Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Commission file number: 333-50119

AMERICAN LAWYER MEDIA HOLDINGS, INC.

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.

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of November 10, 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.

Table of Contents

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.

Table of Contents

AMERICAN LAWYER MEDIA HOLDINGS, INC.

INDEX

Table of Contents

PART I
FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

American Lawyer Media Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share data)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

1

Table of Contents

American Lawyer Media Holdings, Inc.
Consolidated Statements of Operations
(In thousands)
(unaudited)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

2

Table of Contents

American Lawyer Media Holdings, Inc.
Consolidated Statements of Operations
(In thousands)
(unaudited)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

3

Table of Contents

American Lawyer Media Holdings, Inc.
Consolidated Statement of Changes in Stockholders’ Deficit
(In thousands, except share data)
(unaudited)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

4

Table of Contents

American Lawyer Media Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

5

Table of Contents

American Lawyer Media Holdings, Inc.
Notes to Consolidated Financial Statements
September 30, 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”), generally limited due to the large number of customers comprising our customer base. Receivables from Legal Ad Agents aggregated $0.9 million as of September 30, 2003. 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.

6

Table of Contents

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

     Periodical advertising revenues are generated from the placement of display and classified advertisements, as well as legal notices, in our publications. Advertising revenue is recognized upon release of the related publications.

     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 research 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 and research 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 $2,299,000 and $2,073,000 are included in accounts receivable in the accompanying consolidated September 30, 2003 and December 31, 2002 balance sheets, respectively.

Advertising and Promotional Expenditures

     Advertising and promotional expenditures totaled approximately $1,625,000 and $1,408,000 for the three months ended September 30, 2003 and 2002, respectively, and $4,976,000 and $4,715,000 for the nine months ended September 30, 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 September 30, 2003 and December 31, 2002 includes $12,000 and $139,000, respectively, of restricted cash collected in association with managing a technology show on behalf of one of our customers.

7

Table of Contents

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

     In 2002, we decided to change our inventory practice for our book division. With this change we are 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, of which $0.9 million has been destroyed as of September 30, 2003. At September 30, 2003, the remaining inventory identified for destruction has been fully written off.

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:

     Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life.

     In June 2003, we included in depreciation, amortization and other charges a $1.5 million adjustment to write-off certain leasehold improvements and furniture relating to office space abandoned during prior quarter. The lease was obtained in connection with our acquisition of Law.com, Inc. on May 1, 2002.

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”).

     Based on the results of our annual goodwill impairment test in the fourth quarter of 2002, it was determined that there was an impairment of the goodwill and intangible assets associated solely with the acquisition of Law.com. The write-down of these assets recognized the value based on the current economic conditions and the future cash projection of this segment of the business. As a result of this review, we recorded impairment for our goodwill and trademark intangibles in the fourth quarter of 2002 of $19.5 million, all of which was generated from our acquisition of Law.com. The impairment totaled $18.9 million for goodwill and $0.6 million for trademark intangibles.

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

8

Table of Contents

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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.

Accounting for Long-Lived Assets

     We evaluate whether there has been an impairment in any of our long-lived assets on an annual basis during our fourth quarter period 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.”

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.

New Accounting Pronouncements

     In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires variable interest entities (commonly referred to as SPEs) to be consolidated by the primary beneficiary of the entity if certain criteria are met. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 will become effective during the fourth quarter of 2003. For variable interest entities acquired prior to February 1, 2003, any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the variable interest entity will be recognized as a cumulative effect of an accounting change. We are currently evaluating the provisions of FIN 46 but do not believe the adoption of FIN 46 will have a significant impact on our consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability or, in some circumstances, as an asset, with many such financial instruments having been previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective July 1, 2003. SFAS No. 150 is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments outstanding before the issuance date of the

9

Table of Contents

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Statement and still existing at July 1, 2003. Restatement is not permitted. The adoption of SFAS No. 150 had no impact on our consolidated financial position or results of operations.

Income Taxes

     Income taxes are accounted for in accordance with SFAS 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 on 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 and nine month periods ended September 30, 2003 and 2002 (in thousands):

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 June 30, 2002, we had an interest rate swap outstanding with a notional amount of $175.0 million and a fair market value of $0.2 million. In July 2002, our interest rate swap agreement was terminated. During the six months ended June 30, 2002, we recorded a net gain of $110,000 which was recorded in earnings as a component of interest expense because the swap did not qualify for hedge accounting.

10

Table of Contents

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 September 30, 2003, Bruce Wasserstein and certain affiliates own approximately 4% of the Notes 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 under which GECC has provided our operating subsidiary, NYLP, with

11

Table of Contents

3. DEBT (continued)

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 September 30, 2003, the amount outstanding under the GECC Facility was $24.9 million. The available balance under the unused commitment is reduced by any letters of credit outstanding which totaled $13.0 million at September 30, 2003. A 10% increase in the average interest rate of borrowing under the GECC Facility during the nine months ended September 30, 2003 would have increased our net loss to approximately $7.0 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 related to severance arrangements for approximately 55 employees in various regions and divisions and were included in operating income. As of September 30, 2003, approximately $0.3 million, representing the unpaid charges, is included in accrued expenses.

     The following is a summary of our restructuring charge activity (in thousands):

12

Table of Contents

5. ACQUISITION OF LAW.COM

     Effective May 1, 2002, we acquired Law.com, Inc., a Delaware corporation, (“Law.com”), and a provider of web content and seminars for the legal industry. Prior to our acquisition of Law.com, Law.com’s RealLegal applications services business was spun off to Law.com 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 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 and six months ended September 30, 2002, assuming consummation of the acquisition as of the beginning of the respective period, is as follows (in thousands):

     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.

13

Table of Contents

6. SEGMENT INFORMATION

     Operating segments represent components of our business that are evaluated regularly by key chief operating 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 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 nine 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, ALM 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.

14

Table of Contents

6. SEGMENT INFORMATION (continued)

     A reconciliation of combined segment profit to consolidated net loss is as follows (in thousands):

7. SUBSEQUENT EVENTS

     Effective January 1, 2004, Mr. Eric Lundberg will become Chief Financial Officer. Mr. Lundberg has been our Vice President — Finance since 2001. Mr. Lundberg will replace Stephen Jacobs, who will leave us at the end of the year to pursue other business interests.

15

Table of Contents

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 nine months ended September 30, 2003 to the nine months ended September 30, 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 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 June 30, 2002, we had an interest rate swap outstanding with a notional amount of $175.0 million and a fair market value of $0.2 million. In July 2002, our interest rate swap agreement was terminated. During the six months ended June 30, 2002, we recorded a net gain of $110,000, which was recorded in earnings as a component of interest expense because the swap did not qualify for hedge accounting.

     In June 2003, we included in depreciation, amortization and other charges a $1.5 million adjustment to write-off certain leasehold improvements and furniture relating to office space abandoned during prior quarter. The lease was obtained in connection with our acquisition of Law.com on May 1, 2002.

     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

16

Table of Contents

definition of EBITDA for discussion in our quarterly and annual reports. Our definition of EBITDA is earnings before interest, income taxes, depreciation, amortization and other charges. 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. In order to provide accurate comparisons, EBITDA for periods prior to January 31, 2003 may be restated to conform to the definition detailed above and, as a result, may differ from previously reported results.

     All references in this MD&A to EBITDA are to a non-GAAP financial measure. We 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 28.

     The following table presents the results of operations (in thousands) for the three and nine months ended September 30, 2003 and 2002.

Results of Operations

Nine months ended September 30, 2003 compared to nine months ended September 30, 2002

     Overview. Revenues increased by $2.5 million, or 2.6%, from $98.4 million for the nine months ended September 30, 2002 to $100.9 million for the nine months ended September 30, 2003. Operating expenses decreased $3.0 million, or 3.2%, from $93.5 million for the nine months ended September 30, 2002 to $90.5 million for the nine months ended September 30, 2003. As a result, operating income increased $5.5 million, from $4.9 million for the nine months ended September 30, 2002 to $10.4 million for the nine months ended September 30, 2003. EBITDA increased $3.4 million, or 18.4%, from $18.2 million for the nine months ended September 30, 2002 to $21.6 million for the nine months ended September 30, 2003. Net loss totaled $6.9 million for the nine months ended September 30, 2003 as compared to a net loss of $8.8 million for the nine months ended September 30, 2002.

     Revenues. Revenues increased by $2.5 million, or 2.6%, from $98.4 million for the nine months ended September 30, 2002 to $100.9 million for the nine months ended September 30, 2003. Revenue growth for the nine months ended September 30, 2003 compared to the nine

17

Table of Contents

months ended September 30, 2002 reflects revenues recorded in our Law.com subsidiary of $3.4 million as compared to $1.9 million for the nine months ended September 30, 2002. The results for the nine months ended September 30, 2003 include revenue from Law.com for the entire period, while the results for the nine months ended September 30, 2002 only include revenue subsequent to the May 1, 2002 acquisition date of Law.com. In addition, in our print publications, law firm, legal notice and directory advertising revenues increased during the nine months ended September 30, 2003. Print subscription revenues, book revenue, royalty and licensing fees and sales of reprints also increased during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 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 along with a decrease in classified advertising and a decrease in newsletter revenues.

     Advertising revenues increased $0.1 million, from $56.8 million for the nine months ended September 30, 2002 to $56.9 million for the nine months ended September 30, 2003. Higher revenues were recorded in display, law firm, legal notice and directory advertising of $0.7 million, $0.6 million, $0.4 million and $0.2 million, respectively, for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. The increase in the above mentioned categories resulted primarily from increased volume in certain of our print publications along with higher revenues in Law.com. The results for nine months ended September 30, 2003 include Law.com revenue for the entire period, while the results for the nine months ended September 30, 2003 only include revenue subsequent to the May 1, 2002 Law.com acquisition date. These increases were partially offset by $1.0 million of advertising revenues recorded in the nine months ended September 30, 2002 associated with certain barter transactions where we exchanged advertising services for an equity interest in certain companies with no like revenue recorded during the same period in 2003. In addition, classified advertising revenues showed year over year declines of $0.7 million in attorney related help wanted advertising as our publications continue to reflect the fact that law firms have still not begun to increase their volume of recruitment classified advertising.

     Subscription revenues increased $0.8 million, or 4.2%, from $17.7 million for the nine months ended September 30, 2002 to $18.5 million for the nine months ended September 30, 2003. The increase primarily reflects increased online subscription revenues of $0.4 million resulting from our acquisition of Law.com, as well as an increase in subscription revenue in our print publications of $0.4 million resulting from increased marketing efforts.

     Revenues from ancillary products and services increased $1.6 million, or 6.9%, from $23.9 million for the nine months ended September 30, 2002 to $25.5 million for the nine months ended September 30, 2003. The increase in revenues resulted primarily from higher reprint sales, royalty and licensing fees, book sales and phone and web research revenue. These increases were partially offset by lower newsletter sales and a decrease in trade show and seminar revenue. Ancillary revenue growth resulted as we increased our sales force and included new products in our royalty licensing contracts and database for phone and web searches. In addition, book sales grew as we increased our direct marketing efforts.

     Operating expenses. Operating expenses decreased $3.0 million, or 3.2%, from $93.5 million for the nine months ended September 30, 2002 to $90.5 million for the nine months ended September 30, 2003. Lower operating expenses during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002 were primarily realized through lower production and distribution expenses, editorial expenses and general and administrative expenses resulting from realized savings from our cost containment and restructuring efforts

18

Table of Contents

initiated in 2002, as well as a decrease in depreciation and amortization expense. These savings were partially offset by an increase in selling expenses of $0.6 million, primarily attributable to Law.com. The results for the nine months ended September 30, 2003 include Law.com’s expenses for the entire period, while the results for the same period in 2002 only include expenses subsequent to the May 1, 2002 acquisition date of Law.com.

     Editorial expenses decreased $0.6 million, or 3.3%, from $16.2 million for the nine months ended September 30, 2002 to $15.6 million for the nine months ended September 30, 2003. The decrease in editorial expenses primarily resulted from realized savings in artwork and photos, salaries and related taxes and employee benefits and consulting and professional fees from our cost containment and restructuring efforts initiated in 2002. These decreases were partially offset by an increase in contributing editor fees in our print publications and from an increase in Law.com editorial expenses of $0.1 million.

     Production and distribution expenses decreased $1.1 million, or 5.9%, from $19.2 million for the nine months ended September 30, 2002 to $18.1 million for the nine months ended September 30, 2003. Production and distribution expenses decreased primarily from lower paper, printing, fulfillment and other production costs, a decrease in salaries and related taxes and employee benefits and other realized savings from our cost containment and restructuring efforts initiated in 2002. These decreases were partially offset by an increase in Law.com production and distribution expenses of $0.2 million during the nine months ended September 30, 2003 as compared to the same period in 2002. The results for the nine months ended September 30, 2003 include Law.com’s expenses for the entire period, while the results for the same period in 2002 only include expenses subsequent to the May 1, 2002 acquisition date of Law.com. In addition, book production costs increased primarily attributable to an increase in the volume of book sales.

     Selling expenses increased $0.5 million, or 2.9%, from $19.8 million for the nine months ended September 30, 2002 to $20.3 million for the nine months ended September 30, 2003. Law.com’s selling expenses increased $1.2 million, which includes expenses for the entire nine month period ending September 30, 2003 while the results for the same period in 2002 includes expenses subsequent to May 1, 2002 acquisition date of Law.com. In addition, our print publications had increases in direct mail costs and in salaries and related taxes and employee benefits. This increase was partially offset by expense reductions as our national sales force shifted and increased their efforts in selling online products for Law.com.

     General and administrative expenses decreased $0.5 million, or 1.9%, from $25.8 million for the nine months ended September 30, 2002 to $25.3 million for the nine months ended September 30, 2003. This decrease resulted primarily from lower salary and related taxes and employee benefits, lower legal fees and a net reduction in our provision for uncollectible accounts due to an improvement in our accounts receivable aging performance and other realized savings from our cost containment and restructuring efforts initiated in 2002. These decreases were partially offset by higher management consulting and professional fees and an increase in other taxes.

     Depreciation, amortization and other charges decreased $1.4 million, or 11.0%, from $12.6 million for the nine months ended September 30, 2002 to $11.2 million for the nine months ended September 30, 2003. This decrease resulted primarily from lower amortization and depreciation expense recorded during the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002 due to certain non-compete and other intangible assets and certain capital assets being fully amortized or depreciated by the end of 2002. This was partially offset by an adjustment to write-off $1.5 million as a component of depreciation, amortization and other charges, of leasehold improvements and furniture related to office space abandoned

19

Table of Contents

during a prior quarter. The lease was obtained in connection with our acquisition of Law.com on May 1, 2002.

     Other income. Other income totaled $0.8 million for the nine months ended September 30, 2002, with no like items recorded during the nine months ended September 30, 2003. During the third quarter of 2002, we amended an existing advertising agreement, which limited our advertising obligation to advertisements already placed in our publications prior to the amendment. In exchange for the future advertising, we had previously received an equity interest in the advertiser. This equity interest was written off as other loss in 2001. 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. Partially offsetting this income was a loss of $0.1 million, recorded in the second quarter of 2002, for the write-off of the remaining unamortized deferred financing costs resulting from the payoff of our old revolving line of credit.

     Operating income. As a result of the above factors, our operating income increased $5.5 million, from $4.9 million for the nine months ended September 30, 2002 to $10.4 million for the nine months ended September 30, 2003. In addition, EBITDA increased $3.4 million, or 18.4%, from $18.2 million for the nine months ended September 30, 2002 to $21.6 million for the nine months ended September 30, 2003.

     Interest expense. Total interest expense increased $1.4 million, from $19.6 million for the nine months ended September 30, 2002 to $21.0 million for the nine months ended September 30, 2003. This increase was primarily due to an increase in the average carrying balance on our revolving credit facility with GECC, a higher average interest rate and increased amortization of the deferred financing charge on our GECC revolving credit facility for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. Partially offsetting these increases was a reduction of interest expense of $0.4 million related to a gain recorded on our outstanding interest rate swap in 2002.

     Income tax benefit. Income tax benefit decreased $1.5 million for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. 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 narrowed $1.9 million, from a net loss of $8.8 million for the nine months ended September 30, 2002 to $6.9 million for the nine months ended September 30, 2003.

     Operating segments. Operating segments represent components of our business that are evaluated regularly by key chief operating 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 nine months ended September 30, 2003 and 2002 presented herein, the Regional Newspapers are comprised of the following: New York Law Journal; The National Law Journal; and twelve other daily and weekly newspapers.

     The National Businesses are comprised of the following: The American Lawyer and nine other magazines; our newsletters; our hard and soft cover books; our trade shows and seminars;

20

Table of Contents

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.

Regional Newspapers

     Revenues. Revenues for our Regional Newspapers decreased $0.9 million, from $65.2 million for the nine months ended September 30, 2002 to $64.3 million for the nine months ended September 30, 2003. Advertising revenues decreased $1.3 million, from $43.5 million for the nine months ended September 30, 2002 to $42.2 million for the nine months ended September 30, 2003. The decrease was due primarily to lower classified advertising revenues of $1.0 million primarily in attorney related help wanted advertising as our publications continue to experience the effects of a weak economy. In addition, display advertising revenue decreased $0.7 million associated with certain barter transactions where we exchanged advertising services for an equity interest in certain companies. These decreases were partially offset by increases in legal notice advertising revenues of $0.4 million, subscription revenues of $0.2 million and royalty and licensing fees of $0.2 million for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002.

     Operating expenses. Total operating expenses declined $2.1 million, or 4.6%, from $45.9 million for the nine months ended September 30, 2002 to $43.8 million for the nine months ended September 30, 2003. Cost of goods sold decreased primarily due to lower paper, printing, fulfillment and other production costs resulting from realized savings from our continued cost containment efforts. Selling costs decreased due to lower print and radio advertising expenses as we shift our strategy to invest greater resources in direct mail efforts during 2003. Salary and related taxes and employee benefits also declined due to restructuring efforts in 2002. General and administrative expenses decreased primarily due to lower allocated corporate overhead expenses. This decrease was realized from corporate expense reductions resulting from continued cost containment and also from restructuring efforts initiated in 2002.

     Operating income. Our operating profit increased $1.2 million, from $19.3 million for the nine months ended September 30, 2002 to $20.5 million for the nine months ended September 30, 2003. EBITDA increased $1.1 million, or 5.7%, from $19.9 million for the nine months ended September 30, 2002 to $21.0 million for the nine months ended September 30, 2003.

National Businesses

     Revenues. Revenues for our National Businesses increased $1.9 million, or 6.0%, from $31.3 million for the nine months ended September 30, 2002 to $33.2 million for the nine months ended September 30, 2003. Advertising revenues for our National Businesses increased $0.6 million, from $12.0 million for the nine months ended September 30, 2002 to $12.6 million for the nine months ended September 30, 2003. Display advertising revenue decreased due primarily to advertising associated with certain barter transactions where we exchanged advertising services for an equity interest in certain companies. This decrease was offset by increases in law firm and