<PAGE> 1
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 quarterly period ended September 30, 2000.
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
COMMISSION FILE NUMBER: 333-50119
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 November 13, 2000 there were 1,200,000 shares of the registrant's Common
Stock, $.01 par value, outstanding.
<PAGE> 2
AMERICAN LAWYER MEDIA HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2000 (unaudited) and
December 31, 1999 .............................................................. 1
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2000 and 1999 (unaudited) ........................................ 2
Consolidated Statements of Operations for the Three Months Ended
September 30, 2000 and 1999 (unaudited) ........................................ 3
Consolidated Statement of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 2000 (unaudited) ........................... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (unaudited) .................................. 5
Notes to Consolidated Financial Statements at
September 30, 2000 (unaudited) ................................................. 6-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK .......................................................... 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ........................................................... 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS .................................... 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES .............................................. 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......................... 19
ITEM 5. OTHER INFORMATION ............................................................ 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................................. 19
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................................... $ 258 $ 1,598
Accounts receivable, net of allowance for doubtful accounts and returns of
$3,025 and $2,758, respectively .................................................. 20,135 16,811
Inventories, net .................................................................... 1,544 1,449
Other current assets ................................................................ 4,958 2,016
--------- ---------
Total current assets ............................................................. 26,895 21,874
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and
amortization of $9,080 and $5,912, respectively .................................. 14,355 15,018
INTANGIBLE ASSETS, net of accumulated amortization of $32,899 and $24,121,
respectively ..................................................................... 142,697 149,831
GOODWILL, net of accumulated amortization of $32,848 and $23,937, respectively ...... 148,906 153,816
DEFERRED FINANCING COSTS, net of accumulated amortization of $2,722 and
$1,983, respectively ............................................................. 6,749 7,488
OTHER ASSETS ........................................................................ 7,267 1,210
--------- ---------
Total assets ................................................................. $ 346,868 $ 349,237
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable .................................................................... $ 3,138 $ 6,792
Accrued expenses .................................................................... 10,233 10,918
Accrued interest payable ............................................................ 5,470 1,185
Deferred income (including deferred subscription income of $17,011and $16,380,
respectively) .................................................................... 21,588 17,798
--------- ---------
Total current liabilities .................................................... 40,429 36,693
--------- ---------
LONG TERM DEBT:
Revolving credit facility ........................................................... 18,300 18,300
Senior notes ........................................................................ 175,000 175,000
Senior discount notes ............................................................... 48,677 44,515
--------- ---------
Total long term debt ......................................................... 241,977 237,815
--------- ---------
DEFERRED INCOME TAXES ............................................................... 35,765 38,182
--------- ---------
OTHER NONCURRENT LIABILITIES ........................................................ 6,871 5,924
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock-$.01 par value; 2,000,000 shares authorized; 1,200,000 issued
and outstanding at September 30, 2000 and December 31, 1999 ...................... 12 12
Paid-in-capital ..................................................................... 100,122 89,728
Accumulated deficit ................................................................. (78,308) (59,117)
--------- ---------
Total stockholders' equity ................................................... 21,826 30,623
--------- ---------
Total liabilities and stockholders' equity ................................... $ 346,868 $ 349,237
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
1
<PAGE> 4
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
<S> <C> <C>
REVENUES:
Periodicals:
Advertising ......................... $ 66,171 $ 55,973
Subscription ........................ 17,766 17,651
Ancillary products and services ........ 32,018 22,250
Internet services ...................... -- 1,244
--------- ---------
Total revenues ...................... 115,955 97,118
--------- ---------
OPERATING EXPENSES:
Editorial .............................. 19,982 16,045
Production and distribution ............ 23,374 20,783
Selling ................................ 23,989 20,208
General and administrative ............. 29,819 22,333
Internet services ...................... -- 3,313
Depreciation and amortization .......... 21,168 19,937
--------- ---------
Total operating expenses ............ 118,332 102,622
--------- ---------
Operating loss ...................... (2,377) (5,504)
Interest expense ....................... (19,176) (17,982)
Other income ........................... 57 30
--------- ---------
Loss before income taxes ............ (21,496) (23,456)
BENEFIT FOR INCOME TAXES ............... 2,305 2,517
--------- ---------
Net loss ............................ $ (19,191) $ (20,939)
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
2
<PAGE> 5
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Periodicals:
Advertising .................... $ 21,212 $ 18,585
Subscription ................... 5,881 6,008
Ancillary products and services ... 9,332 6,214
Internet services ................. -- 271
-------- --------
Total revenues ................. 36,425 31,078
-------- --------
OPERATING EXPENSES:
Editorial ......................... 6,317 5,892
Production and distribution ....... 7,275 6,201
Selling ........................... 7,403 8,229
General and administrative ........ 9,496 7,280
Internet services ................. -- 500
Depreciation and amortization ..... 6,904 6,775
-------- --------
Total operating expenses ....... 37,395 34,877
-------- --------
Operating loss ................. (970) (3,799)
Interest expense .................. (6,568) (5,975)
Other income ...................... 27 4
-------- --------
Loss before income taxes ....... (7,511) (9,770)
BENEFIT FOR INCOME TAXES .......... 694 842
-------- --------
Net loss ....................... $ (6,817) $ (8,928)
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
3
<PAGE> 6
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- ----------- ----------- ---------
COMMON STOCK
------------------------
<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 .......................... -- -- -- (19,191) (19,191)
--------- --------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 2000
(Unaudited) ..................... 1,200,000 $ 12 $ 100,122 $ (78,308) $ 21,826
========= ========= ========= ========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
4
<PAGE> 7
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ............................................................. $(19,191) $(20,939)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ..................................... 21,168 19,937
Non-cash interest ................................................. 739 739
(Increase) decrease in:
Accounts receivable, net ............................................. (3,081) (3,028)
Inventories .......................................................... (95) 418
Other current assets ................................................. (2,996) (439)
Other assets ......................................................... (38) 4,777
(Decrease) increase in:
Accounts payable ..................................................... (3,851) 2,382
Accrued expenses ..................................................... (841) (1,687)
Accrued interest payable ............................................. 4,285 4,342
Deferred income ...................................................... (4) 2,532
Other noncurrent liabilities ......................................... (1,772) (4,286)
-------- --------
Total adjustments ................................................. 13,514 25,687
-------- --------
Net cash (used in) provided by operating activities ............... (5,677) 4,748
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................. (4,039) (8,208)
Proceeds received from sale of business .............................. 9,184 --
Purchase of business ................................................. (4,950) (4,750)
Purchase of trade name ............................................... (20) --
-------- --------
Disposition of assets:
Net cash provided by (used in) investing activities ............... 175 (12,958)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance under revolving credit facility .............................. -- 4,300
Accretion of interest on senior discount notes ....................... 4,162 3,695
-------- --------
Net cash provided by financing activities ......................... 4,162 7,995
-------- --------
Net decrease in cash .............................................. (1,340) (215)
CASH, beginning of period ............................................ 1,598 514
-------- --------
CASH, end of period .................................................. $ 258 $ 299
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes .................................................. $ 112 $ 122
======== ========
Interest ...................................................... $ 9,799 $ 9,205
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
5
<PAGE> 8
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. ORGANIZATION & OPERATIONS
American Lawyer Media Holdings, Inc. (the "Company") is the parent
company of American Lawyer Media, Inc. ("Media"). The Company publishes 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 its 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. 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 accrues
at 12.25% per annum compounded annually and is convertible into 3.0% of the
common equity of the Purchaser. In addition, the Purchaser paid the Company
$1.68 million in cash, representing the aggregate amount of operating losses
incurred by the Company in connection with the operation of the Business for the
month of March 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 indicative of results for a full year. These financial
statements included should be read in conjunction with
6
<PAGE> 9
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
the audited consolidated financial statements in the Company's Annual Report on
Form 10-K for December 31, 1999.
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 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 trade accounts receivable. 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. 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 made adequate provision.
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 trade show 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
periodical subscription revenues. Seminar and trade show revenues are recognized
when the seminar or trade show is held.
7
<PAGE> 10
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
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 $2,494,000 and $3,128,600 are included in accounts
receivable in the accompanying consolidated September 30, 2000 and December 31,
1999 balance sheets, respectively.
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$1,573,000 and $4,245,000 for the three months ended September 30, 2000 and
1999, respectively, and $5,943,000 and $7,155,00 for the nine months ended
September 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:
<TABLE>
<S> <C>
Buildings................................... 25 years
Furniture, machinery and equipment.......... 5-9 years
Computer equipment and software............. 3-6 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life.
8
<PAGE> 11
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
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, copyrights, 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. 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 aggregate principal
amount of 9.75% Senior Notes due December 15, 2007 (the "Senior Notes"). The
Senior Notes accrue interest at 9.75% per annum 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
9
<PAGE> 12
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
3. DEBT (CONTINUED)
and senior unsecured basis, by each of Media's existing and future subsidiaries.
Separate financial statements of, and other disclosures concerning, the
subsidiary guarantors are not included herein because of the subsidiary
guarantors' full and unconditional guarantee of the Senior Notes and
management's determination that separate financial statements and other
disclosures concerning the subsidiary 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 incurred in connection with the issuance of Senior Notes, 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 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. 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 floating rate per annum equal 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 a
requirement to satisfy certain financial ratios. At September 30, 2000, the
Company was in compliance with these covenants.
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 the sale of the Company's Internet business and to
modify certain debt covenants. Effective March 28, 2000, the Revolving Credit
Facility was further amended to modify certain of the debt
10
<PAGE> 13
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
3. DEBT (CONTINUED)
covenants, to permit the sale of the Business, and to increase the revolver
limit described above from $20 million to $22.5 million.
At September 30, 2000, the amount outstanding under the Revolving Credit
Facility was $18.3 million. The available balance under the unused commitment is
further reduced by any letters of credit outstanding, which totaled $1,121,000
at September 30, 2000. A 10% increase in the average interest rate of borrowing
under the Revolving Credit Facility during the first nine months of 2000 would
have increased the Company's net loss by approximately $129,000.
4. INCOME TAXES
The federal income tax provision (benefit) is recorded in the
accompanying statement of operations, reflecting the fact that the Company files
a consolidated return.
11
<PAGE> 14
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 nine months and three months ended September 30, 2000 to the nine
months, and three months ended September 30, 1999.
In July 1999, the Company sold the common stock of Professional Online,
Inc. ("POL"), the Subsidiary 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 its 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 as 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 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 paid the Company $1.68 million in
cash, representing the aggregate amount of operating losses
12
<PAGE> 15
incurred by the Company in connection with the operation of the Business for the
month of March 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., the leading publisher of jury verdict and settlement
research data in New York State.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Overview. Revenues increased by $18.8 million, or 19.4%, from $97.1
million for the nine months ended September 30, 1999 to $116.0 million for the
nine months ended September 30, 2000. Total operating costs and expenses
increased $15.7 million, or 15.3%, from $102.6 million for the nine months ended
September 30, 1999 to $118.3 million for the nine months ended September 30,
2000. As a result, the operating loss decreased $3.1 million, from a loss of
$5.5 million for the nine months ended September 30, 1999 to a loss of $2.4
million for the nine months ended September 30, 2000. EBITDA increased $4.4
million, or 30.2%, from $14.4 million for the nine months ended September 30,
1999 to $18.8 million for the nine months ended September 30, 2000. The
narrowing of 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
period. This was partially offset by higher operating costs and expenses
primarily from the 1999 and 2000 initiatives, expansion in the core business
units and the shutdown of the weekly newsletters. Excluding the results from
Internet services and the new initiatives undertaken in 1999, which included The
Daily Deal and the weekly newsletter division, revenues increased $19.9 million,
or 20.8%, from $95.5 million for the nine months ended September 30, 1999 to
$115.4 million for the nine months ended September 30, 2000. In addition,
excluding the results from Internet services and the new initiatives undertaken
in 1999, EBITDA also increased $3.4 million, or 15.3%, from $22.1 million for
the nine months ended September 30, 1999 to $25.5 million for the nine months
ended September 30, 2000.
Revenues. Advertising revenues increased $10.2 million, or 18.2%, from
$56.0 million for the nine months ended September 30, 1999 to $66.2 million for
the nine months ended September 30, 2000. All categories of advertising
contributed to this increase. The greatest contributions were from display,
classified and law firm advertising reflecting new publications and the
increased frequency of existing publications during 2000 along with increased
rates and greater volume due to increased sales efforts.
Subscription revenues increased $0.1 million, or 0.6%, from $17.7
million for the nine months ended September 30, 1999 to $17.8 million for the
nine months ended September 30, 2000. Increased marketing efforts, and growth in
some of the core publications partially contributed to the increase.
Revenues from ancillary products and services increased $9.8 million,
or 43.9%, from $22.2 million for the nine months ended September 30, 1999 to
$32.0 million for the nine months ended September 30, 2000. Increased revenues
primarily resulted from higher licensing and royalty fees along with increased
attendees and exhibitors' revenue at trade shows, seminar revenue, increased
custom publication revenue and increased revenue from new books and additional
updates released for existing books. These increases were partially offset by
13
<PAGE> 16
lower printing revenue.
Revenues from Internet services totaled $1.2 million for the nine
months ended September 30, 1999. The Company did not record any revenues from
Internet services during the nine months ended September 30, 2000 as a result of
the sale of the common stock of POL in the third quarter of 1999.
Operating costs and expenses. Total operating costs and expenses
increased $15.7 million, or 15.3%, from $102.6 million for the nine months ended
September 30, 1999 to $118.3 million for the nine months ended September 30,
2000. Of this amount, operating costs and expenses for the Company's two primary
new initiatives undertaken in 1999, the weekly newsletters and The Daily Deal,
and the new projects commenced by the Company in 2000 accounted for $9.6 million
of the increase, and the core business units accounted for the remaining
increase. The new projects commenced in 2000 are fully reflected in the results
for the nine months ended September 30, 2000, while the results for the nine
months ended September 30, 1999 had no like expense. Within the core business
units, higher costs were realized in editorial and production, selling and
general and administrative costs. The increased costs and expenses in the core
business units were partially offset by the elimination of operating expense
related to Internet services resulting from the sale of the common stock of POL
during the third quarter of 1999.
Editorial expenses increased $3.9 million, or 24.5%, from $16.1 million
for the nine months ended September 30, 1999 to $20.0 million for the nine
months ended September 30, 2000. The increase primarily resulted from an
increase in editorial costs of $3.3 million, which primarily consisted of
contributing editors, salaries and benefits and an increase in artwork costs of
$0.6 million. Of the total period-over-period increase, the Company's new
initiatives for 1999 and the new projects started during 2000 accounted for $0.9
million and $2.5 million of the increase, respectively.
Production and distribution expenses increased $2.6 million, or 12.5%,
from $20.8 million for the nine months ended September 30, 1999 to $23.4 million
for the nine months ended September 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 higher overall production costs incurred
in the core business units, partially offset by the elimination of production
and distribution costs relating to Internet services resulting from the sale of
the common stock of POL during the third quarter of 1999. The 1999 initiatives
and new projects commenced in 2000 are reflected in the nine months ended
September 30, 2000 with little or no comparable expense being recorded in the
nine months ended September 30, 1999.
Selling expenses increased $3.8 million, or 18.7%, from $20.2 million
for the nine months ended September 30, 1999 to $24.0 million for the nine
months ended September 30, 2000. The increase was primarily attributable to
increased marketing costs as well as increased display, classified and legal
advertising costs relating to growth in revenue partially offset by lower
selling expense due to the sale of The Daily Deal and Corporate Control Alert in
early 2000.
General and administrative expenses increased $7.5 million, or 33.5%,
from $22.3 million for the nine months ended September 30, 1999 to $29.8 million
for the nine months ended September 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.
14
<PAGE> 17
Internet services expenses decreased from $3.3 million for the nine
months ended September 30, 1999 to zero for the nine months ended September 30,
2000. This decrease in expenses resulted from the sale of the common stock of
POL during July 1999.
Depreciation and amortization increased $1.3 million, or 6.2%, from
$19.9 million for the nine months ended September 30, 1999 to $21.2 million for
the nine months ended September 30, 2000. This was due primarily to the increase
in capital expenditures throughout 1999 and 2000 for the upgrade and purchase of
new computer equipment and systems, for capitalized improvements and furnishings
in existing and new facilities to support the 1999 new initiatives and new
projects commenced in 2000, additional amortization expense related to the
acquisition of Moran in May 2000 and the Company's core growth.
Operating loss. As a result of the above factors, the operating loss
decreased $3.1 million, from a loss of $5.5 million for the nine months ended
September 30, 1999 to a loss of $2.4 million for the nine months ended September
30, 2000. In addition, EBITDA increased $4.4 million, or 30.2%, from $14.4
million for the nine months ended September 30, 1999 to $18.8 million for the
nine months ended September 30, 2000.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Overview. Revenues increased $5.3 million, or 17.2%, from $31.1 million for the
quarter ended September 30, 1999 to $36.4 million for the quarter ended
September 30, 2000. Total operating costs and expenses increased $2.5 million,
or 7.2%, from $34.9 million for the quarter ended September 30, 1999 to $37.4
million for the quarter ended September 30, 2000. As a result, operating loss
narrowed $2.8 million, from a loss of $3.8 million for the quarter ended
September 30, 1999 to a loss of $1.0 million for the quarter ended September 30,
2000. In addition, EBITDA increased $2.9 million, or 99.4%, from $3.0 million
for the quarter ended September 30, 1999 to $5.9 million for the quarter ending
September 30, 2000. The narrowing of operating loss and the increase in EBITDA
resulted primarily from revenue growth in core business, increased revenues
generated by new projects commenced in 2000 and the elimination of the losses
reflected in the prior year with the sale of the common stock of POL in July
1999 and the sale of the Business in March 2000. This was partially offset by
higher operating costs and expenses primarily from the 1999 and 2000
initiatives, expansion in the core business units and the shutdown of the
remaining weekly newsletters. Excluding the results from Internet services and
the new initiatives undertaken in 1999, revenues increased $5.8 million, or
19.1%, from $30.6 million for the quarter ended September 30, 1999 to $36.4
million for the quarter ended September 30, 2000. Excluding the results from
Internet services and the new initiatives in 1999, EBITDA declined $0.6 million,
or 8.4%, from $7.4 million for the quarter September 30, 1999 to $6.8 million
for the quarter ended September 30, 2000. Contributing to this decline were
one-time charges associated with the outsourcing of some administrative
operations and the timing of one of the Company's trade shows.
Revenues. Advertising revenues increased $2.6 million, or 14.1%, from
$18.6 million for the quarter ended September 30, 1999 to $21.2 million for the
quarter ended September 30, 2000. All categories of advertising contributed to
this increase in revenues. The greatest contributions were display, classified
and law firm advertising, reflecting new publications along with increased rates
and greater volume due to increased sales efforts in the core publications.
15
<PAGE> 18
Subscription revenues decreased $0.1 million, or 2.1%, from $6.0
million for the quarter ended September 30, 1999, to $5.9 million for the
quarter ended September 30, 2000 primarily from slight declines in some
publications.
Revenues from ancillary products and services increased $3.1 million,
or 50.2%, from $6.2 million for the quarter ended September 30, 1999 to $9.3
million for the quarter ended September 30, 2000. Increased revenues primarily
resulted from higher licensing and royalty fees along with higher revenues from
custom publications, 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 and lower trade show revenue due to year
over year timing of the event calendar.
Revenues from Internet services totaled $0.3 million for the quarter
ended September 30, 1999. The Company did not record any revenues from Internet
services during the third quarter of 2000 as a result of the sale of the common
stock of POL in the third quarter of 1999.
Operating costs and expenses. Total operating costs and expenses
increased $2.5 million, or 7.2%, from $34.9 million for the quarter ended
September 30, 1999 to $37.4 million for the quarter ended September 30, 2000.
This increase primarily resulted from operating costs and expenses incurred
related to new projects commenced in 2000 along with higher core business 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 during the third quarter of
1999 and the sale of the Business during the first quarter of 2000.
Editorial expenses increased $0.4 million, or 7.2%, from $5.9 million
for the quarter ended September 30, 1999 to $6.3 million for the quarter ended
September 30, 2000. The increase primarily resulted from an increase of $0.2
million in editorial costs and an increase in $0.2 million in artwork costs. Of
the total period over period increase, the Company's new projects started during
2000 increased $1.1 million, which was partially offset by the elimination of
editorial expense of $0.8 million resulting from the sale of the Business during
the first quarter of 2000.
Production and distribution expenses increased $1.1 million, or 17.3%,
from $6.2 million for the quarter ended September 30, 1999 to $7.3 million for
the quarter ended September 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
during the third quarter of 1999.
Selling expenses decreased $0.8 million, or 10.0%, from $8.2 million
for the quarter ended September 30, 1999 to $7.4 million for the quarter ended
September 30, 2000. The decrease was primarily related to the elimination of
selling expense for the third quarter of this year resulting from the sale of
the Business which was sold during the first quarter of 2000, and also from the
shut down of the remaining weekly newsletters in July 2000. Partially offsetting
this decline were higher costs related to increased marketing costs as well as
increased display, classified and legal advertising costs relating to growth in
revenue.
16
<PAGE> 19
General and administrative expenses increased $2.2 million, or 30.4%,
from $7.3 million for the quarter ended September 30, 1999 to $9.5 million for
the quarter ended September 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, partially
offset by the elimination of costs resulting from the sale of the Business
during the first quarter of 2000.
Internet services expenses decreased from $0.5 million for the quarter
ended September 30, 1999 to zero for the quarter ended September 30, 2000 as a
result of the sale of the common stock of POL during July 1999.
Depreciation and amortization increased $0.1 million, or 1.9%, from
$6.8 million for the quarter ended September 30, 1999 to $6.9 million for the
quarter ended September 30, 2000. This was due primarily to the increase in
capital expenditures throughout 1999 and for the nine months ended September 30,
2000 for the upgrade and purchase of new computer equipment and systems
throughout the Company and for capitalized improvements and furnishings to
support the 1999 new initiatives; new projects commenced in 2000 and the
Company's core growth.
Operating loss. As a result of the above factors, the operating loss
narrowed $2.8 million, from a loss of $3.8 million for the quarter ended
September 30, 1999 to a loss of $1.0 million for the quarter ended September 30,
2000. EBITDA increased $3.0 million, or 99.4%, from $2.9 million for the quarter
ended September 30, 1999 to $5.9 million for the quarter ending September 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures. Capital expenditures decreased $4.2 million, or
50.8%, from $8.2 million for the nine months ended September 30, 1999 compared
to $4.0 million for the nine months ended September 30, 2000. 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 the expansion of existing products. In addition,
higher costs were incurred in 1999 related to furnishings and leasehold
improvements on existing and new facilities.
Net cash used in operating activities. Net cash used in operating
activities was $5.7 million for the nine months ended September 30, 2000,
primarily resulting from a net loss of $19.2 million, an increase in accounts
receivable of $3.1 million and a decrease in accounts payable and accrued
expenses of $4.7 million, partially offset by depreciation and amortization of
$21.2 million.
Net cash provided by investing activities. Net cash provided by
investing activities was $0.2 million for the nine months ended September 30,
2000, resulting from the sale of the Business for $7.5 million in cash and the
additional cash payment of $1.68 million, an amount equal to operating losses
incurred in March 2000. 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 $4.0
million during the nine months ended September 30, 2000.
17
<PAGE> 20
Net cash provided by financing activities. Net cash provided by
financing activities was $4.2 million for the nine months ended September 30,
2000 due to the accretion of interest on senior discount notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
See footnote 3 to the Consolidated Financial Statements.
18
<PAGE> 21
\ 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.
None.
19
<PAGE> 22
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.
November 13, 2000 /s/ WILLIAM L. POLLAK
------------------------------------------
William L. Pollak
President and Chief Executive Officer
November 13, 2000 /s/ LESLYE G. KATZ
------------------------------------------
Leslye G. Katz
Vice President and Chief Financial Officer
