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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: PENDING
AMERICAN LAWYER MEDIA, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3980414
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
345 PARK AVENUE SOUTH 10010
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive
offices)
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Registrant's telephone number, including area code (212) 779-9200
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes / / No / / Note: This is a voluntary filing; Registrant not yet
subject to Section 13 or 15(d).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes / / No / /
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of March 31, 1998, 100 shares of Common Stock, par value $.01 per share,
were outstanding, all of which were held by American Lawyer Media Holdings, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index
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PART I.
ITEM 1. BUSINESS
ON AUGUST 27, 1997, BUT EFFECTIVE AS OF AUGUST 1, 1997, ALM ACQUIRED
SUBSTANTIALLY ALL OF THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED
TO AMERICAN LAWYER MEDIA, L.P. (THE "ALM ACQUISITION"). IN ADDITION, ON DECEMBER
22, 1997, ALM ACQUIRED ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF
NATIONAL LAW PUBLISHING COMPANY, INC. (THE "NLP ACQUISITION" AND, TOGETHER WITH
THE ALM ACQUISITION, THE "ACQUISITIONS"). REFERENCES HEREIN TO THE COMPANY'S
ESTIMATED CIRCULATION INCLUDE TOTAL PAID AND FREE CIRCULATION FOR ALL OF THE
COMPANY'S PERIODICALS. REFERENCES HEREIN TO READERSHIP INCLUDE ESTIMATED
CIRCULATION PLUS COMBINED PASS-ALONG READERSHIP UNADJUSTED FOR ANY OVERLAP WHICH
EXISTS AMONG READERS OF THE COMPANY'S VARIOUS PUBLICATIONS. UNLESS THE CONTEXT
OTHERWISE REQUIRES: (I) "HOLDINGS" REFERS TO AMERICAN LAWYER MEDIA HOLDINGS,
INC., WHICH IS THE PARENT COMPANY OF THE COMPANY, AND TO HOLDINGS' PREDECESSOR,
CRANBERRY PARTNERS, LLC; (II) THE "COMPANY" REFERS TO AMERICAN LAWYER MEDIA,
INC. AND ITS SUBSIDIARIES AFTER GIVING EFFECT TO THE ACQUISITIONS; (III) "ALM"
REFERS TO AMERICAN LAWYER MEDIA, INC. AND ITS SUBSIDIARIES (AND TO ITS
PREDECESSOR, ALM HOLDINGS, LLC) SINCE THE CONSUMMATION OF THE ALM ACQUISITION
BUT PRIOR TO THE NLP ACQUISITION AND, WHERE APPLICABLE, TO AMERICAN LAWYER
MEDIA, L.P. AND ITS SUBSIDIARIES PRIOR TO THE ALM ACQUISITION; (IV) "OLD ALM"
REFERS TO AMERICAN LAWYER MEDIA, L.P. AND ITS SUBSIDIARIES PRIOR TO THE ALM
ACQUISITION; (V) "NLP" REFERS TO NATIONAL LAW PUBLISHING COMPANY, INC. AND ITS
SUBSIDIARIES PRIOR TO THE NLP ACQUISITION; AND (VI) "INVESTORS" REFERS TO U.S.
EQUITY PARTNERS, L.P. ("USEP") AND ITS AFFILIATES AND CERTAIN OTHER INVESTORS
CONTROLLED BY OR MANAGED BY WP MANAGEMENT PARTNERS, LLC ("WPMP"), THE MERCHANT
BANKING ARM OF WASSERSTEIN PERELLA GROUP, INC. ("WPG").
COMPANY OVERVIEW
The Company publishes 16 periodicals, including several leading national
periodicals and regional publications serving four of the five largest state
legal markets. The Company's nationally-recognized periodicals include THE
AMERICAN LAWYER-REGISTERED TRADEMARK-, a monthly magazine containing articles
and features targeted to attorneys practicing in large law firms, and THE
NATIONAL LAW JOURNAL-REGISTERED TRADEMARK-, the nation's largest selling legal
newspaper, which covers the law, lawyers and the business of the legal
profession. The Company's regional publications are led by the NEW YORK LAW
JOURNAL-REGISTERED TRADEMARK-, which has the largest paid circulation of any
regional legal newspaper in the United States. In addition to the NEW YORK LAW
JOURNAL, the Company publishes five other daily newspapers serving Georgia,
Northern California, Miami, Fort Lauderdale and Palm Beach, as well as four
weekly newspapers serving New Jersey, Texas, Washington, D.C. and Connecticut.
In addition to the periodicals referred to above, the Company publishes
CORPORATE COUNSEL MAGAZINE-TM-, a leading magazine for corporate in-house
attorneys, LAW TECHNOLOGY PRODUCT NEWS-TM- and AMLAW TECH-TM-, two leading legal
technology magazines, as well as IP WORLDWIDE-TM-, a leading specialty magazine
focusing on intellectual property.
The Company has also successfully established an ancillary products and
services business that creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
25 newsletters and 112 books on topics of national and regional interest. Each
year, the Company organizes or sponsors numerous professional seminars and
conferences that cover issues of current legal interest. The Company also
provides case tracking and monitoring services and publishes various directories
used by legal professionals.
In addition, the Company has begun to develop an internet services business
and currently has a number of law-related internet websites including LAW
JOURNAL EXTRA!-REGISTERED TRADEMARK-, COUNSEL CONNECT-REGISTERED TRADEMARK-, CAL
LAW-TM-, ILLINOIS LAW-TM- and TEX LAW-TM-. These websites give attorneys online
access to news and other legal materials and facilitate the exchange of
information among members of the legal community.
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The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated by its ancillary products and
services business. For the five months ended December 31, 1997, approximately
58.7% of the Company's revenues were from advertising, 23.0% were from
subscriptions, 18.1% were from ancillary products and services and 0.2% were
from internet services.
PRODUCT LINES
PERIODICALS. The Company's newspaper and magazine business publishes 16
national, regional and local periodicals that serve legal and business
professionals. The Company's periodicals have a combined circulation of
approximately 260,000. The subscription renewal rate for the Company's
periodicals averages approximately 80%.
NEWSPAPERS. The Company's newspapers provide news, features, analysis and
commentary about the world of law and advocacy. Feature articles and stories
covering the local, state and federal courts and law firms are supplemented by
reports and analyses of cutting-edge legal issues. The Company is committed to
providing high quality and balanced coverage of its local markets. Most of the
Company's newspapers serve as the newspaper of record for their respective legal
markets. Lawyers look to the newspapers for reports on local court rulings and
opinions, as well as information regarding local court dockets.
The Company publishes 11 newspapers including THE NATIONAL LAW JOURNAL, the
leading national legal newspaper in the United States, NEW YORK LAW JOURNAL,
which has the largest circulation of any regional legal newspaper, as well as
nine other daily and weekly newspapers. In aggregate, the Company's newspapers
serve eight state markets, including New York, New Jersey, Washington, D.C.,
Georgia, Florida, Texas, Northern California and Connecticut, which cover
approximately 46% of all active attorneys in the United States. Each of the
Company's regional newspapers has a significant presence in its respective
market.
The following table sets forth information regarding the Company's
newspapers:
NEWSPAPERS
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ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
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WEEKLY NEWSPAPERS
THE NATIONAL LAW JOURNAL........................ National 1978 37,622 163,800
NEW JERSEY LAW JOURNAL.......................... New Jersey 1878 9,569 59,700
TEXAS LAWYER.................................... Texas 1985 10,341 65,100
LEGAL TIMES..................................... Washington, D.C. 1978 10,776 75,600
THE CONNECTICUT LAW TRIBUNE..................... Connecticut 1974 3,228 23,800
DAILY NEWSPAPERS
NEW YORK LAW JOURNAL............................ New York 1888 15,425 66,700
THE RECORDER.................................... Northern California 1877 8,027 48,500
FULTON COUNTY DAILY REPORT...................... Georgia 1890 6,615 37,700
MIAMI DAILY BUSINESS REVIEW..................... South Florida 1926 5,148 37,800
BROWARD DAILY BUSINESS REVIEW................... South Florida 1926 2,772 20,400
PALM BEACH DAILY BUSINESS REVIEW................ South Florida 1926 1,990 14,700
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
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MAGAZINES. THE AMERICAN LAWYER anchors the Company's magazine portfolio.
Founded in 1979, THE AMERICAN LAWYER is a glossy magazine that features stories
on the strategies, successes, failures and personalities of the most important
figures in the legal world. The target audience for the publication is attorneys
practicing in large law firms and corporate legal departments across the United
States. THE AMERICAN LAWYER has been the winner of National Magazine awards
granted by the American Society of Magazine Editors four times, and has been
nominated for 22 such awards since its founding.
The Company's other magazines focus on specific practice areas or segments
within the legal profession and certain topics applicable to the business of
law. The Company's specialty legal magazines include CORPORATE COUNSEL MAGAZINE,
one of the nation's largest magazines focused on issues of importance to
in-house lawyers at large and mid-size corporations, and IP WORLDWIDE, which
covers developments in intellectual property law. The Company also publishes the
two leading technology magazines targeted to the legal community, AMLAW TECH and
LAW TECHNOLOGY PRODUCT NEWS, which focus on information technology and its
applications to the practice of law. AMLAW TECH is targeted toward partners at
law firms with purchase-making authority, while LAW TECHNOLOGY PRODUCT NEWS is
targeted toward attorneys and information services departments in law offices.
The Company publishes the following five magazines:
MAGAZINES
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ESTIMATED
YEAR OF TOTAL TOTAL
TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2)
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THE AMERICAN LAWYER................................ 1979 10 times per year 17,005 126,800
AMLAW TECH......................................... 1996 4 times per year 30,000 60,000(3)
CORPORATE COUNSEL MAGAZINE......................... 1994 6 times per year 38,200 76,400(3)
IP WORLDWIDE....................................... 1995 6 times per year 10,000 20,000(3)
LAW TECHNOLOGY PRODUCT NEWS........................ 1993 15 times per year 55,000 110,000(3)
</TABLE>
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) These magazines are distributed primarily free of charge. For these
publications, the Company assumes only two readers per copy.
NEWSLETTERS. The Company's newsletter division publishes 25 newsletters
which cover specialized legal practice areas. Circulation for the Company's
newsletters ranges from approximately 300 to 1,700, with an average circulation
of over 700. The total number of paid subscribers for all newsletters was
approximately 18,000 as of December 31, 1997. The following table sets forth a
list of the Company's newsletters:
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NEWSLETTERS
Accounting for Law Firms
The Bankruptcy Strategist
Business Crimes Bulletin: Compliance and
Litigation
Cable TV and New Media
Commercial Leasing Law & Strategy
Computer Law Strategist
Corporate Control Alert
The Corporate Counsellor
Employment Law Strategist
Entertainment Law & Finance
Environmental Compliance and Litigation
Strategy
Equipment Leasing
The Intellectual Property Strategist
The Internet Newsletter: Legal & Business
Aspects
Law Firm Partnership & Benefits Report
Leader's Franchising Business & Law Alert
Legal Tech
Marketing for Lawyers
The Matrimonial Strategist
Medical Malpractice Law & Strategy
Medical/Legal Aspects of Breast Implants
Money Laundering Law Report
Multimedia Strategist
New York Real Estate Law Reporter
Product Liability Law & Strategy
BOOKS. The Company currently publishes 112 books on a broad array of legal
topics. These books generally focus on practical legal subjects that arise in
the daily professional lives of lawyers. Most of the Company's books are updated
once or twice per year with inserts to keep the material current. The Company
focuses on publishing books that cover particularly dynamic areas of law that
lend themselves to frequent supplementation.
The Company most often develops the concept for a new book and then solicits
an author to write the text. However, in certain cases, the Company has received
unsolicited manuscripts which it has ultimately published. Authors who have
written books for the Company include prominent attorneys and judges such as
Martin Lipton, Judge Jed Rakoff, James Freund and James Goodale.
Historically, most of ALM's books have focused on state issues, while NLP's
books have dealt primarily with national legal topics. The following tables set
forth the Company's current offering of books:
BOOKS
STATE AND LOCAL SUBJECTS
Connecticut Appellate Practice and Procedure
Connecticut Criminal Caselaw Handbook
Connecticut Foreclosures
Connecticut Labor and Employment Law
Connecticut Summary Process Manual
Connecticut Unfair Trade Practices Act
Connecticut Uninsured and Underinsured Motorist
Courtroom Success: A View From the Bench
Dallas County Bench Book (Texas)
Encyclopedia of New Jersey Causes of Action
Georgia Bench Book
Guide to Connecticut Limited Liability Companies
Handbook of Forms for the Connecticut Family Lawyer
Harris County Bench Book (Texas)
Insurance Laws
Marketing and Maintaining a Family Law Mediation Practice
Mediation: A Texas Practice Guide
New Jersey Employment Law
New Jersey Insurance Law
New Jersey Product Liability Law
Pleadings and Pretrial Practice (Connecticut)
Representing Clients in Mediation
Tarrant County Bench Book (Texas)
Travis County Bench Book (Texas)
Texas Criminal Codes and Rules
Texas Legal Malpractice
Texas Legal Research
Visiting Judges Bench Book
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BOOKS
NATIONAL SUBJECTS
A Practical Guide to Equal Employment Opportunity
A Practical Guide to the Occupational Safety and Health Act
Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act
All About Cable
Anatomy of a Merger: Strategies and Techniquesfor Negotiating Corporate
Acquisitions
Antitrust Basics
Antitrust: An Economic Approach
Changing the Situs of a Trust
Class Actions: The Law of 50 States
Communications Law and Practice
Computer Law: Drafting and Negotiating Forms and Agreements
Corporate Internal Investigations
Corporate Sentencing Guidelines: Compliance and Mitigation
Divorce, Separation and the Distribution of Property
Doing Business on the Internet
Due Diligence in Business Transactions
Employee Benefits Law: ERISA and Beyond
Raoul Felder's Encyclopedia of Matrimonial Clauses
Environmental Enforcement: Civil and Criminal
Environmental Law Lexicon
Environmental Regulation of Real Property
Estate Planning
Executive Compensation
Executive Stock Options and Stock Appreciation Rights
Federal Bank Holding Company Law
Federal Rules of Civil Procedure
Federal Taxation of Intellectual Property Transfers
Federal Taxation of Real Estate
Federal Taxation of S Corporations
Federal Trade Commission: Law, Practice and Procedure
Ferrara on Insider Trading and The Wall
Franchising: Realities and Remedies
Franchising: Realities and Remedies Forms Volume
Going Private
Ground Leases and Land Acquisition Contracts
Health Care Fraud
Hospital Liability
"I'd Rather Do It Myself": How to Set Up Your Own Law Firm
Insurance Coverage Disputes
Intellectual Property Law: Commercial, Creative and Industrial Property
Internet and Online Law
Law and Business in the European Single Market
Law Firm Accounting and Financial Management
Lawyering: A Realistic Approach to Legal Practice
Legal Research and Law Library Management
Lender Liability and Banking Litigation
Licensing of Intellectual Property
Marketing the Law Firm: Business Development Techniques
Maximizing Law Firm Profitability: Hiring, Training and Developing Productive
Lawyers
Merit Systems Protection Board: Rights and Remedies
Model Terms of Engagement
Modern Visual Evidence
Multifamily Housing: Federal Programs for the Private Sector
Multimedia Law: Forms and Analysis
Negotiated Acquisitions of Companies, Subsidiaries and Divisions
Negotiating and Drafting Office Leases
Negotiation: Strategies for Law and Business
Partnership and Joint Venture Agreements
Private Real Estate Syndications
Product Liability
Product Liability: Winning Strategies and Techniques
Products Liability: Recreation and Sports Equipment
Real Estate, A Guide for the Profession
Real Estate Financing
Reducing Personal Income Taxes: A Guide to Deductions and Credits
Reorganizations under Chapter 11 of the Bankruptcy Code
RICO: Civil and Criminal, Law and Strategy
Savings Institutions: Mergers, Acquisitions and Conversions
Securities Regulation: Liabilities and Remedies
Sex Discrimination and Sexual Harassment in the Workplace
Shareholder Derivative Litigation: Besieging the Board
Shopping Center and Store Leases
Start-Up Companies: Planning, Financing and Operating the Successful Business
State Antitrust Law
Structured Settlements and Periodic Payment Judgments
Takeovers and Freezeouts
Tax Aspects of Divorce and Separation
The Law and Practice of Secured Transactions: Working with Article 9
The Preparation and Trial of Medical Malpractice Cases
Trade Secrets
Travel Law
Use of Statistics in Equal Employment Opportunity Litigation
White Collar Crime: Business and Regulatory Offenses
Winning Attorney's Fees from the U.S. Government
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SEMINARS AND CONFERENCES. The Company conducts a number of seminars and
conferences for lawyers and other professionals in related fields. The Company's
seminars complement its other products and services both by serving as powerful
marketing vehicles for the Company's existing books and newsletters, and by
generating ideas for new seminars, books and newsletters. Seminars also
introduce the Company to lawyers who may subsequently write articles or books
for the Company.
In addition to its seminar business, the Company operates a small number of
conferences. While its seminars typically involve one or more speakers making
presentations to groups of 75-250 people, conferences generally feature an array
of booths and presentations from various participants over the course of several
days. The Company currently operates four conferences, and plans to coordinate
additional related conferences in the coming years.
The following table sets forth the seminars and conferences held in 1997:
SEMINARS
New Jersey Civil Caselaw Review
Acquisitions of Subsidiaries, Divisions and Private Companies
The American Lawyer's Management Roundtable
The Art of Due Diligence and Related Drafting Techniques
Baker's Dozen: Using 13 Recent Supreme Court Cases to Improve Your Personal
Injury Practice
Computer Law: Negotiating Complex Transactions
Distribution and Dealer Termination
Employment Compensation Strategies
Entire Controversy Pathfinder
General Counsel Conference
Transferring and Protecting Intellectual Property in Mergers and Acquisitions
Joint Ventures & Strategic Alliances
Law Firm Financial Management and Accounting
Lead Liability Litigation: Legal and Business Issues
Legal and Business Aspects of the Internet
Legal Ethics in the Electronic Age
Negotiating Contracts in the Entertainment Industry
Negotiating Corporate Acquisitions
Obstetrical Malpractice: Failure to Diagnose Fetal Distress
Securities Practice in the Electronic Era
Sports Law: Representing and Advising Athletes, Teams, Leagues and Sports
Associations
Trial of an Obstetrical Malpractice Case
Valuation of a Professional Practice
CONFERENCES
Law Tech
Legal Tech Net
Southeastern Law Tech
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INTERNET SERVICES. The Company operates several leading legal websites
including LAW JOURNAL EXTRA!, COUNSEL CONNECT, CAL LAW, ILLINOIS LAW and TEXAS
LAW. LAW JOURNAL EXTRA!, the largest commercial legal website, provides
up-to-date legal news and information from NLP's publications as well as a
variety of other sources as a convenient gateway to other legal information on
the Internet. COUNSEL CONNECT, the leading subscription-based website, offers
subscribers a wide range of legal information, including various online seminars
and discussion groups, legal news and other services that assist attorneys in
the day-to-day practice of law. While COUNSEL CONNECT is the leading
subscriber-based legal website, the rapid evolution of the Internet has rendered
its business model uneconomic. As such, the Company is in the process of
discontinuing COUNSEL CONNECT and transferring those elements of the service
with a strong subscriber following as well as COUNSEL CONNECT'S trade name,
subscriber lists and related technology to a new enhanced service.
OTHER PRODUCTS AND SERVICES. The Company's uniquely focused customer base
and extensive access to legal information has enabled the Company to create a
wide array of ancillary businesses, including: (i)
MA/3000-Registered Trademark-, a case tracking and docketing software package
that allows litigators in New York to track court activity published in the NEW
YORK LAW JOURNAL, and (ii) DAILY DECISION SERVICE-TM-, a service which offers
subscribers faxed copies on request of both published and unpublished New Jersey
state and federal court opinions.
PRINTING AND DISTRIBUTION
Layouts for the Company's publications are prepared in-house, while the
large majority of the Company's printing activities, and all of its distribution
activities, are outsourced.
COMPETITION
The Company competes for advertising and subscription revenues with
publishers of special-interest legal newspapers and magazines with similar
editorial content. However, in most of the Company's markets, its newspaper is
the only newspaper focused on serving the legal community. The Company also
competes for advertising revenues with other national legal publications, as
well as general-interest magazines and other forms of media, including broadcast
and cable television, radio, direct marketing and electronic media. Factors
which may affect competition for advertisers include effective costs of such
advertising compared to other forms of media, and the size and characteristics
of the readership of the Company's publications. The Company also faces
significant competition from other legal publishers and legal service providers
in its ancillary products and services business.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with its business, including trademarks in the titles of its major
periodicals such as THE AMERICAN LAWYER-Registered Trademark-, CORPORATE COUNSEL
MAGAZINE-TM-, THE NATIONAL LAW JOURNAL-Registered Trademark-, and NEW YORK LAW
JOURNAL-Registered Trademark-. Provided that trademarks remain in continuous use
in connection with similar goods or services, their term can be perpetual,
subject, with respect to registered trademarks, to the timely renewal of such
registrations in the United States Patent and Trademark Office.
The Company approaches copyright ownership with respect to its publications
in the same manner as is customary within the publishing industry generally.
Consequently, the Company owns the copyright in all of its newspapers, magazines
and newsletters, as compilations, and also owns the copyright in most of its
books. With respect to the specific articles in its publications, the Company
generally obtains the assignment of all right, title and interest in original
materials created by the Company's full-time journalists and editors as well as
by paid contributors. For articles authored by outside contributors, the Company
generally obtains only the exclusive "first-time publication" and non-exclusive
republication rights. Judicial opinions, court schedules and docketing
information are provided to the Company directly by the courts,
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on a non-exclusive basis, and is public information. The Company also claims
ownership of the copyright in its MA/3000-Registered Trademark- tracking and
docketing software. See "--Product Lines." Copyrights in software can be
enforced against plagiarists of the source code or the copyrightable "look and
feel" of the program, but do not protect the concepts and ideas contained in the
program, nor do they prevent others from developing a competing case tracking
and docketing program.
The Company licenses the content of certain of its publications and forms to
third parties, including West Publishing Company, and LEXIS/NEXIS, on a
non-exclusive basis, for republication and dissemination on electronic databases
marketed by the licensees. After the expiration of their initial terms (the
latest of which is October 1999), the licenses automatically renew, subject to
either parties' right to terminate at the end of each subsequent term.
Some of the Company's products, such as the DAILY DECISION SERVICE-TM-,
utilize the extensive databases of court decisions compiled by the Company. The
Company also has extensive subscriber and other customer databases which it
believes would be extremely difficult to replicate. The Company attempts to
protect these databases and lists as trade secrets by restricting access thereto
and/or by the use of non-disclosure agreements. There can be no assurance,
however, that the means taken to protect the confidentiality of these items will
be sufficient, or that others will not independently develop similar databases
and customer lists.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1997, the Company employed approximately 735 full-time
employees, 20 of whom are subject to a single collective bargaining agreement.
The Company believes that its relations with its employees are satisfactory.
RECENT TRANSACTIONS
LEGALTECH ACQUISITION. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased all of the assets and assumed certain of the
liabilities related to Corporate Presentations, Inc. ("LegalTech" or "Corporate
Presentations") for approximately $10.8 million in cash (the "LegalTech
Acquisition"). The Company funded the LegalTech Acquisition with available cash
flow.
Corporate Presentations is a leading producer of trade shows and conferences
relating to law practice technology. Under its LegalTech-Registered Trademark-
tradename, Corporate Presentations produces conferences and exhibitions in New
York City, Los Angeles, Chicago, Atlanta and Washington. The conferences are
generally three-day events that include vendor exhibits, a seminar program and a
variety of workshops and focus sessions. Attendees typically include attorneys
in private practice, corporate counsel, law firm administrators and information
technology personnel, while exhibitors include a wide variety of software,
hardware, publishing and other technology product related companies.
LEGAL COMMUNICATIONS, LTD. ACQUISITION. On March 31, 1998, the Company and
a wholly-owned subsidiary of the Company entered into a definitive agreement
with Legal Communications, Ltd. ("LCL"), to acquire, effective as of April 1,
1998, substantially all of the legal publishing-related assets and to assume
certain liabilities of LCL for an aggregate purchase price of $20 million in
cash subject to changes in the net worth of LCL between December 31, 1997 and
March 31, 1998 (the "LCL Acquisition").
LCL is a multi-media publisher of regional publications serving primarily
the Pennsylvania statewide legal community and the metropolitan Philadelphia
legal community. LCL publishes through four divisions: (i) the
newspaper/newsletter division; (ii) the reference text division; (iii) the
specialty publishing division; and (iv) the electronic publishing division. The
newspaper/newsletter division is anchored by THE LEGAL INTELLIGENCER, a daily
newspaper serving metropolitan Philadelphia. The newspaper/newsletter division
also produces a weekly newspaper, PENNSYLVANIA LAW WEEKLY, and a monthly
newsletter, legal.online, which is offered in both print and electronic form.
The reference text division offers digested court information
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and decisions through a series of texts. The specialty publishing division
provides third-party services for the Philadelphia Bar Association and the
Pennsylvania Trial Lawyers Association (the "Associations"). LCL's relationships
with the Associations enables LCL to have access to more than 25,000 attorneys
in Pennsylvania. The electronic publishing division provides access to content
and to assorted company products through a set of internet sites, foremost among
them PALAWNET, a paid-access site comprised of all the current and archival
content of LCL's publications.
REVOLVING CREDIT FACILITY. On March 25, 1998, the Company entered into a
$40 million, five-year senior secured revolving credit facility (the "Revolving
Credit Facility") with a group of banks to be available for working capital and
general corporate purposes, including acquisitions and capital expenditures.
The Revolving Credit Facility is guaranteed by Holdings and by all existing
and future subsidiaries of ALM. In addition, the Revolving Credit Facility is
secured by a first priority security interest in substantially all of the
properties and assets of ALM and its existing and future domestic subsidiaries,
including a pledge of all of the stock of such subsidiaries, and a pledge by
Holdings of all of the stock of ALM. The Revolving Credit Facility contains
customary covenants commensurate with the size of the Revolving Credit Facility
that restrict the ability of ALM and its subsidiaries to take certain actions.
ADDITIONAL EQUITY CONTRIBUTION. On April 14, 1998, Holdings contributed an
aggregate of $15 million to the equity capital of the Company. The proceeds of
the equity contribution are intended to be used to fund acquisitions and to
provide capital for aggressive internal growth.
ITEM 2. PROPERTIES
The Company operates from various locations throughout the United States.
Its corporate headquarters are based in New York. Information relating to the
Company's corporate headquarters and other significant regional offices which
are owned or leased is set forth in the following table:
<TABLE>
<CAPTION>
LEASE
STREET ADDRESS CITY/STATE SQUARE FOOTAGE EXPIRATION
- ------------------------------------------------------- ----------------------- --------------- ---------------
<S> <C> <C> <C>
345 Park Avenue South.................................. New York, NY 55,000 Sept. 2008
600 Third Avenue....................................... New York, NY 23,125 Dec. 1998
238 Mulberry Street.................................... Newark, NJ 7,022 Dec. 2006
625 Polk Street........................................ San Francisco, CA 7,100 Apr. 2000
900 Jackson Street..................................... Dallas, TX 10,190 Dec. 2003
1005 Congress Street................................... Austin, TX 1,992 May 1999
815 Walker Street...................................... Houston, TX 1,724 May 2001
190 Pryor Street, S.W.................................. Atlanta, GA 20,000 Owned
1730 M Street, N.W..................................... Washington, DC 8,856 Mar. 2001
1 Post Road............................................ Fairfield, CT 6,520 Dec. 2002
1 S.E. Third Avenue.................................... Miami, FL 19,742 Sept. 2004
150 N.E. 7th Street.................................... Miami, FL 17,001 Sept. 2004
633 South Andrews Avenue............................... Fort Lauderdale, FL 3,408 Jan. 1998
100 South Dixie Highway................................ W. Palm Beach, FL 3,053 Jan. 1999
</TABLE>
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MARKETS
The Company is a wholly owned subsidiary of American Lawyer Media Holdings,
Inc. There is no public trading market for the Company's common stock.
The Company has never paid any cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected historical financial information (i)
for Old ALM, as of and for the years ended December 31, 1993, 1994, 1995 and
1996, (ii) for NLP, as of and for the years ended December 31, 1993, 1994, 1995
and 1996, (iii) for Old ALM, as of and for the seven months ended July 31, 1997,
(iv) for the Company, as of and for the five months ended December 31, 1997, and
(v) for NLP, as of and for the period from January 1, 1997 through December 21,
1997. The financial data for the Company, as of and for the five months ended
December 31, 1997 and the financial data for Old ALM for the seven months ended
July 31, 1997 and the years ended December 31, 1995 and 1996 were derived from
financial statements audited by Arthur Andersen LLP. The financial data for NLP
as of and for the period from January 1, 1997 through December 21, 1997 were
derived from financial statements audited by Arthur Andersen LLP and financial
data for NLP for the years ended December 31, 1995 and 1996 were derived from
financial statements audited by Leslie Sufrin and Company, P.C. The audited
financial statements and the related notes thereto are included elsewhere in
this Report. Unaudited financial data include (i) Old ALM financial data for the
years ended December 31, 1993 and 1994 and (ii) NLP financial data for the years
ended December 31, 1993 and 1994. In the opinion of management such unaudited
financial data have been prepared on the same basis as the audited financial
statements included elsewhere herein, and include all normal recurring
adjustments necessary for a fair presentation of the financial position and
results of operations for such periods. Results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the full year. The selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and notes
thereto included elsewhere in this Report. See "Index to Financial Statements."
12
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
AND AMERICAN LAWYER MEDIA, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR COMPANY AMERICAN
--------------------------------------------------------- LAWYER
MEDIA INC.
YEARS ENDED DECEMBER 31, SEVEN MONTHS FIVE MONTHS
------------------------------------------ ENDED ENDED
1993 1994 1995 1996 JULY 31, 1997 DEEMBER 31, 1997
--------- --------- --------- --------- ------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising................................. $ 22,569 $ 23,872 $ 25,037 $ 26,659 $ 18,146 $ 13,410
Subscription................................ 10,242 10,483 10,884 11,304 6,719 5,260
Ancillary Products and Services............... 7,374 7,980 8,387 8,467 4,532 4,142
Internet Services............................. 135 685 3,238 5,474 2,148 40
--------- --------- --------- --------- ------------- -------
Total Revenues............................ 40,320 43,020 47,546 51,904 31,545 22,852
--------- --------- --------- --------- ------------- -------
Operating Costs and Expenses:
Editorial..................................... 7,109 7,075 7,073 7,141 4,023 3,323
Production and Distribution................... 10,678 11,170 12,587 12,469 6,919 5,766
Selling....................................... 6,662 7,208 6,913 7,479 4,640 3,656
General and Administrative.................... 15,303 15,790 16,506 16,829 9,531 7,145
Internet Services............................. 2,634 7,760 10,854 11,886 6,464 43
Depreciation and Amortization................. 4,047 3,506 2,680 2,488 1,590 3,273
Shutdown of ALM Internet Services............. -- -- -- -- -- 4,823
--------- --------- --------- --------- ------------- -------
Total Operating Costs and Expenses........ 46,433 52,509 56,613 58,292 33,167 28,029
--------- --------- --------- --------- ------------- -------
Operating (loss).......................... (6,113) (9,489) (9,067) (6,388) (1,622) (5,177)
Interest expense, net........................... (478) (667) (1,384) (1,972) (1,420) (2,420)
--------- --------- --------- --------- ------------- -------
(Loss) before minority interest................. (6,591) (10,156) (10,451) (8,360) (3,042) (7,597)
Minority interest............................... -- 1,847 2,334 172 -- --
--------- --------- --------- --------- ------------- -------
Net (loss)...................................... $ (6,591) $ (8,309) $ (8,117) $ (8,188) $ (3,042) $ (7,597)
--------- --------- --------- --------- ------------- -------
--------- --------- --------- --------- ------------- -------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit)....................... $ (6,571) $ (6,376) $ (7,066) $ (7,009) $ (5,895) $ (6,846)
Total assets.................................... 20,896 20,931 19,313 19,482 18,982 364,172
Long-term debt (including current maturities)... 11,212 13,524 22,114 30,150 34,742 175,000
Partners' (deficit) and Stockholder's equity.... (3,332) (11,647) (19,759) (26,300) (29,342) 101,178
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and
Services.................................... $ 433 $ 1,092 $ 1,229 $ 2,512 $ 4,284 $ 2,922
Internet Services............................. (2,499) (7,075) (7,616) (6,412) (4,316) (4,826)
--------- --------- --------- --------- ------------- -------
Total $ (2,066) $ (5,983) $ (6,387) $ (3,900) $ (32) $ (1,904)
--------- --------- --------- --------- ------------- -------
--------- --------- --------- --------- ------------- -------
Capital Expenditures:
Periodicals and Ancillary Products and
Services.................................... $ 878 $ 1,102 $ 864 $ 1,118 $ 439 $ 357
Internet Services............................. 210 386 617 1,084 1,532 7
--------- --------- --------- --------- ------------- -------
Total..................................... $ 1,088 $ 1,488 $ 1,481 $ 2,202 $ 1,971 $ 364
--------- --------- --------- --------- ------------- -------
--------- --------- --------- --------- ------------- -------
</TABLE>
- ------------------------
(1) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). Items
excluded from income in calculating EBITDA are significant components in
understanding and evaluating Old ALM's and ALM's financial performance.
While EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP or as a measure of
profitability or liquidity, management understands that EBITDA is
customarily used in evaluating publishing companies. The EBITDA measures
presented herein may not be comparable to similarly titled measures of other
companies.
13
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1997
------------------------------------------ THROUGH
1993 1994 1995 1996 DECEMBER 21, 1997
--------- --------- --------- --------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals:
Advertising........................................ $ 16,546 $ 18,612 $ 21,387 $ 23,319 $ 26,402
Subscription....................................... 8,610 9,105 9,694 9,759 9,504
Ancillary Products and Services...................... 10,824 11,437 12,729 13,398 13,926
Internet Services.................................... -- -- 264 747 1,109
--------- --------- --------- --------- -------
Total Revenues................................... 35,980 39,154 44,074 47,223 50,941
--------- --------- --------- --------- -------
Operating Costs and Expenses:
Editorial............................................ 4,811 5,451 5,778 5,929 5,837
Production and Distribution.......................... 7,009 7,621 8,146 8,679 9,872
Selling.............................................. 7,693 8,831 9,776 8,991 8,211
General and Administrative........................... 7,109 7,726 7,620 8,047 8,722
Internet Services.................................... -- -- 2,947 1,704 1,657
Depreciation and Amortization........................ 3,087 3,130 6,329 7,487 7,283
Special Compensation Charge.......................... -- -- -- -- 6,926
--------- --------- --------- --------- -------
Total Operating Costs and Expenses............... 29,709 32,759 40,596 40,837 48,508
--------- --------- --------- --------- -------
Operating income................................. 6,271 6,395 3,478 6,386 2,433
Interest expense, net.................................. (4,487) (4,734) (5,458) (6,013) (5,137)
Other income (expense)................................. (284) (320) (211) 181 --
--------- --------- --------- --------- -------
Income (loss) before income taxes...................... 1,500 1,341 (2,191) 554 2,704
Benefit (provision) for income taxes................... (777) (763) 523 (3,007) (2,508)
--------- --------- --------- --------- -------
Net income (loss) before cumulative effect of change in
accounting principle................................. 723 578 (1,668) (2,453) (5,212)
Cumulative effect of change in accounting principle.... 4,046 -- -- -- --
--------- --------- --------- --------- -------
Net income (loss)...................................... $ 4,769 $ 578 $ (1,668) $ (2,453) $ (5,212)
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit).............................. $ (1,532) $ (2,868) $ (4,717) $ (2,081) $ (2,204)
Total assets........................................... 20,886 21,217 154,125 147,311 139,610
Long-term debt (including current maturities).......... 45,500 54,600 70,900 70,300 59,500
Stockholders' equity (deficit)......................... (33,945) (44,842) 65,620 63,167 64,782
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and Services...... $ 9,358 $ 9,525 $ 12,490 $ 14,830 $ 10,264
Internet Services.................................... -- -- (2,683) (957) (548)
--------- --------- --------- --------- -------
Total............................................ $ 9,358 $ 9,525 $ 9,807 $ 13,873 $ 9,716
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
Capital Expenditures:
Periodicals and Ancillary Products and Services...... $ 739 $ 1,511 $ 436 $ 486 $ 473
Internet Services.................................... -- 296 172 26 42
--------- --------- --------- --------- -------
Total................................................ $ 739 $ 1,807 $ 608 $ 512 $ 515
--------- --------- --------- --------- -------
--------- --------- --------- --------- -------
</TABLE>
- ------------------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating NLP's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
FINANCIAL DATA" AND THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-K.
OVERVIEW
In August 1997, the Investors, through ALM, consummated the ALM Acquisition,
and in December 1997, ALM consummated the NLP Acquisition. The Acquisitions have
been accounted for using the purchase method of accounting. The results of
operations of Old ALM have been included in the financial statements of the
Company since August 1, 1997, the effective date of the ALM Acquisition, and the
results of operations of NLP have been included in the financial statements of
the Company since December 22, 1997, the closing date of the NLP Acquisition. As
a result, the Acquisitions will prospectively affect the Company's results of
operations in certain significant respects. In connection with the ALM
Acquisition, the purchase price was $63.0 million and the excess of the purchase
price over the book value of net tangible assets acquired was $67.7 million. The
aggregate purchase price for the NLP Acquisition was $203.2 million, and the
excess of the purchase price over the book value of net tangible assets acquired
was $257.6 million. The excess purchase price of both Acquisitions has been
allocated to the tangible and intangible assets acquired by the Company based
upon their respective fair values as of the acquisition date.
RESULTS OF OPERATIONS--ALM
REVENUE RECOGNITION. ALM recognizes advertising revenues on the issue date
of the related publications. Advertising revenues are generated from the
placement of display and classified advertisements, as well as legal notices.
Advertising fees billed and/or received for advertisements to be released in
future months are included in deferred revenue. Subscription revenues are
deferred and recognized on a pro rata basis over the term of the related
subscription, principally one year. Ancillary products and services revenues
consist primarily of sales of professional books, subscriptions to newsletters,
seminar and conference income and income from electronic products. 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 conference revenues are recognized when the seminar or
conference is held.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion for the year ended December 31, 1997 is derived
from the financial information for Old ALM for the seven months ended July 31,
1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from December 22, 1997 through December 31, 1997. As a result, the
financial information for the combined year ended December 31, 1997 has not been
prepared on a basis in conformity with GAAP.
15
<PAGE>
The following table presents the calculation for such combined period and
for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA,
OLD ALM INC.
-------------------------- ------------------------
YEAR FIVE MONTHS COMBINED
ENDED SEVEN MONTHS ENDED YEAR ENDED
DECEMBER ENDED DECEMBER DECEMBER
31, JULY 31, 31, 31,
1996 1997 1997 1997
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Periodicals
Advertising............................... 26,659 18,146 13,410 31,556
Subscription.............................. 11,304 6,719 5,260 11,979
Ancillary Products and Services............. 8,467 4,532 4,142 8,674
Internet Services........................... 5,474 2,148 40 2,188
----------- ------ ----------- -----------
Total revenues........................ 51,904 31,545 22,852 54,397
----------- ------ ----------- -----------
Operating Costs and Expenses:
Editorial................................... 7,141 4,023 3,323 7,346
Production and Distribution................. 12,469 6,919 5,766 12,685
Selling..................................... 7,479 4,640 3,656 8,296
General and Administrative.................. 16,829 9,531 7,145 16,676
Internet Services........................... 11,886 6,464 43 6,507
Depreciation and Amortization............... 2,488 1,590 3,273 4,863
Shutdown of ALM Internet Services........... -- -- 4,823 4,823
----------- ------ ----------- -----------
Total Operating Costs and Expenses.... 58,292 33,167 28,029 61,196
----------- ------ ----------- -----------
Operating (loss)...................... (6,388) (1,622) (5,177) (6,799)
----------- ------ ----------- -----------
----------- ------ ----------- -----------
</TABLE>
INTERNET SERVICES. ALM is in the process of discontinuing its COUNSEL
CONNECT internet service and transferring the most viable components of that
service into a new, enhanced service that better capitalizes on the combined
companies' unparalleled access to legal information and, as a result, the
following comparison of the years ended December 31, 1996 and 1997 excludes
operating data relating to COUNSEL CONNECT. Management believes that such a
comparison provides a meaningful discussion of ALM's results of operations for
such periods.
Net operating losses for Internet Services were $6.4 million for the year
ended December 31, 1996 and $9.1 million for the year ended December 31, 1997.
The historical financial data for ALM for the five months ended December 31,
1997 includes expenses of $4.8 million related to the shutdown. This amount
includes Internet Services net operating loss of $1.8 million as well as a
provision of $3.0 million to cover severance costs, uncollectible receivables,
write down of computer and network equipment and the termination or
restructuring of certain contracts related to network services that provided
internet access.
OVERVIEW. Net revenues (excluding Internet Services) increased $5.8
million, or 12.4%, from $46.4 million for the year ended December 31, 1996 to
$52.2 million for the year ended December 31, 1997. Total operating costs and
expenses (excluding Internet Services) increased $3.5 million, or 7.5%, from
$46.4 million to $49.9 million over the same periods. Operating income
(excluding Internet Services) increased $2.3 million from breakeven for the year
ended December 31, 1996 to $2.3 million for the year ended December 31, 1997
while EBITDA increased $4.7 million from $2.5 million to $7.2 million over the
same periods.
REVENUES. Advertising revenues increased $4.9 million, or 18.4%, from $26.7
million for the year ended December 31, 1996 to $31.6 million for the year ended
December 31, 1997. The increase in
16
<PAGE>
advertising revenues was primarily attributable to an increase in the total
volume of advertising pages stemming, in part, from both the increase in the
frequency of CORPORATE COUNSEL MAGAZINE and from strong legal industry trends.
Subscription revenues increased $0.7 million, or 6.0%, from $11.3 million
for the year ended December 31, 1996 to $12.0 million for the year ended
December 31, 1997. While total paid circulation remained essentially constant,
subscription rates increased relative to the same period in 1996. A portion of
the increase in subscription revenues was also attributable to ALM's newly
initiated efforts to convert its CORPORATE COUNSEL MAGAZINE from free
distribution to a paid subscriber base as well as the inclusion of NLP's
subscription revenue for the period from December 22, 1997 through December 31,
1997 of $0.3 million.
Revenues from ancillary products and services increased $0.2 million, or
2.4%, from $8.5 million for the year ended December 31, 1996 to $8.7 million for
the year ended December 31, 1997. The increase is due to the inclusion of NLP's
ancillary revenue of $0.5 million for the period from December 22, 1997 through
December 31, 1997.
OPERATING EXPENSES. Total operating costs and expenses (excluding Internet
Services) increased $3.5 million, or 7.5%, from $46.4 million for the year ended
December 31, 1996 to $49.9 million for the year ended December 31, 1997.
Editorial expenses increased $0.2 million, or 2.9%, from $7.1 million for the
year ended December 31, 1996 to $7.4 million for the year ended December 31,
1997 due to the inclusion of NLP's editorial expenses of $0.2 million for the
period from December 22, 1997 through December 31, 1997. Production and
distribution expenses increased $0.2 million, or 1.7%, from $12.5 million for
the year ended December 31, 1996 to $12.7 million for the year ended December
31, 1997 due to the inclusion of NLP's production and distribution cost of $0.3
million for the period from December 22, 1997 through December 31, 1997. Selling
expenses increased $0.8 million, or 10.9%, from $7.5 million for the year ended
December 31, 1996 to $8.3 million for the year ended December 31, 1997. This
increase was a direct result of increased advertising sales and associated
commissions as well as the inclusion of $0.4 million of NLP expenses for the
period from December 22, 1997 through December 31, 1997. General and
administrative expenses decreased $0.2 million, or 0.9%, from $16.8 million to
$16.7 million over the same periods. This decrease was due, in part, to the
elimination in 1997 of certain executive bonus compensation for the former
Chairman of Old ALM, who resigned prior to the ALM Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$2.5 million for the year ended December 31, 1996 and $4.9 million for the year
ended December 31, 1997. These expenses are not comparable for the two periods
due to purchase accounting adjustments related to the ALM and NLP Acquisitions.
Amortization of goodwill and intangibles related to the acquisitions for the
five months ended December 31, 1997 was $2.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating income
(excluding Internet Services) increased $2.3 million from breakeven for the year
ended December 31, 1996 to $2.3 million for the year ended December 31, 1997.
EBITDA increased $4.7 million from $2.5 million for the year ended December 31,
1996 to $7.2 million for the year ended December 31, 1997.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1997 were $0.8 million excluding $1.5 million for Internet Services. The
majority of such expenditures related to ongoing activities. Capital
expenditures for the year ended December 31, 1996 were $1.1 million excluding
$1.1 million for Internet Services.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OVERVIEW. Net revenues increased $4.4 million, or 9.2%, from $47.5 million
for the year ended December 31, 1995 to $51.9 million for the year ended
December 31, 1996. Excluding Internet Services, revenues increased $2.1 million,
or 4.8%, from $44.3 million to $46.4 million. Operating costs and expenses
17
<PAGE>
increased $1.7 million, or 3.0%, from $56.6 million to $58.3 million while
operating costs and expenses excluding Internet Services increased $0.6 million,
or 1.4%, from $45.8 million to $46.4 million. Operating loss decreased $2.7
million, or 29.5%, from $9.1 million for the year ended December 31, 1995 to
$6.4 million for the year ended December 31, 1996. Excluding Internet Services,
operating income increased $1.5 million from an operating loss of $1.5 million
for the year ended December 31, 1995 to breakeven for the year ended December
31, 1996. EBITDA increased $2.5 million from a loss of $6.4 million for the year
ended December 31, 1995 to a loss of $3.9 million for the year ended December
31, 1996. Excluding Internet Services, EBITDA increased $1.3 million, or 104.4%,
from $1.2 million to $2.5 million.
REVENUES. Advertising revenues increased $1.6 million, or 6.5%, from $25.0
million for the year ended December 31, 1995 to $26.7 million for the year ended
December 31, 1996. This increase was attributable, in large part, to a marked
increase in advertising volume caused both by heightened demand for law-related
advertising in general and by the introduction of a new publication, AMLAW TECH.
This new magazine, coupled with an additional issue of CORPORATE COUNSEL
MAGAZINE, resulted in increased total advertising pages in 1996. In its first
year of publication, AMLAW TECH generated $0.5 million of advertising revenues.
Advertising revenue growth is also due, in part, to an increase in advertising
rates.
Subscription revenues increased $0.4 million, or 3.9%, from $10.9 million
for the year ended December 31, 1995 to $11.3 million for the year ended
December 31, 1996. An increase in subscription rates was offset, in part, by a
minimal decrease in circulation.
Revenues from ancillary products and services increased $0.1 million, or
1.0%, from $8.4 million for the year ended December 31, 1995 to $8.5 million for
the year ended December 31, 1996. This increase was due, in part, to the
introduction of a new regional lecture series, partially offset by a decrease in
revenues at ALM's printing facilities.
Revenues from Internet Services increased $2.2 million, or 69.1%, from $3.2
million for the year ended December 31, 1995 to $5.5 million for the year ended
December 31, 1996. This increase resulted from increased usage stemming from
heightened interest in law-related issues. Increased revenues were specifically
attributable to an increase in both the number of subscribers and subscription
rates.
OPERATING EXPENSES. Operating costs and expenses increased $1.7 million, or
3.0%, from $56.6 million for the year ended December 31, 1995 to $58.3 million
for the year ended December 31, 1996. Editorial expenses remained essentially
constant at $7.1 million for the years ended December 31, 1995 and December 31,
1996. Production and distribution expenses decreased $0.1 million, or 0.9%, from
$12.6 million for the year ended December 31, 1995 to $12.5 million for the year
ended December 31, 1996. The additional costs associated with the publication of
a new quarterly magazine, AMLAW TECH, were offset by cost reductions at ALM's
printing facilities. Selling expenses increased $0.6 million, or 8.2%, from $6.9
million for the year ended December 31, 1995 to $7.5 million for the year ended
December 31, 1996. This increase was a direct result of increased advertising
sales and associated commissions. General and administrative expenses increased
by $0.3 million, or 2.0%, from $16.5 million for the year ended December 31,
1995 to $16.8 million for the year ended December 31, 1996. The majority of this
increase was attributable to an increase in employee benefit expenses. Internet
Services expenses increased $1.0 million, or 9.5%, from $10.9 million for the
year ended December 31, 1995 to $11.9 million for the year ended December 31,
1996. This increase was due both to increased costs associated with growing
customer usage and to operating expenses related to COUNSEL CONNECT'S transition
from a proprietary system to an internet-based system.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased $0.2 million, or 7.2%, from $2.7 million for the year ended December
31, 1995 to $2.5 million for the year ended December 31, 1996.
OPERATING INCOME. As a result of the above factors, operating loss
decreased $2.7 million, or 29.5%, from $9.1 million for the year ended December
31, 1995 to $6.4 million for the year ended December 31,
18
<PAGE>
1996. Excluding Internet Services, operating income increased $1.5 million from
an operating loss of $1.5 million for the year ended December 31, 1995 to
breakeven for the year ended December 31, 1996. EBITDA increased $2.5 million
from a loss of $6.4 million for the year ended December 31, 1995 to a loss of
$3.9 million for the year ended December 31, 1996. Excluding Internet Services,
EBITDA increased $1.3 million, or 104.4%, from $1.2 million for the year ended
December 31, 1995 to $2.5 million for the year ended December 31, 1996.
CAPITAL EXPENDITURES. Capital expenditures were $2.2 million for the year
ended December 31, 1996, including $1.1 million for Internet Services. Capital
expenditures for the year ended December 31, 1995 were $1.5 million, including
$0.6 million for Internet Services.
RESULTS OF OPERATIONS--NLP
REVENUE RECOGNITION. NLP recognizes advertising revenues, net of related
advertising agency commissions, on the issue date of the related publications,
except for revenue from certain classified advertisements which are recognized
when the last of a series of advertisements runs. Advertising revenues are
generated from the placement of display and classified advertisements, as well
as legal notices. Advertising fees billed and/or received for advertisements to
be released in future months are included in deferred revenue. Subscription
revenues are deferred and recognized on a pro rata basis over the term of the
related subscription, generally one year. Ancillary revenues consist principally
of sales of professional books, subscriptions to newsletters, seminar and
conference income and income from electronic products. 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.
Internet Services revenues consist primarily of revenues from display
advertising on LAW JOURNAL EXTRA! Internet advertising revenues are recognized,
net of related advertising agency commissions, during the period in which the
advertisement runs on the service.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
The following discussion for the year ended December 31, 1997 is derived
from the financial information for NLP until the consummation of the NLP
Acquisition, which occurred on December 22, 1997. As a result, the financial
information for the year ended December 31, 1996 is compared to the period from
January 1, 1997 through December 21, 1997.
OVERVIEW. Net revenues increased by $3.7 million, or 7.9%, from $47.2
million for the year ended December 31, 1996 to $50.9 million for the year ended
December 31, 1997. Total operating costs and expenses increased $7.7 million, or
18.8%, from $40.8 million to $48.5 million. As a result, operating income
decreased $4.0 million, or 61.9%, from $6.4 million to $2.4 million. Included in
the operating costs for 1997, however, was a special compensation charge of $6.9
million reflecting stock option and bonus payments related to the sale of NLP,
which were paid by the sellers. Without this charge, total operating costs and
expenses increased at a rate substantially less than the rate of increase in
revenues over the same period, increasing only $0.8 million, or 1.8%, from $40.8
million to $41.6 million with operating income increasing $3.0 million, or
46.6%, from $6.4 million to $9.4 million. Internet Services revenues increased
$0.4 million, or 48.5%, from $0.7 million for the year ended December 31, 1996
to $1.1 million for the year ended December 31, 1997, while Internet Services
expenses remained essentially constant at $1.7 million for the same periods.
Accordingly, excluding both the special compensation charge and the net
operating loss from Internet Services, operating income would have increased
$2.6 million, or 34.9%, from $7.3 million to $9.9 million, while EBITDA would
have increased $2.4 million, or 15.9%, from $14.8 million to $17.2 million over
the same periods.
REVENUES. Advertising revenues increased $3.1 million, or 13.2%, from $23.3
million for the year ended December 31, 1996 to $26.4 million for the year ended
December 31, 1997. This increase was due
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principally to an increase in advertising rates, an overall increase in
advertising pages and the publication of three additional issues of LAW
TECHNOLOGY PRODUCT NEWS partially offset by the inclusion of the results from
the final eleven days of 1997 in the Company's figures. In relation to
advertising revenues, this period includes seven issues of the NEW YORK LAW
JOURNAL and two issues of the of THE NATIONAL LAW JOURNAL.
Subscription revenues decreased $0.3 million, or 2.6%, from $9.8 million for
the year ended December 31, 1996 to $9.5 million for the year ended December 31,
1997 due to the inclusion of the results from the final eleven days of 1997 in
the Company's figures. Otherwise, increases in subscription rates at both the
NEW YORK LAW JOURNAL and THE NATIONAL LAW JOURNAL were largely offset by
decreases in paid circulation at both publications.
Revenues from ancillary products and services increased $0.5 million, or
3.9%, from $13.4 million for the year ended December 31, 1996 to $13.9 million
for the year ended December 31, 1997. Significant growth was realized in
newsletters, seminars, books (driven by the addition of four new titles) and
MA/3000, NLP's case tracking and docketing service, as well as a 31.4% increase
in royalty income from licensing NLP's proprietary content to third party
information providers. Overall however, the increase was partially offset by the
inclusion of the results from the final eleven days of 1997 in the Company's
figures. In addition, a change in the revenue recognition policy for books
resulted in a portion of the sales, which under the traditional policy would
have been realized in 1997, being included in the results for 1998.
Revenues from Internet Services increased $0.4 million, or 48.5%, from $0.7
million for the year ended December 31, 1996 to $1.1 million for the year ended
December 31, 1997. This increase is attributable primarily to strong growth in
display advertising on LAW JOURNAL EXTRA!. Internet advertising revenues have
grown rapidly since the conversion of LAW JOURNAL EXTRA! from a proprietary
online system to a predominantly advertising-supported web-based service at the
end of 1995.
OPERATING EXPENSES. Total operating costs and expenses increased $7.7
million, or 18.8%, from $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996 to $48.5 million, or 95.2% of revenues, for the year ended
December 31, 1997. Included in the operating costs for 1997 however, was a
special compensation charge of $6.9 million reflecting stock option and bonus
payments related to the sale of NLP which were paid by the sellers. Without this
charge, total operating costs and expenses increased at a rate substantially
less than the rate of increase in revenues over the same period, increasing only
$0.8 million, or 1.8% from $40.8 million to $41.6 million. Due to the nature of
the business, incremental revenue growth often does not require corresponding
increases in operating expenses. Editorial expenses decreased slightly, by $0.1
million, or 1.6%, from $5.9 million for the year ended December 31, 1996 to $5.8
million for the year ended December 31, 1997, reflecting the inclusion of the
results from the final eleven days of 1997 in the Company's figures. Editorial
expenses consist primarily of salaries of editorial staff and fees paid to
outside contributors. While the overall change in editorial expenses was
insignificant, changes were made to the mix of editorial staff to add coverage
of certain areas that have strong advertiser support.
Production and distribution expenses increased $1.2 million, or 13.7%, from
$8.7 million for the year ended December 31, 1996 to $9.9 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of fulfillment costs of $1.0 million from selling to
production and distribution. Otherwise, the marginal increase of $0.2 million,
or 1.9%, was attributable primarily to LAW TECHNOLOGY PRODUCT NEWS, which
experienced an increase in production and distribution expenses of 39.2% due to
the addition of three issues and an increase in controlled circulation of 10,000
per issue, partially offset by the final seven issues of the NEW YORK LAW
JOURNAL and two issues of THE NATIONAL LAW JOURNAL which are included in the
Company's results.
Selling expenses decreased $0.8 million, or 8.7% from $9.0 million for the
year ended December 31, 1996 to $8.2 million for the year ended December 31,
1997. This decrease is primarily the result of a change in the expense
classification of fulfillment costs of $1.0 million from selling to production
and distribution and of bad debt expense of $0.7 million from selling to general
and administrative. Without
20
<PAGE>
these changes, the increase of $0.9 million, or 10.8%, is primarily due to a
change in method of accounting for deferred subscriber acquisition costs, an
increase in efforts designed to update and improve the controlled circulation
list of LAW TECHNOLOGY PRODUCT NEWS, and a 17.3% increase in commission expense
directly related to the increase in advertising sales.
General and administrative expenses increased $0.7 million, or 8.4%, from
$8.0 million for the year ended December 31, 1996 to $8.7 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of bad debt expenses of $0.7 million from selling to
general and administrative. Without this change, general and administrative
expenses remained essentially constant despite the increase in revenues.
Internet Services expenses remained essentially constant at $1.7 million for
the years ended December 31, 1996 and 1997. Such expenses are comprised
primarily of website maintenance costs, advertising sales expenses and expenses
related to editorial staff for the LAW JOURNAL EXTRA! service.
Depreciation and amortization expenses decreased by $0.2 million, or 2.7%,
from $7.5 million for the year ended December 31, 1996 to $7.3 million for the
year ended December 31, 1997.
OPERATING INCOME. As a result of the above factors, and without the special
compensation charge of $6.9 million, operating income would have increased $3.0
million, or 46.6%, from $6.4 million, or 13.5% of revenues, for the year ended
December 31, 1996 to $9.4 million, or 18.4% of revenues, for the year ended
December 31, 1997 and EBITDA would have increased $2.8 million, or 20.0%, from
$13.9 million, or 29.4% of revenues, for the year ended December 31, 1996 to
$16.6 million, or 32.7% of revenues, for the year ended December 31, 1997. The
increase in operating margins was due to NLP's ability to hold increases in
operating costs and expenses to 1.8% while revenues grew at 7.9%.
CAPITAL EXPENDITURES. Capital expenditures remained essentially constant at
$0.5 million for the years ended December 31, 1996 and 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
OVERVIEW. Net revenues increased by $3.1 million, or 7.0%, from $44.1
million for the year ended December 31, 1995 to $47.2 million for the year ended
December 31, 1996. Total operating costs and expenses increased at a rate
substantially less than the rate of increase in revenues over the same period,
increasing $0.2 million, or 0.5%, from $40.6 million to $40.8 million. As a
result, operating income increased $2.9 million, or 83.6%, from $3.5 million to
$6.4 million, while EBITDA increased $4.1 million, or 41.8%, from $9.8 million
to $13.9 million. Internet Services revenues increased $0.4 million, or 133.0%,
from $0.3 million for the year ended December 31, 1995 to $0.7 million for the
year ended December 31, 1996, while Internet Services expenses decreased by $1.2
million, or 41.4%, from $2.9 million to $1.7 million for the same periods.
During 1995, the Company determined that its provisions for doubtful
accounts with respect to revenues recognized in years prior to 1995, principally
with respect to its legal advertising revenues, should be increased by $946,000
due to, among other things, the concentration of credit risk associated with its
advertising agents. This additional provision for doubtful accounts has been
included in selling expense for the twelve months ended December 31, 1995.
Excluding these additional provisions and excluding the net operating loss from
Internet Services, EBITDA increased by $0.9 million, or 6.2%, from $14.0 million
for the year ended December 31, 1995 to $14.8 million for the year ended
December 31, 1996.
REVENUES. Advertising revenues increased $1.9 million, or 8.9%, from $21.4
million for the year ended December 31, 1995 to $23.3 million for the year ended
December 31, 1996. This increase was due principally to an increase in
advertising rates, the increase from two to six in the number of issues of IP
WORLDWIDE and strong growth in advertising revenue at LAW TECHNOLOGY PRODUCT
NEWS.
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<PAGE>
Subscription revenues increased by $0.1 million, or 1.0%, from $9.7 million
for the year ended December 31, 1995 to $9.8 million for the year ended December
31, 1996. Increases in subscription rates at both the NEW YORK LAW JOURNAL and
THE NATIONAL LAW JOURNAL were largely offset by a small decrease in the number
of paid subscriptions to both publications.
Revenues from ancillary products and services increased by $0.7 million or
5.5% from $12.7 million for the year ended December 31, 1995 to $13.4 million
for the year ended December 31, 1996. This increase was due principally to
increases in revenues from MA/3000 and from books (driven by the addition of
four new titles in 1996).
Revenues from Internet Services increased by $0.4 million, or 133.0%, from
$0.3 million for the year ended December 31, 1995 to $0.7 million for the year
ended December 31, 1996. Advertising revenues from LAW JOURNAL EXTRA! increased
dramatically, more than offsetting the corresponding decline in subscription
revenues, as LAW JOURNAL EXTRA! completed its conversion from a
subscriber-oriented proprietary system to a free, advertising-based website.
OPERATING EXPENSES. Total operating costs and expenses increased $0.2
million, or 0.5%, from $40.6 million, or 92.1% of revenues, for the year ended
December 31, 1995 to $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996. Editorial expenses increased minimally, by $0.1 million, or
1.7%, from $5.8 million for the year ended December 31, 1995 to $5.9 million for
the year ended December 31, 1996.
Production and distribution expenses increased by $0.6 million, or 7.4%,
from $8.1 million for the year ended December 31, 1995 to $8.7 million for the
year ended December 31, 1996. Much of this increase is attributable to the
reallocation of production staff from LAW JOURNAL EXTRA!, the expenses of which
are accounted for separately, to other areas following the completion of the LAW
JOURNAL EXTRA! start up and conversion. The increase from two to six in the
number of issues of IP WORLDWIDE also contributed to this increase, partially
offset by decreases in paper costs.
Selling expenses decreased by $0.8 million, or 8.2%, from $9.8 million for
the year ended December 31, 1995 to $9.0 million for the year ended December 31,
1996. This decrease is due primarily to the additional provisions in 1995
discussed in the overview above, partially offset by an increase in commissions
related to the increase in advertising sales and to increased advertising sales
efforts related to the increase in number of issues of IP WORLDWIDE.
General and administrative expenses increased $0.4 million, or 5.3%, from
$7.6 million for the year ended December 31, 1995 to $8.0 million for the year
ended December 31, 1996. This increase was due in part to the re-allocation of
staff from LAW JOURNAL EXTRA! following completion of its start up and
conversion.
Internet Services expenses decreased $1.2 million, or 41.4%, from $2.9
million for the year ended December 31, 1995 to $1.7 million for the year ended
December 31, 1996. This decrease resulted primarily from a dramatic reduction in
staff as well as in advertising and promotion expenses relating to LAW JOURNAL
EXTRA! due to its shift away from a subscriber-based system following the
completion of its start up and conversion.
Depreciation and amortization expenses increased $1.2 million, or 19.0%,
from $6.3 million for the year ended December 31, 1995 to $7.5 million for the
year ended December 31, 1996. This increase resulted primarily from the
amortization of goodwill created by the acquisition of NLP by Boston Ventures
Limited Partnership IV, Boston Ventures Limited Partnership IVA and James A.
Finkelstein in December 1995, partially offset by the write off in 1995 of
unamortized deferred financing costs in connection with such acquisition.
OPERATING INCOME. As a result of the above factors, operating income
increased $2.9 million, or 82.9%, from $3.5 million, or 7.9% of revenues, for
the year ended December 31, 1995 to $6.4 million, or
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13.5% of revenues, for the year ended December 31, 1996, and EBITDA increased
$4.1 million, or 41.8%, from $9.8 million, or 22.2% of revenues, for the year
ended December 31, 1995 to $13.9 million, or 29.4% of revenues, for the year
ended December 31, 1996.
CAPITAL EXPENDITURES. Capital expenditures decreased by $0.1 million, or
16.7%, from $0.6 million for the year ended December 31, 1995 to $0.5 million
for the year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. The Company has favorable cash flow characteristics
resulting from its high level of advance payments by subscribers, low working
capital investment, minimal capital expenditure needs, predictable cost
structure and high margins. Because cash receipts associated with subscriptions
are received toward the beginning of a subscription cycle, the Company's
periodicals business requires minimal investment in working capital.
LIQUIDITY. The Company's principal sources of funds are anticipated to be
cash flows from operating activities, which may be supplemented by borrowings
under the Revolving Credit Facility. Based upon the successful implementation of
its strategy, the Company believes that these funds will be sufficient to meet
its current and future financial obligations, including the payment of principal
and interest on the Notes, working capital, capital expenditures and other
obligations. No assurance can be given, however, that this will be the case. The
Company's future operating performance and ability to service or refinance the
Notes and to repay, extend or refinance any credit agreements to which it is a
party will be subject to future economic conditions and to financial, business
and other factors, many of which are beyond the Company's control.
CAPITAL EXPENDITURES. The Company's operations are not capital intensive.
Capital expenditures excluding COUNSEL CONNECT were $1.3 million in the year
ended December 31, 1997.
YEAR 2000 COMPLIANCE. The Company is in the process of modifying, upgrading
or replacing its computer software applications and systems which the Company
expects will accommodate the "Year 2000" dating changes necessary to permit
correct recording of year dates for 2000 and later years. The Company does not
expect that the cost of its Year 2000 compliance program will be material to its
financial condition or results of operations. The Company believes that it will
be able to achieve compliance by the end of 1999, and does not currently
anticipate any material disruption in its operations as the result of any
failure by the Company to be in compliance. The Company does not currently have
any information concerning the compliance status of its suppliers and customers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Exhibits, which appears on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding each of the (i)
executive officers and directors of the Company and Holdings, (ii) executive
officers and key employees of ALM, LLC and (iii) executive officers and key
employees of NLP, as of March 15, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AND HOLDINGS
Bruce Wasserstein.................................... 50 Chairman and Director
William L. Pollak.................................... 42 President, Chief Executive Officer and Director
Anup Bagaria......................................... 25 Director
Michael J. Biondi.................................... 40 Director
Robert C. Clark...................................... 54 Director
Donald G. Drapkin.................................... 50 Director
James A. Finkelstein................................. 49 Director
Andrew G.T. Moore, II................................ 62 Director
Randall J. Weisenburger.............................. 39 Director
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ALM, LLC
Joseph Calve......................................... 44 Editor and Publisher of TEXAS LAWYER
Eric Effron.......................................... 43 Editor and Publisher of LEGAL TIMES
S. Richard Gard, Jr.................................. 38 Editor and Publisher of FULTON COUNTY DAILY REPORT
Joanne Harras........................................ 36 Vice President, Finance
Tom Januszewski...................................... 31 Publisher of THE CONNECTICUT LAW TRIBUNE
Aric Press........................................... 48 Editor-in-Chief of THE AMERICAN LAWYER
Peter Scheer......................................... 47 Editor and Publisher of THE RECORDER
Robert Steinbaum..................................... 46 Publisher of NEW JERSEY LAW JOURNAL
Edward Wasserman..................................... 49 Chairman and Editor-in-Chief of DAILY BUSINESS REVIEW
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF NLP
James A. Finkelstein................................. 49 President and Chief Executive Officer of NLP
Steven Farbman....................................... 37 Senior Vice President and Chief Operating Officer of
NLP
Ben Gerson........................................... 49 Editor-in-Chief of THE NATIONAL LAW JOURNAL
Ruth Hochberger...................................... 47 Editor-in-Chief of NEW YORK LAW JOURNAL
Alan Kaplan.......................................... 53 Vice President of NLP
Paul Mastronardi..................................... 39 Vice President, Finance of NLP
Rose-Ann Morangelli.................................. 49 Vice President and Director of Marketing of NLP
Kevin Vermuelen...................................... 34 Vice President of Sales; Associate Publisher, LAW
TECHNOLOGY PRODUCT NEWS
Mark S. Winwood...................................... 46 President of Law Journal Information Systems
Stuart Wise.......................................... 45 Publisher of Leader Publications
</TABLE>
Each Director is elected annually and serves until the next annual meeting
of stockholders or until his or her successor is duly elected and qualified. The
Directors are each compensated $20,000 per year for their service as Directors
and receive reimbursement of expenses incurred from their attendance at Board of
Directors meetings. Directors will also be eligible to participate in an equity
participation plan to be established.
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The Board has established an executive committee (the "Executive Committee")
consisting of three members, currently Bruce Wasserstein, Randall J.
Weisenburger and Anup Bagaria. The Executive Committee has been delegated the
authority to approve (i) the acquisition and divestiture by the Company of an
affiliate of the Company of all or a portion of one or more business entities
for a price of up to $25 million, (ii) the appointment or senior officers of the
company or its affiliates and termination of such employment, (iii) the
preparation and approval of short-term and long-term budgets, and (iv) other
material policy-level decisions to the extent permitted by the Delaware General
Corporation Law.
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY AND HOLDINGS
BRUCE WASSERSTEIN is Chairman of the Board of Directors of ALM and Holdings.
He is Chairman, Chief Executive Officer and founder of WPG. Previously, Mr.
Wasserstein served as a Director and the Chairman of Maybelline, Inc. and as a
Director of Collins & Aikman Corp. Before establishing WPG, Mr. Wasserstein was
Co-Head of Investment Banking at The First Boston Corporation, and a Managing
Director and Member of its Management Committee. Prior to joining First Boston
in 1977, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore in New York
City. Mr. Wasserstein graduated with honors from the University of Michigan in
1967. In 1971 he graduated from Harvard Business School as a Baker Scholar with
high distinction, and earned a J.D., CUM LAUDE, from Harvard Law School. In 1972
he was a Knox Traveling Fellow at Cambridge University, graduating with a
graduate diploma in Comparative Legal Studies in Economic Regulation. Mr.
Wasserstein is a member of the Council on Foreign Relations. He has served as a
member of the SEC's Advisory Committee on Tender Offers and as a member of the
Visiting Committees of Harvard Law School and the University of Michigan.
WILLIAM L. POLLAK has served as President, Chief Executive Officer and
Director since March 1998. Before joining the Company, Mr. Pollak spent 16 years
at the New York Times, where he held a variety of positions, most recently as
Executive Vice President, Circulation. Mr. Pollak received an M.B.A. from
Harvard Business School in 1982 and a B.A. from Harvard College in 1978.
ANUP BAGARIA has served as a Director of ALM and Holdings since their
founding. He is a Vice President of WP Management Partners, LLC. He graduated
from the Massachusetts Institute of Technology.
MICHAEL J. BIONDI has served as a Director of ALM and Holdings since March
1998. He is Chairman and Chief Executive Officer of Wasserstein Perella & Co.,
Inc. Mr. Biondi holds M.B.A. and J.D. degrees from the Wharton School and the
University of Pennsylvania Law School, respectively. Prior to joining
Wasserstein Perella, Mr. Biondi was a member of the First Boston Mergers &
Acquisitions Group, and practiced law at Skadden, Arps, Sate, Meagher & Flom.
ROBERT C. CLARK has served as a Director of ALM and Holdings since their
founding. He has been Dean of the Harvard Law School since 1989 and is Royall
Professor of Law. Mr. Clark joined Harvard Law School in 1979 after four years
at Yale Law School, where he was a tenured professor. Mr. Clark is a corporate
law specialist and author of numerous texts and legal articles. Prior to his
academic career, he was an attorney with Ropes & Gray. Professor Clark has a
Ph.D. from Columbia University and a J.D. MAGNA CUM LAUDE from Harvard Law
School. He is currently a Director of Collins & Aikman Corp. and of Beneficial
Corporation. He was previously a Director of Maybelline, Inc.
DONALD G. DRAPKIN has served as a Director of ALM and Holdings since their
founding. He has been a Director and Vice Chairman of MacAndrews & Forbes
Holdings Inc. and various of its affiliates since March 1987. Prior to joining
MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm of Skadden, Arps,
Slate, Meagher & Flom for more than five years. Mr. Drapkin also is a Director
of the following corporations which file reports pursuant to the Exchange Act:
Algos Pharmaceutical Corporation, Black Rock Asset Investors, Cardio
Technologies, Inc., The Cosmetic Center, Inc., The Coleman Company, Inc.,
Coleman Worldwide Corporation, Genta, Inc., Marvel III Holdings Inc., Revlon
Consumer
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<PAGE>
Products Corporation, Revlon, Inc., Revlon Worldwide Inc., Playboy Enterprises,
Inc., Weider Nutrition International, Inc., and VIMRx Pharmaceuticals Inc. On
December 27, 1996, Marvel Holdings Inc., Marvel (Parent) Holdings Inc., Marvel
Entertainment Group, Inc., of which Mr. Drapkin was a Director, and several of
their respective subsidiaries, and Marvel III Holdings Inc., of which Mr.
Drapkin is a Director, filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.
JAMES A. FINKELSTEIN has served as a Director of ALM and Holdings since
March 1998.
ANDREW G. T. MOORE, II has served as a Director of ALM and Holdings since
their founding. He is a Managing Director of Wasserstein Perella and is a former
Justice of the Delaware Supreme Court. Justice Moore served on the Delaware
Supreme Court for 12 years until 1994. Justice Moore has served as the Lehmann
Distinguished Visiting Professor of Law at Washington University in St. Louis.
He has also served as an adjunct professor of law at the Georgetown University
Law Center, University of Iowa College of Law and Widener University School of
Law, where he taught seminars in advanced corporation law. He also teaches
comparative principles of international corporation law at the Tulane University
Institute of European Legal Studies in Paris, and has been a guest lecturer at
various law schools and national corporate law programs in the United States,
Canada and Europe. He graduated from Tulane University with B.B.A. and J.D.
degrees. He served as law clerk to Delaware Chief Justice Charles L. Terry, Jr.
in 1963. From 1964-1982 Justice Moore practiced law in Wilmington, Delaware,
primarily in the field of corporate litigation. He was a partner of the firm of
Connolly, Bove, Lodge & Hutz.
RANDALL J. WEISENBURGER has served as a Director of ALM and Holdings since
their founding. He is a Managing Director of Wasserstein Perella & Co., Inc.
("Wasserstein Perella") and is the President and CEO of WP Management Partners,
LLC. Mr. Weisenburger is a Director and the Co-Chairman of Collins & Aikman
Corp. and a Director of Sunbelt Manufacturing, Inc., Alliance Entertainment
Corp. and Yardley of London, Inc. Previously, Mr. Weisenburger was a Director
and Vice Chairman of Maybelline, Inc. and a Director of Pneumo Abex Corp. Mr.
Weisenburger is a founding member of Wasserstein Perella. He holds an M.B.A.
from the Wharton School of Business, where he was named the Henry Ford II
Scholar, and a B.S. in Accounting and Finance from Virginia Tech.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF ALM, LLC
JOSEPH CALVE has served as Editor and Publisher of TEXAS LAWYER since 1995.
Prior to that, he was employed at THE CONNECTICUT LAW TRIBUNE. Mr. Calve is a
former practicing attorney, specializing in litigation at two firms, Cole &
Deitz in New York City and Rucci, Gruss, Jex & Gleason in Darien, Connecticut.
Mr. Calve received his J.D. from Western New England College School of Law in
1985, his M.A. from New York University and his B.A. from the University of
Colorado in 1981 and 1977, respectively.
ERIC EFFRON has served as Editor and Publisher of LEGAL TIMES since 1991.
From 1986 to 1991, he served in a number of editorial posts at LEGAL TIMES.
Prior to such time, his journalism experience included positions at THE NATIONAL
LAW JOURNAL, THE LOS ANGELES DAILY JOURNAL and THE NEW HAVEN REGISTER. Mr.
Effron received an M.S. from the Columbia University Graduate School of
Journalism in 1979 and a B.A., magna cum laude, from Clark University in 1977.
S. RICHARD GARD, JR. has served as Editor and Publisher of FULTON COUNTY
DAILY REPORT since 1995. He has held several editorial positions at FULTON
COUNTY DAILY REPORT since joining as one of its first staff reporters in 1987.
Prior to that, Mr. Gard was an associate at Carter & Ansley, an Atlanta law
firm, where he had an insurance defense and general civil litigation practice.
Mr. Gard received his J.D. from the University of Georgia School of Law in 1984
and a B.A. with distinction from the University of Virginia in 1981.
26
<PAGE>
JOANNE HARRAS has served as Vice President, Finance of ALM, LLC since 1995.
She joined Old ALM in 1987 as Assistant Controller and served as the Controller
of The American Lawyer magazine group from 1991 to 1995. Prior to joining Old
ALM, Ms. Harras was employed for three years with Seymour Schneidman and
Associates, a mid-size accounting firm specializing in publishing. Ms. Harras
graduated from Pace University in 1983 with a B.B.A. in Accounting and is a
Certified Public Accountant.
TOM JANUSZEWSKI has served as Publisher of THE CONNECTICUT LAW TRIBUNE since
January 1998. Prior to that, Mr. Januszewski served as New England regional
director of Counsel Connect. He graduated from Fairfield University with a B.A.
in English in 1988 and earned his law degree from the Quinnipiac College School
of Law in 1993. After graduation, he worked as a content developer for GTE Main
Street, an interactive television project. He created programming and
contributed to the design and operation of the service.
ARIC PRESS has served as Editor-in-Chief of THE AMERICAN LAWYER magazine
since January 1998. From 1979 to January 1998, he was employed at NEWSWEEK
magazine where he most recently served as a senior editor. At NEWSWEEK, Mr.
Press was responsible for supervising law, science, education, religion and
sports coverage. Mr. Press received his J.D. from New York University and his
B.A. from Cornell University.
PETER SCHEER has served as Editor and Publisher of THE RECORDER since 1991.
Mr. Scheer started with Old ALM in 1987 as publisher of LEGAL TIMES. Prior to
joining Old ALM, Mr. Scheer was a lawyer specializing in appellate litigation in
Washington, D.C. and held various government and private legal positions since
his graduation from Harvard Law School in 1978. He graduated PHI BETA KAPPA from
Amherst College in 1973.
ROBERT STEINBAUM has served as Publisher of the NEW JERSEY LAW JOURNAL since
1987. Prior to that, he was an Assistant U.S. Attorney in Newark, New Jersey and
a private practitioner in Washington, D.C. and Newark, New Jersey. Mr. Steinbaum
received his J.D. from Georgetown University Law Center in 1976 and a B.A.
degree, MAGNA CUM LAUDE, from Yale University in 1973.
EDWARD WASSERMAN is Chairman and Editor-in-Chief of South Florida's three
DAILY BUSINESS REVIEWS. Before joining Old ALM in 1986, he served as Executive
Business Editor of THE MIAMI HERALD. Mr. Wasserman received a Ph.D. from the
London School of Economics in 1980, a Masters of Philosophy from the University
of Paris in 1972 and a B.A. degree, CUM LAUDE, in politics and economics from
Yale University in 1970.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF NLP
JAMES A. FINKELSTEIN joined The New York Law Publishing Company in 1970 and
became its President and Chief Executive Officer in 1974. In addition, he
currently serves as President and Chief Executive Officer of NLP and is the
founder and Publisher of THE NATIONAL LAW JOURNAL and the Publisher of the NEW
YORK LAW JOURNAL. Mr. Finkelstein holds a B.A. from New York University and an
Honorary Doctor of Laws degree from Hofstra Law School. He currently serves on
the Faculty of Arts and Sciences Board of Overseers at New York University.
STEVEN FARBMAN has served in a variety of capacities at NLP since January
1986, including President of Law Journal Seminars-Press since 1988 and Senior
Vice President and Chief Operating Officer since 1992. Prior to joining NLP, Mr.
Farbman spent two years as Business Manager of NEW YORK CONSTRUCTION NEWS, a
weekly newspaper based in New York City and worked in marketing for Warner
Communications, Inc. Mr. Farbman graduated from The George Washington University
in Washington, D.C.
BEN GERSON has served as Editor-in-Chief of THE NATIONAL LAW JOURNAL since
1994. He originally joined NLP in 1981 as News Editor and later became Legal
Editor for THE NATIONAL LAW JOURNAL. From 1986 to 1990, he served as the
founding editor of the Op-Ed page for NEW YORK NEWSDAY, and later became Sunday
and Op-Ed Editor for both LONG ISLAND NEWSDAY and NEW YORK NEWSDAY. He received
his J.D. from Boston College Law School in 1979 and his B.A. degree from
Brandeis University in 1970.
27
<PAGE>
RUTH HOCHBERGER has served as Editor-in-Chief of the NEW YORK LAW JOURNAL
since 1989. She originally joined NLP in 1976 as a feature reporter for the NEW
YORK LAW JOURNAL and was founding publisher of NLP's newsletter division, Leader
Publications, before returning to the NEW YORK LAW JOURNAL in 1989. Ms.
Hochberger received her J.D. in 1975 and her B.A. degree from Boston College in
1972.
ALAN KAPLAN has been a Vice President of NLP since 1993. Mr. Kaplan
originally joined NLP in 1982 responsible for special projects. He became
President of Law Journal Seminars-Press in 1983 and held that position until
1987, at which time he left NLP. Mr. Kaplan rejoined NLP in 1993 and is
currently working on performance improvement programs at NLP's newsletter
division. Mr. Kaplan holds a B.A. from Tufts University and a J.D., MAGNA CUM
LAUDE, from New York Law School.
PAUL MASTRONARDI joined NLP in March 1996 as Chief Financial Officer and was
elected Vice President, Finance in April 1996. He served as Director of
Financial Planning for Bantam Doubleday Bell, a division of Bertelsmann Inc.,
from April 1995 to March 1996. Prior to that time, Mr. Mastronardi spent
fourteen years at Gruner & Jahr USA Publishing, where he served in a variety of
capacities, including Staff Accountant, Manager of Information Systems, Senior
Financial Manager and Director of Financial Planning. Mr. Mastronardi holds a
B.S. in Accounting and an M.S. in Finance from St. John's University.
ROSE-ANN MORANGELLI has been a Vice President and Director of Marketing for
NLP since 1990. Prior to such time, Ms. Morangelli served as Vice President of
Law Journal Seminars-Press. Ms. Morangelli joined NLP when Law Journal
Seminars-Press was launched in 1971. She was previously employed by the
Practicing Law Institute.
KEVIN VERMUELEN has been a Vice President of Sales for NLP since 1996. In
addition, he also serves as Associate Publisher of LAW TECHNOLOGY PRODUCT NEWS
and Director of Advertising for the NEW YORK LAW JOURNAL. Mr. Vermuelen joined
NLP in October 1992. He previously worked for Miller Freeman and Gordon
Publications as a Regional Manager. Mr. Vermuelen graduated from Brockport State
University in 1985.
MARK S. WINWOOD has been a President of NLP's Law Journal Information
Systems Division since 1986. Mr. Winwood joined NLP as Assistant Editor on the
founding staff of THE NATIONAL LAW JOURNAL in 1978 and served as Art Director
during the first five years of its publication. Mr. Winwood was responsible for
the 1986 startup of Law Journal Information Systems, and supervises, on a daily
basis, all aspects of the division's operations.
STUART WISE has been Publisher of Leader Publications at NLP since 1990. Mr.
Wise joined NLP in 1980. He has worked in the Newsletter Division since 1987,
when he became Managing Editor. In 1990 Mr. Wise became the Publisher of the
division with overall responsibility for the day-to-day editorial and business
operations.
ITEM 11. EXECUTIVE COMPENSATION
The Company was formed in August 1997 and did not conduct any operations or
have any employees prior to the ALM Acquisition in August 1997. For the year
ended December 31, 1997, the only executive officers of the Company were Randall
J. Weisenburger, who served as President and Chief Executive Officer, and Anup
Bagaria, who served as Vice President and Secretary of the Company. Neither of
Mr. Weisenburger or Mr. Bagaria received compensation from any person in respect
of their service rendered to the Company. Effective March 1998, the Company
hired William L. Pollak as its President and Chief executive Officer, replacing
Mr. Weisenburger.
The Company has an employment agreement with Mr. Pollak which provides for
the employment of Mr. Pollak with the Company as President and Chief Executive
Officer (effective March 9, 1998) until March 9, 2003, unless sooner terminated
(the "Employment Period"). The employment agreement provides for an annual base
salary of $400,000, subject to annual increases commencing on March 9, 1999. In
addition to the base salary, the employment agreement provides for a bonus of
$400,000 after the first
28
<PAGE>
year of the Employment Period and a bonus of not less than 50% and not more than
150% of the base salary, as determined by the Board of Directors, in each of the
remaining years of the Employment Period. Mr Pollak will also receive a payment
for options granted to him and forfeited upon his resignation from THE NEW YORK
TIMES COMPANY. The employment agreement provides that if Mr. Pollak's employment
is terminated by the Company without cause or by Mr. Pollak with good reason,
Mr. Pollak will be entitled to severance equal to the total value of Mr.
Pollak's salary through the termination date to the extent accrued, but
unreimbursed, and his salary for one year commencing on the termination date and
any accrued but unpaid bonus.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of the Company are beneficially owned by
Holdings. The following table sets forth certain information regarding
beneficial ownership of Holdings by (i) each person (or group of affiliate
persons) known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of Holdings, (ii) each Director, Director nominee, and
the Chief Executive Officer and Vice President of the Company, and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF PERCENTAGE OF TOTAL SHARES
OF BENEFICIAL OWNER COMMON STOCK OF COMMON STOCK OUTSTANDING
- --------------------------------------------------------------- ------------------- ----------------------------
<S> <C> <C>
U.S. Equity Partners, L.P. (1)................................. 36,996 36.996%
ALM Offshore Intermediate Holdings, Inc. (2)................... 14,411 14.411%
Wasserstein & Co., Inc......................................... 48,593 48.593%
------- -------
Total...................................................... 100,000 100.000%
</TABLE>
- ------------------------
(1) Includes approximately 3.4% of the issued and outstanding common stock of
Holdings held by a coinvestor of USEP which has granted WPMP, the general
partner of USEP, an irrevocable proxy to vote such shares of common stock.
(2) ALM Offshore Intermediate Holdings, Inc., is a wholly-owned subsidiary of
U.S. Equity Partners (Offshore) L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a wholly-owned subsidiary of Holdings. A majority of
Holdings' equity securities are held by USEP and its affiliates. USEP is a
Delaware limited partnership investment fund of which WPMP is the general
partner. WPMP is controlled by Wasserstein Perella & Co., Inc. WPMP is entitled
to receive a monitoring fee in an amount not to exceed $1.0 million in respect
of any year. For advisory services rendered by WPMP to the Company in connection
with the LegalTech Acquisition, the Company paid WPMP a fee of 1% of the
purchase price for LegalTech. For advisory services rendered by WPMP to the
Company in connection with the LCL Acquisition, the Company intends to pay WPMP
a fee of 1% of the purchase price for LCL at the closing of the LCL Acquisition.
The Company may engage in transactions with its affiliates, including
entities owned or controlled by certain of its principal shareholders. The
Company believes that such transactions will be no more favorable to the Company
than similar transactions with non-affiliates.
29
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
See Index to Financial Statements which appears on page F-1 hereof. No
Schedules are provided as the Schedules are either not applicable, or the
information has been otherwise provided in the Financial Statements.
(B) REPORTS ON FORM 8-K
The Company has filed no reports on Form 8-K.
(C) EXHIBITS
The exhibits listed on the Exhibit Index following the signature page hereof
are filed herewith in response to this Item.
30
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, INC.
Independent Auditor's Report of the Financial Statements as of and for the Five Months Ended December 31,
1997 of American Lawyer Media, Inc..................................................................... F-3
Consolidated Balance Sheet as of December 31, 1997 of American Lawyer Media, Inc......................... F-4
Consolidated Statement of Operations for the Five Months Ended December 31, 1997 of American Lawyer
Media, Inc............................................................................................. F-5
Consolidated Statement of Changes in Stockholder's Equity for the Five Months Ended December 31, 1997 of
American Lawyer Media, Inc............................................................................. F-6
Consolidated Statement of Cash Flows for the Five Months Ended December 31, 1997 of American Lawyer
Media, Inc............................................................................................. F-7
Notes to the Consolidated Financial Statements as of December 31, 1997 of American Lawyer Media, Inc..... F-8
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Independent Auditor's Report of the Financial Statements as of and for the Seven Months Ended July 31,
1997 of American Lawyer Media, L.P..................................................................... F-18
Balance Sheet as of July 31, 1997 of American Lawyer Media, L.P.......................................... F-19
Statement of Operations for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P........... F-20
Statement of Changes in Partners' Capital and Accumulated Deficit for the Seven Months Ended July 31,
1997 of American Lawyer Media, L.P..................................................................... F-21
Statement of Cash Flows for the Seven Months Ended July 31, 1997 of American Lawyer Media, L.P........... F-22
Notes to the Financial Statements as of July 31, 1997 of American Lawyer Media, L.P...................... F-23
FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, L.P. (OLD ALM)
Independent Auditor's Report of the Financial Statements as of and for the Years Ended December 31, 1996
and 1995 of American Lawyer Media, L.P................................................................. F-28
Balance Sheets as of December 31, 1996 and 1995 of American Lawyer Media, L.P............................ F-29
Statements of Operations for the Years Ended December 31, 1996 and 1995 of American Lawyer Media, L.P.... F-30
Statements of Changes in Partners' Capital and Accumulated Deficit for the Years Ended December 31, 1996
and 1995 of American Lawyer Media, L.P................................................................. F-31
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995 of American Lawyer Media, L.P.... F-32
Notes to the Financial Statements as of December 31, 1996 and 1995 of American Lawyer Media, L.P......... F-33
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Independent Auditor's Report of the Consolidated Financial Statements as of and for the Period from
January 1, 1997 through December 21, 1997 of National Law Publishing Company, Inc...................... F-38
Consolidated Balance Sheet as of December 21, 1997 of National Law Publishing Company, Inc............... F-39
Consolidated Statement of Operations for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc................................................................... F-40
Consolidated Statement of Stockholders' Equity for the Period from January 1, 1997 through December 21,
1997 of National Law Publishing Company, Inc........................................................... F-41
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Consolidated Statement of Cash Flows for the Period from January 1, 1997 through December 21, 1997 of
National Law Publishing Company, Inc................................................................... F-42
Notes to the Consolidated Financial Statements as of December 21, 1997 of National Law Publishing
Company, Inc........................................................................................... F-43
CONSOLIDATED FINANCIAL STATEMENTS OF NATIONAL LAW PUBLISHING COMPANY, INC.
Independent Auditor's Report of the Consolidated Financial Statements as of and for the Years Ended
December 31, 1996 and 1995 of National Law Publishing Company, Inc..................................... F-51
Consolidated Balance Sheets as of December 31, 1996 and 1995 of National Law Publishing Company, Inc..... F-52
Consolidated Statements of Operations for the Years Ended December 31, 1996 and 1995 of National Law
Publishing Company, Inc................................................................................ F-53
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years Ended December 31, 1996 and
1995 of National Law Publishing Company, Inc........................................................... F-54
Consolidated Statements of Cash Flows for Years Ended December 31, 1996 and 1995 of National Law
Publishing Company, Inc................................................................................ F-55
Notes to the Consolidated Financial Statements as of December 31, 1996 and 1995 of National Law
Publishing Company, Inc................................................................................ F-56
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, Inc.:
We have audited the accompanying consolidated balance sheet of American
Lawyer Media, Inc. (a Delaware corporation) as of December 31, 1997 and the
related consolidated statements of operations, changes in stockholder's equity
and cash flows for the five months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for the five months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
F-3
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................................... $ 8,962
Accounts receivable, net of allowance for doubtful accounts and returns of $3,236................... 12,560
Inventories, net.................................................................................... 1,482
Other current assets................................................................................ 3,266
----------
Total current assets............................................................................ 26,270
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of $613............... 5,630
INTANGIBLE ASSETS, net of accumulated amortization of $1,855.......................................... 163,305
GOODWILL, net of accumulated amortization of $498..................................................... 159,623
DEFERRED FINANCING COSTS.............................................................................. 6,252
DEFERRED INCOME TAXES................................................................................. 2,934
OTHER ASSETS.......................................................................................... 158
----------
Total assets.................................................................................... $ 364,172
----------
----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................................... $ 3,466
Accrued expenses.................................................................................... 12,478
Deferred income (including deferred subscription income of $16,502)................................. 17,172
----------
Total current liabilities....................................................................... 33,116
----------
SENIOR NOTES.......................................................................................... 175,000
----------
DEFERRED INCOME TAXES................................................................................. 51,515
----------
OTHER NONCURRENT LIABILITIES.......................................................................... 3,363
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock--$.01 par value; 1,000 shares authorized;100 issued and outstanding.................... --
Paid-in-capital..................................................................................... 108,775
Accumulated deficit................................................................................. (7,597)
----------
Total stockholder's equity...................................................................... 101,178
----------
Total liabilities and stockholder's equity...................................................... $ 364,172
----------
----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
F-4
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
----------
<S> <C>
NET REVENUES:
Periodicals
Advertising....................................................................................... $ 13,410
Subscription...................................................................................... 5,260
Ancillary Products and Services..................................................................... 4,142
Internet Services................................................................................... 40
----------
Total net revenues.............................................................................. 22,852
----------
OPERATING EXPENSES:
Editorial........................................................................................... 3,323
Production and Distribution......................................................................... 5,766
Selling............................................................................................. 3,656
General and Administrative.......................................................................... 7,145
Internet Services................................................................................... 43
Depreciation and Amortization....................................................................... 3,273
Shutdown of ALM Internet Services................................................................... 4,823
----------
Total operating expenses........................................................................ 28,029
----------
Operating loss.................................................................................. (5,177)
INTEREST EXPENSE, net................................................................................. (2,420)
----------
Loss before income taxes........................................................................ (7,597)
PROVISION FOR INCOME TAXES............................................................................ --
----------
Net Loss........................................................................................ $ (7,597)
----------
----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE>
AMERICAN LAWYER MEDIA, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN
SHARES PAR VALUE CAPITAL NET LOSS TOTAL
----------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
INCEPTION................................................. -- $ -- $ -- $ -- $ --
Issuance of common stock................................ 100 -- 108,775 -- 108,775
Net loss................................................ -- -- -- (7,597) (7,597)
--- ----------- ---------- --------- -----------
BALANCE AT DECEMBER 31, 1997.............................. 100 $ -- $ 108,775 $ (7,597) $ (101,178)
--- ----------- ---------- --------- -----------
--- ----------- ---------- --------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................................... $ (7,597)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization.................................................................. 3,273
Decrease (increase) in-
Accounts receivable, net..................................................................... 515
Inventories.................................................................................. (74)
Other current assets......................................................................... (487)
Other assets................................................................................. 89
Increase (decrease) in-
Accounts payable............................................................................. 1,200
Accrued expenses............................................................................. (666)
Deferred income.............................................................................. (466)
Other noncurrent liabilities................................................................. 1,035
-----------
Total adjustments.......................................................................... 4,419
-----------
Net cash used in operating activities...................................................... (3,178)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................................... (364)
Purchase of businesses:
Negative working capital, other than cash.................................................... 9,229
Plant, property and equipment................................................................ (8,058)
Intangible assets............................................................................ (165,160)
Deferred income taxes........................................................................ 50,107
Other noncurrent assets...................................................................... (595)
Cost in excess of net assets of company acquired............................................. (160,121)
Acquisition related costs and expenses....................................................... 9,579
-----------
Net cash used in investing activities...................................................... (265,383)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution............................................................................... 108,775
Issuance of notes, net of fees and expenses of $6,252.............................................. 168,748
Assumption of affiliate note in connection with acquisition........................................ 32,000
Repayment of affiliate note........................................................................ (32,000)
Note payable assumed in connection with acquisition................................................ 31,500
Repayment of note payable.......................................................................... (31,500)
-----------
Net cash provided by financing activities.................................................. 277,523
-----------
Net increase in cash....................................................................... 8,962
CASH, at inception................................................................................... --
CASH, end of period.................................................................................. $ 8,962
-----------
-----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period
Income taxes................................................................................... $ --
-----------
-----------
Interest....................................................................................... $ 1,954
-----------
-----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-7
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND OPERATIONS
American Lawyer Media, Inc. (the "Company") is a wholly owned subsidiary of
American Lawyer Media Holdings, Inc. (formerly Cranberry Partners, LLC
("Cranberry")).
Cranberry, a Delaware limited liability company, was formed on August 1,
1997. On August 27, 1997 (the "ALM Acquisition Closing"), Cranberry acquired
substantially all of the assets and liabilities of American Lawyer Media, L.P.
("Old ALM") for $63,000,000. The acquisition was effective retroactively to July
31, 1997. As of the ALM Acquisition Closing, all of the membership interests of
Cranberry were held by W.P. Management Partners, LLC on behalf of U.S. Equity
Partners, L.P. and certain of its affiliates. Old ALM is a publisher of legal
publications, which includes THE AMERICAN LAWYER, CORPORATE COUNSEL MAGAZINE,
AMLAW TECH, THE CONNECTICUT LAW TRIBUNE, LEGAL TIMES, NEW JERSEY LAW JOURNAL,
THE RECORDER, TEXAS LAWYER, FULTON COUNTY DAILY REPORT, and MIAMI DAILY BUSINESS
REVIEW. In addition, Old ALM operates Counsel Connect, a membership-based online
service exclusively for lawyers and legal professionals. The Company's
operations are based in New York with regional offices in seven states and the
District of Columbia.
Prior to the ALM Acquisition Closing, Cranberry formed ALM Holdings, LLC, a
Delaware limited liability company, and ALM Holdings, LLC formed two wholly
owned subsidiaries, ALM, LLC (a New York limited liability company) and Counsel
Connect, LLC (a Delaware limited liability company) and one 99% owned subsidiary
(the remaining 1% of which was, as of the ALM Acquisition Closing, held by W.P.
Management Partners, LLC on behalf of U.S. Equity Partners, L.P. and certain of
its affiliates), ALM IP, LLC (a Delaware limited liability company). On the ALM
Acquisition Closing, Cranberry transferred all of the non-intellectual property
publishing assets and liabilities acquired from Old ALM to ALM, LLC, all the
non-intellectual property Counsel Connect assets and liabilities acquired from
Old ALM to Counsel Connect, LLC, and all of the intellectual property assets
acquired from Old ALM to ALM IP, LLC.
On November 26, 1997, Cranberry was merged with and into ALM Capital Corp.
(a Delaware corporation), and ALM Capital Corp. was simultaneously renamed
American Lawyer Media Holdings, Inc. ("Holdings"). Also on November 26, 1997,
ALM Holdings, LLC was merged with and into ALM Capital Corp. II (a Delaware
corporation), and ALM Capital Corp. II was simultaneously renamed American
Lawyer Media, Inc.
In December 1997, Holdings received capital contributions from its
stockholders, Wasserstein & Co., Inc., U.S. Equity Partners L.P. and U.S. Equity
Partners (Offshore) L.P., totaling $75 million. On December 22, 1997, Holdings
issued $35 million of 12.25% Senior Discount Notes in an offering under Rule
144A promulgated under the Securities Act of 1933, as amended (the "Act").
Simultaneously, Holdings contributed capital of $108.8 million to the Company.
Also on December 22, 1997, the Company issued $175 million of 9.75% Senior Notes
in an offering under Rule 144A promulgated under the Act. The Company used a
portion of the capital and the proceeds from the Company's 144A offering to
acquire all of the outstanding capital stock of National Law Publishing Company,
Inc. (a Delaware corporation) ("Old NLP") for approximately $203 million (the
"NLP Acquisition") through a wholly owned subsidiary, NLP Acquisition Co., Inc.,
(a New York corporation) ("Acquisition"). Old NLP was then, on December 22,
1997, merged with and into Acquisition with Acquisition surviving. Subsequent to
the merger, Acquisition was renamed National Law Publishing Company, Inc.
("NLP"). At the closing of the NLP Acquisition, all intellectual property of NLP
and its subsidiaries was transferred to NLP IP Company, a wholly owned
subsidiary of NLP. Old NLP is a publisher of legal publications, which include
NEW YORK LAW JOURNAL, THE NATIONAL LAW JOURNAL and LAW TECHNOLOGY PRODUCT NEWS.
In addition, Old NLP operates LAW JOURNAL
F-8
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. ORGANIZATION AND OPERATIONS (CONTINUED)
EXTRA!, a membership-based internet service for lawyers and legal professionals,
publishes legal text and provides seminars targeted at the U.S. legal community.
2. ACQUISITIONS
The ALM Acquisition has been accounted for under the purchase method and the
results of operations of the acquired publishing business have been included in
the financial statements since the date of acquisition (August 1, 1997). The
excess of the purchase price over net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Total purchase price...................................... $ 63,000
Reimbursement from seller............................... (110)
---------
Adjusted purchase price................................... 62,890
Historical net liabilities at July 31, 1997............. 29,342
Elimination of historical intangible assets............. 5,545
Assets and liabilities not assumed/acquired............. (34,702)
Adjustment to record fixed assets at fair value......... (365)
Writeoff of leasehold improvements...................... 445
---------
Net liabilities assumed................................... 265
Adjustment for acquisition related costs and expenses..... 4,546
---------
67,701
Identified intangibles.................................... (59,770)
---------
Excess of purchase price over net assets acquired......... $ 7,931
---------
---------
</TABLE>
In the accompanying statement of operations, the excess of purchase price
over net assets acquired are being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to ALM IP, LLC and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years.
The NLP Acquisition has been accounted for under the purchase method and the
results of operations of the acquired publishing business have been included in
the financial statements since the date of acquisition (December 22, 1997). The
excess of the purchase price over net assets acquired is as follows (in
thousands):
<TABLE>
<S> <C> <C>
Total purchase price.................................... $ 203,218
Historical net assets at December 22, 1997............ (64,782)
Elimination of historical intangible assets........... 122,351
Elimination of historical debt........................ (59,500)
Adjustment to record assets at fair value............. 1,153
---------
Net assets acquired..................................... (778)
Provision of deferred income taxes principally related
to identified intangibles............................. 50,107
Adjustment for acquisition related costs and expenses... 5,033
---------
257,580
Identified intangibles.................................. (105,390)
---------
Excess of purchase price over net assets acquired....... $ 152,190
---------
---------
</TABLE>
F-9
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. ACQUISITIONS (CONTINUED)
In the accompanying statement of operations, the excess of purchase price
over net assets acquired are being amortized over fifteen years. As previously
discussed, the identified intangibles were transferred to NLP IP, Co. and are
being amortized on a straight-line basis over a weighted average useful life of
fifteen years.
The results of operations of NLP are included in the accompanying
consolidated statement of operations for the period from December 22, 1997 to
December 31, 1997. The following unaudited pro forma information presents a
summary of consolidated results of operations of the Company as if the NLP
Acquisition had occurred on August 1, 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Net revenues................................................................... $ 45,766
Net loss....................................................................... $ 6,960
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and include certain adjustments, such as additional amortization
expense as a result of goodwill and other intangible assets, and interest
expense on acquisition debt. They do not purport to be indicative of the results
of operations which actually would have resulted had the combination been in
effect on August 1, 1997, or of future results of operations of the consolidated
entities.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of American
Lawyer Media, Inc. and its wholly-owned subsidiaries, ALM, LLC, Counsel Connect,
LLC, and NLP Co., Inc., and its 99% owned subsidiary, ALM IP, LLC. The accounts
of NLP Co., Inc. include its wholly owned subsidiary NLP IP Company.
Intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
F-10
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exposed to a certain level of credit concentration risk in this area, which the
Company believes it has adequately provided for.
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books, software and directories,
Lexis/Nexis royalty income, seminar income, and income from a daily fax service
of court decisions.
Internet services revenues are recognized upon the release of an
advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of $1,772,000 are included in accounts receivable in the
accompanying consolidated balance sheet.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion expenditures are expensed as the related
advertisement or campaign is released.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are stated at the lower of cost,
as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, with the exception of fixed
assets acquired as part of the ALM and NLP Acquisitions, which are stated at
approximate fair market value as of the date of the acquisitions. Significant
improvements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation is calculated using the
straight-line method over the estimated remaining useful lives of the assets
acquired as part of the ALM and NLP Acquisitions. Assets
F-11
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. The Company
periodically assesses the recoverability of goodwill by determining whether the
amortization of goodwill over its estimated remaining life can be recovered
through projected undiscounted future consolidated operating cash flows.
INTANGIBLE ASSETS
Intangible assets represent advertiser commitments, trademarks, customer and
subscriber lists and non-compete agreements. They are stated at cost less
accumulated amortization and are amortized on a straight-line basis over a
weighted average life of fifteen years.
4. SHUTDOWN OF INTERNET SERVICES
The Company has operated Counsel Connect, a major legal internet site, since
1993. Counsel Connect operated as a subscription based service offering users
the opportunity to exchange legal information such as court opinions, insights
about judges and legal opinions and special written work. The Company, through
Counsel Connect, provided general internet access (as an "internet service
provider") to its subscribers.
Since its inception, Counsel Connect has incurred substantial operating
losses. The Company has determined that it will cease to operate Counsel Connect
and has begun the wind down of its operations. Staff reductions and curtailments
of operating activities have already taken place commencing with the ALM
Acquisition in August, 1997. In connection with the NLP Acquisition, the Company
acquired LAW JOURNAL EXTRA!, a legal internet site. The Company is in the
process of transferring certain Counsel Connect employees and network equipment
to a new combined enhanced service. The accompanying statement of operations
includes a net expense of $4,823,400 related to the shutdown of Counsel Connect.
This amount includes Counsel Connect revenues of $1,122,200 and Counsel Connect
expenses before depreciation of $2,945,600 for the five months ended December
31, 1997 and a provision of $3,000,000 to cover severance costs, uncollectible
receivables, writedown of computer and network equipment and termination of
contracts related to network services which provided internet access. The
provision is a preliminary estimate of the total costs associated with these
items.
5. INCOME TAXES
Deferred income taxes are provided for the temporary differences between the
financial reporting and the tax basis of the Company's assets and liabilities
and principally consist of nondeductible goodwill and
F-12
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. INCOME TAXES (CONTINUED)
identified intangibles relating to NLP, accelerated depreciation, allowance for
doubtful accounts, certain accrued liabilities not currently deductible for tax
purposes and net operating loss carryforwards.
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to loss before income
taxes is as follows for the five months ended December 31, 1997:
<TABLE>
<S> <C>
Federal statutory income taxes..................................... $ (2,582)
Permanent differences (principally goodwill and intangible
amortization).................................................... 194
State and local income taxes....................................... (456)
Other.............................................................. (126)
Valuation allowance................................................ 2,970
---------
$ --
---------
---------
</TABLE>
Upon the creation of American Lawyer Media, Inc. discussed in Note 1, the
Company changed its tax status from an LLC to a C Corporation on November 26,
1997. As of that date, a net deferred tax asset of $1,224,000 was recorded
relating to the Company's temporary differences. A valuation allowance of
$1,224,000 was also recorded against this net deferred tax asset.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Land................................................................................. $ 207
Buildings and improvements........................................................... 790
Furniture, machinery, and equipment.................................................. 2,739
Computer equipment and software...................................................... 2,507
---------
6,243
Accumulated depreciation and amortization............................................ (613)
---------
Net property, plant and equipment.................................................. $ 5,630
---------
---------
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Advertiser commitments............................................................ $ 880
Trademarks........................................................................ 82,650
Customer and subscriber lists..................................................... 69,670
Non-compete agreements............................................................ 11,960
----------
165,160
Accumulated amortization.......................................................... (1,855)
----------
Net intangible assets........................................................... $ 163,305
----------
----------
</TABLE>
F-13
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. RELATED PARTY TRANSACTIONS
The Company and CourtRoom Television Network ("CourtTV"), an affiliate of
Old ALM's general partner, share certain administrative resources and employees.
In addition, the Company has advertising revenue from Court TV under an
agreement made by the former owner of Old ALM. This agreement was terminated in
October 1997. The cost associated with Court TV employees who devote a portion
of their time to the Company's activities is charged to the Company based on an
estimate of the time spent on such activities. These charges amounted to
$99,191, while the revenue was $44,730 for the five months ended December 31,
1997. In addition, the Company has a receivable from CourtTV of $262,600 at
December 31, 1997 reflected in accounts receivable on the accompanying balance
sheet.
Included in accrued expenses on the accompanying balance sheet is $45,000
due to Wasserstein and Co., Inc. for payment of certain costs related to the
acquisition of Old ALM.
Approximately $5,250,000 of financing costs related to the Senior Notes as
defined in Note 11, were paid to Wasserstein Perella, an affiliate of the
Company. In addition, approximately $4,150,000 of acquisition related fees and
expenses were either paid or remain due to Wasserstein Perella.
Included in other current assets on the accompanying balance sheet is a
$550,000 net receivable to Holdings resulting from various intercompany
transactions.
9. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $783,000 for
the five months ended December 31, 1997. This amount includes the monthly rent
payments for corporate headquarters discussed below.
At December 31, 1997, minimum rental commitments under noncancellable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL
ESTATE OTHER TOTAL
--------- ----------- ---------
<S> <C> <C> <C>
1998............................................................ $ 2,174 $ 75 $ 2,249
1999............................................................ 2,162 64 2,226
2000............................................................ 2,165 49 2,214
2001............................................................ 1,958 38 1,996
2002 and thereafter............................................. 10,349 9 10,358
--------- ----- ---------
$ 18,808 $ 235 $ 19,043
--------- ----- ---------
--------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. Approximately $1,800,000,
representing accrued pro rata future payments, net of receipts, is included in
other noncurrent liabilities in the accompanying balance sheet as of December
31, 1997.
ALM, LLC leases its corporate headquarters from Old ALM's general partner.
Because the lease can be cancelled with ninety days notice, the commitments
under this lease are excluded from the above table. Monthly rent payments under
this lease total $74,700. This lease terminates on December 31, 1998.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these
F-14
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
contingencies is not expected to have a material adverse effect on the Company's
financial position or results of operations.
10. EMPLOYEE BENEFITS
NLP has a 401(k) profit sharing plan (the "NLP Plan") for all eligible
employees who have completed one year of service. Under the NLP Plan, NLP has
the option of making a matching contribution of up to 3% of a participant's
compensation. NLP may also annually contribute additional discretionary amounts
to participants. For the five months ended December 31, 1997, NLP did not make
any matching discretionary contributions to the NLP Plan. In addition,
approximately twenty NLP employees are covered by certain defined contribution
retirement plans sponsored by the Typographical Union. NLP did not make any
contributions to these retirement plans for the five months ended December 31,
1997.
ALM, LLC sponsors a 401(k) salary deferral plan (the "ALM Plan").
Participation in the ALM Plan is available for substantially all ALM, LLC and
Counsel Connect, LLC employees. The ALM Plan provides for employer matching of
employees' contributions, as defined. The cost of the ALM Plan for the five
months ended December 31, 1997 was $137,400.
ALM, LLC also sponsored a defined benefit plan covering substantially all
ALM, LLC and Counsel Connect, LLC employees. This plan was frozen effective
December 31, 1997, resulting in an insignificant curtailment gain. The
components of net periodic pension cost for the five months ended December 31,
1997 were as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Service cost.......................................................................... $ 160
Interest cost on projected benefit obligation......................................... 94
Actual return on assets............................................................... (173)
Net amortization and deferral......................................................... 119
---------
$ 200
---------
---------
</TABLE>
The following table sets forth the funded status of the Company's pension
plan and amounts recognized in the balance sheet as of December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.......................................................... $ 2,948
---------
Accumulated benefit obligation....................................................... $ 3,305
---------
Projected benefit obligation......................................................... $ 3,305
Plan assets at fair value............................................................ 2,613
---------
Projected benefit obligation in excess of plan assets................................ $ 692
Unrecognized net gain................................................................ --
Unrecognized net transition obligation............................................... --
---------
Accrued pension liability............................................................ $ 692
---------
---------
</TABLE>
F-15
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
10. EMPLOYEE BENEFITS (CONTINUED)
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1997, the discount rate was 6.75%, the rate of
increase in future compensation levels was 3.00%, and the expected long-term
rate of return on assets was 9.00%.
ALM, LLC also sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan. This plan was also frozen as of December 31, 1997.
ALM, LLC and Counsel Connect, LLC sponsor a comprehensive medical and dental
insurance plan, which is available to substantially all employees. ALM, LLC and
Counsel Connect, LLC are self insured for claims submitted under this plan up to
predetermined amounts above which third party insurance applies.
11. NOTES PAYABLE
On December 22, 1997, the Company issued $175,000,000 of 9.75% senior notes
("Senior Notes") due December 15, 2007. The Senior Notes accrue interest at
9.75% which is payable in cash semi-annually on June 15 and December 15
(beginning June 15, 1998). The Senior Notes are unsecured general obligations of
the Company and are guaranteed by each of the Company's subsidiaries
("Restricted Subsidiaries"). The Senior Notes may be redeemed at any time by the
Company, in whole or in part, at various redemption prices that includes accrued
and unpaid interest as well as any existing liquidating damages. The Senior
Notes contain certain covenants that, among other things, limit the incurrence
of additional indebtedness by the Company and its subsidiaries, the payment of
dividends and other restricted payments by the Company and its subsidiaries,
asset sales, transactions with affiliates, the incurrence of liens, and mergers
and consolidations. Financing costs, totaling $6,252,000, have been capitalized
on the accompanying balance sheet and are being amortized over the term of the
Senior Notes. Amortization of deferred financing costs is recorded as interest
expense. Assuming there is no redemption of the Senior Notes prior to maturity,
the entire principal will be payable on December 15, 2007.
12. FASB 107--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and notes payable. The
Company believes that the carrying amount for these accounts approximates fair
value.
13. SUBSEQUENT EVENTS
Pursuant to an Asset Purchase Agreement dated as of March 3, 1998, among
Corporate Presentations, Inc., its sole stockholder and LegalTech, LLC, a wholly
owned indirect subsidiary of the Company, LegalTech, LLC agreed to purchase
substantially all of the assets and assume certain of the liabilities of
Corporate Presentations, Inc. for approximately $10,800,000. Corporate
Presentations, Inc. is a producer of tradeshows and conferences for the legal
community. For advisory services rendered to the Company in connection with the
LegalTech Acquisition, the Company paid WPMP, an affiliate of Holdings, a fee of
1% of the purchase price of LegalTech.
Pursuant to an Asset Purchase and Sale Agreement dated as of March 27, 1998,
among Legal Communications, Ltd., and ALM, LLC a wholly owned subsidiary of the
Company, ALM, LLC agreed to purchase substantially all of the assets and assume
certain of the liabilities of Legal Communications Ltd.
F-16
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
13. SUBSEQUENT EVENTS (CONTINUED)
for a purchase price of $20,000,000. Legal Communications Ltd. is a publisher of
regional legal publications. For advisory services rendered to the Company in
connection with the Legal Communications, Ltd. Acquisition, the Company intends
to pay WPMP, an affiliate of Holdings, a fee of 1% of the purchase price of
Legal Communications, Ltd.
On March 25, 1998, Holdings and the Company (as the "Borrower") signed a
Credit Agreement with various banks that has a combined Revolving Commitment in
the initial principal amount of $40,000,000. The Revolving Credit Facility is
guaranteed by Holdings and by all subsidiaries of the Company. In addition, the
Revolving Credit Facility is secured by a first priority security interest in
substantially all of the properties and assets of the Company and its domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. Each revolving loan shall
bear interest on the outstanding principal amount from the borrowing date until
it becomes due at a rate per annum equal to the "Base Rate" or the Eurodollar
rate plus the "Applicable Margin" of 1.5% for base rate loans and 2.5% for
Eurodollar rate loans. The Base Rate is the higher of the Bank of America
publicly announced "Reference Rate" or the Federal Funds Rate plus 0.5%. A
commitment fee must be paid on the daily unused portion of the revolving
commitment. The Credit Agreement includes both affirmative and negative
covenants that include meeting certain financial ratios.
On April 2, 1998, the Board of Directors authorized Holdings to issue shares
of Holdings' $.01 par value per share common stock to U.S. Equity Partners,
L.P., in consideration of payment by U.S. Equity Partners, L.P., of $15,000,000.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheet of American Lawyer Media,
L.P. as of July 31, 1997 and the related statements of operations, changes in
partners' capital and accumulated deficit and cash flows for the seven months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of July 31, 1997, and the results of its operations and its cash flows for
the seven months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-18
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEET
JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 615
Accounts receivable, net of allowance for doubtful accounts of $1,661........... 5,726
Due from affiliate.............................................................. 390
Inventories, net................................................................ 399
Other current assets............................................................ 557
---------
Total current assets........................................................ 7,687
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $7,354.......... 5,594
INTANGIBLE ASSETS, net of accumulated amortization of $20,665..................... 4,488
GOODWILL, net of accumulated amortization of $247................................. 1,057
OTHER ASSETS...................................................................... 156
---------
Total assets................................................................ $ 18,982
---------
---------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable................................................................ $ 744
Accrued expenses................................................................ 4,745
Deferred income (including deferred subscription income of $7,466).............. 8,093
---------
Total current liabilities................................................... 13,582
DUE TO GENERAL PARTNER............................................................ 34,742
---------
Total liabilities........................................................... 48,324
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' ACCUMULATED DEFICIT..................................................... (29,342)
---------
Total liabilities and partners' accumulated deficit......................... $ 18,982
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-19
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF OPERATIONS (NOTE 3)
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
NET REVENUES:
Periodicals
Advertising.................................................................... $ 18,146
Subscription................................................................... 6,719
Ancillary Products and Services.................................................. 4,532
Internet Services................................................................ 2,148
---------
Total net revenues........................................................... 31,545
---------
OPERATING EXPENSES:
Editorial........................................................................ 4,023
Production and Distribution...................................................... 6,919
Selling.......................................................................... 4,640
General and Administrative....................................................... 9,531
Internet Services................................................................ 6,464
Depreciation and Amortization.................................................... 1,590
---------
Total operating expenses..................................................... 33,167
---------
Operating loss............................................................... (1,622)
INTEREST EXPENSE, net.............................................................. 1,420
---------
Net loss (Note 3)............................................................ $ (3,042)
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-20
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
Net loss................................................................. -- (3,042) (3,042)
----------- ---------- ------------
BALANCE AT JULY 31, 1997................................................... $ 31,677 $ (61,019) $ (29,342)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-21
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss......................................................................... $ (3,042)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization.................................................. 1,590
Interest expense............................................................... 1,420
Allowance for doubtful accounts................................................ 304
Decrease (increase) in-
Accounts receivable and due from affiliate................................... 1,057
Inventories.................................................................. 121
Other current assets......................................................... (21)
Other assets................................................................. (56)
Increase (decrease) in-
Accounts payable............................................................. (1,137)
Accrued expenses............................................................. (998)
Deferred income.............................................................. 85
---------
Total adjustments.......................................................... 2,365
---------
Net cash used in operating activities...................................... (677)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (1,971)
---------
Net cash used in investing activities...................................... (1,971)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner.............................................. 3,173
---------
Net cash provided by financing activities.................................. 3,173
---------
Net increase in cash....................................................... 525
CASH, beginning of period.......................................................... 90
---------
CASH, end of period................................................................ $ 615
---------
---------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-22
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers. Allowances for estimated doubtful accounts are
provided based upon historical experience.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of third-party printing services,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar income, and a daily fax service of court
decisions.
Internet services revenues consist of income earned from COUNSEL CONNECT
subscriptions and usage fees.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
CIRCULATION PROMOTION (SUBSCRIPTION DIRECT MAIL) COSTS
Circulation promotion costs are charged to expense upon the release of the
campaign.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-23
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life. The cost and accumulated depreciation of
property sold or retired are removed from the accounts upon disposition.
INTANGIBLES AND GOODWILL
Intangible assets, consisting primarily of noncompete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
ACCOUNTS PAYABLE
Included in accounts payable are $425,000 of bank overdrafts as of July 31,
1997.
3. INCOME TAXES
No provision has been made in the accompanying statement of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
loss appearing on the accompanying statement of operations is reportable by each
of the partners on their individual tax returns.
F-24
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at July 31, 1997
(In Thousands):
<TABLE>
<S> <C>
Machinery and equipment............................................ $ 10,323
Buildings and improvements......................................... 1,430
Furniture and fixtures............................................. 823
Land............................................................... 300
Automobiles........................................................ 72
---------
12,948
Accumulated depreciation and amortization.......................... (7,354)
---------
Net property, plant and equipment.............................. $ 5,594
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
totaled approximately $149,000 for the seven months ended July 31, 1997.
Advertising revenues from Court TV totaled approximately $122,000 for the seven
months ended July 31, 1997. In addition, the Company and Court TV share certain
editorial and administrative resources and employees, as well as office
facilities. The cost associated with employees who devote all or a portion of
their time to Court TV activities is charged to Court TV based on an estimate of
their time spent on such activities. These charges, which include an allocation
for the chairman of the Company, amounted to $321,000 for the seven months ended
July 31, 1997. Court TV is also charged a flat annual fee of $195,000 for use of
the Company's reporters for on-camera appearances and background reports.
Finally, an allocation is made to Court TV to cover general overhead costs
(e.g., rent, utilities, etc.) which amounted to approximately $53,000 for the
seven months ended July 31, 1997. Amounts due from Court TV are reflected as due
from affiliate on the accompanying balance sheet.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $47,000 for the seven months ended July 31, 1997.
6. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long- term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,046,500 for
the seven months ended July 31, 1997, including rent accruals in excess of
payments of $6,600.
F-25
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minimum rental commitments under noncancellable leases as of July 31, 1997
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1997.................................................................... $ 1,450 $ (650) $ 28 $ 828
1998.................................................................... 3,161 (1,443) 70 1,788
1999.................................................................... 3,094 (1,473) 59 1,680
2000.................................................................... 3,087 (1,473) 44 1,658
2001.................................................................... 2,906 (1,473) 33 1,466
2002 and thereafter..................................................... 17,424 (10,823) 5 6,606
--------- ---------- ----- ---------
$ 31,122 $ (17,335) $ 239 $ 14,026
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $6,600,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan was
$177,000 for the seven months ended July 31, 1997.
The Company has a defined benefit plan covering substantially all employees.
The Company's general funding policy is to contribute annual amounts that
satisfy the Internal Revenue Code funding requirements. The components of net
periodic pension cost for the year ended December 31, 1996 were as follows:
<TABLE>
<S> <C>
Service cost...................................................... $ 361,216
Interest cost on projected benefit obligation..................... 188,428
Actual return on assets........................................... (260,515)
Net amortization and deferral..................................... 178,602
---------
$ 467,731
---------
---------
</TABLE>
F-26
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 1997
8. EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31,
1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation....................................... $1,756,139
---------
Accumulated benefit obligation.................................. $1,988,235
---------
Projected benefit obligation.................................... $3,031,741
Plan assets at fair value....................................... 1,965,782
---------
Projected benefit obligation in excess of plan assets........... $1,065,959
Unrecognized net gain........................................... 155,802
Unrecognized net transition obligation.......................... (728,462)
---------
Accrued pension liability....................................... $ 493,299
---------
---------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1996, the discount rate was 7.5%, the rate of
increase in future compensation levels was 6%, and the expected long-term rate
of return on assets was 9%.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
The Company also sponsors a comprehensive medical and dental insurance plan
which is available to substantially all employees. The Company is self insured
for claims submitted under this plan up to predetermined amounts, above which
third party insurance applies.
9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107-FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and due to general
partner. The carrying amount of these accounts approximates fair value.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, L.P.:
We have audited the accompanying balance sheets of American Lawyer Media,
L.P. as of December 31, 1996 and 1995, and the related statements of operations,
changes in partner's capital and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Lawyer Media, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
November 20, 1997
F-28
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 90 $ 780
Accounts receivable, net of allowance for doubtful accounts of $1,357 in 1996 and $1,098
in 1995............................................................................... 6,496 5,899
Due from affiliate...................................................................... 981 289
Inventories, net........................................................................ 520 629
Other current assets.................................................................... 536 476
---------- ----------
Total current assets................................................................ 8,623 8,073
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $6,469 in 1996 and
$6,309 in 1995.......................................................................... 4,533 3,649
INTANGIBLE ASSETS, net of accumulated amortization of $19,911 in 1996 and $18,773 in
1995.................................................................................... 5,242 6,381
GOODWILL, net of accumulated amortization of $229 in 1996 and $198 in 1995................ 984 1,015
OTHER ASSETS.............................................................................. 100 195
---------- ----------
Total assets........................................................................ $ 19,482 $ 19,313
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' ACCUMULATED DEFICIT
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 1,881 $ 836
Accrued expenses........................................................................ 5,743 6,672
Deferred income (including deferred subscription income of $7,221 in 1996 and $7,095 in
1995) 8,008 7,631
---------- ----------
Total current liabilities........................................................... 15,632 15,139
DUE TO GENERAL PARTNER.................................................................... 30,150 22,114
---------- ----------
Total liabilities................................................................... 45,782 37,253
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN CONSOLIDATED PARTNERSHIP (Note 1).................................... -- 1,819
PARTNERS' ACCUMULATED DEFICIT............................................................. (26,300) (19,759)
---------- ----------
Total liabilities and partners' accumulated deficit................................. $ 19,482 $ 19,313
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-29
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
NET REVENUES:
Periodicals
Advertising............................................................................. $ 26,659 $ 25,037
Subscription............................................................................ 11,304 10,884
Ancillary Products and Services........................................................... 8,467 8,387
Internet Services......................................................................... 5,474 3,238
--------- ---------
Total net revenues.................................................................. 51,904 47,546
--------- ---------
OPERATING EXPENSES:
Editorial................................................................................. 7,141 7,073
Production and Distribution............................................................... 12,469 12,587
Selling................................................................................... 7,479 6,913
General and Administrative................................................................ 16,829 16,506
Internet Services......................................................................... 11,886 10,854
Depreciation and Amortization............................................................. 2,488 2,680
--------- ---------
Total operating expenses............................................................ 58,292 56,613
--------- ---------
Operating loss...................................................................... (6,388) (9,067)
--------- ---------
INTEREST EXPENSE, net....................................................................... 1,972 1,384
Loss before minority interest....................................................... (8,360) (10,451)
MINORITY INTEREST IN LOSS OF CONSOLIDATED PARTNERSHIP
(Note 1).................................................................................. 172 2,334
--------- ---------
Net loss (Note 3)................................................................... $ (8,188) $ (8,117)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS'
CONTRIBUTED EARNINGS/ ACCUMULATED
CAPITAL LOSSES DEFICIT
----------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994............................................... $ 30,030 $ (41,672) $ (11,642)
Net loss................................................................. -- (8,117) (8,117)
----------- ---------- ------------
BALANCE AT DECEMBER 31, 1995............................................... 30,030 (49,789) (19,759)
Contribution of capital from minority partner............................ 1,647 -- 1,647
Net loss................................................................. -- (8,188) (8,188)
----------- ---------- ------------
BALANCE AT DECEMBER 31, 1996............................................... $ 31,677 $ (57,977) $ (26,300)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................... $ (8,188) $ (8,117)
Adjustments to reconcile net loss to net cash used in operating activities--
Depreciation and amortization............................................................ 2,488 2,680
Interest expense......................................................................... 1,972 1,384
Minority share........................................................................... (172) (2,334)
Allowance for doubtful accounts.......................................................... 259 108
Decrease (increase) in--
Accounts receivable and due from affiliate............................................. (1,548) 757
Inventories............................................................................ 109 (105)
Other current assets................................................................... (60) (97)
Other assets........................................................................... 95 13
Increase (decrease) in--
Accounts payable....................................................................... 1,045 28
Accrued expenses....................................................................... (929) (146)
Deferred income........................................................................ 377 357
--------- ---------
Total adjustments.................................................................... 3,636 2,645
--------- ---------
Net cash used in operating activities................................................ (4,552) (5,472)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................................................... (2,202) (1,481)
--------- ---------
Net cash used in investing activities................................................ (2,202) (1,481)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from general partner........................................................ 6,064 7,206
--------- ---------
Net cash provided by financing activities............................................ 6,064 7,206
--------- ---------
Net (decrease) increase in cash...................................................... (690) 253
CASH, beginning of year...................................................................... 780 527
--------- ---------
CASH, end of year............................................................................ $ 90 $ 780
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION
American Lawyer Media, L.P. (the "Company") is a limited partnership of Time
Warner and Associated Newspapers. The sole general partner of American Lawyer
Media, L.P. is Time Warner. The Company is based in New York and has operations
in seven states and the District of Columbia. The Company publishes THE AMERICAN
LAWYER, CORPORATE COUNSEL MAGAZINE, AMLAW TECH, THE CONNECTICUT LAW TRIBUNE,
LEGAL TIMES, NEW JERSEY LAW JOURNAL, THE RECORDER, TEXAS LAWYER, FULTON COUNTY
DAILY REPORT, and the DAILY BUSINESS REVIEWS, all of which are divisions of the
Company. In addition, the Company consolidates its interest in Counsel Connect,
a New York general partnership. The partnership, which runs a membership-based
internet service exclusively for lawyers and legal professionals, was formed in
February 1994 by Mead Data Central and the Company. In February 1996, Mead Data
Central assigned its interest in the partnership to the Company and also
contributed the balance in its capital account of approximately $1,647,000, to
the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers. Allowances for estimated doubtful accounts are
provided based upon historical experience.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of third-party printing revenues,
newsletter subscriptions, sales of professional books and directories,
Lexis/Nexis royalty income, seminar income, and a daily fax service of court
decisions.
Internet services revenues consist of income earned from COUNSEL CONNECT
subscriptions and usage fees.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
magazine subscriptions received from subscribers.
CIRCULATION PROMOTION (SUBSCRIPTION DIRECT MAIL) COSTS
Circulation promotion costs are charged to expense upon the release of the
campaign.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-33
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of paper utilized by the Company and its
outside printers and professional books published and sold by the Company.
Inventories are stated at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Machinery and equipment........................................... 5 years
Buildings......................................................... 25 years
Furniture and fixtures............................................ 5 years
Computer equipment and software................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life. The cost and accumulated depreciation of
property sold or retired are removed from the accounts upon disposition.
INTANGIBLES AND GOODWILL
Intangible assets, consisting primarily of non-compete agreements and
subscription lists, are valued at the appraised market value of the assets at
the date of acquisition, net of accumulated amortization. Intangibles are
amortized over the expected useful lives of the respective assets, ranging from
two to thirteen years. Goodwill represents the excess of purchase price over the
fair value of net assets acquired, less accumulated amortization. Goodwill is
being amortized on a straight-line basis over 40 years.
ACCOUNTS PAYABLE
Included in accounts payable are $1,537,000 and $335,000 of bank overdrafts
as of December 31, 1996 and 1995, respectively.
3. INCOME TAXES
No provision has been made in the accompanying statements of operations for
income taxes since, pursuant to provisions of the Internal Revenue Code, the net
losses appearing on the accompanying statement of operations is reportable by
each of the partners on their individual tax returns.
F-34
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Machinery and equipment.................................................... $ 8,469 $ 7,460
Buildings and improvements................................................. 1,398 1,349
Furniture and fixtures..................................................... 763 777
Land....................................................................... 300 300
Automobiles................................................................ 72 72
--------- ---------
11,002 9,958
Accumulated depreciation and amortization.................................. (6,469) (6,309)
--------- ---------
Net property, plant and equipment...................................... $ 4,533 $ 3,649
--------- ---------
--------- ---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company has a business relationship with Courtroom Television Network
("Court TV"), an affiliate of the Company's general partner. Revenues are
generated through licensing fees charged to Court TV for editorial content and
sales of advertisements. The licensing fees for American Lawyer publications
were fixed at approximately $255,000 in both 1996 and 1995. Advertising revenues
from Court TV totaled approximately $244,000 and $233,000 for 1996 and 1995,
respectively. In addition, the Company and Court TV share certain editorial and
administrative resources and employees, as well as office facilities. The cost
associated with employees who devote all or a portion of their time to Court TV
activities is charged to Court TV based on an estimate of their time spent on
such activities. These charges, which include an allocation for the chairman of
the Company, amounted to $1,266,000 and $1,309,000 in 1996 and 1995,
respectively. Court TV is also charged a flat annual fee of $195,000 for use of
the Company's reporters for on-camera appearances and background reports.
Finally, an allocation is made to Court TV to cover general overhead costs
(e.g., rent, utilities, etc.) which amounted to approximately $90,000 in both
1996 and 1995. Amounts due from Court TV at December 31, 1996 and 1995 are
reflected as due from affiliate on the accompanying balance sheets.
The Company's general partner provides certain legal, administrative,
accounting, and tax services for the Company. Charges for such services amounted
to approximately $97,000 and $103,000, in 1996 and 1995, respectively.
6. DUE TO GENERAL PARTNER
Due to General Partner consists of borrowings from WCI/AMLAW Inc. and
interest accrued thereon. The borrowings bear interest at 1% under prime and do
not have a stated maturity date. This amount has been included in long-term
liabilities in the accompanying balance sheet since the amount is not intended
to be repaid within the next year.
F-35
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $1,757,000 and
$1,726,000 for the year ended December 31, 1996 and 1995, respectively,
including rent accruals in excess of payments of $12,000 and $21,000 for the
year ended December 31, 1996 and 1995, respectively.
At December 31, 1996, minimum rental commitments under noncancelable leases
were as follows (in thousands):
<TABLE>
<CAPTION>
REAL SUBLEASE
ESTATE INCOME OTHER TOTAL
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
1997.................................................................... $ 3,481 $ (1,560) $ 67 $ 1,988
1998.................................................................... 3,161 (1,443) 70 1,788
1999.................................................................... 3,094 (1,473) 59 1,680
2000.................................................................... 3,087 (1,473) 44 1,658
2001.................................................................... 2,906 (1,473) 33 1,466
2002 and thereafter..................................................... 17,424 (10,823) 5 6,606
--------- ---------- ----- ---------
$ 33,153 $ (18,245) $ 278 $ 15,186
--------- ---------- ----- ---------
--------- ---------- ----- ---------
</TABLE>
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. An obligation of $12,400,
representing accrued pro rata future payments, net of receipts, is included in
the accompanying balance sheet as of December 31, 1996.
The Company subleases a portion of its office facilities to Court TV. The
sublease charges summarized above are based on an oral agreement between the
Company and Court TV.
The lease for the Company's headquarters contains a provision whereby the
Company could elect not to renew the lease for the years 1999 through 2008 upon
payment of a $2,200,000 termination penalty.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
8. EMPLOYEE BENEFITS
The Company sponsors a retirement savings plan. Participation in this plan
is available for substantially all employees. The plan provides for employer
matching of employees' contributions, as defined. The cost of the plan for the
years ended December 31, 1996 and 1995, was $308,000 and $310,000, respectively.
The Company sponsors an Excess Benefit Pension Plan providing a benefit to
highly compensated employees in excess of the benefits provided by the tax
qualified benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan.
F-36
<PAGE>
AMERICAN LAWYER MEDIA, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
8. EMPLOYEE BENEFITS (CONTINUED)
The Company also has a defined benefit plan covering substantially all
employees. The Company's general funding policy is to contribute annual amounts
that satisfy the Internal Revenue Code funding requirements. The components of
net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Service cost.......................................................... $ 361,216 $ 324,416
Interest cost on projected benefit obligation......................... 188,428 155,834
Actual return on assets............................................... (260,515) (90,023)
Net amortization and deferral......................................... 178,602 59,568
---------- ----------
$ 467,731 $ 449,795
---------- ----------
---------- ----------
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plan and amounts recognized in the balance sheet as of December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................................................. $ 1,756,139 $ 1,414,464
------------ ------------
Accumulated benefit obligation........................................................ $ 1,988,235 $ 1,606,773
------------ ------------
Projected benefit obligation.......................................................... $ 3,031,741 $ 2,547,018
Plan assets at fair value............................................................. 1,965,782 1,242,044
------------ ------------
Projected benefit obligation in excess of plan assets................................. $ 1,065,959 $ 1,304,974
Unrecognized net gain (loss).......................................................... 155,802 (174,550)
Unrecognized net transition obligation................................................ (728,462) (788,030)
------------ ------------
Accrued pension liability............................................................. $ 493,299 $ 342,394
------------ ------------
------------ ------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the discount rate was 7.5% as of December 31, 1996 and 1995; the
rate of increase in future compensation levels was 6% as of December 31, 1996
and 1995, and the expected long-term rate of return on assets was 9% as of
December 31, 1996 and 1995.
The Company sponsors a comprehensive medical and dental insurance plan which
is available to substantially all employees. The Company is self insured for
claims submitted under this plan up to predetermined amounts, above which third
party insurance applies.
9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 107-FAIR VALUE OF FINANCIAL
INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and due to general
partner. The carrying amount of these accounts approximates fair value.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the National Law Publishing Company, Inc.:
We have audited the accompanying consolidated balance sheet of National Law
Publishing Company (a New York corporation) and subsidiaries as of December 21,
1997 and the related consolidated statement of operations, stockholders' equity
and cash flows for the period from January 1, 1997 through December 21, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Law Publishing
Company, Inc. and subsidiaries as of December 21, 1997, and the results of their
operations and their cash flows for the period from January 1, 1997 through
December 21, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
April 3, 1998
F-38
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 21, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 584
Accounts receivable, net of allowances for doubtful accounts and sales returns
of $1,014..................................................................... 7,402
Inventories, net................................................................ 1,010
Deferred income taxes........................................................... 800
Other current assets............................................................ 741
---------
Total current assets........................................................ 10,537
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization of
$2,250.......................................................................... 2,544
INTANGIBLE ASSETS, net of accumulated amortization of $14,306..................... 122,351
DEFERRED INCOME TAXES............................................................. 2,934
OTHER ASSETS...................................................................... 1,244
---------
Total assets................................................................ $ 139,610
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................................ $ 1,522
Accrued expenses................................................................ 1,674
Deferred income (including deferred subscription income of $9,041).............. 9,545
---------
Total current liabilities................................................... 12,741
---------
LONG-TERM DEBT.................................................................... 59,500
DEFERRED INCOME TAXES............................................................. 926
---------
OTHER NONCURRENT LIABILITIES...................................................... 1,661
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued
and outstanding............................................................... 1
Paid-in capital................................................................. 72,993
Accumulated (deficit)........................................................... (8,212)
---------
Total stockholders' equity................................................ 64,782
---------
Total liabilities and stockholders' equity................................ $ 139,610
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet
F-39
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Periodicals......................................................................
Advertising.................................................................... $ 26,402
Subscription................................................................... 9,504
Ancillary products and services.................................................. 13,926
Internet services................................................................ 1,109
---------
Total net revenues......................................................... 50,941
---------
OPERATING EXPENSES:
Editorial........................................................................ 5,837
Production and distribution...................................................... 9,872
Selling.......................................................................... 8,211
General and administrative....................................................... 8,722
Internet services................................................................ 1,657
Depreciation and amortization.................................................... 7,283
Special compensation charge...................................................... 6,926
---------
Total operating costs and expenses......................................... 48,508
---------
Operating income........................................................... 2,433
INTEREST EXPENSE, NET.............................................................. (5,137)
---------
Loss before income taxes................................................... (2,704)
PROVISION FOR INCOME TAXES......................................................... (2,508)
---------
Net loss................................................................... $ (5,212)
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-40
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............................ $ 1 $ 66,165 $ (3,000) $ -- $ 63,166
Contribution from Stockholder......................... 6,828 6,828
Net loss for the period from January 1, 1997 through
December 21, 1997................................... -- -- (5,212) -- (5,212)
----------- ----------- ------------ ----------- ---------
BALANCE AT DECEMBER 21, 1997............................ $ 1 $ 72,993 $ (8,212) $ -- $ 64,782
----------- ----------- ------------ ----------- ---------
----------- ----------- ------------ ----------- ---------
</TABLE>
The accompanying notes are an integral part of this statement
F-41
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net loss........................................................................ $ (5,212)
Adjustments to reconcile net loss to net cash provided by operating activities--
Depreciation and amortization................................................. 7,283
Decrease in deferred income taxes........................................... 1,134
Special compensation charges.................................................. 6,828
Changes in operating assets and liabilities--.................................
(Increase) in accounts receivable........................................... (405)
(Increase) in inventories................................................... (174)
Decrease in prepaid expenses and other current assets....................... 37
Decrease in other assets.................................................... 317
(Decrease) in accounts payable and accrued expenses......................... (320)
Increase in deferred income................................................. 788
Increase in other noncurrent liabilities.................................... 1,016
---------
Net cash provided by operating activities................................. 11,292
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to furniture, equipment and leasehold improvements, net of loss on
disposal of fixed assets of $19............................................... (496)
---------
Net cash used in investing activities..................................... (496)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt.............................................................. (10,800)
---------
Net cash used in financing activities..................................... (10,800)
---------
Net decrease in cash and cash equivalents................................. (4)
CASH AND CASH EQUIVALENTS, beginning of period.................................... 588
---------
CASH AND CASH EQUIVALENTS, end of period.......................................... $ 584
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest...................................................................... $ 5,528
Income taxes.................................................................. 341
---------
---------
</TABLE>
The accompanying notes are an integral part of this statement
F-42
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 21, 1997
1. ORGANIZATION
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP" or the
"Company") is considered a leading publisher of periodicals, books and
newsletters as well as a provider of seminars and electronic information
services targeted to the U.S. legal community. NYLP's principal periodical
publications are the New York Law Journal (a daily newspaper), The National Law
Journal (a weekly publication) and Law Technology Product News (published
approximately fifteen times per year). NYLP also wholly owns Law Journal EXTRA!,
Inc. ("LJX"). LJX is an on-line service available on the World Wide Web
providing access to various legal information and related services including
electronic versions of NYLP's principal periodicals.
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000.
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional 6,461 shares of
National which vest, subject to certain employment and operating performance
criteria, over a five year period (Note 7).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising ad agents ("Legal Ad Agents"), generally limited due to the large
number of customers comprising the Company's customer base. Such Legal Ad Agents
do not have significant liquid net worth and, as a result, the Company is
exposed to a certain level of credit concentration risk in this area, which the
Company believes it has adequately provided for.
F-43
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Advertising revenues are generated from the placement of display and
classified advertisements, as well as legal notices, in the Company's
publications. Advertising revenue is recognized upon release of the related
publications to subscribers.
Subscription revenues are recognized on a pro rata basis as issues of a
subscription are served.
Ancillary revenues consist principally of newsletter subscriptions, sales of
professional books, software, royalty income and seminar income.
Internet services revenues are recognized upon the release of an
advertisement on the website.
DEFERRED SUBSCRIPTION INCOME
Deferred subscription income results from advance payments or orders for
subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of $734,000 are included in accounts receivable in the accompanying
consolidated balance sheet.
EXPENSE RECOGNITION
ADVERTISING AND PROMOTION COSTS--Advertising expenditures are expensed when
the particular advertisement is released. The Company capitalizes direct
response promotional costs. At December 21, 1997 approximately $1,152,000 of
direct response promotional costs was recorded in other assets on the
accompanying consolidated balance sheet. Advertising expense was approximately
$3,018,000 for the period ended December 21, 1997. The amortization of direct
response promotion expenditures is included in selling expense in the
accompanying consolidated statements of operations.
EDITORIAL COSTS--All editorial costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist principally of professional books published and sold by
the Company and related binding materials utilized. Inventories are stated at
the lower of cost, as determined by the average cost method, or market.
PROPERTY, PLANT AND EQUIPMENT
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
F-44
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets include deferred financing costs with the amortization
and/or write-off of such costs classified as part of amortization expense.
Goodwill represents the excess of purchase price over the fair value of net
assets acquired.
3. PROPERTY, PLANT AND EQUIPMENT, NET
The following is a summary of property, plant and equipment at December 21,
1997:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
(IN THOUSANDS) LIVES
--------------- ---------------
<S> <C> <C>
Computer equipment and purchased software.................... $ 2,971 6 years
Furniture and office equipment............................... 1,210 5 to 9 years
Leasehold improvements....................................... 613 7 to 10 years
------
4,794
Less--accumulated depreciation and amortization.............. (2,250)
------
$ 2,544
------
------
</TABLE>
4. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets at December 21, 1997:
<TABLE>
<CAPTION>
AMORTIZATION
(IN THOUSANDS) PERIODS
-------------- ------------
<S> <C> <C>
Goodwill....................................................... $ 135,519 20 years
Deferred financing costs....................................... 1,138 7 years
--------------
136,657
Less--accumulated amortization................................. (14,306)
--------------
$ 122,351
--------------
--------------
</TABLE>
Total amortization expense of intangibles was approximately $6,709,000 for
the period ended December 21, 1997.
5. LONG-TERM DEBT
Long-term debt was comprised of the following at December 21, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Revolving credit facilities................................................... $ 59,500
Less-current portion of revolving credit facilities reduction amount.......... --
-------
$ 59,500
-------
-------
</TABLE>
F-45
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. The Company's borrowing capacity under the
revolving credit facility, including cash loans and standby letters of credit of
up to $6 million, was $70.5 million through December 21, 1997, and decreases
semi-annually until final maturity on December 31, 2002 as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
January 1, 1998 through June 29, 1998......................................... $ 67,000
June 30, 1998 through December 30, 1998....................................... 63,250
December 31, 1998 through June 29, 1999....................................... 59,500
June 30, 1999 through December 30, 1999....................................... 55,250
December 31, 1999 through June 29, 2000....................................... 51,000
June 30, 2000 through December 30, 2000....................................... 45,750
December 31, 2000 through June 29, 2001....................................... 40,500
June 30, 2001 through December 30, 2001....................................... 33,750
December 31, 2001 through June 29, 2002....................................... 27,000
June 30, 2002 through final maturity date..................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the Company's consolidated
funded debt to consolidated operating cash flow, as defined. Outstanding
borrowings under the facility bear interest at a fluctuating rate, subject to
the Company's elected pricing option, at either the Base Rate, Eurodollar Rate,
and/or CD Rate, plus a variable margin based on the Company's ratio of
consolidated funded debt to consolidated operating cash flow, as defined. The
interest rate under this revolving credit facility approximated 8.0% for the
period ended December 21, 1997. Commitment fees are charged and payable
quarterly at either a .375% or .500% annual rate, depending on the Company's
ratio of consolidated funded debt to consolidated operating cash flow for the
immediately preceding quarter (the "Quarterly Funded Debt Ratio") and on the
average daily unused portion of the revolving credit facility. In addition,
letter of credit usage fees are payable at rates which range between 1.25% and
2.5% depending on the Quarterly Funded Debt Ratio and on the daily letter of
credit exposure during the three month period or portion thereof ending on such
payment date. The revolving credit facility is secured by the assets of National
and NYLP and the stock of NYLP and its subsidiaries.
The Credit Agreement requires, among other things, that the Company maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flows, consolidated operating cash flow to interest expense and consolidated
adjusted operating cash flow to consolidated fixed charges, as defined. The
Credit Agreement contains other restrictive covenants, including limitations on
indebtedness, investments and acquisitions, the disposition of assets,
transactions with affiliates and distributions to stockholders.
F-46
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
5. LONG-TERM DEBT (CONTINUED)
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
6. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 21, 1997,
National had a net operating loss carryforwards available to offset future
taxable income for Federal income tax purposes of approximately $2.0 million.
These carryforwards expire in the years 2004 through 2010 and, as a result of
the change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 21, 1997, National had
approximately $75,000 of operating loss carryforwards for New York State and New
York City income tax purposes.
The provision for income taxes is comprised of the following for the period
from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Current--
Federal.......................................................... $ 1,830
State and local.................................................. 610
---------
$ 2,440
---------
Deferred--
Federal.......................................................... 50
State and local.................................................. 18
---------
$ 68
---------
$ 2,508
---------
---------
</TABLE>
The reconciliation between the provision for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss before income
taxes is as follows for the period from January 1, 1997 to December 21, 1997:
<TABLE>
<S> <C>
Federal statutory income taxes...................................... $ (947)
Permanent differences (principally goodwill amortization)........... 2,391
State and local income taxes, net of Federal benefit................ 352
Other............................................................... 712
---------
$ 2,508
---------
---------
</TABLE>
F-47
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein being employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the nonrenewal of his employment, as defined in his employment agreement to
require the Company to purchase all of his shares and liquidate and cash out his
vested option shares for fair value. The Company's obligation to acquire
Finkelstein's shares is subject to it being permitted by the Credit Agreement
and applicable law to do so. In addition, the stockholders' agreement gives the
Company, along with Boston Ventures, the right of first refusal with respect to
Finkelstein's shares.
8. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. The Company may also annually contribute additional discretionary
amounts to participants. For the period ended December 21, 1997, the Company did
not make any matching discretionary contributions to the Plan.
In addition, approximately twenty Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for the period ended December
21, 1997 were approximately $474,000.
F-48
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under non-cancelable operating leases which
expire at various dates through October 2008. At December 21, 1997, the future
minimum payments due under these leases, net of sublease income are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
(IN THOUSANDS)
1998.......................................................................... 1,093
1999.......................................................................... 1,173
2000.......................................................................... 1,177
2001.......................................................................... 1,177
Thereafter.................................................................... 8,611
-------
$ 13,231
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,153,000 for the
period ended December 21, 1997.
At December 21, 1997, the Company had a letter of credit outstanding of
approximately $533,000 for the security deposit on its corporate office space.
EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for, among other things, an
annual base salary which, beginning on June 30, 1996, and annually thereafter,
is to be increased by the greater of (i) 5% or (ii) the annual increase in the
consumer price index for all urban consumers not in excess of 8%.
LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and cash
equivalents, long-term debt and interest rate protection agreements. The Company
estimates that the fair value of all financial instruments at December 21, 1997
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
F-49
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 21, 1997
11. SUBSEQUENT EVENT
On December 22, 1997, Boston Ventures and Mr. James A. Finkelstein completed
a Stock Purchase Agreement with American Lawyer Media, LLC for the sale of NLP.
The purchase price for the NLP acquisition was approximately $203,200,000 in
cash. In connection with the sale of the Company, Boston Ventures cashed out
options held by certain management employees. The payment totaled approximately
$6,926,000 which is included as a special compensation charge in the
accompanying consolidated statement of operations.
F-50
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
National Law Publishing Company, Inc.
We have audited the consolidated balance sheets of National Law Publishing
Company, Inc. (the "Company") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1, the Company's 1995 consolidated financial
statements, effective December 1, 1995, reflect the push down accounting effects
of Boston Ventures' acquisition cost for the Company. The consolidated financial
statements for the eleven month period prior to December 1, 1995 do not reflect
the push down accounting effects of the acquisition cost basis of the Company's
former stockholders.
LESLIE SUFRIN AND COMPANY, P.C.
February 19, 1997, except as to Note 7
which date is March 27, 1997
F-51
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 588 $ 101
Accounts receivable, net of allowances for doubtful accounts and sales returns of $1,086
in 1996 and $1,159 in 1995............................................................ 6,997 6,496
Inventories, net........................................................................ 836 784
Deferred tax benefits (Note 9).......................................................... 4,293 3,208
Prepaid expenses and other current assets............................................... 778 860
---------- ----------
Total current assets................................................................ 13,492 11,449
Furniture, equipment and leasehold improvements, net (Note 4)............................. 2,621 2,664
Intangible assets, net (Note 5)........................................................... 129,060 134,738
Deferred tax benefits (Note 9)............................................................ 577 4,354
Other assets (Note 6)..................................................................... 1,561 920
---------- ----------
$ 147,311 $ 154,125
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................................... $ 3,516 $ 4,253
Current portion of long-term debt....................................................... 3,300 --
Due to stockholder (Note 7)............................................................. -- 5,000
Deferred revenue........................................................................ 8,757 6,913
---------- ----------
Total current liabilities........................................................... 15,573 16,166
Long-term debt (Note 7)................................................................... 67,000 70,900
Other non-current liabilities............................................................. 1,571 1,439
Commitments and contingencies
Stockholders' equity (Note 10):
Common stock, $.01 par value; 125,000 shares authorized; 89,609 shares issued and
outstanding........................................................................... 1 1
Additional paid-in capital.............................................................. 66,165 66,165
Accumulated (deficit)................................................................... (2,999) (546)
---------- ----------
Total stockholders' equity.......................................................... 63,167 65,620
---------- ----------
$ 147,311 $ 154,125
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-52
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
REVENUES: 1996 1995
--------- ---------
<S> <C> <C>
Periodicals
Advertising............................................................. $ 23,319 $ 21,387
Subscription............................................................ 9,759 9,694
Ancillary products and services......................................... 13,398 12,729
Internet services....................................................... 747 264
--------- ---------
Total net revenues.................................................. 47,223 44,074
--------- ---------
OPERATING COSTS AND EXPENSES:
Editorial............................................................... 5,929 5,778
Production and distribution............................................. 8,679 8,146
Selling................................................................. 8,991 9,776
General and administrative.............................................. 8,047 7,620
Internet services....................................................... 1,704 2,947
Depreciation and amortization........................................... 7,487 6,329
--------- ---------
Total operating costs and expenses.................................. 40,837 40,596
--------- ---------
Operating income...................................................... 6,386 3,478
INTEREST EXPENSE, NET..................................................... (6,013) (5,458)
OTHER INCOME (EXPENSE)(Note 11)........................................... 181 (211)
--------- ---------
Total other (expense)............................................... (5,832) (5,669)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES......................................... 554 (2,191)
(PROVISION) BENEFIT FOR INCOME TAXES (Note 9)............................. (3,007) 523
--------- ---------
NET (LOSS)................................................................ $ (2,453) $ (1,668)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-53
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995............................. $ 1 $ 2,261 $ (35,910) $ (11,194) $ (44,842)
Elimination of accumulated deficit and treasury stock
at December 1, 1995 resulting from Boston Ventures'
acquisition of approximately 94.3% of the Company
(Note 1)........................................... -- (48,226) 37,032 11,194 --
Fair value and other adjustments related to Boston
Ventures' acquisition.............................. -- 112,130 -- -- 112,130
Net (loss) for the year ended December 31, 1995...... -- -- (1,668) -- (1,668)
--
---------- ------------ ---------- ----------
Balance, December 31, 1995........................... 1 66,165 (546) -- 65,620
Net (loss) for the year ended December 31, 1996...... -- -- (2,453) -- (2,453)
--
---------- ------------ ---------- ----------
Balance, December 31, 1996........................... $ 1 $ 66,165 $ (2,999) $ -- $ 63,167
--
--
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
</TABLE>
See accompanying notes.
F-54
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)................................................................................ $ (2,453) $ (1,668)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 7,487 6,329
Provision for deferred rent............................................................. 136 238
Deferred income taxes................................................................... 2,692 (546)
Loss on disposal of fixed assets........................................................ 9 --
Changes in operating assets and liabilities:
(Increase) in accounts receivable..................................................... (335) (247)
(Increase) in inventories............................................................. (52) (104)
(Increase) decrease in prepaid expenses and other current assets...................... 82 (189)
(Increase) in other assets............................................................ (641) (899)
Increase (decrease) in accounts payable and accrued expenses.......................... (737) 965
Increase (decrease) in deferred revenue............................................... 432 (178)
(Decrease) in other non current liabilities........................................... (4) (11)
--------- ----------
Net cash provided by operating activities........................................... 6,616 3,690
--------- ----------
Cash flows from investing activities:
Additions to furniture, equipment and leasehold improvements............................ (512) (608)
Additions to intangible assets.......................................................... (17) --
--------- ----------
Net cash (used in) investing activities............................................. (529) (608)
--------- ----------
Cash flows from financing activities:
Payments on line of credit.............................................................. (8,524) (44,600)
Payment of stockholder debt............................................................. (5,000) --
Proceeds from line of credit............................................................ 7,924 --
Payment of deferred financing costs..................................................... -- (1,138)
Payment of acquisition costs............................................................ -- (2,839)
Payment of subordinated debt............................................................ -- (10,000)
Issuance of long-term debt.............................................................. -- 70,900
Purchase of stock, warrants and options................................................. -- (15,674)
--------- ----------
Net cash (used in) financing activities............................................. (5,600) (3,351)
--------- ----------
Net increase (decrease) in cash and cash equivalents...................................... 487 (269)
Cash and cash equivalents--beginning of year.............................................. 101 370
--------- ----------
Cash and cash equivalents--end of year.................................................... $ 588 $ 101
--------- ----------
--------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.............................................................................. $ 6,198 $ 5,303
--------- ----------
--------- ----------
Income taxes.......................................................................... $ 117 $ 91
--------- ----------
--------- ----------
Supplemental disclosure of non cash activities: Issuance of note payable to stockholder in
connection with the acquisition of a portion of such stockholder's common stock on
December 1, 1995 (Notes 1 and 7).......................................................... $ -- $ 5,000
--------- ----------
--------- ----------
Push-down of acquisition cost in excess of fair value of net assets acquired resulting
in an increase of stockholders' equity................................................ $ -- $ 45,964
--------- ----------
--------- ----------
Purchase price adjustment related principally to the revaluation of deferred
subscription income at the acquisition date resulting in a corresponding increase to
goodwill.............................................................................. $ 1,246 $ --
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-55
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION, NATURE OF BUSINESS AND CHANGE IN OWNERSHIP
The National Law Publishing Company, Inc. ("National") through its wholly
owned operating subsidiary, New York Law Publishing Company, Inc. ("NYLP") is a
leading publisher of periodicals, books and newsletters as well as a provider of
seminars and electronic information services targeted to the U.S. legal
community. NYLP's principal periodical publications are NEW YORK LAW JOURNAL (a
daily newspaper), THE NATIONAL LAW JOURNAL (a weekly publication) and LAW
TECHNOLOGY PRODUCT NEWS (published 12 times per year). NYLP also wholly owns Law
Journal EXTRA!, Inc. ("LJX"). LJX is an online service available on the World
Wide Web providing access to various legal information and related services
including electronic versions of NYLP's principal periodicals. In addition to
NYLP, National also owns all outstanding shares of PPC Publishing Corporation
("PPC"), whose sole asset is 25,000 shares of National's common stock. National
and its subsidiaries are collectively referred to as the "Company".
On December 1, 1995, Boston Ventures Limited Partnership IV and Boston
Ventures Limited Partnership IVA (collectively, "Boston Ventures"), through a
wholly-owned subsidiary, NLPC Acquisition, Inc. ("NAI"), acquired approximately
71,308 shares of National's common stock from Apollo Publishing Partners, L.P.
("Apollo") and James A. Finkelstein ("Finkelstein"), the chief executive of the
Company, and initiated a series of related transactions which resulted in Boston
Ventures acquiring approximately 94.3% of National for $141,958,454 in cash plus
acquisition related costs of $757,000. The following summarizes the series of
transactions which have been accounted for as acquisition related:
<TABLE>
<C> <S> <C>
Purchase by NAI of 71,308.0851 shares of National stock (65,000 and
(i) 6,308.0851 shares acquired from Apollo and Finkelstein, respectively).... $77,258,645
Cash settlement and cancellation of a Finkelstein stock option and Apollo
(ii) stock warrant of 9,756 shares and 1,407 shares, respectively............. 9,415,417
(iii) Payment of NYLP bank debt and related accrued interest................... 43,083,087
Payment of National 13% subordinated notes and related accrued
(iv) interest................................................................. 10,119,167
Payment of certain agreed upon transaction related expenses incurred by
(v) the Company on behalf of Apollo and Finkelstein.......................... 2,082,138
-----------
$141,958,454
-----------
-----------
</TABLE>
In addition, on December 1, 1995, NAI was merged into National, with
National as the surviving corporation. In connection with the merger, Boston
Ventures received 60,916.5954 shares of National's common stock (approximately
94.3% of National's outstanding stock) in exchange for its shares of NAI.
Finkelstein retained 3,691.9149 shares of National, approximately 5.7% of its
outstanding stock. In addition, under a related stock option agreement,
Finkelstein was granted options to acquire up to an additional approximate 6,461
shares of National which vest, subject to certain employment and operating
performance criteria, over a five year period (See Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of National and
its direct and indirect wholly-owned subsidiaries. As a result of the
acquisition by Boston Ventures of approximately 94.3% of National's common stock
on December 1, 1995, the Company's assets and liabilities were adjusted to fair
value under what is commonly referred to as push down accounting. Since the fair
value of the Company's
F-56
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
tangible net assets approximated book value, the effect of applying push down
accounting has been to record goodwill and to adjust stockholders' equity
(deficiency) on that date to reflect Boston Ventures' acquisition cost.
Finkelstein's continuing interest in the Company has been reflected at its
historical cost basis and not at its $4 million stipulated fair value at the
time of Boston Ventures' acquisition. Had the Company made adjustments to "push
down" Finkelstein's approximate 5.7% interest at its stipulated fair value, the
Company's intangible assets and stockholders' equity at December 31, 1995 would
have each increased by $3,818,000 and its 1995 amortization expense and net loss
would have each increased by $16,000.
The Company's results of operations for the eleven months ended November 30,
1995 do not include push down accounting adjustments reflecting Apollo's and
Finkelstein's respective costs bases in the Company.
The consolidated statements of operations for 1995 reflects the Company's
consolidated results of operations for (i) the eleven months ended November 30,
1995 (the "Predecessor Period") determined without regard to the effects of push
down accounting and (ii) the month of December 1995 (the "Successor Period")
which reflects the effects of such push down accounting. The consolidated
results of operations for the Successor Period and Predecessor Periods are
summarized in Note 15.
All significant intercompany items and transactions have been eliminated in
consolidation.
B) USE OF ESTIMATES
The accompanying consolidated financial statements are prepared in
conformity with generally accepted accounting principles and, accordingly,
include certain amounts that are based, in part, on management's best estimates
and judgments. These estimates and judgments affect the reported amounts of
assets and liabilities and the amount of reported revenues and expenses. Actual
results could differ from these estimates and judgments.
C) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity of three months or less to be cash equivalents.
D) CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company's cash and cash equivalent balances are principally
maintained with one financial institution. At times, such balances may be in
excess of Federally insured limits; however, the Company believes it is not
exposed to any significant credit risk in this area. Concentrations of credit
risk with respect to trade accounts receivable are, except for amounts due from
legal advertising ad agents ("Legal Ad Agents"), generally limited due to the
large number of customers comprising the Company's customer base. Approximately
$8.4 million in 1996 and $7.6 million in 1995 of advertising revenues relate to
legal advertising in New York Law Journal. A significant portion of such revenue
is generated through Legal Ad Agents. Such Legal Ad Agents do not have
significant liquid net worth, and, as a result, the Company is exposed to a
certain level of credit concentration risk in this area, which it believes it
has adequately provided for.
F-57
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During 1995, the Company determined that its provisions for doubtful
accounts with respect to revenues recognized in years prior to 1995, principally
with respect to its legal advertising revenues, should be increased by $946,000
due to, among other things, the concentration of credit risk associated with
Legal Ad Agents. This additional provision for doubtful accounts has been
included in selling expense in the accompanying 1995 consolidated statements of
operations.
The Company's recurring provision for doubtful accounts, which is based on a
review of its customer accounts, is included in selling and shipping expense in
the accompanying consolidated statements of operations.
E) INVENTORIES
Inventories, consisting of book texts and related binding materials, are
stated at the lower of cost or market, after appropriate reserves for obsolete
inventories. Cost is determined by the average cost method.
F) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Furniture, equipment and purchased
software are depreciated on a straight-line basis over their respective
estimated useful lives. Repairs and maintenance are charged to expense as
incurred. Leasehold improvements are amortized over the lives of the
improvements or the term of the related lease, whichever is shorter.
G) INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization.
Intangible assets are amortized on a straight-line basis over their respective
useful lives. Intangible assets include deferred financing costs with the
amortization and/or write-off of such costs classified as part of amortization
expense rather than as interest expense. Goodwill represents the excess of
purchase price over the fair value of net assets acquired, including, beginning
on December 1, 1995, the push down accounting effects attributable to the Boston
Ventures' acquisition of the Company (See Note 1). The Company periodically
assesses the recoverability of goodwill by determining whether the amortization
of goodwill over its estimated remaining life can be recovered through projected
undiscounted future consolidated operating cash flows. The amount of goodwill
impairment, if any, is charged to operations at the time impairment is
determined by management. At December 31, 1996 and 1995, management determined
that there was no impairment of goodwill.
H) SOFTWARE DEVELOPMENT COSTS
The Company capitalizes directly related software development costs incurred
from the period technological feasibility is established until the product is
ready for release. Amounts capitalized are amortized over the estimated useful
life of the product and are evaluated by management, as to recoverability, based
upon whether the estimated future undiscounted net cash flows from the product
are sufficient to fully recover the unamortized remaining book value related to
such product.
F-58
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I) REVENUE AND COST RECOGNITION
REVENUES:
(i) Advertising--Advertising revenues are recognized, net of related
advertising agency commissions, on the date publications are released for
sale. Revenues billed and/or received for advertisements to be released in
future months are included in deferred revenue.
(ii) Subscriptions--Sales of publication subscriptions are deferred and
recognized as revenues over the term of the related subscriptions,
principally one year.
(iii) Books and related updates--Revenues are recognized upon shipment
date and are reflected net of estimated returns.
(iv) Seminars--Seminar revenues are recognized when the seminar is held.
COST AND EXPENSES
(i) Advertising and promotion costs--Advertising expenditures are
expensed when the particular advertisement is released. Beginning in 1995,
direct response promotion costs are capitalized, subject to a net
recoverability evaluation, and amortized, on a straight-line basis, over
their estimated future benefit period. The amortization of direct response
promotion expenditures is included in selling and shipping expense in the
accompanying consolidated statements of operations. Prior to 1995, direct
response promotional costs were expenses upon advertisement and/or promotion
release date (See Note 3).
(ii) Editorial costs--All editorial costs are expensed as incurred.
(iii) Rent expense--In accordance with generally accepted accounting
principles, rent expense reflects the straight-line amortization, over the
terms of the respective leases, of scheduled rent payments over such lease
terms. The excess of recognized rent expense over rent payments made to date
is included in the accompanying consolidated sheets as a deferred rent
obligation, included as part of other non current liabilities.
(iv) Barter revenue and expenses--Revenue from barter transactions
(advertising space provided in exchange for goods and/or services) is
recognized as income when the advertisement is run. Costs and expenses
related to barter transactions are recognized when the merchandise and/or
service is received. Barter revenue and barter expense is reflected net in
the accompanying consolidated statements of operations.
J) INTEREST EXPENSE
Interest expense includes letter of credit usage and commitment fees and
excludes the amortization and/or other charges related to deferred financing
costs. With respect to interest rate swap agreements, the differential to be
paid or received is accrued as interest rates change and is recognized as an
adjustment to interest expense.
F-59
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
K) INCOME TAXES
The Company, for financial statement purposes, reports certain items of
income and expense in periods different from when such items are reported for
income tax purposes. The principal differences relate to the timing and
deductibility of bad debt allowances and book returns, the capitalization of
certain direct response promotional and inventory costs, depreciation of fixed
assets, and the straight-line expense recognition of office space rentals.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and income tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. In addition, the tax benefit related to net
operating loss carryforwards and alternative minimum tax ("AMT") credit
carryforwards are reflected as deferred tax assets when the realization of such
tax benefit is more likely than not. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Income tax expense for a particular period is equal to the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
L) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 consolidated financial
statements to conform with the current year presentation.
3. DIRECT RESPONSE PROMOTIONAL COSTS
Effective January 1, 1995, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 93-7. "Reporting on
Advertising Costs" (the "SOP"). The statement requires, among other things, that
direct response advertising costs, whose primary purpose is to elicit sales to
customers, be reported as an asset and amortized over the estimated period of
future benefit. Under the Company's previous accounting policy, promotional and
subscription acquisition costs were capitalized prior to the launching of a
direct marketing or subscription acquisition campaign and then expensed when the
promotional materials were mailed.
At December 31, 1996 and 1995, approximately $1,203,000 and $583,000 of
direct response promotional costs, net of accumulated amortization of $1,255,000
in 1996 and $224,000 in 1995 was recorded in other assets on the accompanying
consolidated balance sheet. Advertising expense was approximately $2,707,000 for
1996 and $2,826,000 for 1995.
F-60
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
The following is a summary of furniture, equipment and leasehold
improvements at:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1996 1995 USEFUL LIVES
--------- --------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
Computer equipment and purchase software.................................... $ 2,558 $ 2,171 6 years
Furniture and office equipment.............................................. 1,187 1,082 5 to 9 years
Leasehold improvements...................................................... 589 579 7 to 10 years
--------- ---------
4,334 3,832
Less accumulated depreciation and amortization.............................. (1,713) (1,168)
--------- ---------
$ 2,621 $ 2,664
--------- ---------
--------- ---------
</TABLE>
5. INTANGIBLE ASSETS, NET
The following is a summary of intangible assets at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AMORTIZATION
1996 1995 PERIODS
---------- ---------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Goodwill................................................................... $ 135,519 $ 134,256 (*)
Deferred financing costs................................................... 1,138 1,138 7 years
---------- ----------
136,657 135,394
Less accumulated amortization.............................................. (7,597) (656)
---------- ----------
$ 129,060 $ 134,738
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(*) 38 years for periods prior to December 1, 1995 and 20 years thereafter.
Total amortization expense of intangibles was $6,941,000 and $5,303,000 for
the years ended December 31, 1996 and 1995, respectively. The 1995 amortization
expense includes an approximate $2 million charge relating to the unamortized
deferred financing cost attributable to the Predecessor Credit Facility which
was paid off as part of the Boston Ventures' December 1, 1995 acquisition.
During 1996, the Company implemented systems which, among other operational and
financial reporting enhancements, better quantify its deferred subscription
obligation for certain publications. As permitted by generally accepted
accounting principles, the Company has restated by approximately $1.3 million
the goodwill recorded on December 1, 1995 to reflect the difference between the
Company's deferred subscription obligation computed under its upgraded reporting
systems and the amount estimated by management on that date.
F-61
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
6. OTHER ASSETS
Other assets is comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred direct response promotional costs (a)............................... $ 1,203 $ 583
Capitalized software (b)..................................................... 204 150
Security deposits (c)........................................................ 97 89
Officers' life insurance--cash surrender value (d)........................... 43 83
Other........................................................................ 14 15
--------- ---------
$ 1,561 $ 920
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents direct mail promotional costs that relate to SOP 93-7 (See Note
3).
(b) During 1996, the Company introduced a CD-ROM Product. All development costs
incurred capitalized and are being amortized over a three year period.
(c) Represents security deposits required for leased properties.
(d) Represents the cash value of life insurance purchased on a former officer.
7. LONG-TERM DEBT
Long-term debt was comprised of the following at:
<TABLE>
<CAPTION>
DECEMBER
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facilities (a)......................................... $ 70,300 $ 70,900
Less: current portion of Revolving Credit Facilities reduction amount... (3,300) --
--------- ---------
$ 67,000 $ 70,900
--------- ---------
--------- ---------
</TABLE>
(A) REVOLVING CREDIT FACILITIES
On December 1, 1995, the Company entered into a revolving credit facility
agreement (the "Credit Agreement") with The First National Bank of Boston (the
"Bank"), as a lender and as agent for other lenders, under which NAI borrowed
$15,674,061 and NYLP borrowed $55,225,939 (aggregating $70,900,000) in
connection with Boston Ventures' acquisition of the Company. Upon NAI's merger
into National, NYLP assumed the $15,674,061 of Bank debt, in the form of a
dividend from NYLP to National. Therefore, at December 31, 1995, the entire Bank
debt of $70.9 million was reflected as a NYLP borrowing. In addition, on January
2, 1996, NYLP borrowed approximately $5,022,000 from the Bank to pay the
Finkelstein $5 million note and related accrued interest. The Finkelstein $5
million note was issued in connection with the December 1, 1995 acquisition of
the Company (See Note 1). The Finkelstein note and related accrued interest was
secured by an irrevocable letter of credit issued by the Bank. The
F-62
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. LONG-TERM DEBT (CONTINUED)
Company's borrowing capacity under the revolving credit facility, including cash
loans and standby letters of credit of up to $6 million, was $80 million through
December 30, 1996, and decreases semi-annually until final maturity on December
31, 2002 as follows:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
(IN THOUSANDS)
December 31, 1996 through June 29, 1997........................................................... $ 74,000
June 30, 1997 through December 30, 1997........................................................... 70,500
December 31, 1997 through June 29, 1998........................................................... 67,000
June 30, 1998 through December 30, 1998........................................................... 63,250
December 31, 1998 through June 29, 1999........................................................... 59,500
June 30, 1999 through December 30, 1999........................................................... 55,250
December 31, 1999 through June 29, 2000........................................................... 51,000
June 30, 2000 through December 30, 2000........................................................... 45,750
December 31, 2000 through June 29, 2001........................................................... 40,500
June 30, 2001 through December 30, 2001........................................................... 33,750
December 31, 2001 through June 29, 2002........................................................... 27,000
June 30, 2002 through final maturity date......................................................... 19,000
Final maturity date (December 31, 2002)
</TABLE>
Available borrowings under this facility are further limited by the sum of
(a) the Company's letter of credit exposure and (b) certain stipulated
percentages of excess cash flow based on the ratio of the Company's consolidated
funded debt to consolidated operating cash flow, as defined. Outstanding
borrowings under the facility bear interest at a fluctuating rate, subject to
the Company's elected pricing option, at either the Base Rate, Eurodollar Rate,
and/or CD Rate, plus a variable margin based on the Company's ratio of
consolidated funded debt to consolidated operating cash flow, as defined. The
interest rate under this revolving credit facility approximated 8.1% and 8.8%
for the year and one month ended December 31, 1996 and 1995, respectively.
Commitment fees are charged and payable quarterly at either a .375% or .500%
annual rate, depending on the Company's ratio of consolidated funded debt to
consolidated operating cash flow for the immediately preceding quarter (the
"Quarterly Funded Debt Ratio") and on the average daily unused portion of the
revolving credit facility. In addition, letter of credit usage fees are payable
at rates which range between 1.25% and 2.5% depending on the Quarterly Funded
Debt Ratio and on the daily letter of credit exposure during the three month
period or portion thereof ending on such payment date. The revolving credit
facility is secured by the assets of National and NYLP and the stock of NYLP and
its subsidiaries.
The Credit Agreement requires, among other things, the Company maintain
certain minimum levels of consolidated operating cash flow and certain
prescribed ratios of consolidated funded debt to consolidated operating cash
flow, consolidated operating cash flow to interest expense and consolidated
adjusted operating cash flow to consolidated fixed charges, as defined. The
Credit Agreement contains other restrictive covenants, including limitations on
indebtedness, investments and acquisitions, the disposition of assets,
transactions with affiliates and distributions to stockholders.
The Company, prior to December 1, 1995, had a revolving credit facility with
two financial institutions (the "Predecessor Credit Facility"). The weighted
average interest rates under the Predecessor Credit
F-63
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
7. LONG-TERM DEBT (CONTINUED)
Facility for the eleven months ended November 30, 1995 approximated 9%. The
Predecessor Credit Facility was secured by the stock and assets of NYLP and any
future NYLP subsidiaries.
(B) INTEREST RATE PROTECTION AGREEMENTS
The Agreement provides that within 10 days after the Eurodollar Basic Rate
for three month Eurodollar Pricing Options first exceeds 5.875% per annum, the
Company will obtain and thereafter keep in effect one or more interest rate
protection agreements covering a notional amount of at least 50% of the
outstanding borrowings under the revolving credit facility for an aggregate
period of not less than two years.
8. OTHER NON-CURRENT LIABILITIES
Other non-current liabilities was comprised of the following at:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
DECEMBER 31,
--------------------
(IN THOUSANDS)
Deferred rent (a).......................................................... $ 1,536 $ 1,400
Rent Security and deposit--sublease........................................ 23 22
Deferred compensation...................................................... 12 17
--------- ---------
$ 1,571 $ 1,439
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents the cumulative excess of rent expense recognized in accordance
with generally accepted accounting principles over cumulative cash rental
payments made.
9. INCOME TAXES
National and its subsidiaries file a consolidated Federal and combined New
York State and New York City income tax returns. NYLP also files income tax
returns in California and the District of Columbia. At December 31, 1996,
National had net operating loss carryforwards available to offset future taxable
income for Federal income tax purposes of approximately $11.2 million. These
carryforwards expire in the years 2004 through 2010 and, as a result of the
change in ownership described in Note 1, are subject to the limitations of
Internal Revenue Code Section 382. At December 31, 1996, National had net
operating loss carryforwards of approximately $5.3 million available to offset
future taxable income for New York State and New York City income tax purposes
which expire in the years 2005 through 2010.
F-64
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
9. INCOME TAXES (CONTINUED)
The benefit (provision) for income taxes is comprised of the following for
the years ended:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
DECEMBER 31,
--------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................................... $ (110) $ 53
State and local........................................................... (205) (76)
--------- ---------
(315) (23)
--------- ---------
Deferred:
Federal................................................................... (1,621) 264
State and local........................................................... (1,071) 282
--------- ---------
(2,692) 546
--------- ---------
$ (3,007) $ 523
--------- ---------
--------- ---------
</TABLE>
Net deferred tax assets were comprised of the following at:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
DECEMBER 31,
--------------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves............................................ $ 268 $ 357
Inventory capitalization................................................ 372 326
Deferred rent........................................................... 715 651
Federal, state and local operating loss carryforwards................... 4,472 6,674
Federal AMT credit...................................................... 139 33
--------- ---------
5,966 8,041
--------- ---------
Deferred tax liabilities:
Depreciation............................................................ $ 442 $ 140
Deferred promotional costs.............................................. 559 269
Product development costs............................................... 95 70
--------- ---------
1,096 479
--------- ---------
Net deferred tax assets................................................... $ 4,870 $ 7,562
--------- ---------
--------- ---------
</TABLE>
F-65
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
9. INCOME TAXES (CONTINUED)
The presentation of deferred tax assets and liabilities on the accompanying
consolidated balance sheet is as follows at:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Deferred tax benefits, current............................................. $ 4,293 $ 3,208
Deferred tax liabilities, current.......................................... -- --
--------- ---------
Net deferred tax benefits, current......................................... 4,293 3,208
--------- ---------
Deferred tax benefits, non-current......................................... 1,673 4,833
Deferred tax liabilities, non-current...................................... (1,096) (479)
--------- ---------
Net deferred tax benefits, non-current..................................... 577 4,354
--------- ---------
Net deferred tax assets.................................................... $ 4,870 $ 7,562
--------- ---------
--------- ---------
</TABLE>
The reconciliation between total tax expense (benefit) and the amount
computed by applying the statutory Federal income tax rate to income before
income taxes is as follows for the years ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1996 1995
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Federal statutory income taxes.............................................. $ 188 $ (745)
Permanent differences (principally goodwill amortization)................... 2,181 265
State and local income taxes, net of federal benefit........................ 842 (136)
Other....................................................................... (204) 93
--------- ---------
$ 3,007 $ (523)
--------- ---------
--------- ---------
</TABLE>
10. STOCKHOLDERS' EQUITY (DEFICIENCY)
A) STOCK OPTIONS
In connection with and as a condition of Boston Ventures' acquisition, the
Company entered into a stock option agreement (the "Agreement") with Finkelstein
which, subject to certain terms and conditions of the Agreement, granted
Finkelstein an option to purchase an aggregate of approximately 6,461 shares of
National's common stock. One-third of the shares covered by the option vest and
become exercisable in 60 equal installments of approximately 36 shares on the
last day of each month commencing on January 31, 1996 and continuing until
December 31, 2000. The remaining shares vest and become exercisable, subject to
the Company's attainment of two separate annual operating cash flow targets, as
defined, in equal annual installments of approximately 431 shares or
approximately 862 shares, respectively (if such respective operating cash flow
targets are reached), on December 31, 1996 through 2000 or upon sale, subject to
achieving certain performance targets. The vesting of all shares is generally
subject to Finkelstein been employed by the Company on such dates. The shares
are exercisable at a price of approximately $1,083 per share and expire on the
tenth anniversary date of the Agreement.
F-66
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
10. STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
B) STOCKHOLDERS' AGREEMENT
On December 1, 1995, Boston Ventures, National and Finkelstein entered into
a stockholders' agreement which, among other things, allows Finkelstein, upon
the non-renewal of his employment, as defined in his employment agreement (See
Note 13) to require the Company to purchase all of his shares and liquidate and
cash out his vested option shares for fair value. The Company's obligation to
acquire Finkelstein's shares is subject to it being permitted by the Credit
Agreement and applicable law to do so. In addition, the stockholders' agreement
gives the Company, along with Boston Ventures, the right of first refusal with
respect to Finkelstein's shares.
11. OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following items:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Insurance claim recovery (a).................................................. $ 235 $ (80)
Litigation settlement......................................................... -- (25)
Barter income (loss).......................................................... (54) 125
Apollo management fee......................................................... -- (231)
--------- ---------
$ 181 $ (211)
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(a) Represents an insurance reimbursement of approximately $287,000 relating to
employee theft, net of legal and professional costs of $52,000.
12. RETIREMENT PLANS
The Company has a 401(k) profit sharing plan (the "Plan") for all eligible
employees who have completed one year of service. Under the Plan, the Company
has the option of making a matching contribution of up to 3% of a participant's
compensation. During 1996 and 1995, the Company did not make any matching
discretionary contributions to the Plan.
In addition, approximately 20 Company employees are covered by certain
defined contribution retirement plans sponsored by the Typographical Union.
Company contributions to these retirement plans for 1996 and 1995 were $476,000
and $481,000, respectively.
F-67
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
13. COMMITMENTS AND CONTINGENCIES
A) OPERATING LEASES
The Company leases office space under non cancelable operating leases which
expire at various dates through October 2008. At December 31, 1996, the future
minimum payments due under these leases, net of sublease income, are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
(IN THOUSANDS)
1997.............................................................................................. $ 1,027
1998.............................................................................................. 1,129
1999.............................................................................................. 1,187
2000.............................................................................................. 1,190
2001.............................................................................................. 1,177
Thereafter........................................................................................ 8,620
-------
$ 14,330
-------
-------
</TABLE>
Rent expense, net of sublease income, was approximately $1,395,000 and
$1,335,000 for the years ended December 31, 1996 and 1995, respectively.
At December 31, 1996 and 1995, the Company had a letter of credit
outstanding of approximately $533,000 for the security deposit on its corporate
office space.
B) EMPLOYMENT AGREEMENT
In connection with Boston Ventures' December 1, 1995 acquisition of the
Company, Finkelstein entered into a long-term employment agreement (the
"Employment Agreement") with the Company. The initial term of the Employment
Agreement is through December 31, 2000 and provides for an annual base salary
which, beginning on June 30, 1996, and annually thereafter, is to be increased
by the greater of (i) 5% or (ii) the annual increase in the consumer price index
for all urban consumers not in excess of 8%.
C) LEGAL MATTERS
The Company is subject to certain legal actions and complaints that arise in
the ordinary course of its business. In the opinion of management, the amount of
the ultimate liability, if any, which may result from these legal actions and
complaints will not materially affect the consolidated financial statements of
the Company.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. These financial instruments consist of cash and
equivalents, long term debt and interest rate projection agreements. The Company
estimates that the fair value of all financial instrument at December 31, 1996,
does not differ materially from the aggregate carrying values of its financial
instruments recorded in the accompanying consolidated balance sheet.
F-68
<PAGE>
NATIONAL LAW PUBLISHING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
15. SUPPLEMENTARY 1995 CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION
The following table summarizes 1995's consolidated results of operations for
the Successor and Predecessor periods:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR FULL
PERIOD PERIOD YEAR
----------- -------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues................................................................... $ 3,510 $ 40,564 $ 44,074
Operating income (loss).................................................... (393) 3,871 3,478
(Loss) before income taxes................................................. (953) (1,238) (2,191)
Net (loss)................................................................. (546) (1,122) (1,668)
</TABLE>
F-69
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on April 15, 1998.
AMERICAN LAWYER MEDIA, INC.
BY: /s/ WILLIAM L. POLLAK
-----------------------------------------
William L. Pollak
President and Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
L. Pollak and Anup Bagaria and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their, his or her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
* * * * *
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director, President and
/s/ WILLIAM L. POLLAK Chief Executive Officer
- ------------------------------ (Principal Executive April 15, 1998
William L. Pollak Officer)
/s/ BRUCE WASSERSTEIN
- ------------------------------ Chairman of the Board of April 15, 1998
Bruce Wasserstein Directors
Director, Vice President
/s/ ANUP BAGARIA and Secretary (Principal
- ------------------------------ Financial Officer and April 15, 1998
Anup Bagaria Principal Accounting
Officer)
/s/ MICHAEL J. BIONDI
- ------------------------------ Director April 15, 1998
Michael J. Biondi
/s/ ROBERT C. CLARK
- ------------------------------ Director April 15, 1998
Robert C. Clark
/s/ DONALD G. DRAPKIN
- ------------------------------ Director April 15, 1998
Donald G. Drapkin
/s/ JAMES A. FINKELSTEIN
- ------------------------------ Director April 15, 1998
James A. Finkelstein
/s/ ANDREW G.T. MOORE, II
- ------------------------------ Director April 15, 1998
Andrew G.T. Moore, II
/s/ RANDALL J. WEISENBURGER
- ------------------------------ Director April 15, 1998
Randall J. Weisenburger
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER* DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Purchase Agreement, dated as of October 23, 1997, by and among Boston Ventures Limited Partnership IV,
Boston Ventures Limited Partnership IVA, James A. Finkelstein and ALM Holdings, LLC, as amended.
3.1 Certificate of Incorporation of the Company
3.2 Certificate of Amendment of the Certificate of Incorporation of the Company
3.17 Bylaws of the Company
10.5 Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein and The Bank
of New York, as trustee
10.6 Supplemental Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein
and The Bank of New York, as trustee
10.7 Supplemental Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein
and The Bank of New York, as trustee
10.8 Supplemental Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein
and The Bank of New York, as trustee
10.9 Supplemental Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein
and The Bank of New York, as trustee
10.10 Supplemental Indenture, dated as of December 22, 1997, among the Company, the Guarantors named therein
and The Bank of New York, as trustee
10.11 Supplemental Indenture, dated as of April , 1998, among the Company, the Guarantors and The Bank of New
York, as trustee
10.12 Registration Rights Agreement, dated as of December 22, 1997, among the Company, the Guarantors named
therein and the Initial Purchasers
10.1 Lease, dated September 30, 1993, between Park Avenue South/Armory, Inc. and The New York Law Publishing
Company for premises at 345 Park Avenue South, New York, New York
10.2 First Supplemental Agreement, dated November 30, 1994, between Park Avenue South/ Armory, Inc. and The
New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York
10.3 Credit Agreement, dated as of March 25, 1998, among the Company, Holdings, various banks, Bank of
America National Trust and Savings Association, BancBoston Securities Inc. and BancAmerica Robertson
Stephens
10.4 Employment Agreement dated February 9, 1998 between the Company and William L. Pollak
12.1 Statement re: computation of ratio of earnings to fixed charges
21.1 List of Subsidiaries of the Company
24 Power of Attorney of the Company (included on Signature Page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* All exhibits are incorporated by reference from the Company's Registration
Statement on Form S-4 (File No. 333-50117).
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Lawyer Media, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of American Lawyer Media, Inc. for the
five months ended December 31, 1997 included in this registration statement and
have issued our report thereon dated April 3, 1998. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedule listed below is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule for the five months ended
December 31, 1997 has been subjected to the auditing procedures applied in the
audit of the basic consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
NEW YORK, NEW YORK
APRIL 3, 1998
AMERICAN LAWYER MEDIA, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE FIVE MONTHS ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT) DEBIT(CREDIT)
FOR THE FIVE MONTHS ENDED DECEMBER 31,
1997:
Allowance for doubtful accounts $ (1,661) $ (843) $ (1,014)(1) $ 282(2) $ (3,236)
------------ ------ ------------ ------ ------------
------------ ------ ------------ ------ ------------
</TABLE>
- ------------------------------
(1) Represents the addition of the NLP allowance for doubtful accounts ($1,014)
at the date of acquisition.
(2) Represents reversals of the allowance account and write-offs of accounts
receivable, net of recoveries.
