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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: 333-50117
AMERICAN LAWYER MEDIA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3980414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
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 100 shares of the registrant's common stock,
$.01 par value, outstanding.
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 9-3/4 % Senior Notes.
AMERICAN LAWYER MEDIA, INC.
INDEX
PAGE
PART I
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 Stockholder's 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, 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
Due from parent............................................................... 2,589 676
Other current assets.......................................................... 3,003 2,555
-------- --------
Total current assets.................................................... 26,633 27,114
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 $3,584 and
$3,391, respectively....................................................... 5,060 4,525
Other assets.................................................................. 5,340 1,664
-------- --------
Total assets........................................................... $ 333,414 $ 314,850
======== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.............................................................. $ 5,844 $ 5,941
Accrued expenses.............................................................. 9,181 10,627
Accrued interest payable...................................................... 5,304 954
Deferred income (including deferred subscription income of $17,355 and
$15,065, respectively)..................................................... 21,531 18,515
Other current liabilities..................................................... -- 350
-------- --------
Total current liabilities.............................................. 41,860 36,387
Long-term debt:
Revolving credit facility..................................................... 28,200 27,000
Senior notes.................................................................. 175,000 175,000
-------- --------
Total long-term debt............................................... 203,200 202,000
Deferred income taxes......................................................... 22,503 25,366
Other noncurrent liabilities.................................................. 5,868 7,271
-------- --------
Total liabilities...................................................... 273,431 271,024
Stockholder's equity:
Common stock-$.01 par value; 1,000 shares authorized; 100 issued and
outstanding at September 30, 2002 and December 31, 2001.................... -- --
Paid-in-capital............................................................... 152,462 130,253
Accumulated deficit........................................................... (92,411) (86,444)
Accumulated other comprehensive (loss) gain................................... (68) 17
-------- --------
Total stockholder's equity............................................. 59,983 43,826
-------- --------
Total liabilities and stockholder's equity............................. $ 333,414 $ 314,850
======== =========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
1
AMERICAN LAWYER MEDIA, 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 17,312
Ancillary products and services .. 23,883 28,355
-------- ---------
Total revenues ................ 98,395 110,435
-------- ---------
OPERATING EXPENSES:
Editorial ........................ 16,182 17,464
Production and distribution ...... 19,208 23,425
Selling .......................... 19,756 21,659
General and administrative ....... 25,770 29,598
Depreciation and amortization .... 12,570 22,530
-------- ---------
Total operating expenses ...... 93,486 114,676
-------- ---------
Operating income (loss) ....... 4,909 (4,241)
Interest expense ................. (14,206) (15,064)
Other income (loss) .............. 782 (5,515)
-------- ---------
Loss before income taxes ...... (8,515) (24,820)
Benefit for income taxes ......... 2,548 1,850
-------- ---------
Net loss ...................... $ (5,967) $ (22,970)
======== =========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
2
AMERICAN LAWYER MEDIA, 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 ........ 7,028 9,440
Depreciation and amortization ..... 4,121 7,536
-------- --------
Total operating expenses ....... 28,936 36,285
-------- --------
Operating income (loss) ........ 2,674 (2,682)
Interest expense .................. (4,641) (4,994)
Other income (loss) ............... 928 (843)
-------- --------
Loss before income taxes ....... (1,039) (8,519)
Benefit for income taxes .......... 1,095 805
-------- --------
Net income (loss) .............. $ 56 $ (7,714)
======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
3
AMERICAN LAWYER MEDIA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PAR PAID-IN ACCUMULATED COMPREHENSIVE
SHARES VALUE CAPITAL DEFICIT LOSS TOTAL
------ ----- ---------- ----------- ------------- --------
COMMON STOCK
-------------------
Balance at December 31, 2001 ............ 100 $ -- $130,253 $ (86,444) $ 17 $ 43,826
Net loss ................................ -- -- -- (5,967) -- (5,967)
Unrealized loss on equity securities
available for sale, net of taxes ...... -- -- -- -- (85) (85)
----- ----- -------- ----------- -------- --------
Total comprehensive loss ............ -- -- -- -- -- (6,052)
Capital contribution .................... -- -- 22,209 -- -- 22,209
----- ----- -------- ----------- -------- --------
Balance at September 30, 2002 ........... 100 $ -- $152,462 $ (92,411) $ (68) $ 59,983
===== ===== ======== =========== ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of this statement.
4
AMERICAN LAWYER MEDIA, 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.................................................................. $ (5,967) $(22,970)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................. 12,570 22,530
Non-cash interest......................................................... 717 666
Loss on sale of assets.................................................... -- 872
Financing loss from termination of revolving line of credit............... 155 --
Impairment of private equity securities................................... -- 4,700
Decrease (increase) in:
Accounts receivable, net.................................................. 2,494 2,829
Inventories............................................................... 137 (144)
Other current assets...................................................... (238) 290
Other assets.............................................................. 124 385
(Decrease) increase in:
Accounts payable.......................................................... (1,264) (4,238)
Accrued expenses.......................................................... (4,774) (1,002)
Accrued interest payable.................................................. 4,350 4,332
Deferred income........................................................... (1,787) (2,711)
Deferred tax liability.................................................... (2,863) (2,312)
Other noncurrent liabilities.............................................. (1,410) 10
-------- -------
Total adjustments...................................................... 8,211 26,207
-------- -------
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:
Advance 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 $ 657
======== =======
Interest................................................................... $ 8,349 $10,082
======== =======
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
5
AMERICAN LAWYER MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
1. ORGANIZATION & OPERATIONS
American Lawyer Media, Inc. ("we," "us," "our" or the "Company") is a
wholly-owned subsidiary of American Lawyer Media Holdings, Inc. ("Holdings"). 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 Holdings.
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, 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,
6
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
we are exposed to a certain level of credit concentration risk in this area, for
which we believe we have adequately provided.
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 stated at the lower of cost, as determined by
the weighted average cost method, 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... $(22,970) $(7,714)
Add: Goodwill amortization........ 9,447 3,160
-------- -------
Adjusted.......................... $(13,523) $(4,554)
======== =======
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, we issued $175,000,000 aggregate principal amount
of 9.75% Senior Notes (the "Notes") due December 15, 2007. The Notes are
unsecured general senior
9
3. DEBT (CONTINUED)
obligations and are fully and unconditionally guaranteed, on a joint and several
and senior unsecured basis, by us, and each of our 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. There are currently no contractual
or regulatory restrictions limiting the ability of the subsidiary guarantors to
make distributions to us. The 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 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, 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.
On May 1, 2002, we, The New York Law Publishing Company ("NYLP") and
Holdings 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, Holdings and all of our domestic subsidiaries and
are secured by all of the personal property assets of us, Holdings and our
domestic subsidiaries (including the stock of all 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 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
$6,076,000.
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.
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.
10
4. RESTRUCTURING CHARGE (CONTINUED)
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)
Plus: 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, Holdings 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. Holdings 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 Holdings' common
stock, par value $0.01 per share. Law.com and Holdings 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 Holdings' 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 our acquisition of Law.com, Holdings contributed
all of the outstanding shares of common stock of Law.com to us as a capital
contribution. Law.com will operate as our subsidiary.
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):
11
5. ACQUISITION OF LAW.COM (CONTINUED)
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 ................... $ (8,903) $ (33,614)
=========== ===========
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
Holdings 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 us (the "Operating Agreement"). The Operating Agreement provides, among
other things, for us 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 acquisition 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 an additional $0.3 million and $0.8 million
of restructuring charges 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, Holdings 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. Holdings 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 Holdings' 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 Holdings' acquisition of Law.com, Holdings contributed
all of the outstanding shares of common stock of Law.com to us as a capital
contribution. Law.com operates as our 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 $4.2 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 4.4%, from $18.3 million for the nine
months ended September 30, 2001 to $17.5 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 12.9%, 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 $4.2 million for the nine months ended September 30, 2001.
In addition, EBITDA decreased $0.8 million, or 4.4%, from $18.3 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 40.0%,
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 40.0%, 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, 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 $0.7
million. This was partially offset by a net loss of $6.0 million, a decrease in
accounts payable and accrued expenses of $6.0 million, a decrease in deferred
income of $1.8 million, a decrease in deferred tax liability of $2.9 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 Holding's 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, 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,
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
- -------------------------------------
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,
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