<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 March 31, 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 May 12, 2000 there were 100 shares of the registrant's Common Stock
outstanding.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
FINANCIAL INFORMATION.........................................................1
ITEM 1. FINANCIAL STATEMENTS............................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK..............................................13
PART II
OTHER INFORMATION............................................................14
ITEM 1. LEGAL PROCEEDINGS..............................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............14
ITEM 5. OTHER INFORMATION..............................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...............................14
(i)
<PAGE>
INDEX TO FINANCIAL INFORMATION
PAGE
Consolidated Financial Statements of American Lawyer Media, Inc.
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999............1
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999..................................................2
Consolidated Statement of Changes in Stockholder's Equity for
the Three Months Ended March 31, 2000....................................3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999............................................4
Notes to Consolidated Financial Statements at March 31, 2000.................5-9
(ii)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 388 $ 1,598
Accounts receivable, net of allowance for doubtful accounts and returns of
$2,893 and $2,758, respectively ....................................... 20,121 16,811
Inventories, net ......................................................... 1,417 1,449
Other current assets ..................................................... 2,884 2,572
--------- ---------
Total current assets ............................................ 24,810 22,430
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and
amortization of $6,854 and $5,912, respectively ....................... 15,183 15,018
INTANGIBLE ASSETS, net of accumulated amortization of $27,034 and $24,121,
respectively .......................................................... 146,919 149,831
GOODWILL, net of accumulated amortization of $26,951 and $23,937,
respectively .......................................................... 150,802 153,816
DEFERRED FINANCING COSTS, net of accumulated amortization of $1,877 and
$1,669, respectively .................................................. 5,901 6,109
OTHER ASSETS ............................................................. 3,686 1,210
--------- ---------
Total assets ...................................................... $ 347,301 $ 348,414
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................................... $ 5,746 $ 6,792
Accrued expenses ......................................................... 9,256 10,912
Accrued interest payable ................................................. 5,397 1,185
Deferred income (including deferred subscription income of $17,339 and ...
$16,380, respectively) ................................................ 18,731 17,798
--------- ---------
Total current liabilities ......................................... 39,130 36,687
--------- ---------
LONG TERM DEBT:
Revolving credit facility ................................................ 13,300 18,300
Senior notes ............................................................. 175,000 175,000
--------- ---------
Total long term debt .......................................... 188,300 193,300
--------- ---------
DEFERRED INCOME TAXES .................................................... 37,377 38,182
--------- ---------
OTHER NONCURRENT LIABILITIES ............................................. 5,917 5,925
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock-$.01 par value; 1,000 shares authorized; 100 issued and
outstanding at March 31, 2000 and December 31, 1999 ................... -- --
Paid-in-capital .......................................................... 133,909 123,515
Accumulated deficit ...................................................... (57,332) (49,195)
--------- ---------
Total stockholder's equity ........................................ 76,577 74,320
--------- ---------
Total liabilities and stockholder's equity ........................ $ 347,301 $ 348,414
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
1
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
NET REVENUES:
Periodicals:
Advertising ................. $ 21,727 $ 17,973
Subscription ................ 5,877 5,647
Ancillary products and services 11,239 7,929
Internet services ............. -- 477
-------- --------
Total net revenues .......... 38,843 32,026
-------- --------
OPERATING EXPENSES:
Editorial ..................... 7,673 4,883
Production and distribution ... 8,218 7,370
Selling ....................... 8,911 6,060
General and administrative .... 10,924 7,343
Internet services ............. -- 1,263
Depreciation and amortization . 7,143 6,503
-------- --------
Total operating expenses .... 42,869 33,422
-------- --------
Operating loss .............. (4,026) (1,396)
Interest expense .............. (4,930) (4,686)
Other income, net ............. 13 17
-------- --------
Loss before income taxes .... (8,943) (6,065)
BENEFIT FOR INCOME TAXES ...... 806 843
-------- --------
Net loss .................... $ (8,137) $ (5,222)
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
2
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- --------
<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............................. -- -- -- (8,137) (8,137)
--------- --------- --------- --------- --------
BALANCE AT MARCH 31, 2000............ 100 $ -- $ 133,909 $ (57,332) $ 76,577
========= ========= ========= ========= ========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
3
<PAGE>
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $(8,137) $(5,222)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization ......................... 7,143 6,503
Non-cash interest ..................................... 208 208
(Increase) decrease in:
Accounts receivable, net ................................ (3,310) (869)
Inventories ............................................. 32 336
Other current assets .................................... 627 (351)
Other assets ............................................ 22 1
(Decrease) increase in:
Accounts payable ........................................ (1,044) (719)
Accrued expenses ........................................ (1,656) 976
Accrued interest payable ................................ 4,212 4,261
Deferred income ......................................... 987 763
Other noncurrent liabilities ............................ (815) (2,535)
------- -------
Total adjustments ..................................... 6,406 8,574
------- -------
Net cash (used in) provided by operating activities ... (1,731) 3,352
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (2,664) (2,621)
Disposition of businesses:
Sale of business ...................................... 8,185 --
------- -------
Net cash provided by (used in) investing activities ... 5,521 (2,621)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Paydown on revolving credit facility .................... (5,000) --
------- -------
Net cash used in financing activities ................. (5,000) --
------- -------
Net (decrease) increase in cash ....................... (1,210) 731
CASH, beginning of period ............................... 1,598 514
------- -------
CASH, end of period ..................................... $ 388 $ 1,245
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes ...................................... $ -- $ 55
======= =======
Interest .......................................... $ 550 $ 212
======= =======
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
4
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. The
Company is continuing to publish IP LAW WEEKLY and E-COMMERCE LAW WEEKLY, which
serve reader demand for information in these two growing practice areas.
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 TDD, L.L.C., a newly formed
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 March 31, 2000 balance sheet. The Preferred
Membership Interest accretes at 12.25% compounded annually and is convertible
into 3.0% of the common equity of the Purchaser. In addition, the Purchaser 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 $684,000 was
paid in March 2000.
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
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").
5
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 provided.
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 $3,486,400 and $3,128,600 are included in accounts
receivable in the accompanying consolidated March 31, 2000 and December 31, 1999
balance sheets, respectively.
6
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising and Promotion Expenditures
Advertising and promotion expenditures, which totaled approximately
$2,270,000 and $1,766,000 for the three months ended March 31, 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 stated at the lower of cost,
as determined by the average cost method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, with the exception of
fixed assets acquired as part of the 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.
7
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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. 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; all of the Company's existing subsidiaries are wholly-owned by
the Company. 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, have been 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
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 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
8
<PAGE>
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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.
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.
Effective July 20, 1999, the Revolving Credit Facility was further
amended to allow for the sale of the Company's Internet business to Law.com
and to modify certain debt covenants. Effective March 28, 2000, the Revolving
Credit Facility was further amended to modify certain of the covenants, to
permit the sale of the business of the Company and certain of the Company's
wholly-owned subsidiaries constituting THE DAILY DEAL and CORPORATE CONTROL
ALERT to TDD, L.L.C. and to increase the borrowing limit under the Revolving
Credit Facility described above from $20 million to $22.5 million.
At March 31, 2000, the amount outstanding under the Revolving Credit
Facility was $13.3 million. At March 31, 2000, the unused commitment is
approximately $26,700,000, of which $9,200,000 is available in accordance
with the March 28, 2000 Revolving Credit Facility amendment. The available
balance under the unused commitment is further reduced by any letters of
credit outstanding, which totaled $1,121,000 at March 31, 2000. A 10%
increase in the average rate in the Revolving Credit Facility during the
first three months of 2000 would have increased the Company's net loss to
approximately $8,170,000.
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.
9
<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
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
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999
The following discussion compares the financial results of the
Company for the three months ended March 31, 2000 to the three months ended
March 31, 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. The
Company is continuing to publish IP LAW WEEKLY and E-COMMERCE LAW WEEKLY, which
serve reader demand for information in these two growing practice areas.
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 TDD, L.L.C., a newly
formed 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 March 31,
2000 Balance Sheet. The Preferred Membership Interest accretes at 12.25% per
annum 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
10
<PAGE>
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 $684,000 was
paid in March 2000.
Overview. Net revenues increased by $6.8 million, or 21.3%, from
$32.0 million for the quarter ended March 31, 1999 to $38.8 million for the
quarter ended March 31, 2000. Total operating costs and expenses increased
$9.5 million, or 28.3%, from $33.4 million for the quarter ended March 31,
1999 to $42.9 million for the quarter ended March 31, 2000. As a result, the
operating loss increased $2.6 million, from a loss of $1.4 million for the
quarter ended March 31, 1999 to a loss of $4.0 million for the quarter ended
March 31, 2000. EBITDA decreased $2.0 million, or 39.0%, from $5.1 million
for the quarter ended March 31, 1999 to $3.1 million for the quarter ending
March 31, 2000. Excluding the results from Internet services, operating loss
increased $3.4 million from $0.6 million for the quarter ended March 31, 1999
to $4.0 million for the quarter ended March 31, 2000. Increase in operating
loss and decrease in EBITDA during 2000 resulted primarily from operating
expenses relating to new initiatives started during 1999 and new projects for
2000, which was partially offset by the elimination of loss reflected in the
prior year with the sale of the Company's Internet business.
Revenues. Advertising revenues increased $3.7 million, or 20.9%, from
$18.0 million for the quarter ended March 31, 1999 to $21.7 million for the
quarter ended March 31, 2000. Contributing to this growth were higher revenues
in display, classified and law firm advertising which increased 28%, 27% and
16%, respectively, reflecting rate increases along with greater volume due to
increased sales.
Subscription revenues increased $0.2 million, or 4.1%, from $5.7 million
for the quarter ended March 31, 1999 to $5.9 million for the quarter ended March
31, 2000 due to increased marketing efforts.
Revenues from ancillary products and services increased $3.3 million, or
41.8%, from $7.9 million for the quarter ended March 31, 1999 to $11.2 million
for the quarter ended March 31, 2000. Increased revenues during the first
quarter of 2000 over the first quarter of 1999 primarily resulted from higher
licensing and royalty fees along with higher revenues from trade show activity
and book sales. These increases were partially offset by a decrease in
information services revenue, due to the sale of the common stock of POL to
Law.com in the third quarter of 1999.
Revenues from Internet services totaled $0.5 million for the quarter
ended March 31, 1999. The Company did not record any revenues from Internet
services during the first quarter of 2000. This decrease in revenue resulted
from the sale of the Company's Internet business to Law.com during July 1999.
Operating expenses. Total operating expenses increased $9.5 million, or
28.3%, from $33.4 million for the quarter ended March 31, 1999 to $42.9 million
for the quarter ended March 31, 2000. Of this amount, operating expenses for the
Company's two primary new initiatives in 1999, the high-end newsletters and THE
DAILY DEAL, increased $5.2 million; new initiatives planned by the Company for
2000 accounted for $1.7 million of the increase; and the core business units
accounted for the remaining increase. The 1999 initiatives and the new
initiatives planned for 2000 are fully reflected in the first quarter of 2000
with little or no expense being recorded in the first quarter of 1999.
Editorial expenses increased $2.8 million, or 57.1%, from $4.9 million
for the quarter ended March 31, 1999 to $7.7 million for the quarter ended March
31, 2000. The Company's
11
<PAGE>
new initiatives for 1999 accounted for $2.2 million of this increase and the
remaining increase resulted from new initiatives started during the first
quarter of 2000 with no like charges recorded during the first quarter of 1999.
Production and distribution expenses increased $0.8 million, or
11.5%, from $7.4 million for the quarter ended March 31, 1999 to $8.2 million
for the quarter ended March 31, 2000. The increase was primarily due to
increased printing and distribution costs of $0.8 million for the 1999
initiatives and new initiatives planned for 2000, which was partially offset
by slightly lower production costs incurred in the core business units. The
1999 initiatives and new initiatives planned for 2000 are fully reflected in
the first quarter of 2000 with little or no expense being recorded in the
first quarter of 1999.
Selling expenses increased $2.8 million, or 47.0%, from $6.1 million for
the quarter ended March 31, 1999 to $8.9 million for the quarter ended March 31,
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 $3.6 million, or 48.8%,
from $7.3 million for the quarter ended March 31, 1999 to $10.9 million for the
quarter March 31, 2000. This increase resulted primarily from increased staffing
levels for the various 1999 and 2000 initiatives.
Internet services expenses decreased from $1.3 million for the
quarter ended March 31, 1999 to zero for the quarter ended March 31, 2000.
This decrease in expenses resulted from the sale of the Company's Internet
business to Law.com in July 1999.
Depreciation and amortization increased $0.6 million, or 9.8%, from $6.5
million for the quarter ended March 31, 1999 to $7.1 million for the quarter
ended March 31, 2000. This was due primarily to the increase in capital
expenditures throughout 1999 and for the first quarter of 2000 for the upgrade
and purchase of new computer equipment and systems throughout the Company and
for facilities to support the 1999 initiatives and the Company's core growth.
Operating loss. As a result of the above factors, operating loss
increased $2.6 million, from a loss of $1.4 million for the quarter ended March
31, 1999, to a loss of $4.0 million for the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. Capital expenditures totaled $2.7 million for
the three months ended March 31, 2000. Capital expenditures increased $0.1
million, or 1.6%, for the three months ended March 31, 2000 compared to three
months ended March 31, 1999. The moderate increase in capital spending in the
first quarter of 2000 primarily resulted from continued systems integration
projects.
NET CASH USED IN OPERATING ACTIVITIES. Net cash used in operating
activities totaled $1.7 million for the three months ended March 31, 2000. The
net cash used in operating activities primarily resulted from a net loss of $8.1
million, an increase in accounts receivable of $3.3 million and the decrease in
accounts payable, accrued expense and other noncurrent liabilities, partially
offset by depreciation and amortization of $7.1 million, an increase in accrued
interest payable of $4.2 million and deferred income of $1.0 million.
12
<PAGE>
NET CASH PROVIDED BY INVESTING ACTIVITIES. Net cash provided by
investing activities totaled $5.5 million for the three months ended March
31, 2000. This resulted from the sale of substantially all of the assets and
certain of the liabilities of the Business to TDD, L.L.C. for $10.0 million
and the agreed reimbursement by the Purchaser of operating losses equal to
$1.68 million partially offset by a Preferred Membership Interest equal to
$2.5 million, a receivable recorded from sale of the Business of $1.0 million
along with cash used for capital expenditures of $2.7 million during the
first quarter of 2000.
NET CASH USED IN FINANCING ACTIVITIES. Total cash used in financing
activities was $5.0 million for the three months ended March 31, 2000, all due
to the repayment of borrowings on the Revolving Credit Facility.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
13
<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 March 8, 2000 and filed
May 10, 2000, regarding the sale of THE DAILY DEAL and CORPORATE
CONTROL ALERT to TDD, L.L.C.
14
<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.
May 12, 2000 /s/ WILLIAM L. POLLAK
---------------------------------
William L. Pollak
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
May 12, 2000 /s/ LESLYE G. KATZ
---------------------------------
Leslye G. Katz
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10Q
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<NAME> AMERICAN LAWYER MEDIA, INC.
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