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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ended June 30, 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 August 11, 2000 there were 1,200,000 shares of the registrant's Common
Stock outstanding.
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TABLE OF CONTENTS
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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......................................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.....................................................................................17
PART II
OTHER INFORMATION.................................................................................................18
ITEM 1. LEGAL PROCEEDINGS....................................................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................................................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................................................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................................18
ITEM 5. OTHER INFORMATION.....................................................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................................................................18
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(i)
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INDEX TO FINANCIAL INFORMATION
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Consolidated Financial Statements of American Lawyer Media Holdings, Inc.
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999..................................................1
Consolidated Statements of Operations for the Six Months Ended
June 30, 2000 and 1999.....................................................................................2
Consolidated Statements of Operations for the Three Months Ended
June 30, 2000 and 1999.....................................................................................3
Consolidated Statement of Changes in Stockholders' Equity for
the Six Months Ended June 30, 2000.........................................................................4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999...............................................................................5
Notes to Consolidated Financial Statements at June 30, 2000......................................................6-11
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(ii)
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 1,178 $ 1,598
Accounts receivable, net of allowance for doubtful accounts and returns of
$3,044 and $2,758, respectively ................................................ 22,669 16,811
Inventories, net ................................................................ 1,419 1,449
Other current assets ............................................................ 1,461 2,016
--------- ---------
Total current assets ......................................................... 26,727 21,874
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and
amortization of $8,017 and $5,912, respectively .............................. 14,953 15,018
INTANGIBLE ASSETS, net of accumulated amortization of $29,959 and $24,121,
respectively ................................................................. 145,616 149,831
GOODWILL, net of accumulated amortization of $29,998 and $23,937, respectively .. 151,757 153,816
DEFERRED FINANCING COSTS, net of accumulated amortization of $2,476 and $1,983,
respectively ................................................................... 6,995 7,488
OTHER ASSETS .................................................................... 3,728 1,210
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Total assets ............................................................. $ 349,776 $ 349,237
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................ $ 5,347 $ 6,792
Accrued expenses ................................................................ 9,894 10,918
Accrued interest payable ........................................................ 1,213 1,185
Deferred income (including deferred subscription income of $17,306 and
$16,380, respectively) ....................................................... 18,858 17,798
--------- ---------
Total current liabilities ................................................ 35,312 36,693
LONG TERM DEBT:
Revolving credit facility ....................................................... 20,300 18,300
Senior notes .................................................................... 175,000 175,000
Senior discount notes ........................................................... 47,234 44,515
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Total long term debt ..................................................... 242,534 237,815
DEFERRED INCOME TAXES ........................................................... 36,571 38,182
OTHER NONCURRENT LIABILITIES .................................................... 6,715 5,924
STOCKHOLDERS' EQUITY:
Common stock-$.01 par value; 2,000,000 shares authorized; 1,200,000 issued
and outstanding at June 30, 2000 and December 31, 1999 ....................... 12 12
Paid-in-capital ................................................................. 100,122 89,728
Accumulated deficit ............................................................. (71,490) (59,117)
--------- ---------
Total stockholders' equity ............................................... 28,644 30,623
--------- ---------
Total liabilities and stockholders' equity ............................... $ 349,776 $ 349,237
========= =========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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1
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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REVENUES:
Periodicals:
Advertising ............................................................................. $ 44,959 $ 37,388
Subscription ............................................................................ 11,884 11,643
Ancillary products and services 22,687 16,035
Internet services .......................................................................... -- 973
-------- --------
Total revenues .......................................................................... 79,530 66,039
-------- --------
OPERATING EXPENSES:
Editorial .................................................................................. 13,665 10,152
Production and distribution ................................................................ 16,099 14,582
Selling .................................................................................... 16,583 11,978
General and administrative ................................................................. 20,324 15,058
Internet services .......................................................................... -- 2,813
Depreciation and amortization .............................................................. 14,264 13,162
-------- --------
Total operating expenses ................................................................ 80,935 67,745
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Operating loss .......................................................................... (1,405) (1,706)
Interest expense ........................................................................... (12,609) (12,006)
Other income ............................................................................... 30 26
-------- --------
Loss before income taxes ................................................................ (13,984) (13,686)
BENEFIT FOR INCOME TAXES ................................................................... 1,611 1,675
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Net loss ................................................................................ $(12,373) $(12,011)
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The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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2
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
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REVENUES:
Periodicals:
Advertising ............................................................................. $ 23,232 $ 19,414
Subscription ............................................................................ 6,008 5,997
Ancillary products and services 11,447 8,106
Internet services .......................................................................... -- 496
-------- --------
Total revenues .......................................................................... 40,687 34,013
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OPERATING EXPENSES:
Editorial .................................................................................. 5,992 5,269
Production and distribution ................................................................ 7,881 7,212
Selling .................................................................................... 7,672 5,918
General and administrative ................................................................. 9,398 7,703
Internet services .......................................................................... -- 1,550
Depreciation and amortization .............................................................. 7,121 6,659
-------- --------
Total operating expenses ................................................................ 38,064 34,311
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Operating income/loss ................................................................... 2,623 (298)
Interest expense ........................................................................... (6,280) (6,074)
Other income ............................................................................... 17 9
-------- --------
Loss before income taxes ................................................................ (3,640) (6,363)
BENEFIT FOR INCOME TAXES ................................................................... 805 832
-------- --------
Net loss ................................................................................ $ (2,835) $ (5,531)
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The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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3
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL
PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ----------- -----------
COMMON STOCK
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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 ............................... -- -- -- (12,373) (12,373)
---------- ---------- ----------- ----------- -----------
BALANCE AT June 30, 2000 ............... 1,200,000 $ 12 $ 100,122 $ (71,490) $ 28,644
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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4
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................................. $(12,373) $(12,011)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization ..................................................... 14,264 13,162
Non-cash interest ................................................................. 493 495
(Increase) decrease in:
Accounts receivable, net ............................................................. (5,615) (3,472)
Inventories .......................................................................... 30 443
Other current assets ................................................................. 500 (392)
Other assets ......................................................................... (18) 3
(Decrease) increase in:
Accounts payable ..................................................................... (1,624) (366)
Accrued expenses ..................................................................... (1,181) 121
Accrued interest payable ............................................................. 28 52
Deferred income ...................................................................... 785 1,563
Other noncurrent liabilities ......................................................... (1,124) (2,916)
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Total adjustments ................................................................. 6,538 8,693
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Net cash used in operating activities ............................................. (5,835) (3,318)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................. (3,538) (4,975)
Proceeds received from sale of business .............................................. 9,184 --
Purchase of business ................................................................. (4,950) --
-------- --------
Net cash provided by (used in) investing activities ............................... 696 (4,975)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Advance under revolving credit facility .............................................. 2,000 5,500
Accretion of interest on senior discount notes ....................................... 2,719 2,564
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Net cash provided by financing activities ......................................... 4,719 8,064
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Net decrease in cash .............................................................. (420) (229)
CASH, beginning of period ............................................................ 1,598 514
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CASH, end of period................................................................... $ 1,178 $ 285
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes................................................................... $ -- $ 55
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Interest....................................................................... $ 9,296 $ 8,847
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The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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5
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AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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. In July
2000, the Company discontinued publication of the remaining two newsletters.
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, the Company sold a business of the Company and
certain of the Company's wholly-owned subsidiaries constituting THE DAILY DEAL
and CORPORATE CONTROL ALERT (the "Business") to The Daily Deal, L.L.C. (formerly
TDD, L.L.C.), a limited liability company (the "Purchaser"), owned by
substantially all of the same stockholders as Holdings, 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 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 the Company the aggregate amount of operating losses
incurred by the Company in connection with the operation of the Business for the
month of March 2000, which operating losses totaled $1.68 million of which
substantially all was paid as of June 30, 2000.
On May 15, 2000, the Company consummated the acquisition of
substantially all of the assets and certain of the liabilities of Moran
Publishing Company, Inc. ("Moran"). Moran is the leading publisher of jury
verdict and settlement research data in New York State.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the interim financial
statements include all adjustments, which are of a normal recurring nature, that
management considers necessary to fairly present the financial position and the
results of operations for such periods. Results of operations of interim periods
are not necessarily
Principles of Consolidation
6
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
indicative of results for a full year. These financial statements should be read
in conjunction with the audited consolidated financial statements in the
Company's Annual Report on Form 10-K for December 31, 1999.
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 consolidated financial statements for 1999 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").
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 reserved.
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.
7
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Subscription Income
Deferred subscription income results from advance payments or orders
for subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $3,742,000 and $3,128,600 are included in accounts
receivable in the accompanying consolidated June 30, 2000 and December 31, 1999
balance sheets, respectively.
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$2,100,900 and $1,790,900 for the three months ended June 30, 2000 and 1999,
respectively, and $4,370,600 and $2,910,000 for the six months ended June 30,
2000 and 1999, respectively, are expensed as the related advertisements or
campaigns are released.
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are determined by the average
cost method and are stated at the lower of cost 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:
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Buildings................................... 25 years
Furniture, machinery and equipment.......... 5-9 years
Computer equipment and software............. 3-6 years
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Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life.
8
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2. 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, 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.
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, were
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, 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 of each
year. 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. Separate
9
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3. DEBT (CONTINUED)
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, were 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.
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 were capitalized in 1998 and are being amortized over the
term of the agreement. Amortization of deferred financing costs is recorded
as interest expense. 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.
Effective March 29 1999, the Company and Media amended the Revolving
Credit Facility to limit 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 permit 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 Company's business constituting THE DAILY DEAL and
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3. DEBT (CONTINUED)
CORPORATE CONTROL ALERT to The Daily Deal, L.L.C., a limit described above from
$20 million to $22.5 million.
At June 30, 2000, the unused commitment is approximately $20.3 million. The
available balance under the unused commitment is further reduced by any
letters of credit outstanding, which totaled $1,121,000 at June 30, 2000. A
10% increase in the average interest rate of borrowings under the Revolving
Credit Facility during the first six months of 2000 would have increased the
Company's net loss to approximately $12,452,000.
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.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING THE COMPANY'S
BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY,
REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS, TOGETHER WITH OTHER STATEMENTS THAT
ARE NOT HISTORICAL FACTS, ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS
DEFINED UNDER THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS 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
The following discussion compares the financial results of the Company
for the six months ended June 30, 2000 to the six months ended June 30, 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 the Company.
In February 2000, the Company restructured its weekly newsletter
division by discontinuing publication of four of its weekly newsletters. In July
2000, the Company discontinued publication of the remaining two newsletters.
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, the Company sold the business of the Company and
certain of the Company's wholly-owned subsidiaries constituting THE DAILY DEAL
and CORPORATE CONTROL ALERT (the "Business") to The Deal, L.L.C., a limited
liability company (the "Purchaser"), owned by substantially all of the same
stockholders of the Company. 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 agreed to pay the
Company the aggregate amount of
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operating losses incurred by the Company in connection with the operation of the
Business for the month of March 2000, which operating losses totaled $1.68
million of which substantially all was paid as of June 30, 2000.
On May 15, 2000, the Company consummated the acquisition of
substantially all of the assets and certain of the liabilities of Moran
Publishing Company, Inc. ("Moran"), the leading publisher of jury verdict and
settlement research data in New York State.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
OVERVIEW. Revenues increased by $13.5 million, or 20.4%, from $66.0
million for the six months ended June 30, 1999 to $79.5 million for the six
months ended June 30, 2000. Total operating costs and expenses increased
$13.2 million, or 19.5%, from $67.7 million for the six months ended June 30,
1999 to $80.9 million for the six months ended June 30, 2000. As a result,
the operating loss decreased $0.3 million, from a loss of $1.7 million for
the six months ended June 30, 1999 to a loss of $1.4 million for the six
months ended June 30, 2000. EBITDA increased $1.4 million, or 12.2%, from
$11.5 million for the six months ended June 30, 1999 to $12.9 million for the
six months ended June 30, 2000. The decrease in operating loss and the
increase in EBITDA during 2000 resulted primarily from growth in core
business and new projects commenced in 2000, along with the elimination of
the internet services loss reflected in the prior year, which was partially
offset by higher operating costs and expenses primarily from the 1999 and
2000 initiatives and expansion in the core business units. Excluding the
results from Internet services and the new initiatives in 1999, which
includes THE DAILY DEAL and the high-end newsletter division, revenues
increased $14.1 million, or 21.6%, from $64.9 million for the six months
ended June 30, 1999 to $79.0 million for the six months ended June 30, 2000.
In addition, excluding the results from Internet services and the new
initiatives in 1999, EBITDA also increased $4.0 million, or 27.3%, from $14.7
million for the six months ended June 30, 1999 to $18.7 million for the six
months ended June 30, 2000.
REVENUES. Advertising revenues increased $7.6 million, or 20.3%, from
$37.4 million for the six months ended June 30, 1999 to $45.0 million for the
six months ended June 30, 2000. All categories of advertising contributed to
this increase in revenues. The greatest contributions were from display,
classified and law firm advertising which increased 30%, 25% and 20%,
respectively, reflecting new publications and the increased frequency of
existing publications during 2000 along with greater volume due to increased
sales efforts.
Subscription revenues increased $0.2 million, or 2.1%, from $11.6
million for the six months ended June 30, 1999 to $11.9 million for the six
months ended June 30, 2000. Subscriptions for periodicals and newsletters each
increased $0.1 million during this period compared to the same period during
1999. Increased marketing efforts and the launching of new publications during
2000 contributed to the increase, which was partially offset by the
restructuring of the Company's weekly newsletter division in early 2000.
Revenues from ancillary products and services increased $6.7 million,
or 41.5%, from $16.0 million for the six months ended June 30, 1999 to $22.7
million for the six months ended June 30, 2000. Increased revenues primarily
resulted from higher licensing and royalty fees along with higher revenues from
trade shows, seminars, new books and additional updates released for existing
books. These increases were partially offset by a decrease in information
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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 $1.0 million for the six months
ended June 30, 1999. The Company did not record any revenues from Internet
services during the six months ended June 30, 2000 as a result of the sale of
the common stock of POL to Law.com in the third quarter of 1999.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses
increased $13.2 million, or 19.5%, from $67.7 million for the six months ended
June 30, 1999 to $80.9 million for the six months ended June 30, 2000. Of this
amount, operating costs and expenses for the Company's two primary new
initiatives in 1999, the high-end newsletters and THE DAILY DEAL, increased $4.6
million; new projects commenced by the Company in 2000 and the core business
units accounted for the remaining increase. The 1999 initiatives and the new
initiatives commenced in 2000 are fully reflected in the results for the six
months ended June 30, 2000, while the results for the six months ended June 30,
1999 had no expense for the 2000 projects and little expense for the 1999
initiatives. The increased costs and expenses in the core business units were
partially offset by the elimination of operating expense relating to internet
services resulting from the sale of the common stock of POL to Law.com during
the third quarter of 1999.
Editorial expenses increased $3.5 million, or 34.6%, from $10.2 million
for the six months ended June 30, 1999 to $13.7 million for the six months ended
June 30, 2000. The increase primarily resulted from an increase in editorial
salaries of $3.0 million and an increase in art expense of $0.4 million. The
Company's new initiatives for 1999 accounted for $1.9 million of this increase
and the remaining increase resulted from new projects started during 2000 with
no like charges recorded during the comparable 1999 period.
Production and distribution expenses increased $1.5 million, or
10.4%, from $14.6 million for the six months ended June 30, 1999 to $16.1
million for the six months ended June 30, 2000. The increase was primarily
due to increased production and distribution expenses for the 1999
initiatives and new projects commenced in 2000, along with slightly higher
production costs incurred in the core business units, which was partially
offset by the elimination of production and distribution costs relating to
internet services resulting from the sale of the common stock of POL to
Law.com during the third quarter of 1999. The 1999 initiatives and new
projects commenced in 2000 are reflected in the six months ended June 30,
2000 with little or no comparable expense being recorded in the six months
ended June 30, 1999.
Selling expenses increased $4.6 million, or 38.4%, from $12.0 million
for the six months ended June 30, 1999 to $16.6 million for the six months ended
June 30, 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 $5.3 million, or 35.0%,
from $15.0 million for the six months ended June 30, 1999 to $20.3 million for
the six months ended June 30, 2000. This increase resulted primarily from
increased staffing levels, facilities, legal and consulting costs for the
various 1999 new initiatives and new projects commenced in 2000.
Internet services expenses decreased $2.8 million for the six months
ended June 30, 1999 to zero for the six months ended June 30, 2000. This
decrease in expenses resulted from the sale of the common stock of POL to
Law.com during July 1999.
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Depreciation and amortization increased $1.1 million, or 8.4%, from
$13.2 million for the six months ended June 30, 1999 to $14.3 million for the
six months ended June 30, 2000. This was due primarily to the increase in
capital expenditures throughout 1999 and for the six months ended June 30, 2000
for the upgrade and purchase of new computer equipment and systems throughout
the Company and for capitalized improvements and furnishings in existing and new
facilities to support the 1999 new initiatives and new projects commenced in
2000 and the Company's core growth.
OPERATING LOSS. As a result of the above factors, the operating loss
decreased $0.3 million, from a loss of $1.7 million for the six months ended
June 30, 1999 to a loss of $1.4 million for the six months ended June 30, 2000.
In addition, EBITDA increased $1.4 million, or 12.2%, from $11.5 million for the
six months ended June 30, 1999 to $12.9 million for the six months ended June
30, 2000.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
The following discussion compares the financial results of the Company
for the three months ended June 30, 2000 to the three months ended June 30,
1999.
OVERVIEW. Revenues increased $6.7 million, or 19.6%, from $34.0 million
for the quarter ended June 30, 1999 to $40.7 million for the quarter ended June
30, 2000. Total operating costs and expenses increased $3.8 million, or 10.9%,
from $34.3 million for the quarter ended June 30, 1999 to $38.1 million for the
quarter ended June 30, 2000. As a result, operating income increased $2.9
million, from a loss of $0.3 million for the quarter ended June 30, 1999 to
income of $2.6 million for the quarter ended June 30, 2000. In addition, EBITDA
increased $3.4 million, or 53.2%, from $6.4 million for the quarter ended June
30, 1999 to $9.7 million for the quarter ending June 30, 2000. Higher operating
income and EBITDA resulted primarily from growth in core business and increased
revenues generated by new projects commenced in 2000, along with the elimination
of the losses reflected in the prior year with the sale of the common stock of
POL to Law.com in July 1999 and the sale of the business constituting THE DAILY
DEAL and CORPORATE CONTROL ALERT in March 2000, partially offset by higher
operating costs and expenses primarily from the 1999 and 2000 initiatives and
expansion in the core business units. Excluding the results from Internet
services and the new initiatives in 1999, revenues increased $7.2 million, or
21.5%, from $33.4 million for the quarter ended June 30, 1999 to $40.6 million
for the quarter ended June 30, 2000. In addition, excluding the results from
Internet services and the new initiatives in 1999, EBITDA also increased $1.9
million, or 22.4%, from $8.5 million for the quarter June 30, 1999 to $10.4
million for the quarter ended June 30, 2000.
REVENUES. Advertising revenues increased $3.8 million, or 19.7%, from
$19.4 million for the quarter ended June 30, 1999 to $23.2 million for the
quarter ended June 30, 2000. All categories of advertising contributed to this
increase in revenues. The greatest contributions were display, classified and
law firm advertising, which increased 31%, 25% and 24%, respectively, reflecting
new publications during 2000 along with greater volume due to increased sales
efforts.
Subscription revenues were $6.0 million for the quarter ended June 30,
1999, equal to the $6.0 million in subscription revenues for the quarter ended
June 30, 2000. Subscriptions for both periodicals and newsletters were flat
during these periods. The restructuring of the Company's weekly newsletter
division in early 2000 partially contributed to the lack of growth in newsletter
subscriptions.
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Revenues from ancillary products and services increased $3.3 million,
or 41.2%, from $8.1 million for the quarter ended June 30, 1999 to $11.4 million
for the quarter ended June 30, 2000. Increased revenues primarily resulted from
higher licensing and royalty fees along with higher revenues from trade shows,
seminars, new books and additional updates released for existing books. 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 June 30, 1999. The Company did not record any revenues from Internet
services during the second quarter of 2000 as a result of the sale of the common
stock of POL to Law.com in the third quarter of 1999.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses
increased $3.8 million, or 10.9%, from $34.3 million for the quarter ended June
30, 1999 to $38.1 million for the quarter ended June 30, 2000. This increase
primarily resulted from operating costs and expenses related to new projects
commenced in 2000 and higher costs and expenses from initiatives that had been
started during 1999, along with higher costs and expenses in all categories due
to increased growth in revenues. These increased costs were partially offset by
lower operating costs and expenses resulting from the sale of the common stock
of POL to Law.com during the third quarter of 1999 and the sale of the business
constituting THE DAILY DEAL and CORPORATE CONTROL ALERT during the first quarter
of 2000.
Editorial expenses increased $0.7 million, or 13.7%, from $5.3 million
for the quarter ended June 30, 1999 to $6.0 million for the quarter ended June
30, 2000. The increase primarily resulted from an increase of $0.5 million in
editorial salaries and an increase in $0.2 million in art expenses resulting
from the Company's new projects commenced in 2000 along with increases to
existing publications of $1.1 million, partially offset by a reduction of $0.4
million of costs resulting from the sale of the business constituting THE DAILY
DEAL and CORPORATE CONTROL ALERT during the first quarter of 2000.
Production and distribution expenses increased $0.7 million, or 9.3%,
from $7.2 million for the quarter ended June 30, 1999 to $7.9 million for the
quarter ended June 30, 2000. The increase resulted primarily from costs related
to new projects commenced in 2000 and increased expenses incurred in the core
business units, which was partially offset by the elimination of production and
distribution expenses resulting from the sale of the common stock of POL to
Law.com during the third quarter of 1999.
Selling expenses increased $1.8 million, or 29.6%, from $5.9 million
for the quarter ended June 30, 1999 to $7.7 million for the quarter ended June
30, 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 $1.7 million, or 22.0%,
from $7.7 million for the quarter ended June 30, 1999 to $9.4 million for the
quarter ended June 30, 2000. This increase resulted primarily from increased
staffing levels, facilities, legal and consulting costs for the various 1999 new
initiatives and new projects commenced in 2000.
Internet services expenses decreased $1.6 million for the quarter ended
June 30, 1999 to zero for the quarter ended June 30, 2000 as a result of the
sale of the common stock of POL to Law.com during July 1999.
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Depreciation and amortization increased $0.4 million, or 6.9%, from
$6.7 million for the quarter ended June 30, 1999 to $7.1 million for the quarter
ended June 30, 2000. This was due primarily to the increase in capital
expenditures throughout 1999 and for the six months ended June 30, 2000 for the
upgrade and purchase of new computer equipment and systems throughout the
Company and for capitalized improvements and furnishings in existing and new
facilities to support the 1999 new initiatives and new projects commenced
during 2000 and the Company's core growth.
OPERATING INCOME. As a result of the above factors, operating income
increased $2.9 million, from a loss of $0.3 million for the quarter ended June
30, 1999 to a profit of $2.6 million for the quarter ended June 30, 2000. In
addition, EBITDA increased $3.4 million, or 53.2%, from $6.4 million for the
quarter ended June 30, 1999 to $9.7 million for the quarter ending June 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Capital expenditures decreased $1.5 million,
or 28.9%, from $5.0 million for the six months ended June 30, 1999 to $3.5
million for the six months ended June 30, 2000. The capital expenditures for
the 1999 period included higher costs relating to the initial outlay for the
Company's investment in new editorial and advertising systems to support new
initiatives and facilities along with upgrades to existing systems.
NET CASH USED IN OPERATING ACTIVITIES. Net cash used in operating
activities was $5.8 million for the six months ended June 30, 2000, primarily
resulting from a net loss of $12.4 million, and an increase in accounts
receivable of $5.6 million, which was partially offset by depreciation and
amortization of $14.3 million.
NET CASH PROVIDED BY INVESTING ACTIVITIES. Net cash provided by
investing activities was $0.7 million for the six months ended June 30, 2000,
resulting from the sale of the business constituting THE DAILY DEAL and
CORPORATE CONTROL ALERT to The Deal, L.L.C. for $7.5 million in cash and the
payment by The Deal, L.L.C. of operating losses incurred in March 2000 equal to
$1.68 million. This cash inflow was partially offset by the purchase of
substantially all of the assets and certain of the liabilities of Moran during
the second quarter of 2000 along with cash used for capital expenditures of $3.5
million during the six months ended June 30, 2000.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided
by financing activities was $4.7 million for the six months ended June 30, 2000
due to a net drawdown of $2.0 million of borrowings under the Company's
Revolving Credit Facility and $2.7 million for accretion of interest on senior
discount notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
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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.
10.8 Amendment No. 2 to 345 Park Avenue South Lease
27.1 Financial Data Schedule for American Lawyer Media Holdings, Inc.
(b) Reports on Form 8-K.
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
August 11, 2000 /s/ WILLIAM L. POLLAK
------------------------------------------
William L. Pollak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
August 11, 2000 /s/ LESLYE G. KATZ
------------------------------------------
Leslye G. Katz
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
