<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 June 30, 2000.
/ / 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 (I.R.S. Employer
incorporation or organization) Identification Number)
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (212) 779-9200
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of August 11, 2000, there were 100 shares of the registrant's Common Stock
outstanding.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
PART I
FINANCIAL INFORMATION...........................................................................................1
ITEM 1. FINANCIAL STATEMENTS...........................................................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...........................................................................16
PART II
OTHER INFORMATION..............................................................................................17
ITEM 1. LEGAL PROCEEDINGS.............................................................................17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.....................................................17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...............................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................17
ITEM 5. OTHER INFORMATION.............................................................................17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................................................17
(i)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL INFORMATION
PAGE
----
<S> <C>
Consolidated Financial Statements of American Lawyer Media, Inc.
Consolidated Balance Sheets at June 30, 2000 and December 31, 1999.......................................... 1
Consolidated Statements of Operations for the Six Months Ended
June 30, 2000 and 1999............................................................................. 2
Consolidated Statements of Operations for the Three Months Ended
June 30, 2000 and 1999............................................................................. 3
Consolidated Statement of Changes in Stockholder's Equity for
the Six Months Ended June 30, 2000................................................................. 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999....................................................................... 5
Notes to Consolidated Financial Statements at June 30, 2000................................................. 6-10
(ii)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2000 1999
------------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................ $ 1,178 $ 1,598
Accounts receivable, net of allowance for doubtful accounts and returns of
$3,044 and $2,758, respectively.................................................... 22,669 16,811
Inventories, net...................................................................... 1,419 1,449
Other current assets.................................................................. 2,066 2,572
-------- --------
Total current assets............................................................ 27,332 22,430
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and
amortization of $8,017 and $5,912, respectively.................................... 14,953 15,018
INTANGIBLE ASSETS, net of accumulated amortization of $29,959 and $24,121,
respectively....................................................................... 145,616 149,831
GOODWILL, net of accumulated amortization of $29,998 and $23,937,
respectively....................................................................... 151,757 153,816
DEFERRED FINANCING COSTS, net of accumulated amortization of $2,085 and
$1,669, respectively............................................................... 5,693 6,109
OTHER ASSETS.......................................................................... 3,697 1,210
-------- --------
Total assets.................................................................. $349,048 $348,414
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................................... $ 5,354 $ 6,792
Accrued expenses...................................................................... 9,882 10,912
Accrued interest payable.............................................................. 1,213 1,185
Deferred income (including deferred subscription income of $17,306 and
$16,380, respectively)............................................................. 18,858 17,798
-------- --------
Total current liabilities...................................................... 35,307 36,687
LONG TERM DEBT:
Revolving credit
facility........................................................................... 20,300 18,300
Senior notes.......................................................................... 175,000 175,000
-------- --------
Total long term debt........................................................... 195,300 193,300
DEFERRED INCOME TAXES................................................................. 36,571 38,182
OTHER NONCURRENT LIABILITIES.......................................................... 6,715 5,925
STOCKHOLDER'S EQUITY:
Common stock--$.01 par value; 1,000 shares authorized; 100 issued and
outstanding at June 30, 2000 and December 31, 1999................................. -- --
Paid-in-capital....................................................................... 133,909 123,515
Accumulated deficit................................................................... (58,754) (49,195)
--------- --------
Total stockholder's equity..................................................... 75,155 74,320
-------- --------
Total liabilities and stockholder's equity.................................... $349,048 $348,414
======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Periodicals:
Advertising...................................................... $ 44,959 $ 37,388
Subscription..................................................... 11,884 11,643
Ancillary products and services..................................... 22,687 16,035
Internet services................................................... -- 973
----------- -----------
Total revenues................................................... 79,530 66,039
----------- -----------
OPERATING EXPENSES:
Editorial........................................................... 13,665 10,152
Production and distribution......................................... 16,099 14,582
Selling............................................................. 16,583 11,978
General and administrative.......................................... 20,307 15,046
Internet services................................................... -- 2,813
Depreciation and amortization....................................... 14,264 13,162
----------- -----------
Total operating expenses......................................... 80,918 67,733
----------- -----------
Operating loss................................................... (1,388) (1,694)
Interest expense.................................................... (9,812) (9,367)
Other income, net................................................... 30 26
----------- -----------
Loss before income taxes......................................... (11,170) (11,035)
BENEFIT FOR INCOME TAXES............................................ 1,611 1,675
----------- -----------
Net loss......................................................... $ (9,559) $ (9,360)
=========== ===========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Periodicals:
Advertising...................................................... $ 23,232 $ 19,414
Subscription..................................................... 6,008 5,997
Ancillary products and services..................................... 11,447 8,106
Internet services................................................... -- 496
----------- -----------
Total revenues................................................... 40,687 34,013
----------- -----------
OPERATING EXPENSES:
Editorial........................................................... 5,992 5,269
Production and distribution......................................... 7,881 7,212
Selling............................................................. 7,672 5,918
General and administrative.......................................... 9,383 7,703
Internet services................................................... -- 1,550
Depreciation and amortization....................................... 7,121 6,659
----------- -----------
Total operating expenses......................................... 38,049 34,311
----------- -----------
Operating income (loss).......................................... 2,638 (298)
Interest expense.................................................... (4,882) (4,681)
Other income, net................................................... 17 9
----------- -----------
Loss before income taxes......................................... (2,227) (4,970)
BENEFIT FOR INCOME TAXES............................................ 805 832
----------- -----------
Net loss......................................................... $ (1,422) $ (4,138)
=========== ===========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL
PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------ --------- ------- ------- -----
COMMON STOCK
------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999................. 100 $ -- $ 123,515 $ (49,195) $ 74,320
Gain on sale of business..................... -- -- 10,394 -- 10,394
Net loss..................................... -- -- -- (9,559) (9,559)
---------- ---------- --------- --------- ---------
BALANCE AT JUNE 30, 2000..................... 100 $ -- $ 133,909 $ (58,754) $ 75,155
========== ========== ========= ========= =========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $(9,559) $(9,360)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization................................................ 14,264 13,162
Non-cash interest............................................................ 416 416
(Increase) decrease in:
Accounts receivable, net........................................................ (5,615) (3,472)
Inventories..................................................................... 30 443
Other current assets............................................................ 500 (392)
Other assets.................................................................... (36) (5)
(Decrease) increase in:
Accounts payable................................................................ (1,624) (366)
Accrued expenses................................................................ (1,181) 121
Accrued interest payable........................................................ 28 52
Deferred income................................................................. 785 1,563
Other noncurrent liabilities.................................................... (1,124) (2,916)
------- -------
Total adjustments............................................................ 6,443 8,606
------- -------
Net cash used in operating activities........................................ (3,116) (754)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (3,538) (4,975)
Proceeds received from sale of business......................................... 9,184 --
Purchase of business............................................................ (4,950) --
------- -------
Net cash provided by (used in) investing activities.......................... 696 (4,975)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance on revolving credit facility............................................ 2,000 5,500
------- -------
Net cash provided by financing activities.................................... 2,000 5,500
------- -------
Net decrease in cash......................................................... (420) (229)
CASH, beginning of period....................................................... 1,598 514
------- -------
CASH, end of period......................................................... $ 1,178 $ 285
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes......................................................... $ -- $ 55
======= =======
Interest............................................................. $ 9,296 $ 8,847
======= =======
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
5
</TABLE>
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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 nine states, the
District of Columbia and London, England.
In February 2000, the Company restructured its weekly newsletter
division by discontinuing publication of four of its weekly newsletters. In July
2000, the Company discontinued publication of the remaining two newsletters.
On March 28, 2000, the Company sold a business of the Company and
certain of the Company's wholly-owned subsidiaries constituting THE DAILY DEAL
and CORPORATE CONTROL ALERT (the "Business") to The Deal, L.L.C. (formerly TDD,
L.L.C.), a limited liability company (the "Purchaser"), owned by substantially
all of the same stockholders as Holdings, including U.S. Equity Partners, L.P.
and U.S. Equity Partners (Offshore), L.P. The consideration for the sale was
$7.5 million in cash and $2.5 million face amount of a membership interest in
the Purchaser (the "Preferred Membership Interest"). The Preferred Membership
Interest is included in Other Assets on the Balance Sheet. The Preferred
Membership Interest accretes at 12.25% compounded annually and is convertible
into 3.0% of the common equity of the Purchaser. In addition, the Purchaser has
agreed to pay the Company the aggregate amount of operating losses incurred by
the Company in connection with the operation of the Business for the month of
March 2000, which operating losses totaled $1.68 million of which substantially
all was paid as of June 30, 2000.
On May 15, 2000, the Company consummated the acquisition of
substantially all of the assets and certain of the liabilities of Moran
Publishing Company, Inc. ("Moran"). Moran is the leading publisher of jury
verdict and settlement research data in New York State.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the interim financial
statements include all adjustments, which are of a normal recurring nature, that
management considers necessary to fairly present the financial position and the
results of operations for such periods. Results of operations of interim periods
are not necessarily indicative of results for a full year. These financial
statements should be read in conjunction with the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for December 31, 1999.
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
6
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collectively referred to herein as the "Company". Intercompany transactions and
balances have been eliminated in consolidation. The consolidated financial
statements for 1999 include the operations for Professional On-Line, Inc.
("POL"), a wholly-owned subsidiary of the Company that held the Company's
Internet business, through July 27, 1999, the date of sale of the common stock
of POL to Law.com, Inc. ("Law.com").
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentration
of credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company believes it is not exposed to any significant credit
risk related to cash and cash equivalents. Concentrations of credit risk with
respect to trade accounts receivable are, except for amounts due from legal
advertising agents, generally limited due to the large number of customers
comprising the Company's customer base. Such legal advertising agents do not
have significant liquid net worth and, as a result, the Company is exposed to a
certain level of credit concentration risk in this area, for which the Company
believes it has adequately reserved.
Revenue Recognition
Periodical advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in the
Company's publications. Advertising revenue is recognized upon release of the
related publications.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served.
Ancillary products and services revenues consist principally of
third-party printing revenues, newsletter subscriptions, sales of professional
books and seminar and conference revenues. Printing revenues are recorded upon
shipment. Book revenues are recognized upon shipment and are reflected net of
estimated returns. Newsletter revenues are recognized on the same basis as
subscription revenues. Seminar and conference revenues are recognized when the
seminar or conference is held.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders
for subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $3,742,700 and $3,128,600 are
7
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
included in accounts receivable in the accompanying consolidated June 30, 2000
and December 31, 1999 balance sheets, respectively.
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$2,100,900 and $1,790,900 for the three months ended June 30, 2000 and 1999,
respectively, and $4,370,600 and $2,910,000 for the six months ended June 30,
2000 and 1999, respectively, are expensed as the related advertisements or
campaigns are released.
Cash and Cash Equivalents
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories consist principally of paper and related binding materials
utilized by the Company and its outside printers and professional books
published and sold by the Company. Inventories are determined by the average
cost method and are stated at the lower of cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, with the exception of
fixed assets acquired as part of the acquisitions of American Lawyer Media L.P.
and National Law Publishing Company, Inc. at the end of 1997 (the "ALM and NLP
Acquisitions"), which are stated at approximate fair market value as of the date
of the acquisitions. Significant improvements are capitalized, while
expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated
remaining useful lives of the assets acquired as part of the ALM and NLP
Acquisitions. Assets purchased after the ALM and NLP Acquisitions are
depreciated using the straight-line method over the following estimated useful
lives:
<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.
8
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets represent advertiser commitments, uniform resource
locators, trademarks, customer and subscriber lists and non-compete agreements.
They are stated at cost less accumulated amortization and are amortized on a
straight-line basis over a weighted average useful life of fifteen years.
Income Taxes
Deferred income taxes are provided for the temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities and principally consist of nondeductible goodwill and identified
intangibles, accelerated depreciation, allowance for doubtful accounts, certain
accrued liabilities not currently deductible for tax purposes and net operating
loss carry forwards.
3. DEBT
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 of each year. The Senior Notes are unsecured general obligations of the
Company and are fully and unconditionally guaranteed, on a joint and several and
senior unsecured basis, by each of the Company's existing and future
subsidiaries. Separate financial statements of, and other disclosures
concerning, the Guarantors are not included herein because of the Guarantors'
full and unconditional guarantee of the Senior Notes and management's
determination that separate financial statements and other disclosures
concerning the Guarantors are not material and would not provide any additional
meaningful disclosure. The Senior Notes may be redeemed at any time by 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 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
$7,236,000, were capitalized in 1998 and are being amortized over the term of
the Senior Notes. Amortization of deferred financing costs is recorded as
interest expense. Assuming there is no redemption of the Senior Notes prior to
maturity, the entire principal will be payable on December 15, 2007.
On March 25, 1998, 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
were capitalized in 1998 and are being amortized over the term of the agreement.
Amortization of deferred financing costs is recorded as interest expense. The
Revolving Credit Facility is guaranteed by Holdings and, on a joint and
several basis, by all existing and future 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. The Revolving Credit Facility bears interest at a fluctuating rate
determined by reference to (i) the
9
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
3. DEBT (CONTINUED)
Base Rate plus a margin ranging from .25% to 1.5%, or (ii) the Eurodollar Rate
plus a margin ranging from 1.25% to 2.5%, as the case may be. The applicable
margin is based on the Company's total consolidated leverage ratio. The Base
Rate equals the higher of (a) the rate of interest publicly announced from time
to time by Bank of America as its reference rate, or (b) the Federal funds rate
plus .5%. The Eurodollar Rate is based on (i) the interest rate per annum at
which deposits in U.S. Dollars are offered by Bank of America's applicable
lending office to major banks in the offshore market in an aggregate principal
amount approximately equal to the amount of the loan made to the Company and
(ii) the maximum reserve percentage in effect under regulations issued from time
to time by the Federal Reserve Board. The Company is also required to pay
customary fees with respect to the Revolving Credit Facility, including an
up-front arrangement fee, annual administrative agency fees and commitment fees
on the unused portion of the Revolving Credit Facility. The Revolving Credit
Facility includes both affirmative and negative covenants that include meeting
certain financial ratios.
Effective March 29, 1999, Holdings and the Company amended the
Revolving Credit Facility to limit 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.
Effective July 20, 1999, the Revolving Credit Facility was further
amended to permit the sale of the Company's Internet business to Law.com and to
modify certain debt covenants. Effective March 28, 2000, the Revolving Credit
Facility was further amended to modify certain of the covenants, to permit the
sale of the Company's business constituting THE DAILY DEAL and CORPORATE CONTROL
ALERT to The Deal, L.L.C. and to increase the revolver limit described above
from $20 million to $22.5 million.
At June 30, 2000, the amount outstanding under the Revolving Credit
Facility was $20.3 million. The available balance under the unused commitment is
reduced by any letters of credit outstanding, which totaled $1,121,000 at June
30, 2000. A 10% increase in the average interest rate of borrowings under the
Revolving Credit Facility during the first six months of 2000 would have
increased the Company's net loss to approximately $9,638,000.
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.
10
<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 THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE STATES IN SUCH STATEMENTS. SUCH RISKS,
UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN THE LEVELS
OF ADVERTISING REVENUES, CHANGES AND DELAYS IN NEW PRODUCT INTRODUCTIONS,
CUSTOMER ACCEPTANCE OF NEW PRODUCTS AND GENERAL ECONOMIC CONDITIONS, AS WELL AS
OTHER RISKS DETAILED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
OVERVIEW
The following discussion compares the financial results of the Company
for the six months ended June 30, 2000 to the six months ended June 30, 1999.
In July 1999, the Company sold the common stock of POL, which held the
Company's Internet business, to Law.com for $1 million in cash and the Company
retained a preferred stock interest with a face amount of $3.75 million. In
December 1999, Law.com redeemed the convertible preferred stock for $3.75
million plus accrued dividends. The Company and Law.com entered into an
exclusive content license that grants Law.com the right to publish all Company
content in electronic or digital format through 2004 as part of the transaction.
Law.com is the holding company for an Internet destination for legal
information, e-commerce and e-services whose stockholders include substantially
all of the stockholders of Holdings.
In February 2000, the Company restructured its weekly newsletter
division by discontinuing publication of four of its weekly newsletters. In July
2000, the Company discontinued publication of the remaining two newsletters.
On March 28, 2000, the Company sold the business of the Company and
certain of the Company's wholly-owned subsidiaries constituting THE DAILY DEAL
and CORPORATE CONTROL ALERT (the "Business") to The Deal, L.L.C., a limited
liability company (the "Purchaser"), owned by substantially all of the same
stockholders as Holdings. The consideration for the sale was $7.5 million in
cash and $2.5 million face amount of a membership interest in the Purchaser (the
"Preferred Membership Interest"). The Preferred Membership Interest is included
in Other Assets on the Balance Sheet. The Preferred Membership Interest accretes
at 12.25% compounded annually and is convertible into 3.0% of the common equity
of the Purchaser. In addition, the Purchaser agreed to pay the Company the
aggregate amount of operating losses incurred by the Company in connection with
the operation of the Business for the month of March 2000, which operating
losses totaled $1.68 million of which substantially all was paid as of June 30,
2000.
On May 15, 2000, the Company consummated the acquisition of
substantially all of the assets and certain of the liabilities of Moran
Publishing Company, Inc. ("Moran"), the leading publisher of jury verdict and
settlement research data in New York State.
11
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30,
1999
OVERVIEW. Revenues increased by $13.5 million, or 20.4%, from $66.0
million for the six months ended June 30, 1999 to $79.5 million for the six
months ended June 30, 2000. Total operating costs and expenses increased $13.2
million, or 19.5%, from $67.7 million for the six months ended June 30, 1999 to
$80.9 million for the six months ended June 30, 2000. As a result, the operating
loss decreased $0.3 million, from a loss of $1.7 million for the six months
ended June 30, 1999 to a loss of $1.4 million for the six months ended June 30,
2000. EBITDA increased $1.4 million, or 12.3%, from $11.5 million for the six
months ended June 30, 1999 to $12.9 million for the six months ended June 30,
2000. The decrease in operating loss and the increase in EBITDA during 2000,
resulted primarily from growth in core business and new projects commenced in
2000, along with the elimination of the internet services loss reflected in the
prior year, which was partially offset by higher operating costs and expenses
primarily from the 1999 and 2000 initiatives and expansion in the core
business units. Excluding the results from Internet services and the new
initiatives in 1999, which includes THE DAILY DEAL and the high-end
newsletter division, revenues increased $14.1 million, or 21.6%, from $64.9
million for the six months ended June 30, 1999 to $79.0 million for the six
months ended June 30, 2000. In addition, excluding the results from Internet
services and the new initiatives in 1999, EBITDA also increased $4.0 million,
or 27.3%, from $14.7 million for the six months ended June 30, 1999 to $18.7
million for the six months ended June 30, 2000.
REVENUES. Advertising revenues increased $7.6 million, or 20.3%, from
$37.4 million for the six months ended June 30, 1999 to $45.0 million for the
six months ended June 30, 2000. All categories of advertising contributed to
this increase in revenues. The greatest contributions were from display,
classified and law firm advertising which increased 30%, 25% and 20%,
respectively, reflecting new publications and the increased frequency of
existing publications during 2000 along with greater volume due to increased
sales efforts.
Subscription revenues increased $0.2 million, or 2.1%, from $11.6
million for the six months ended June 30, 1999 to $11.9 million for the six
months ended June 30, 2000. Subscriptions for periodicals and newsletters each
increased $0.1 million during this period compared to the same period during
1999. Increased marketing efforts and the launching of new publications during
2000 contributed to the increase, which was partially offset by the
restructuring of the Company's weekly newsletter division in early 2000.
Revenues from ancillary products and services increased $6.7 million,
or 41.5%, from $16.0 million for the six months ended June 30, 1999 to $22.7
million for the six months ended June 30, 2000. Increased revenues primarily
resulted from higher licensing and royalty fees along with higher revenues from
trade shows, seminars, new books and additional updates released for existing
books. These increases were partially offset by a decrease in information
services revenue due to the sale of the common stock of POL to Law.com in the
third quarter of 1999.
Revenues from Internet services totaled $1.0 million for the six months
ended June 30, 1999. The Company did not record any revenues from Internet
services during the six months ended June 30, 2000 as a result of the sale of
the common stock of POL to Law.com in the third quarter of 1999.
12
<PAGE>
OPERATING COSTS AND EXPENSES. Total operating costs and expenses
increased $13.2 million, or 19.5%, from $67.7 million for the six months ended
June 30, 1999 to $80.9 million for the six months ended June 30, 2000. Of this
amount, operating costs and expenses for the Company's two primary new
initiatives in 1999, the high-end newsletters and THE DAILY DEAL, increased $4.6
million; new projects commenced by the Company in 2000 and the core business
units accounted for the remaining increase. The 1999 initiatives and the new
initiatives commenced in 2000 are fully reflected in the results for the six
months ended June 30, 2000, while the results for the six months ended June 30,
1999 had no expense for the 2000 projects and little expense for the 1999
initiatives. The increased costs and expenses in the core business units were
partially offset by the elimination of operating expense related to internet
services resulting from the sale of the common stock of POL to Law.com during
the third quarter of 1999.
Editorial expenses increased $3.5 million, or 34.6%, from $10.2 million
for the six months ended June 30, 1999 to $13.7 million for the six months ended
June 30, 2000. The increase primarily resulted from an increase in editorial
salaries of $3.0 million and an increase in art expense of $0.4 million. The
Company's new initiatives for 1999 accounted for $1.9 million of this increase
and the remaining increase resulted from new projects started during 2000 with
no like charges recorded during the comparable 1999 period.
Production and distribution expenses increased $1.5 million, or 10.4%,
from $14.6 million for the six months ended June 30, 1999 to $16.1 million for
the six months ended June 30, 2000. The increase was primarily due to increased
production and distribution expenses for the 1999 initiatives and new projects
commenced in 2000, along with slightly higher production costs incurred in the
core business units, which was partially offset by the elimination of production
and distribution costs relating to internet services resulting from the sale of
the common stock of POL to Law.com during the third quarter of 1999. The 1999
initiatives and new projects commenced in 2000 are reflected in the six months
ended June 30, 2000 with little or no comparable expense being recorded in the
six months ended June 30, 1999.
Selling expenses increased $4.6 million, or 38.4%, from $12.0 million
for the six months ended June 30, 1999 to $16.6 million for the six months ended
June 30, 2000. The increase was primarily attributable to increased marketing
costs as well as increased display and classified advertising costs relating to
growth in revenue.
General and administrative expenses increased $5.3 million, or 35.0%,
from $15.0 million for the six months ended June 30, 1999 to $20.3 million for
the six months ended June 30, 2000. This increase resulted primarily from
increased staffing levels, facilities, legal and consulting costs for the
various 1999 new initiatives and new projects commenced in 2000.
Internet services expenses decreased $2.8 million for the six months
ended June 30, 1999 to zero for the six months ended June 30, 2000. This
decrease in expenses resulted from the sale of the common stock of POL to
Law.com during July 1999.
Depreciation and amortization increased $1.1 million, or 8.4%, from
$13.2 million for the six months ended June 30, 1999 to $14.3 million for the
six months ended June 30, 2000. This was due primarily to the increase in
capital expenditures throughout 1999 and for the six months ended June 30, 2000
for the upgrade and purchase of new computer equipment and systems throughout
the Company and for capitalized improvements and furnishings in existing and new
facilities to support the 1999 new initiatives and new projects commenced in
2000 and the Company's core growth.
13
<PAGE>
OPERATING LOSS. As a result of the above factors, the operating loss
decreased $0.3 million, from a loss of $1.7 million for the six months ended
June 30, 1999 to a loss of $1.4 million for the six months ended June 30, 2000.
In addition, EBITDA increased $1.4 million, or 12.3%, from $11.5 million for the
six months ended June 30, 1999 to $12.9 million for the six months ended June
30, 2000.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
The following discussion compares the financial results of the Company for the
three months ended June 30, 2000 to the three months ended June 30, 1999.
OVERVIEW. Revenues increased $6.7 million, or 19.6%, from $34.0 million for the
quarter ended June 30, 1999 to $40.7 million for the quarter ended June 30,
2000. Total operating costs and expenses increased $3.7 million, or 10.9%, from
$34.3 million for the quarter ended June 30, 1999 to $38.0 million for the
quarter ended June 30, 2000. As a result, operating income increased $2.9
million, from a loss of $0.3 million for the quarter ended June 30, 1999 to
income of $2.6 million for the quarter ended June 30, 2000. In addition, EBITDA
increased $3.4 million, or 53.4%, from $6.4 million for the quarter ended June
30, 1999 to $9.8 million for the quarter ending June 30, 2000. Higher operating
income and EBITDA resulted primarily from growth in core business and increased
revenues generated by new projects commenced in 2000, along with the elimination
of the losses reflected in the prior year with the sale of the common stock of
POL to Law.com in July 1999 and the sale of the business constituting THE DAILY
DEAL and CORPORATE CONTROL ALERT in March 2000, partially offset by higher
operating costs and expenses primarily from the 1999 and 2000 initiatives and
expansion in the core business units. Excluding the results from Internet
services and the new initiatives in 1999, revenues increased $7.2 million, or
21.5%, from $33.4 million for the quarter ended June 30, 1999 to $40.6 million
for the quarter ended June 30, 2000. In addition, excluding the results from
Internet services and the new initiatives in 1999, EBITDA also increased $1.9
million, or 22.4%, from $8.5 million for the quarter June 30, 1999 to $10.4
million for the quarter ended June 30, 2000.
REVENUES. Advertising revenues increased $3.8 million, or 19.7%, from
$19.4 million for the quarter ended June 30, 1999 to $23.2 million for the
quarter ended June 30, 2000. All categories of advertising contributed to this
increase in revenues. The greatest contributions were display, classified and
law firm advertising, which increased 31%, 25% and 24%, respectively, reflecting
new publications during 2000 along with greater volume due to increased sales
efforts.
Subscription revenues were $6.0 million for the quarter ended June 30,
1999, equal to the $6.0 million in subscription revenues for the quarter ended
June 30, 2000. Subscriptions for both periodicals and newsletters were flat
during these periods. The restructuring of the Company's weekly newsletter
division in early 2000 partially contributed to the lack of growth in newsletter
subscriptions.
Revenues from ancillary products and services increased $3.3 million,
or 41.2%, from $8.1 million for the quarter ended June 30, 1999 to $11.4 million
for the quarter ended June 30, 2000. Increased revenues primarily resulted from
higher licensing and royalty fees along with higher revenues from trade shows,
seminars, new books and additional updates released for existing books. These
increases were partially offset by a decrease in information services revenue,
due to the sale of the common stock of POL to Law.com in the third quarter of
1999.
14
<PAGE>
Revenues from Internet services totaled $0.5 million for the quarter
ended June 30, 1999. The Company did not record any revenues from Internet
services during the second quarter of 2000 as a result of the sale of the common
stock of POL to Law.com in the third quarter of 1999.
OPERATING COSTS AND EXPENSES. Total operating costs and expenses
increased $3.7 million, or 10.9%, from $34.3 million for the quarter ended June
30, 1999 to $38.0 million for the quarter ended June 30, 2000. This increase
primarily resulted from operating costs and expenses related to new projects
commenced in 2000 and higher costs and expenses from initiatives that had been
started during 1999, along with higher costs and expenses in all categories due
to increased growth in revenues. These increased costs were partially offset by
lower operating costs and expenses resulting from the sale of the common stock
of POL to Law.com during the third quarter of 1999 and the sale of the business
constituting THE DAILY DEAL and CORPORATE CONTROL ALERT during the first quarter
of 2000.
Editorial expenses increased $0.7 million, or 13.7%, from $5.3 million
for the quarter ended June 30, 1999 to $6.0 million for the quarter ended June
30, 2000. The increase primarily resulted from an increase of $0.5 million in
editorial salaries and an increase in $0.2 million in art expenses resulting
from the Company's new projects commenced in 2000 along with increases to
existing publications of $1.1 million, partially offset by a reduction of $0.4
million of costs resulting from the sale of the business constituting THE DAILY
DEAL and CORPORATE CONTROL ALERT during the first quarter of 2000.
Production and distribution expenses increased $0.7 million, or 9.3%,
from $7.2 million for the quarter ended June 30, 1999 to $7.9 million for the
quarter ended June 30, 2000. The increase resulted primarily from costs related
to new projects commenced in 2000 and increased expenses incurred in the core
business units, which was partially offset by the elimination of production and
distribution expenses resulting from the sale of the common stock of POL to
Law.com during the third quarter of 1999.
Selling expenses increased $1.8 million, or 29.6%, from $5.9 million
for the quarter ended June 30, 1999 to $7.7 million for the quarter ended June
30, 2000. The increase was primarily attributable to increased marketing costs
as well as increased display and classified advertising costs relating to growth
in revenue.
General and administrative expenses increased $1.7 million, or 21.8%,
from $7.7 million for the quarter ended June 30, 1999 to $9.4 million for the
quarter ended June 30, 2000. This increase resulted primarily from increased
staffing levels, facilities, legal and consulting costs for the various 1999 new
initiatives and new projects commenced in 2000.
Internet services expenses decreased $1.6 million for the quarter ended
June 30, 1999 to zero for the quarter ended June 30, 2000 as a result of the
sale of the common stock of POL to Law.com during July 1999.
Depreciation and amortization increased $0.4 million, or 6.9%, from
$6.7 million for the quarter ended June 30, 1999 to $7.1 million for the quarter
ended June 30, 2000. This was due primarily to the increase in capital
expenditures throughout 1999 and for the six months ended June 30, 2000 for the
upgrade and purchase of new computer equipment and systems throughout the
Company and for capitalized improvements and furnishings in existing and new
facilities to support the 1999 new initiatives and new projects commenced in
2000 and the Company's core growth.
15
<PAGE>
OPERATING INCOME. As a result of the above factors, operating income
increased $2.9 million, from a loss of $0.3 million for the quarter ended June
30, 1999 to a profit of $2.6 million for the quarter ended June 30, 2000. In
addition, EBITDA increased $3.4 million, or 53.4%, from $6.4 million for the
quarter ended June 30, 1999 to $9.8 million for the quarter ending June 30,
2000.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Capital expenditures decreased $1.5 million, or
28.9%, from $5.0 million for the six months ended June 30, 1999 to $3.5
million for the six months ended June 30, 2000. The capital expenditures for
the 1999 period included higher costs relating to the initial outlay for the
Company's investment in new editorial and advertising systems to support new
initiatives and facilities along with upgrades to existing systems.
NET CASH USED IN OPERATING ACTIVITIES. Net cash used in operating
activities was $3.1 million for the six months ended June 30, 2000, primarily
resulting from a net loss of $9.6 million, and an increase in accounts
receivable of $5.6 million, which was partially offset by depreciation and
amortization of $14.3 million.
NET CASH PROVIDED BY INVESTING ACTIVITIES. Net cash provided by
investing activities was $0.7 million for the six months ended June 30, 2000,
resulting from the sale of the business constituting THE DAILY DEAL and
CORPORATE CONTROL ALERT to The Deal, L.L.C. for $7.5 million in cash and the
payment by The Deal, L.L.C. of operating losses incurred in March 2000 equal to
$1.68 million. This cash inflow was partially offset by the purchase of
substantially all of the assets and certain of the liabilities of Moran during
the second quarter of 2000 along with cash used for capital expenditures of $3.5
million during the six months ended June 30, 2000.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by
financing activities was $2.0 million for the six months ended June 30, 2000 due
to a net drawdown under the Company's Revolving Credit Facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
16
<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.
10.8 Amendment No. 2 to 345 Park Avenue South Lease.
27.1 Financial Data Schedule for American Lawyer Media, Inc.
(b) Reports on Form 8-K.
None.
17
<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.
August 11, 2000 /s/ WILLIAM L. POLLAK
---------------------------------
William L. Pollak
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
August 11, 2000 /s/ LESLYE G. KATZ
---------------------------------
Leslye G. Katz
VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
