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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 2002.
or
| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to .
COMMISSION FILE NUMBER: 333-50119
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 779-9200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
As of November 13, 2002, there were 1,320,330 shares of the registrant's common
stock, $.01 par value, outstanding, the majority of which was held by U.S.
Equity Partners, L.P. and its affiliates.
EXPLANATORY NOTE
The Company is not currently required to file reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and is not
currently an "issuer" within the meaning of the Sarbanes-Oxley Act of 2002. The
Company is filing this quarterly report on Form 10-Q pursuant to a covenant
contained in the Indenture dated December 22, 1997 between the Company and The
Bank of New York, as Trustee, governing the Company's 12 1/4% Senior Discount
Notes.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
INDEX
PART I PAGE
----
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 2002 (unaudited)
and December 31, 2001............................................................. 1
Consolidated Statements of Operations (unaudited) for the Nine
Months Ended September 30, 2002 and 2001.......................................... 2
Consolidated Statements of Operations (unaudited) for the Three
Months Ended September 30, 2002 and 2001.......................................... 3
Consolidated Statement of Changes in Stockholders' Equity for
the Nine Months Ended September 30, 2002 (unaudited).............................. 4
Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended September 30, 2002 and 2001................................................. 5
Notes to Consolidated Financial Statements at
September 30, 2002 (unaudited).................................................... 6-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................ 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK............................................................... 19
ITEM 4. CONTROLS AND PROCEDURES........................................................... 20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................ 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 21
ITEM 5. OTHER INFORMATION................................................................. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 21
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 1,432 $ 2,377
Accounts receivable, net of allowance for doubtful accounts and returns of
$2,260 and $2,270, respectively ................................................... 14,291 16,051
Deferred tax assets, net ............................................................. 3,925 3,925
Inventories, net ..................................................................... 1,393 1,530
Other current assets ................................................................. 3,003 2,575
--------- ---------
Total current assets ........................................................... 24,044 26,458
Property, plant and equipment, net of accumulated depreciation and
amortization of $19,435 and $14,744, respectively ................................. 12,443 11,384
Intangible assets, net of accumulated amortization of $55,548 and $47,670,
respectively ...................................................................... 121,244 129,122
Goodwill, net of accumulated amortization of $48,490 and $48,490,
respectively ...................................................................... 162,694 141,041
Deferred financing costs, net of accumulated amortization of $4,321 and
$4,013, respectively .............................................................. 6,015 5,596
Other assets ......................................................................... 5,457 1,781
--------- ---------
Total assets.................................................................. $331,897 $ 315,382
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 5,844 $ 5,941
Accrued expenses ..................................................................... 9,187 10,640
Accrued interest payable ............................................................. 5,304 954
Deferred income (including deferred subscription income of $16,826 and
$15,065, respectively) ............................................................ 21,531 18,515
Other current liabilities ............................................................ -- 350
--------- ---------
Total current liabilities ..................................................... 41,866 36,400
Long-term debt:
Revolving credit facility ............................................................ 28,200 27,000
Senior notes ......................................................................... 175,000 175,000
Senior discount notes ................................................................ 61,746 56,452
--------- ---------
Total long-term debt ...................................................... 264,946 258,452
Deferred income taxes, net ........................................................... 11,917 17,118
Other noncurrent liabilities ......................................................... 5,868 7,271
--------- ---------
Total liabilities ............................................................. 324,597 319,241
Stockholders' equity (deficit):
Common stock-$.01 par value; 2,000,000 shares authorized;
1,320,330 issued and outstanding at September 30, 2002 and
1,200,300 issued and outstanding at December 31, 2001 ................................ 13 12
Paid-in-capital ...................................................................... 116,488 96,489
Accumulated deficit .................................................................. (109,133) (100,377)
Accumulated other comprehensive (loss) gain .......................................... (68) 17
--------- ---------
Total stockholders' equity (deficit) .......................................... 7,300 (3,859)
--------- ---------
Total liabilities and stockholders' equity (deficit).......................... $ 331,897 $ 315,382
========= =========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
1
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2002 2001
--------- ---------
REVENUES:
Periodicals:
Advertising ......................... $ 56,774 $ 64,768
Subscription ........................ 17,738 17,311
Ancillary products and services ........ 23,883 28,355
--------- ---------
Total revenues ...................... 98,395 110,434
--------- ---------
OPERATING EXPENSES:
Editorial .............................. 16,181 17,464
Production and distribution ............ 19,208 23,425
Selling ................................ 19,756 21,659
General and administrative ............. 25,801 29,652
Depreciation and amortization .......... 12,570 22,530
--------- ---------
Total operating expenses ............ 93,516 114,730
--------- ---------
Operating income (loss) ............. 4,879 (4,296)
Interest expense ....................... (19,615) (19,882)
Other income (loss) .................... 782 (5,514)
--------- ---------
Loss before income taxes ............ (13,954) (29,692)
Benefit for income taxes ............... 5,198 1,847
--------- ---------
Net loss ............................ $ (8,756) $ (27,845)
========= =========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
2
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
2002 2001
-------- --------
REVENUES:
Periodicals:
Advertising ........................... $ 18,634 $ 20,209
Subscription .......................... 6,194 5,754
Ancillary products and services .......... 6,782 7,640
-------- --------
Total revenues ........................ 31,610 33,603
-------- --------
OPERATING EXPENSES:
Editorial ................................ 5,253 5,693
Production and distribution .............. 6,191 6,790
Selling .................................. 6,343 6,826
General and administrative ............... 7,029 9,443
Depreciation and amortization ............ 4,121 7,536
-------- --------
Total operating expenses .............. 28,937 36,288
-------- --------
Operating income (loss) ............... 2,673 (2,685)
Interest expense ......................... (6,514) (6,660)
Other income (loss) ...................... 928 (843)
-------- --------
Loss before income taxes .............. (2,913) (10,188)
Benefit for income taxes ................. 2,265 805
-------- --------
Net loss .............................. $ (648) $ (9,383)
======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
3
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE
SHARES PAR VALUE CAPITAL DEFICIT LOSS TOTAL
--------- --------- --------- --------- --------- ---------
COMMON STOCK
-----------------------
Balance at December 31, 2001 ....... 1,200,300 $ 12 $ 96,489 $(100,377) $ 17 $ (3,859)
Net loss ........................... -- -- -- (8,756) -- (8,756)
Unrealized loss on equity securities
available for sale, net of tax ... -- -- -- -- (85) (85)
--------- --------- --------- --------- --------- ---------
Total comprehensive loss ....... -- -- -- -- -- (8,841)
Shares issued for acquisition ...... 120,030 1 19,999 -- -- 20,000
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2002 ...... 1,320,330 $ 13 $ 116,488 $(109,133) $ (68) $ 7,300
========= ========= ========= ========= ========= =========
The accompanying notes to the consolidated financial statements
are an integral part of this statement.
4
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (8,756) $(27,845)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ..................................... 12,570 22,530
Non-cash interest ................................................. 833 782
Loss on sale of assets ............................................ -- 872
Financing loss from termination of revolving line of credit ....... 155 --
Impairment of private equity securities ........................... -- 4,700
Accretion of interest on senior discount notes .................... 5,294 4,703
Decrease (increase) in:
Accounts receivable, net .......................................... 2,494 2,829
Inventories ....................................................... 137 (144)
Other current assets .............................................. (238) 290
Other assets ...................................................... (151) 306
(Decrease) increase in:
Accounts payable .................................................. (1,264) (4,102)
Accrued expenses .................................................. (4,783) (1,002)
Accrued interest payable .......................................... 4,350 4,332
Deferred income ................................................... (1,787) (2,711)
Deferred tax liability ............................................ (5,200) (2,312)
Other noncurrent liabilities ...................................... (1,410) 9
-------- --------
Total adjustments .............................................. 11,000 31,082
-------- --------
Net cash provided by operating activities ...................... 2,244 3,237
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................. (2,452) (2,476)
Proceeds received from sale of assets ............................. -- 300
Purchase of business .............................................. (529) (5,922)
-------- --------
Net cash used in investing activities .......................... (2,981) (8,098)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under revolving credit facility .......................... 1,200 4,000
Payment of deferred financing costs ............................... (1,408) (138)
-------- --------
Net cash (used in) provided by financing activities ............ (208) 3,862
-------- --------
Net decrease in cash ........................................... (945) (999)
-------- --------
CASH, beginning of period ......................................... 2,377 2,263
-------- --------
CASH, end of period ............................................... $ 1,432 $ 1,264
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes ................................................... $ 13 $ 863
======== ========
Interest ....................................................... $ 8,349 $ 10,082
======== ========
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
5
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
1. ORGANIZATION & OPERATIONS
American Lawyer Media Holdings, Inc. ("we," "us," "our," or the
"Company") is the parent company of American Lawyer Media, Inc. ("ALM"). We
publish national and regional legal publications, including The American Lawyer,
New York Law Journal, The National Law Journal and Corporate Counsel. Our
operations are based in New York with regional offices in eight states, the
District of Columbia and London, England.
On July 24, 2002, James A. Finkelstein resigned as a director of us and
of ALM.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the interim financial statements include all adjustments, which are
of a normal recurring nature, that management considers necessary to fairly
present the financial position and the results of operations for such periods.
Results of operations of interim periods are not necessarily indicative of
results for a full year. These financial statements should be read in
conjunction with the audited consolidated financial statements in our Annual
Report on Form 10-K for December 31, 2001.
Principles of Consolidation
The consolidated financial statements include the accounts of American
Lawyer Media Holdings, Inc. and our wholly-owned subsidiaries, which unless the
context otherwise requires, are collectively referred to herein as "we," "us,"
"our," or the "Company". Intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and to disclose contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Concentrations of Credit Risk
Our financial instruments that are exposed to concentration of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. We believe that we are not exposed to any significant credit risk
related to cash and cash equivalents. Concentrations of credit risk with respect
to trade accounts receivable are, except for amounts due from legal advertising
agents, generally limited due to the large number of customers comprising our
customer base. Legal advertising agents do not have significant liquid net worth
and, as a result, we are exposed to a certain level of credit concentration risk
in this area, for which we believe we have adequately provided.
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Periodical advertising revenues are generated from the placement of
display and classified advertisements, as well as legal notices, in our
publications. Advertising revenue is recognized upon release of the related
publications.
Internet advertising revenues are generated from the placement of
display and classified advertisements, as well as directory listings, on our
website. Display and classified advertising revenue is recognized upon the
release of an advertisement on the website. Directory listing revenue is
recognized on a pro-rata basis over the life of the directory listing, generally
one year.
Periodical and internet subscription revenues are recognized on a pro
rata basis as issues of a subscription are served.
Ancillary products and services revenues consist principally of
newsletter subscriptions, sales of professional books, seminar and trade show
income and income from a daily fax service of court decisions. In addition,
ancillary products and services revenues include third party printing revenue
until July 2001, at which point the assets from the Florida printing operations
were sold and such third party printing ceased. Book revenues are recognized
upon shipment and are reflected net of estimated returns. Newsletter revenues
are recognized on the same basis as periodical subscription revenues. Seminar
and trade show revenues are recognized when the seminar or trade show is held.
Daily fax service revenues are recognized upon fulfillment of orders.
Deferred Subscription Income
Deferred subscription income results from advance payments or orders
for subscriptions received from subscribers and is amortized on a straight-line
basis over the life of the subscription as issues are served. Subscription
receivables of approximately $1,901,000 and $1,997,000 are included in accounts
receivable in the accompanying consolidated September 30, 2002 and December 31,
2001 balance sheets, respectively.
Advertising and Promotional Expenditures
Advertising and promotional expenditures totaled approximately
$1,408,000 and $1,569,700 for the three months ended September 30, 2002 and
2001, respectively, and $4,715,000 and $5,302,400 for the nine months ended
September 30, 2002 and 2001, respectively. These costs are expensed as the
related advertisement or campaign is released.
Cash and Cash Equivalents
We consider time deposits and certificates of deposit with original
maturities of three months or less to be cash equivalents.
7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories consist principally of paper and related binding materials
utilized by us and our outside printers as well as professional books published
and sold by us. Inventories are determined by the average cost method and are
stated at the lower of cost or market.
Accounting for Long-Lived Assets
On January 1, 2002, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 144 replaces No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The statement is intended to develop one accounting model, based on the
framework established in SFAS No.121, for long-lived assets to be disposed of
and to address significant implementation issues. In accordance with this
statement, we periodically review 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. Under the guidelines of this statement,
we do not believe that any such impairment has occurred related to long-lived
assets.
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 and Intangible Assets
We adopted SFAS No. 142, "Goodwill and Other Intangible Assets",
effective January 1, 2002. SFAS No. 142 requires that an intangible asset that
is acquired shall be initially recognized and measured based on its fair value.
This statement also provides that goodwill and certain intangibles should not be
amortized, but shall be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a comparison of fair value
to its carrying amount. In the first quarter of 2002, we ceased amortization of
goodwill and we performed the first step of the impairment test. The first step
of the impairment test requires us to compare the fair value of each reporting
unit to its carrying value to determine whether there is an indication that an
impairment may exist. If there is an indication of impairment, we would allocate
the fair value of the reporting unit to its assets and liabilities as if the
reporting unit had been acquired in a business combination. The amount of
impairment for goodwill is measured as the excess of its carrying value over its
fair value. Based on the results of our impairment test, no
8
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impairment charge was required. The annual impairment test for 2002 will be
performed in the fourth quarter 2002.
The 2001 results on a historical basis do not reflect the provisions of
SFAS No. 142. Had we adopted SFAS No. 142 on January 1, 2001 and ceased to
amortize goodwill at such date, the historical net loss would have been changed
to the adjusted amounts indicated below (in thousands):
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
------------------ -------------------
As reported -- historical basis ............. $ (27,845) $ (9,383)
Add: Goodwill amortization................... 9,447 3,160
------------- ------------
Adjusted..................................... $ (18,398) $ (6,223)
============= ============
Intangible assets with determinate lives represent trademarks,
advertiser commitments, uniform resource locators, copyrights, 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 useful
lives ranging from 5-30 years.
Deferred Taxes
We provide for deferred taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes", which requires the recognition of deferred taxes utilizing the
liability method.
Other Income (Expense)
During the third quarter of 2002, we amended an existing advertising
agreement. This amendment limited our advertising obligation to advertisements
already placed in our publications prior to the amendment. Consideration of
equity interest received in the original agreement in exchange for future
advertising was written off as other loss in a prior year period. As a result,
with the elimination of any future obligation to this advertiser, we recorded in
other income $0.9 million, equal to the amount of the reduction in advertising
obligation.
Accounting for Derivative Instruments and Hedging Activities
During July 2002, our interest rate swap agreement to convert our fixed
rate interest on our $175.0 million Notes to a variable rate was terminated. At
June 30, 2002, the interest rate swap agreement outstanding with a notional
amount of $175.0 million had a fair market value of $188,400. With the mutual
release of this agreement, we received a settlement of $500,000. This
transaction resulted in a net gain during the third quarter of 2002 of $311,621
reported in earnings as a component of interest expense because the swap did
not qualify for hedge accounting.
3. DEBT
On December 22, 1997, ALM issued $175,000,000 aggregate principal amount of
9.75% Senior Notes (the "Notes") due December 15, 2007. The Notes are unsecured
general senior obligations of ALM and are fully and unconditionally guaranteed,
on a joint and several and senior unsecured
9
3. DEBT (CONTINUED)
basis, by each of ALM's existing and future subsidiaries. The subsidiary
guarantors comprise all of our direct and indirect subsidiaries. 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's determination that
separate financial statements and other disclosures concerning the subsidiary
guarantors are not material and would not provide any additional meaningful
disclosure. The Notes may be redeemed at any time by ALM, 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 ALM and its subsidiaries, the payment of dividends
and other restricted payments by ALM and its subsidiaries, asset sales,
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.
In December 1997, we issued $63,275,000 aggregate principal amount at
maturity of 12.25% Senior Discount Notes due 2008 (the "Discount Notes"), at a
discount rate of $553.14 per Discount Note. The Discount Notes accrete interest
compounded semi-annually at a rate of 12.25% to an aggregate principal amount of
$63,275,000 by December 31, 2002. Commencing in June 2003, cash interest will be
payable semi-annually until maturity each June 15 and December 15. The Discount
Notes are senior, unsecured obligations. The Discount Notes may be redeemed at
any time by us, in whole or in part, at various redemption prices that include
accrued and unpaid interest. The Discount Notes contain certain covenants that,
among other things, limit the incurrence of additional indebtedness, by us and
our subsidiaries, the payment of dividends and other restricted payments by us
and our subsidiaries, asset sales, transactions with affiliates, incurrence of
liens and mergers and consolidations and restrict distributions from certain
restricted subsidiaries. Finance costs, totaling $1,693,000, have been
capitalized and are being amortized over the term of the Discount Notes.
Assuming there is no redemption of the Discount Notes prior to maturity, the
entire principal will be payable on December 15, 2008.
On May 1, 2002, we, The New York Law Publishing Company ("NYLP") and
ALM entered into a credit agreement, dated as of May 1, 2002, with General
Electric Capital Corporation ("GECC") and the lenders signatory thereto in
accordance with which GECC has provided our operating subsidiary, NYLP, with a
$40 million revolving credit facility (the "GECC Facility"). The proceeds from
the GECC Facility were used to refinance existing indebtedness, provide working
capital and finance capital expenditures. The obligations of NYLP under the GECC
Facility are guaranteed by us, and ALM and all of our domestic subsidiaries and
are secured by all of the property assets of us, ALM and our domestic
subsidiaries (including the stock of all of our domestic subsidiaries and 65% of
the stock of our first-tier foreign subsidiaries). The GECC Facility bears
interest at a fluctuating rate determined by reference to (i) the index rate
plus a margin of 2.00%, or (ii) the Eurodollar Rate ("LIBOR") plus a margin of
3.5%. We are also required to pay customary fees with respect to the GECC
Facility, including an up-front arrangement fee, monthly administrative agency
fees and commitment fees on the unused portion of the GECC Facility. The GECC
Facility includes both affirmative and negative covenants that include meeting
certain financial ratios. The term of the GECC Facility is 60 months.
At September 30, 2002, the amount outstanding under the GECC Facility
was $28.2 million. The available balance under the unused commitment is reduced
by any letters of credit outstanding, which totaled $2,292,000 at September 30,
2002. A 10% increase in the average
10
3. DEBT (CONTINUED)
interest rate of borrowing under our previous revolving credit facility and GECC
Facility during the nine months ended September 30, 2002 would have increased
our net loss to approximately $8,865,000.
4. RESTRUCTURING CHARGE
During the second and fourth quarters of 2001, upon the decision to
restructure certain of our operations, we accrued approximately $1.7 million and
$0.3 million, respectively, of restructuring charges. In addition, a further
execution of this plan resulted in additional restructuring charges of $0.3
million and $0.8 million recorded during the second and third quarters of 2002,
respectively. These charges primarily relate to severance arrangements and have
been included in operating income. As of September 30, 2002, approximately $0.9
million, representing the unpaid charges, is included in accrued expenses.
The following is a summary of our restructuring charge activity (in
thousands):
Unpaid restructuring charge accrual at
December 31, 2001.......................................... $ 689
Less: Payments during the nine months ended
September 30, 2002......................................... (933)
Less: Additional restructuring charges incurred
during the nine months ended
September 30, 2002......................................... 1,127
-----------
Unpaid restructuring charge accrual at
September 30, 2002......................................... $ 883
===========
5. ACQUISITION OF LAW.COM
Effective May 1, 2002, we acquired Law.com, Inc., a Delaware
corporation, ("Law.com"), and a provider of web content and seminars for the
legal industry. Prior to our acquisition of Law.com, Law.com's RealLegal
applications services business was spun off to Law.com's shareholders as a new
entity, RealLegal, LLC. We acquired Law.com through the acquisition of all of
the 1,707,790 shares of outstanding common stock of Law.com from its
shareholders in exchange for an aggregate of 120,030 shares of our common stock,
par value $0.01 per share. Law.com and we share substantially all of the same
common stockholders, however, were not deemed to be entities under common
control. The amount of consideration was determined based on independent third
party valuations undertaken in March 2002 of our equity and of the Web content
and seminar business of Law.com. The acquired businesses include practice
centers for specialty law practice areas, state web sites and information sites
for in-house counsel, law students and legal technology professionals. The
acquisition was accounted for under the purchase method of accounting and the
results of operations have been included in the financial statements since
acquisition.
After completion of the acquisition of Law.com, we contributed all of
the outstanding shares of common stock of Law.com to ALM as a capital
contribution. Law.com will operate as a subsidiary of ALM.
11
5. ACQUISITION OF LAW.COM (CONTINUED)
The following is a summary of the calculation of the purchase price, as
well as the allocation of the purchase price to the value of the net assets
acquired (in thousands):
Purchase consideration (issuance of 120,030 shares
of our common stock)............................................ $ 20,000
Direct acquisition costs........................................ 2,208
-----------
Total estimated purchase price.................................. 22,208
Less: fair value of net tangible assets of Law.com
Content, net of related party accounts.......................... 556
-----------
Total excess of purchase price over net
assets acquired................................................. $ 21,652
===========
The purchase price has been allocated based on management's preliminary
best estimate of the fair value of assets acquired and liabilities assumed. The
final determination may result in asset and liability amounts that are different
than the preliminary estimates of these amounts. The excess purchase price over
the fair value net tangible assets acquired has been allocated to goodwill.
The pro forma unaudited consolidated results of operations for the nine
months ended September 30, 2002 and 2001, assuming consummation of the
acquisition as of the beginning of the respective periods, are as follows:
Nine Months Ended
September 30, September 30,
2002 2001
--------------- ---------
Revenue $100,150 $ 111,565
======== ==========
Net Loss $(11,692) $(38,489)
========= =========
During the quarter ended June 30, 2002, we recorded an investment in
RealLegal, LLC of $4.7 million for 4,745,000 units of Series A Preferred Stock.
This investment was in exchange for the extinguishment of an existing accounts
receivable due from RealLegal, LLC and for future advertising commitments by
RealLegal, LLC to us. This investment is carried at cost and included in Other
Assets in the accompanying Consolidated Balance Sheet. RealLegal, LLC and we
share substantially the same stockholders, however, were not deemed to be
entities under common control.
Effective May 1, 2002, RealLegal, LLC entered into an Operating
Agreement with ALM (the "Operating Agreement"). The Operating Agreement
provides, among other things, for ALM to provide RealLegal, LLC with certain
content to be used in conjunction with their MA3000 product and certain
advertising, in exchange for a periodic payment comprised of cash and equity in
RealLegal, LLC.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our
historical consolidated financial statements, including the notes thereto,
included elsewhere in this Form 10-Q.
ANY STATEMENTS IN THIS QUARTERLY REPORT CONCERNING OUR BUSINESS OUTLOOK
OR FUTURE ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, REVENUES, EXPENSES OR
OTHER FINANCIAL ITEMS, TOGETHER WITH OTHER STATEMENTS THAT ARE NOT HISTORICAL
FACTS, ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE
FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS, UNCERTAINTIES AND
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES IN THE LEVELS OF ADVERTISING
REVENUES, CHANGES AND DELAYS IN NEW PRODUCT INTRODUCTIONS, CUSTOMER ACCEPTANCE
OF NEW PRODUCTS AND GENERAL ECONOMIC CONDITIONS, AS WELL AS OTHER RISKS DETAILED
IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
The following discussion compares our financial results for the three
and nine months ended September 30, 2002 to the three and nine months ended
September 30, 2001.
On January 31, 2001, we consummated the acquisitions of substantially
all of the assets of and certain of the liabilities of Haslam Publications
("Haslam"), the leading publisher of jury verdict and settlement research data
in California.
During the second and fourth quarters of 2001, upon the decision to
restructure certain of our operations, we accrued approximately $1.7 million and
$0.3 million, respectively, of restructuring charges. In addition, a further
execution of this plan resulted in additional restructuring charges of $0.3
million and $0.8 million recorded during the second and third quarters of 2002,
respectively. These charges primarily relate to severance arrangements and have
been included in operating income. As of September 30, 2002, approximately $0.9
million, representing the unpaid charges, is included in accrued expenses.
In addition, during the second quarter of 2001, we recorded a permanent
impairment of $4.7 million on our private equity investments.
In July 2001, we sold certain of our assets associated with our Florida
printing facility. In connection with the sale of the net assets, we recorded a
loss of $0.9 million.
Effective May 1, 2002, we acquired Law.com, Inc., a Delaware
corporation, ("Law.com"), and a provider of web content and seminars for the
legal industry. Prior to our acquisition of Law.com, Law.com's RealLegal
applications services business was spun off to Law.com shareholders as a new
entity, RealLegal, LLC. We acquired Law.com through the acquisition of all of
the 1,707,790 shares of outstanding common stock of Law.com from its
shareholders in exchange for an aggregate of 120,030 shares of our common stock,
par value $0.01 per share. The acquired businesses include practice centers for
specialty law practice areas, state Web sites and information sites for in-house
counsel, law students and legal technology professionals.
13
After completion of our acquisition of Law.com, we contributed all of
the outstanding shares of common stock of Law.com to ALM as a capital
contribution. Law.com operates as ALM's subsidiary.
During the third quarter of 2002, we amended an existing advertising
agreement. This amendment limited our advertising obligation to advertisements
already placed in our publications prior to the amendment. Consideration of
equity interest received in the original agreement in exchange for future
advertising was written off as other loss in a prior year period. As a result,
with the elimination of any future obligation to this advertiser, we recorded in
other income $0.9 million, equal to the amount of the reduction in advertising
obligation.
During July 2002, our interest rate swap agreement which converted our
fixed rate interest on our $175.0 million Notes to a variable rate interest was
terminated. At June 30, 2002, the interest rate swap agreement outstanding with
a notional amount of $175.0 million had a fair market value of $188,400. With
the mutual release of this agreement, we received a settlement of $500,000. This
transaction resulted in a net gain during the third quarter of 2002 of $311,621
reported in earnings as a component of interest expense.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Overview. Revenues decreased by $12.0 million, or 10.9%, from $110.4
million for the nine months ended September 30, 2001 to $98.4 million for the
nine months ended September 30, 2002. Total operating expenses decreased $21.2
million, or 18.5%, from $114.7 million for the nine months ended September 30,
2001 to $93.5 million for the nine months ended September 30, 2002. As a result,
the net operating profit totaled $4.9 million for the nine months ended
September 30, 2002 as compared to a net operating loss of $4.3 million for the
nine months ended September 30, 2001. Earnings before interest, income taxes,
depreciation and amortization and other extraordinary gains and losses
("EBITDA") declined $0.8 million, or 4.3%, from $18.2 million for the nine
months ended September 30, 2001 to $17.4 million for the nine months ended
September 30, 2002.
Revenues. Revenues decreased by $12.0 million, or 10.9%, from $110.4
million for the nine months ended September 30, 2001 to $98.4 million for the
nine months ended September 30, 2002. Revenue declines for the nine months ended
September 30, 2002 compared to the nine months ended September 30, 2001 reflect
the impact of the continued economic slowdown within the advertising industry
which resulted in reduced advertising revenues, book and newsletter revenues,
and declines in sponsorship and attendance revenue from seminars and tradeshows.
In addition, due to the sale of our Florida printing operations during the third
quarter of 2001, no commercial printing revenue was recorded in 2002 as compared
to $1.4 million for the nine months ended September 30, 2001. In addition, due
to our acquisition of Law.com, our licensing agreement with them was terminated,
resulting in the elimination of editorial content fees of $1.2. These decreases
were partially offset by revenues recorded in our Law.com subsidiary acquired
during the second quarter of 2002.
Advertising revenues decreased $8.0 million, or 12.3%, from $64.8
million for the nine months ended September 30, 2001 to $56.8 million for the
nine months ended September 30, 2002. The decline in advertising revenues
resulted from a decrease in display, classified, legal notice and law firm
advertising resulting from the continuation of the depressed advertising
14
environment experienced throughout 2001 and the first three quarters of 2002.
Display and classified advertising were the largest contributors to these
declines with decreases of $3.7 million, or 19.1%, and $3.5 million, or 19.2%
respectively. In both periods, display advertising revenue includes revenue
related to certain barter transactions in which we exchanged advertising
services for an equity interest in certain companies. Revenues associated with
these transactions decreased from $3.8 million for the nine months ended
September 30, 2001 to $1.9 million for the nine months ended September 30, 2002.
In addition, declines in display and classified advertising occurred across
virtually all of our publications. The reduction in classified advertising is
directly attributable to the reduction in attorney help wanted advertising due
to fewer jobs being available as a result of the poor economic climate.
Decreases in legal notice advertising of $1.1 million and law firm advertising
of $0.3 million also contributed to the lower advertising revenue in 2002.
Partially offsetting these declines were growth in directories revenue of $0.7
million, resulting primarily from growth in our expert witness division, and our
ability to leverage off of our existing resources.
Subscription revenues increased $0.4 million, or 2.5%, from $17.3
million for the nine months ended September 30, 2001 to $17.7 million for the
nine months ended September 30, 2002. The increase primarily reflects increased
subscription revenues resulting from our increased marketing efforts as well as
from the acquisition of Law.com of $0.4 million.
Revenues from ancillary products and services decreased $4.5 million,
or 16.0%, from $28.4 million for the nine months ended September 30, 2001 to
$23.9 million for the nine months ended September 30, 2002. The decline in
revenues from ancillary products and services resulted primarily from a decline
in trade show and seminar revenues of $1.3 million, or 21.9%, due to lower
attendance in 2002 shows and seminars, fewer show sponsorships and the reduction
in the number of international trade shows in 2002, lower printing revenues
resulting from the sale of our Florida printing operations in the third quarter
of 2001 of $1.4 million, a decline of $1.2 million from lower royalty fees and
the elimination of editorial content fees from the acquisition of Law.com, along
with fewer book and newsletter sales.
Operating expenses. Total operating expenses decreased $21.2 million,
or 18.5%, from $114.7 million for the nine months ended September 30, 2001 to
$93.5 million for the nine months ended September 30, 2002. Substantially all of
our expense categories experienced year-over-year reductions, except circulation
marketing, as we continued our aggressive cost containment efforts. Lower
operating expenses during the nine months ended September 30, 2002 as compared
to the nine months ended September 30, 2001 were primarily realized by the
discontinuation of goodwill amortization, lower production and distribution,
selling, editorial and general and administrative expenses resulting from
decreased revenues, lower year-over-year restructuring costs, cumulative cost
savings resulting from restructurings in 2001 and savings from continued cost
containment efforts.
Editorial expenses decreased $1.3 million, or 7.3%, from $17.5 million
for the nine months ended September 30, 2001 to $16.2 million for the nine
months ended September 30, 2002. The decrease in editorial expenses primarily
resulted from our restructuring efforts in 2001 and 2002 along with lower costs
directly related to reduced syndication revenues and from cost containment
efforts implemented during late 2001 and into 2002. These decreases were
partially offset by editorial expenses at Law.com of $0.4 million with no like
costs incurred in 2001 along with higher editorial expenses in our litigation
service business.
Production and distribution expenses decreased $4.2 million, or 18.0%,
from $23.4 million for the nine months ended September 30, 2001 to $19.2 million
for the nine months ended
15
September 30, 2002. Lower production and distribution expenses of $1.2 million
resulted primarily from the elimination of commercial printing expenses due to
the sale of our Florida printing operations during the third quarter of 2001.
Other reductions included lower printing expenses due to a reduction in pricing
through favorable contract negotiations, reductions in print volume and a
reduction of expenses directly related to the decline in revenues and also due
to cost containment efforts during 2002. In addition, trade show and seminar
production costs decreased, which directly resulted from a reduction in related
revenue. These decreases were partially offset by $0.5 million of production and
distribution expenses at Law.com.
Selling expenses decreased $1.9 million, or 8.8%, from $21.7 million
for the nine months ended September 30, 2001 to $19.8 million for the nine
months ended September 30, 2002. The decrease was primarily attributable to
lower selling expenses directly related to the decline in display and classified
revenues for the nine months ended September 30, 2002 and our cost containment
efforts. These declines primarily consisted of salary and related benefit costs,
the discontinuance of costs to place e-commerce classified advertising and other
general marketing cost reductions. These declines were partially offset by
increases in selling efforts in our international operations, an increase in
direct mail efforts and of Law.com selling expenses of $1.2 million for which
there were no like costs in 2001.
General and administrative expenses decreased $3.8 million, or 13.0%,
from $29.6 million for the nine months ended September 30, 2001 to $25.8 million
for the nine months ended September 30, 2002. This decrease resulted primarily
in declines in year over year restructuring charges, salary and related tax
expense due to fewer employees along with reductions in incentive compensation
and other employee benefits. In addition, lower legal fees were incurred from
decreased union negotiation and general litigation fees, coupled with prior year
legal fee reimbursements. These decreases were partially offset by increased
provisions for uncollectible receivables and management consulting costs
incurred in 2002. Also during 2002, general and administrative costs for Law.com
totaled $1.1 million with no like costs incurred in 2001.
Depreciation and amortization expenses decreased $9.9 million, or
44.2%, from $22.5 million for the nine months ended September 30, 2001 to $12.6
million for the nine months ended September 30, 2002. This decline primarily
resulted from the elimination of amortization of goodwill in 2002 resulting from
the implementation of SFAS No. 142, "Goodwill and Other Intangible Assets." This
was partially offset by an increase in depreciation related to capital
improvements and also due to the acquisition of Law.com in the second quarter of
2002.
Operating profit. As a result of the above factors, the operating
profit totaled $4.9 million for the nine months ended September 30, 2002 as
compared to an operating loss of $4.3 million for the nine months ended
September 30, 2001. In addition, EBITDA decreased $0.8 million, or 4.3%, from
$18.2 million for the nine months ended September 30, 2001 to $17.5 million for
the nine months ended September 30, 2002.
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Overview. Revenues decreased by $2.0 million, or 5.9%, from $33.6
million for the three months ended September 30, 2001 to $31.6 million for the
three months ended September 30, 2002. Total operating expenses decreased $7.4
million, or 20.3%, from $36.3 million for the three months ended September 30,
2001 to $28.9 million for the three months ended September 30, 2002. As a
result, net operating profit totaled $2.7 million for the three months ended
September 30, 2002 as compared to a net operating loss of $2.7 million for the
three months ended September 30, 2001. EBITDA increased $1.9 million, or 40.1%,
from $4.9 million for the
16
three months ended September 30, 2001 to $6.8 million for the three months ended
September 30, 2002.
Revenues. Revenues decreased by $2.0 million, or 5.9%, from $33.6
million for the three months ended September 30, 2001 to $31.6 million for the
three months ended September 30, 2002. Revenue declines for the three months
ended September 30, 2002 compared to the three months ended September 30, 2001
reflect the impact of the continued economic slowdown within the advertising
industry, which resulted in reduced advertising revenues, book and newsletter
revenues, and the elimination of editorial content fees of $0.5 million from the
acquisition of Law.com. These decreases were partially offset by revenues
recorded in our Law.com subsidiary acquired during the second quarter of 2002,
higher subscription and information services revenues attributable primarily to
research revenue from our jury verdict and settlement business.
Advertising revenues decreased $1.6 million, or 7.8%, from $20.2
million for the three months ended September 30, 2001 to $18.6 million for the
three months ended September 30, 2002. The decline in advertising revenues
resulted from a decrease in display, classified, and legal notice advertising
resulting from the continuation of the depressed advertising environment
experienced throughout 2001 and the first three quarters of 2002. Display
advertising was the largest contributor to this decline with a decrease of $1.5
million, or 24.3%, for the three months ended September 30, 2002 as compared to
the same period of 2001. In both periods, display advertising revenue includes
revenue related to certain barter transactions in which we exchanged advertising
services for an equity interest in certain companies. Revenues associated with
these transactions decreased $1.3 million, to $0.4 million, for the three months
ended September 30, 2002 as compared to the same period for the prior year. In
addition, lower display advertising occurred across virtually all of our
publications. Declines were also experienced in classified and legal advertising
partially offset by an increase in law firm advertising revenue.
Subscription revenues increased $0.4 million, or 7.7%, from $5.8
million for the three months ended September 30, 2001 to $6.2 million for the
three months ended September 30, 2002. The increase primarily reflects increased
subscription revenues resulting from our increased marketing efforts as well as
from the acquisition of Law.com of $0.3 million.
Revenues from ancillary products and services decreased $0.8 million,
or 11.2%, from $7.6 million for the three months ended September 30, 2001 to
$6.8 million for the three months ended September 30, 2002. The decline in
revenues from ancillary products and services resulted primarily from a decline
of $0.5 million from lower royalty fees and the elimination of editorial content
fees as a result of the acquisition of Law.com, along with lower book and
newsletter sales. These declines were partially offset by higher information
services revenue attributable primarily to research revenue from our jury
verdict and settlement business.
Operating expenses. Total operating expenses decreased $7.4 million, or
20.3%, from $36.3 million for the three months ended September 30, 2001 to $28.9
million for the three months ended September 30, 2002. Substantially all of our
expense categories experienced year-over-year reductions, except circulation
marketing, as we continued our aggressive cost containment efforts. Lower
operating expenses during the three months ended September 30, 2002 as compared
to the three months ended September 30, 2001 were primarily realized by the
discontinuation of goodwill amortization, lower general and administrative,
production and distribution, selling and editorial expenses resulting from
decreased revenues, lower year-over-year restructuring costs coupled with
cumulative cost savings resulting from the restructurings in 2001 and savings
from continued cost containment efforts.
17
Editorial expenses decreased $0.4 million, or 7.7%, from $5.7 million
for the three months ended September 30, 2001 to $5.3 million for the three
months ended September 30, 2002. The decrease in editorial expenses primarily
resulted from our restructuring efforts in 2001 and 2002 and from cost
containment efforts implemented during late 2001 and into 2002. These decreases
were partially offset by Law.com editorial expenses of $0.2 million with no like
costs incurred in the same period of 2001.
Production and distribution expenses decreased $0.6 million, or 8.8%,
from $6.8 million for the three months ended September 30, 2001 to $6.2 million
for the three months ended September 30, 2002. Lower production and distribution
expenses of $0.6 million resulted primarily from lower printing expenses due to
a reduction in pricing through favorable contract negotiations, reductions in
print volume and a reduction of expenses directly related to the decline in
revenues, the restructurings in 2001 and other cost containment efforts during
2002. These decreases were partially offset by $0.4 million of production and
distribution expenses at Law.com.
Selling expenses decreased $0.5 million, or 7.1%, from $6.8 million for
the three months ended September 30, 2001 to $6.3 million for the three months
ended September 30, 2002. The decrease was primarily attributable to lower
selling expenses directly related to the decline in revenues for the three
months ended September 30, 2002 as compared to the same period of 2001,
restructurings in 2001 and our cost containment efforts during 2002. These
declines primarily consisted of salary and related benefit reductions, the
discontinuance of costs of $0.3 million to place e-commerce classified
advertising and other marketing cost reductions. These declines were partially
offset by an increase in direct mail efforts and selling expenses of $0.7
million in Law.com for which there were no like expenses in 2001.
General and administrative expenses decreased $2.4 million, or 25.6%,
from $9.4 million for the three months ended September 30, 2001 to $7.0 million
for the three months ended September 30, 2002. This decrease resulted primarily
from declines in salary and related tax expense due to fewer employees along
with reductions in incentive compensation and other employee benefits. In
addition, lower legal fees were incurred from decreased union negotiation and
general litigation fees, coupled with prior year legal fee reimbursements and
reduced bad debt expense. Also, during the third quarter of 2002, we reversed
accruals recorded in prior quarters totaling $1.0 million, for pension, legal
and professional fees that were deemed no longer necessary. These decreases were
partially offset by restructuring charges of $0.8 million and general and
administrative costs for Law.com, which totaled $0.5 million for the three
months ended September 30, 2002, with no like costs incurred in the same period
of the prior year.
Depreciation and amortization expenses decreased $3.4 million, or
45.3%, from $7.5 million for the three months ended September 30, 2001 to $4.1
million for the three months ended September 30, 2002. This decline primarily
resulted from the elimination of amortization of goodwill in 2002 resulting from
the implementation of SFAS No. 142, "Goodwill and Other Intangible Assets." This
was partially offset by an increase in depreciation related to capital
improvements and also due to the acquisition of Law.com in the second quarter of
2002.
Operating profit. As a result of the above factors, the operating
profit totaled $2.7 million for the three months ended September 30, 2002 as
compared to an operating loss of $2.7 million for the three months ended
September 30, 2001. In addition, EBITDA increased $1.9 million, or 40.1%, from
$4.9 million for the three months ended September 30, 2001 to $6.8 million for
the three months ended September 30, 2002.
18
Liquidity and Capital Resources
Capital expenditures. Capital expenditures totaled $2.5 million for the
nine months ended September 20, 2002 compared to capital expenditures of $2.5
million for the nine months ended September 30, 2001. Capital expenditures for
the nine months ended September 30, 2002 included costs of $1.6 million
attributed to database and website development along with computer software
upgrade and implementation costs and hardware replacement. In addition, $0.9
million of capital expenditures were incurred primarily for the renovation of a
regional office. Capital expenditures for 2001 primarily resulted from database
development, enhancements to existing computer systems and facilities and
equipment modernization.
Net cash provided by operating activities. Net cash provided by
operating activities totaled $2.2 million for the nine months ended September
30, 2002, which primarily reflects depreciation and amortization of $12.6
million, accretion of Senior Discount Notes of $5.3 million, an increase in
accrued interest payable of $4.4 million, a decrease in accounts receivable of
$2.5 million, and an increase in non-cash interest of $0.8 million. This was
partially offset by a net loss of $8.8 million, a decrease in accounts payable
and accrued expenses of $6.0 million, a decrease in deferred tax liability of
$5.2 million, a decrease in deferred income of $1.8 million and a decrease in
other non-current liabilities of $1.4 million.
Net cash used in investing activities. Net cash used in investing
activities was $3.0 million for the nine months ended September 30, 2002,
resulting from capital expenditures of $2.5 million and deferred payments from
2002 and 2001 acquisitions.
Net cash used in financing activities. Net cash used in financing
activities totaled $0.2 million for the nine months ended September 30, 2002,
which reflects a total advance of $1.2 million on our GECC Facility and deferred
financing cost payments of $1.4 million.
Liquidity. Our principal sources of funds are anticipated to be cash
flows from operating activities, which may be supplemented by borrowings under
our GECC Facility. The GECC Facility had $28.2 million outstanding as of
September 30, 2002 and accrues interest as described in Note 3 to the
Consolidated Financial Statements. For details relating to the terms of our GECC
Facility entered into on May 1, 2002, see Note 3 to the Consolidated Financial
Statements. We believe that these funds will be sufficient to meet our current
financial obligations, which include the payment of interest on the $175,000,000
of 9.75% senior notes, interest on our 12.25% Senior Discount Notes with an
aggregate principal of $63,250,000 at December 31, 2002, interest under our GECC
Facility, working capital, capital expenditures and other obligations for the
next 12 months. No assurance can be given, however, that this will be the case.
Our future operating performance and ability to service or refinance our debt,
meet future debt covenants, and to repay, extend or refinance any credit
agreements to which we are a party will be subject to future economic conditions
and to financial, business and other factors, many of which are beyond our
control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See footnote 3 to the Consolidated Financial Statements.
19
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures (as such term
is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in alerting them on a
timely basis to material information relating to the Company required to be
included in the Company's reports filed or submitted under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have
not been any significant changes in the Company's internal controls or in other
factors that could significantly affect such controls.
20
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various litigation matters incidental to the conduct
of our business. We do not believe that the outcome of any of the matters in
which we are currently involved will have a material adverse effect on our
financial condition or on the results of our operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.12 First Amendment to Credit Agreement, dated as of
November 13, 2002 and effective as of June 30, 2002,
among The New York Law Publishing Company, American
Lawyer Media Holdings, Inc. and American Lawyer Media,
Inc., as Credit Parties, and General Electric Capital
Corporation, for itself as Lender and as Agent for
Lenders.
(b) Reports on Form 8-K
None.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN LAWYER MEDIA HOLDINGS, INC.
November 13, 2002 /s/ WILLIAM L. POLLAK
-------------------------------------
William L. Pollak
President and Chief Executive Officer
November 13, 2002 /s/ STEPHEN C. JACOBS
-------------------------------------
Stephen C. Jacobs
Vice President and
Chief Financial Officer
CERTIFICATION
I, William L. Pollak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Lawyer Media
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ WILLIAM L. POLLAK
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William L. Pollak
President and Chief Executive Officer
I, Stephen C. Jacobs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Lawyer Media
Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ STEPHEN C. JACOBS
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Stephen C. Jacobs
Vice President and Chief Financial Officer