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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 March 31, 2003.
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 May 14, 2003, 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 March 31, 2003 (unaudited)
and December 31, 2002.................................................................1
Consolidated Statements of Operations for the Three
Months Ended March 31, 2003 and 2002 (unaudited)......................................2
Consolidated Statement of Changes in Stockholders' Deficit for
the Three Months Ended March 31, 2003 (unaudited).....................................3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 (unaudited).............................................4
Notes to Consolidated Financial Statements at
March 31, 2003 (unaudited)............................................................5-12
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)
MARCH 31, DECEMBER 31,
2003 2002
--------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................................................$ 434 $ 824
Accounts receivable, net of allowance for doubtful accounts and returns of
$3,016 and $2,589, respectively.................................................... 14,590 15,801
Deferred tax assets, net.............................................................. 5,148 5,148
Inventories, net...................................................................... 389 621
Other current assets.................................................................. 2,073 2,537
--------- --------
Total current assets............................................................ 22,634 24,931
Property, plant and equipment, net of accumulated depreciation
and amortization of $22,061 and $20,662, respectively.............................. 10,566 11,417
Intangible assets, net of accumulated amortization of $60,075
and $57,952, respectively.......................................................... 117,817 119,939
Goodwill, net ........................................................................ 145,540 145,540
Deferred financing costs, net of accumulated amortization of $4,917 and
$4,623, respectively............................................................... 5,507 5,801
Other assets.......................................................................... 5,424 5,415
--------- ----------
Total assets..................................................................$ 307,488 $ 313,043
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.....................................................................$ 4,612 $ 3,899
Accrued expenses...................................................................... 13,823 14,894
Accrued interest payable.............................................................. 5,185 1,246
Deferred income (including deferred subscription income of $17,244
and $17,134, respectively)......................................................... 21,541 22,170
Other current liabilities............................................................. -- 378
--------- ----------
Total current liabilities...................................................... 45,161 42,587
--------- ----------
Long-term debt:
Revolving credit facility............................................................. 26,300 32,300
Senior notes.......................................................................... 175,000 175,000
Senior discount notes................................................................. 65,536 63,275
--------- ----------
Total long-term debt........................................................... 266,836 270,575
Deferred income taxes, net............................................................ 3,174 3,999
Other noncurrent liabilities.......................................................... 7,052 7,049
--------- ----------
Total liabilities.............................................................. 322,223 324,210
--------- ----------
Stockholders' deficit:
Common stock-$.01 par value; 2,000,000 shares authorized;
1,320,330 issued and outstanding at March 31, 2003 and
December 31, 2002..................................................................... 13 13
Paid-in-capital....................................................................... 116,488 116,488
Accumulated deficit................................................................... (129,694) (126,146)
Accumulated other comprehensive loss.................................................. (1,542) (1,522)
---------- -----------
Total stockholders' deficit.................................................... (14,735) (11,167)
---------- -----------
Total liabilities and stockholders' deficit...................................$ 307,488 $ 313,043
========= =========
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 THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
----------- ----------
REVENUES:
Periodicals:
Advertising...................................................... $ 18,555 $ 18,034
Subscription..................................................... 6,038 5,548
Ancillary products and services..................................... 9,310 8,775
----------- -----------
Total revenues................................................... 33,903 32,357
----------- -----------
OPERATING EXPENSES:
Editorial........................................................... 5,212 5,385
Production and distribution......................................... 6,339 6,535
Selling............................................................. 6,817 6,795
General and administrative.......................................... 9,359 8,984
Depreciation and amortization....................................... 3,508 4,399
----------- -----------
Total operating expenses......................................... 31,235 32,098
----------- -----------
Operating income................................................. 2,668 259
Interest expense.................................................... (7,036) (6,029)
Other income........................................................ -- 5
----------- ----------
Loss before income taxes......................................... (4,368) (5,765)
Benefit for income taxes............................................ 820 762
----------- -----------
Net loss......................................................... $ (3,548) $ (5,003)
=========== ===========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
2
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
PAR PAID-IN ACCUMULATED COMPREHENSIVE
SHARES VALUE CAPITAL DEFECIT LOSS TOTAL
--------- --------- --------- --------- --------- ---------
COMMON STOCK
------------
Balance at December 31, 2002 ....... 1,320,330 $ 13 $ 116,488 $(126,146) $ (1,522) $ (11,167)
Net loss -- -- -- (3,548) -- (3,548)
Unrealized loss on equity securities
available for sale ............ -- -- -- -- (20) (20)
Total comprehensive loss ...... -- -- -- -- -- (3,568)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 2003 .......... 1,320,330 $ 13 $ 116,488 $(129,694) $ (1,542) $ (14,735)
========= ========= ========= ========= ========= =========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
3
AMERICAN LAWYER MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
----------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $(3,548) $(5,003)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ....................................................... 3,508 4,399
Deferred income tax ................................................................. (820) (762)
Non-cash interest ................................................................... 294 264
Accretion of interest on senior discount notes ...................................... 2,261 1,729
Decrease (increase) in:
Accounts receivable, net ............................................................ 1,211 1,622
Inventories ......................................................................... 233 (35)
Other current assets ................................................................ 464 53
Other assets ........................................................................ (34) (1,192)
Increase (decrease) in:
Accounts payable .................................................................... 712 262
Accrued expenses .................................................................... (1,072) (1,591)
Other current liabilities ........................................................... -- (200)
Accrued interest payable ............................................................ 3,939 4,195
Deferred income ..................................................................... (629) 388
Other noncurrent liabilities ........................................................ 3 (759)
------- -------
Net cash provided by operating activities ........................................ 6,522 3,370
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................................ (535) (591)
Deferred purchase price from purchase of business ................................... (377) --
------- -------
Net cash used in investing activities ............................................ (912) (591)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under revolving credit facility ............................................ (6,000) (3,000)
------- -------
Net cash used in financing activities ............................................ (6,000) (3,000)
------- -------
Net decrease in cash ............................................................. (390) (221)
------- -------
CASH, beginning of period ........................................................... 824 2,377
------- -------
CASH, end of period ................................................................. $ 434 $ 2,156
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period:
Income taxes ..................................................................... $ 17 $ --
======= =======
Interest ......................................................................... $ 549 $ 399
======= =======
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
4
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(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.
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, 2002.
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 ("Legal Ad Agents") aggregating $1.4 million in receivables as of March
31, 2003, generally limited due to the large number of customers comprising our
customer base. Such Legal Ad 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.
5
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.
Periodical subscription revenues are recognized on a pro rata basis as
issues of a subscription are served. Internet subscription revenues are
recognized on a pro rata basis as issues of a subscription are served over the
life of the term of the subscription.
Ancillary products and services revenues consist principally of newsletter
subscriptions, sales of professional books, seminar and trade show income,
income from a daily fax service of court decisions and income from electronic
products. Book revenues are recognized upon shipment and are reflected net of
estimated returns. Newsletter revenues are recognized on the same basis as
subscription revenues. Seminar and trade show revenues are recognized when the
seminar or trade show is held. Daily fax service revenue is recognized upon
fulfillment of orders.
Internet 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.
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 $2,623,000 and $2,073,000 are included in accounts
receivable in the accompanying consolidated March 31, 2003 and December 31, 2002
balance sheets, respectively.
ADVERTISING AND PROMOTIONAL EXPENDITURES
Advertising and promotional expenditures totaled approximately $1,603,000
and $1,891,000 for the three months ended March 31, 2003 and 2002, 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.
Cash on our consolidated balance sheet at March 31, 2003 and December 31,
2002 includes $125,000 and $139,000, respectively, of restricted cash collected
in association with managing a technology show on behalf of our customer.
INVENTORIES
Inventories consist principally of paper and related binding materials
utilized by us and our outside printers and professional books published and
sold by us. Inventories are stated at the lower of cost, as determined by the
average cost method, or market.
6
In 2002, we decided to change our inventory practice for our book
department. With this change we will be migrating from carrying our books in
inventory to print on demand at the time of sale. As a result, we have
identified inventory totaling $1.0 million that will be destroyed in 2003. At
March 31, 2003, we have fully reserved for the inventory identified for
destruction.
ACCOUNTING FOR LONG-LIVED ASSETS
We evaluate whether there has been an impairment in any of our long-lived
assets on an annual basis or if certain circumstances indicate that a possible
impairment may exist. An impairment in value exists when the carrying value of a
long-lived asset exceeds its fair value. If it is determined that an impairment
in value has occurred, the carrying value is written down to its fair value.
Goodwill and certain other intangibles are tested for impairment under FAS No.
142 and all other long-lived assets are tested for impairment under FAS No.
144, "Accounting for the Impairment or Disposal of 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
Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards Statement ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141")
and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
INTANGIBLE ASSETS
Intangible assets represent advertiser commitments, uniform resource
locators, copyrights, trademarks, customer and subscriber lists and non-compete
agreements. Under SFAS No. 142, an acquired intangible asset should be
separately recognized apart from goodwill if the benefit of the intangible is
obtained through contractual or other legal rights, or if the intangible asset
can be sold, transferred, licensed, rented, or exchanged. Intangible assets
deemed to have a finite lives are amortized on a straight-line basis over useful
lives ranging from 6 months through 30 years.
7
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the life of the related debt
using the straight-line method.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform with the current year
presentation.
INCOME TAXES
Income taxes are accounted for in accordance with FAS No. 109, "Accounting
for Income Taxes," which requires that deferred tax assets and liabilities be
recognized using enacted tax rates for the effect of temporary differences
between the book and tax basis of recorded assets and liabilities.
STOCK OPTION PLANS
We have a stock option plan under which incentive and nonqualified stock
options may be granted periodically to certain of our employee and non-employee
directors.
Pursuant to SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," we have elected to continue to account
for employee stock-based compensation under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," using an intrinsic value approach to measure
compensation expense. Accordingly, no compensation expense has been recognized
for options granted under our stock option plan since all such options were
granted at exercise prices equal to or greater than fair market value in the
date of grant.
The following table summarizes relevant information as to our reported
results under the intrinsic value method of accounting for stock awards, with
supplemental information, as if the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," had been applied to the
three months periods ended March 31, 2003 and 2002 (in thousands):
Three Months Ended
March 31,
---------------------------------
2003 2002
--------- -----------
Reported net loss.......................................... $ (3,548) $ (5,003)
Stock-based employee compensation expense
determined under fair value based method................ (104) (123)
---------- ------------
Pro forma net loss......................................... $ (3,652) $ (5,126)
========== ============
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We utilized an interest rate swap agreement to convert our fixed rate
interest on our $175.0 million senior notes to a variable rate. At March 31,
2002, we had an interest rate swap outstanding with a notional amount of $175.0
million and a fair market value of $1.3 million. In July 2002, our interest rate
swap agreement was terminated. During the first quarter of 2002, we recorded a
gain of $556,000 which was recorded in earnings as a component of interest
expense because the swap did not qualify for hedge accounting.
8
AMERICAN LAWYER MEDIA HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(UNAUDITED)
3. DEBT
In December 1997, we issued $63,275,000 aggregate principal amount at
maturity of 12 1/4% 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 2002. Commencing in June 2003, cash interest would have
been payable semi-annually until maturity each June 15 and December 15 if not
for the waiver and consent entered into described in the next paragraph. 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 as well as any existing liquidating
damages. 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,
restrictions on distributions from certain restricted subsidiaries, asset sales,
transactions with affiliates, incurrence of liens and mergers and
consolidations. Financing costs, totaling $1,693,000, have been capitalized and
are being amortized over the term of the Discount Notes. Assuming that there is
no redemption of the Discount Notes prior to maturity, the entire principal will
be payable on December 15, 2008.
On February 27, 2003, we entered into a waiver and consent with the holders
of the Discount Notes due 2008 which provides for the waiver of cash payment by
us of semi-annual interest that was to begin in June 2003. The Discount Notes
will now become "cash-pay" in December 2004, with the first interest payment due
on June 15, 2005. The Discount Notes will continue to accrete until December
2004, at which time the aggregate principal amount of the Discount Notes will be
$80,260,705. Beginning on December 15, 2004, cash interest on the Discount Notes
will accrue at the rate of 12.25% per year. Bruce Wasserstein, chairman of the
board of directors of us and ALM, and certain of his affiliates own all of the
Discount Notes.
On December 22, 1997, we issued $175.0 million aggregate principal amount of
9 3/4% Senior Notes (the "Notes") due December 15, 2007. The Notes accrue
interest at 9.75% which is payable in cash semi-annually on June 15 and December
15 of each year. The Notes are unsecured general senior obligations and are
fully and unconditionally guaranteed, on a joint and several and senior
unsecured basis, by each of ALM's existing and future subsidiaries. Separate
financial statements of, and other disclosures concerning, the guarantors are
not included herein because of the guarantors' full and unconditional guarantee
of the Notes and ALM's determination that separate financial statements and
other disclosures concerning the 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. Financing costs, totaling $7.2 million,
were capitalized and are being amortized over the term of the Notes.
Amortization of deferred financing costs is recorded as interest expense.
Assuming there is no redemption of the Notes prior to maturity, the entire
principal will be payable on December 15, 2007. As of March 31, 2003, Bruce
Wasserstein and certain affiliates own approximately 4% of the senior notes due
2007 issued by us.
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 GE Corporate
Finance ("GECC") and the lenders signatory thereto in accordance with which GECC
has provided our operating subsidiary,
9
NYLP, with a $40 million revolving credit facility (the "GECC Facility"). The
GECC Facility replaces our prior revolving credit facility and 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, ALM and all of our domestic subsidiaries, and are
secured by all of the personal property assets of us, ALM 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.
On November 13, 2002, the GECC Facility was amended to clarify language in
the GECC credit agreement, as well as to allow us to assume a lease by and
between 1140 Associates, Inc. and Law.com, Inc. In addition, on February 27,
2003, the GECC Facility was amended to modify the covenants relating to the
total leverage ratio, interest coverage ratio and fixed charge ratio until
December 2004. These covenants now provide alternative compliance levels and
associated incremental interest rates. In addition, the GECC facility was
amended to allow for the Discount Note transaction described above.
At March 31, 2003, the amount outstanding under the GECC Facility was $26.3
million. The available balance under the unused commitment is reduced by any
letters of credit outstanding totaled $11.6 million at March 31, 2003. A 10%
increase in the average interest rate of borrowing under the GECC Facility
during the three months ended March 31, 2003 would have increased our net loss
to approximately $3.6 million.
4. RESTRUCTURING CHARGE
During 2002, upon the decision to restructure certain of our operations, we
accrued approximately $1.5 million of restructuring charges. These charges
primarily relate to severance arrangements for approximately 55 employees in
various regions and divisions and have been included in operating income in the
above mentioned period. As of March 31, 2003, approximately $0.7 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, 2002.......................................... $ 1,068
Less: Payments during the three months ended
March 31, 2003............................................. (324)
-----------
Unpaid restructuring charge accrual at
March 31, 2003............................................. $ 744
===========
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
10
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 Holdings' common stock, par value $0.01 per share valued at
approximately $20 million. We and Law.com 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 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.
The pro forma unaudited consolidated results of operation for the three
months ended March 31, 2002, assuming consummation of the acquisition as of the
beginning of the respective period, is as follows (in thousands):
Three Months Ended
March 31, 2002
------------------
Revenue................... $ 33,711
==========
Net Loss.................. $ (6,948)
==========
At the time of the acquisition of Law.com, 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, are 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 connection with its MA3000 product and certain advertising, in exchange for a
periodic payment by RealLegal, LLC comprised of cash and equity in RealLegal,
LLC.
The above acquisition has been accounted for under the purchase method of
accounting and the results of operations of the acquired businesses have been
included in the financial statements since acquisition. The excess of the
purchase price over net assets acquired was allocated to intangible assets and
goodwill.
6. SEGMENT INFORMATION
Operating segments represent components of our business that are evaluated
regularly by our key decision makers in assessing performance and resource
allocation. We have
11
determined that our reportable segments consist of our regional newspapers (the
"Regional Newspapers"), national businesses (the "National Businesses") and our
online business, Law.com ("Online"). We have also reflected unallocated costs
related to our corporate and administrative functions as a separate unit
("Corporate") so as to not distort our other segments.
For the years presented herein, the Regional Newspapers are comprised of the
following businesses: New York Law Journal; The National Law Journal; and twelve
other regional newspapers.
The National Businesses are comprised of the following businesses: our
magazine group which includes The American Lawyer and eight other magazines; our
newsletters, our hard and soft cover books; our trade shows and seminars; our
licensing and research business; our litigation services division and our
international operations.
Online is comprised of Law.com, which primarily includes web content,
seminars and practice areas.
Corporate overhead is comprised of: unallocated costs relating to our
administrative offices, which include executive management, legal, human
resources, accounting, information systems, business development, office
services, government affairs and public relations. In addition, Corporate
includes us and ALM Properties, Inc., one of ALM's subsidiaries.
We evaluate performance based on the segments' income (loss) from operations
before unallocated corporate overhead and interest expense. The accounting
policies of the reportable segments are the same as those described in Note 2.
For the Three Months Ended
March 31, 2003
------------------------------------------------------------------
Regional Newspapers National Businesses Online
------------------- ------------------- -------
Total net revenue................... $ 22,232 $ 10,454 $ 1,217
=========== =========== =========
Segment operating
income (loss).................... $ 6,791 $ 2,088 $ (858)
=========== =========== =========
For the Three Months Ended
March 31, 2002
-------------------------------------------------------------------
Regional Newspapers National Businesses Online
------------------- ------------------- ---------
Total net revenue................... $ 21,805 $ 10,552 $ --
=========== =========== =========
Segment operating income............ $ 5,516 $ 812 $ --
=========== =========== =========
A reconciliation of combined segment profit to consolidated net loss is as
follows:
For the Three Months Ended
March 31,
----------------------------------
2003 2002
---------- ----------
Total segment operating income............... $ 8,021 $ 6,328
Unallocated amounts:
Corporate expenses....................... (5,353) (6,069)
Interest expense......................... (7,036) (6,029)
Other income............................. -- 5
Income tax benefit....................... 820 762
---------- ----------
Net loss..................................... $ (3,548) $ (5,003)
=========== ===========
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
months ended March 31, 2003 to the three months ended March 31, 2002.
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 the 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.
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 a subsidiary of ALM.
We utilized an interest rate swap agreement to convert our fixed rate
interest on our $175.0 million senior notes to a variable rate. At March 31,
2002, we had an interest rate swap outstanding with a notional amount of $175.0
million and a fair market value of $1,323,000. In July 2002, our interest rate
swap agreement was terminated. During the first quarter of 2002, we recorded a
gain of $556,000, which was recorded in earnings as a component of interest
expense because the swap did not qualify for hedge accounting.
GAAP refers to accounting principles generally accepted in the United
States of America. Throughout this Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"), management discusses
financial measures in accordance with GAAP and also on a non-GAAP basis. As of
January 1, 2003 we have decided to create a uniform definition of EBITDA for
discussion in our quarterly and annual reports. Our definition of EBITDA is
earnings before interest, income taxes, depreciation and amortization. Any
additional amounts which we believe need to be disclosed to you in order to
allow you to more accurately compare our prior and ongoing operations from
period to period will be explicitly stated in our future reports. All references
in this MD&A to EBITDA are to a non-GAAP financial measure. We
13
believe that the use of non-GAAP financial measures enables us and investors to
evaluate, and compare from period to period, the results from ongoing operations
in a more meaningful and consistent manner. Reconciliations of GAAP to non-GAAP
financial measures are included on page 19.
The following table presents the results of operations (in thousands) for
the three months ended March 31, 2003 and 2002.
Three Months Ended March 31,
------------------------------
2003 2002
------------- ----------
Operating Data:
Revenues:
Periodicals:
Advertising.............. $ 18,555 $ 18,034
Subscription............. 6,038 5,548
Ancillary products and
services.................... 9,310 8,775
--------- --------
Total revenues................ 33,903 32,357
--------- --------
Operating expenses:
Editorial.................... 5,212 5,385
Production and distribution.. 6,339 6,535
Selling...................... 6,817 6,795
General and administrative... 9,359 8,984
Depreciation and amortization 3,508 4,399
--------- ---------
Total operating expenses...... 31,235 32,098
--------- ---------
Operating income.............. 2,668 259
Interest expense.............. (7,036) (6,029)
Other income.................. -- 5
--------- ---------
Loss before income taxes...... (4,368) (5,765)
Benefit for income taxes........ 820 762
--------- ---------
Net loss...................... $ (3,548) $ (5,003)
========= =========
RESULTS OF OPERATIONS
Three months ended March 31, 2003 compared to three months ended March 31, 2002
OVERVIEW. Revenues increased by $1.5 million, or 4.8%, from $32.4 million
for the three months ended March 31, 2002 to $33.9 million for the three months
ended March 31, 2003. Operating expenses decreased $0.9 million, or 2.7%, from
$32.1 million for the three months ended March 31, 2002 to $31.2 million for the
three months ended March 31, 2003. As a result, operating income increased $2.4
million, from $0.3 million for the three months ended March 31, 2002 to $2.7
million for the three months ended March 31, 2003. EBITDA increased $1.5
million, or 32.4%, from $4.7 million for the three months ended March 31, 2002
to $6.2 million for the three months ended March 31, 2003. Net loss totaled $5.0
million for the three months ended March 31, 2002 as compared to a net loss of
$3.5 million for the three months ended March 31, 2003.
Revenues. Revenues increased by $1.5 million, or 4.8%, from $32.4 million
for the three months ended March 31, 2002 to $33.9 million for the three months
ended March 31, 2003. Revenue growth for the three months ended March 31, 2003
compared to the three months ended March 31, 2002 reflects revenues recorded in
our Law.com subsidiary of $1.2 million, which was acquired in the second quarter
of 2002 with no like revenues recorded during the same period last year. In
addition, legal notice, law firm advertising and subscription revenues increased
during the three months ended March 31, 2003 as compared to the same period in
2002. These increases were partially offset by decreases in advertising revenues
associated with certain barter transactions where we exchanged advertising
services for an equity interest in certain companies and from slight decreases
experienced in directory advertising and newsletter revenues.
Advertising revenues increased $0.5 million, or 2.9%, from $18.0 million
for the three months ended March 31, 2002 to $18.5 million for the three months
ended March 31, 2003. The increase was due primarily to law firm and legal
notice advertising revenue which increased $0.4 million and $0.3 million,
respectively, for the three months ended March 31, 2003 compared to
14
the three months ended March 31, 2002. These increases were partially offset by
decreases in display advertising revenues of $0.3 million associated with
certain barter transactions where we exchanged advertising services for an
equity interest in certain companies and decreases in directory advertising
revenues due to the year over year change in the release schedules of certain
directories in our expert witness and litigation services business.
Subscription revenues increased $0.5 million, or 8.8%, from $5.5 million
for the three months ended March 31, 2002 to $6.0 million for the three months
ended March 31, 2003. The increase primarily reflects increased subscription
revenues resulting from our acquisition of Law.com, as well as from increased
marketing efforts.
Revenues from ancillary products and services increased $0.5 million, or
6.1%, from $8.8 million for the three months ended March 31, 2002 to $9.3
million for the three months ended March 31, 2003. The increase in revenues
resulted primarily from a growth in our sales of reprints, higher royalty fees
and book sales and an increase in phone and web research revenue. These
increases were partially offset by lower newsletter sales and lower seminar and
trade show revenue due resulting from the elimination of one of our
international trade shows in the first quarter of 2003.
Operating expenses. Operating expenses decreased $0.9 million, or 2.7%,
from $32.1 million for the three months ended March 31, 2002 to $31.2 million
for the three months ended March 31, 2003. Lower operating expenses during the
three months ended March 31, 2003 as compared to the three months ended March
31, 2002 were primarily realized by lower intangible asset amortization along
with lower production and distribution and editorial expenses resulting from
realized savings from our cost containment and restructuring efforts initiated
in 2002. These savings were partially offset by an increase in general and
administrative expenses of $0.4 million, resulting primarily from Law.com
expenses of $0.6 million incurred during the three months ended March 31, 2003,
with no like expenses during the same period of 2002.
Editorial expenses decreased $0.2 million, or 3.2%, from $5.4 million for
the three months ended March 31, 2002 to $5.2 million for the three months ended
March 31, 2003. The decrease in editorial expenses primarily resulted from
realized savings from our cost containment and restructuring efforts initiated
in 2002. These decreases were partially offset by Law.com editorial expenses of
$0.2 million incurred during the three months ended March 31, 2003, with no like
expenses incurred during the same period of 2002.
Production and distribution expenses decreased $0.2 million, or 3.0%, from
$6.5 million for the three months ended March 31, 2002 to $6.3 million for the
three months ended March 31, 2003. Lower production and distribution expenses of
$0.2 million resulted primarily from lower printing expenses resulting from
reductions in print volume and realized savings from our cost containment and
restructuring efforts during 2002. These decreases were partially offset by
Law.com production and distribution expenses of $0.2 million, incurred during
the three months ended March 31, 2003, for which there were no like expenses
incurred during the same period of 2002.
General and administrative expenses increased $0.4 million, or 4.2%, from
$9.0 million for the three months ended March 31, 2002 to $9.4 million for the
three months ended March 31, 2003. This increase resulted primarily from $0.6
million of Law.com general and administrative expenses incurred during the three
months ended March 31, 2003 for which there were no like expenses incurred
during the same period of 2002. This increase was partially offset by lower
legal and consulting fees.
15
Depreciation and amortization expenses decreased $0.9 million, or 20.3%,
from $4.4 million for the three months ended March 31, 2002 to $3.5 million for
the three months ended March 31, 2003. Lower amortization expense was recorded
during the three months ended March 31, 2003 as compared to the three months
ended March 31, 2002 due to certain non-compete and other intangible assets
being fully amortized by the end of 2002. This was partially offset by an
increase in depreciation expense related to capital assets acquired with the
acquisition of Law.com in the second quarter of 2002.
Operating income. As a result of the above factors, our operating income
increased $2.4 million, from $0.3 million for the three months ended March 31,
2002 to $2.7 million for the three months ended March 31, 2003. In addition,
EBITDA increased $1.5 million, or 32.4%, from $4.7 million for the three months
ended March 31, 2002 to $6.2 million for the three months ended March 31, 2003.
Interest expense. Total interest expense increased $0.8 million from $4.3
million for the three months ended March 31, 2002 to $5.1 million for the three
months ended March 31, 2003. For the three months ended March 31, 2002, interest
expense was reduced by a $0.6 million gain recorded as a component of interest
expense related to our outstanding interest rate swap. We had no related gain in
2003. This interest expense reduction recorded in 2002, along with a higher
average carrying balance on our GECC Facility and on our 12 1/4% Senior Discount
Notes, a higher average interest rate and increased amortization of a deferred
financing on our GECC Facility in 2003, resulted in a higher interest expense
for the three months ended March 31, 2003 as compared to the three months ended
March 31, 2002.
Income tax benefit. Income tax benefit remained flat at $0.8 million, for
the three months ended March 31, 2002 and 2003. Income tax benefit for 2002 and
2003 reflects the tax effect of the pretax loss recognized for those periods.
Net loss. As a result of the above factors, our net loss declined $1.5
million from a loss of $5.0 million for the three months ended March 31, 2002
to a loss of $3.5 million for the three months ended March 31, 2003.
Operating segments. Operating segments represent components of our business
that are evaluated regularly by our key decision makers in assessing performance
and resource allocation. We have determined that our reportable segments consist
of our regional newspapers (the "Regional Newspapers"), national businesses (the
"National Businesses") and our online business, Law.com ("Online"). We have also
reflected unallocated costs related to our corporate and administrative
functions as a separate unit ("Corporate") so as to not distort our other
segments.
For the three months ended March 31, 2003 and 2002 presented herein, the
Regional Newspapers are comprised of the following operating segments: New York
Law Journal; The National Law Journal; and twelve other daily and weekly
newspapers.
The National Businesses are comprised of the following operating segments:
The American Lawyer and eight other magazines; our newsletters, our hard and
soft cover books; our trade shows and seminars; our licensing and syndication
business; our litigation services division and our international operations.
Online is administered by Law.com and consists primarily of web content,
seminars and practice areas.
Corporate is comprised of: unallocated costs relating to our administrative
offices, which include executive management, legal, human resources, accounting,
information systems, business development, office services, government affairs
and public relations. In addition, Corporate includes us and ALM Properties,
Inc., one of our subsidiaries.
16
Three months ended March 31, 2003 compared to the three months ended March 31,
2002
Regional Newspapers
Revenues. Revenues for our Regional Newspapers increased $0.4 million, or
2.0%, from $21.8 million for the three months ended March 31, 2002 to $22.2
million for the three months ended March 31, 2003. Advertising revenues
increased $0.1 million, from $14.5 million for the three months ended March 31,
2002 to $14.6 million for the three months ended March 31, 2003. The increase
was due primarily to law firm and legal notice advertising revenues which
increased $0.1 million and $0.3 million, respectively, for the three months
ended March 31, 2003 compared to the three months ended March 31, 2002. These
increases were partially offset by decreases in display advertising revenues
associated with certain barter transactions where we exchanged advertising
services for an equity interest in certain companies and decreases in classified
advertising revenues. Subscription revenue increased $0.2 million for the three
months ended March 31, 2003 as compared to the three months ended March 31,
2002. Ancillary revenue increased $0.3 million due primarily to an increase in
book revenue of $0.1 million and an increase in royalty revenue of $0.2 million
in our licensing and research division for the three months ended March 31, 2003
as compared to the three months ended March 31, 2002.
Operating expenses. Total operating expenses declined $0.9 million, or 5.2%,
from $16.3 million for the three months ended March 31, 2002 to $15.4 million
for the three months ended March 31, 2003. The majority of our expense
categories experienced year-over-year reductions due to reductions in cost of
goods sold directly related to realized savings from our cost containment and
restructuring efforts initiated in 2002. Partially offsetting these declines
were an increase in law firm advertising expenses directly related to increased
law firm advertising revenue.
Operating income. Our operating income increased $1.3 million, from $5.5
million for the three months ended March 31, 2002 to $6.8 million for the three
months ended March 31, 2003. EBITDA increased $1.3 million, or 21.9%, from $5.7
million for the three months ended March 31, 2002 to $7.0 million for the three
months ended March 31, 2003.
National Businesses
Revenues. Revenues for our National Businesses decreased $0.1 million, or
1.0%, from $10.6 million for the three months ended March 31, 2002 to $10.5
million for the three months ended March 31, 2003. Advertising revenues for our
National Businesses decreased $0.2 million from $3.5 million for the three
months ended March 31, 2002 to $3.3 million for the three months ended March 31,
2003. This decrease was due primarily to lower display advertising revenue
associated with certain barter transactions where we exchanged advertising
services for an equity interest in certain companies and lower directory
advertising revenue due to the change in the release schedules of certain
directories in our expert witness and litigation services business. These
decreases in revenue were partially offset by an increase in law firm
advertising revenue. Subscription revenues increased $0.1 million, phone and web
research revenue increased $0.2 million and sales of reprints revenue increased
$0.2 million for the three months ended March 31, 2003 as compared to the three
months ended March 31, 2002. This was partially offset by decreases in
newsletter revenue of $0.1 million and seminar and trade show revenue of $0.3
million.
17
Operating expenses. Operating expenses for our National Businesses declined
$1.4 million, or 14.1%, from $9.7 million for the three months ended March 31,
2002 to $8.3 million for the three months ended March 31, 2003. The majority of
our expense categories experienced year-over-year expense reductions in cost of
goods sold which directly relate to the overall revenue declines and our
realized savings from our cost containment and restructuring efforts initiated
in 2002. Partially offsetting these declines was an increase in circulation and
law firm advertising expenses directly related to increases in those revenue
streams.
Operating income. Our operating income increased $1.3 million from $0.8
million for the three months ended March 31, 2002 to $2.1 million for the three
months ended March 31, 2003. EBITDA increased $1.3 million, or 156.6%, from $0.8
million for the three months ended March 31, 2002 to $2.1 million for the three
months ended March 31, 2003.
Online
Our online business consists primarily of Law.com, a provider of web
content and seminars for the legal industry which 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. Total
revenues for Online, for the three months ended March 31, 2003 totaled $1.2
million, or 3.6%, of our revenues. As we acquired Law.com in May 2002, we do not
have comparable quarterly results for this segment. Operating expenses for
Online totaled $2.1 million for the three months ended March 31, 2003. As a
result, operating loss for Online was $0.9 million and our EBITDA loss was $0.5
million for the three months ended March 31, 2003.
Corporate
Operating expenses. Operating expenses for Corporate decreased $0.7
million, from $6.1 million for the three months ended March 31, 2002 to $5.4
million for the three months ended March 31, 2003. This was largely due to
general and administrative expenses which increased $0.4 million, primarily due
to higher provisions for uncollectible receivables, increased management
consulting and other professional fees along with higher banking and cash
management fees. These increases were partially offset by a decrease in pension
expense recorded during the three months ended March 31, 2003 as compared to the
three months ended March 31, 2002. In addition, depreciation and amortization
expenses decreased $1.1 million, or 35.0%, from $3.2 million for the three
months ended March 31, 2002 to $2.1 million for the three months ended March 31,
2003, resulting from certain non-compete and other intangible assets being fully
amortized by the end of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures. Capital expenditures totaled $0.5 million for the
three months ended March 31, 2003 compared to capital expenditures of $0.6
million for the three months ended March 31, 2002. Capital expenditures for the
three months ended March 31, 2003 included costs of $0.4 million attributed to
hardware and software upgrades and $0.1 million attributed to leasehold
improvements throughout the regions. Capital expenditures for 2002 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 $6.5 million for the three months ended March 31, 2003, which
primarily reflects an increase in accrued interest payable of $3.9 million,
depreciation and amortization of $3.5 million, accretion
18
of interest on Senior Discount Notes of $2.3 million, a decrease in accounts
receivable of $1.2 million, a decrease in other current assets of $0.5 million
and the amortization of non-cash interest of $0.3 million. This was partially
offset by a net loss of $3.5 million, a decrease in deferred income tax of $0.8
million, a decrease in deferred income of $0.6 million, a decrease in accounts
payable and accrued expenses of $0.4 million.
Net cash used in investing activities. Net cash used in investing
activities was $0.9 million for the three months ended March 31, 2003, resulting
from capital expenditures of $0.5 million and deferred payments from
acquisitions made in 2001 and 2002.
Net cash used in financing activities. Net cash used in financing
activities totaled $6.0 million for the three months ended March 31, 2003, which
reflects a net paydown on our GECC Facility.
Liquidity. Our principal sources of funds are cash flows from operating
activities, which may be supplemented by borrowings under our GECC Facility. The
GECC Facility had $26.3 million outstanding as of March 31, 2003 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 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.
RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES
Reconciliations of GAAP to non-GAAP financial measures are provided below.
We believe that the use of non-GAAP financial measures enables us and investors
to evaluate, and compare from period to period our results from ongoing
operations in a more meaningful and consistent manner.
THREE MONTHS ENDED MARCH 31,
---------------------------------
2003 2002
------------ ------------
(in thousands)
GAAP net loss.................................. $ (3,548) $ (5,003)
Adjustments to arrive at operating income:
Benefit for income tax......................... (820) (762)
Other income................................... -- (5)
Interest expense............................... 7,036 6,029
------------ ------------
Operating income............................... 2,668 259
Adjustments to arrive at EBITDA:
Depreciation and amortization.................. 3,508 4,399
Other Income - 5
------------ ------------
EBITDA $ 6,176 $ 4,663
============ ============
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. Our Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of our
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, our disclosure controls
and procedures are effective in alerting them on a timely basis to material
information relating to us required to be included in our 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 our 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
99.1 Certification of CEO and CFO pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
We filed a Form 8-K on February 28, 2003, to announce a waiver
granted by the holders of our senior discount notes as well as
an amendment of our credit facility with GE Corporate Finance.
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.
May 14, 2003 /s/ WILLIAM L. POLLAK
-----------------------------------------
William L. Pollak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
May 14, 2003 /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: May 14, 2003
/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: May 14, 2003
/s/ STEPHEN C. JACOBS
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Stephen C. Jacobs
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER