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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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 10010
NEW YORK, NEW YORK (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 779-9200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
As of March 30, 2001, 100 shares of Common Stock, par value $.01 per share,
were outstanding, all of which were held by American Lawyer Media Holdings, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
SEE EXHIBIT INDEX
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PART I
ITEM 1. BUSINESS
Unless the context otherwise requires: (i) the "Company" refers to American
Lawyer Media, Inc. and its subsidiaries; (ii) "Holdings" refers to American
Lawyer Media Holdings, Inc., which is the parent company of the Company, and to
Holdings' predecessor, Cranberry Partners, LLC. References herein to the
Company's estimated circulation include total paid and free circulation for all
of the Company's periodicals. References herein to readership include estimated
circulation plus combined pass-along readership unadjusted for any overlap that
exists among readers of the Company's various publications.
This report contains forward-looking statements. Such statements are based
upon the beliefs and assumptions of, and on information available to, the
management of the company at the time such statements are made. The following
are or may constitute forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995: (i) statements preceded by,
followed by or that include the words "may," "will," "could," "should,"
"believe," "expect," "future," "potential," "anticipate," "intend," "plan,"
"estimate" or continue or the negative or other variations thereof and (ii)
statements regarding matters that are not historical facts. Such forward-looking
statements are subject to various risks and uncertainties, including without
limitation, (i) general economic conditions and developments in the legal
services industry or the publishing industry, (ii) product demand and pricing,
(iii) the success of new initiatives, (iv) increased competition with respect to
services the Company provides and for advertising and subscription revenue, and
(v) sufficiency of cash flow to fund the Company's operations.
COMPANY OVERVIEW
The Company publishes 23 periodicals, including several leading national
periodicals and regional publications serving four of the five largest state
legal markets. The Company's nationally-recognized periodicals include The
American Lawyer, a monthly magazine containing articles and features targeted to
attorneys practicing in large law firms, and The National Law Journal, the
nation's largest selling legal newspaper, which covers the law, lawyers and
litigation. The Company's regional publications are led by the New York Law
Journal, a daily publication, which has the largest paid circulation of any
regional legal newspaper in the United States. In addition, the Company
publishes six other daily newspapers serving Atlanta, Philadelphia, Northern
California, Miami, Fort Lauderdale and Palm Beach, as well as seven weekly
newspapers serving New Jersey, Massachusetts, Delaware, Texas, Washington, D.C.,
Connecticut and Pennsylvania.
In addition to the periodicals referred to above, the Company publishes
Corporate Counsel, a leading magazine for corporate in-house attorneys, Law
Technology News and AmLaw Tech, two leading legal technology magazines, as well
as IP Worldwide, a leading specialty magazine focusing on intellectual property.
The Company also creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
31 newsletters and 115 books on topics of national and regional interest. The
Company also publishes various directories used by legal professionals.
The Company, under its LegalTech trademark, is a leading producer of trade
shows and conferences relating to law practice technology. In addition, the
Company organizes and sponsors numerous professional seminars that cover issues
of current legal interest.
The Company has recently introduced a jury verdict division, which is
dedicated to researching and reporting verdicts and settlements nationwide.
Formed via the acquisitions of three of the nation's premier regional verdict
reporting companies, Blue Sheet of Texas (December 1999), Moran Publishing
Company of New York (May 2000) and Haslam Publications of California (January
2001), the division publishes a series of weekly and monthly newsletters, along
with various indices and ancillary products, and fields more than 20,000
requests annually for verdict and settlement research.
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The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated from its ancillary products
and services, which include its newsletters, books, LegalTech and seminars
division. For the twelve months ended December 31, 2000, approximately 57% of
the Company's revenues were from advertising, 15% were from subscriptions and
28% were from ancillary products and services.
In 1999, the Company sold its Internet business to Law.com, Inc.
("Law.com"), the holding company for a leading Internet destination for legal
information, e-commerce and e-services. As part of the sale, the Company entered
into a license agreement with Law.com, which provides for an exclusive license
to Law.com (subject to certain exceptions) of digital and electronic
distribution rights to all of the Company's content through 2004.
PRODUCT LINES
Periodicals. The Company's newspaper and magazine business publishes 23
national, regional and local periodicals that serve legal and business
professionals. The Company's periodicals have a combined circulation of
approximately 300,000. The subscription renewal rate for the Company's
periodicals averages approximately 80%.
Newspapers. The Company's newspapers provide news, features, analysis and
commentary about the world of law and advocacy. Feature articles and stories
covering the local, state and federal courts and law firms are supplemented by
reports and analyses of cutting-edge legal issues. The Company is committed to
providing high quality and balanced coverage of its local markets. Most of the
Company's newspapers serve as the newspaper of record for their respective legal
markets. Lawyers look to the newspapers for reports on local court rulings and
opinions, as well as information regarding local court dockets.
As of December 31, 2000, the Company published fifteen daily and weekly
newspapers including The National Law Journal, the leading national legal
newspaper in the United States, and the New York Law Journal, which has the
largest paid circulation of any regional legal newspaper in the United States.
In the aggregate, the Company's newspapers serve ten state markets, including
New York, New Jersey, Pennsylvania, Delaware, Georgia, Florida, Texas,
California, Connecticut and Massachusetts, and the District of Columbia, which
cover approximately 50% of all active attorneys in the United States. Each of
the Company's regional newspapers has a significant presence in its respective
market. The Company's regional newspapers also publish a wide range of
supplements on various practice specialties. In addition, several of the
Company's regional newspapers publish local editions of their papers.
The following table sets forth information regarding the Company's
newspapers:
NEWSPAPERS
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
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WEEKLY NEWSPAPERS
The National Law Journal................ National 1979 32,000 134,400
New Jersey Law Journal.................. New Jersey 1878 10,960 59,300
Texas Lawyer............................ Texas 1985 10,000 65,000
Legal Times............................. Washington, D.C. 1978 11,000 65,000
The Connecticut Law Tribune............. Connecticut 1974 3,200 16,000
Delaware Law Weekly..................... Delaware 1998 1,000 2,000
Pennsylvania Law Weekly................. Pennsylvania 1977 2,780 15,000
Western Massachusetts Law Tribune....... Massachusetts 2000 2,700 4,000
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ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
- ----- ------------------- -------- -------------- -------------
DAILY NEWSPAPERS
New York Law Journal.................... New York 1888 16,854 130,000
The Recorder............................ Northern California 1876 8,250 20,000
The Legal Intelligencer................. Pennsylvania 1843 3,200 19,525
Fulton County Daily Report.............. Georgia 1890 5,864 17,592
Miami Daily Business Review............. South Florida 1926 4,738 18,147
Broward Daily Business Review........... South Florida 1965 2,446 9,368
Palm Beach Daily Business Review........ South Florida 1978 1,786 6,840
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap that exists among readers of the Company's various publications.
Magazines. The American Lawyer anchors the Company's magazine portfolio.
Founded in 1979, The American Lawyer is a glossy magazine that features stories
on the strategies, successes, failures and personalities of the most important
figures in the legal world. The target audience for the publication is attorneys
practicing in large law firms and corporate legal departments across the United
States. The American Lawyer has been the winner of National Magazine awards
granted by the American Society of Magazine Editors four times, and has been
nominated for 22 such awards since its founding.
The Company's other magazines focus on specific practice areas or segments
within the legal profession and certain topics applicable to the business of
law. The Company's specialty legal magazines include Corporate Counsel, one of
the nation's most widely circulated magazines focused on issues of importance to
in-house lawyers at large and mid-size corporations, and IP Worldwide, which
covers developments in intellectual property law. The Company also publishes two
leading technology magazines targeted to the legal community, AmLaw Tech and Law
Technology News, which focus on information technology and its applications to
the practice of law. AmLaw Tech is targeted toward partners at law firms with
purchase-making authority and is distributed to all readers of The American
Lawyer, while Law Technology News is targeted toward attorneys and information
services departments in law offices. The Company also publishes L magazine, a
law and lifestyle publication for law students and, in 2000, introduced New York
Lawyer, a law and lifestyle publication geared to young lawyers in the New York
metropolitan area.
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The Company publishes the following eight magazines:
MAGAZINES
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2)
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The American Lawyer................. 1979 12 times per year 14,500 131,950
AmLaw Tech.......................... 1996 4 times per year 14,500 131,950(3)
Corporate Counsel................... 1994 12 times per year 30,000 129,000
IP Worldwide........................ 1995 6 times per year 11,000 22,000(4)
Law Technology News................. 1994 14 times per year 47,000 94,000(4)
L................................... 1999 6 times per year 55,000 110,000(4)
New York Lawyer..................... 2000 5 times per year 25,000 50,000(4)
Florida Lawyer...................... 2000 12 times per year 14,000 28,000(4)
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap that exists among readers of the Company's various publications.
(3) AmLaw Tech is distributed for free to subscribers of The American Lawyer.
(4) These magazines are distributed primarily free of charge. For these
publications, the Company assumes only two readers per copy.
Newsletters. The Company's newsletter division publishes 31 newsletters
that cover specialized legal practice areas. Circulation for the Company's
newsletters ranges from approximately 250 to 2,000, with an average circulation
of over 600. The total number of paid subscribers for all newsletters was
approximately 16,480 as of December 31, 2000. The following table sets forth a
list of the Company's newsletters as of December 31, 2000:
NEWSLETTERS
Accounting for Law Firms
The Bankruptcy Strategist
Business Crimes Bulletin
Commercial Leasing Law & Strategy
The Corporate Counselor
Employment Law Strategist
Entertainment Law & Finance
Environmental Compliance and Litigation Strategy
Equipment Leasing
E-Commerce Law & Strategy
e Securities
Healthcare Fraud and Abuse
The Intellectual Property Law Strategist
The Internet Newsletter
IP Law Weekly
Law Firm Partnership & Benefits Report
LJN's Franchising Business & Law Alert
Legal Tech
Managed Care Law Strategist
Marketing for Lawyers
The Matrimonial Strategist
Medical Malpractice Law & Strategy
New York Employment Law & Practice
New York Family Law Monthly
New York Real Estate Law Reporter
Patent Strategy & Management
Pharmaceutical & Medical Device Laws Bulletin
Practice Development for Solos and Small Firms
Product Liability Law & Strategy
Shopping Center Law Report
Start-Up & Emerging Companies Strategist
Books. The Company currently publishes 115 books on a broad array of legal
topics. These books generally focus on practical legal subjects that arise in
the daily professional lives of lawyers. Most of the Company's books are updated
once or twice per year with inserts to keep the material current. The Company
focuses on publishing books that cover particularly dynamic areas of law that
lend themselves to frequent supplementation.
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The Company most often develops the concept for a new book and then
solicits an author to write the text. However, in certain cases, the Company has
received unsolicited manuscripts which it has ultimately published. Authors who
have written books for the Company include prominent attorneys and judges such
as Martin Lipton, Judge Jed Rakoff, James Freund and James Goodale. The
following tables set forth the Company's current offering of books:
BOOKS
State and Local Subjects
2000 Dallas County Bench Book (Texas)
2000 Harris County Bench Book (Texas)
2000-2001 Texas Criminal Codes and Rules, Annotated
2001 Pennsylvania Tax Handbook
Better than Prison Food (Texas)
Duty to Defend: An Insurance Guide (Texas)
Encyclopedia of New Jersey Causes of Action
Georgia Bench Book
Insurance Bad Faith in Pennsylvania
Marketing and Maintaining a Family Law Mediation
Practice
New Jersey Brownfields Law
New Jersey Business Litigation
New Jersey Employment Law
New Jersey Federal Civil Procedure
New Jersey Insurance Law
New Jersey Product Liability Law
New York County Bench Book 2000
Pennsylvania Court Rules
Pennsylvania District and County Reports
Representing Clients in Mediation
The 1999 Medical Malpractice Yearbook
The 1999 Motor Vehicle Yearbook
National Subjects
A Practical Guide to Equal Employment Opportunity
A Practical Guide to the Occupational Safety and
Health Act
Acquisitions Under the Hart-Scott-Rodino Antitrust
Improvements Act
All About Cable
Alternative Dispute Resolution in the Work Place
Anatomy of a Merger: Strategies and Techniques for
Negotiating Corporate Acquisitions
Antitrust Basics
Antitrust: An Economic Approach
Business Immigration Law: Strategies for Employing
Foreign Nationals
Changing the Situs of a Trust
Class Actions: The Law of 50 States
Communications Law and Practice
Computer Law: Drafting and Negotiating Forms and
Agreements
Corporate Internal Investigations
Corporate Privileges and Confidential Information
Corporate Sentencing Guidelines: Compliance and
Mitigation
Cyber Law: Intellectual Property in the Digital
Millennium
Directors and Officers Liability: Prevention,
Insurance & Indemnification
Divorce, Separation and the Distribution of
Property
Doing Business on the Internet: Forms and Analysis
Due Diligence in Business Transactions
Employee Benefits Law: ERISA and Beyond
Environmental Enforcement: Civil and Criminal
Environmental Law Lexicon
Environmental Regulation of Real Property
Estate Planning
Executive Compensation
Executive Stock Options and Stock Appreciation
Rights
Federal Bank Holding Company Law
Federal Taxation of Intellectual Property Transfers
Federal Taxation of Real Estate
Federal Taxation of S Corporations
Federal Trade Commission: Law, Practice and
Procedure
Ferrara on Insider Trading and The Wall
Franchising: Realities and Remedies
Franchising: Realities and Remedies Forms Volume
Full Disclosure: The New Lawyers Must-Read Career
Guide
Going Private
Grand Jury Practice
Ground Leases and Land Acquisition Contracts
Health Care Fraud: Enforcement and Compliance
Hospital Liability
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"I'd Rather Do It Myself": How to Set Up Your Own
Law Firm
Insurance Coverage Disputes
Intellectual Property Law: Commercial, Creative and
Industrial Property
Intellectual Property Law: Damages and Remedies
Intellectual Property Licensing: Forms and Analysis
Internet and Online Law
Law Firm Accounting and Financial Management
Law Firm Partnership Agreements
Lawyering: A Realistic Approach to Legal Practice
Legal Research and Law Library Management
Lender Liability and Banking Litigation
Licensing of Intellectual Property
Limited Liability Companies and Limited Liability
Partnerships
Marketing the Law Firm: Business Development
Techniques
Maximizing Law Firm Profitability: Hiring, Training
and Developing Productive Lawyers
Merit Systems Protection Board: Rights and Remedies
Modern Visual Evidence
Multimedia Law: Forms and Analysis
Negotiated Acquisitions of Companies, Subsidiaries
and Divisions
Negotiating and Drafting Office Leases
Partnership and Joint Venture Agreements
Private Equity Funds: Business Structure &
Operations
Private Real Estate Syndications
Product Liability
Product Liability: Winning Strategies and
Techniques
Products Liability: Recreation and Sports Equipment
Raoul Felder's Encyclopedia of Matrimonial Clauses
Real Estate Financing
Reorganizations under Chapter 11 of the Bankruptcy
Code
Representing High-Tech Companies
RICO: Civil and Criminal, Law and Strategy
Savings Institutions: Mergers, Acquisitions and
Conversions
Securities Practice and Electronic Technology
Securities Regulation: Liabilities and Remedies
Securitizations: Legal and Regulatory Issues
Sex Discrimination and Sexual Harassment in the
Work Place
Shareholder Derivative Litigation: Besieging the
Board
Shopping Center and Store Leases
Start-Up and Emerging Companies: Planning,
Financing and Operating the Successful Business
State Antitrust Law
Structured Settlements and Periodic Payment
Judgments
Takeovers and Freezeouts
Tax Aspects of Divorce and Separation
The Contingent Workforce: Business and Legal
Strategies
The Law and Practice of Secured Transactions:
Working with Article 9
The Preparation and Trial of Medical Malpractice
Cases
Trade Secrets
Travel Law
Use of Statistics in Equal Employment Opportunity
Litigation
White Collar Crime: Business and Regulatory
Offenses
Winning Attorney's Fees from the U.S. Government
Trade Shows and Seminars. Under its LegalTech tradename, the Company
produces conferences and exhibitions relating to law practice technology in New
York, Los Angeles, Chicago, Toronto, Canada and London, England. In 2001, the
Company plans to produce additional LegalTech shows in Birmingham, England, New
Orleans and San Francisco as well as an accountancy show in Birmingham, England.
The conferences are generally two-day events that include vendor exhibits, a CLE
conference program, and a variety of workshops and focus sessions. Attendees
typically include attorneys in private practice, corporate counsel, law firm
administrators, managing partners, litigation support and information technology
personnel, while exhibitors include a variety of software, hardware, publishing
and other technology product related companies. The Company conducts a number of
seminars for lawyers and other professionals in related fields. The Company's
seminars complement its other products and services both by serving as powerful
marketing vehicles for the Company's existing books and newsletters, and by
generating ideas for new seminars, books
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and newsletters. Seminars also introduce the Company to lawyers who may
subsequently write articles or books for the Company. The following table sets
forth the seminars and trade shows held in 2000:
SEMINARS
Acquisitions Of Subsidiaries, Divisions and Private
Companies
Advanced Medical Malpractice Techniques
American Lawyer Leadership Summit
Civil Litigation -- A View From the Bench and the Bar
CLE for Breakfast: Ethics and the Modern Law
Firm -- The Internet Effect, Part I
CLE for Breakfast: Ethics and the Modern Law
Firm -- The Internet Effect Part II
Computer Law -- The Master Class
Counselling Start-up and Emerging Companies
Distribution and Dealer Termination
E-Commerce -- Legal and Business Aspects
Equity Stakes
Ethical Challenges in Maximizing Revenue
Ethics in Aggressive Litigation
General Counsel Conference
Internet -- Three P's
Knowledge Management
Negotiating Contracts in the Entertainment Industry
Negotiating Corporate Acquisitions
Negotiating Joint Ventures and Strategic Alliances
Negotiating the Modern Lease
Patent Strategy and Management
Private Equity
Trial of Breast Cancer Case
Trying Your Case to Win
TRADE SHOWS
LegalTech New York (January)
LegalTech Los Angeles
LegalTech New York (September)
LegalTech Chicago
LegalTech Toronto
LegalTech London
Jury Verdicts. The jury verdict division is dedicated to researching and
reporting verdicts and settlements nationwide. Formed via the acquisition of
three of the nation's premier regional verdict reporting companies, Blue Sheet
of Texas (December 1999), Moran Publishing Company of New York (May 2000) and
Haslam Publications of California (January 2001), the division publishes a
series of weekly and monthly newsletters, along with various indices and
ancillary products, and fields more than 20,000 requests annually for verdict
and settlement research. The division distributes a roster of weekly, monthly,
quarterly and annual publications, with circulation ranging from 500 to 2,500,
including:
New York Jury Verdict Reporter
Judicial Review of Damages (New York)
New York Medical Malpractice
New York Citator Series (Tort, Civil Motions,
Matrimonial, Criminal)
Blue Sheet of Texas
Blue Sheet of New Mexico
Blue Sheet of Oklahoma
Blue Sheet of Kansas/Missouri
Texas Medical Malpractice
Texas Commercial Litigation
Jury Verdicts Weekly (California)
Verdictum Juris (California)
Tri-Service (California)
Tri-Service, Settlements (California)
Trial Trends (California)
O'Brien's Evaluator
Verdicts on Disk
Legal Expert Pages
PRINTING AND DISTRIBUTION
Layouts for the Company's publications are prepared in-house, while the
large majority of the Company's printing activities, and all of its distribution
activities, are outsourced.
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COMPETITION
The Company competes for advertising and subscription revenues with
publishers of special-interest legal newspapers and magazines with similar
editorial content. However, in most of the Company's markets, its newspaper is
the only newspaper focused on serving the legal community. The Company also
competes for advertising revenues with other national legal publications, as
well as general-interest magazines and other forms of media, including broadcast
and cable television, radio, direct marketing and electronic media. Factors that
may affect competition for advertisers include effective costs of such
advertising compared to other forms of media, and the size and characteristics
of the readership of the Company's publications. The Company also faces
significant competition from other legal publishers and legal service providers
in all media.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with its business, including trademarks in the titles of its major
periodicals such as The American Lawyer, Corporate Counsel, The National Law
Journal and New York Law Journal. Provided that trademarks remain in continuous
use in connection with similar goods or services, their term can be perpetual,
subject, with respect to registered trademarks, to the timely renewal of such
registrations with the United States Patent and Trademark Office.
The Company approaches copyright ownership with respect to its publications
in the same manner as is generally customary within the publishing industry.
Consequently, the Company owns the copyright to all of its newspapers, magazines
and newsletters, as compilations, and also owns the copyright to most of its
books. With respect to the specific articles in its publications, the Company
generally obtains the assignment of all right, title and interest in original
materials created by the Company's full-time journalists and editors as well as
by paid contributors. For articles authored by outside contributors, the Company
obtains either all right, title and interest in the article or the exclusive
"first-time publication" and non-exclusive republication rights. Judicial
opinions, court schedules and docketing information are provided to the Company
directly by the courts, on a non-exclusive basis, and is public information. In
connection with the sale of the Company's Internet business to Law.com, the
Company entered into an exclusive content license with Law.com (subject to
certain exceptions) which grants Law.com the right to publish in electronic or
digital format all Company content. The license runs through 2004.
The Company licenses the content of certain of its publications and forms
to third parties, including West Publishing Company and LEXIS/NEXIS, on a
non-exclusive basis, for republication and dissemination on electronic databases
marketed by the licensees. After the expiration of their initial terms (the
latest of which is November 2001 and May 2002, respectively), the licenses
automatically renew, subject to either party's right to terminate at the end of
each subsequent term.
Some of the Company's products, such as the Daily Decision Service and
PICS, which offers subscribers faxed copies on request of both published and
unpublished state and federal court opinions for New Jersey and Pennsylvania,
respectively, utilize the extensive databases of court decisions compiled by the
Company. The Company also has extensive subscriber and other customer databases
which it believes would be extremely difficult to replicate. The Company
attempts to protect these databases and lists as trade secrets by restricting
access thereto and/or by the use of non-disclosure agreements. There can be no
assurance, however, that the means taken to protect the confidentiality of these
items will be sufficient, or that others will not independently develop similar
databases and customer lists.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 2000, the Company employed approximately 908 full-time
and part-time employees, 21 of whom are subject to a single collective
bargaining agreement. Subject to the following, the Company believes that its
relations with its employees are satisfactory.
On December 5, 2000, New York Typographical Union No. 6, CWA Local 14156,
AFL-CIO (the "Union"), filed with the National Labor Relations Board ("NLRB"),
Region 2, a petition for certification as
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the collective bargaining representative of certain employees of the Company at
The New York Law Journal. Hearings on the Union's petition were held at the NLRB
and post-hearing briefs were filed. A decision on the unit and a direction of
election is expected sometime in the Spring of 2001. In addition to the
petition, the Union filed an unfair labor practice charge alleging
discriminatory enforcement of the Company's no-solicitation rule against certain
employees who were circulating a petition relating to the ongoing union
representation process. The charge is under investigation by the Regional Office
of the NLRB.
SIGNIFICANT TRANSACTIONS
Discontinuation of Weekly Newsletters. In 2000, the Company discontinued
publication of all six of its weekly newsletters.
Sale of the Business of The Daily Deal and Corporate Control Alert. 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. (formerly TDD, L.L.C.), a
newly formed 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 with a preferred return (the "Preferred Membership Interest"). In
addition, the Purchaser paid 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. The Preferred Membership Interest accrues at 12.25%
compounded annually, is convertible into 3.0% of the common equity of the
Purchaser, has anti-dilution protection for dividends in the form of additional
equity interests, combinations, splits and reclassifications and has
anti-dilution protection up to the first $25.0 million of equity capital
including the Preferred Membership Interest issued by the Purchaser. Due to the
nature of the transaction, the Company has fully reserved against the Preferred
Membership Interest from inception to the dividend date in Other Assets on the
Balance Sheet. Veronis, Suhler & Associates, a New York-based investment bank,
provided a valuation on the assets involved in the transaction.
Moran Acquisition. 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.
RECENT DEVELOPMENTS
Haslam Acquisition. On January 31, 2001, the Company consummated the
acquisition of substantially all of the assets and certain of the liabilities of
Haslam Publications ("Haslam"). Haslam is the leading publisher of jury verdict
and settlement research data in California.
ITEM 2. PROPERTIES
The Company operates from various locations throughout the United States.
Its corporate headquarters are based in New York. Information relating to the
Company's corporate headquarters and other significant regional offices which
are owned or leased is set forth in the following table:
STREET ADDRESS CITY/STATE SQUARE FOOTAGE LEASE EXPIRATION
- -------------- ------------------- -------------- ----------------
345 Park Avenue South........... New York, NY 66,000 Sept. 2008
105 Madison Avenue.............. New York, NY 37,500 Sept. 2008
238 Mulberry Street............. Newark, NJ 7,022 Dec. 2006
10 United Nations Plaza......... San Francisco, CA 14,632 Sept. 2009
800 Wilshire Blvd. ............. Los Angeles, CA 2,624 May 2004
900 Jackson Street.............. Dallas, TX 10,190 Dec. 2003
1010 Brazos..................... Austin, TX 1,300 June 2004
7000 Regency Square, Suites
242-243....................... Houston, TX 3000 June 2004
190 Pryor Street, S.W. ......... Atlanta, GA 20,000 Owned
1730 M Street, N.W. ............ Washington, DC 11,113 Mar. 2002
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STREET ADDRESS CITY/STATE SQUARE FOOTAGE LEASE EXPIRATION
- -------------- ------------------- -------------- ----------------
1730 K Street................... Washington, D.C.... 5,782 Mar. 2001
1 Post Road..................... Fairfield, CT 6,520 Dec. 2001
363 Main Street................. Hartford, CT 414 Dec. 2001
1 S.E. Third Avenue............. Miami, FL 19,742 Sept. 2004
150 N.E. 7th Street............. Miami, FL 29,461 Sept. 2004
633 South Andrews Avenue........ Fort Lauderdale, FL 3,408 Jan. 2003
330 Clematis Street............. W. Palm Beach, FL 2,927 Jan. 2004
901 Market Street............... Wilmington, DE 1,089 Aug. 2001
1617 JFK Blvd. ................. Philadelphia, PA 13,783 Oct. 2009
222 Friend Street............... Boston, MA 1,533 Dec. 2002
199-203 Ann Street.............. Hartford, CT 5,285 Sept. 2005
15950 Bernardo Center Drive..... San Diego, CA 3,620 May 2003
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
The Company is a wholly-owned subsidiary of American Lawyer Media Holdings,
Inc. There is no public trading market for the Company's common stock.
The Company has never paid any cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
In August 1997, U.S. Equity Partners, L.P. and its affiliates and certain
other investors controlled by or managed by WP Management Partners, LLC, the
merchant banking arm of Dresdner Kleinwort Wasserstein Group, Inc. (formerly
known as Wasserstein Perella Group, Inc.) (the "Investors"), through Holdings,
acquired substantially all of the assets and assumed certain of the liabilities
related to American Lawyer Media, L.P. (the "ALM Acquisition"), and in December
1997, Holdings acquired all of the issued and outstanding capital stock of
National Law Publishing Company, Inc. (the "NLP Acquisition"). The ALM
Acquisition and the NLP Acquisition (collectively, the "Acquisitions") have been
accounted for using the purchase method of accounting. The results of operations
of American Lawyer Media, L.P. have been included in the financial statements of
the Company since August 1, 1997, the effective date of the ALM Acquisition, and
the results of operations of National Law Publishing Company have been included
in the financial statements of the Company since December 22, 1997, the closing
date of the NLP Acquisition. In connection with the ALM Acquisition, the
purchase price was $63.0 million and the excess of the purchase price over the
book value of net tangible assets acquired was $67.7 million. The aggregate
purchase price for the NLP Acquisition was $203.2 million, and the excess of the
purchase price over the book value of net tangible assets acquired was $257.6
million. The excess purchase price of both Acquisitions has been allocated to
the tangible and intangible assets acquired by the Company based upon their
respective fair values as of the acquisition date.
10
12
The following tables present selected historical financial information (i)
for American Lawyer Media, L.P. and its subsidiaries ("Old ALM"), as of and for
the year ended December 31, 1996, (ii) for National Law Publishing Company, Inc.
and its subsidiaries ("NLP"), as of and for the year ended December 31, 1996,
(iii) for Old ALM, as of and for the seven months ended July 31, 1997, (iv) for
the Company, as of and for the five months ended December 31, 1997 and the years
ended December 31, 1998, 1999 and 2000, and (v) for NLP, as of and for the
period from January 1, 1997 through December 21, 1997. The financial data for
the Company, as of and for the five months ended December 31, 1997 and the years
ended December 31, 1998,1999 and 2000, and the financial data for Old ALM for
the year ended December 31, 1996 and the seven months ended July 31, 1997 were
derived from financial statements audited by Arthur Andersen LLP. The financial
data for NLP as of and for the period from January 1, 1997 through December 21,
1997 were derived from financial statements audited by Arthur Andersen LLP and
financial data for NLP for the year ended December 31, 1996 were derived from
financial statements audited by Leslie Sufrin and Company, P.C. Results of
operations for the interim periods presented are not necessarily indicative of
the results of operations for the full year. The selected financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and notes thereto included elsewhere in this Report. See "Index to
Financial Statements."
11
13
AMERICAN LAWYER MEDIA, L.P.
AND AMERICAN LAWYER MEDIA, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
PREDECESSOR AMERICAN LAWYER MEDIA, INC.
--------------------------- ---------------------------------------------------------
TWELVE SEVEN FIVE TWELVE TWELVE TWELVE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------ ------------
OPERATING DATA:
Revenues:
Periodicals:
Advertising......................... $ 26,659 $ 18,146 $ 13,410 $ 67,510 $ 75,887 $ 88,230
Subscription........................ 11,304 6,719 5,260 23,172 23,570 23,407
Ancillary products and services....... 8,467 4,532 4,142 28,208 31,791 42,876
Internet services..................... 5,474 2,148 1,162 2,639 1,244 --
-------- -------- -------- -------- -------- --------
Total revenues.................. 51,904 31,545 23,974 121,529 132,492 154,513
-------- -------- -------- -------- -------- --------
Operating costs and expenses:
Editorial............................... 7,141 4,023 3,323 15,523 22,940 26,199
Production and distribution............. 12,469 6,919 5,766 26,266 29,821 32,436
Selling................................. 7,479 4,640 3,656 19,002 27,806 32,325
General and administrative.............. 16,829 9,531 7,145 30,012 32,029 38,775
Internet services....................... 11,886 6,464 2,988 4,667 3,313 --
Depreciation and amortization........... 2,488 1,590 3,273 26,302 27,298 28,415
Shutdown of ALM Internet services....... -- -- 3,000 -- -- --
-------- -------- -------- -------- -------- --------
Total operating costs and
expenses...................... 58,292 33,167 29,151 121,772 143,207 158,150
-------- -------- -------- -------- -------- --------
Operating loss.......................... (6,388) (1,622) (5,177) (243) (10,715) (3,637)
Interest expense........................ (1,972) (1,420) (2,420) (18,346) (18,962) (19,470)
Other income (expense).................. -- -- -- -- 187 (523)
Benefit for income tax.................. -- -- -- 3,403 3,078 4,290
-------- -------- -------- -------- -------- --------
Loss before minority interest........... (8,360) (3,042) (7,597) (15,186) (26,412) (19,340)
Minority interest....................... 172 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net loss................................ $ (8,188) $ (3,042) $ (7,597) $(15,186) $(26,412) $(19,340)
======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
(At end of period)
Working deficit......................... $ (7,009) $ (5,895) $ (8,676) $(14,844) $(14,257) $(14,883)
Total assets............................ 19,482 18,982 359,958 366,775 348,414 339,535
Long-term debt (including current
maturities)........................... 30,150 34,742 175,000 183,500 193,300 195,500
Partners' (deficit) surplus and
stockholder's equity.................. (26,300) (29,342) 101,178 100,992 74,320 61,718
OTHER DATA:
EBITDA:(1)
Periodicals and ancillary products and
services.............................. $ 2,512 $ 4,284 $ 2,922 $ 28,087 $ 18,652 $ 24,778
Internet services....................... (6,412) (4,316) (4,826) (2,028) (2,069) --
-------- -------- -------- -------- -------- --------
Total........................... $ (3,900) $ (32) $ (1,904) $ 26,059 $ 16,583 $ 24,778
======== ======== ======== ======== ======== ========
Capital expenditures:
Periodicals and ancillary products and
services.............................. $ 1,118 $ 439 $ 357 $ 3,767 $ 11,196 $ 5,906
Internet services....................... 1,084 1,532 7 144 90 --
-------- -------- -------- -------- -------- --------
Total........................... $ 2,202 $ 1,971 $ 364 $ 3,911 $ 11,286 $ 5,906
======== ======== ======== ======== ======== ========
- ---------------
(1) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. EBITDA is not a measure of
performance under generally accepted accounting principles ("GAAP"). Items
excluded from income in calculating EBITDA are significant components in
understanding and evaluating Old ALM's and the Company's financial
performance. While EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP or as a
measure of profitability or liquidity, management understands that EBITDA is
customarily used in evaluating publishing companies. The EBITDA measures
presented herein may not be comparable to similarly titled measures of other
companies.
12
14
NATIONAL LAW PUBLISHING COMPANY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
PERIOD FROM
JANUARY 1, 1997
YEAR ENDED THROUGH
DECEMBER 31, 1996 DECEMBER 21, 1997
----------------- -----------------
OPERATING DATA:
Revenues:
Periodicals:
Advertising........................................... $ 23,319 $ 26,402
Subscription.......................................... 9,759 9,504
Ancillary products and services.......................... 13,398 13,926
Internet services........................................ 747 1,109
-------- --------
Total revenues................................... 47,223 50,941
-------- --------
Operating costs and expenses:
Editorial................................................ 5,929 5,837
Production and distribution.............................. 8,679 9,872
Selling.................................................. 8,991 8,211
General and administrative............................... 8,047 8,722
Internet services........................................ 1,704 1,657
Depreciation and amortization............................ 7,487 7,283
Special compensation charge.............................. -- 6,926
-------- --------
Total operating costs and expenses............... 40,837 48,508
-------- --------
Operating income........................................... 6,386 2,433
Interest expense, net...................................... (6,013) (5,137)
Other income............................................... 181 --
-------- --------
Income (loss) before income taxes.......................... 554 (2,704)
Provision for income taxes....................... (3,007) (2,508)
Net loss................................................... $ (2,453) $ (5,212)
======== ========
BALANCE SHEET DATA: (at end of period)
Working deficit............................................ $ (2,081) $ (2,204)
Total assets............................................... 147,311 139,610
Long-term debt (including current maturities).............. 70,300 59,500
Stockholder's equity....................................... 63,167 64,782
OTHER DATA:
EBITDA(1):
Periodicals and ancillary products and services............ $ 14,830 $ 10,264
Internet services.......................................... (957) (548)
-------- --------
Total............................................ $ 13,873 $ 9,716
======== ========
Capital expenditures:
Periodicals and ancillary products and services............ $ 486 $ 473
Internet services.......................................... 26 42
-------- --------
Total............................................ $ 512 $ 515
======== ========
- ---------------
(1) EBITDA is not a measure of performance under GAAP. Items excluded from
income in calculating EBITDA are significant components in understanding and
evaluating NLP's financial performance. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used in evaluating
publishing companies. The EBITDA measures presented herein may not be
comparable to similarly titled measures of other companies.
13
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with Selected
Financial Data and the historical consolidated financial statements of the
Company, including the notes thereto, included elsewhere in this Form 10-K.
OVERVIEW
In March 1998, the Company acquired all the assets and certain liabilities
of Corporate Presentations, Inc., an operator of legal technology trade shows
("LegalTech"), for approximately $10.8 million. The excess purchase price over
the net liabilities acquired was $11.3 million. In April 1998, the Company
acquired the legal publishing-related assets and certain liabilities of Legal
Communications, Ltd. ("LCL") for approximately $20.1 million. The excess
purchase price over the net assets acquired was allocated $14.3 million and $6.3
million to identified intangibles and goodwill, respectively. The allocation was
based on the assets' respective fair values at acquisition date. The results of
operations of these acquisitions have been included in the Company's results of
operations since their respective acquisition dates.
In July 1999, the Company sold the common stock of Professional On Line,
Inc., a wholly-owned subsidiary that 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 (subject to
certain exceptions) 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 discontinued 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. (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 accrues at 12.25% compounded annually and is convertible
into 3.0% of the common equity of the Purchaser. In addition, the Purchaser paid
the Company $1.68 million, representing the aggregate amount of operating losses
incurred by the Company in connection with the operation of the Business for the
month of March 2000.
On May 15, 2000, the Company consummated the acquisition of substantially
all of the assets and certain of the liabilities of Moran Publishing Company,
Inc. ("Moran"). Moran is the leading publisher of jury verdict and settlement
research data in New York State.
On December 27, 2000, the Company consummated the acquisition of two
regional trade shows in the United Kingdom from Nationwide Exhibitions (UK) Ltd.
Under the agreement, the Company has purchased rights and related assets for
Solicitors, The National Legal Office and Legal Services Exhibition and The
National Accountancy Exhibition.
14
16
The following table presents the results of operations (in thousands) for
the years ended December 31, 2000, 1999 and 1998.
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1999 2000
-------- -------- --------
OPERATING DATA:
Revenues:
Periodicals:
Advertising................................... $ 67,510 $ 75,887 $ 88,230
Subscription.................................. 23,172 23,570 23,407
Ancillary products and services.................. 28,208 31,791 42,876
Internet services................................ 2,639 1,244 --
-------- -------- --------
Total revenues..................................... 121,529 132,492 154,513
-------- -------- --------
Operating costs and expenses:
Editorial.......................................... 15,523 22,940 26,199
Production and distribution........................ 26,266 29,821 32,436
Selling............................................ 19,002 27,806 32,325
General and administrative......................... 30,012 32,029 38,775
Internet services.................................. 4,667 3,313 --
Depreciation and amortization...................... 26,302 27,298 28,415
-------- -------- --------
Total operating costs and expenses................. 121,772 143,207 158,150
-------- -------- --------
Operating loss..................................... $ (243) $(10,715) $ (3,637)
======== ======== ========
RESULTS OF OPERATIONS
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
For the year ended December 31, 2000, the financial results include the
acquisition of Moran in May 2000, since the date of acquisition.
Overview. Total revenue increased $22.0 million, or 16.6%, from $132.5
million for the year ended December 31, 1999 to $154.5 million for the year
ended December 31, 2000. Total operating costs and expenses increased $14.9
million, or 10.4%, from $143.2 million for the year ended December 31, 1999 to
$158.1 million for the year ended December 31, 2000. As a result, the operating
loss decreased $7.1 million from a loss of $10.7 million for the year ended
December 31, 1999 to a loss of $3.6 million for the year ended December 31, 2000
and EBITDA increased $8.2 million, or 49.4%, from $16.6 million for the year
ended December 31, 1999 to $24.8 million for the year ended December 31, 2000.
The growth in revenue and EBITDA resulted from strong classified and display
advertising revenue generated from several of the Company's periodicals, growth
in the LegalTech tradeshow division and sales of new books and book updates in
the Company's book division and increased content licensing and royalty fees
from Law.com. Also contributing to EBITDA growth during 2000 was the elimination
of operating losses as a result of the sale of the Company's Internet business
to Law.com in 1999, the sale of the Business to The Deal, L.L.C. and the
discontinuation of the Company's weekly newsletters.
Revenues. Advertising revenues increased $12.3 million, or 16.3%, from
$75.9 million for the year ended December 31, 1999 to $88.2 million for the year
ended December 31, 2000. All categories of advertising grew during 2000 with the
greatest growth being reflected in display and classified advertising. These two
categories contributed $9.2 million, or 74.8%, of the advertising growth during
2000. Law firm, legal and directory advertising contributed to the remaining
growth. Advertising revenue growth in core publications during 2000 grew $10.6
million, or 14.0%, while new publication launches and product extensions within
our core publications accounted for an increase in advertising revenue of $1.9
million.
15
17
Subscription revenue decreased $0.2 million from $23.6 million for the year
ended December 31, 1999 to $23.4 million for the year ended December 31, 2000.
The decline in subscription revenue in 2000 resulted primarily from slight
declines in the Company's national publications which were partially offset by
stronger activity in the regional publications.
Revenue from ancillary products and services increased $11.1 million, or
34.9%, from $31.8 million for the year ended December 31, 1999 to $42.9 million
for the year ended December 31, 2000. Increased revenue primarily resulted from
increased content licensing fees of $5.6 million, growth of $1.0 million in
sales of new books and book updates, increased revenues from the LegalTech trade
shows and seminars division of $0.9 million, and increased revenue from the
acquisitions of Moran in 2000 and Blue Sheet in late 1999 of $1.9 million. In
addition, the custom publishing division, which commenced in 2000, accounted for
$1.1 million of revenue with no like revenue generated in 1999. Increases in
this category during 2000 were partially offset by lower information service
revenue, due to the sale of the Company's Internet business in 1999 along with
lower printing revenue.
Revenue from Internet services totaled $1.2 million for the year ended
December 31, 1999 with no like revenue recorded for the year ended December 31,
2000. The decrease is attributable to the sale of the Company's Internet
business during the third quarter of 1999.
Operating costs and expenses. Total operating costs and expenses increased
$14.9 million, or 10.4%, from $143.2 million for the year ended December 31,
1999 to $158.1 million for the year ended December 31, 2000. Of this amount,
operating costs and expenses for the Company's new projects commenced in 2000
accounted for $10.9 million of the increase. The projects, i.e., the
international and database publishing initiatives, commenced in 2000 are fully
reflected in the full year results while the results for 1999 had no like
expense. The remaining increase in operating costs and expenses in 2000 over
1999 resulted primarily from higher core business unit costs of $8.5 million,
partially offset by lower costs in 2000 resulting from the sale of the Business
to The Deal, L.L.C. and the discontinuation of the weekly newsletters. Within
operating costs higher costs were realized in editorial and production, selling
and general and administrative costs and depreciation and amortization. The
increased costs and expenses were partially offset by the elimination of
operating expense related to Internet services resulting from the sale of the
common stock of the Company's Internet subsidiary during the third quarter of
1999.
Editorial expenses increased $3.3 million, or 14.2%, from $22.9 million for
the year ended December 31, 1999 to $26.2 million for the year ended December
31, 2000. Editorial expenses for new projects commenced in 2000 increased $3.6
million, while editorial expenses in the core business units increased $0.6
million. Partially offsetting these increases were lower editorial costs
resulting from the sale of the Business to The Deal, L.L.C. The net increase
during 2000 primarily resulted from increased art costs of $0.6 million with the
balance of the increase being attributable to contributing editors, salaries and
benefits primarily for new projects commenced in 2000.
Production and distribution expenses increased $2.6 million, or 8.8%, from
$29.8 million for the year ended December 31, 1999 to $32.4 million for the year
ended December 31, 2000. Higher costs resulted from increased production and
distribution expenses of $1.8 million in core business units and $1.8 million in
new projects commenced in 2000. This was partially offset by lower costs
resulting from the sale of the Business to The Deal, L.L.C. in 2000 and by the
elimination of production and distribution costs resulting from the sale of the
Company's Internet subsidiary during the third quarter of 1999. Higher costs
primarily resulted from increased material and printing related costs along with
increased trade show and seminar costs resulting from business growth. In
addition, expenses related to new projects commenced in 2000 were realized with
no like expense recorded in 1999.
Selling expenses increased $4.5 million, or 16.2%, from $27.8 million for
the year ended December 31, 1999 to $32.3 million for the year ended December
31, 2000. Selling expenses for new projects commenced in 2000 accounted for $1.8
million of the increase, while selling expenses in the core business units also
increased $5.4 million. This was partially offset by lower costs of $2.7
million, resulting from the sale of the Business to The Deal, L.L.C. and the
completion of the discontinuation of the weekly newsletters in 2000.
16
18
General and administrative expenses increased $6.8 million, or 21.1%, from
$32.0 million for the year ended December 31, 1999 to $38.8 million for the year
ended December 31, 2000. General and administrative expenses for new projects
commenced in 2000 accounted for $3.5 million of the increase, while expenses in
the core business units also increased $3.5 million. The total increase
primarily resulted from increased staffing levels, higher rent, other
facilities-related costs and legal and other professional costs, resulting from
the Company's growth and expansion into new markets.
Internet services expenses totaled $3.3 million for the year ended December
31, 1999 with no like expense recorded for the year ended December 31, 2000. The
elimination of Internet services expenses resulted from the sale of the
Company's Internet subsidiary to Law.com during the third quarter of 1999.
Depreciation and amortization expenses increased $1.1 million, or 4.1%,
from $27.3 million for the year ended December 31, 1999 to $28.4 million for the
year ended December 31, 2000. Depreciation expenses increased $1.3 million for
the year ending December 31, 2000 over the same period in 1999. Partially
offsetting this increase was lower goodwill and intangible asset amortization
expenses recorded during 2000 primarily for the partial transfer of goodwill as
part of the sale of the Company's Internet subsidiary to Law.com, Inc. Higher
depreciation expense during 2000 resulted from the large capital expenditures
incurred during 1999 for the upgrade and purchase of new computer equipment and
systems, for capitalized improvements and furnishings in existing and new
facilities to support the 1999 new initiatives along with 2000 capital
expenditures for completing the installation of the advertising, editorial and
billing systems, investments in database capabilities to drive future growth and
minor renovations in the corporate offices.
Operating loss. As a result of the above factors, the operating loss
narrowed $7.1 million from a $10.7 million loss for the year ended December 31,
1999 to a $3.6 million loss for the year ended December 31, 2000. In addition,
EBITDA increased $8.2 million, or 49.4%, from $16.6 million for the year ended
December 31, 1999 to $24.8 million for the year ended December 31, 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
For the year ended December 31, 1998, the financial results include the
acquisitions of LegalTech and LCL as well as the acquisition of a regional
publication entitled Delaware Law Monthly (the "Delaware Acquisition"), since
their respective acquisition dates.
Overview. Net revenues increased by $11.0 million, or 9.0%, from $121.5
million for the year ended December 31, 1998 to $132.5 million for the year
ended December 31, 1999. Total operating costs and expenses increased $21.4
million, or 17.6%, from $121.8 million for the year ended December 31, 1998 to
$143.2 million for the year ended December 31, 1999 due primarily to new
initiatives launched by the Company during 1999. These initiatives included the
launch of The Daily Deal, a daily publication and Web site that focuses on
international deals and the deal-making community of bankers, accountants,
lawyers, venture capitalists and business professionals, and a new high-end
newsletter division, which published six weekly newsletters focusing on various
legal topics during 1999. As a result, the operating loss increased $10.5
million from a loss of $0.2 million for the year ended December 31, 1998 to a
loss of $10.7 million for the year ended December 31, 1999 and EBITDA decreased
$9.5 million, or 36.4%, from $26.1 million for the year ended December 31, 1998
to $16.6 million for the year ended December 31, 1999. Internet services
revenues decreased $1.4 million, or 52.9%, from $2.6 million for the year ended
December 31, 1998 to $1.2 million for the year ended December 31, 1999. Internet
services expenses decreased $1.4 million, or 29.0%, from $4.7 million for the
year ended December 31, 1998 to $3.3 million for the year ended December 31,
1999. The reduction in Internet services revenues and expenses in 1999 was due
to the sale of the Company's Internet business to Law.com during the third
quarter of 1999. Excluding the Internet services business and new initiatives,
net revenues increased $11.6 million, or 9.8%, from $118.9 million for the year
ended December 31, 1998 to $130.5 million for the year ended December 31, 1999.
Revenues. Advertising revenues increased $8.4 million, or 12.4%, from
$67.5 million for the year ended December 31, 1998 to $75. 9 million for the
year ended December 31, 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
17
19
LCL recorded during the first quarter of 1998. Excluding the revenues from LCL,
advertising revenues increased $6.4 million, or 9.5% during 1999. This increase
in advertising revenues was due to a growth in classified, law firm and legal
advertising, but was partially offset by a decline in display advertising.
Advertising growth was also due to an increase in advertising rates along with
an increase in advertising pages.
Subscription revenue increased $0.4 million, or 1.7%, from $23.2 million
for the year ended December 31, 1998 to $23.6 million for the year ended
December 31, 1999. Growth in subscription revenue in 1999 resulted primarily
from the acquisition of LCL at the end of the first quarter of 1998.
Revenue from ancillary products and services increased $3.6 million, or
12.7%, from $28.2 million for the year ended December 31, 1998 to $31.8 million
for the year ended December 31, 1999. The acquisition of LegalTech and LCL
during early 1998 accounted for approximately $2.5 million, or 69% of the
growth, with no LegalTech and LCL revenues recorded during the first three
months of 1998. The remaining increase was due to higher licensing and royalty
fees received by the Company and to increased book and newsletter revenue.
However, the increase in revenue was partially offset by lower printing revenue.
In addition, lower information service income was recorded in 1999 as a result
of the sale of the Company's Internet business to Law.com during the third
quarter of 1999.
Revenue from Internet services decreased $1.4 million, or 52.9%, from $2.6
million for the year ended December 31, 1998 to $1.2 million for the year ended
December 31, 1999. The decrease is attributable to the sale of the Company's
Internet business to Law.com during the third quarter of 1999.
Operating costs and expenses. Total operating costs and expenses increased
$21.4 million, or 17.6%, from $121.8 million for the year ended December 31,
1998 to $143.2 million for the year ended December 31, 1999. Included in
operating costs and expenses for 1999 was $3.3 million recorded during the first
quarter of 1999 for LCL and LegalTech with no expenses recorded during the same
period of 1998. In addition, start-up and operating costs and expenses for the
Company's new initiatives during 1999 totaled $11.2 million with no similar
costs or expenses during 1998. Excluding the above-mentioned items, total
operating costs and expenses increased $6.9 million, or 5.6%. The remaining
increase in operating costs and expenses resulted primarily from higher costs in
all categories due to the overall growth in revenues.
Editorial expenses increased $7.4 million, or 47.8%, from $15.5 million for
the year ended December 31, 1998 to $22.9 million for the year ended December
31, 1999. The acquisition of LCL and start-up costs for the new initiatives
accounted for $3.9 million of the increase and general salary increases and the
hiring for a number of key vacant positions accounted for the remaining
increase.
Production and distribution expenses increased $3.6 million, or 13.5%, from
$26.3 million for the year ended December 31, 1998 to $29.8 million for the year
ended December 31, 1999. The acquisition of LCL and LegalTech increased expenses
by $1.3 million and the new initiatives launched during 1999 accounted for $1.4
million of the increase. Excluding the acquisitions of LCL and LegalTech and new
initiatives, production and distribution expenses increased $0.9 million, or
3.3% over prior year costs. This increase primarily resulted from the
introduction of a new publication in California, which has since been
discontinued, along with higher materials costs and increased runs in an effort
to increase coverage in some markets.
Selling expenses increased $8.8 million, or 46.3%, from $19.0 million for
the year ended December 31, 1998 to $27.8 million for the year ended December
31, 1999. LCL and LegalTech accounted for $1.0 million of the increase and costs
incurred for the new initiatives accounted for $4.1 million of the increase.
Excluding these items mentioned above, selling expenses increased $3.7 million,
or 19.4%. This increase resulted primarily from higher commission costs related
to an increase in revenues, increased headcount and increased direct mailing
efforts and other marketing related costs.
General and administrative expenses increased $2.0 million, or 6.7%, from
$30.0 million for the year ended December 31, 1998 to $32.0 million for the year
ended December 31, 1999. This increase reflects $0.7 million of costs associated
with the acquisition of LCL and LegalTech. The remaining expense increase
relates primarily to the launching of the new initiatives during 1999, which
included increased total occupancy and other related general overhead costs.
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Internet services expenses decreased $1.4 million, or 29.0%, from $4.7
million for the year ended December 31, 1998 to $3.3 million for the year ended
December 31, 1999. This decrease is attributable to the sale of the Company's
Internet business to Law.com during the third quarter of 1999.
Depreciation and amortization expenses increased $1.0 million, or 3.8%,
from $26.3 million for the year ended December 31, 1998 to $27.3 million for the
year ended December 31, 1999. An increase in amortization of goodwill during
1999 was due to the acquisitions of LCL and LegalTech during early 1998. The
increase in depreciation during 1999 was due to increased capital expenditures
in 1999 for new and upgraded systems in order to ensure Year 2000 compliance and
to replace outdated systems with new systems and facilities to support the new
initiatives and the Company's core growth.
Operating loss. As a result of the above factors, the operating loss
increased $10.5 million from a $0.2 million loss for the year ended December 31,
1998 to a $10.7 million loss for the year ended December 31, 1999. EBITDA
decreased $9.5 million, or 36.4%, from $26.1 million for the year ended December
31, 1998 to $16.6 million for the year ended December 31, 1999. Excluding the
Internet services business and new initiatives EBITDA increased 1.0 million, or
3.6% from $28.1 million at December 31, 1998 to $29.0 million at December 31,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures. Capital expenditures totaled $5.9 million for the
year ended December 31, 2000. Capital expenditures for 2000 included $0.4
million attributable to the Business during the first quarter of 2000, prior to
its sale. Computer system enhancements and development for existing businesses
and new initiatives accounted for $5.0 million of the expenditures with the
remaining $0.9 million attributed to leasehold improvements and furnishings for
existing facilities. The computer system enhancements included upgrading the
editorial and advertising systems along with database developments for existing
businesses and new initiatives.
Net cash provided by operating activities. Net cash provided by operating
activities was $1.6 million for the year ended December 31, 2000, which reflects
depreciation and amortization of $28.4 million, an increase in accounts payable
of $1.4 million, deferred income of $0.9 million, and non-cash interest of $0.8
million, offset by a net loss of $19.3 million, an increase in accounts
receivable and inventories of $2.6 million, a decrease in accrued expenses and
interest of $1.3 million, a decrease in other non-current liabilities of $4.2
million, an increase in other assets of $1.3 million and an increase in other
current assets of $1.2 million.
Net cash used in investing activities. Net cash used in investing
activities was $3.2 million for the year ended December 31, 2000, primarily
resulting from capital expenditures of $5.9 million and the Company's
acquisitions during 2000 totaling $6.5 million. This cash outflow was partly
offset by the sale of the Business for $7.5 million in cash and the additional
cash payment of $1.68 million, an amount equal to operating losses incurred in
March 2000.
Net cash provided by financing activities. Net cash provided by financing
activities totaled $2.2 million for the year ended December 31, 2000, which
reflects a net drawdown of $2.2 million under the Revolving Credit Facility
(described below).
Working capital. The Company traditionally had favorable cash flow
characteristics resulting from its high level of advance payments by
subscribers, low working capital investment, minimal capital expenditure needs,
predictable cost structure and high margins. Because cash receipts associated
with subscriptions are received toward the beginning of a subscription cycle,
the Company's periodicals business requires minimal investment in working
capital.
During 2000, the Company incurred losses from its 1999 new initiatives
totaling $6.2 million along with startup costs for its 2000 initiatives,
primarily in international and directory/specialty publishing, of $1.3 million.
In addition the Company made an additional capital investment in its systems and
facilities of $5.9 million. The Business was subsequently sold and the Company
discontinued all six of its weekly newsletters in 2000. These factors combined
to produce reduced cash flow for 2000.
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Liquidity. The Company's principal sources of funds are anticipated to be
cash flows from operating activities, which may be supplemented by borrowings
under the Revolving Credit Facility (described below). The Company believes that
these funds will be sufficient to meet its current financial obligations,
including the payment of interest on the $175,000,000 of 9.75% senior notes and
the outstanding balance under the Company's Revolving Credit Facility, working
capital, capital expenditures and other obligations. No assurance can be given,
however, that this will be the case. The Company's future operating performance
and ability to service or refinance the Notes and to repay, extend or refinance
any credit agreements to which it is a party will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.
MATERIAL FINANCINGS
The Company has borrowed funds to finance its operations through the
transactions described below.
Revolving Credit Facility. On March 25, 1998, the Company entered into a
$40 million, five-year senior secured revolving credit facility (the "Revolving
Credit Facility") with a group of banks to be available for working capital and
general corporate purposes, including acquisitions and capital expenditures.
The Revolving Credit Facility is guaranteed by Holdings and by all existing
and future subsidiaries of 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 existing and future domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. The Revolving Credit
Facility contains customary covenants commensurate with the size of the
Revolving Credit Facility that restrict the ability of the Company and its
subsidiaries to take certain actions.
On April 14, 1998, Holdings contributed an aggregate of $15 million to the
equity capital of the Company. The proceeds of the equity contribution were used
to fund acquisitions and to provide capital for internal growth. Effective March
29, 1999, Holdings and the Company amended the Revolving Credit Facility to
(inter alia) limit the Company's ability to borrow in excess of $20 million
under the Revolving Credit Facility until certain ratios are achieved, modify
certain of the covenants and modify the interest calculation mechanism.
Effective July 20, 1999, the Revolving Credit Facility was further amended to
provide for the sale of the Company's Internet business to Law.com (described
below) and to modify certain debt covenants. Effective March 28, 2000, the
Revolving Credit Facility was further amended to modify certain of the
covenants, permit the proposed transaction described under Significant
Transactions -- Sale of The Business of The Daily Deal and Corporate Control
Alert and to increase the revolver limit described above from $20 million to
$22.5 million. On January 10, 2001, the Revolving Credit Facility was further
amended to modify certain of the covenants and to increase the borrowing limit
described above from $22.5 million to $29 million upon the consummation of the
Haslam acquisition. This amendment (inter alia) also limits the Company's
ability to consummate additional acquisitions until certain ratios are achieved.
Senior Notes Financing. In December 1997, the Company issued $175,000,000
aggregate principal amount of 9.75% Senior Notes due 2007 (the "Notes"). The
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 existing and future subsidiaries. The subsidiary guarantors
comprise all of the direct and indirect subsidiaries of the Company and each of
the subsidiary guarantors us a wholly-owned subsidiary of the Company. Separate
financial statements of, and other disclosures concerning the subsidiary
guarantors are not included herein because of the subsidiary guarantors' full
and unconditional guarantee of the Notes and management has determined that
separate financial statements and other disclosures concerning the subsidiary
guarantors are not material and would not provide any additional meaningful
disclosure. There are currently no contractual or regulatory restrictions
limiting the ability of the subsidiary guarantors to make distributions to the
Company. The 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
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,
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transactions with affiliates, the incurrence of liens, and mergers and
consolidations. Assuming there is no redemption of the Notes prior to maturity,
the entire principal will be payable on December 15, 2007.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company and Holdings have entered into a Revolving Credit Facility.
Each revolving loan bears interest on the outstanding principal amount from the
borrowing date until it becomes due at a rate per annum equal to the "Base Rate"
or the Eurodollar rate plus the "Applicable Margin". The Applicable Margin
varies depending on the Company's total leverage ratio. As of March 30, 2001 the
Applicable Margin was 2.0% for base rate loans and 3.0% for Eurodollar Rate
loans. The Base Rate is the higher of the Bank of America publicly announced
"Reference Rate" or the Federal Funds Rate plus 0.5%. The amount outstanding
under the Revolving Credit Facility was $20.5 million at December 31, 2000. The
interest rate at December 31, 2000 was 9.12 %. A 10% increase in the average
rate, during 2000, would have increased the Company's net loss to approximately
$21.2 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Exhibits, which appears on Page F-1
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The following table sets forth certain information regarding each of the
executive officers, directors and certain other key employees of the Company and
Holdings, as of March 15, 2001.
NAME AGE POSITION
---- --- --------
Executive Officers, Directors and Key
Employees of the Company and Holdings
Bruce Wasserstein......................... 53 Chairman and Director
William L. Pollak......................... 45 President, Chief Executive Officer and
Director
Anup Bagaria.............................. 28 Vice President and Director
Michael J. Biondi......................... 43 Director
Robert C. Clark........................... 57 Director
Donald G. Drapkin......................... 53 Director
James A. Finkelstein...................... 52 Director
George L. Majoros, Jr..................... 39 Director
Andrew G.T. Moore, II..................... 65 Director
Jack Berkowitz............................ 54 Vice President, Strategic Planning
Sara Diamond.............................. 42 Vice President, Book and Newsletter
Publishing
Stephen C. Jacobs......................... 39 Vice President, Corporate Affairs, General
Counsel and Secretary
Leslye G. Katz............................ 46 Vice President, Chief Financial Officer
Kevin Vermeulen........................... 37 Vice President, Group Publisher
Each Director is elected annually and serves until the next annual meeting
of stockholders or until his or her successor is duly elected and qualified. The
Independent Directors are each compensated $20,000 per year for their service as
Directors and receive reimbursement of expenses incurred from their attendance
at Board of Directors meetings. Directors will also be eligible to participate
in an equity participation plan to be established.
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The Board has established an executive committee (the "Executive
Committee") consisting of three members, currently Bruce Wasserstein, George
Majoros and Anup Bagaria. The Executive Committee has been delegated the
authority to approve (i) the acquisition and divestiture by the Company or an
affiliate of the Company of all or a portion of one or more business entities
for a price of up to $25 million, (ii) the appointment of senior officers of the
Company or its affiliates and termination of such employment, (iii) the
preparation and approval of short-term and long-term budgets, and (iv) other
material policy-level decisions to the extent permitted by the Delaware General
Corporation Law.
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF THE COMPANY AND HOLDINGS
Bruce Wasserstein has served as Chairman of the Board of Directors of the
Company and Holdings since their founding in December 1997. He is Executive
Chairman of Dresdner Kleinwort Wasserstein and Chairman of Wasserstein & Co.,
LP, the private merchant bank that owns Holdings. Previously, he was Chairman,
Chief Executive Officer and founder of Wasserstein Perella Group, Inc. ("WPG"),
Chairman of the Board of Directors of Maybelline, Inc. and a Director of Collins
& Aikman Corp. Before establishing WPG, Mr. Wasserstein was Co-Head of
Investment Banking at The First Boston Corporation, and a Managing Director and
Member of its Management Committee. Prior to joining First Boston in 1977, Mr.
Wasserstein was an attorney at Cravath, Swaine & Moore in New York City. Mr.
Wasserstein graduated with honors from the University of Michigan in 1967. In
1971 he graduated from Harvard Business School as a Baker Scholar with high
distinction, and earned a J.D., cum laude, from Harvard Law School. In 1972, he
was a Knox Traveling Fellow at Cambridge University. Mr. Wasserstein is a member
of the Council on Foreign Relations. He has served as a member of the SEC's
Advisory Committee on Tender Offers, and as a member of the Visiting Committees
of Harvard Law School, the University of Michigan and Columbia Journalism
School. Mr. Wasserstein is also on the boards of numerous private companies.
William L. Pollak has served as President, Chief Executive Officer and
Director of the Company and Holdings since their founding in December 1997.
Before joining the Company, Mr. Pollak spent 16 years at the New York Times,
where he held a variety of positions, most recently as Executive Vice President,
Circulation.
Anup Bagaria has served as a Vice President and Director of the Company and
Holdings since their founding in December 1997. He is a Managing Director of
Wasserstein & Co., LP. He graduated from the Massachusetts Institute of
Technology. Mr. Bagaria also serves on the board of various private companies.
Michael J. Biondi has served as a Director of the Company and Holdings
since their founding in December 1997. He is Co-Head of Global Investment
banking at Dresdner Kleinwort Wasserstein, as well as Co-Chairman of Dresdner
Kleinwort Wasserstein, North America. Previously, Mr. Biondi was Chairman and
Chief Executive Officer of Wasserstein Perella & Co., Inc. Mr. Biondi holds
M.B.A. and J.D. degrees from the Wharton School and the University of
Pennsylvania Law School, respectively. Prior to joining Wasserstein Perella &
Co., Mr. Biondi was a member of the First Boston Mergers & Acquisitions Group,
and practiced law at Skadden, Arps, Slate, Meagher & Flom LLP.
Robert C. Clark has served as a Director of the Company and Holdings since
their founding in December 1997. He has been Dean of the Harvard Law School
since 1989 and is the Royall Professor of Law. Mr. Clark is a trustee of
Teachers' Insurance Annuity Association (TIAA). He is currently a Director of
Collins & Aikman Corp. and of Household International, Inc.
Donald G. Drapkin has served as a Director of the Company and Holdings
since their founding in December 1997. He has been a Director and Vice Chairman
and Director of MacAndrews & Forbes Holdings Inc. and various of its affiliates
since 1987. Prior to joining MacAndrews & Forbes, Mr. Drapkin was a partner in
the law firm of Skadden, Arps, Slate, Meagher & Flom LLP for more than five
years. Mr. Drapkin also is a Director of the following corporations which file
reports pursuant to the Securities Exchange Act of 1934: Anthracite Capital,
Inc., BlackRock Asset Investors, The Molson Companies Limited, Panavision, Inc.,
Playboy.com. Inc., Playboy Enterprises, Inc., ProxyMed, Inc., Revlon Consumer
Products Corporation, Revlon, Inc., The Warnaco Group, Inc., and Weider
Nutrition International, Inc. Mr. Drapkin is Chairman of WeddingChannel.com. (On
December 27, 1996, Marvel, Marvel Holdings, Marvel Parent and Marvel III, of
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which Mr. Drapkin was a Director on such date, and several subsidiaries of
Marvel filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code.)
James A. Finkelstein has served as a Director of the Company and Holdings
since their founding in December 1997. He has been President and Chief Executive
Officer of JAF Communications, LLC since July 1998. Prior to that, Mr.
Finkelstein served as President and Chief Executive Officer of NLP and its
predecessor companies beginning in 1974. He joined the New York Law Publishing
Company in 1970. He was the former publisher of the New York Law Journal and the
founder and publisher of The National Law Journal. He currently serves on the
Faculty of Arts and Sciences Board of Overseers at New York University.
George L. Majoros, Jr. has served as a Director of the Company and Holdings
since June 5, 2000. He has been President and Chief Operating Officer of
Wasserstein & Co., LP since its inception in January 2001. Prior thereto, he was
a Managing Director of Wasserstein Perella & Co., Inc. and the Chief Operating
Officer of its Merchant Banking Group. He joined Wasserstein Perella & Co., Inc.
in early 1993 after practicing law with Jones Day Reavis & Pogue since September
1986. Mr. Majoros also serves on the board of directors of numerous private
companies.
Andrew G. T. Moore, II has served as a Director of the Company and Holdings
since their founding in December 1997. He is a Managing Director of Dresdner
Kleinwort Wasserstein, formerly Wasserstein Perella & Co., and is a former
Justice of the Delaware Supreme Court. Justice Moore served on the Delaware
Supreme Court for 12 years until 1994, when he joined Wasserstein Perella & Co.
Justice Moore has served as the Lehmann Distinguished Visiting Professor of Law
at Washington University in St. Louis. He has also served as an adjunct
professor of law at the Georgetown University Law Center, University of Iowa
College of Law and Widener University School of Law, where he taught seminars in
advanced corporation law. He also teaches comparative principles of
international corporation law at the Tulane University Institute of European
Legal Studies in Paris, and has been a guest lecturer at various law schools and
national corporate law programs in the United States, Canada and Europe.
Jack Berkowitz has served as Vice President, Strategic Planning of the
Company since January 1999. Prior to joining the Company, Mr. Berkowitz served
as a consultant to the Company during 1998. Mr. Berkowitz is a 25 year veteran
of the publishing industry. As a consultant, in addition to the Company, his
client roster has included Cowles Business Media, Hearst Magazines, Time Inc.,
The Rockefeller Associates, Associated Newspapers and Adweek. Mr. Berkowitz had
previously served as Executive Vice President of the Village Voice and President
of The Nation.
Sara Diamond has served as Vice President, Book and Newsletter Publishing
of the Company since September 2000. Prior to that she was Publisher of Law
Journal Press, the book division of the Company, which she joined in 1992. Prior
to joining the Company, Ms. Diamond served in a variety of positions at Matthew
Bender & Company.
Stephen C. Jacobs has served as Vice President, General Counsel and
Secretary of the Company since May 1998. Prior to joining the Company, Mr.
Jacobs was Assistant General Counsel, Global Transactions for American
International Group, Inc.
Leslye G. Katz has served as Vice President and Chief Financial Officer of
the Company since September 1998. Prior to joining the Company, Ms. Katz served
as Vice President and Treasurer of IMS Health, Inc. Previously, she held senior
financial management positions for 18 years in the publishing industry, most
recently as Senior Vice President and Chief Financial Officer of Reuben H.
Donnelley.
Kevin Vermeulen has served as Vice President, Group Publisher of the
Company since May 1999, and served as Vice President, National Advertising from
1998 -- 1999. Prior to that he was a Vice President of Sales for NLP, which he
joined in October 1992.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table includes individual compensation
information for the Chief Executive Officer and certain other executive officers
of the Company and Holdings for the year ended
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December 31, 2000 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company and Holdings during the year ended
December 31, 2000. All numbers relating to option grants relate to options to
purchase shares in Holdings and include the effect of a 10-for-1 stock split in
March 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------------------------------------------
LONG TERM COMPENSATION
-------------------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
PRINCIPAL POSITION YEAR ($) SALARY ($) BONUS ($) AWARDS ($) SALES PAYOUTS ($) ($)
- ------------------ ---- ---------- --------- ------------ ---------- ---------- ----------- ------------
William Pollak......... 2000 436,487 252,261 -- -- -- -- 294,326(1)
President and Chief 1999 416,212 217,516 -- -- 12,000 -- 539,256(1)
Executive Officer 1998(2) 325,000 400,000 -- -- -- -- --
Jack Berkowitz......... 2000 275,000 63,942 -- -- 600 -- --
Vice President, 1999(3) 215,000 42,500 -- -- 1,800 -- --
Strategic Planning 1998 -- -- -- -- -- -- --
Stephen Jacobs......... 2000 226,333 71,191 -- -- 300 -- --
Vice President, 1999 206,625 100,000 -- -- 1,200 -- --
Corporate Affairs and 1998(4) 132,692 50,000 -- -- -- -- --
General Counsel
Leslye G. Katz......... 2000 320,000 93,216 -- -- -- -- 204,200(5)
Vice President and 1999 305,000 150,000 -- -- 3,000 -- 204,200(5)
Chief Financial 1998(6) 100,000 73,500 -- -- -- -- --
Officer
Kevin Vermeulen........ 2000 183,400 155,705 -- -- -- -- --
Vice President, 1999 165,667 34,507 -- -- 1,800 -- 105,303(7)
Group Publisher 1998 134,047 10,000 -- -- -- -- 120,614(7)
- ---------------
(1) Represents payments made by the Company to Mr. Pollak pursuant to the terms
of his employment agreement with the Company to reimburse him for the value
of options forfeited upon his resignation from his former employer.
(2) Mr. Pollak's employment with the Company pursuant to his employment
agreement commenced as of March 9, 1998.
(3) Mr. Berkowitz's employment with the Company pursuant to his employment
agreement commenced as of January 1, 1999.
(4) Mr. Jacobs' employment with the Company pursuant to his employment agreement
commenced as of May 4, 1998.
(5) Represents payments made by the Company to Ms. Katz pursuant to the terms of
her employment agreement with the Company to reimburse her for the value of
options forfeited upon her resignation from her previous employer.
(6) Ms. Katz's employment with the Company pursuant to her employment agreement
commenced as of September 1, 1998.
(7) Represents commissions earned by Mr. Vermeulen pursuant to the terms of his
employment agreement.
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The following table includes information regarding option grants in 2000 to
the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS+
--------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OF OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ------------ ---------------- ----------- ---------- ------------- --------------
($) ($)
William Pollak....... 0 -- -- -- -- --
Jack Berkowitz....... 600 1.7% $150 4/01/10 * *
Stephen Jacobs....... 300 0.8% $150 4/01/10 * *
Leslye Katz.......... 0 -- -- -- -- --
Kevin Vermeulen...... 0 -- -- -- -- --
- ---------------
* As of December 31, 2000, each of the outstanding options was out-of-the-money
and therefore, the potential realizable value was less than zero.
+ Each of these options is exercisable for a share of Holdings common stock. On
March 7, 2000, the Board of Directors of Holdings approved a 10-for-1 split of
its common stock, par value $0.01 per share. Prior to the stock split,
Holdings had 200,000 shares of common stock authorized and 120,000 shares of
common stock outstanding. After giving effect to the stock split, Holdings has
2,000,000 shares of common stock authorized and 1,200,000 shares of common
stock outstanding.
EMPLOYMENT AGREEMENTS
Each of William Pollak, President and Chief Executive Officer, and Leslye
Katz, Vice President and Chief Financial Officer, has entered into an employment
agreement with the Company for a five-year term effective March 9, 1998 and
September 1, 1998, respectively. The employment agreements provide for an annual
salary of $400,000, in the case of Mr. Pollak, and $300,000, in the case of Ms.
Katz, subject to increases of 5% annually during the term. In addition, the
employment agreements provide for bonuses of (i) $400,000 after the first year
of the term and between 50% and 150% of the base salary, as determined by the
Board of Directors, in each of the remaining years of the term, for Mr. Pollak,
and (ii) $150,000 after the first year of the term and between 25% and 75% of
the base salary, as determined by the Board of Directors, in each of the
remaining years of the term, for Ms. Katz. Under the employment agreements, if
the executives' employment is terminated by the Company without cause or by the
executive with good reason, the executive will be entitled to severance equal to
the amount of the executive's salary and bonus accrued but unpaid through the
termination date and one year's salary in the cases of Mr. Pollak and Ms. Katz,
commencing on the termination date, together with any accrued but unpaid bonus.
Each of Mr. Pollak and Ms. Katz is also entitled to payments for options granted
to them and forfeited upon their resignations from their prior employers.
The Company has also entered into employment agreements with each of its
executive officers providing for varying bonuses, severance provisions and
termination rights.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of the Company are beneficially owned by
Holdings. The following table sets forth certain information regarding
beneficial ownership of Holdings as of December 31, 2000 by (i) each person (or
group of affiliate persons) known by the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock of Holdings, (ii) each Director,
Director nominee, and the Chief Executive Officer and Vice President of the
Company, and (iii) all directors and executive officers of the Company as a
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group. The share numbers below include the effect of a 10-for-1 stock split of
Holdings common stock in March 2000.
PERCENTAGE OF
NUMBER OF TOTAL SHARES OF
SHARES OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING
- ------------------------------------ ------------ ---------------
U.S. Equity Partners, L.P.(1)................... 569,960 47.49%
U.S. Equity Partners (Offshore), L.P.(2)........ 144,110 12.01%
ALM Employee Partners, L.L.C.(3)................ 72,490 6.05%
Wasserstein & Co., LP(4)........................ 413,440 34.45%
--------- ------
Total................................. 1,200,000 100.00%
- ---------------
(1) Includes approximately 2.9% of the issued and outstanding common stock of
Holdings held by a co-investor of U.S. Equity Partners, L.P. ("USEP") which
has granted WP Management Partners, LLC ("WPMP"), the general partner of
USEP, an irrevocable proxy to vote such shares of common stock. Wasserstein
& Co., LP shares voting and dispositive power with respect to the shares
held by USEP. See footnote (4).
(2) Wasserstein & Co., LP shares voting and dispositive power with respect to
the shares held by U.S. Equity Partners (Offshore), L.P. See footnote (4).
(3) ALM Employee Partners, L.L.C. is managed by WP Plan Management Partners,
Inc., a wholly-owned subsidiary of Wasserstein & Co., LP. Wasserstein & Co.,
LP shares voting and dispositive power with respect to the shares held by
ALM Employee Partners, L.L.C. See footnote (4).
(4) Does not include: 569,960 shares as to which Wasserstein & Co., LP shares
voting and dispositive power with USEP; 144,110 shares as to which
Wasserstein & Co., LP shares voting and dispositive power with U.S. Equity
Partners (Offshore), L.P.; and 72,490 shares as to which Wasserstein & Co.,
LP shares voting and dispositive power with ALM Employee Partners, L.L.C.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a wholly-owned subsidiary of Holdings. A majority of
Holdings' equity securities are held by USEP and its affiliates. USEP is a
Delaware limited partnership investment fund of which WPMP is the general
partner. WPMP is controlled by Wasserstein & Co., LP. WPMP is entitled to
receive a monitoring fee in an amount not to exceed $1.0 million in respect of
any year.
The Company may engage in transactions with its affiliates, including
entities owned or controlled by certain of its principal shareholders. The
Company believes that such transactions will be no more favorable to the Company
than similar transactions with non-affiliates.
In July 1999, the Company sold the common stock of its wholly-owned
subsidiary, that held the Company's Internet business to Law.com. On March 28,
2000, the Company sold its business constituting The Daily Deal and Corporate
Control Alert to The Deal, L.L.C. The stockholders of Law.com and The Deal,
L.L.C. include substantially all of the stockholders of Holdings. See
Significant Transactions.
In connection with the sale of the Company's Internet business of Law.com,
the Company entered into an exclusive content (subject to certain exceptions)
five-year license with Law.com granting Law.com the right to publish in
electronic or digital format all Company content. The Company believes that the
transactions referred to the preceding paragraph were effected on arms-length
terms and conditions.
26
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts. All other schedules have
been omitted as the schedules are either not applicable, or the information has
been otherwise provided in the Financial Statements.
(b) Reports on Form 8-K
The Company has filed a report on Form 8-K, dated March 28, 2000, and filed
May 10, 2000, relating to the sale of the business constituting The Daily Deal
and Corporate Control Alert to The Deal, L.L.C. (formerly TDD, L.L.C.).
(c) Exhibits
The exhibits listed on the Exhibit Index following the signature page
hereof are filed herewith in response to this Item.
27
29
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA,
INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Changes in Stockholder's Equity
for the Years Ended December 31, 2000, 1999 and 1998...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to the Consolidated Financial Statements as of
December 31, 2000, 1999, and 1998......................... F-7
F-1
30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of American Lawyer Media, Inc.:
We have audited the accompanying consolidated balance sheets of American
Lawyer Media, Inc. (a Delaware corporation) and subsidiaries as of December 31,
2000 and 1999 and the related consolidated statements of operations, changes in
stockholder's equity and cash flows for the years ended December 31, 2000, 1999
and 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Lawyer Media, Inc. and subsidiaries as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years
ended December 31, 2000, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 5, 2001
F-2
31
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 2,263 $ 1,598
Accounts receivable, net of allowance for doubtful accounts
and returns of $2,836 and $2,758, respectively............ 19,613 16,811
Inventories, net............................................ 1,561 1,449
Other current assets........................................ 3,793 2,572
-------- --------
Total current assets...................................... 27,230 22,430
Property, plant and equipment, net.......................... 14,000 15,018
Intangible assets, net...................................... 139,757 149,831
Goodwill, net of accumulated amortization of $35,882 and
$23,937, respectively..................................... 148,083 153,816
Deferred financing costs, net of accumulated amortization of
$2,501 and $1,669, respectively........................... 5,277 6,109
Other assets................................................ 5,188 1,210
-------- --------
Total assets.............................................. $339,535 $348,414
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................................ $ 8,922 $ 6,792
Accrued expenses............................................ 10,433 10,912
Accrued interest payable.................................... 867 1,185
Deferred income (including deferred subscription income of
$16,975 and $16,380, respectively)........................ 21,891 17,798
-------- --------
Total current liabilities................................. 42,113 36,687
-------- --------
Long term debt:
Revolving credit facility................................... 20,500 18,300
Senior notes................................................ 175,000 175,000
-------- --------
Total long term debt...................................... 195,500 193,300
Deferred income taxes....................................... 33,327 38,182
Other noncurrent liabilities................................ 6,877 5,925
-------- --------
Total liabilities........................................... 277,817 274,094
-------- --------
Stockholder's equity:
Common stock -- $.01 par value; 1,000 shares authorized; 100
issued and outstanding.................................... -- --
Paid-in-capital............................................. 130,253 123,515
Accumulated deficit......................................... (68,535) (49,195)
-------- --------
Total stockholder's equity................................ 61,718 74,320
-------- --------
Total liabilities and stockholder's equity................ $339,535 $348,414
======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-3
32
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
-------- -------- --------
NET REVENUES:
Periodicals:
Advertising.............................................. $ 88,230 $ 75,887 $ 67,510
Subscription............................................. 23,407 23,570 23,172
Ancillary products and services............................ 42,876 31,791 28,208
Internet services.......................................... -- 1,244 2,639
-------- -------- --------
Total net revenues....................................... 154,513 132,492 121,529
-------- -------- --------
OPERATING EXPENSES:
Editorial.................................................. 26,199 22,940 15,523
Production and distribution................................ 32,436 29,821 26,266
Selling.................................................... 32,325 27,806 19,002
General and administrative................................. 38,775 32,029 30,012
Internet services.......................................... -- 3,313 4,667
Depreciation and amortization.............................. 28,415 27,298 26,302
-------- -------- --------
Total operating expenses................................. 158,150 143,207 121,772
-------- -------- --------
Operating loss........................................... (3,637) (10,715) (243)
Interest expense........................................... (19,470) (18,962) (18,346)
Other (expense) income..................................... (523) 187 --
-------- -------- --------
Loss before income taxes................................. (23,630) (29,490) (18,589)
Benefit for income taxes................................... 4,290 3,078 3,403
-------- -------- --------
Net loss................................................. $(19,340) $(26,412) $(15,186)
======== ======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-4
33
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------ --------- ---------- ----------- --------
BALANCE AT JANUARY 1, 1998............ 100 -- $108,775 $ (7,597) $101,178
Capital contribution.................. -- -- 15,000 -- 15,000
Net loss.............................. -- -- -- (15,186) (15,186)
--- -- -------- -------- --------
BALANCE AT DECEMBER 31, 1998.......... 100 -- 123,775 (22,783) 100,992
Loss on sale of Internet business..... -- -- (260) -- (260)
Net loss.............................. -- -- -- (26,412) (26,412)
--- -- -------- -------- --------
BALANCE AT DECEMBER 31, 1999.......... 100 -- 123,515 (49,195) 74,320
--- -- -------- -------- --------
Gain from sale of business............ -- -- 6,738 -- 6,738
Net loss.............................. -- -- -- (19,340) (19,340)
--- -- -------- -------- --------
BALANCE AT DECEMBER 31, 2000.......... 100 -- $130,253 $(68,535) $ 61,718
=== == ======== ======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-5
34
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(19,340) $(26,412) $(15,186)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................ 28,415 27,298 26,302
Non-cash interest........................................ 832 832 837
(Increase) decrease in:
Accounts receivable, net................................... (2,470) (3,252) (772)
Inventories................................................ (112) 399 (202)
Other current assets....................................... (1,199) (655) 394
Other assets............................................... (1,339) (892) (105)
Increase (decrease) in:
Accounts payable........................................... 1,439 4,278 (1,544)
Accrued expenses........................................... (974) (43) (2,892)
Accrued interest payable................................... (318) 109 602
Deferred income............................................ 892 50 (334)
Other noncurrent liabilities............................... (4,193) (2,407) (1,854)
-------- -------- --------
Total adjustments........................................ 20,973 25,717 20,432
-------- -------- --------
Net cash provided by (used in) operating activities...... 1,633 (695) 5,246
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................................... (5,906) (11,286) (3,911)
Proceeds received from sale of business.................... 9,184 4,490 --
Purchase of business....................................... (6,450) (1,225) (31,757)
Other...................................................... 4 -- --
-------- -------- --------
Net cash used in investing activities.................... (3,168) (8,021) (35,668)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution..................................... -- -- 15,000
Net borrowing on revolving credit facility............... 2,200 9,800 8,500
Issuance of notes........................................ -- -- (1,526)
-------- -------- --------
Net cash provided by financing activities................ 2,200 9,800 21,974
-------- -------- --------
Net increase (decrease) in cash.......................... 665 1,084 (8,448)
CASH, beginning of period.................................. 1,598 514 8,962
-------- -------- --------
CASH, end of period........................................ $ 2,263 $ 1,598 $ 514
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period:
Income taxes............................................. $ 355 $ 120 $ 280
======== ======== ========
Interest................................................. $ 18,725 $ 18,028 $ 17,039
======== ======== ========
Non cash:
Preferred membership interest received from sale of
Business.............................................. $ 2,500 $ -- $ --
======== ======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-6
35
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION AND OPERATIONS
American Lawyer Media, Inc. and subsidiaries (the "Company") is a
wholly-owned subsidiary of American Lawyer Media Holdings, Inc. (formerly
Cranberry Partners, LLC ("Cranberry")) ("Holdings"). The Company publishes legal
publications, including The American Lawyer, New York Law Journal, The National
Law Journal and Corporate Counsel. The Company's operations are based in New
York with regional offices in eight states, the District of Columbia and London,
England.
Effective July 31, 1997, Holdings acquired substantially all of the assets
and liabilities of American Lawyer Media, L.P. ("Old ALM") for $63,000,000 ("ALM
Acquisition"). In December 1997, the Company acquired all of the outstanding
capital stock of National Law Publishing Company, Inc. ("Old NLP") for
approximately $203 million (the "NLP Acquisition"). Subsequently, all the
acquired assets and liabilities of Old ALM and Old NLP were combined to form new
subsidiaries currently owned by the Company.
On July 21, 1999, the Company transferred all of its and its subsidiaries'
Internet and electronic commerce business to a wholly-owned subsidiary named
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 (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.
("Law.com") for $1 million in cash and the Company retained all of the issued
and outstanding POL Preferred Stock. In December 1999, Law.com redeemed all of
the POL Preferred Stock for $3.75 million plus accrued dividends. 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., LP, U.S. Equity
Partners, L.P. and U.S. Equity Partners (Offshore) L.P.
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 newly formed
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
with a preferred return (the "Preferred Membership Interest"). In addition, the
Purchaser paid the Company $1.68 million in cash, representing the aggregate
amount of operating losses incurred by the Company in connection with the
operation of the Business for the month of March 2000. The Company has recorded
a gain of approximately $6,738,000 as a component of additional paid-in-capital
as the Business was a related party under common control. The Preferred
Membership Interest accrues at 12.25% compounded annually, is convertible into
3.0% of the common equity of the Purchaser, has anti-dilution protection for
dividends in the form of additional equity interests, combinations, splits and
reclassifications and has anti-dilution protection up to the first $25.0 million
of equity capital including the Preferred Membership Interest issued by the
Purchaser. Due to the nature of the transaction, the Company has fully reserved
against the Preferred Membership Interest from inception to the dividend date in
Other Assets on the Balance Sheet.
2. ACQUISITIONS
Pursuant to an Asset Purchase Agreement dated as of March 3, 1998, among
Corporate Presentations, Inc., its sole stockholder, and LegalTech, LLC, a
wholly-owned indirect subsidiary of the Company, LegalTech, LLC agreed to
purchase substantially all of the assets and assume certain of the liabilities
of Corporate Presentations, Inc., for approximately $10.8 million (the
"LegalTech Acquisition"). Approximately $11.3 million was recorded as goodwill
for the excess purchase price over the net liabilities acquired. Corporate
Presentations, Inc. is a producer of trade shows and conferences for the legal
community. For
F-7
36
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS (CONTINUED)
advisory services rendered to the Company (as defined below) in connection with
the LegalTech Acquisition, the Company paid WP Management Partners, LLC
("WPMP"), an affiliate of Holdings, a fee of 1% of the purchase price of the
LegalTech Acquisition.
On April 22, 1998, effective as of April 1, 1998, the Company consummated
the acquisition of substantially all of the legal publishing-related assets and
assumed certain liabilities of Legal Communications, Ltd. ("LCL") for an
aggregate purchase price of approximately $20.1 million (the "LCL Acquisition").
The excess purchase price over the net liabilities acquired was allocated $6.3
million to goodwill and $14.3 million to identified intangibles based upon the
appraisal done. LCL is a publisher of regional legal publications. For advisory
services rendered to the Company in connection with the LCL Acquisition, the
Company paid WPMP a fee of 1% of the purchase price of the LCL Acquisition.
On October 28, 1998, the Company consummated the acquisition of all of the
assets, properties and rights of Delaware Law Monthly, a publisher of a monthly
magazine.
On November 22, 1999, effective December 1, 1999, the Company consummated
the acquisition of all of the assets, properties and rights of Houston Trial
Reports, Inc. and Blue Sheet Publications, Inc. (collectively, "Blue Sheet").
Blue Sheet publishes regional and statewide publications which serves the legal
community and provides legal research through in-house and on-line facilities.
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.
On December 27, 2000, the Company consummated the acquisition of rights and
related assets relating to two leading regional trade shows in the United
Kingdom from Nationwide Exhibitions (UK) Ltd. ("Nationwide"). Under the
agreement, the Company has purchased rights and related assets for Solicitors,
The National Legal Office and Legal Services Exhibition and The National
Accountancy Exhibition.
The acquisition price of Moran and the two trade shows from Nationwide in
2000 totaled approximately $6.5 million.
The LegalTech Acquisition, the LCL Acquisition, the DLM acquisition, the
Blue Sheet acquisition, the Moran acquisition and the Nationwide acquisition
have been accounted for under the purchase method of accounting and the results
of operations of the acquired businesses have been included in the financial
statements since the effective dates of the respective acquisitions. The excess
of the purchase price over net assets acquired was allocated to intangibles and
goodwill. In the accompanying consolidated statements of operations, the excess
of purchase price over net assets acquired is being amortized over fifteen
years.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany transactions and balances have
been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-8
37
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of trade accounts receivable. Concentrations of
credit risk with respect to trade accounts receivable are, except for amounts
due from legal advertising agents ("Legal Ad Agents"), generally limited due to
the large number of customers comprising the Company's customer base. Such Legal
Ad Agents do not have significant liquid net worth and, as a result, the Company
is exposed to a certain level of credit concentration risk in this area, which
the Company believes it has adequately provided.
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 trade show income, income from a daily fax service of court
decisions and income from electronic products. Printing revenue is 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 trade show revenues are recognized when the
seminar or trade show is held. Daily fax service revenue is recognized upon
fulfillment of orders.
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.
The Securities and Exchange Commission issued Staff Accounting Bulletin
("SAB") No. 101 "Revenue Recognition in Financial Statements," which
reemphasizes existing guidance related to revenue recognition, including
criteria specified in the Financial Accounting Standards Board's conceptual
framework on timing of revenue recognition, and presentation and disclosure of
revenue in the financial statements. SAB No. 101 was effective for the 2000
fourth quarter. The implementation of SAB No. 101 did not have a material impact
on the Company's result of operations, cash flow or financial position.
DEFERRED SUBSCRIPTION INCOME AND SUBSCRIPTION RECEIVABLES
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 $2,631,500 and $3,128,600 at December 31, 2000 and 1999,
respectively, are included in accounts receivable in the accompanying
consolidated balance sheet.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion expenditures totaled approximately $7.9 million,
$11.0 million and $6.2 million for the years ended December 31, 2000, 1999 and
1998, respectively. These costs are expensed as the related advertisement or
campaign is released.
CASH AND CASH EQUIVALENTS
The Company considers time deposits and certificates of deposit with
original maturities of three months or less to be cash equivalents.
F-9
38
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ACCOUNTING FOR LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets to be Disposed of," the
Company periodically reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. Impairment of
long-lived assets exists if, at a minimum, the future expected cash flows
(undiscounted and without interest charges) from an entity's operations are less
than the carrying value of these assets. The Company does not believe that any
such impairment has occurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Significant improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Depreciation is calculated using the straight-line method
over the 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.
INTANGIBLE ASSETS
Intangible assets represent advertiser commitments, uniform resource
locators, copyrights, 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 an average life of fifteen years.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related debt
using the straight-line method.
SALES OF SUBSIDIARY STOCK
The Company has elected to treat gains and losses on the sales of
subsidiary stock as equity transactions. Therefore, the sale of Law.com has been
reflected this way in the accompanying consolidated financial statements.
F-10
39
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the current year
presentation.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." In June 2000,
the Financial Accounting Standards Board issued SFAS No. 138 "Accounting for
Certain Derivative Instruments and Hedging Activities", which amended SFAS No.
133. These statements establish accounting and reporting standards requiring
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or a liability measured at its fair value. The SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualified hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
must formally document, designate and assess the effectiveness of transactions
to obtain hedge accounting. The Company is required to adopt these standards in
the first quarter of 2001.
The Company has evaluated the requirements of these statements and believes
that it currently has no derivative instruments or hedging activities under the
guidelines of SFAS No. 133 as amended by SFAS No. 138.
INCOME TAXES
Income taxes are recognized during the year in which transactions enter
into the determination of financial statement income. Deferred taxes are
provided for temporary differences between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured pursuant to the tax
laws.
4. SHUTDOWN OF COUNSEL CONNECT
The Company had operated Counsel Connect, a major legal internet site,
since 1993. Counsel Connect operated as a subscription-based service offering
users the opportunity to exchange legal information such as court opinions,
insights about judges and legal opinions and special written work. The Company,
through Counsel Connect, provided general internet access to its subscribers.
During 1998, the Company completed its shutdown of Counsel Connect. Through
December 31, 2000, $3.0 million was charged against the reserve established in
1997 to cover severance costs, uncollectible receivables, writedown of computer
and network equipment and termination of contracts related to network services
which provided Internet access.
5. INCOME TAXES
The Company files a consolidated Federal income tax return with its parent
company American Lawyer Media Holdings, Inc. The Company accounts for income
taxes under the liability method pursuant to SFAS No. 109 "Accounting for Income
Taxes." Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The temporary
differences primarily relate to amortization of identified intangibles related
to the NLP Acquisition, accelerated depreciation, allowance for doubtful
accounts, certain accrued liabilities and reserves not currently deductible for
tax purposes and net operating loss carryforwards.
F-11
40
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES (CONTINUED)
The reconciliation between the income tax benefit and the amount computed
by applying the statutory federal income tax rate to loss before income taxes is
as follows (in thousands):
2000 1999 1998
------- -------- -------
Federal statutory income taxes.............................. $(5,839) $(10,321) $(6,506)
Permanent differences (principally goodwill and intangible
amortization and gain on sale of the Business)............ 6,324 6,083 2,680
State and local income taxes................................ 433 -- --
Changes in valuation allowance and other adjustments........ (5,208) 1,160 423
------- -------- -------
$(4,290) $ (3,078) $(3,403)
======= ======== =======
The Company had a net deferred tax liability of $33,327 and $38,182 at
December 31, 2000 and 1999, respectively.
2000 1999
------- -------
(IN THOUSANDS)
Deferred tax assets......................................... $ 3,589 $ 7,128
Less: valuation allowance.............................. 0 (2,970)
------- -------
Net deferred tax assets..................................... 3,589 4,158
------- -------
Total deferred tax liabilities.............................. 36,916 42,340
------- -------
Net deferred tax liabilities................................ $33,327 $38,182
======= =======
The deferred income tax liabilities primarily relate to the identified
intangibles from the NLP Acquisition, which were recorded at the acquisition
date. The liability was calculated on the identified intangibles from the NLP
Acquisition using the effective tax rate of the Company.
At December 31, 1999, the Company recorded a valuation allowance against
its net deferred tax assets consisting primarily of net operating losses. The
valuation allowance was provided as management was uncertain as to the
realizability of these deferred tax assets. At the close of 2000, the Company
expects to utilize the deferred tax assets, and so has reversed the valuation
allowance. Certain other adjustments were made to more accurately reflect
deferred tax items with respect to nondeductible intangibles.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant, equipment and accumulated depreciation and amortization
consisted of the following at December 31 (in thousands):
2000 1999
------- -------
Land..................................................... $ 207 $ 207
Buildings and improvements............................... 4,856 5,214
Furniture, machinery and equipment....................... 2,595 2,514
Computer equipment and software.......................... 16,387 12,995
------- -------
24,045 20,930
Accumulated depreciation and amortization................ (10,045) (5,912)
------- -------
Net property, plant and equipment........................ $14,000 $15,018
======= =======
F-12
41
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31 (in thousands):
USEFUL
2000 1999 LIVES
-------- -------- ----------
Advertiser commitments............................ $ 880 $ 880 6 months
Trademarks........................................ 86,268 86,248 20 years
Customer and subscriber lists..................... 74,455 72,832 5-17 years
Non-compete agreements............................ 13,992 13,992 3 years
-------- --------
175,595 173,952
Accumulated amortization.......................... (35,838) (24,121)
-------- --------
Net intangible assets............................. 139,757 $149,831
======== ========
8. OTHER ASSETS
Other current assets consisted of the following at December 31 (in
thousands):
2000 1999
------ ------
Prepaid expenses........................................... $1,935 $1,182
Other...................................................... 1,858 1,390
------ ------
Total...................................................... $3,793 $2,572
====== ======
Other assets include minority equity investments the Company holds in
various private companies.
9. RELATED PARTY TRANSACTIONS
The stockholders of Law.com and The Deal, L.L.C. include substantially all
of the stockholders of Holdings. The Company believes that the transactions
referred to in Note 1 were effected on arms-length terms and conditions. See
Note 1 -- Organization and Operations for a discussion of related party
transactions.
Approximately $6,500,000 of financing costs related to the Senior Notes as
defined in Note 12, were paid to Wasserstein & Co., LP ("Wasserstein"), an
affiliate of the Company. In addition, approximately $4,150,000 of acquisition
related fees and expenses were paid to Wasserstein. In 1999, $260,000 in fees,
related to the sale of POL to Law.com were paid to Wasserstein and in 2000 no
fees were paid to Wasserstein.
Included in other current assets on the accompanying consolidated balance
sheets is a net receivable due from Holdings of $757,800 and $555,300 at
December 31, 2000 and 1999, respectively, resulting from various affiliate
transactions.
10. COMMITMENTS AND CONTINGENCIES
Rent expense, including payments of real estate taxes, insurance and other
expenses required under certain leases, amounted to approximately $4,611,000,
$3,685,000 and $3,580,000 for the years ended December 31, 2000, 1999 and 1998.
This amount includes the monthly rent payments for corporate headquarters
discussed below.
F-13
42
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 2000, minimum rental commitments under noncancellable
leases were as follows (in thousands):
REAL
ESTATE OTHER TOTAL
------- ----- -------
2001..................................................... $ 4,649 $254 $ 4,903
2002..................................................... 4,266 211 4,477
2003..................................................... 4,238 28 4,266
2004..................................................... 3,949 24 3,973
2005..................................................... 3,565 3 3,568
2006 and thereafter...................................... 10,103 -- 10,103
------- ---- -------
$30,770 $520 $31,290
======= ==== =======
Certain of the leases provide for free rent periods as well as rent
escalations. The rental commitments above represent actual rental payments to be
made. The financial statements reflect rent expense and rental income on a
straight-line basis over the terms of the leases. Approximately $3,273,000 and
$2,665,000, representing accrued pro rata future payments, net of receipts, is
included in other noncurrent liabilities in the accompanying balance sheets as
of December 31, 2000 and 1999, respectively.
The Company is involved in a number of legal proceedings, some of which are
significant, which arose in the ordinary course of business. In the opinion of
management, the ultimate outcome of these contingencies is not expected to have
a material adverse effect on the Company's financial position or results of
operations.
The Company has letters of credit outstanding totaling approximately
$1,121,000 for security deposits on its corporate office space as of December
31, 2000 and 1999.
11. EMPLOYEE BENEFITS
The Company, through a subsidiary, has a 401(k) profit sharing plan (the
"NLP Plan") for all eligible employees who have completed one year of service.
Under the NLP Plan, the Company has the option of making a matching contribution
of up to 3% of a participant's compensation. the Company may also annually
contribute additional discretionary amounts to participants. For the years ended
December 31, 2000, 1999 and 1998, the Company did not make any matching
discretionary contributions to the NLP Plan. In addition, approximately twenty
Company employees are covered by certain defined contribution retirement plans
sponsored by the Typographical Union. The Company made contributions to these
retirement plans of $0, $0, and $11,719 for the years ended December 31, 2000,
1999, and 1998.
ALM, LLC (a New York limited liability company) sponsored a 401(k) salary
deferral plan (the "ALM Plan") which was transferred to the Company upon the
Acquisitions. Participation in the ALM Plan is available for substantially all
Company employees. The ALM Plan provides for employer matching of employees'
contributions, as defined. The costs of the ALM Plan for the years ended
December 31, 2000,
F-14
43
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFITS (CONTINUED)
1999 and 1998 were $555,900, $606,979, and $276,400, respectively. Pension
benefits for 2000, 1999, and 1998 for the ALM Plan consist of the following (in
thousands):
2000 1999 1998
------- ------- -------
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected Benefit Obligation, at beginning of year.... $ 3,647 $ 3,546 $ 3,424
Interest cost......................................... 244 238 226
Actuarial gain........................................ (198) (12) (82)
Benefits paid......................................... (96) (125) (22)
------- ------- -------
Projected benefit obligation, at end of year.......... $ 3,597 $ 3,647 $ 3,546
======= ======= =======
CHANGE IN PLAN ASSETS
Fair value of assets, at beginning of year............ $ 3,279 $ 3,225 $ 2,613
Actual return on plan assets.......................... (83) 178 534
Employer contributions................................ -- -- 100
Benefits paid......................................... (97) (125) (22)
------- ------- -------
Fair value of assets, at end of year.................. $ 3,099 $ 3,278 $ 3,225
======= ======= =======
FUNDED STATUS
Projected benefit obligation.......................... $(3,597) $(3,647) $(3,546)
Fair value of plan assets............................. 3,099 3,278 3,225
Unrecognized net actuarial gain....................... (101) (278) (382)
------- ------- -------
Accrued benefit cost.................................. $ (599) $ (647) $ (703)
======= ======= =======
COMPONENTS OF NET PERIODIC PENSION COST
Interest cost......................................... $ 244 $ 238 $ 226
Expected return on plan assets........................ (291) (289) (237)
Amortization of unrecognized net actuarial gain....... (2) (5) 3
------- ------- -------
Net periodic pension income........................... $ (49) $ (56) $ (8)
======= ======= =======
In determining the actuarial present value of the projected benefit
obligation as of December 31, 2000, 1999, and 1998, the discount rate was 7.00%,
6.75%, and 6.75% respectively, and the expected long-term rate of return on
assets was 9.00% as of December 31, 2000, 1999, and 1998.
ALM, LLC also sponsored an Excess Benefit Pension Plan providing a benefit
to highly compensated employees in excess of the benefits provided by the tax
qualified defined benefit plan. The plan is an unfunded, non-qualified deferred
compensation plan. This plan was frozen as of December 31, 1997.
The Company sponsors a comprehensive medical and dental insurance plan,
which is available to substantially all employees.
12. LONG-TERM DEBT
On December 22, 1997, the Company issued $175,000,000 aggregate principal
amount of 9.75% senior notes ("Senior Notes") due December 15, 2007. The Senior
Notes accrue interest at 9.75% which is payable in cash semi-annually on June 15
and December 15 of each year. The Senior Notes are unsecured general senior
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
F-15
44
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM DEBT (CONTINUED)
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 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 signed a credit agreement with
various banks that has a combined revolving commitment in the initial principal
amount of $40,000,000 (the "Revolving Credit Facility"). Financial 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 by all subsidiaries of the Company. In addition, the
Revolving Credit Facility is secured by a first priority security interest in
substantially all of the properties and assets of the Company and its domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. 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 account 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. Assuming there is no repayment of the
Revolving Credit Facility prior to term, the entire amount will be payable on
March 31, 2003.
Effective March 29, 1999, Holdings and the Company amended the Revolving
Credit Facility, limiting 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 provide for the sale of the Company's Internet business to Law.com (see Note
1 -- Organization and Operations) and to modify certain debt covenants.
Effective March 28, 2000, the Revolving Credit Facility was further amended to
modify certain of the covenants, permit the sale of the Business to The Deal,
L.L.C. and to increase the revolver limit described above from $20 million to
$22.5 million.
At December 31, 2000, the borrowings were approximately $19,500,000, of
which $2,000,000 was available in accordance with the March 28, 2000 Revolving
Credit Facility Amendment. The available balance under the available balance
unused commitment is further reduced by any letters of credit outstanding, which
totaled $1,121,000 at December 31, 2000. The interest rates on the total
outstanding
F-16
45
AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LONG-TERM DEBT (CONTINUED)
balance at December 31, 2000 range between 9.0% and 9.3%. A 10% increase in the
average rate in the Revolving Credit Facility during 2000 would have increased
the Company's net loss to approximately $21,233,000.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, and notes payable. The
Company believes that the carrying amount for these accounts approximates fair
value due to the near maturity of such financial instruments or the interest
rates on these instruments are comparable to market rates.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR
-------- ------- ------------ ----------- ---------
(IN THOUSANDS)
2000
Net sales........................ $38,843 $40,687 $36,425 $38,558 $154,513
Gross profit..................... 22,952 26,814 22,833 23,279 95,878
Net loss......................... (8,943) (1,422) (5,337) (3,638) (19,340)
1999
Net sales........................ $32,026 $34,013 $31,078 $35,375 $132,492
Gross profit..................... 19,773 21,532 18,985 19,441 79,731
Net loss......................... (5,222) (4,138) (7,757) (9,295) (26,412)
15. SUBSEQUENT EVENTS
Effective January 10, 2001, the Revolving Credit Facility was further
amended to modify certain of the covenants, to permit the Haslam Publications
acquisition and to increase the borrowing limit described above from $22.5
million to $29.0 million.
On January 31, 2001, the Company consummated the acquisition substantially
all of the assets of and certain of the liabilities of Haslam Publications, the
leading publisher of jury verdict and settlement research data in California.
F-17
46
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN LAWYER MEDIA, INC.
BY: /s/ WILLIAM L. POLLAK
------------------------------------
William L. Pollak
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
L. Pollak and Anup Bagaria and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their, his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM L. POLLAK Director, President and Chief March 30, 2001
- --------------------------------------------------- Executive Officer
William L. Pollak (Principal Executive
Officer)
/s/ LESLYE G. KATZ Vice President and Chief March 30, 2001
- --------------------------------------------------- Financial Officer
Leslye G. Katz (Principal Financial
Officer and Principal
Accounting Officer)
/s/ BRUCE WASSERSTEIN Chairman of the Board of March 30, 2001
- --------------------------------------------------- Directors
Bruce Wasserstein
/s/ ANUP BAGARIA Director, Vice President March 30, 2001
- ---------------------------------------------------
Anup Bagaria
/s/ GEORGE L. MAJOROS, JR. Director March 30, 2001
- ---------------------------------------------------
George L. Majoros, Jr.
47
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. BIONDI Director March 30, 2001
- ---------------------------------------------------
Michael J. Biondi
/s/ ROBERT C. CLARK Director March 30, 2001
- ---------------------------------------------------
Robert C. Clark
/s/ DONALD G. DRAPKIN Director March 30, 2001
- ---------------------------------------------------
Donald G. Drapkin
/s/ JAMES A. FINKELSTEIN Director March 30, 2001
- ---------------------------------------------------
James A. Finkelstein
/s/ ANDREW G.T. MOORE, II Director March 30, 2001
- ---------------------------------------------------
Andrew G.T. Moore, II
48
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1* Purchase Agreement, dated as of October 23, 1997, by and
among Boston Ventures Limited Partnership IV, Boston
Ventures Limited Partnership IVA, James A. Finkelstein and
ALM Holdings, LLC, as amended
3.1* Certificate of Incorporation of the Company
3.2* Certificate of Amendment of the Certificate of Incorporation
of the Company
3.16* Bylaws of the Company
4.1* Indenture, dated as of December 22, 1997, among the Company,
the Guarantors named therein and The Bank of New York, as
trustee
4.2* Supplemental Indenture, dated as of December 22, 1997, among
the Company, the Guarantors named therein and The Bank of
New York, as trustee
4.3* Supplemental Indenture, dated as of December 22, 1997, among
the Company, the Guarantors named therein and The Bank of
New York, as trustee
4.4* Supplemental Indenture, dated as of December 22, 1997, among
the Company, the Guarantors named therein and The Bank of
New York, as trustee
4.5* Supplemental Indenture, dated as of December 22, 1997, among
the Company, the Guarantors named therein and The Bank of
New York, as trustee
4.6* Supplemental Indenture, dated as of December 22, 1997, among
the Company, the Guarantors named therein and The Bank of
New York, as trustee
4.7* Supplemental Indenture, dated as of April 14, 1998, among
the Company, the Guarantors and The Bank of New York, as
trustee
4.10* Registration Rights Agreement, dated as of December 22,
1997, among the Company, the Guarantors named therein and
the Initial Purchasers
10.1* Lease, dated September 30, 1993, between Park Avenue
South/Armory, Inc. and The New York Law Publishing Company
for premises at 345 Park Avenue South, New York, New York
10.2* First Supplemental Agreement, dated November 30, 1994,
between Park Avenue South/Armory, Inc. and The New York Law
Publishing Company for premises at 345 Park Avenue South,
New York, New York
10.3* Credit Agreement, dated as of March 25, 1998, among the
Company, ALM, various banks, Bank of America National Trust
and Savings Association, BancBoston Securities Inc. and
BancAmerica Robertson Stephens
10.4* First Amendment to Credit Agreement, dated as of April 24,
1998, among the Company, ALM, various banks and Bank of
America National Trust and Savings Association, (ii) Second
Amendment to Credit Agreement, dated as of April 26, 1999,
among the Company, ALM, various banks and Bank of America
National Trust and Savings Association, Waiver and (iii)
Consent and Third Amendment to Credit Agreement, dated as of
July 20, 1999, among the Company, ALM, various banks and
Bank of America National Trust and Savings Association, (iv)
Consent and Fourth Amendment to Credit Agreement, dated as
of March 8, 2000, among the Company, ALM, various banks and
Bank of America National Trust and Savings Association and
(v) Fifth Amendment to Credit Agreement, dated as of January
10, 2001, among the Company, Holdings, various banks and
Bank of America, N.A. (filed herewith)
10.5* Employment Agreement dated February 9, 1998 between ALM and
William L. Pollak
10.6+* License Agreement between ALM and Law.com, Inc., dated
December 13, 1999
10.7* Stock Purchase Agreement, dated as of July 27, 1999 among
ALM, Law.com Acquisition Corp. and Professional On Line,
Inc.
E-1
49
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.8 Asset Purchase Agreement, dated as of March 28, 2000, among
the Company, The New York Law Publishing Company and NLP IP
Company and TDD, L.L.C.
10.9++ First Amendment to License Agreement between the Company and
Law.com, Inc., dated December 6, 2000
12.1 Statement re: computation of ratio of earnings to fixed
charges
21.1 List of Subsidiaries of the Company
24.1 Power of Attorney of the Company (included on Signature
Page)
- ---------------
* Exhibits are incorporated by reference from the Company's previous filings
with the Securities and Exchange Commission.
+ Confidential treatment has been granted for certain portions of this
document.
++ Confidential treatment has been requested for certain portions of this
document.
E-2
50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of American Lawyer Media, Inc.:
We have audited in accordance with audit standards generally accepted in
the United States, the consolidated financial statements of American Lawyer
Media, Inc. (a Delaware Corporation) and subsidiaries included in this Report on
Form 10-K and have issued our report thereon dated March 5, 2001. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The accompanying schedule is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. The schedule for the years ended
December 31, 2000, 1999 and 1998 has been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, NY
March 5, 2001
51
SCHEDULE II
AMERICAN LAWYER MEDIA, INC.
VALUATION AND QUALIFYING ACCOUNTS
For the Twelve Months Ended December 31, 1998, 1999 and 2000 (dollars in
thousands):
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
---------- ---------- ---------- ------------- ---------
DESCRIPTION CREDIT CREDIT DEBIT DEBIT CREDIT
- ----------- ---------- ---------- ---------- ------------- ---------
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts and
returns.......................... $(3,236) $(1,819) -- $1,460 $(3,595)
Allowance for valuation of deferred
tax asset........................ $(2,970) -- -- -- $(2,970)
YEAR ENDED DECEMBER 31, 1999:
Allowance for doubtful accounts and
returns.......................... $(3,595) $(2,590) -- $3,427 $(2,758)
Allowance for valuation of deferred
tax asset........................ $(2,970) -- -- -- $(2,970)
YEAR ENDED DECEMBER 31, 2000:
Allowance for doubtful accounts and
returns.......................... $(2,758) $(2,174) -- $2,096 $(2,836)
Allowance for valuation of deferred
tax asset........................ $(2,970) -- $2,970 -- --
- ---------------
(1) Represents reversals of the allowance account and write-offs of accounts
receivable, net of recoveries.