<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ended March 31, 2000.
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
COMMISSION FILE NUMBER: 333-50119
----------------------------
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (212) 779-9200
----------------------------
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 |_|
As of May 12, 2000 there were 1,200,000 shares of the registrant's Common Stock
outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
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PART I
FINANCIAL INFORMATION..........................................................1
ITEM 1. FINANCIAL STATEMENTS............................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...............................................13
PART II
OTHER INFORMATION.............................................................14
ITEM 1. LEGAL PROCEEDINGS..............................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.......................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............14
ITEM 5. OTHER INFORMATION...............................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................14
(i)
<PAGE>
INDEX TO FINANCIAL INFORMATION
PAGE
----
Consolidated Financial Statements of American Lawyer Media Holdings, Inc.
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999............1
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999..................................................2
Consolidated Statement of Changes in Stockholder's Equity for
the Three Months Ended March 31, 2000....................................3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999............................................4
Notes to Consolidated Financial Statements at March 31, 2000.................5-9
(ii)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 388 $ 1,598
Accounts receivable, net of allowance for doubtful accounts and
returns of $2,893 and $2,758, respectively ..................... 20,121 16,811
Inventories, net ................................................. 1,417 1,449
Other current assets ............................................. 2,327 2,016
--------- ---------
Total current assets ....................................... 24,253 21,874
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
and amortization of $6,854 and $5,912, respectively ............ 15,183 15,018
INTANGIBLE ASSETS, net of accumulated amortization of $27,034
and $24,121, respectively ...................................... 146,919 149,831
GOODWILL, net of accumulated amortization of $26,951 and
$23,937, respectively .......................................... 150,802 153,816
DEFERRED FINANCING COSTS, net of accumulated amortization of
$2,229 and $1,983, respectively ................................ 7,241 7,488
OTHER ASSETS ..................................................... 3,686 1,210
--------- ---------
Total assets ............................................... $ 384,084 $ 349,237
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................. $ 5,746 $ 6,792
Accrued expenses ................................................. 9,263 10,918
Accrued interest payable ......................................... 5,397 1,185
Deferred income (including deferred subscription income of
$17,339 and $16,380, respectively) ............................. 18,731 17,798
--------- ---------
Total current liabilities .................................. 39,137 36,693
--------- ---------
LONG TERM DEBT:
Revolving credit facilities ...................................... 13,300 18,300
Senior notes ..................................................... 175,000 175,000
Senior Discount Notes ............................................ 45,874 44,515
--------- ---------
Total long term debt ....................................... 234,174 237,815
--------- ---------
DEFERRED INCOME TAXES ............................................ 37,377 38,182
--------- ---------
OTHER NONCURRENT LIABILITIES ..................................... 5,917 5,924
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock-$.01 par value; 2,000,000 shares authorized;
1,200,000 issued and outstanding at March 31, 2000 and
December 31, 1999 .............................................. 12 12
Paid-in-capital .................................................. 100,122 89,728
Accumulated deficit .............................................. (68,655) (59,117)
--------- ---------
Total stockholders' equity ................................. 31,479 30,623
--------- ---------
Total liabilities and stockholders' equity ................. $ 384,084 $ 349,237
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
1
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
-------------- ------------
NET REVENUES:
Periodicals:
Advertising ................. $ 21,727 $ 17,973
Subscription ................ 5,877 5,647
Ancillary products and services 11,239 7,929
Internet services ............. -- 477
-------- --------
Total net revenues .......... 38,843 32,026
-------- --------
OPERATING EXPENSES:
Editorial ..................... 7,673 4,883
Production and distribution ... 8,218 7,370
Selling ....................... 8,911 6,060
General and administrative .... 10,927 7,351
Internet services ............. -- 1,263
Depreciation and amortization . 7,143 6,503
-------- --------
Total operating expenses .... 42,872 33,430
-------- --------
Operating loss .............. (4,029) (1,404)
Interest expense .............. (6,328) (5,932)
Other income .................. 13 17
-------- --------
Loss before income taxes .... (10,344) (7,319)
BENEFIT FOR INCOME TAXES ...... 806 843
-------- --------
Net loss .................... $ (9,538) $ (6,476)
======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
2
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999......... 1,200,000 $ 12 $ 89,728 $ (59,117) $ 30,623
Gain on the sale of business......... -- -- 10,394 -- 10,394
Net loss............................. -- -- -- (9,538) (9,538)
--------- --------- --------- --------- --------
BALANCE AT MARCH 31, 2000............ 1,200,000 $ 12 $ 100,122 $ (68,655) $ 31,479
========= ========= ========= ========= ========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
3
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $(9,538) $(6,476)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ......................... 7,143 6,503
Non-cash interest ..................................... 247 247
(Increase) decrease in:
Accounts receivable, net ................................ (3,310) (869)
Inventories ............................................. 32 336
Other current assets .................................... 627 (351)
Other assets ............................................ 24 9
(Decrease) increase in:
Accounts payable ........................................ (1,044) (719)
Accrued expenses ........................................ (1,656) 976
Accrued interest payable ................................ 4,212 4,261
Deferred income ......................................... 987 763
Other noncurrent liabilities ............................ (815) (2,535)
------- -------
Total adjustments ..................................... 6,447 8,621
------- -------
Net cash (used in) provided by operating activities ... (3,091) 2,145
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (2,664) (2,621)
Disposition of businesses:
Sale of business ...................................... 8,185 --
------- -------
Net cash used in investing activities ................. 5,521 (2,621)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paydown on revolving credit facility .................... (5,000) --
Accretion of interest on senior discount notes .......... 1,360 1,207
------- -------
Net cash provided by financing activities ............. (3,640) 1,207
------- -------
Net (decrease) increase in cash ....................... (1,210) 731
CASH, beginning of period ............................... 1,598 514
------- -------
CASH, end of period ..................................... $ 388 $ 1,245
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes ...................................... $ -- $ 55
======= =======
Interest .......................................... $ 550 $ 212
======= =======
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
4
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. ORGANIZATION & OPERATIONS
American Lawyer Media Holdings, Inc. (the "Company") is the parent company
of American Lawyer Media, Inc. ("Media"). The Company is a publisher of
primarily legal publications, including THE AMERICAN LAWYER, NEW YORK LAW
JOURNAL, THE NATIONAL LAW JOURNAL and CORPORATE COUNSEL. The Company's
operations are based in New York with regional offices in nine states, the
District of Columbia and London, England.
In February 2000, the Company restructured its weekly newsletter division
by discontinuing publication of four of its weekly newsletters. The Company is
continuing to publish IP LAW WEEKLY and E-COMMERCE LAW WEEKLY, which serve
reader demand for information in these two growing practice areas.
On March 7, 2000, the Board of Directors of the Company approved a
10-for-1 split of its common stock, par value $0.01 per share. Prior to the
stock split, the Company had 200,000 shares of common stock authorized and
120,000 shares of common stock outstanding. After giving effect to the stock
split, the Company has 2,000,000 shares of common stock authorized and 1,200,000
shares of common stock outstanding.
On March 28, 2000, Media sold the business of Media and certain of
Media's wholly-owned subsidiaries constituting THE DAILY Deal and CORPORATE
CONTROL ALERT (the "Business") to TDD, L.L.C., a newly formed limited
liability company (the "Purchaser"), owned by substantially all of the same
stockholders as the Company, including U.S. Equity Partners, L.P. and U.S.
Equity Partners (Offshore), L.P.. The consideration for the sale was $7.5
million in cash and $2.5 million face amount of a membership interest in the
Purchaser (the "Preferred Membership Interest"). The Preferred Membership
Interest is included in Other Assets on the March 31, 2000 balance sheet. The
Preferred Membership Interest accretes at 12.25% compounded annually and is
convertible into 3.0% of the common equity of the Purchaser. In addition, the
Purchaser has agreed to pay Media the aggregate amount of operating losses
incurred by Media in connection with the operation of the Business for the
month of March 2000, which operating losses totaled $1.68 million of which
$684,000 was paid in March 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of American
Lawyer Media Holdings, Inc. and its wholly-owned subsidiaries which, unless the
context otherwise requires, are collectively referred to herein as the
"Company". Intercompany transactions and balances have been eliminated in
consolidation. The 1999 consolidated financial statements include the operations
for Professional On-Line, Inc. ("POL"), a wholly-owned subsidiary of the Company
that held the Company's Internet business, through July 27, 1999, the date of
sale of the common stock of POL to Law.com, Inc. ("Law.com").
5
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
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 agents, generally limited due to the large number of customers
comprising the Company's customer base. Such legal advertising agents do not
have significant liquid net worth and, as a result, the Company is exposed to a
certain level of credit concentration risk in this area, for which the Company
believes it has adequately provided.
Revenue Recognition
Periodical advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in the
Company's publications. Advertising revenue is recognized upon release of the
related publications.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary products and services revenues consist principally of
third-party printing revenues, newsletter subscriptions, sales of professional
books and seminar and conference revenues. Printing revenues are 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.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $3,486,400 and $3,128,600 are included in accounts
receivable in the accompanying consolidated March 31, 2000 and December 31, 1999
balance sheets, respectively.
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$2,270,000 and $1,766,000 for the three months ended March 31, 2000 and 1999,
respectively, are expensed as the related advertisements or campaigns are
released.
6
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 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 acquisitions of American Lawyer Media L.P.
and National Law Publishing Company, Inc. at the end of 1997 (the "ALM and NLP
Acquisitions"), which are stated at approximate fair market value as of the date
of the acquisitions. Significant improvements are capitalized, while
expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated
remaining useful lives of the assets acquired as part of the ALM and NLP
Acquisitions. Assets purchased after the ALM and NLP Acquisitions are
depreciated using the straight-line method over the following estimated useful
lives:
Buildings............................. 25 years
Furniture, machinery and equipment.... 5-9 years
Computer equipment and software ...... 3-6 years
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
net assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. 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, uniform resource
locators, trademarks, customer and subscriber lists and non-compete agreements.
They are stated at cost less accumulated amortization and are amortized on a
straight-line basis over a weighted average useful life of fifteen years.
7
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes are provided for the temporary differences between
the financial reporting and the tax basis of the Company's assets and
liabilities and principally consist of nondeductible goodwill and identified
intangibles, accelerated depreciation, allowance for doubtful accounts, certain
accrued liabilities not currently deductible for tax purposes and net operating
loss carry forwards.
3. DEBT
In December 1997, the Company issued $63,275,000 aggregate principal
amount at maturity of 12.25% of Senior Discount Notes due 2008 (the "Discount
Notes"), at a discount rate of $553.14 per Discount Note. The Discount Notes
accrete interest compounded semi-annually at a rate of 12.25% to an aggregate
principal amount of $63,275,000 by December 2002. Commencing in June 2003,
cash interest will be payable semi-annually until maturity each June 15 and
December 15. The Discount Notes are senior, unsecured obligations of the
Company. The Discount Notes may be redeemed at any time by the Company, in
whole or in part, at various redemption prices that include accrued and
unpaid interest. 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
certain restricted subsidiaries, asset sales, transactions with affiliates,
incurrence of liens and mergers and consolidations. Financing costs, totaling
$1,693,000, have been capitalized in 1998 and are being amortized over the
term of the Discount Notes. Assuming 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, Media issued $175,000,000 of 9.75% Senior Notes (the
"Senior Notes") due December 15, 2007. The Senior Notes accrue interest at 9.75%
which is payable in cash semi-annually on June 15 and December 15. The Senior
Notes are unsecured general obligations of Media and are fully and
unconditionally guaranteed, on a joint and several and senior unsecured
basis, by each of Media's existing and future subsidiaries; all of the
Company's existing subsidiaries are wholly-owned by the Company. 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's determination 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 Media, in whole or in part, at
various redemption prices that include accrued and unpaid interest. The
Senior Notes contain certain covenants that, among other things, limit the
incurrence of additional indebtedness by the Media and its subsidiaries, the
payment of dividends and other restricted payments by the Media and its
subsidiaries, asset sales, transactions with affiliates, the incurrence of
liens, and mergers and consolidations. Financing costs, totaling $7,236,000,
have been capitalized in 1998 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.
8
<PAGE>
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
3. DEBT (CONTINUED)
On March 25, 1998, the Company and Media (as the "Borrower") entered into
a credit agreement with various banks that established a combined revolving loan
commitment in the initial principal amount of $40,000,000 (the "Revolving Credit
Facility"). Financing costs associated with the Revolving Credit Facility have
been capitalized and are being amortized over the term of the agreement. The
Revolving Credit Facility is guaranteed by the Company and, on a joint and
several basis, by all existing and future subsidiaries of Media. In addition,
the Revolving Credit Facility is secured by a first priority security interest
in substantially all of the properties and assets of the Media and its domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by the Company of all of the stock of Media. The Revolving Credit
Facility bears interest at a fluctuating rate determined by reference to (i) the
Base Rate plus a margin ranging from .25% to 1.5%, or (ii) the Eurodollar Rate
plus a margin ranging from 1.25% to 2.5%, as the case may be. The applicable
margin is based on the Company's total consolidated leverage ratio. The Base
Rate equals the higher of (a) the rate of interest publicly announced from time
to time by Bank of America as its reference rate, or (b) the Federal funds rate
plus .5%. The Eurodollar Rate is based on (i) the interest rate per annum at
which deposits in U.S. Dollars are offered by Bank of America's applicable
lending office to major banks in the offshore market in an aggregate principal
amount approximately equal to the amount of the loan made to the Company and
(ii) the maximum reserve percentage in effect under regulations issued from time
to time by the Federal Reserve Board. The Company is also required to pay
customary fees with respect to the Revolving Credit Facility, including an
up-front arrangement fee, annual administrative agency fees and commitment fees
on the unused portion of the Revolving Credit Facility. The Revolving Credit
Facility includes both affirmative and negative covenants that include meeting
certain financial ratios.
On April 26, 1999, the Company and Media amended the Revolving Credit
Facility, effective as of March 29, 1999. This amendment limits Media's ability
to borrow in excess of $20,000,000 under the Revolving Credit Facility until
certain ratios are achieved. This amendment also adjusted certain covenants
contained in the original Revolving Credit Facility.
Effective July 20, 1999, the Revolving Credit Facility was further amended
to allow for the sale of the Company's Internet business to Law.com and to
modify certain debt covenants. Effective March 28, 2000, the Revolving Credit
Facility was further amended to modify certain of the covenants, to permit
the sale of the business of the Company and certain of the Company's
wholly-owned subsidiaries business constituting THE DAILY DEAL and CORPORATE
CONTROL ALERT to TDD, L.L.C. and to increase the borrowing limit under the
Revolving Credit Facility described above from $20 million to $22.5 million.
At March 31, 2000 the amount outstanding under the Revolving Credit
Facility was $13.3 million. At March 31, 2000, the unused commitment is
approximately $26,700,000, of which $9,200,000 is available in accordance
with the March 28, 2000 Revolving Credit Facility amendment. The available
balance under the unused commitment is further reduced by any letters of
credit outstanding, which totaled $1,121,000 at March 31, 2000. A 10%
increase in the average rate in the Revolving Credit Facility during the
first three months of 2000 would have increased the Company's net loss to
approximately $8,170,000.
4. INCOME TAXES
The federal income tax provision (benefit) was recorded in the
accompanying statement of operations, reflecting the fact that the Company files
a consolidated return.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING THE COMPANY'S BUSINESS
OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, REVENUES,
EXPENSES OR OTHER FINANCIAL ITEMS, TOGETHER WITH OTHER STATEMENTS THAT ARE NOT
HISTORICAL FACTS, ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER
THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE STATES IN SUCH STATEMENTS. SUCH RISKS, UNCERTAINTIES AND
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN THE LEVELS OF ADVERTISING
REVENUES, CHANGES AND DELAYS IN NEW PRODUCT INTRODUCTIONS, CUSTOMER ACCEPTANCE
OF NEW PRODUCTS AND GENERAL ECONOMIC CONDITIONS, AS WELL AS OTHER RISKS DETAILED
IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999
The following discussion compares the financial results of the Company
for the three months ended March 31, 2000 to the three months ended March 31,
1999.
In July 1999, the Company sold the common stock of POL, which held the
Company's Internet business, to Law.com for $1 million in cash and the Company
retained a preferred stock interest with a face amount of $3.75 million. In
December 1999, Law.com redeemed the convertible preferred stock for $3.75
million plus accrued dividends. The Company and Law.com entered into an
exclusive content license that grants Law.com the right to publish all Company
content in electronic or digital format through 2004 as part of the transaction.
Law.com is the holding company for an Internet destination for legal
information, e-commerce and e-services whose stockholders include substantially
all of the stockholders of Holdings.
In February 2000, the Company restructured its weekly newsletter division
by discontinuing publication of four of its weekly newsletters. The Company is
continuing to publish IP LAW WEEKLY and E-COMMERCE LAW WEEKLY, which serve
reader demand for information in these two growing practice areas.
On March 7, 2000, the Board of Directors of the Company approved a
10-for-1 split of its common stock, par value $0.01 per share. Prior to the
stock split, the Company had 200,000 shares of common stock authorized and
120,000 shares of common stock outstanding. After giving effect to the stock
split, the Company has 2,000,000 shares of common stock authorized and 1,200,000
shares of common stock outstanding.
On March 28, 2000, Media sold the business of Media and certain of
Media's wholly-owned subsidiaries constituting THE DAILY Deal and CORPORATE
CONTROL ALERT (the "Business") to TDD, L.L.C., a newly formed limited
liability company (the "Purchaser"), owned by substantially all of the same
stockholders of the Company, including U.S. Equity
10
<PAGE>
Partners, L.P. and U.S. Equity Partners (Offshore), L.P. The consideration for
the sale was $7.5 million in cash and $2.5 million face amount of a membership
interest in the Purchaser (the "Preferred Membership Interest"). The Preferred
Membership Interest is included in Other Assets on the March 31, 2000 Balance
Sheet. The Preferred Membership Interest accretes at 12.25% per annum
compounded annually and is convertible into 3.0% of the common equity of the
Purchaser. In addition, the Purchaser has agreed to pay Media the aggregate
amount of operating losses incurred by Media in connection with the operation
of the Business for the month of March 2000, which operating losses totaled
$1.68 million of which $684,000 was paid in March 2000.
Overview. Net revenues increased by $6.8 million, or 21.3%, from $32.0
million for the quarter ended March 31, 1999 to $38.8 million for the quarter
ended March 31, 2000. Total operating costs and expenses increased $9.5 million,
or 28.2%, from $33.4 million for the quarter ended March 31, 1999 to $42.9
million for the quarter ended March 31, 2000. As a result, the operating loss
increased $2.6 million, from a loss of $1.4 million for the quarter ended March
31, 1999 to a loss of $4.0 million for the quarter ended March 31, 2000. EBITDA
decreased $2.0 million, or 38.9%, from $5.1 million for the quarter ended March
31, 1999 to $3.1 million for the quarter ending March 31, 2000. Excluding the
results from Internet services, operating loss increased $3.4 million from $0.6
million for the quarter ended March 31, 1999 to $4.0 million for the quarter
ended March 31, 2000. Increase in operating loss and decrease in EBITDA during
2000 resulted primarily from operating expenses relating to new initiatives
started during 1999 and new projects for 2000, which was partially offset by
the elimination of the loss reflected in the prior year with the sale of the
Company's Internet business.
Revenues. Advertising revenues increased $3.7 million, or 20.9%, from
$18.0 million for the quarter ended March 31, 1999 to $21.7 million for the
quarter ended March 31, 2000. Contributing to this growth were higher revenues
in display, classified and law firm advertising which increased 28%, 27% and
16%, respectively, reflecting rate increases along with greater volume due to
increased sales.
Subscription revenues increased $0.2 million, or 4.1%, from $5.7 million
for the quarter ended March 31, 1999 to $5.9 million for the quarter ended March
31, 2000 due to increased marketing efforts.
Revenues from ancillary products and services increased $3.3 million, or
41.8%, from $7.9 million for the quarter ended March 31, 1999 to $11.2 million
for the quarter ended March 31, 2000. Increased revenues during the first
quarter of 2000 over the first quarter of 1999 primarily resulted from higher
licensing and royalty fees along with higher revenues from trade show activity
and book sales. These increases were partially offset by a decrease in
information services revenue, due to the sale of the common stock of POL to
Law.com in the third quarter of 1999.
Revenues from Internet services totaled $0.5 million for the quarter ended
March 31, 1999. The Company did not record any revenues from Internet services
during the first quarter of 2000. This decrease in revenue resulted from the
sale of the Company's Internet business to Law.com in July 1999.
Operating expenses. Total operating expenses increased $9.5 million, or
28.2%, from $33.4 million for the quarter ended March 31, 1999 to $42.9 million
for the quarter ended March 31, 2000. Of this amount, operating expenses for the
Company's two primary new initiatives in 1999, the high-end newsletters and THE
DAILY DEAL, increased $5.2 million; new initiatives
11
<PAGE>
planned by the Company for 2000 accounted for $1.7 million of the increase; and
the core business units accounted for the remaining increase. The 1999
initiatives and the new initiatives planned for 2000 are fully reflected in the
first quarter of 2000 with little or no expense being recorded in the first
quarter of 1999.
Editorial expenses increased $2.8 million, or 57.1%, from $4.9 million for
the quarter ended March 31, 1999 to $7.7 million for the quarter ended March 31,
2000. The Company's initiatives for 1999 accounted for $2.2 million of this
increase and the remaining increase resulted from new initiatives started during
the first quarter of 2000 with no like charges recorded during the first quarter
of 1999.
Production and distribution expenses increased $0.8 million, or 11.5%,
from $7.4 million for the quarter ended March 31, 1999 to $8.2 million for the
quarter ended March 31, 2000. The increase was primarily due to increased
printing and distribution costs of $0.8 million for the 1999 initiatives and new
initiatives planned for 2000, which was partially offset by slightly lower
production costs incurred in the core business units. The 1999 initiatives
and new initiatives planned for 2000 are fully reflected in the first quarter
of 2000 with little or no expense being recorded in the first quarter of 1999.
Selling expenses increased $2.8 million, or 47.0%, from $6.1 million for
the quarter ended March 31, 1999 to $8.9 million for the quarter ended March 31,
2000. The increase was primarily attributable to increased marketing costs as
well as increased display and classified advertising costs relating to growth in
revenue.
General and administrative expenses increased $3.6 million, or 48.6%, from
$7.3 million for the quarter ended March 31, 1999 to $10.9 million for the
quarter ended March 31, 2000. This increase resulted primarily from increased
staffing levels for the various 1999 and 2000 initiatives.
Internet services expenses decreased from $1.3 million for the quarter
ended March 31, 1999 to zero for the quarter ended March 31, 2000. This
decrease resulted from the sale of the Company's Internet business to Law.com
in July 1999.
Depreciation and amortization increased $0.6 million, or 9.8%, from $6.5
million for the quarter ended March 31, 1999 to $7.1 million for the quarter
ended March 31, 2000. This was due primarily to the increase in capital
expenditures throughout 1999 and for the first quarter of 2000 for the upgrade
and purchase of new computer equipment and systems throughout the Company and
for facilities to support the 1999 initiatives and the Company's core growth.
Operating loss. As a result of the above factors, operating loss increased
$2.6 million, from a loss of $1.4 million for the quarter ended March 31, 1999,
to a loss of $4.0 million for the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Capital expenditures totaled $2.7 million for the
three months ended March 31, 2000. Capital expenditures increased $0.1 million,
or 1.6%, for the three months ended March 31, 2000 compared to three months
ended March 31, 1999. The moderate increase in capital spending in the first
quarter of 2000 primarily resulted from continued systems integration projects.
12
<PAGE>
NET CASH USED IN OPERATING ACTIVITIES. Net cash used in operating
activities totaled $3.1 million for the three months ended March 31, 2000. The
net cash used in operating activities primarily resulted from a net loss of $9.5
million, an increase in accounts receivable of $3.3 million and the decrease in
accounts payable, accrued expense and other noncurrent liabilities, partially
offset by depreciation and amortization of $7.1 million, an increase in accrued
interest payable of $4.2 million and deferred income of $1.0 million.
NET CASH PROVIDED BY INVESTING ACTIVITIES. Net cash provided by investing
activities totaled $5.5 million for the three months ended March 31, 2000. This
resulted from the sale of substantially all of the assets and certain of the
liabilities of the Business to TDD, L.L.C. for $10.0 million and the agreed
reimbursement by the Purchaser of operating losses equal to $1.68 million
partially offset by a Preferred Membership Interest equal to $2.5 million, a
receivable recorded from sale of the Business of $1.0 million along with cash
used for capital expenditures of $2.7 million during the first quarter of 2000.
NET CASH USED IN FINANCING ACTIVITIES. Total cash used in financing
activities was $3.6 million for the three months ended March 31, 2000 due to the
repayment of $5.0 million of borrowings on the Revolving Credit Facility
partially offset by accretion of interest on senior discount notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
13
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule for American Lawyer Media Holdings,
Inc.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated March 8, 2000 and filed May 10,
2000, regarding the sale of THE DAILY DEAL and CORPORATE
CONTROL ALERT to TDD, L.L.C.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
May 12, 2000 /s/ WILLIAM L. POLLAK
----------------------------------------
William L. Pollak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May 12, 2000 /s/ LESLYE G. KATZ
----------------------------------------
Leslye G. Katz
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
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<NAME> AMERICAN LAWYER MEDIA HOLDINGS INC.
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