plan.
F-69
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
12. RETIREMENT PLANS (CONTINUED)
In addition, approximately 20 Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for 1996 were $476,000.
13. COMMITMENTS AND CONTINGENCIES
A) OPERATING LEASES
The Company leases office space under non cancelable operating leases which
expire at various dates through October 2008. At December 31, 1996, the future
minimum payments due under these leases, net of sublease income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
1997........................................................................ $ 1,027
1998........................................................................ 1,129
1999........................................................................ 1,187
2000........................................................................ 1,190
2001........................................................................ 1,177
Thereafter.................................................................. 8,620
-------
$ 14,330
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,395,000 for the
year ended December 31, 1996.
At December 31, 1996, the Company had a letter of credit outstanding of
approximately $533,000 for the security deposit on its corporate office space.
B) EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for an annual base salary
which, beginning on June 30, 1996, and annually thereafter, is to be increased
by the greater of (i) 5% or (ii) the annual increase in the consumer price index
for all urban consumers not in excess of 8%.
C) LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and
equivalents, long term debt and interest rate projection agreements. The Company
estimates that the fair value of all financial instrument at December 31, 1996,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
F-70
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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 on , 1999.
<TABLE>
<S> <C> <C>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
By:
-----------------------------------------
William L. Pollak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
L. Pollak and Anup Bagaria and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their, his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Director, President and
/s/ WILLIAM L. POLLAK Chief Executive Officer
- ------------------------------ (Principal Executive March 31, 1999
William L. Pollak Officer)
Vice President and Chief
/s/ LESLYE G. KATZ Financial Officer
- ------------------------------ (Principal Financial March 31, 1999
Leslye G. Katz Officer and Principal
Accounting Officer)
/s/ BRUCE WASSERSTEIN
- ------------------------------ Chairman of the Board of March 31, 1999
Bruce Wasserstein Directors
/s/ ANUP BAGARIA
- ------------------------------ Director, Vice President March 31, 1999
Anup Bagaria
/s/ BRUCE BARNES
- ------------------------------ Director March 31, 1999
Bruce Barnes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL J. BIONDI
- ------------------------------ Director March 31, 1999
Michael J. Biondi
/s/ ROBERT C. CLARK
- ------------------------------ Director March 31, 1999
Robert C. Clark
/s/ DONALD G. DRAPKIN
- ------------------------------ Director March 31, 1999
Donald G. Drapkin
/s/ JAMES A. FINKELSTEIN
- ------------------------------ Director March 31, 1999
James A. Finkelstein
/s/ ANDREW G.T. MOORE, II
- ------------------------------ Director March 31, 1999
Andrew G.T. Moore, II
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1* Purchase Agreement, dated as of October 23, 1997, by and among Boston Ventures Limited Partnership IV,
Boston Ventures Limited Partnership IVA, James A. Finkelstein and ALM Holdings, LLC, as amended.
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein and The Bank
of New York, as trustee
4.4* Registration Rights Agreement, dated as of December 22, 1997, among the Company, the Guarantors named
therein and the Initial Purchasers
10.1* Lease, dated September 30, 1993, between Park Avenue South/Armory, Inc. and The New York Law Publishing
Company for premises at 345 Park Avenue South, New York, New York
10.2* First Supplemental Agreement, dated November 30, 1994, between Park Avenue South/ Armory, Inc. and The
New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York
10.3* Credit Agreement, dated as of March 25, 1998, among the Company, Holdings, various banks, Bank of
America National Trust and Savings Association, BancBoston Securities Inc. and BancAmerica Robertson
Stephens
10.4* Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein and the Bank
of New York
10.5* Employment Agreement, dated as of February 9, 1998, by and between the Company and William L. Pollack
12.1 Statement re: computation of ratio of earnings to fixed charges
21.1 List of Subsidiaries of the Company
24.1 Power of Attorney of the Company (included on Signature Page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Exhibits incorporated by reference from the Company's Registration Statement
on Form S-4 (File No. 333-50117).
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media Holdings, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of American Lawyer Media Holdings, Inc.
for the year ended December 31, 1998 and the five months ended December 31, 1997
included in this registration statement and have issued our report thereon dated
March 30, 1999. Our audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule listed
below is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. The schedule for the
year ended December 31, 1998 and the five months ended December 31, 1997 has
been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 30, 1999
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
AMERICAN LAWYER MEDIA HOLDINGS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
AND THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO CHARGED TO BALANCE
BALANCE AT COSTS AND OTHER AT END OF
BEGINNING EXPENSES ACCOUNTS DEDUCTIONS PERIOD
DESCRIPTION OF PERIOD DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT)
- ----------------------------------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
--------------------------
<CAPTION>
DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT)
<S> <C> <C> <C> <C> <C>
FOR THE FIVE MONTHS ENDED DECEMBER 31,
1997:
Allowance for doubtful accounts.......... $ (1,661) $ (843) $ (1,014)(1) $ 282(2) $ (3,236)
------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------ ------------
FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1998:
Allowance for doubtful accounts.......... $ (3,236) $ (1,819) $ -- $ 1,460(2) $ (3,595)
------------ ------------ ------------ ------ ------------
------------ ------------ ------------ ------ ------------
</TABLE>
- ------------------------
(1) Represents the addition of the NLP allowance for doubtful accounts ($1,014)
at the date of acquisition.
(2) Represents reversals of the allowance account and write-offs of accounts
receivable, net of recoveries.
<PAGE>
EXHIBIT 12.1
AMERICAN LAWYER MEDIA HOLDINGS, INC.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FIVE FOR THE TWELVE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Loss from continuing operations before
income taxes................................. $ (7,711) (23,159)
--------- -------
Fixed charges:
Interest expense................................ 2,534 22,916
Rent expense(a)................................. 261 1,193
--------- -------
Total fixed charges............................. $ 2,795 24,109
--------- -------
Earnings........................................ $ (4,916) 950
--------- -------
--------- -------
Ratio of earnings to fixed charges.............. (b) (b)
</TABLE>
(a) Represents one-third of rent expense which is deemed to be equivalent
to an interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $7,711, and
$23,159 for the five months ended December 31, 1997 and the twelve
months ended December 31, 1998, respectively.
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------- JULY 31,
1994 1995 1996 1997
---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Loss from continuing operations before
income taxes................................. $ (10,156) $ (10,451) $(8,360) $ (3,042)
--------- --------- -------- ---------
Fixed charges:
Interest expense................................ 667 1,384 1,972 1,420
Rent expense(a)................................. 432 575 586 349
--------- --------- -------- ---------
Total fixed charges............................. $ 1,099 $ 1,959 $ 2,558 $ 1,769
--------- --------- -------- ---------
Earnings........................................ $ (9,057) $ (8,492) $ (5,802) $ (1,273)
--------- --------- -------- ---------
--------- --------- -------- ---------
Ratio of earnings to fixed charges.............. (b) (b) (b) (b)
</TABLE>
- ------------------------
(a) Represents one-third of rent expense which is deemed to be equivalent
to an interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $10,156,
$10,451, $8,360, and $3,042 for the years ended December 31, 1994, 1995,
1996 and the seven months ended July 31, 1997, respectively.
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, 1997 TO
------------------------------------- DECEMBER 21,
1994 1995 1996 1997
---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
Income (Loss) from continuing operations
before income taxes... ...................... $ 1,341 $ (2,191) $ 554 $ (2,704)
--------- --------- -------- ---------
Fixed charges:
Interest expense................................ 4,734 5,450 6,013 5,137
Amortization of deferred financing cost......... 523 2,616 161 156
Rent expense(a)................................. 382 407 415 384
--------- --------- -------- ---------
Total fixed charges............................. $ 5,639 $ 8,473 $ 6,589 $ 5,677
--------- --------- -------- ---------
Earnings........................................ $ 6,980 $ 6,282 $ 7,143 $ 2,973
--------- --------- -------- ---------
--------- --------- -------- ---------
Ratio of earnings to fixed charges.............. 1.24 (b) 1.08 (b)
</TABLE>
- ------------------------
(a) Represents one-third of rent expense which is deemed to be equivalent
to an interest factor.
(b) Earnings were inadequate to cover combined fixed charges by $2,191
and $2,704 for the year ended December 31, 1995 and the period from
January 1, 1997 through December 21, 1997, respectively.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
The subsidiaries of American Lawyer Media Holdings, Inc. are as follows:
<TABLE>
<S> <C>
NAME JURISDICTION OF INCORPORATION
American Lawyer Media, Inc. Delaware
</TABLE>
The subsidiaries of American Lawyer Media, Inc. are as follows:
<TABLE>
<S> <C>
NAME JURISDICTION OF INCORPORATION
National Law Publishing Company, Inc. New York
Professional On Line, Inc. Delaware
</TABLE>
The subsidiaries of National Law Publishing Company, Inc., a wholly-owned
subsidiary of American Lawyer Media, Inc. are as follows:
<TABLE>
<S> <C>
NAME JURISDICTION OF INCORPORATION
The New York Law Publishing Company New York
NLP IP Company Delaware
PPC Publishing Corporation New York
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FILING AT DECEMBER 31, 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>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 514
<SECURITIES> 0
<RECEIVABLES> 18,445
<ALLOWANCES> 3,595
<INVENTORY> 1,849
<CURRENT-ASSETS> 18,574
<PP&E> 10,587
<DEPRECIATION> 3,441
<TOTAL-ASSETS> 367,860
<CURRENT-LIABILITIES> 33,424
<BONDS> 214,538
0
0
<COMMON> 1
<OTHER-SE> 62,532
<TOTAL-LIABILITY-AND-EQUITY> 367,860
<SALES> 121,529
<TOTAL-REVENUES> 121,529
<CGS> 41,789
<TOTAL-COSTS> 121,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,916
<INCOME-PRETAX> (23,159)
<INCOME-TAX> (3,403)
<INCOME-CONTINUING> (19,756)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,756)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
