<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Period ended September 30, 1999.
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number: 333-50117
AMERICAN LAWYER MEDIA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980414
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
345 Park Avenue South
New York, New York 10010
(Address of principal executive offices)
Telephone Number (212) 779-9200
(Registrant's telephone number, including area code)
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 |X|
NOTE: THIS IS A VOLUNTARY FILING; REGISTRANT NOT SUBJECT TO
SECTION 13 OR 15(d).
As of November 11, 1999 there were 100 shares of the registrant's Common Stock
outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
----
PART I
FINANCIAL INFORMATION.....................................................4
ITEM 1 FINANCIAL STATEMENTS.........................................4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..18
PART II
OTHER INFORMATION........................................................19
ITEM 1 LEGAL PROCEEDINGS...........................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........19
ITEM 5. OTHER INFORMATION...........................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................19
2
<PAGE>
INDEX TO FINANCIAL INFORMATION
PAGE
Consolidated Financial Statements of American Lawyer Media, Inc.
Consolidated Balance Sheets at September 30, 1999 and
December 31, 1998....................................................4
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998....................................5
Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 and 1998....................................6
Consolidated Statement of Changes in Stockholder's Equity
for the Nine Months Ended September 30,1999 .........................7
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998....................................8
Notes to Consolidated Financial Statements at September 30, 1999.......... 9-13
3
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 299 $ 514
Accounts receivable, net of allowance for doubtful accounts
and returns of $3,038 and $3,595, respectively .................... 16,587 14,850
Inventories, net ..................................................... 1,431 1,849
Other current assets ................................................. 2,800 1,361
--------- ---------
Total current assets .............................................. 21,117 18,574
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization of $4,652 and
$3,441, respectively ................................................. 12,988 7,146
INTANGIBLE ASSETS, net of accumulated amortization of
$22,550 and $13,579, respectively .................................... 152,669 165,843
GOODWILL, net of accumulated amortization of $21,214 and
$12,231, respectively ................................................ 156,065 167,402
DEFERRED FINANCING COSTS, net of accumulated
amortization of $1,461 and $839, respectively ........................ 6,317 6,941
OTHER ASSETS ............................................................ 4,603 869
--------- ---------
Total assets ...................................................... $ 353,759 $ 366,775
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 4,896 $ 2,527
Accrued expenses ..................................................... 9,265 11,574
Accrued interest payable ............................................. 5,418 1,076
Deferred income (including deferred subscription income of
$18,151 and $16,997, respectively) ................................ 19,389 18,241
--------- ---------
Total current liabilities ......................................... 38,968 33,418
--------- ---------
LONG TERM DEBT .......................................................... 12,800 8,500
--------- ---------
SENIOR NOTES ............................................................ 175,000 175,000
--------- ---------
DEFERRED INCOME TAXES ................................................... 38,952 43,834
--------- ---------
OTHER NONCURRENT LIABILITIES ............................................ 4,164 5,031
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock - $.01 par value; 1,000 shares authorized; 100 issued and
outstanding at September 30, 1999 and December 31, 1998 ........... -- --
Paid-in-capital ...................................................... 123,775 123,775
Accumulated deficit .................................................. (39,900) (22,783)
--------- ---------
Total stockholder's equity ........................................ 83,875 100,992
--------- ---------
Total liabilities and stockholder's equity ........................ $ 353,759 $ 366,775
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
4
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
NET REVENUES:
Periodicals:
Advertising ......................... $ 55,973 $ 49,810
Subscription ........................ 17,651 16,930
Ancillary Products and Services ........ 22,250 19,132
Internet Services ...................... 1,244 2,014
--------- --------
Total net revenues .................. 97,118 87,886
--------- --------
OPERATING EXPENSES:
Editorial .............................. 16,045 11,169
Production and Distribution ............ 20,783 18,804
Selling ................................ 20,208 13,528
General and Administrative ............. 22,325 21,421
Internet Services ...................... 3,313 3,349
Depreciation and Amortization .......... 19,937 18,797
--------- --------
Total operating expenses ............ 102,611 87,068
--------- --------
Operating (loss) income ............. (5,493) 818
INTEREST EXPENSE, net ..................... (14,141) (13,707)
--------- --------
Loss before income taxes ............... (19,634) (12,889)
BENEFIT FOR INCOME TAXES .................. 2,517 2,583
--------- --------
Net loss ............................... $ (17,117) $(10,306)
========= ========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
5
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
NET REVENUES:
Periodicals:
Advertising .......................... $ 18,585 $ 16,750
Subscription ......................... 6,008 5,763
Ancillary Products and Services ......... 6,214 6,055
Internet Services ....................... 271 650
-------- --------
Total net revenues ................... 31,078 29,218
-------- --------
OPERATING EXPENSES:
Editorial ............................... 5,892 4,028
Production and Distribution ............. 6,201 6,494
Selling ................................. 8,229 4,383
General and Administrative .............. 7,280 6,948
Internet Services ....................... 500 1,207
Depreciation and Amortization ........... 6,775 6,438
-------- --------
Total operating expenses ............. 34,877 29,498
-------- --------
Operating loss ....................... (3,799) (280)
INTEREST EXPENSE, net ...................... (4,800) (4,697)
-------- --------
Loss before income taxes ................ (8,599) (4,977)
BENEFIT FOR INCOME TAXES ................... 842 836
-------- --------
Net loss ................................ $ (7,757) $ (4,141)
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
6
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
PAR PAID-IN ACCUMULATED
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998................ 100 $ -- $123,775 $(22,783) $ 100,992
Net Loss ................................... -- -- -- (17,117) (17,117)
--- ------ -------- -------- ---------
BALANCE AT SEPTEMBER 30, 1999 (UNAUDITED)... 100 $ -- $123,775 $(39,900) $ 83,875
=== ====== ======== ======== =========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of this financial statement.
7
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $(17,117) $(10,306)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ........................... 19,937 18,797
Non-cash interest ....................................... 624 --
Decrease (increase) in:
Accounts receivable, net ........................... (3,028) 2,015
Inventories ........................................ 418 77
Other current assets ............................... (440) 589
Deferred financing costs ........................... -- (884)
Other assets ....................................... 4,769 (64)
Increase (decrease) in:
Accounts payable ................................... 2,382 (1,575)
Accrued expenses ................................... (1,689) (2,303)
Accrued interest payable ........................... 4,342 4,793
Deferred income .................................... 2,532 649
Other noncurrent liabilities ....................... (4,287) (2,698)
-------- --------
Total adjustments .................................. 25,560 19,396
-------- --------
Net cash provided by operating activities .......... 8,443 9,090
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures .................................... (8,208) (963)
Purchase/Disposition of business:
Working capital, other than cash ................... -- 426
Property, plant and equipment ...................... -- (450)
Cost in excess of net assets of company acquired ... -- (31,880)
Disposition of assets .............................. (4,750) --
Acquisition related costs and expenses ............. -- 432
-------- --------
Net cash used in investing activities .............. (12,958) (32,435)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contribution .................................... -- 15,000
Borrowings on Revolving Credit Facility ................. 4,300 --
-------- --------
Net cash provided by financing activities .......... 4,300 15,000
-------- --------
Net decrease in cash and cash equivalents .......... (215) (8,345)
CASH AND CASH EQUIVALENTS, beginning of period ................ 514 8,962
-------- --------
CASH AND CASH EQUIVALENTS, end of period ...................... $ 299 $ 617
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes ....................................... $ 56 $ 280
======== ========
Interest ........................................... $ 9,205 $ 8,402
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
8
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION & OPERATIONS
American Lawyer Media, Inc. (the "Company") is a wholly-owned
subsidiary of American Lawyer Media Holdings, Inc. ("Holdings"). The Company is
a publisher of primarily legal publications, including THE AMERICAN LAWYER, NEW
YORK LAW JOURNAL, THE NATIONAL LAW JOURNAL and CORPORATE COUNSEL. The Company's
operations are based in New York with regional offices in eight states and the
District of Columbia.
On July 21, 1999, the Company transferred all of its and its
subsidiaries' internet and electronic commerce business to Professional on Line,
Inc. ("POL"). On July 24, 1999, POL was recapitalized by creating a class of
12.25% preferred stock, par value $0.01 per share (the "POL Preferred Stock"),
in addition to the class of common stock, par value $0.01 per share, previously
authorized (the "POL Common Stock"). On July 27, 1999, the Company sold all of
the issued and outstanding POL Common Stock to Law.Com, Inc. (f/k/a Law.Com
Acquisition Corp.) ("Law.Com") for $1.0 million in cash. The Company retained
all of the issued and outstanding POL Preferred Stock. The POL Preferred Stock
is included in Other Assets on the Balance Sheet. Law.Com is a web destination
for legal information, e-commerce and e-services. Under a cross-licensing
agreement, the Company will continue to provide content and editorial direction
for Law.Com. Law.Com is owned by substantially the same investors that own the
Company, including Wasserstein & Co., Inc., U.S. Equity Partners, L.P., and U.S.
Equity Partners (Offshore) L.P.
2. 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 which, unless the context
otherwise requires, are collectively referred to herein as the "Company".
Intercompany transactions and balances have been eliminated in consolidation.
The 1999 consolidated financial statements include the operations for POL
through July 27, 1999, the date of sale of the POL Common Stock to Law.Com.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentration
of credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising agents ("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, for which
the Company believes it has adequately provided.
9
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
Periodical Advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in the
Company's publications. Advertising revenue is recognized upon release of the
related publications.
Periodical Subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary Products and Services revenues consist principally of
third-party printing revenues, newsletter subscriptions, sales of professional
books, seminar and conference income, income from a daily fax service of court
decisions and income from electronic products. Printing revenues are recorded
upon shipment. Book revenues are recognized upon shipment and are reflected net
of estimated returns. Newsletter revenues are recognized on the same basis as
subscription revenues. Seminar and conferences revenues are recognized when the
seminar or conference is held. Daily fax service revenues are recognized upon
fulfillment of orders. Income from electronic products is recognized monthly as
the service is provided.
Internet Services revenues consist primarily of revenues from
subscriptions and advertising. Internet subscription income is recognized on a
pro-rata basis over the life of a subscription, generally one year. Internet
advertising revenues are recognized upon the release of an advertisement on the
website. See Footnote 1.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders
for subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $4,099,000 and $2,602,000 are included in accounts
receivable in the accompanying consolidated September 30, 1999 and December 31,
1998 balance sheets, respectively.
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$4,245,000 and $1,272,000 for the three months ended September 30, 1999 and
1998, respectively, and $7,155,000 and $4,035,000 for the nine months ended
September 30, 1999 and 1998, respectively, are expensed as the related
advertisements or campaigns are released.
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are stated at the lower of cost,
as determined by the average cost method, or market.
10
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property, Plant and Equipment
Property, plant and equipment is stated at cost, with the exception of
fixed assets acquired as part of the acquisitions of American Lawyer Media L.P.
and National Law Publishing Company, Inc. at the end of 1997 (the "ALM and NLP
Acquisitions"), which are stated at approximate fair market value as of the date
of the acquisitions. Significant improvements are capitalized, while
expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated
remaining useful lives of the assets acquired as part of the ALM and NLP
Acquisitions. Assets purchased after the ALM and NLP Acquisitions are
depreciated using the straight-line method over the following estimated useful
lives:
Buildings .................................................... 25 years
Furniture, machinery and equipment ........................... 5-9 years
Computer equipment and software .............................. 3-6 years
Leasehold improvements are amortized over the shorter of the remaining
lease term or the estimated useful life.
Goodwill
Goodwill represents the excess of purchase price over the fair value of
net assets acquired. It is stated at cost less accumulated amortization and is
amortized on a straight-line basis over a fifteen-year useful life. The Company
periodically assesses the recoverability of goodwill by determining whether the
amortization of goodwill over its estimated remaining life can be recovered
through projected undiscounted future consolidated operating cash flows.
Intangible Assets
Intangible assets represent advertiser commitments, trademarks,
customer and subscriber lists and non-compete agreements. They are stated at
cost less accumulated amortization and are amortized on a straight-line basis
over a weighted average useful life of fifteen years.
Income Taxes
Deferred income taxes are provided for the temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities and principally consist of nondeductible goodwill and identified
intangibles, accelerated depreciation, allowance for doubtful accounts, certain
accrued liabilities not currently deductible for tax purposes and net operating
loss carry forwards.
Reclassifications
Certain 1998 amounts have been reclassified to conform with the current
year presentation.
11
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
3. DEBT
On December 22, 1997, the Company issued $175,000,000 of 9.75%
Senior Notes (the "Senior Notes") due December 15, 2007. The Senior Notes
accrue interest at 9.75% which is payable in cash semi-annually on June 15
and December 15 (the first interest payment was made on June 15, 1998). The
Senior Notes are fully and unconditionally guaranteed on a joint and several
and senior unsecured basis by each of the Company's existing and future
restricted subsidiaries. The Senior Notes may be redeemed at any time by the
Company, in whole or in part, at various redemption prices that include
accrued and unpaid interest. The Senior Notes contain certain covenants that,
among other things, limit the incurrence of additional indebtedness by the
Company and its restricted subsidiaries, the payment of dividends and other
restricted payments by the Company and its restricted subsidiaries, asset
sales, transactions with affiliates, the incurrence of liens, and mergers and
consolidations. Financing costs associated with this debt have been
capitalized and are being amortized over the term of the Senior Notes.
Amortization of deferred financing costs is recorded as interest expense in
the accompanying consolidated statements of operations. Assuming there is no
redemption of the Senior Notes prior to maturity, the entire principal will
be payable on December 15, 2007.
On March 25, 1998, Holdings and the Company (as the "Borrower")
entered into a credit agreement with various banks that established a
combined revolving loan commitment in the initial principal amount of
$40,000,000 (the "Revolving Credit Facility"). Financing costs associated
with the Revolving Credit Facility have been capitalized and are being
amortized over the term of the agreement. The Revolving Credit Facility is
guaranteed by Holdings and, on a joint and several basis, by all existing and
future restricted 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 restricted subsidiaries, including a pledge of the equity securities
of or owned by such restricted subsidiaries (including the POL Preferred
Stock), and a pledge by Holdings of all of the stock of the Company. The
Revolving Credit Facility bears interest at a fluctuating rate determined by
reference to (i) the Base Rate plus a margin ranging from .25% to 1.5%, or
(ii) the Eurodollar Rate plus a margin ranging from 1.25% to 2.5%, as the
case may be. The applicable margin is based on the Company's total
consolidated leverage ratio. The Base Rate equals the higher of (a) the rate
of interest publicly announced from time to time by Bank of America as its
reference rate, or (b) the Federal funds rate plus .5%. The Eurodollar Rate
is based on (i) the interest rate per annum at which deposits in U.S. Dollars
are offered by Bank of America's applicable lending office to major banks in
the offshore market in an aggregate principal amount approximately equal to
the amount of the loan made to the Company and (ii) the maximum reserve
percentage in effect under regulations issued from time to time by the
Federal Reserve Board. The Company is also required to pay customary fees
with respect to the Revolving Credit Facility, including an up-front
arrangement fee, annual administrative agency fees and commitment fees on the
unused portion of the Revolving Credit Facility. The Revolving Credit
Facility includes both affirmative and negative covenants that include
meeting certain financial ratios.
On April 26, 1999, Holdings and the Company amended the Revolving
Credit Facility, effective as of March 29, 1999. This amendment limits the
Company's ability to borrow in excess of $20,000,000 under the Revolving Credit
Facility until certain ratios are achieved. This amendment also adjusted certain
covenants contained in the original Revolving Credit Facility.
12
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SEPTEMBER 30, 1999
3. DEBT (continued)
As of September 30, 1999, the unused commitment is approximately
$27,200,000, of which $7,200,000 is available in accordance with the April 26,
1999 Revolving Credit Facility amendment. A 10% increase in the average rate
during the first nine months of 1999 would have increased the Company's net loss
to approximately $17,178,000.
4. INCOME TAXES
The federal income tax provision (benefit) was recorded in the
accompanying statement of operations, reflecting the fact that the Company files
a consolidated return with its parent, Holdings.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, INCLUDING THE NOTES
THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING THE COMPANY'S
BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY,
REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; TOGETHER WITH OTHER STATEMENTS THAT
ARE NOT HISTORICAL FACTS, ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS
DEFINED UNDER THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS,
UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN THE LEVELS
OF ADVERTISING REVENUES, CHANGES AND DELAYS IN NEW PRODUCT INTRODUCTIONS,
CUSTOMER ACCEPTANCE OF NEW PRODUCTS AND GENERAL ECONOMIC CONDITIONS, AS WELL AS
OTHER RISKS DETAILED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
HISTORICAL RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1998
The following discussion compares the financial results of the Company for the
nine months ended September 30, 1999, which includes the acquisitions of
LegalTech and LCL (as defined below), to financial information for the nine
months ended September 30, 1998. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased all the assets and assumed certain of the
liabilities related to Corporate Presentations, Inc. ("Legal Tech"), a producer
of trade shows and conferences relating to law practice technology. On March 31,
1998 (effective April 1, 1998), the Company and a wholly-owned subsidiary of the
Company purchased all of the legal publishing-related assets and assumed certain
liabilities related to Legal Communications, Ltd. ("LCL"), which is now the
Philadelphia division of the Company.
On July 21, 1999, the Company transferred all of its and its subsidiaries'
internet and electronic commerce business to POL. On July 24, 1999, POL was
recapitalized by creating a class of 12.25% preferred stock, par value $0.01 per
share, in addition to the class of common stock, par value $0.01 per share,
previously authorized. On July 27, 1999, the Company sold all of the issued and
outstanding POL Common Stock to Law.Com, Inc. for $1.0 million in cash. The
Company retained all of the issued and outstanding POL Preferred Stock. The POL
Preferred Stock is included in Other Assets on the Balance Sheet. Law.Com is a
web destination for legal information, e-commerce and e-services. Under a
cross-licensing agreement, the Company will continue to provide content and
editorial direction for Law.Com. Law.Com is owned by substantially the same
investors that own the Company, including Wasserstein & Co., Inc., U.S. Equity
Partners, L.P., and U.S. Equity Partners (Offshore) L.P. The 1999 consolidated
financial statements include the operations for POL through July 27, 1999, the
date of sale of the POL Common Stock to Law.Com.
Overview. Net revenues increased by $9.2 million, or 10.5%, from $87.9 million
for the nine months ended September 30, 1998 to $97.1 million for the nine
months ended September 30, 1999. Total operating costs and expenses increased
$15.5 million, or 17.9%, from $87.1 million for the nine months ended September
30, 1998 to $102.6 million for the nine months ended September 30, 1999. As a
result, operating profit decreased $6.3 million, from $0.8 million for the nine
months ended September 30, 1998 to a loss of $5.5 million for the nine months
ended September 30, 1999. EBITDA decreased $5.2 million, or 26.4%, from $19.6
million for the nine months ended September 30, 1998 to $14.4 million for the
nine months ending September 30, 1999. Excluding the results from Internet
14
<PAGE>
Services, operating profit decreased $5.6 million from $2.2 million for the nine
months ended September 30, 1998 to a net loss of $3.4 million for the nine
months ended September 30, 1999.
Revenues. Advertising revenues increased $6.2 million, or 12.4%, from $49.8
million for the nine months ended September 30, 1998 to $56.0 million for the
nine months ended September 30, 1999. The acquisition of LCL accounted for $2.0
million of this increase recorded during the first quarter of this year with no
revenue for LCL recorded during the first quarter of 1998. Without LCL revenues
listed above, advertising revenues increased $4.2 million, or 8.4%, due
principally to an increase in advertising rates as well as an overall increase
in advertising pages.
Subscription revenues increased $0.7 million, or 4.3%, from $16.9 million for
the nine months ended September 30, 1998 to $17.6 million for the nine months
ended September 30, 1999. The majority of the increase resulted primarily from
the acquisition of LCL.
Revenues from Ancillary Products and Services increased $3.1 million, or 16.3%,
from $19.1 million for the nine months ended September 30, 1998 to $22.2 million
for the nine months ended September 30, 1999. The acquisitions of LCL and
LegalTech accounted for $2.5 million, or 81.5%, of this increase.
Revenues from Internet Services decreased $0.8 million, or 38.2%, from $2.0
million for the nine months ended September 30, 1998 to $1.2 million for the
nine months ended September 30, 1999. This decrease resulted primarily from to
the shutdown of the Counsel Connect web site during the fourth quarter of 1998
and the sale of POL Common Stock to Law.Com during the third quarter of 1999.
Operating Expenses. Total operating expenses increased $15.5 million, or 17.9%,
from $87.1 million for the nine months ended September 30, 1998 to $102.6
million for the nine months ended September 30, 1999. This increase was due
primarily to $3.3 million of LCL and LegalTech expenses, as well as the
Company's investment in new products and product extensions.
Editorial expenses increased $4.9 million, or 43.7%, from $11.2 million for the
nine months ended September 30, 1998 to $16.1 million for the nine months ended
September 30, 1999. The acquisition of LCL and start up costs for new
initiatives, which include THE DAILY DEAL and High End Newsletters (a new
division which produces weekly newsletters), accounted for $1.8 million with
general salary increases and the filling of a number of key vacant positions
accounting for the remaining increase.
Production and Distribution expenses increased $2.0 million, or 10.5%, from
$18.8 million for the nine months ended September 30, 1998 to $20.8 million for
the nine months ended September 30, 1999. The acquisitions of LCL and LegalTech
increased expenses by $1.3 million, or 67.4%. The remaining increase was due
primarily to the introduction of a new weekly publication in California
(CALIFORNIA LAW WEEKLY) and for costs associated with new initiatives.
Selling expenses increased $6.7 million, or 49.4%, from $13.5 million for the
nine months ended September 30, 1998 to $20.2 million for the nine months ended
September 30, 1999. LCL and LegalTech accounted for $1.0 million, new
initiatives accounted for $2.7 million and the Core Business (total business
excluding new initiatives and Internet Services) increased $3.0 million
primarily due to increased volume.
General and Administrative expenses increased $0.9 million, or 4.2%, from $21.4
million for the nine months ended September 30, 1998 to $22.3 million for the
nine months ended September 30, 1999. This increase was due primarily to the
acquisitions of LCL and LegalTech.
15
<PAGE>
Internet Services expenses totaled $3.3 million for the nine months ended
September 30, 1999 and for the nine months ended September 30, 1999. Internet
Service expense for the nine months ended September 30, 1999 included costs from
the launching of the Company's web site, Law News Network, which did not exist
during the same period of the prior year, offset by the sale of POL Common Stock
to Law.Com during the third quarter of 1999.
Depreciation and Amortization increased $1.1 million, or 6.1%, from $18.8
million for the nine months ended September 30, 1998 to $19.9 million for the
nine months ended September 30, 1999. Amortization of goodwill associated with
the acquisitions of LCL and LegalTech along with increased capital expenditures
during the current year for new and upgraded systems to support new initiatives
and facilities accounted for the majority of this increase.
Operating Income (Loss). As a result of the above factors, operating income
decreased $6.3 million, from a profit of $0.8 million for the nine months ended
September 30, 1998 to a loss of $5.5 million for the nine months ended September
30, 1999.
HISTORICAL RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998
The following discussion compares the financial results of the Company for the
quarter ended September 30, 1999 to financial information for the quarter ended
September 30, 1998.
Overview. Net revenues increased by $1.9 million, or 6.4%, from $29.2 million
for the quarter ended September 30, 1998 to $31.1 million for the quarter ended
September 30, 1999. Total operating costs and expenses increased $5.4 million,
or 18.2%, from $29.5 million for the quarter ended September 30, 1998 to $34.9
million for the quarter ended September 30, 1999. As a result, operating loss
increased $3.5 million, from a loss of $0.3 million for the quarter ended
September 30, 1998 to a loss of $3.8 million for the quarter ended September 30,
1999. EBITDA decreased $3.2 million, or 51.7%, from $6.2 million for the quarter
ended September 30, 1998 to $3.0 million for the quarter ending September 30,
1999. Excluding the results from Internet Services, operating profit decreased
$3.9 million from $0.3 million for the quarter ended September 30, 1998 to $3.6
million for the quarter ended September 30, 1999.
Revenues. Advertising revenues increased $1.8 million, or 11.0%, from $16.8
million for the quarter ended September 30, 1998 to $18.6 million for the
quarter ended September 30, 1999. This increase was due principally to an
increase in advertising rates as well as an overall increase in advertising
pages.
Subscription revenues increased $0.2 million, or 4.2%, from $5.8 million for the
quarter ended September 30, 1998 to $6.0 million for the quarter ended September
30, 1999.
Revenues from Ancillary Products and Services increased $0.1 million, or 2.6%,
from $6.1 million for the quarter ended September 30, 1998 to $6.2 million for
the quarter ended September 30, 1999. Increased revenues during the current year
third quarter were due to additional trade shows of $0.4 million and increases
in book and seminar revenues of $0.2 million and $0.1 million, respectively.
These increases were partially offset by a decrease in information services
revenue, due to the sale of the POL Common Stock to Law.Com in the third quarter
of 1999.
Revenues from Internet Services decreased $0.4 million, or 58.3%, from $0.7
million for the quarter ended September 30, 1998 to $0.3 million for the quarter
ended September 30, 1999. This decrease was primarily due to the sale of POL
Common Stock to Law.Com during the third quarter of 1999.
16
<PAGE>
Operating Expenses. Total operating expenses increased $5.4 million, or 18.2%,
from $29.5 million for the quarter ended September 30, 1998 to $34.9 million for
the quarter ended September 30, 1999. The increase was primarily due to startup
costs for two of the new initiatives, the High End Newsletters and THE DAILY
DEAL, and additional investment in Core Business units.
Editorial expenses increased $1.9 million, or 46.3%, from $4.0 million for the
quarter ended September 30, 1998 to $5.9 million for the quarter ended September
30, 1999. New initiatives accounted for $1.0 million of this increase and the
remaining increase was due to the hiring of key personnel in the Core Business
units.
Production and Distribution expenses decreased $0.3 million, or 4.5%, from $6.5
million for the quarter ended September 30, 1998 to $6.2 million for the quarter
ended September 30, 1999. The decrease was primarily due to the sale of the POL
Common Stock to Law.Com in the third quarter of 1999.
Selling expenses increased $3.8 million, or 87.8%, from $4.4 million for the
quarter ended September 30, 1998 to $8.2 million for the quarter ended September
30, 1999. New initiatives, which included the launching of The Daily Deal,
accounted for $2.3 million with the remainder due to increased marketing and
promotional efforts in the Core Business units.
General and Administrative expenses increased $0.3 million, or 4.7%, from $7.0
million for the quarter ended September 30, 1998 to $7.3 million for the quarter
September 30, 1999. This was due primarily to the addition of key personnel in
the corporate division.
Internet Services expenses decreased $0.7 million, or 58.5%, from $1.2 million
for the quarter ended September 30, 1998 to $0.5 million for the quarter ended
September 30, 1999. The decrease was due primarily to the sale of the POL Common
Stock to Law.Com in the third quarter of 1999.
Depreciation and Amortization increased $0.4 million, or 5.2%, from $6.4 million
for the quarter ended September 30, 1998 to $6.8 million for the quarter ended
September 30, 1999. This was due primarily to the upgrading and purchase of new
computer equipment and systems throughout the Company.
Operating Loss. As a result of the above factors, operating loss increased $3.5
million, from a loss of $0.3 million for the quarter ended September 30, 1998 to
a loss of $3.8 million for the quarter ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. The Company's operations are not usually capital
intensive. Capital expenditures totaled $8.2 million for the nine months ended
September 30, 1999. Capital spending is higher than in prior periods due to new
editorial and advertising systems to support new initiatives and facilities
along with upgrades to existing systems.
NET CASH PROVIDED BY OPERATING ACTIVITIES. Net cash provided by
operating activities totaled $8.4 million, including the sale of POL Common
Stock but excluding the disposition of assets related thereto, for the nine
months ended September 30, 1999. The net loss of $17.1 million, increase in
accounts receivable and the decrease in accrued expense and other non current
liabilities were more than offset by depreciation and amortization of $19.9
million, an increase in other assets of $4.8 million and increases in
accounts payable, accrued expense and deferred income.
NET CASH USED IN INVESTING ACTIVITIES. Net cash used in investing
activities totaled $13.0 million for the nine months ended September 30, 1999
resulting from capital expenditures of $8.2 million and the disposition of
17
<PAGE>
assets of $4.8 million related to the Law.Com transaction during the third
quarter of 1999.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by
financing activities was $4.3 million for the nine months ended September 30,
1999 all due to borrowings on the Revolving Credit Facility.
YEAR 2000 COMPLIANCE. The Company is in the process of modifying,
upgrading or replacing its computer software applications and systems which the
Company expects will accommodate the "Year 2000" dating changes necessary to
permit correct recording of year dates for 2000 and later years. The Company has
developed a technology plan, which the Company is currently implementing, to
replace all client and server based software systems necessary to be Year 2000
compliant. The applications that the Company is installing and upgrading
include, but are not limited to, its Editorial and workflow systems (QPS),
Classified/Display (Atex), Accounting (Solomon), Payroll (ADP),
circulation/fulfillment (Multi-pub), e-mail (MS Exchange) and its business suite
applications (MS Office 97 and 98). All vendors have assured the Company in
writing that their respective software packages are Year 2000 compliant.
The Company has also upgraded its network infrastructure with a
100baseT-switched environment. Layer three switches form the backbone of the
Company's new infrastructure that also incorporates gigabit technology. The
Company has also purchased new servers (Compaq Proliants) and implemented
failover systems such as a Compaq Standby Recovery Server in an effort to both
ensure complete redundancy, and Year 2000 compliance. With respect to desktop
applications, the Company is continuing its efforts to replace all systems
purchased before 1999 with new systems. This includes both PC and Mac clients.
Both Dell (PCs) and Apple (Macs) have committed to the Company in writing that
their systems are Year 2000 compliant.
The Company is working with its software vendors to ensure that
necessary patches are installed to make the Company Year 2000 compliant.
These vendors include, but are not limited to: Microsoft (Window NT
workstation and Server), Novell (Netware 4.x), Sun (Solaris 2.4), and Apple
(Mac OS 8.5). The Company has hired a Year 2000 consultant. We are currently
implementing the Year 2000 technology that has been developed in conjunction
with our consultant. Implementation of this plan will make us fully Year 2000
compliant with respect to hardware (networking and desktop), and software
(application and system). The Company does not expect that the cost of its
Year 2000 compliance program will be material to its financial condition or
results of operations. The Company believes that it will be able to achieve
compliance by the end of 1999, and does not currently anticipate any material
disruption in its operations as the result of any failure by the Company to
be in compliance. The Company does not currently have any adverse information
concerning the compliance status of its suppliers and customers.
The Company's management is currently working on Year 2000 contingency
plans that include a description of the resources, staff roles, procedures, and
timetables needed for its implementation. These plans will include the following
strategies for meeting minimum acceptable output requirements for each critical
business process: quick fix, partial replacement, full redundancy and
outsourcing. The basic implementation modes for the quick fix, partial, and full
replacement of functionally provided by failed mission-critical systems are
manual replacement, semi-automated replacement and automated replacement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
18
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule for American Lawyer Media, Inc.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated July 27, 1999 and filed August 24,
1999, regarding the sale of POL Common Stock to Law.Com.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN LAWYER MEDIA, INC.
November 11, 1999 /s/ William L. Pollak
------------------------------------------
William L. Pollak
President and Chief Executive Officer
November 11, 1999 /s/ Leslye G. Katz
------------------------------------------
Leslye G. Katz
Vice President and Chief Financial Officer
20
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FILING AT SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> AMERICAN LAWYER MEDIA, INC.
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