-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Llz5a+5F5nM9bOxUwwkf2yJA69tC96HYg/GCfEG9Wch7epyUTOFLU5m/ALKJAXrC Ead7pqxD384Me7IFbppQVw== 0000950123-02-003150.txt : 20020415 0000950123-02-003150.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950123-02-003150 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN LAWYER MEDIA INC CENTRAL INDEX KEY: 0001059498 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 133980414 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-50117 FILM NUMBER: 02592849 BUSINESS ADDRESS: STREET 1: C/O WASSERSTEIN PERELLA & CO INC STREET 2: 31 W 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2127799200 MAIL ADDRESS: STREET 1: C/O WASSERSTEIN PERELLA & CO INC STREET 2: 31 W 52ND STREET CITY: NEW YORK STATE: NY ZIP: 10019 10-K 1 y58915e10-k.txt AMERICAN LAWYER MEDIA, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NUMBER: 333-50117 AMERICAN LAWYER MEDIA, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3980414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 345 PARK AVENUE SOUTH 10010 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 779-9200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: As of March 28, 2002, 100 shares of Common Stock, par value $.01 per share, were outstanding, all of which were held by American Lawyer Media Holdings, Inc. DOCUMENTS INCORPORATED BY REFERENCE SEE EXHIBIT INDEX - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Unless the context otherwise requires: (i) "we," "us," "our" or "ALM" refers to American Lawyer Media, Inc. and its subsidiaries; (ii) "Holdings' refers to American Lawyer Media Holdings, Inc., which is our parent, and to Holdings' predecessor, Cranberry Partners, LLC. References herein to our estimated circulation include total paid and free circulation for all of our periodicals. References herein to readership include estimated circulation plus combined pass-along readership unadjusted for any overlap that exists among readers of our various publications. This report contains forward-looking statements. Such statements are based upon the beliefs and assumptions of, and on information available to, our management at the time such statements are made. The following are or may constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995: (i) statements preceded by, followed by or that include the words "may," "will," "could," "should," "believe," "expect," "future," "potential," "anticipate," "intend," "plan," "estimate" or "continue" or the negative or other variations thereof and (ii) statements regarding matters that are not historical facts. Such forward-looking statements are subject to various risks and uncertainties, including, without limitation, (i) general economic conditions and developments in the legal services industry or the publishing industry, (ii) product demand and pricing, (iii) the success of new initiatives, (iv) increased competition with respect to services we provide and for advertising and subscription revenue, and (v) sufficiency of cash flow to fund our operations. COMPANY OVERVIEW We publish 24 periodicals, including several leading national periodicals and regional publications serving five of the six largest state legal markets. Our nationally-recognized periodicals include The American Lawyer, a monthly magazine containing articles and features targeted to attorneys practicing in large law firms, and The National Law Journal, the nation's largest selling legal newspaper, which covers the law, lawyers and litigation. Our regional publications are led by the New York Law Journal, a daily publication with one of the largest paid circulations of regional legal newspapers in the United States. In addition, we publish six other daily newspapers serving Atlanta, Philadelphia, Northern California, Miami, Fort Lauderdale and Palm Beach, as well as seven weekly regional newspapers serving New Jersey, Massachusetts, Delaware, Texas, Washington, D.C., Connecticut and Pennsylvania. In addition to the periodicals referred to above, we publish Corporate Counsel, a leading magazine for corporate in-house attorneys, Law Technology News and AmLaw Tech, two leading legal technology magazines, as well as IP Worldwide, a leading specialty magazine focusing on intellectual property. We also create and package information for attorneys and business professionals. This business includes a portfolio of publications covering a variety of specialized legal interests and practice areas, including 29 newsletters and over 150 treatises on topics of national and regional interest. We also publish various directories used by legal professionals. Under our LegalTech trademark, we are a leading producer of trade shows and conferences relating to law practice technology. In addition, we organize and sponsor numerous professional seminars that cover issues of current legal interest. Our litigation services division is dedicated to providing the legal community with high-quality, timely news and information about litigation. It includes The National Law Journal, the National Verdict Research and Report System, which publishes a series of weekly and monthly verdict and settlement newsletters, and the NLJ Expert Witness and Consultants Network, a group of nine regional expert witness directories. The division also operates three web sites, VerdictSearch.com, NLJExperts.com and NLJ.com, which provide users with access to a vast database of verdict and settlement reports, the nation's premier online expert witness directory and a variety of news and information resources. The network's telephone research service fields more than 20,000 requests annually for verdict, settlement and expert witness research. 1 We derive our revenues principally from advertising and subscriptions, with additional revenues generated from ancillary products and services, which include our newsletters, books, LegalTech and seminars division. For the twelve months ended December 31, 2001, approximately 58% of our revenues were from advertising, 16% were from subscriptions and 26% were from ancillary products and services. PRODUCT LINES Periodicals. Our newspaper and magazine business publishes 24 national, regional and local periodicals that serve legal and business professionals. Our periodicals have a combined circulation of approximately 300,000. The subscription renewal rate of our periodicals averages approximately 80%. Newspapers. Our newspapers provide news, features, analysis and commentary about the world of law and advocacy. Feature articles and stories covering the local, state and federal courts and law firms are supplemented by reports and analyses of cutting-edge legal issues. We are committed to providing high quality and balanced coverage of our local markets. Most of our newspapers serve as the newspaper of record for their respective legal markets. Lawyers look to the newspapers for reports on local court rulings and opinions, as well as information regarding local court dockets. As of December 31, 2001, we published fifteen daily and weekly newspapers including The National Law Journal, the leading national litigation newspaper in the United States, and the New York Law Journal, which has one of the largest paid circulations of any regional legal newspapers in the United States. In the aggregate, our newspapers serve eleven state markets, including New York, New Jersey, Pennsylvania, Delaware, Georgia, Florida, Texas, California, Connecticut, and Massachusetts, and the District of Columbia covering approximately 50% of all active attorneys in the United States. Each of our regional newspapers has a significant presence in its respective market. Our regional newspapers also publish a wide range of supplements on various practice specialties. In addition, several of our regional newspapers publish local editions of their papers. 2 The following table sets forth information regarding our newspapers: NEWSPAPERS
ESTIMATED YEAR OF TOTAL TOTAL TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2) - ----------------------------- ------------------- -------- -------------- ------------- WEEKLY NEWSPAPERS The National Law Journal..... National 1979 30,000 150,000 New Jersey Law Journal....... New Jersey 1878 9,986 44,000 Texas Lawyer................. Texas 1985 9,000 55,000 Legal Times Washington, D.C. .. 1978 11,700 65,000 The Connecticut Law Tribune.................... Connecticut 1974 3,200 16,000 Delaware Law Weekly.......... Delaware 1998 440 880 Pennsylvania Law Weekly...... Pennsylvania 1977 2,630 13,170 Boston Law Tribune........... Massachusetts 2000 4,200 6,500 DAILY NEWSPAPERS New York Law Journal......... New York 1888 15,800 130,000 The Recorder................. Northern California 1876 6,200 30,000 The Legal Intelligencer...... Pennsylvania 1843 3,150 18,920 Fulton County Daily Report... Georgia 1890 6,775 23,713 Miami Daily Business Review..................... South Florida 1926 4,738 13,864 Broward Daily Business Review..................... South Florida 1965 2,515 7,317 Palm Beach Daily Business Review..................... South Florida 1978 1,819 5,118
- --------------- (1) References in the table above to our total circulation include total paid and free circulation. (2) References in the table above to our estimated total readership include total circulation plus combined pass-along readership unadjusted for any overlap that exists among readers of our various publications. Magazines. The American Lawyer anchors our magazine portfolio. Founded in 1979, The American Lawyer is a glossy magazine that features stories on the strategies, successes, failures and personalities of the most important figures in the legal world. The target audience for the publication is attorneys practicing in large law firms and corporate legal departments across the United States. The American Lawyer has been the winner of National Magazine awards granted by the American Society of Magazine Editors four times, and has been nominated for 22 such awards since its founding. Our other magazines focus on specific practice areas or segments within the legal profession and certain topics applicable to the business of law. Our specialty legal magazines include Corporate Counsel, one of the nation's most widely circulated magazines focused on issues of importance to in-house lawyers at large and mid-size corporations, and IP Worldwide, which covers developments in intellectual property law. We also publish two leading technology magazines targeted to the legal community, AmLaw Tech and Law Technology News, which focus on information technology and its applications to the practice of law. AmLaw Tech is targeted toward partners at law firms with purchase-making authority and is distributed to all readers of The American Lawyer, while Law Technology News is targeted toward attorneys and information services departments in law offices. We also publish L magazine, a law and lifestyle publication for law students and New York Law Journal Magazine (formerly New York Lawyer), a law and lifestyle publication geared to lawyers in the New York metropolitan area. 3 We publish the following eight magazines: MAGAZINES
ESTIMATED YEAR OF TOTAL TOTAL TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2) - ------------------------------- -------- ----------------- -------------- ------------- The American Lawyer............ 1979 12 times per year 17,000 136,000 AmLaw Tech..................... 1996 4 times per year 17,000 136,000(3) Corporate Counsel.............. 1994 12 times per year 30,000 60,000 IP Worldwide................... 1995 6 times per year 20,000 40,000(4) Law Technology News............ 1994 14 times per year 43,000 86,000(4) L.............................. 1999 6 times per year 47,000 94,000(4) New York Law Journal Magazine..................... 2000 6 times per year 20,000 60,000 Florida Lawyer................. 2000 12 times per year 14,000 28,000(4) Diversity and the Bar.......... 2000 3 times per year 2,000 6,000
- --------------- (1) References in the table above to our total circulation include total paid and free circulation. (2) References in the table above to our estimated total readership include total circulation plus combined pass-along readership unadjusted for any overlap that exists among readers of our various publications. (3) AmLaw Tech is distributed for free to subscribers of The American Lawyer. (4) These magazines are distributed primarily free of charge. For these publications, we assume only two readers per copy. Newsletters. Our newsletter division publishes 29 monthly newsletters that cover specialized legal practice areas. Circulation for our newsletters ranges from approximately 125 to 1,250, with an average circulation of over 550. The total number of paid subscribers for all newsletters was approximately 15,000 as of December 31, 2001. The following table sets forth a list of our newsletters as of December 31, 2001: NEWSLETTERS Accounting for Law Firms The Bankruptcy Strategist Business Crimes Bulletin Commercial Leasing Law & Strategy The Corporate Counselor Employment Law Strategist Entertainment Law & Finance Environmental Compliance and Litigation Strategy Equipment Leasing E-Commerce Law & Strategy e Securities Healthcare Fraud and Abuse Insurance Coverage Law Bulletin The Intellectual Property Law Strategist The Internet Newsletter IP Case Law Reporter Law Firm Partnership & Benefits Report LJN's Franchising Business & Law Alert Legal Tech Marketing for Lawyers The Matrimonial Strategist Medical Malpractice Law & Strategy New York Employment Law & Practice New York Family Law Monthly New York Real Estate Law Reporter Patent Strategy & Management Pharmaceutical & Medical Device Laws Bulletin Product Liability Law & Strategy Start-Up & Emerging Companies Strategist Books. We currently publish over 150 books on a broad array of legal topics. These books generally focus on practical legal subjects that arise in the daily professional lives of lawyers. Most of our treatises are updated once or twice per year with inserts to keep the material current. We focus on publishing treatises that cover particularly dynamic areas of law that lend themselves to frequent supplementation. 4 In 2001, we also began publishing softcover and hardcover trade books. As of May 2002, there will be nine titles in this new line. These books focus on general legal subjects and contain practical guidance for attorneys, business professionals and business students that does not need to be updated regularly. These books are distributed through us as well as through traditional bookstores. We usually develop the concept for a new book and then solicit an author to write the text. However, in certain cases, we have received unsolicited manuscripts which we have ultimately published. Authors who have written books for us include prominent attorneys and judges such as Martin Lipton, Judge Jed Rakoff, James Freund, Henry Miller and James Goodale. The following sets forth our current offering of books: BOOKS State and Local Subjects 2000 Dallas County Bench Book (Texas) 2000 Harris County Bench Book (Texas) 2001-2002 Texas Criminal Codes and Rules, Annotated 2002 Pennsylvania Tax Handbook Better than Prison Food (Texas) Duty to Defend: An Insurance Guide (Texas) Marketing and Maintaining a Family Law Mediation Practice (Texas) Georgia Bench Book Encyclopedia of New Jersey Causes of Action New Jersey Brownfields Law New Jersey Business Litigation New Jersey Employment Law New Jersey Federal Civil Procedure New Jersey Insurance Law New Jersey Product Liability Law New Jersey Foreclosure Law & Practice New Jersey Forms of Civil Pleading Employment Law for New Jersey Businesses 2002 New Jersey Tax Handbook Connecticut Labor & Employment Law, 2(nd) Edition New York County Bench Book 2000 Insurance Bad Faith in Pennsylvania Pennsylvania Court Rules Pennsylvania District and County Reports 2001 Allegheny County Court Rules 2001 Bucks County Court Rules 2001 Chester County Court Rules 2001 Delaware County Court Rules 2001 Montgomery County Court Rules 2002 Orphan's Court Rules 2001 Philadelphia County Court Rules 2002 Westmoreland County Court Rules 2001 Lancaster/Berks Counties Court Rules Pennsylvania Legal Research Handbook Paralegal Research in Pennsylvania Res Ispa Jocular (California) National Subjects A Practical Guide to Equal Employment Opportunity A Practical Guide to the Occupational Safety and Health Act Acquisitions Under the Hart-Scott-Rodino Antitrust Improvements Act All About Cable Alternative Dispute Resolution in the Work Place Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate Acquisitions Antitrust Basics Antitrust: An Economic Approach Arbitration: Essential Concepts Biz Dev 3.0: Changing Business As We Know It Business Immigration Law: Strategies for Employing Foreign National Business Separation Transactions: Spin- Offs, Subsidiary IPOs and Tracking Stock Changing the Situs of a Trust Class Actions: The Law of 50 States Communications Law and Practice Computer Law: Drafting and Negotiating Forms and Agreements Consumer Financial Services Corporate Internal Investigations Corporate Privileges and Confidential Information Corporate Sentencing Guidelines: Compliance and Mitigation 5 Cyber Law: Intellectual Property in the Digital Millennium Directors and Officers Liability: Preven- tion, Insurance & Indemnification Divorce, Separation and the Distribution of Property Doing Business on the Internet: Forms and Analysis Due Diligence in Business Transactions E-Commerce Financial Products and Services Employee Benefits Law: ERISA and Beyond Environmental Enforcement: Civil and Criminal Environmental Law Lexicon Environmental Regulation of Real Property Estate Planning Executive Compensation Executive Stock Options and Stock Appreciation Rights Federal Bank Holding Company Law Federal Taxation of Intellectual Property Transfers Federal Tax Litigation Federal Taxation of Real Estate Federal Taxation of S Corporations Federal Trade Commission: Law, Practice and Procedure Ferrara on Insider Trading and The Wall Financial Institutions: Acquisitions and Alliances Franchising: Realities and Remedies Franchising: Realities and Remedies Forms Volume Full Disclosure: The New Lawyers Must-Read Career Guide Fund Governance: Legal Duties of Investment Company Directors Game, Set, Match: Winning the Negotiations Game Going Private Going Public in Good Times and Bad: A Legal and Business Guide Grand Jury Practice Ground Leases and Land Acquisition Contracts Health Care Fraud: Enforcement and Compliance Healthcare Care Benefits Law Hospital Liability "I'd Rather Do It Myself": How to Set Up Your Own Law Firm Inside/Outside: How Businesses Buy Legal Services Insurance Coverage Disputes Intellectual Property Law: Commercial, Creative and Industrial Property Intellectual Property Law: Damages and Remedies Intellectual Property Licensing: Forms and Analysis Internet and Online Law Law Firm Accounting and Financial Management Law Firm Partnership Agreements Lawyering: A Realistic Approach to Legal Practice Legal Research and Law Library Management Lender Liability and Banking Litigation Licensing of Intellectual Property Limited Liability Companies and Limited Liability Partnerships Marketing the Law Firm: Business Development Techniques Maximizing Law Firm Profitability: Hiring, Training and Developing Productive Lawyers Merit Systems Protection Board: Rights and Remedies Modern Visual Evidence Multimedia Law: Forms and Analysis Negotiated Acquisitions of Companies, Subsidiaries and Divisions Negotiating and Drafting Office Leases On Trial: Lessons from a Lifetime in the Courtroom Partnership and Joint Venture Agreements Private Equity Funds: Business Structure & Operations Private Real Estate Syndications Product Liability Product Liability: Winning Strategies and Techniques Products Liability: Recreation and Sports Equipment Public Companies Raoul Felder's Encyclopedia of Matrimonial Clauses Real Estate Financing Reorganizations under Chapter 11 of the Bankruptcy Code Representing High-Tech Companies 6 RICO: Civil and Criminal, Law and Strategy Savings Institutions: Mergers, Acquisitions and Conversions Securities Practice and Electronic Technology Securities Regulation: Liabilities and Remedies Securitizations: Legal and Regulatory Issues Sex Discrimination and Sexual Harassment in the Work Place Shareholder Derivative Litigation: Besieging the Board Shopping Center and Store Leases Start-Up and Emerging Companies: Planning, Financing and Operating the Successful Business State Antitrust Law Structured Settlements and Periodic Payment Judgements Takeovers and Freezeouts Tax Aspects of Divorce and Separation The Contingent Workforce: Business and Legal Strategies The Law and Practice of Secured Transac- tions: Working with Article 9 The Preparation and Trial of Medical Malpractice Cases Trade Secrets Travel Law Use of Statistics in Equal Employment Opportunity Litigation White Collar Crime: Business and Regulatory Offenses Winning Attorney's Fees from the U.S. Government Trade Shows and Seminars. Under the LegalTech tradename, we produce conferences and exhibitions relating to law practice technology in New York, Los Angeles, Chicago, New Orleans, San Francisco, Toronto, Canada, Birmingham, England and London, England as well as an accountancy show in Birmingham, England. The conferences are generally two-day events that include vendor exhibits, a Continuing Legal Education ("CLE") conference program, and a variety of workshops and focus sessions. Attendees typically include attorneys in private practice, corporate counsel, law firm administrators, managing partners, litigation support and information technology personnel, while exhibitors include a variety of software, hardware, publishing and other technology product related companies. We conduct a number of seminars for lawyers and other professionals in related fields. Our seminars complement our other products and services both by serving as powerful marketing vehicles for our existing books and newsletters, and by generating ideas for new seminars, books and newsletters. Seminars also introduce us to lawyers who may subsequently write articles or books for us. The following table sets forth our seminars and trade shows held in 2001: SEMINARS Civil Litigation -- A View From the Bench and the Bar Counseling Start-up and Emerging Companies Distribution and Dealer Termination Failure to Diagnose Fetal Distress General Counsel Conference Joint Ventures and Strategic Alliances Negotiating Contracts in the Entertainment Industry Negotiating Corporate Acquisitions Negotiating the Modern Lease Trial of an Obstetrical Malpractice Case Representing Bio-Tech Clients Representing High-Tech Companies TRADE SHOWS LegalTech New York (January and September) LegalTech Los Angeles LegalTech Chicago LegalTech Toronto LegalTech London LegalTech Southeast (New Orleans) LegalTech San Francisco Solicitors (Birmingham, England) National Accountancy Show (Birmingham, England) LegalOpen Litigation Services. The litigation services division is dedicated to providing the legal community with high-quality, timely news and information about litigation. The division includes The National Law Journal, 7 the nation's premier weekly legal newspaper, the National Verdict Research and Report System, which publishes a series of weekly and monthly verdict and settlement newsletters, and the NLJ Expert Witness and Consultants Network, a group of nine regional expert witness directories. The division also operates three web sites, VerdictSearch.com, NLJExperts.com and NLJ.com, which provide users with access to a vast database of verdict and settlement reports, the nation's premier online expert witness directory and a variety of news and information resources. The network's telephone research service fields more than 20,000 requests annually for verdict, settlement and expert witness research. Among the division's publications, with varying frequencies and circulations ranging from 500 to 30,000, are the following: The National Law Journal National Jury Verdict Reporter New York Jury Verdict Reporter New York Judicial Review of Damages New York Medical Malpractice New York Citator Series (Tort, Civil Motions, Matrimonial, Criminal) Texas Blue Sheet Texas Medical Malpractice California Jury Verdicts Weekly O'Brien's Evaluator Verdicts on Disk Legal Expert Pages California Jury Verdicts Weekly Semi-Annual Index NLJ Directory of Expert Witnesses and Consultants (nine regional editions) PRINTING AND DISTRIBUTION Layouts for our publications are prepared in-house, while our printing and distribution activities are all outsourced. COMPETITION We compete for advertising and subscription revenues with publishers of special-interest legal newspapers and magazines with similar editorial content. However, in most of our markets, our newspaper is the only newspaper focused on serving the legal community. We also compete for advertising revenues with other national legal publications, as well as general-interest magazines and other forms of media, including broadcast and cable television, radio, direct marketing and electronic media. Factors that may affect competition for advertisers include effective costs of such advertising compared to other forms of media, and the size and characteristics of the readership of our publications. We also face significant competition from other legal publishers and legal service providers in all media. INTELLECTUAL PROPERTY We own a number of registered and unregistered trademarks for use in connection with our business, including trademarks in the titles of our major periodicals such as The American Lawyer, Corporate Counsel, The National Law Journal and New York Law Journal. Provided that trademarks remain in continuous use in connection with similar goods or services, their term can be perpetual, subject, with respect to registered trademarks, to the timely renewal of such registrations with the United States Patent and Trademark Office. We approach copyright ownership with respect to our publications in the same manner as is generally customary within the publishing industry. Consequently, we own the copyright to all of our newspapers, magazines and newsletters, as compilations, and also own the copyright to most of our books. With respect to the specific articles in our publications, we generally obtain the assignment of all rights, title and interest in original materials created by our full-time journalists and editors as well as by paid and unpaid contributors. For articles authored by outside contributors, we obtain either all rights, title and interest in the article or the exclusive "first-time publication" and non-exclusive republication rights. Judicial opinions, court schedules 8 and docketing information are provided to us directly by the courts, on a non-exclusive basis, and are public information. We license the content of certain of our publications and forms to third parties, including West Group and Lexis/Nexis, on a non-exclusive basis, for republication and dissemination on electronic databases marketed by the licensees. The current licenses expire in February 2004 and March 2003, respectively, and automatically renew, subject to either party's right to terminate at the end of each subsequent term. In addition, we license our content to Law.com, LLC (formerly Law.com, Inc.) ("Law.com"), an affiliate of ours. We have entered into a five-year license agreement with Law.com which terminates in 2004. Some of our products, such as the Daily Decision Service and PICS, which offer subscribers faxed copies on request of both published and unpublished state and federal court opinions for New Jersey and Pennsylvania, respectively, utilize the extensive databases of court decisions compiled by us. We also have extensive subscriber and other customer databases which we believe would be extremely difficult to replicate. We attempt to protect these databases and lists as trade secrets by restricting access thereto and/or by the use of non-disclosure agreements. There can be no assurance, however, that the means taken to protect the confidentiality of these items will be sufficient, or that others will not independently develop similar databases and customer lists. EMPLOYEES AND LABOR RELATIONS As of December 31, 2001, we employed approximately 783 full-time and part-time employees, 15 of whom are subject to a single collective bargaining agreement. Subject to the following, we believe that our relations with our employees are satisfactory. On May 21, 2001, based on the results of a secret-ballot election held on May 11, 2001, the National Labor Relations Board certified New York Typographical Union No. 6, CWA Local 14156, AFL-CIO (the "Union") as the exclusive representative of a unit of certain of our editorial and advertising production department employees at the New York Law Journal. We opposed the certification on the ground that the unit for which it was issued was inappropriate for purposes of collective bargaining, and we refused to recognize and bargain with the Union in that unit, resulting in the filing of unfair labor practice charges. On November 2, 2001, the NLRB reaffirmed the initial unit determination and ordered us to bargain with the Union. Thereafter, in settlement of the Union's refusal to bargain charge and other alleged unfair labor practices, we and the Union agreed to certain modifications to the unit and the NLRB subsequently amended the certification based on the parties' agreement. Negotiations have started over the terms of a collective bargaining agreement and are continuing. It cannot be said at this time whether or when we and the Union will reach an agreement or what the terms of any agreement might be. SIGNIFICANT TRANSACTIONS On January 31, 2001, we consummated the acquisition of substantially all of the assets and certain of the liabilities of Haslam Publications ("Haslam"), the leading publisher of jury verdict and settlement research data in California. RECENT DEVELOPMENTS Effective February 22, 2002, our revolving credit facility was amended to modify the covenants relating to the total leverage ratio, interest coverage ratio and fixed charge ratio for the remainder of the term of the line of credit. In addition, the revolving credit facility was also amended to allow us to receive equity securities in non-related entities as payment for advertising services provided by us, within certain limits in any one fiscal year. 9 ITEM 2. PROPERTIES We operate from various locations throughout the United States. Our corporate headquarters are based in New York. Information relating to our corporate headquarters and other regional offices which are owned or leased is set forth in the following table:
STREET ADDRESS CITY/STATE SQUARE FOOTAGE LEASE EXPIRATION - ------------------------------------ ------------------- -------------- ---------------- 345 Park Avenue South............... New York, NY 66,000 Sept. 2008 105 Madison Avenue.................. New York, NY 37,500 Sept. 2008 29 Elk Street....................... Albany, NY 200 Dec. 2002 128 Carleton Avenue................. East Islip, NY 1,421 May 2005 4 Wall Street....................... East Islip, NY 500 May 2005 238 Mulberry Street................. Newark, NJ 7,022 Dec. 2006 10 United Nations Plaza............. San Francisco, CA 14,632 Sept. 2009 800 Wilshire Blvd................... Los Angeles, CA 2,624 April 2004 900 Jackson Street.................. Dallas, TX 10,190 Dec. 2003 1010 Brazos......................... Austin, TX 1,300 June 2004 7000 Regency Square, Suites 242-243........................... Houston, TX 3,000 June 2004 190 Pryor Street, S.W. ............. Atlanta, GA 20,000 Owned 1730 M Street, N.W. ................ Washington, DC 11,113 Mar. 2002 1 S.E. Third Avenue................. Miami, FL 19,742 Sept. 2004 633 South Andrews Avenue............ Fort Lauderdale, FL 3,408 Jan. 2003 330 Clematis Street................. W. Palm Beach, FL 2,927 Dec. 2003 1617 JFK Blvd....................... Philadelphia, PA 13,783 Oct. 2009 222 Friend Street................... Boston, MA 1,533 Dec. 2002 199-203 Ann Street.................. Hartford, CT 5,285 Sept. 2005 15950 Bernardo Center Drive......... San Diego, CA 3,620 May 2003 107-111 Fleet Street................ London, UK 1,200 Dec. 2002
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS We are a wholly-owned subsidiary of American Lawyer Media Holdings, Inc. There is no public trading market for our common stock. We have never paid any cash dividends on our common stock. ITEM 6. SELECTED FINANCIAL DATA In August 1997, U.S. Equity Partners, L.P. and its affiliates and certain other investors controlled or managed by WP Management Partners, LLC, an indirect wholly-owned merchant banking subsidiary of Cypress Capital Assets, LP, an independent investment partnership (formerly a subsidiary of Wasserstein Perella Group, Inc., a subsidiary of Dresdner Kleinwort Wasserstein Group, Inc.) (the "Investors"), through Holdings, acquired substantially all of the assets and assumed certain of the liabilities related to American Lawyer Media, L.P. (the "ALM Acquisition"), and, in December 1997, acquired all of the issued and outstanding capital stock of National Law Publishing Company, Inc. (the "NLP Acquisition"). The ALM Acquisition and the NLP Acquisition (collectively, the "Acquisitions") have been accounted for using the purchase method of accounting. The results of operations of American Lawyer Media, L.P. have been included in our financial statements since August 1, 1997, the effective date of the ALM Acquisition, and the results of operations of National Law Publishing Company have been included in our financial statements since December 22, 1997, the closing date of the NLP Acquisition. In connection with the ALM Acquisition, the purchase price was $63.0 million and the excess of the purchase price over the book value of net tangible assets acquired was $67.7 million. The aggregate purchase price for the NLP Acquisition was $203.2 million, and the excess of the purchase price over the book value of net tangible assets acquired was $257.6 million. The excess purchase price of both Acquisitions has been allocated to the intangible assets and goodwill acquired by us based upon their respective fair values as of the acquisition date. The following tables present selected historical financial information (i) for American Lawyer Media, L.P. and its subsidiaries ("Old ALM"), as of and for the seven months ended July 31, 1997, (ii) for us, as of and for the five months ended December 31, 1997 and the years ended December 31, 1998, 1999, 2000 and 2001, and (iii) for NLP, as of and for the period from January 1, 1997 through December 21, 1997. All of our financial data were derived from financial statements audited by Arthur Andersen LLP. Results of operations for the interim periods presented are not necessarily indicative of the results of operations for the full year. The selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and notes thereto included elsewhere in this Form 10-K. See "Index to Financial Statements." 11 AMERICAN LAWYER MEDIA, L.P. AND AMERICAN LAWYER MEDIA, INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS)
AMERICAN LAWYER MEDIA, L.P. AMERICAN LAWYER MEDIA, INC. ------------ ------------------------------------------------------------------------ SEVEN FIVE MONTHS TWELVE TWELVE TWELVE TWELVE MONTHS ENDED ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED JULY 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1997 1998 1999 2000 2001 ------------ ------------ ------------ ------------ ------------ ------------ OPERATING DATA: Revenues: Periodicals: Advertising....................... $18,146 $13,410 $ 67,510 $ 75,887 $ 88,230 $ 85,206 Subscription...................... 6,719 5,260 23,172 23,570 23,407 23,248 Ancillary products and services...... 4,532 4,142 28,208 31,791 42,876 37,379 Internet services.................... 2,148 1,162 2,639 1,244 -- -- ------- ------- -------- -------- -------- -------- Total revenues............... 31,545 23,974 121,529 132,492 154,513 145,833 ------- ------- -------- -------- -------- -------- Operating expenses: Editorial............................ 4,023 3,323 15,523 22,940 26,199 23,000 Production and distribution.......... 6,919 5,766 26,266 29,821 32,436 30,766 Selling.............................. 4,640 3,656 19,002 27,806 32,325 28,436 General and administrative........... 9,531 7,145 30,012 32,029 38,775 39,542 Internet services.................... 6,464 2,988 4,667 3,313 -- -- Depreciation and amortization........ 1,590 3,273 26,302 27,298 28,415 29,900 Shutdown of Internet services........ -- 3,000 -- -- -- -- ------- ------- -------- -------- -------- -------- Total operating expenses..... 33,167 29,151 121,772 143,207 158,150 151,644 ------- ------- -------- -------- -------- -------- Operating loss......................... (1,622) (5,177) (243) (10,715) (3,637) (5,811) Interest expense....................... (1,420) (2,420) (18,346) (18,962) (19,470) (18,466) Other income (expense)................. -- -- -- 187 (523) (5,436) Benefit for income tax................. -- -- 3,403 3,078 4,290 11,804 ------- ------- -------- -------- -------- -------- Net loss............................... $(3,042) $(7,597) $(15,186) $(26,412) $(19,340) $(17,909) ======= ======= ======== ======== ======== ======== BALANCE SHEET DATA: (At end of period) Working capital deficit................ $(5,895) $(8,676) $(14,844) $(14,257) $(11,585) $ (9,273) Total assets........................... 18,982 359,958 366,775 348,414 342,833 314,850 Long-term debt (including current maturities).......................... 34,742 175,000 183,500 193,300 195,500 202,000 Partners' (deficit) surplus and stockholder's equity................. (29,342) 101,178 100,992 74,320 61,718 43,826 OTHER DATA: EBITDA(1): Periodicals and ancillary products and services...................... $ 4,284 $ 2,922 $ 28,087 $ 18,652 $ 24,778 $ 24,089 Internet services.................... (4,316) (4,826) (2,028) (2,069) -- -- ------- ------- -------- -------- -------- -------- Total........................ $ (32) $(1,904) $ 26,059 $ 16,583 $ 24,778 $ 24,090 ======= ======= ======== ======== ======== ======== Capital expenditures: Periodicals and ancillary products and services...................... $ 439 $ 357 $ 3,767 $ 11,196 $ 5,906 $ 3,276 Internet services.................... 1,532 7 144 90 -- -- ------- ------- -------- -------- -------- -------- Total........................ $ 1,971 $ 364 $ 3,911 $ 11,286 $ 5,906 $ 3,276 ======= ======= ======== ======== ======== ========
- --------------- (1) "EBITDA" is defined as income before interest, income taxes, depreciation and amortization and other extraordinary gains and losses. EBITDA is not a measure of performance under generally accepted accounting principles ("GAAP"). Items excluded from income in calculating EBITDA are significant components in understanding and evaluating Old ALM's and our financial performance. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating publishing companies. The EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. 12 NATIONAL LAW PUBLISHING COMPANY, INC. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS)
PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 21, 1997 ----------------- OPERATING DATA: Revenues: Periodicals: Advertising............................................. $ 26,402 Subscription............................................ 9,504 Ancillary products and services........................... 13,926 Internet services......................................... 1,109 -------- Total revenues...................................... 50,941 -------- Operating expenses: Editorial................................................. 5,837 Production and distribution............................... 9,872 Selling................................................... 8,211 General and administrative................................ 8,722 Internet services......................................... 1,657 Depreciation and amortization............................. 7,283 Special compensation charge............................... 6,926 -------- Total operating expenses............................ 48,508 -------- Operating income............................................ 2,433 Interest expense, net....................................... (5,137) Other income................................................ -- -------- Loss before income taxes.................................... (2,704) Provision for income taxes.......................... (2,508) -------- Net loss.................................................... $ (5,212) ======== BALANCE SHEET DATA: (at end of period) Working capital deficit..................................... $ (2,204) Total assets................................................ 139,610 Long-term debt (including current maturities)............... 59,500 Stockholders' equity........................................ 64,782 OTHER DATA: EBITDA(1): Periodicals and ancillary products and services........... $ 10,264 Internet services......................................... (548) -------- Total............................................... $ 9,716 ======== Capital expenditures: Periodicals and ancillary products and services........... $ 473 Internet services......................................... 42 -------- Total............................................... $ 515 ========
- --------------- (1) EBITDA is not a measure of performance under GAAP. Items excluded from income in calculating EBITDA are significant components in understanding and evaluating NLP's financial performance. While EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity, management understands that EBITDA is customarily used in evaluating publishing companies. The EBITDA measures presented herein may not be comparable to similarly titled measures of other companies. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Selected Financial Data and our audited historical consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-K. OVERVIEW In February 2000, we discontinued publication of four of our six weekly newsletters. In July 2000, we discontinued publication of the remaining two newsletters. On March 28, 2000, we sold the business constituting The Daily Deal and Corporate Control Alert (the "Business") to The Deal, L.L.C. (formerly TDD, L.L.C.), a limited liability company (the "Purchaser"), owned by substantially all of the same stockholders as Holdings, including U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. The consideration for the sale was $7.5 million in cash and $2.5 million face amount of a membership interest in the Purchaser (the "Preferred Membership Interest"). The Preferred Membership Interest is included in other assets on the Balance Sheet. The Preferred Membership Interest accrues at 12.25% compounded annually and is convertible into 3.0% of the common equity of the Purchaser. In addition, the Purchaser paid us $1.68 million, representing the aggregate amount of operating losses incurred by us in connection with the operation of the Business for the month of March 2000. On May 15, 2000, we consummated the acquisition of substantially all of the assets and certain of the liabilities of Moran Publishing Company, Inc. ("Moran"), the leading publisher of jury verdict and settlement research data in New York State. On December 27, 2000, we consummated the acquisition of two regional trade shows in the United Kingdom from Nationwide Exhibitions (UK) Ltd. ("Nationwide"). Under the agreement, we purchased rights and related assets for Solicitors, The National Legal Office and Legal Services Exhibition and The National Accountancy Exhibition. On January 31, 2001, we consummated the acquisition of substantially all of the assets and certain of the liabilities of Haslam Publications ("Haslam"), the leading publisher of jury verdict and settlement research data in California. During the second quarter and fourth quarter of 2001, upon the decision to restructure certain of our operations, we accrued approximately $2.0 million of restructuring charges. These charges primarily relate to severance arrangements and have been included in operating income. As of December 31, 2001, approximately $0.7 million, representing the unpaid charges, is included in accrued expenses. During the second quarter of 2001, we wrote-off certain available for sale investments as the decline in value of these investments has been deemed to be other than temporary. This write-down of $4.7 million has been included in other (expense) income. During the third quarter of 2001, we sold certain assets associated with our printing facility in Florida. We recognized a net loss of approximately $0.8 million from the sale of these assets and other costs directly associated with the transaction. 14 The following table presents the results of operations (in thousands) for the years ended December 31, 1999, 2000 and 2001.
YEARS ENDED DECEMBER 31, ------------------------------ 1999 2000 2001 -------- -------- -------- OPERATING DATA: Revenues: Periodicals: Advertising..................................... $ 75,887 $ 88,230 $ 85,206 Subscription.................................... 23,570 23,407 23,248 Ancillary products and services.................... 31,791 42,876 37,379 Internet services.................................. 1,244 -- -- -------- -------- -------- Total revenues....................................... 132,492 154,513 145,833 -------- -------- -------- Operating expenses: Editorial.......................................... 22,940 26,199 23,000 Production and distribution........................ 29,821 32,436 30,766 Selling............................................ 27,806 32,325 28,436 General and administrative......................... 32,029 38,775 39,542 Internet services.................................. 3,313 -- -- Depreciation and amortization...................... 27,298 28,415 29,900 -------- -------- -------- Total operating expenses............................. 143,207 158,150 151,644 -------- -------- -------- Operating loss....................................... $(10,715) $ (3,637) $ (5,811) ======== ======== ========
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 For the year ended December 31, 2001, the financial results include the acquisitions of Nationwide in late December 2000 and Haslam in January 2001, both since the date of acquisition. Overview. Total revenues decreased $8.7 million, or 5.6%, from $154.5 million for the year ended December 31, 2000 to $145.8 million for the year ended December 31, 2001. Total operating expenses decreased $6.5 million, or 4.1%, from $158.1 million for the year ended December 31, 2000 to $151.6 million for the year ended December 31, 2001. As a result, the operating loss widened $2.2 million from a loss of $3.6 million for the year ended December 31, 2000 to a loss of $5.8 million for the year ended December 31, 2001. Earnings before interest, income taxes, depreciation and amortization and other extraordinary gains and losses ("EBITDA") decreased $0.7 million, or 2.8%, from $24.8 million for the year ended December 31, 2000 to $24.1 million for the year ended December 31, 2001. Revenues. Total revenues decreased $8.7 million, or 5.6%, from $154.5 million for the year ended December 31, 2000 to $145.8 million for the year ended December 31, 2001. Advertising revenues decreased $3.0 million, or 3.4%, from $88.2 million for the year ended December 31, 2000 to $85.2 million for the year ended December 31, 2001. The decline in advertising revenues primarily resulted from a decrease in classified, legal notice and directory advertising. Classified advertising was the largest contributor to this decline with a decrease of $5.0 million, or 18.1%, which occurred across virtually all of our publications. This decline primarily resulted from the economic downturn experienced during 2001 as compared to the higher revenues realized during 2000. Legal notice and directory advertising revenues also declined $0.5 million, or 2.3%, and $0.3 million, or 12.7%, respectively, for 2001 as compared to 2000. Partially offsetting these declines was strong growth in law firm advertising revenues, which grew $2.6 million, or 25.2%, from $10.2 million for the year ended December 31, 2000 to $12.8 million for the year ended December 31, 2001. Increased advertising pages and increased frequency in three publications contributed $1.5 million of the growth, with the balance of the growth coming from new publications started in 2001. Subscription revenues decreased $0.2 million, or 0.7%, from $23.4 million for the year ended December 31, 2000 to $23.2 million for the year ended December 31, 2001. The decline in subscription revenues in 15 2001 resulted primarily from a slight decline in subscriptions for The National Law Journal prior to its refocus as a litigation-focused publication. Revenues from ancillary products and services decreased $5.5 million, or 12.8%, from $42.9 million for the year ended December 31, 2000 to $37.4 million for the year ended December 31, 2001. A decline in revenues from ancillary products and services resulted primarily from lower syndication revenues of $4.5 million recorded in 2001 as compared to 2000. This decrease was the result of an amendment to our agreement with Law.com to exclusively develop and supply legal content. In addition, printing revenues declined $1.5 million due to the sale of our Florida printing operations in July 2001, custom publishing revenues declined $1.0 million due to the closing of that division and seminar revenue declined by $0.8 million due to a decline in attendance. These declines were partially offset by revenue growth of $1.3 million, or 95.5%, in legal information services revenues, book revenues of $0.9 million, or 8.3%, and tradeshow revenues of $1.2 million, or 26.7%, for 2001 as compared to 2000. Operating expenses. Total operating expenses declined $6.5 million, or 4.1%, from $158.1 million for the year ended December 31, 2000 to $151.6 million for the year ended December 31, 2001. Lower operating expenses in 2001 were primarily realized in editorial, production and distribution, and selling expense categories. These decreases were partially offset by increased depreciation and amortization expenses along with higher general and administrative expenses. Included in general and administrative expenses for 2001 are pre-tax restructuring costs of $2.0 million, which relate to severance arrangements from a workforce reduction and the realignment of various divisions to capitalize on inherent synergies within our acquired businesses in 2000 and 2001. The decrease in operating expenses was partially offset by increased costs related to new publications and acquisitions made during 2000 and 2001. In addition, increased depreciation and amortization expenses resulted from additional goodwill, intangibles and capital assets recorded during 2000 and 2001. The acquisitions commenced in 2000 and 2001 are fully reflected in the results for the year ended December 31, 2001, while the results for the year ended December 31, 2000 only reflect a small portion of those expenses. Editorial expenses decreased $3.2 million, or 12.2%, from $26.2 million for the year ended December 31, 2000 to $23.0 million for the year ended December 31, 2001. The decrease in editorial expenses primarily resulted from reduced expenses of $2.6 million due to the sale of the Business along with the discontinuation of the weekly newsletter division in 2000. In addition, lower editorial expenses were recorded as a result of the reduction in syndication revenues and our restructuring efforts during 2001. These declines were partially offset by increased expenses from new publications started in 2000 and 2001. Production and distribution expenses decreased $1.6 million, or 5.2%, from $32.4 million for the year ended December 31, 2000 to $30.8 million for the year ended December 31, 2001. Lower production and distribution expenses primarily resulted from a decline in commercial printing expenses of $1.0 million due to the sale of our Florida printing operations and from $0.8 million related to the sale of the Business and the discontinuation of the weekly newsletter division. Also contributing to this decline were lower costs resulting from the discontinuation of the custom publishing division and other cost containment efforts. These expenses were partially offset by higher costs from new publications started and acquisitions made during 2000 and 2001. Selling expenses decreased $3.9 million, or 12.0%, from $32.3 million for the year ended December 31, 2000 to $28.4 million for the year ended December 31, 2001. The decrease was primarily attributable to lower selling expenses of $1.4 million due to the sale of the Business along with the discontinuation of the weekly newsletter division in 2000, which primarily reduced display advertising, circulation and telemarketing expenses. In addition, lower selling expenses of $1.0 million were incurred which related to the decline in advertising revenues during 2001. Also contributing to this decline were lower expenses related to circulation, general marketing and telemarketing throughout our publications. General and administrative expenses increased $0.7 million, or 2.0%, from $38.8 million for the year ended December 31, 2000 to $39.5 million for the year ended December 31, 2001. The increase in general and administrative expenses for 2001 resulted primarily from a $2.0 million pre-tax restructuring charge, higher benefits costs and legal and other professional fees. Partially offsetting these increases were savings of 16 $1.9 million due to the sale of the Business and the discontinuation of the weekly newsletter division in 2000 and from other savings which resulted from our cost containment efforts during 2001. Depreciation and amortization expenses increased $1.5 million, or 5.2%, from $28.4 million for the year ended December 31, 2000 to $29.9 million for the year ended December 31, 2001. Depreciation expenses increased $0.7 million for 2001 compared to 2000. In addition, amortization expenses on goodwill and intangible assets increased $0.8 million during this same period. Higher depreciation expenses for 2001 resulted from additional capital improvements on our leased properties and capital expenditures incurred in database development for our jury verdict and expert witness businesses, as well as enhancements to existing systems and equipment modernization. The increase in amortization expenses of goodwill and intangibles resulted from goodwill and intangible assets recognized as a result of the acquisitions of Nationwide in late 2000, Haslam in January 2001 and the full-year impact of the Moran acquisition in 2000. Operating loss. As a result of the above factors, the operating loss widened $2.2 million, from a $3.6 million loss for the year ended December 31, 2000 to a $5.8 million loss for the year ended December 31, 2001. In addition, EBITDA decreased $0.7 million, or 2.8%, from $24.8 million for the year ended December 31, 2000 to $24.1 million for the year ended December 31, 2001. The decline in EBITDA primarily resulted from lower advertising revenues, content licensing and royalty fees, lower printing revenues resulting from the sale of our Florida printing operations and revenue declines from the discontinuance of our custom publication division, partially offset by increased book, tradeshow and legal information services revenues. Also offsetting the decline in EBITDA are lower editorial, production and selling expenses incurred 2001 over 2000, partially offset by a $2.0 million pre-tax restructuring charge recorded in 2001. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 For the year ended December 31, 2000, the financial results include the acquisition of Moran in May 2000 since the date of acquisition. Overview. Total revenues increased $22.0 million, or 16.6%, from $132.5 million for the year ended December 31, 1999 to $154.5 million for the year ended December 31, 2000. Total operating expenses increased $14.9 million, or 10.4%, from $143.2 million for the year ended December 31, 1999 to $158.1 million for the year ended December 31, 2000. As a result, the operating loss decreased $7.1 million from a loss of $10.7 million for the year ended December 31, 1999 to a loss of $3.6 million for the year ended December 31, 2000 and EBITDA increased $8.2 million, or 49.4%, from $16.6 million for the year ended December 31, 1999 to $24.8 million for the year ended December 31, 2000. The growth in revenue and EBITDA resulted from strong classified and display advertising revenues generated from several of our periodicals, growth in the LegalTech tradeshow division and sales of new books and book updates in our book division and increased content licensing and royalty fees from Law.com. Also contributing to EBITDA growth during 2000 was the elimination of operating losses as a result of the sale of our Internet business to Law.com in 1999, the sale of the Business to The Deal, L.L.C. and the discontinuation of our weekly newsletters. Revenues. Advertising revenues increased $12.3 million, or 16.3%, from $75.9 million for the year ended December 31, 1999 to $88.2 million for the year ended December 31, 2000. All categories of advertising grew during 2000 with the greatest growth being reflected in display and classified advertising. These two categories contributed $9.2 million, or 74.8%, of the advertising growth during 2000. Law firm, legal and directory advertising contributed to the remaining growth. Advertising revenues in our core publications grew $10.6 million, or 14.0%, during 2000, while new publication launches and product extensions within our core publications accounted for an increase in advertising revenue of $1.9 million in 2000. Subscription revenues decreased $0.2 million, from $23.6 million for the year ended December 31, 1999 to $23.4 million for the year ended December 31, 2000. The decline in subscription revenues in 2000 resulted primarily from slight declines in our national publications which were partially offset by stronger activity in the regional publications. Revenues from ancillary products and services increased $11.1 million, or 34.9%, from $31.8 million for the year ended December 31, 1999 to $42.9 million for the year ended December 31, 2000. Increased revenues primarily resulted from increased content licensing fees of $5.6 million, growth of $1.0 million in sales of new 17 books and book updates, increased revenues from our LegalTech division and seminars division of $0.9 million, and increased revenues from the acquisitions of Moran in 2000 and Blue Sheet in late 1999 of $1.9 million. In addition, the custom publishing division, which commenced in 2000, accounted for $1.1 million of revenues with no like revenue generated in 1999. Increases in this category during 2000 were partially offset by lower information service revenues, due to the sale of our Internet business in 1999 along with lower printing revenue. Revenues from Internet services totaled $1.2 million for the year ended December 31, 1999 with no like revenues recorded for the year ended December 31, 2000. The decrease is attributable to the sale of our Internet business during the third quarter of 1999. Operating expenses. Total operating expenses increased $14.9 million, or 10.4%, from $143.2 million for the year ended December 31, 1999 to $158.1 million for the year ended December 31, 2000. Of this amount, operating expenses for our new projects commenced in 2000 accounted for $10.9 million of the increase. The projects, i.e., the international and database publishing initiatives, commenced in 2000 and are fully reflected in the full year results while the results for 1999 had no like expense. The remaining increase in operating expenses in 2000 over 1999 resulted primarily from higher core business unit costs of $8.5 million, partially offset by lower costs in 2000 resulting from the sale of the Business to The Deal, L.L.C. and the discontinuation of the weekly newsletters. Within operating expenses, higher costs were realized in editorial and production, selling, general and administrative and depreciation and amortization expenses. The increased expenses were partially offset by the elimination of operating expense related to Internet services resulting from the sale of our Internet business during the third quarter of 1999. Editorial expenses increased $3.3 million, or 14.2%, from $22.9 million for the year ended December 31, 1999 to $26.2 million for the year ended December 31, 2000. Editorial expenses for new projects commenced in 2000 increased $3.6 million, while editorial expenses in the core business units increased $0.6 million. Partially offsetting these increases were lower editorial costs resulting from the sale of the Business to The Deal, L.L.C. The net increase during 2000 primarily resulted from increased art costs of $0.6 million with the balance of the increase being attributable to contributing editors, salaries and benefits primarily for new projects commenced in 2000. Production and distribution expenses increased $2.6 million, or 8.8%, from $29.8 million for the year ended December 31, 1999 to $32.4 million for the year ended December 31, 2000. Higher costs resulted from increased production and distribution expenses of $1.8 million in core business units and $1.8 million in new projects commenced in 2000. This was partially offset by lower costs resulting from the sale of the Business to The Deal, L.L.C. in 2000 and by the elimination of production and distribution costs resulting from the sale of our Internet business during the third quarter of 1999. Higher costs primarily resulted from increased material and printing related costs along with increased trade show and seminar costs resulting from business growth. In addition, expenses related to new projects commenced in 2000 were realized with no like expense recorded in 1999. Selling expenses increased $4.5 million, or 16.2%, from $27.8 million for the year ended December 31, 1999 to $32.3 million for the year ended December 31, 2000. Selling expenses for new projects commenced in 2000 accounted for $1.8 million of the increase, while selling expenses in the core business units also increased $5.4 million. This was partially offset by lower costs of $2.7 million, resulting from the sale of the Business to The Deal, L.L.C. and the completion of the discontinuation of the weekly newsletters in 2000. General and administrative expenses increased $6.8 million, or 21.1%, from $32.0 million for the year ended December 31, 1999 to $38.8 million for the year ended December 31, 2000. General and administrative expenses for new projects commenced in 2000 accounted for $3.5 million of the increase, while expenses in the core business units also increased $3.5 million. The total increase primarily resulted from increased staffing levels, higher rent, other facilities-related costs and legal and other professional costs, resulting from our growth and expansion into new markets. 18 Internet services expenses totaled $3.3 million for the year ended December 31, 1999 with no like expense recorded for the year ended December 31, 2000. The elimination of Internet services expenses resulted from the sale of our Internet business to Law.com during the third quarter of 1999. Depreciation and amortization expenses increased $1.1 million, or 4.1%, from $27.3 million for the year ended December 31, 1999 to $28.4 million for the year ended December 31, 2000. Depreciation expenses increased $1.3 million for the year ending December 31, 2000 over the same period in 1999. Partially offsetting this increase was lower goodwill and intangible asset amortization expenses recorded during 2000 primarily for the partial transfer of goodwill as part of the sale of our Internet business to Law.com. Higher depreciation expense during 2000 resulted from the large capital expenditures incurred during 1999 for the upgrade and purchase of new computer equipment and systems, for capitalized improvements and furnishings in existing and new facilities to support the 1999 new initiatives along with 2000 capital expenditures for completing the installation of the advertising, editorial and billing systems, investments in database capabilities to drive future growth and minor renovations in the corporate offices. Operating loss. As a result of the above factors, the operating loss narrowed $7.1 million from a $10.7 million loss for the year ended December 31, 1999 to a $3.6 million loss for the year ended December 31, 2000. In addition, EBITDA increased $8.2 million, or 49.4%, from $16.6 million for the year ended December 31, 1999 to $24.8 million for the year ended December 31, 2000. LIQUIDITY AND CAPITAL RESOURCES Capital expenditures. Capital expenditures totaled $3.3 million for the year ended December 31, 2001. Database development, computer system enhancements and hardware upgrades totaled $2.6 million with the balance used for leasehold improvements, including furniture and equipment in the New York and regional offices. During 2001, we continued to focus our capital resources on the development of our information service database and to strengthen our systems infrastructure. In addition, renovations were started on our owned building in Georgia. Net cash provided by operating activities. Net cash provided by operating activities was $2.7 million for the year ended December 31, 2001, which primarily reflects depreciation and amortization of $29.9 million, the write-down of private equity securities of $4.7 million, a decrease of accounts receivable of $3.5 million, an increase in current and non-current liabilities of $0.7 million, non-cash interest of $0.9 million and the loss of $0.8 million from the sale of the Florida printing operations. Partially offsetting this increase is a net loss of $17.9 million, a decrease in deferred tax benefit of $11.9, a decrease in deferred income of $4.3 million, a decrease in accounts payable of $3.0 million and a decrease in accrued expense payable of $0.6 million. Net cash used in investing activities. Net cash used in investing activities was $8.9 million for the year ended December 31, 2001, primarily resulting from the purchase of a business totaling $5.9 million and capital expenditures of $3.3 million. This cash outflow was partly offset by cash received from the sale of the Florida printing operations of $0.3 million. Net cash provided by financing activities. Net cash provided by financing activities totaled $6.4 million for the year ended December 31, 2001, which reflects a net drawdown of $6.5 million under the Revolving Credit Facility (described below). Working capital. We traditionally have favorable cash flow characteristics resulting from our high level of advance payments by subscribers, low working capital investment, low capital expenditure needs, predictable cost structure and high margins. Because cash receipts associated with subscriptions are received toward the beginning of a subscription cycle, our periodicals business requires minimal investment in working capital. During 2001, we incurred losses from pre-tax restructuring charges of $2.0 million, purchased a business for $5.9 million and recorded declines in deferred income. In addition, we made an additional capital investment in our systems and facilities of $3.3 million. These factors combined to produce reduced cash flow for 2001. 19 Liquidity. Our principal sources of funds are anticipated to be cash flows from operating activities, which may be supplemented by borrowings under the Revolving Credit Facility (described below). We believe that these funds will be sufficient to meet our current financial obligations, including the payment of interest on the $175,000,000 of 9.75% senior notes and on the outstanding balance under our Revolving Credit Facility, working capital, capital expenditures and other obligations. No assurance can be given, however, that this will be the case. Our future operating performance and ability to service or refinance the Notes (defined below) 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. MATERIAL FINANCINGS We have borrowed funds to finance our operations through the transactions described below. Revolving Credit Facility. On March 25, 1998, we entered into a $40 million, five-year senior secured revolving credit facility (the "Revolving Credit Facility") with a group of banks to be available for working capital and general corporate purposes, including acquisitions and capital expenditures. The Revolving Credit Facility is guaranteed by Holdings and by all of our existing and future subsidiaries. In addition, the Revolving Credit Facility is secured by a first priority security interest in substantially all of our properties and assets and our existing and future domestic subsidiaries, including a pledge of all of the stock of such subsidiaries, and a pledge by Holdings of all of our stock. The Revolving Credit Facility contains customary covenants commensurate with the size of the Revolving Credit Facility that restrict our ability and our subsidiaries' ability to take certain actions. On April 14, 1998, Holdings contributed an aggregate of $15 million to our equity capital. The proceeds of the equity contribution were used to fund acquisitions and to provide capital for internal growth. Effective March 29, 1999, Holdings and we amended the Revolving Credit Facility (inter alia) to limit our ability to borrow in excess of $20 million under the Revolving Credit Facility until certain ratios are achieved, modify certain of the covenants and modify the interest calculation mechanism. Effective July 20, 1999, the Revolving Credit Facility was further amended to provide for the sale of our Internet business to Law.com and to modify certain debt covenants. Effective March 28, 2000, the Revolving Credit Facility was further amended to modify certain of the covenants, permit the sale of the Business and to increase the revolver limit described above from $20 million to $22.5 million. On January 10, 2001, the Revolving Credit Facility was further amended to modify certain of the covenants and to increase the borrowing limit described above from $22.5 million to $29 million upon the consummation of the Haslam acquisition. This amendment (inter alia) also limited our ability to consummate additional acquisitions until certain ratios are achieved. Effective August 10, 2001, the Revolving Credit Facility was amended to permanently reduce the aggregate revolving commitment to $29.0 million and to clarify certain sections as well as to waive compliance with certain of the covenants at June 30, 2001. Effective October 15, 2001, we received a waiver of compliance with certain of the covenants at September 30, 2001 and at December 31, 2001. Effective February 22, 2002, the Revolving Credit Facility was further amended to modify the covenants relating to the total leverage ratio, interest coverage ratio and fixed charge ratio for the remainder of the term of the line of credit. In addition, the Revolving Credit Facility was also amended to allow us to receive equity securities in non-related entities as payment for advertising services provided by us, within certain limits in any one fiscal year. Senior Notes Financing. In December 1997, we issued $175,000,000 aggregate principal amount of 9.75% Senior Notes due 2007 (the "Notes"). The Notes are unsecured general obligations and are fully and unconditionally guaranteed on a joint and several and senior unsecured basis, by us and each of our existing and future subsidiaries. The subsidiary guarantors comprise all of our direct and indirect subsidiaries and each of the subsidiary guarantors is a wholly-owned subsidiary of us. Separate financial statements of, and other disclosures concerning the subsidiary guarantors are not included herein because of the subsidiary guarantors' full and unconditional guarantee of the Notes and management has determined that separate financial statements and other disclosures concerning the subsidiary guarantors are not material and would not provide any additional meaningful disclosure. There are currently no contractual or regulatory restrictions limiting the ability of the subsidiary guarantors to make distributions to us. The Notes may be redeemed at any time by us, 20 in whole or in part, at various redemption prices that include accrued and unpaid interest. The Notes contain certain covenants that, among other things, limit the incurrence of additional indebtedness by us and our subsidiaries, the payment of dividends and other restricted payments by us and our subsidiaries, asset sales, transactions with affiliates, the incurrence of liens, and mergers and consolidations. Assuming there is no redemption of the Notes prior to maturity, the entire principal will be payable on December 15, 2007. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We and Holdings have entered into a Revolving Credit Facility. Each revolving loan bears interest on the outstanding principal amount from the borrowing date until it becomes due at a rate per annum equal to the "Base Rate" or the Eurodollar rate plus the "Applicable Margin". The Applicable Margin varies depending on our total leverage ratio. As of March 28, 2002, the Applicable Margin was 2.5% for Base Rate loans and 3.5% for Eurodollar rate loans. The Base Rate is the higher of the Bank of America publicly announced "Reference Rate" or the Federal Funds rate plus 0.5%. The amount outstanding under the Revolving Credit Facility was $27.0 million at December 31, 2001. The blended interest rate at December 31, 2001 was 5.5%. A 10% increase in the average rate during 2001 would have increased our net loss to approximately $18.1 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Exhibits, which appears on Page F-1 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 21 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT The following table sets forth certain information regarding each of the executive officers and directors of us and Holdings as of March 29, 2002.
NAME AGE POSITION - -------------------------------- --- ----------------------------------------------------- Executive Officers and Directors of us and Holdings Bruce Wasserstein............... 54 Chairman of the Board William L. Pollak............... 46 President, Chief Executive Officer and Director Anup Bagaria.................... 29 Vice President and Director Michael J. Biondi............... 44 Director Robert C. Clark................. 58 Director Donald G. Drapkin............... 54 Director James A. Finkelstein............ 53 Director George L. Majoros, Jr........... 40 Director Andrew G.T. Moore, II........... 66 Director Jack Berkowitz.................. 55 Vice President, Strategic Planning Joseph Calve.................... 48 Vice President, Litigation Services Sara Diamond.................... 43 Vice President, Book and Newsletter Publishing Allison C. Hoffman.............. 31 Vice President, General Counsel Stephen C. Jacobs............... 40 Vice President, Chief Financial Officer and Secretary Eric F. Lundberg................ 44 Vice President, Finance Kevin Vermeulen................. 38 Vice President, Group Publisher
Each Director is elected annually and serves until the next annual meeting of stockholders or until his or her successor is duly elected and qualified. The Independent Directors are each compensated $20,000 per year for their service as Directors and receive reimbursement of expenses incurred from their attendance at Board of Directors meetings. The Board has established an executive committee (the "Executive Committee") consisting of three members, currently Bruce Wasserstein, George Majoros and Anup Bagaria. The Executive Committee has been delegated the authority to approve (i) the acquisition and divestiture by us or our affiliates of all or a portion of one or more business entities for a price of up to $25 million, (ii) the appointment of our senior officers and the senior officers of our affiliates and termination of such employment, (iii) the preparation and approval of short-term and long-term budgets and (iv) other material policy-level decisions to the extent permitted by the Delaware General Corporation Law. EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF THE COMPANY AND HOLDINGS Bruce Wasserstein has served as Chairman of the Board of Directors of us and Holdings since both our and its founding in December 1997. He is Chief Executive Officer of Lazard LLC, and Chairman of Wasserstein & Co., LP, the private merchant bank that owns Holdings. Previously, he was Executive Chairman of Dresdner Kleinwort Wasserstein, Chairman, Chief Executive Officer and founder of Wasserstein Perella Group, Inc. ("WPG"), Chairman of the Board of Directors of Maybelline, Inc. and a Director of Collins & Aikman Corp. Before establishing WPG, Mr. Wasserstein was Co-Head of Investment Banking at The First Boston Corporation and a Managing Director and Member of its Management Committee. Prior to joining First Boston in 1977, Mr. Wasserstein was an attorney at Cravath, Swaine & Moore in New York City. Mr. Wasserstein graduated with honors from the University of Michigan in 1967. In 1971 he graduated from Harvard Business School as a Baker Scholar with high distinction, and earned a J.D., cum laude, from Harvard Law School. In 1972, he was a Knox Traveling Fellow at Cambridge University. Mr. Wasserstein is a member of the Council on Foreign Relations. He has served as a member of the SEC's Advisory Committee on Tender Offers, and as a member of the Visiting Committees of Harvard Law School, the University of 22 Michigan and Columbia Journalism School. Mr. Wasserstein is also on the boards of numerous private companies. William L. Pollak has served as President, Chief Executive Officer and Director of us and Holdings since March 1998. Before joining us, Mr. Pollak spent 16 years at The New York Times, where he held a variety of positions, most recently as Executive Vice President, Circulation. Anup Bagaria has served as a Vice President and Director of us and Holdings since both our and its founding in December 1997. He is a Managing Director of Wasserstein & Co., LP. He graduated from the Massachusetts Institute of Technology. Mr. Bagaria also serves on the board of various private companies. Michael J. Biondi has served as a Director of us and Holdings since both our and its founding in December 1997. He is Chairman and Co-Chief Executive Officer of Dresdner Kleinwort Wasserstein, North and South America. Previously, Mr. Biondi was Chairman and Chief Executive Officer of Wasserstein Perella & Co., Inc. Mr. Biondi holds M.B.A. and J.D. degrees from the Wharton School and the University of Pennsylvania Law School, respectively. Prior to joining Wasserstein Perella & Co., Mr. Biondi was a member of the First Boston Mergers & Acquisitions Group, and practiced law at Skadden, Arps, Slate, Meagher & Flom LLP. Robert C. Clark has served as a Director of us and Holdings since our and its founding in December 1997. He has been Dean of the Harvard Law School since 1989 and is the Royall Professor of Law. Mr. Clark is a trustee of Teachers' Insurance Annuity Association (TIAA). He is currently a Director of Collins & Aikman Corp. Donald G. Drapkin has served as a Director of us and Holdings since our and its founding in December 1997. He has been a Director and Vice Chairman of MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987. Prior to joining MacAndrews & Forbes, Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP for more than five years. Mr. Drapkin also is a Director of the following corporations which file reports pursuant to the Securities Exchange Act of 1934: Anthracite Capital, Inc., BlackRock Asset Investors, The Molson Companies Limited, Panavision, Inc., Playboy.com. Inc., Playboy Enterprises, Inc., Revlon Consumer Products Corporation, Revlon, Inc. and The Warnaco Group, Inc. James A. Finkelstein has served as a Director of us and Holdings since our and its founding in December 1997. He has been President of News Communications, Inc. since mid-2001. Prior to that, Mr. Finkelstein served as President and Chief Executive Officer of NLP and its predecessor companies beginning in 1974. He joined the New York Law Publishing Company in 1970. He was the former publisher of the New York Law Journal and the founder and publisher of The National Law Journal. He currently serves on the Faculty of Arts and Sciences Board of Overseers at New York University. George L. Majoros, Jr. has served as a Director of us and Holdings since June 5, 2000. He has been President and Chief Operating Officer of Wasserstein & Co., LP since its inception in January 2001. Prior thereto, he was a Managing Director of Wasserstein Perella & Co., Inc. and the Chief Operating Officer of its Merchant Banking Group. He joined Wasserstein Perella & Co., Inc. in early 1993 after practicing law with Jones Day Reavis & Pogue since September 1986. Mr. Majoros also serves on the board of directors of numerous private companies. Andrew G. T. Moore, II has served as a Director of us and Holdings since our and its founding in December 1997. He is a Managing Director of Dresdner Kleinwort Wasserstein, formerly Wasserstein Perella & Co., and is a former Justice of the Delaware Supreme Court. Justice Moore served on the Delaware Supreme Court for 12 years until 1994, when he joined Wasserstein Perella & Co. Justice Moore has served as the Lehmann Distinguished Visiting Professor of Law at Washington University in St. Louis. He has also served as an adjunct professor of law at the Georgetown University Law Center, University of Iowa College of Law and Widener University School of Law, where he taught seminars in advanced corporation law. He also teaches comparative principles of international corporation law at the Tulane University Institute of European Legal Studies in Paris, and has been a guest lecturer at various law schools and national corporate law programs in the United States, Canada and Europe. 23 Jack Berkowitz has served as Vice President, Strategic Planning of us and Holdings since January 1999. Prior to joining us, Mr. Berkowitz served as a consultant to us during 1998. Mr. Berkowitz is a 25-year veteran of the publishing industry. As a consultant, in addition to us, his client roster has included Cowles Business Media, Hearst Magazines, Time Inc., The Rockefeller Associates, Associated Newspapers and Adweek. Mr. Berkowitz had previously served as Executive Vice President of the Village Voice, President and Publisher of NewsInc. and President of The Nation. Joseph Calve has served as Vice President, Litigation Services of us and Holdings since July 2001. Prior to that, he was Director of Business Development of us and Holdings since January 2000 and Editor and Publisher of Texas Lawyer from May 1995. Sara Diamond has served as Vice President, Book and Newsletter Publishing of us and Holdings since September 2000. Prior to that she was Publisher of Law Journal Press, our book division, which she joined in 1992. Prior to joining us, Ms. Diamond served in a variety of positions at Matthew Bender & Company. Allison C. Hoffman has served as Vice President, General Counsel of us and Holdings since August 2001. Prior to that she was Assistant General Counsel of us and Holdings since June 1999. Prior to joining us, Ms. Hoffman was an associate in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP. Stephen C. Jacobs has served as Vice President, Chief Financial Officer and Secretary of us and Holdings since August 2001. Prior to that he was Vice President, General Counsel and Secretary of us and Holdings since May 1998. Prior to joining us, Mr. Jacobs was Assistant General Counsel, Global Transactions for American International Group, Inc. Eric F. Lundberg has served as Vice President of Finance of us and Holdings since August 2001. Prior to that he was the Publisher of Texas Lawyer, and prior to that held a number of financial positions with us, most recently as Corporate Controller and Director of Financial Planning since November 1995. Kevin Vermeulen has served as Vice President, Group Publisher of us and Holdings since May 1999, and served as Vice President, National Advertising from 1998 -- 1999. Prior to that he was a Vice President of Sales for NLP, which he joined in October 1992. 24 ITEM 11. EXECUTIVE COMPENSATION The following Summary Compensation Table includes individual compensation information for the Chief Executive Officer and certain other executive officers of us and Holdings for the year ended December 31, 2001 (collectively, the "Named Executive Officers") for services rendered in all capacities to us and Holdings during the year ended December 31, 2001. All numbers relating to option grants relate to options to purchase our shares. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------------------------------------------------------------------ LONG TERM COMPENSATION --------------------------------- OTHER RESTRICTED SECURITIES ALL ANNUAL STOCK UNDERLYING LTIP OTHER NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($) ($) ($) ($) SALES ($) ($) - ----------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------ William Pollak......... 2001 456,136 -- -- -- -- -- 126,788(1) President and Chief 2000 436,487 252,261 -- -- -- -- 294,326(1) Executive Officer 1999 416,212 217,516 -- -- 12,000 -- 539,256(1) Jack Berkowitz......... 2001 288,750 15,000 -- -- 600 -- -- Vice President, 2000 275,000 63,942 -- -- 600 -- -- Strategic Planning 1999 215,000 42,500 -- -- 1,800 -- -- George Dillehay........ 2001 266,875 19,060 -- -- -- -- -- Publisher, New York 2000 254,166 46,663 -- -- 1,200 -- -- Law Journal 1999 83,333(2) 25,000 -- -- 600 -- -- Stephen Jacobs......... 2001 261,230 49,258 -- -- 900 -- -- Vice President, 2000 226,333 71,191 -- -- 300 -- -- Chief Financial 1999 206,625 100,000 -- -- 1,200 -- -- Officer and Secretary -- Kevin Vermeulen........ 2001 205,000 80,000 -- -- -- -- -- Vice President, 2000 183,400 155,705 -- -- -- -- -- Group Publisher 1999 165,667 34,507 -- -- 1,800 -- 105,303(3)
- --------------- (1) Represents payments made by us to Mr. Pollak pursuant to the terms of his employment agreement to reimburse him for the value of options forfeited upon his resignation from his former employer. (2) Mr. Dillehay's employment with us commenced in September 1999. (3) Represents commissions earned by Mr. Vermeulen pursuant to the terms of his employment agreement. 25 The following table includes information regarding option grants in 2001 to the Named Executive Officers. OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS+ --------------------------------------------- POTENTIAL REALIZABLE VALUE AT NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OF OPTION TERM OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------ NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10% - --------------------- ------------ ---------------- ----------- ---------- ----------- ----------- $ $ William Pollak....... 0 -- -- -- -- -- Jack Berkowitz....... 600 2.9% $167 4/1/11 * * George Dillehay...... 0 -- -- -- -- -- Stephen Jacobs....... 900 4.4% $167 4/1/11 * * Kevin Vermeulen...... 0 -- -- -- -- --
- --------------- * As of December 31, 2001, each of the outstanding options was out-of-the-money and therefore, the potential realizable value was less than zero. + Each of these options is exercisable for a share of Holdings common stock. EMPLOYMENT AGREEMENTS William Pollak, President and Chief Executive Officer, has entered into an employment agreement with us for a five-year term effective March 9, 1998. The employment agreement provides for an annual salary of $400,000 subject to increases of 5% annually during the term. In addition, the employment agreement provides for bonuses of $400,000 after the first year of the term and between 50% and 150% of the base salary, as determined by the Board of Directors, in each of the remaining years of the term. Under the employment agreement, if the executive's employment is terminated by us without cause or by the executive with good reason, the executive will be entitled to severance equal to the amount of the executive's salary and bonus accrued but unpaid through the termination date and one year's salary, commencing on the termination date, together with any accrued but unpaid bonus. Mr. Pollak is also entitled to payments for options granted to him and forfeited upon his resignation from his prior employer. We have also entered into employment agreements with each of our executive officers providing for varying bonuses, severance provisions and termination rights. 26 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT All of our outstanding shares are beneficially owned by Holdings. The following table sets forth certain information regarding beneficial ownership of Holdings as of December 31, 2001 by (i) each person (or group of affiliate persons) known by us to be the beneficial owner of more than 5% of the outstanding Common Stock of Holdings, (ii) each Director, Director nominee, and our Chief Executive Officer and President and (iii) all of our directors and executive officers as a group.
PERCENTAGE OF NUMBER OF TOTAL SHARES OF SHARES OF COMMON STOCK NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OUTSTANDING - ------------------------------------ ------------ --------------- U.S. Equity Partners, L.P.(1)............................ 569,960 47.48% U.S. Equity Partners (Offshore), L.P.(2)................. 144,110 12.01% ALM Employee Partners, L.L.C.(3)......................... 72,490 6.04% WPPN, LP(4).............................................. 413,440 34.45% --------- ----- Total.......................................... 1,200,000 99.98% ========= =====
- --------------- (1) Includes approximately 2.9% of the issued and outstanding Common Stock held by a co-investor of U.S. Equity Partners, L.P. ("USEP") which has granted WP Management Partners, L.L.C. ("WPMP"), the general partner of USEP, an irrevocable proxy to vote such shares of common stock. WPMP shares voting and dispositive power with respect to the shares held by USEP. See footnote (4). (2) WPMP shares voting and dispositive power with respect to the shares held by U.S. Equity Partners (Offshore), L.P. See footnote (4). (3) ALM Employee Partners, L.L.C. is managed by WP Plan Management Partners, Inc., an indirect wholly-owned subsidiary of Dresdner Kleinwort Wasserstein Group, Inc., and shares voting and dispositive power with respect to the shares held by ALM Employee Partners, L.L.C. See footnote (4). (4) Does not include: 569,960 shares as to which WPMP shares voting and dispositive power with USEP; 144,110 shares as to which WPMP shares voting and dispositive power with U.S. Equity Partners (Offshore), L.P.; and 72,490 shares as to which WP Plan Management Partners, Inc. shares voting and dispositive power with ALM Employee Partners, L.L.C. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We are a wholly-owned subsidiary of Holdings. A majority of Holdings' equity securities are held by USEP and its affiliates. USEP is a Delaware limited partnership investment fund of which WPMP is the general partner. WPMP is controlled by Wasserstein & Co., LP. WPMP is entitled to receive a monitoring fee in an amount not to exceed $1.0 million in respect of any year. We may engage in transactions with our affiliates, including entities owned or controlled by certain of our principal shareholders. We believe that such transactions will be no more favorable to us than similar transactions with non-affiliates. In connection with the sale of the our Internet business to Law.com, we entered into an exclusive content (subject to certain exceptions) five-year license with Law.com granting Law.com the right to publish in electronic or digital format all of our content. We believe that, at the time the license agreement was entered into, this transaction was effected on arms-length terms and conditions. 27 PART IV ITEM 14. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS (a) Financial Statement Schedule Schedule II -- Valuation and Qualifying Accounts. All other schedules have been omitted as the schedules are either not applicable, or the information has been otherwise provided in the Financial Statements. (b) Reports on Form 8-K None (c) Exhibits The exhibits listed on the Exhibit Index following the signature page hereof are filed herewith in response to this Item. 28 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----------- CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES Report of Independent Public Accountants.................... F-2 Consolidated Balance Sheets at December 31, 2001 and 2000...................................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999.......................... F-4 Consolidated Statements of Changes in Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999...... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.......................... F-6 Notes to the Consolidated Financial Statements as of December 31, 2001, 2000 and 1999.......................... F-7 Valuation and Qualifying Accounts........................... Schedule II
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of American Lawyer Media, Inc.: We have audited the accompanying consolidated balance sheets of American Lawyer Media, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of operations, changes in stockholder's equity and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Lawyer Media, Inc. and subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 3 to the consolidated financial statements, effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Investments and Hedging Activities" as amended by SFAS No. 138. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index of consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, New York March 8, 2002 F-2 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2001 AND 2000 (IN THOUSANDS, EXCEPT SHARE DATA)
2001 2000 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 2,377 $ 2,263 Accounts receivable, net of allowance for doubtful accounts and returns of $2,270 and $2,836, respectively........................................... 16,051 19,613 Deferred tax assets, net.................................. 3,925 3,298 Inventories, net.......................................... 1,530 1,561 Other current assets...................................... 3,231 3,793 -------- -------- Total current assets.............................. 27,114 30,528 Property, plant and equipment, net.......................... 11,384 14,000 Intangible assets, net...................................... 129,122 139,757 Goodwill, net of accumulated amortization of $48,490 and $35,882, respectively..................................... 141,041 148,083 Deferred financing costs, net of accumulated amortization of $3,391 and $2,501, respectively........................... 4,525 5,277 Other assets................................................ 1,664 5,188 -------- -------- Total assets...................................... $314,850 $342,833 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.......................................... $ 5,941 $ 8,922 Accrued expenses.......................................... 10,627 10,433 Accrued interest payable.................................. 954 867 Deferred income (including deferred subscription income of $15,065 and $16,975, respectively)..................... 18,515 21,891 Other current liabilities................................. 350 -- -------- -------- Total current liabilities......................... 36,387 42,113 -------- -------- Long term debt: Revolving credit facility................................. 27,000 20,500 Senior notes.............................................. 175,000 175,000 -------- -------- Total long term debt.............................. 202,000 195,500 Deferred tax liability, net................................. 25,366 36,625 Other noncurrent liabilities................................ 7,271 6,877 -------- -------- Total liabilities........................................... 271,024 281,115 -------- -------- Stockholder's equity: Common stock -- $.01 par value; 1,000 shares authorized; 100 issued and outstanding............................. -- -- Paid-in-capital........................................... 130,253 130,253 Accumulated deficit....................................... (86,444) (68,535) Accumulated other comprehensive gain...................... 17 -- -------- -------- Total stockholder's equity................................ 43,826 61,718 -------- -------- Total liabilities and stockholder's equity........ $314,850 $342,833 ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these statements. F-3 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)
2001 2000 1999 -------- -------- -------- NET REVENUES: Periodicals: Advertising............................................ $ 85,206 $ 88,230 $ 75,887 Subscription........................................... 23,248 23,407 23,570 Ancillary products and services.......................... 37,379 42,876 31,791 Internet services........................................ -- -- 1,244 -------- -------- -------- Total net revenues............................. 145,833 154,513 132,492 -------- -------- -------- OPERATING EXPENSES: Editorial................................................ 23,000 26,199 22,940 Production and distribution.............................. 30,766 32,436 29,821 Selling.................................................. 28,436 32,325 27,806 General and administrative............................... 39,542 38,775 32,029 Internet services........................................ -- -- 3,313 Depreciation and amortization............................ 29,900 28,415 27,298 -------- -------- -------- Total operating expenses....................... 151,644 158,150 143,207 -------- -------- -------- Operating loss................................. (5,811) (3,637) (10,715) Interest expense......................................... (18,466) (19,470) (18,962) Other (expense) income................................... (5,436) (523) 187 -------- -------- -------- Loss before income taxes............................... (29,713) (23,630) (29,490) Benefit for income taxes................................. 11,804 4,290 3,078 -------- -------- -------- Net loss............................................... $(17,909) $(19,340) $(26,412) ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these statements. F-4 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER ------------------ PAID-IN ACCUMULATED COMPREHENSIVE SHARES PAR VALUE CAPITAL DEFICIT INCOME TOTAL ------ --------- ---------- ----------- ------------- -------- BALANCE AT JANUARY 1, 1999........ 100 -- $123,775 $(22,783) $-- $100,992 Loss on sale of Internet business........................ -- -- (260) -- -- (260) Net loss.......................... -- -- -- (26,412) -- (26,412) --- ---- -------- -------- -- -------- BALANCE AT DECEMBER 31, 1999...... 100 -- 123,515 (49,195) -- 74,320 --- ---- -------- -------- -- -------- Gain from sale of business........ -- -- 6,738 -- -- 6,738 Net loss.......................... -- -- -- (19,340) -- (19,340) --- ---- -------- -------- -- -------- BALANCE AT DECEMBER 31, 2000...... 100 -- 130,253 (68,535) -- 61,718 --- ---- -------- -------- -- -------- Net loss.......................... -- -- -- (17,909) -- (17,909) Unrealized gain on equity securities available for sale, net of taxes.................... -- -- -- -- 17 17 --- ---- -------- -------- -- -------- Total comprehensive loss.......... -- -- -- -- (17,892) BALANCE AT DECEMBER 31, 2001...... 100 -- $130,253 $(86,444) $17 $ 43,826 === ==== ======== ======== == ========
The accompanying notes to the consolidated financial statements are an integral part of these statements. F-5 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)
2001 2000 1999 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $(17,909) $(19,340) $(26,412) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization............................... 29,900 28,415 27,298 Deferred tax benefit........................................ (11,885) (4,855) (5,652) Non-cash interest........................................... 890 832 832 Loss from sale of assets.................................... 804 -- -- Impairment of private equity securities................... 4,700 -- -- Decrease (increase) in: Accounts receivable, net.................................... 3,501 (2,470) (3,252) Inventories................................................. (179) (112) 399 Other current assets........................................ 337 (1,199) (655) Other assets................................................ (502) (1,339) (892) (Decrease) increase in: Accounts payable............................................ (3,009) 1,439 4,278 Accrued expenses............................................ (574) (974) (43) Other current liabilities................................... 350 -- -- Accrued interest payable.................................... 87 (318) 109 Deferred income............................................. (4,256) 892 50 Other noncurrent liabilities................................ 395 662 3,245 -------- -------- -------- Total adjustments......................................... 20,559 20,973 25,717 -------- -------- -------- Net cash provided by (used in) operating activities....... 2,650 1,633 (695) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................ (3,276) (5,906) (11,286) Proceeds received from sale of business..................... 300 9,184 4,490 Purchase of business........................................ (5,922) (6,450) (1,225) Other....................................................... -- 4 -- -------- -------- -------- Net cash used in investing activities..................... (8,898) (3,168) (8,021) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowing on revolving credit facility.................. 6,500 2,200 9,800 Payment of deferred financing costs......................... (138) -- -- -------- -------- -------- Net cash provided by financing activities................. 6,362 2,200 9,800 -------- -------- -------- Net increase in cash...................................... 114 665 1,084 CASH, beginning of year..................................... 2,263 1,598 514 -------- -------- -------- CASH, end of year........................................... $ 2,377 $ 2,263 $ 1,598 ======== ======== ======== SUPPLEMENTAL DISCLOSURES: Cash paid during the year: Income taxes.............................................. $ 662 $ 355 $ 120 ======== ======== ======== Interest.................................................. $ 18,319 $ 18,725 $ 18,028 ======== ======== ======== Non-cash: Preferred membership interest received from sale of business............................................... $ -- $ 2,500 $ -- ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these statements. F-6 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001, 2000, AND 1999 1. ORGANIZATION AND OPERATIONS American Lawyer Media, Inc. and subsidiaries ("we," "us," "our" or "ALM") is a wholly-owned subsidiary of American Lawyer Media Holdings, Inc. (formerly Cranberry Partners, LLC ("Cranberry")) ("Holdings"). We publish 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 ten states, the District of Columbia and London, England. Effective July 31, 1997, Holdings acquired substantially all of the assets and liabilities of American Lawyer Media, L.P. ("Old ALM") for $63,000,000 ("ALM Acquisition"). In December 1997, we acquired all of the outstanding capital stock of National Law Publishing Company, Inc. ("Old NLP") for approximately $203 million (the "NLP Acquisition"). Subsequently, all the acquired assets and liabilities of Old ALM and Old NLP were combined to form new subsidiaries currently owned by us. On July 21, 1999, we transferred all of our and our subsidiaries' Internet and electronic commerce business to a wholly-owned subsidiary named Professional On Line, Inc. ("POL"). On July 24, 1999, POL was recapitalized by creating a class of 12.25% preferred stock, par value $0.01 (the "POL Preferred Stock"), in addition to the class of common stock, par value $0.01 per share, previously authorized (the "POL Common Stock"). On July 27, 1999, we sold all of the issued and outstanding POL Common Stock to Law.com, LLC (formerly Law.com, Inc.) ("Law.com") for $1 million in cash and we retained all of the issued and outstanding POL Preferred Stock. In December 1999, Law.com redeemed all of the POL Preferred Stock for $3.75 million plus accrued dividends. Law.com maintains a web destination for legal information and e-services. Under a licensing agreement, we continue to provide content for Law.com. Law.com is owned by substantially the same investors that own Holdings, including Wasserstein & Co., LP, U.S. Equity Partners, L.P. and U.S. Equity Partners (Offshore), L.P. On March 28, 2000, we sold the business constituting The Daily Deal and Corporate Control Alert (the "Business") to The Deal, L.L.C. (formerly TDD, L.L.C.), a limited liability company (the "Purchaser"), owned by substantially all of the same stockholders as Holdings. The consideration for the sale was $7.5 million in cash and $2.5 million face amount of a membership interest in the Purchaser with a preferred return (the "Preferred Membership Interest"). In addition, the Purchaser paid us $1.68 million in cash, representing the aggregate amount of operating losses incurred by us in connection with the operation of the Business for the month of March 2000. We recorded a gain of approximately $6,738,000 as a component of additional paid-in-capital as the Business was a related party under common control. The Preferred Membership Interest accrues at 12.25% compounded annually, is convertible into 3.0% of the common equity of the Purchaser, has anti-dilution protection for dividends in the form of additional equity interests, combinations, splits and reclassifications and has anti-dilution protection up to the first $25.0 million of equity capital, including the Preferred Membership Interest issued by the Purchaser. Due to the nature of the transaction, we fully reserved against the Preferred Membership Interest from inception to the dividend date in Other Assets on the Balance Sheet. 2. ACQUISITIONS On November 22, 1999, effective December 1, 1999, we consummated the acquisition of all of the assets, properties and rights of Houston Trial Reports, Inc. and Blue Sheet Publications, Inc. (collectively, "Blue Sheet"). Blue Sheet publishes regional and statewide publications which serve the legal community and provides legal research through in-house and on-line facilities. On May 15, 2000, we consummated the acquisition of substantially all of the assets and certain of the liabilities of Moran Publishing Company, Inc. ("Moran"). Moran is the leading publisher of jury verdict and settlement research data in New York State. F-7 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. ACQUISITIONS -- (CONTINUED) On December 27, 2000, we consummated the acquisition of rights and related assets of two leading regional trade shows in the United Kingdom from Nationwide Exhibitions (UK) Ltd. ("Nationwide"). Under the agreement, we purchased rights and related assets for Solicitors, The National Legal Office and Legal Services Exhibition and The National Accountancy Exhibition. On January 31, 2001, we consummated the acquisition of substantially all of the assets and certain of the liabilities of Haslam Publications ("Haslam"), the leading publisher of jury verdict and settlement research data in California. The acquisition price of Moran and the two trade shows from Nationwide in 2000 totaled approximately $6.5 million and the price for Haslam totaled approximately $6.8 million. All of the above acquisitions have been accounted for under the purchase method of accounting and the results of operations of the acquired businesses have been included in the financial statements since the effective dates of the respective acquisitions. The excess of the purchase price over net assets acquired was allocated to intangibles and goodwill. In the accompanying consolidated statements of operations, the excess of purchase price over net assets acquired is being amortized over fifteen years. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK Our financial instruments that are exposed to concentration of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk with respect to trade accounts receivable are, except for amounts due from legal advertising agents ("Legal Ad Agents"), generally limited due to the large number of customers comprising 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. 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. 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 F-8 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) returns. Newsletter revenues are recognized on the same basis as subscription revenues. Seminar and trade show revenues are recognized when the seminar or trade show is held. Daily fax service revenue is recognized upon fulfillment of orders. Internet services revenues consist primarily of revenues from subscriptions and advertising. Internet subscription income is recognized on a pro-rata basis over the life of a subscription, generally one year. Internet advertising revenues are recognized upon the release of an advertisement on the website. The Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements," which reemphasizes existing guidance related to revenue recognition, including criteria specified in the Financial Accounting Standards Board's conceptual framework on timing of revenue recognition, and presentation and disclosure of revenue in the financial statements. SAB No. 101 was effective for the 2000 fourth quarter. The implementation of SAB No. 101 did not have a material impact on our results of operations, cash flow or financial position. DEFERRED SUBSCRIPTION INCOME AND SUBSCRIPTION RECEIVABLE 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 receivable of $1,997,400 and $2,631,500 at December 31, 2001 and 2000, respectively, are included in accounts receivable in the accompanying consolidated balance sheet. ADVERTISING AND PROMOTION COSTS Advertising and promotion costs totaled approximately $6.5 million, $7.9 million and $11.0 million for the years ended December 31, 2001, 2000 and 1999, 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. 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 weighted average cost method, or market. ACCOUNTING FOR LONG-LIVED ASSETS In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets to be Disposed of," we periodically review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment of long-lived assets exists if, at a minimum, the future expected cash flows (undiscounted and without interest charges) from an entity's operations are less than the carrying value of these assets. We do not believe that any such impairment has occurred. F-9 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Significant improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method over the following estimated useful lives: Buildings................................................... 25 years Furniture, machinery and equipment.......................... 5-9 years Computer equipment and software............................. 3-6 years
Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life. GOODWILL Goodwill represents the excess of purchase price over the fair value of net assets acquired. It is stated at cost less accumulated amortization and is amortized on a straight-line basis over an average fifteen-year useful life. INTANGIBLE ASSETS Intangible assets represent advertiser commitments, uniform resource locators, copyrights, trademarks, customer and subscriber lists and non-compete agreements. They are stated at cost less accumulated amortization and are amortized on a straight-line basis over an average life of fifteen years. DEFERRED FINANCING COSTS Deferred financing costs are amortized over the life of the related debt using the straight-line method. SALES OF SUBSIDIARY STOCK We have elected to treat gains and losses on the sales of subsidiary stock as equity transactions. Therefore, the sale of Law.com has been reflected this way in the accompanying consolidated financial statements. RECLASSIFICATIONS Certain amounts have been reclassified to conform with the current year presentation. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Hedging Activities", which amended SFAS No. 133. These statements establish accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or a liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualified hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate and assess the effectiveness of transactions to obtain hedge accounting. We adopted these standards in the first quarter of 2001. F-10 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) We utilize an interest rate swap agreement to convert our fixed rate interest on our $175.0 million Notes debt to a variable rate. At December 31, 2001, we had an interest rate swap outstanding with a notional amount of $175.0 million and a fair market value of $766,900. The swap agreement will terminate on March 31, 2003. The fair market value of our interest rate swap is based upon the amount that we could have settled with our counterparties to terminate the swap outstanding at December 31, 2001. Gains and losses in the fair market value of the interest rate swap are reported in earnings as a component of interest expense, net. NEW ACCOUNTING PRONOUNCEMENTS On June 30, 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and eliminates the pooling method of accounting. With adoption of SFAS No. 142, effective January 1, 2002, goodwill will no longer be subject to amortization over its estimated useful life. However, goodwill will be subject to at least an annual assessment for impairment and more frequently if circumstances indicate a possible impairment. Companies must perform a fair-value-based goodwill impairment test. In addition, under SFAS No. 142, an acquired intangible asset should be separately recognized 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 will be amortized over their useful lives. We are assessing the impact of SFAS No. 142 and we are evaluating whether or not we will incur an impairment charge in accordance with the adoption of this statement. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets." This statement also supersedes the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," relating to the disposal of a segment of a business. SFAS No. 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under APB Opinion 30 and therefore two accounting models existed for long-lived assets to be disposed of. SFAS No. 144 established one accounting model for long-lived assets (including those accounted for as a discontinued operation) to be disposed of by sale and resolved certain implementation issues related to SFAS No. 121. SFAS No. 144 will be effective for fiscal years beginning after December 15, 2001. We will adopt SFAS No. 144 in the first quarter of 2002 and are currently assessing the impact on our results of operations and financial position. INCOME TAXES Income taxes are recognized during the year in which transactions enter into the determination of financial statement income. Deferred taxes are provided for temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured pursuant to the tax laws. 4. OTHER (EXPENSE) INCOME During the second quarter of 2001, we wrote-off certain available for sale investments as the decline in value of these investments has been deemed to be other than temporary. This write-down of $4.7 million has been included in other (expense) income. During the third quarter of 2001, we sold certain assets associated with our printing facility in Florida. We recognized a net loss of approximately $0.8 million from the sale of these assets and other costs directly associated with the transaction. F-11 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. RESTRUCTURING CHARGE During the second quarter and fourth quarter of 2001, upon the decision to restructure certain of our operations, we accrued approximately $2.0 million of restructuring charges. These charges primarily relate to severance arrangements and have been included in operating income. As of December 31, 2001, approximately $0.7 million, representing the unpaid charges, is included in accrued expenses. 6. INCOME TAXES We file a consolidated federal income tax return with our parent company, American Lawyer Media Holdings, Inc. We account for income taxes under the liability method pursuant to SFAS No. 109 "Accounting for Income Taxes." Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences primarily relate to amortization of identified intangibles related to the NLP Acquisition, accelerated depreciation, allowance for doubtful accounts, certain accrued liabilities and reserves not currently deductible for tax purposes and net operating loss carryforwards. The reconciliation between the income tax benefit and the amount computed by applying the statutory federal income tax rate to loss before income taxes is as follows (in thousands):
2001 2000 1999 -------- ------- -------- Federal statutory income taxes........................ $(10,102) $(5,839) $(10,321) Permanent differences (principally goodwill and intangible amortization and gain on sale of the Business)........................................... 3,980 6,324 6,083 State and local income taxes.......................... (1,631) 433 -- Foreign taxes......................................... (55) -- -- Changes in valuation allowance and other adjustments......................................... (3,996) (5,208) 1,160 -------- ------- -------- $(11,804) $(4,290) $ (3,078) ======== ======= ========
We had a net deferred tax liability of $21,441 and $33,327 at December 31, 2001 and 2000, respectively.
2001 2000 ------- ------- (IN THOUSANDS) Deferred tax assets......................................... $13,547 $ 3,589 Deferred tax liabilities.................................... 34,988 36,916 ------- ------- Net deferred tax liabilities................................ $21,441 $33,327 ======= =======
The deferred income tax liabilities primarily relate to the identified intangibles from the NLP Acquisition, which were recorded at the acquisition date. The liability was calculated on the identified intangibles from the NLP Acquisition using our effective tax rate. At December 31, 1999, we recorded a valuation allowance against our net deferred tax assets consisting primarily of net operating losses. The valuation allowance was provided as management was uncertain as to the realizability of these deferred tax assets. At the close of 2001 and 2000, we expect to utilize the deferred tax assets, and so have reversed the valuation allowance. Certain other adjustments were made to more accurately reflect deferred tax items with respect to nondeductible intangibles. As of December 31, 2001, we have net tax operating loss carryforwards of $15,809,000 that expire in 2015-2021. F-12 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. PROPERTY, PLANT AND EQUIPMENT Property, plant, equipment and accumulated depreciation and amortization consisted of the following at December 31 (in thousands):
2001 2000 -------- -------- Land........................................................ $ 207 $ 207 Buildings and improvements.................................. 5,442 4,856 Furniture, machinery and equipment.......................... 2,611 2,595 Computer equipment and software............................. 17,868 16,387 -------- -------- 26,128 24,045 Accumulated depreciation and amortization................... (14,744) (10,045) -------- -------- Net property, plant and equipment........................... $ 11,384 $ 14,000 ======== ========
Depreciation expense charged to operations totaled $5,462,000, $4,756,000 and $3,501,000 for the years ended December 31, 2001, 2000 and 1999 respectively. 8. INTANGIBLE ASSETS Intangible assets consisted of the following at December 31 (in thousands):
2001 2000 USEFUL LIVES -------- -------- ------------ Advertiser commitments.............................. $ 880 $ 880 6 months Trademarks.......................................... 86,268 86,268 20 years Customer and subscriber lists....................... 75,652 74,455 5-17 years Non-compete agreements.............................. 13,992 13,992 3 years -------- -------- 176,792 175,595 Accumulated amortization............................ (47,670) (35,838) -------- -------- Net intangible assets............................... $129,122 $139,757 ======== ========
Amortization expense charged to operations totaled $11,832,000, $11,717,000 and $11,810,000 for the years ended December 31, 2001, 2000 and 1999 respectively. 9. OTHER CURRENT ASSETS Other current assets consisted of the following at December 31 (in thousands):
2001 2000 ------ ------ Prepaid expenses............................................ $1,681 $1,935 Other....................................................... 894 1,100 Related party receivable.................................... 656 758 ------ ------ Total....................................................... $3,231 $3,793 ====== ======
Other assets include minority equity investments we hold in various private companies. F-13 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. RELATED PARTY TRANSACTIONS The stockholders of Holdings, Law.com and The Deal, L.L.C. share substantially all the same stockholders. We believe that the transactions referred to in Note 1 were effected on arms-length terms and conditions. See Note 1 -- Organization and Operations for a discussion of related party transactions. In 1999, fees of $260,000, related to the sale of POL to Law.com, were paid to Wasserstein & Co., LP ("Wasserstein") and in 2000 and 2001, no fees were paid to Wasserstein. Included in other current assets on the accompanying consolidated balance sheets is a net receivable due from Holdings of $655,700 and $757,800 at December 31, 2001 and 2000, respectively, resulting from various affiliate transactions. 11. COMMITMENTS AND CONTINGENCIES Rent expense, including payments of real estate taxes, insurance and other expenses required under certain leases, amounted to approximately $4,742,000, $4,611,000 and $3,685,000 for the years ended December 31, 2001, 2000 and 1999 respectively. This amount includes the monthly rent payments for corporate headquarters discussed below. At December 31, 2001, minimum rental commitments under noncancellable leases were as follows (in thousands):
REAL ESTATE OTHER TOTAL ------- ----- ------- 2002....................................................... $ 4,208 $325 $ 4,533 2003....................................................... 4,211 205 4,416 2004....................................................... 3,983 161 4,144 2005....................................................... 3,736 41 3,777 2006....................................................... 3,699 34 3,733 2007 and thereafter........................................ 6,965 0 6,965 ------- ---- ------- $26,802 $766 $27,568 ======= ==== =======
Certain of the leases provide for free rent periods as well as rent escalations. The rental commitments above represent actual rental payments to be made. The financial statements reflect rent expense and rental income on a straight-line basis over the terms of the leases. Approximately $3,109,000 and $3,273,000, representing accrued pro rata future payments, net of receipts, is included in other noncurrent liabilities in the accompanying balance sheets as of December 31, 2001 and 2000, respectively. We have employment agreements with certain of our officers and key employees, for terms ranging up to 5 years with annual compensation aggregating approximately $4.7 million. We are involved in a number of legal proceedings which arose in the ordinary course of business. In the opinion of management, the ultimate outcome of these contingencies is not expected to have a material adverse effect on our financial position or results of operations. We have letters of credit outstanding totaling approximately $1,121,000 for security deposits on our corporate office space as of December 31, 2001 and 2000. 12. EMPLOYEE BENEFITS We have a 401(k) salary deferral plan (the "ALM Plan"). Participation in the ALM plan is available to substantially all employees. The ALM Plan provides for employer matching of employees' contributions, as F-14 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. EMPLOYEE BENEFITS -- (CONTINUED) defined, except that the employee match has been suspended as of January 1, 2002. Our contributions to the ALM Plan for the years ended December 31, 2001, 2000, and 1999 were $1,024,000, $555,900, and $606,979, respectively. In addition, approximately fifteen of our employees are covered by certain defined contribution retirement plans sponsored by the Typographical Union. We made contributions to these retirement plans of $451,000, $310,700 and $266,200, for the years ended December 31, 2001, 2000 and 1999 respectively. We also sponsor the New York Law Journal Union Employee Pension Plan established by The New York Law Publishing Company. This plan is a defined benefit plan for our union employees. We made contributions to this retirement plan of $9,828, $11,467, and $11,059 relating to the plan for the years ended December 31, 2001, 2000 and 1999 respectively. We also sponsored a defined benefit plan covering substantially all ALM, LLC and Counsel Connect, LLC employees (a Delaware limited liability company). This plan was frozen effective December 31, 1997, resulting in an insignificant curtailment gain. Pension benefits for 2001, 2000, and 1999 for the ALM Plan consist of the following (in thousands):
2001 2000 1999 ------- ------- ------- CHANGE IN PROJECTED BENEFIT OBLIGATION Projected benefit obligation, at beginning of year...... $ 3,597 $ 3,647 $ 3,546 Interest cost........................................... 248 244 238 Actuarial loss.......................................... (174) (198) (12) Benefits paid........................................... (115) (96) (125) ------- ------- ------- Projected benefit obligation, at end of year............ $ 3,556 $ 3,597 $ 3,647 ======= ======= ======= CHANGE IN PLAN ASSETS Fair value of assets, at beginning of year.............. $ 3,099 $ 3,278 $ 3,225 Actual return on plan assets............................ (284) (83) 178 Employer contributions.................................. 202 -- -- Benefits paid........................................... (115) (96) (125) ------- ------- ------- Fair value of assets, at end of year.................... $ 2,902 $ 3,099 $ 3,278 ======= ======= ======= FUNDED STATUS Projected benefit obligation............................ $(3,556) $(3,597) $(3,647) Fair value of plan assets............................... 2,902 3,099 3,279 Unrecognized net actuarial gain (loss).................. 308 (101) (279) Amount included in pension expense...................... (316) -- -- ------- ------- ------- Accrued benefit cost.................................... $ (662) $ (599) $ (647) ======= ======= ======= COMPONENTS OF NET PERIODIC PENSION COST Interest cost........................................... $ 248 $ 244 $ 238 Expected return on plan assets.......................... (290) (291) (289) Amortization of unrecognized net actuarial loss......... (8) (2) (5) ------- ------- ------- Net periodic pension income............................. $ (50) $ (49) $ (56) ======= ======= =======
F-15 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. EMPLOYEE BENEFITS -- (CONTINUED) In determining the actuarial present value of the projected benefit obligation as of December 31, 2001, 2000, and 1999, the discount rate was 7.00%, 7.00% and 6.75%, respectively, and the expected long-term rate of return on assets was 9.00% as of December 31, 2001, 2000, and 1999. We also sponsored an Excess Benefit Pension Plan providing a benefit to highly compensated employees in excess of the benefits provided by the tax qualified defined benefit plan. The plan is an unfunded, non-qualified deferred compensation plan. This plan was frozen as of December 31, 1997. We sponsor a comprehensive medical and dental insurance plan, which is available to substantially all employees. 13. LONG-TERM DEBT On December 22, 1997, we issued $175,000,000 aggregate principal amount of 9.75% senior notes (the "Notes") due December 15, 2007. The Notes 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 our 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 our 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 us, in whole or in part, at various redemption prices that include accrued and unpaid interest. The Notes contain certain covenants that, among other things, limit the incurrence of additional indebtedness by us and our subsidiaries, the payment of dividends and other restricted payments by us and our subsidiaries, asset sales, transactions with affiliates, the incurrence of liens, and mergers and consolidations. Financing costs, totaling $7,236,000, 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. On March 25, 1998, Holdings and we signed a credit agreement with various banks that had a combined revolving commitment in the initial principal amount of $40,000,000 (the "Revolving Credit Facility"). Financial costs associated with the Revolving Credit Facility have been capitalized and are being amortized over the term of the agreement. The Revolving Credit Facility is guaranteed by Holdings and by all subsidiaries of ours. In addition, the Revolving Credit Facility is secured by a first priority security interest in substantially all of the properties and assets of us and our domestic subsidiaries, including a pledge of all of the stock of such subsidiaries, and a pledge by Holdings of all of the stock of us. The Revolving Credit Facility bears interest at a fluctuating rate determined by reference to (i) the Base Rate plus a margin ranging from .25% to 1.5%, or (ii) the Eurodollar rate plus a margin ranging from 1.25% to 2.5% as the case may be. The Applicable Margin is based on the Company's total consolidated leverage ratio. The Base Rate equals the higher of (a) the rate of interest publicly announced from time to time by Bank of America as its reference rate, or (b) the Federal funds rate plus .5%. The Eurodollar rate is based on (i) the interest rate per annum at which deposits in U.S. Dollars are offered by Bank of America's applicable lending office to major banks in the offshore market account in an aggregate principal amount approximately equal to the amount of the loan made to us and (ii) the maximum reserve percentage in effect under regulations issued from time to time by the Federal Reserve Board. We are also required to pay customary fees with respect to the Revolving Credit Facility, including an up-front arrangement fee, annual administrative agency fees and commitment fees on the unused portion of the Revolving Credit Facility. The Revolving Credit Facility includes both affirmative and negative covenants that include meeting certain financial ratios. Assuming there is no repayment of the Revolving Credit Facility prior to term, the entire amount will be payable on March 31, 2003. F-16 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. LONG-TERM DEBT -- (CONTINUED) Effective March 29, 1999, Holdings and we amended the Revolving Credit Facility, limiting our ability to borrow in excess of $20,000,000 under the Revolving Credit Facility until certain ratios are achieved. This amendment also adjusted certain covenants contained in the original Revolving Credit Facility. Effective July 20, 1999, the Revolving Credit Facility was further amended to provide for the sale of our Internet business to Law.com (see Note 1 -- Organization and Operations) and to modify certain debt covenants. Effective March 28, 2000, the Revolving Credit Facility was further amended to modify certain of the covenants, permit the sale of the Business to The Deal, L.L.C. and to increase the revolver limit described above from $20 million to $22.5 million. Effective January 10, 2001, the Revolving Credit Facility was further amended to modify certain of the covenants, to permit the Haslam acquisition and to increase the borrowing limit described above from $22.5 million to $29.0 million. Effective August 10, 2001, the Revolving Credit Facility was amended to permanently reduce the aggregate revolving commitment to $29.0 million and to clarify certain sections as well as to waive compliance with certain of the covenants at June 30, 2001. Effective October 15, 2001, we received a waiver of compliance with certain of the covenants at September 30, 2001 and at December 31, 2001. Subsequent to December 31, 2001, the Revolving Credit Facility was further amended (see Note 16 -- Subsequent Events). At December 31, 2001, the borrowings were $27,000,000, of which $2,000,000 was available in accordance with the August 10, 2001 Revolving Credit Facility Amendment. The available balance under the unused commitment is reduced by any letters of credit outstanding, which totaled $1,121,000 at December 31, 2001. The interest rates on the total outstanding balance at December 31, 2001 range between 5.2% and 5.8%. A 10% increase in the average rate in the Revolving Credit Facility during 2001 would have increased our net loss to approximately $18.1 million. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable. We believe that the carrying amount for these accounts approximates fair value due to the near maturity of such financial instruments or the interest rates on these instruments are comparable to market rates. The estimated fair value of the Notes was $128,127,500 at December 31, 2001 based upon the current market exchange. F-17 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FULL YEAR -------- -------- ------------ ----------- --------- (IN THOUSANDS) 2001 Net revenues........................ $39,014 $ 37,818 $33,603 $35,398 $145,833 Gross profit........................ 24,287 24,139 21,120 22,521 92,067 Net loss............................ (3,768) (11,489) (7,714) 5,062 (17,909) 2000 Net revenues........................ $38,843 $ 40,687 $36,425 $38,558 $154,513 Gross profit........................ 22,952 26,814 22,833 23,279 95,878 Net loss............................ (8,943) (1,422) (5,337) (3,638) (19,340)
16. SUBSEQUENT EVENTS Effective February 22, 2002, the Revolving Credit Facility was further amended to modify certain of the covenants and waive compliance with the covenant relating to the total leverage ratio and interest coverage ratio for the remainder of the term of the line of credit. In addition, the Revolving Credit Facility was also amended to allow us to receive equity securities in other non-related entities as payment for advertising services provided by us, within certain limits in any one fiscal year. F-18 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN LAWYER MEDIA, INC. By: /s/ WILLIAM L. POLLAK ------------------------------------ William L. Pollak President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints William L. Pollak and Anup Bagaria and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM L. POLLAK Director, President and Chief March 29, 2002 ------------------------------------------------ Executive Officer (Principal William L. Pollak Executive Officer) /s/ STEPHEN C. JACOBS Vice President and Chief Financial March 29, 2002 ------------------------------------------------ Officer (Principal Financial Stephen C. Jacobs Officer and Principal Accounting Officer) /s/ BRUCE WASSERSTEIN Chairman of the Board of Directors March 29, 2002 ------------------------------------------------ Bruce Wasserstein /s/ ANUP BAGARIA Director, Vice President March 29, 2002 ------------------------------------------------ Anup Bagaria /s/ GEORGE L. MAJOROS, JR Director March 29, 2002 ------------------------------------------------ George L. Majoros, Jr. /s/ MICHAEL J. BIONDI Director March 29, 2002 ------------------------------------------------ Michael J. Biondi /s/ ROBERT C. CLARK Director March 29, 2002 ------------------------------------------------ Robert C. Clark /s/ DONALD G. DRAPKIN Director March 29, 2002 ------------------------------------------------ Donald G. Drapkin
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES A. FINKELSTEIN Director March 29, 2002 ------------------------------------------------ James A. Finkelstein /s/ ANDREW G.T. MOORE, II Director March 29, 2002 ------------------------------------------------ Andrew G.T. Moore, II
SCHEDULE II AMERICAN LAWYER MEDIA, INC. VALUATION AND QUALIFYING ACCOUNTS For the Twelve Months Ended December 31, 1999, 2000 and 2001 (dollars in thousands):
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER AT END OF OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD ---------- ---------- ---------- ------------- --------- DESCRIPTION CREDIT CREDIT DEBIT DEBIT CREDIT - ----------- ---------- ---------- ---------- ------------- --------- YEAR ENDED DECEMBER 31, 1999: Allowance for doubtful accounts and returns.................................. $(3,595) $(2,590) -- $3,427 $(2,758) Allowance for valuation of deferred tax asset.................................... $(2,970) -- -- -- $(2,970) YEAR ENDED DECEMBER 31, 2000: Allowance for doubtful accounts and returns.................................. $(2,758) $(2,174) -- $2,096 $(2,836) Allowance for valuation of deferred tax asset.................................... $(2,970) -- $2,970 -- -- YEAR ENDED DECEMBER 31, 2001: Allowance for doubtful accounts and returns.................................. $(2,836) $(1,774) -- $2,340 $(2,270) Allowance for valuation of deferred tax asset.................................... $ -- -- -- -- --
- --------------- (1) Represents reversals of the allowance account and write-offs of accounts receivable, net of recoveries. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1* Purchase Agreement, dated as of October 23, 1997, by and among Boston Ventures Limited Partnership IV, Boston Ventures Limited Partnership IVA, James A. Finkelstein and ALM Holdings, LLC, as amended 3.1* Certificate of Incorporation of ALM 3.2* Certificate of Amendment of the Certificate of Incorporation of ALM 3.16* Bylaws of ALM 4.1* Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.2* Supplemental Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.3* Supplemental Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.4* Supplemental Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.5* Supplemental Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.6* Supplemental Indenture, dated as of December 22, 1997, among ALM, the Guarantors named therein and The Bank of New York, as trustee 4.7* Supplemental Indenture, dated as of April 14, 1998, among ALM, the Guarantors and The Bank of New York, as trustee 4.10* Registration Rights Agreement, dated as of December 22, 1997, among ALM, the Guarantors named therein and the Initial Purchasers 10.1* Lease, dated September 30, 1993, between Park Avenue South/Armory, Inc. and The New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York 10.2* First Supplemental Agreement, dated November 30, 1994, between Park Avenue South/Armory, Inc. and The New York Law Publishing Company for premises at 345 Park Avenue South, New York, New York 10.3* Credit Agreement, dated as of March 25, 1998, among Holdings, ALM, various banks, Bank of America National Trust and Savings Association, BancBoston Securities Inc. and BancAmerica Robertson Stephens 10.4* First Amendment to Credit Agreement, dated as of April 24, 1998, among Holdings, ALM, various banks and Bank of America National Trust and Savings Association, (ii) Second Amendment to Credit Agreement, dated as of April 26, 1999, among Holdings, ALM, various banks and Bank of America National Trust and Savings Association, (iii) Waiver and Consent and Third Amendment to Credit Agreement, dated as of July 20, 1999, among Holdings, ALM, various banks and Bank of America National Trust and Savings Association, (iv) Consent and Fourth Amendment to Credit Agreement, dated as of March 8, 2000, among Holdings, ALM, various banks and Bank of America National Trust and Savings Association, (v) Fifth Amendment to Credit Agreement, dated as of January 10, 2001, among Holdings, ALM, various banks and Bank of America, N.A., (vi) Sixth Amendment and Waiver to Credit Agreement, dated as of August 10, 2001, among Holdings, ALM, various banks and Bank of America, N.A., (vii) Waiver to Credit Agreement, dated as of September 28, 2001, among Holdings, ALM, various banks and Bank of America, N.A., and (viii) Seventh Amendment and Waiver, dated as of February 15, 2002 among Holdings, ALM, various banks and Bank of America, N.A. (filed herewith) 10.5* Employment Agreement dated February 9, 1998 between ALM and William L. Pollak 10.6+* License Agreement between ALM and Law.com, Inc., dated December 13, 1999 10.7* Stock Purchase Agreement, dated as of July 27, 1999 among ALM, Law.com Acquisition Corp. and Professional On Line, Inc.
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.8* Asset Purchase Agreement, dated as of March 28, 2000, among ALM, The New York Law Publishing Company and NLP IP Company and TDD, L.L.C. 10.9+* First Amendment to License Agreement between ALM and Law.com, Inc., dated December 6, 2000 10.10+* Second Amendment to License Agreement between ALM and Law.com, Inc., dated May 15, 2001 12.1 Statement re: computation of ratio of earnings to fixed charges 21.1 List of Subsidiaries of Holdings and ALM 24.1 Power of Attorney of ALM (included on Signature Page) 99.1 Receipt of Arthur Andersen LLP letter
- --------------- * Exhibits are incorporated by reference from ALM's previous filings with the Securities and Exchange Commission. + Confidential treatment has been granted for certain portions of this document. EX-10.4 3 y58915ex10-4.txt FIRST AMENDMENT TO CREDIT AGREEMENT Exhibit 10.4 SEVENTH AMENDMENT AND WAIVER SEVENTH AMENDMENT AND WAIVER (this "Amendment"), dated as of February 15, 2002, among AMERICAN LAWYER MEDIA HOLDINGS, INC., a Delaware corporation ("Holdings"), AMERICAN LAWYER MEDIA, INC., a Delaware corporation (the "Borrower"), the several lenders from time to time party to the Credit Agreement referred to below (the "Banks"), and BANK OF AMERICA, N.A., as Administrative Agent (the "Administrative Agent"). Unless otherwise defined herein, all capitalized terms used herein shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, Holdings, the Borrower, the Banks and the Administrative Agent are parties to a Credit Agreement, dated as of March 25, 1998 (as amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); and WHEREAS, subject to the terms and conditions set forth herein, the parties hereto agree as follows; NOW, THEREFORE, it is agreed: I. Waivers: 1. The Banks hereby waive the Event of Default that has arisen under the Credit Agreement solely as a result of the failure of Holdings and the Borrower to comply with Section 8.07 of the Credit Agreement in respect of the Measurement Periods ended on September 30, 2001 and December 31, 2001 (as such Section was in effect prior to giving effect to this Amendment). 2. The Banks hereby waive the Event of Default that has arisen under the Credit Agreement solely as a result of the failure of Holdings and the Borrower to comply with Section 8.09 of the Credit Agreement for the period from September 30, 2001 to the Seventh Amendment Effective Date (as hereinafter defined) (as such Section was in effect prior to giving effect to this Amendment). 3. The Banks hereby waive the Event of Default that has arisen under the Credit Agreement solely as a result of Holdings or one or more of its Subsidiaries receiving equity securities in other Persons in payment for up to $2,000,000 in advertising services in violation of Section 8.05 of the Credit Agreement. II. Amendments: 1. The definition of "Adjusted Consolidated EBITDA" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting the following new text immediately after the words "adjusted by" appearing therein: (x) subtracting therefrom the amount of all revenues received by Holdings and its Subsidiaries from advertising services for such Measurement Period that were paid in the form of equity securities in other Persons to the extent that such revenues were included in determining Consolidated Net Income for such Measurement Period and (y)". 2. The definition of "Consolidated Indebtedness" appearing in Section 1.01 of the Credit Agreement is hereby amended by inserting the text "(excluding the Holdings Senior Discount Notes and any accreted interest thereon)" immediately after the words "all Indebtedness of Holdings and its Subsidiaries at such time" appearing therein. 3. Section 2.09(a)(ii) of the Credit Agreement is hereby amended by deleting the existing Applicable Margin table set forth therein and inserting the following new table in lieu thereof: Applicable Margin ----------------------- Eurodollar Base Rate Rate ---- ---- "Consolidated Total Leverage Ratio is less than 4.00 to 1.00 2.000% 1.000% ("Level I") Consolidated Total Leverage Ratio is less than 4.50 to 1.0 but greater than or equal to 4.00 2.375% 1.375% to 1.00 ("Level II") Consolidated Total Leverage Ratio is less than 5.00 to 1.00 but greater than or equal to 4.50 2.625% 1.625% to 1.00 ("Level III") Consolidated Total Leverage Ratio is less than 5.50 to 1.00 but greater than or equal to 5.00 2.875% 1.875% to 1.00 ("Level IV") Consolidated Total Leverage Ratio is less than 6.00 to 1.00 but greater than or equal to 5.50 3.000% 2.000% to 1.00 ("Level V") -2- Consolidated Total Leverage Ratio is equal to or less than 6.50 to 1.00 but greater 3.250% 2.250% than or equal to 6.00 to 1.00 ("Level VI") Consolidated Total Leverage Ratio is greater than 6.50 3.500% 2.500%". to 1.00 ("Level VII") 4. Section 2.10 of the Credit Agreement is hereby amended by inserting the following new clauses (c) and (d) at the end thereof: "(c) The Borrower shall pay to the Administrative Agent for the account of each Bank (and its successors or assigns) which executes and delivers to the Administrative Agent a counterpart of the Seventh Amendment and Waiver, dated as of February 15, 2002, to this Agreement on or before 7:00 p.m. (New York time) on February 22, 2002, an amendment fee in an amount equal to 25 basis points on the amount of each such Bank's Revolving Commitment on February 22, 2002, which fee shall be payable on the earlier of (i) May 31, 2002 and (ii) the date on which the Obligations have been declared (or have become) due and payable as provided in Section 9.02; provided, however, no fee shall be payable pursuant to this Section 2.10(c) to the extent that the Revolving Commitment of each Bank has been terminated and all other Obligations have been paid in full on or before May 31, 2002 except to the extent that such fee would otherwise be due and payable pursuant to clause (ii) above. (d) The Borrower shall pay to the Administrative Agent for the account of each Bank (and its successors or assigns) which executes and delivers to the Administrative Agent a counterpart of the Seventh Amendment and Waiver, dated as of February 15, 2002, to this Agreement on or before 7:00 p.m. (New York time) on February 22, 2002, an additional amendment fee in an amount equal to 25 basis points on the amount of each such Bank's Revolving Commitment on February 22, 2002, which fee shall be payable on the earlier of (i) August 30, 2002 and (ii) the date on which the Obligations have been declared (or have become) due and payable as provided in Section 9.02; provided, however, no fee shall be payable pursuant to this Section 2.10(d) to the extent that the Revolving Commitment of each Bank has been terminated and all other Obligations have been paid in full on or before August 30, 2002 except to the extent that such fee would otherwise be due and payable pursuant to clause (ii) above." 5. Section 3.08(a) of the Credit Agreement is hereby amended by deleting the table appearing therein and inserting the following new table in lieu thereof: "Consolidated Total Leverage Ratio ---------------------------------- Level I 2.000% Level II 2.375% Level III 2.625% -3- Level IV 2.875% Level V 3.000% Level VI 3.250% Level VII 3.500%". 6. Section 7.11 of the Credit Agreement is hereby amended by inserting the following new clause (d) at the end thereof: "(d) In the event that any Credit Party holds any Margin Stock that is required to be pledged pursuant to the Pledge Agreement, such Credit Party shall promptly execute and deliver to each Bank an appropriately completed Form U-1 or Form G-3 referred to in Regulation U of the Federal Reserve Board (although nothing in this clause (d) shall otherwise modify the provisions of Section 7.13(b))." 7. Section 8.05 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (xii) thereof, (ii) deleting the period appearing at the end of clause (xiii) thereof and inserting "; and" in lieu thereof and (iii) inserting the following new clause (xiv) at the end thereof: "(xiv) the Borrower and its Subsidiaries may receive equity securities in other Persons in payment for advertising services provided by the Borrower and its Subsidiaries, provided that (x) no more than $2,000,000 in the aggregate of advertising services in any one fiscal year of Holdings may be provided in exchange for equity securities in other Persons and (y) all such equity securities shall be duly pledged and delivered to the Collateral Agent pursuant to (and to the extent required by) the Pledge Agreement." 8. Sections 8.07, 8.08 and 8.09 of the Credit Agreement are each hereby deleted and the following new Sections 8.07, 8.08 and 8.09 are inserted in lieu thereof: "8.07 Consolidated Interest Coverage Ratio. Holdings and the Borrower will not permit the Consolidated Interest Coverage Ratio for any Measurement Period ending on the last day of a fiscal quarter set forth below to be less than the ratio set forth opposite such fiscal quarter below: Fiscal Quarter Ending Ratio -------------- ------------ December 31, 2001 1.35:1.00 March 31, 2002 1.25:1.00 June 30, 2002 1.25:1.00 September 30,2002 1.25:1.00 December 31, 2002 and the last day of each Fiscal quarter thereafter 1.30:1.00 -4- 8.08 Consolidated Fixed Charge Coverage Ratio. Holdings and the Borrower will not permit the Consolidated Fixed Charge Coverage Ratio for any Measurement Period ending on the last day of a fiscal quarter ending on or after March 31, 2002 to be less than 1.05:1.00. 8.09 Maximum Consolidated Total Leverage Ratio. Holdings and the Borrower will not permit the Consolidated Total Leverage Ratio at any time during a period set forth below to be greater than the ratio set forth opposite such period below: Period Ratio ------ ----- December 31, 2001 through and including March 30, 2002 7.40:1.00 March 31, 2002 through and including December 30, 2002 8.40:1.00 Thereafter 8.00:1.00". 9. Notwithstanding anything to the contrary contained in Section 8.02(ix) of the Credit Agreement, no additional Permitted Acquisitions shall be permitted without the prior written consent of the Required Banks. III. Miscellaneous: 1. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Loan Document. 2. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with Holdings, the Borrower and the Administrative Agent. 3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. In order to induce the Banks to enter into this Amendment, Holdings and the Borrower hereby represent and warrant that (i) no Default or Event of Default exists on the Seventh Amendment Effective Date, after giving effect to this Amendment, and (ii) on the Seventh Amendment Effective Date, after giving effect to this Amendment, all representations -5- and warranties contained in the Credit Agreement and in the other Loan Documents are true and correct in all material respects. 5. This Amendment shall become effective on the date (the "Seventh Amendment Effective Date") when Holdings, the Borrower and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Administrative Agent. 6. From and after the Seventh Amendment Effective Date, all references in the Credit Agreement and each of the other Loan Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement after giving effect to this Amendment. * * * -6- IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. AMERICAN LAWYER MEDIA HOLDINGS, INC. By: ________________________ Name: Title: AMERICAN LAWYER MEDIA, INC. By: ________________________ Name: Title: BANK OF AMERICA, N.A., as Administrative Agent By: ________________________ Name: Title: BANK OF AMERICA, N.A., as a Bank By: ________________________ Name: Title: FLEET NATIONAL BANK, as a Bank By: ___________________________________ Name: Title: CREDIT LYONNAIS, NEW YORK BRANCH, as a Bank By: __________________________________ Name: Title: EX-12.1 4 y58915ex12-1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 AMERICAN LAWYER MEDIA, INC. STATEMENT OF COMPUTATION OF EARNINGS TO COMBINED FIXED CHARGES (IN THOUSANDS)
For the For the For the Year Ended Year Ended Year Ended December 31, 1999 December 31, 2000 December 31, 2001 ----------------- ----------------- ----------------- Loss from continuing operations before income taxes ................... $(29,490) $(23,630) $(29,713) -------- -------- -------- Fixed charges: Interest expense ...................... 18,962 19,470 18,466 Rent expense (a) ...................... 1,228 1,537 1,581 -------- -------- -------- Total fixed charges ................. $20,190 21,007 $20,047 -------- -------- -------- Earnings ................................ $(9,300) $ (2,623) $(9,666) Ration of earnings to fixed charges ..... (b) (b) (b)
- ---------------------- (a) Represents one-third of rent expense which is deemed to be equivalent to an interest factor. (b) Earnings were inadequate to cover combined fixed charges by $29,490, $23,630 and $(29,713) for the twelve months ended December 31, 1999, 2000 and 2001, respectively. EX-21.1 5 y58915ex21-1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF AMERICAN LAWYER MEDIA HOLDINGS, INC. American Lawyer Media, Inc. The New York Law Publishing Company NLP IP Company American Lawyer Media International Holdings Limited American Lawyer Media International Limited EX-99.1 6 y58915ex99-1.txt RECEIPT OF ARTHUR ANDERSEN LLP LETTER Exhibit 99.1 AMERICAN LAWYER MEDIA, INC. AND SUBSIDIARIES 345 Park Avenue South New York, NY 10010 LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T March 29, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549-0408 Ladies and Gentlemen: Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, American Lawyer Media, Inc. and subsidiaries has obtained a letter of representation from Arthur Andersen LLP ("Andersen") stating that the December 31, 2001 audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit and availability of national office consultation. Very truly yours, American Lawyer Media, Inc. /s/ STEPHEN C. JACOBS Stephen C. Jacobs Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----