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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 333-50117
AMERICAN LAWYER MEDIA HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3980414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 PARK AVENUE SOUTH
NEW YORK, NEW YORK 10010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 779-9200
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. /X/
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / / No / /
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
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 31, 1999, 120,000 shares of common stock, par value $.01 per
share, were outstanding, the majority of which were held by affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
SEE EXHIBIT INDEX
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PART I.
ITEM 1. BUSINESS
ON AUGUST 27, 1997, BUT EFFECTIVE AS OF AUGUST 1, 1997, ALM ACQUIRED
SUBSTANTIALLY ALL OF THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED
TO AMERICAN LAWYER MEDIA, L.P. (THE "ALM ACQUISITION"). ON DECEMBER 22, 1997,
ALM ACQUIRED ALL OF THE ISSUED AND OUTSTANDING CAPITAL STOCK OF NATIONAL LAW
PUBLISHING COMPANY, INC. (THE "NLP ACQUISITION"). ON MARCH 3, 1998, A NEWLY
FORMED WHOLLY-OWNED SUBSIDIARY OF ALM PURCHASED ALL OF THE ASSETS AND ASSUMED
CERTAIN OF THE LIABILITIES RELATED TO CORPORATE PRESENTATIONS, INC. (THE "LEGAL
TECH ACQUISITION"). ON MARCH 31, 1998 (EFFECTIVE APRIL 1, 1998), ALM AND A
WHOLLY-OWNED SUBSIDIARY OF ALM PURCHASED ALL OF THE LEGAL PUBLISHING-RELATED
ASSETS AND ASSUMED CERTAIN LIABILITIES RELATED TO LEGAL COMMUNICATIONS, LTD.
(THE "LCL ACQUISITION"). ON OCTOBER 28, 1998, ALM PURCHASED SUBSTANTIALLY ALL OF
THE ASSETS AND ASSUMED CERTAIN OF THE LIABILITIES RELATED TO THE DELAWARE LAW
MONTHLY (THE "DELAWARE ACQUISITION", AND TOGETHER WITH THE ALM ACQUISITION, THE
NLP ACQUISITION, THE LEGALTECH ACQUISITION, AND THE LCL ACQUISITION, THE
"ACQUISITIONS"). REFERENCES HEREIN TO THE COMPANY'S ESTIMATED CIRCULATION
INCLUDE TOTAL PAID AND FREE CIRCULATION FOR ALL OF THE COMPANY'S PERIODICALS.
REFERENCES HEREIN TO READERSHIP INCLUDE ESTIMATED CIRCULATION PLUS COMBINED
PASS-ALONG READERSHIP UNADJUSTED FOR ANY OVERLAP WHICH EXISTS AMONG READERS OF
THE COMPANY'S VARIOUS PUBLICATIONS. UNLESS THE CONTEXT OTHERWISE REQUIRES: (I)
"HOLDINGS" REFERS TO AMERICAN LAWYER MEDIA HOLDINGS, INC., WHICH IS THE PARENT
COMPANY OF THE COMPANY, AND TO HOLDINGS' PREDECESSOR, CRANBERRY PARTNERS, LLC;
(II) THE "COMPANY" REFERS TO AMERICAN LAWYER MEDIA, INC. AND ITS SUBSIDIARIES
AFTER GIVING EFFECT TO THE ACQUISITIONS; (III) "ALM" REFERS TO AMERICAN LAWYER
MEDIA, INC. AND ITS SUBSIDIARIES (AND TO ITS PREDECESSOR, ALM HOLDINGS, LLC)
SINCE THE CONSUMMATION OF THE ALM ACQUISITION BUT PRIOR TO THE NLP ACQUISITION
AND, WHERE APPLICABLE, TO AMERICAN LAWYER MEDIA, L.P. AND ITS SUBSIDIARIES PRIOR
TO THE ALM ACQUISITION; (IV) "OLD ALM" REFERS TO AMERICAN LAWYER MEDIA, L.P. AND
ITS SUBSIDIARIES PRIOR TO THE ALM ACQUISITION; (V) "NLP" REFERS TO NATIONAL LAW
PUBLISHING COMPANY, INC. AND ITS SUBSIDIARIES PRIOR TO THE NLP ACQUISITION; AND
(VI) "INVESTORS" REFERS TO U.S. EQUITY PARTNERS, L.P. ("USEP") AND ITS
AFFILIATES AND CERTAIN OTHER INVESTORS CONTROLLED BY OR MANAGED BY WP MANAGEMENT
PARTNERS, LLC ("WPMP"), THE MERCHANT BANKING ARM OF WASSERSTEIN PERELLA GROUP,
INC. ("WPG").
COMPANY OVERVIEW
Holdings is a holding Company, the principal asset of which consists of all
the outstanding capital stock of the Company. All of Holdings's operations are
conducted through the Company. The Company publishes 21 periodicals, including
several leading national periodicals and regional publications serving four of
the five largest state legal markets. The Company's nationally-recognized
periodicals include THE AMERICAN LAWYER-REGISTERED TRADEMARK-, a monthly
magazine containing articles and features targeted to attorneys practicing in
large law firms, and THE NATIONAL LAW JOURNAL-REGISTERED TRADEMARK-, the
nation's largest selling legal newspaper, which covers the law, lawyers and the
business of the legal profession. The Company's regional publications are led by
the NEW YORK LAW JOURNAL-REGISTERED TRADEMARK-, which has the largest paid
circulation of any regional legal newspaper in the United States. In addition to
the NEW YORK LAW JOURNAL, the Company publishes six other daily newspapers
serving Philadelphia, Northern California, Miami, Fort Lauderdale and Palm
Beach, as well as seven weekly newspapers serving New Jersey, Texas, Washington,
D.C., Connecticut, California, Georgia and Pennsylvania.
In addition to the periodicals referred to above, the Company publishes
CORPORATE COUNSEL-TM- (formerly known as CORPORATE COUNSEL MAGAZINE OR CCM) a
leading magazine for corporate in-house attorneys, LAW TECHNOLOGY NEWS-TM-
(formerly known as LAW TECHNOLOGY PRODUCT NEWS) and AMLAW TECH-TM-, two leading
legal technology magazines, as well as IP WORLDWIDE-TM-, a leading specialty
magazine focusing on intellectual property.
The Company has also successfully established a Professional Information
Services Division that creates and packages information for attorneys and
business professionals. This business includes a portfolio of publications
covering a variety of specialized legal interests and practice areas, including
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newsletters and 123 books on topics of national and regional interest. The
Company also provides case tracking and monitoring services and publishes
various directories used by legal professionals.
The Company, through its LegalTech and Seminars division, is a leading
producer of trade shows and conferences relating to law practice technology. In
addition, the division organizes and sponsors numerous professional seminars and
conferences that cover issues of current legal interest.
In addition, the Company, through a newly formed subsidiary, sponsors the
leading national legal website, Law News Network (www.lawnewsnetwork.com) and
currently has a number of law-related internet regional websites including
NYLJ.COM-TM-, CAL LAW-TM-, ILLINOIS LAW-TM-, TEX LAW-TM-, PALAWNET-TM- and DELAW
NET-TM-. These websites give attorneys online access to news and other legal
materials and facilitate the exchange of information among members of the legal
community.
The Company derives its revenues principally from advertising and
subscriptions, with additional revenues generated by its Professional
Information Services and LegalTech/Seminars divisions. For the twelve months
ended December 31, 1998, approximately 56% of the Company's revenues were from
advertising, 19% were from subscriptions, 23% were from ancillary products and
services and 2% were from internet services.
PRODUCT LINES
PERIODICALS. The Company's newspaper and magazine business publishes 21
national, regional and local periodicals that serve legal and business
professionals. The Company's periodicals have a combined circulation of
approximately 260,000. The subscription renewal rate for the Company's
periodicals averages approximately 80%.
NEWSPAPERS. The Company's 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. The Company is committed to
providing high quality and balanced coverage of its local markets. Most of the
Company's 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.
The Company publishes sixteen newspapers including THE NATIONAL LAW JOURNAL,
the leading national legal newspaper in the United States, NEW YORK LAW JOURNAL,
which has the largest circulation of any regional legal newspaper, as well as
fourteen other daily and weekly newspapers. In aggregate, the Company's
newspapers serve nine state markets and the District of Columbia, including New
York, New Jersey, Pennsylvania, Washington, D.C., Georgia, Florida, Texas,
California, Connecticut and Delaware, which cover approximately 46% of all
active attorneys in the United States. Each of the Company's regional newspapers
has a significant presence in its respective market.
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The following table sets forth information regarding the Company's
newspapers:
NEWSPAPERS
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE MARKET FOUNDING CIRCULATION(1) READERSHIP(2)
- ------------------------------------------------ ---------------------- ----------- ------------- -------------
WEEKLY NEWSPAPERS
THE NATIONAL LAW JOURNAL........................ National 1978 37,622 168,800
NEW JERSEY LAW JOURNAL.......................... New Jersey 1878 9,569 59,700
TEXAS LAWYER.................................... Texas 1985 10,341 65,100
LEGAL TIMES..................................... Washington, D.C. 1978 10,776 75,600
THE CONNECTICUT LAW TRIBUNE..................... Connecticut 1974 3,228 23,800
DELAWARE LAW WEEKLY............................. Delaware 1998 N/A(3) N/A(3)
PENNSYLVANIA LAW WEEKLY......................... Pennsylvania 1978 3,100 13,020
CALIFORNIA LAW WEEKLY........................... California 1998 N/A(3) N/A(3)
DAILY NEWSPAPERS
NEW YORK LAW JOURNAL............................ New York 1888 15,425 66,700
THE RECORDER.................................... Northern California 1877 8,027 48,500
THE LEGAL INTELLIGENCER......................... Pennsylvania 1843 3,050 12,810
FULTON COUNTY DAILY REPORT...................... Georgia 1890 6,615 37,700
MIAMI DAILY BUSINESS REVIEW..................... South Florida 1926 5,148 37,800
BROWARD DAILY BUSINESS REVIEW................... South Florida 1926 2,772 20,400
PALM BEACH DAILY BUSINESS REVIEW................ South Florida 1926 1,990 14,700
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) For these recently launched publications, insufficient information is
currently available.
MAGAZINES. THE AMERICAN LAWYER anchors the Company's 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.
The Company's other magazines focus on specific practice areas or segments
within the legal profession and certain topics applicable to the business of
law. The Company's specialty legal magazines include CORPORATE COUNSEL, one of
the nation's largest 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. The Company also publishes the 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, while LAW TECHNOLOGY NEWS is targeted toward
attorneys and information services departments in law offices.
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The Company publishes the following five magazines:
MAGAZINES
ESTIMATED
YEAR OF TOTAL TOTAL
TITLE FOUNDING FREQUENCY CIRCULATION(1) READERSHIP(2)
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THE AMERICAN LAWYER....................... 1979 11 times per year 17,005 126,800
AMLAW TECH................................ 1996 4 times per year 30,000 60,000(3)
CORPORATE COUNSEL......................... 1994 10 times per year 38,200 76,400(3)
IP WORLDWIDE.............................. 1995 6 times per year 10,000 20,000(3)
LAW TECHNOLOGY NEWS....................... 1993 14 times per year 55,000 110,000(3)
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(1) References in the table above to the Company's total circulation include
total paid and free circulation.
(2) References in the table above to the Company's estimated total readership
include total circulation plus combined pass-along readership unadjusted for
any overlap which exists among readers of the Company's various
publications.
(3) These magazines are distributed primarily free of charge. For these
publications, the Company assumes only two readers per copy.
NEWSLETTERS. The Company's newsletter division publishes 32 newsletters
which cover specialized legal practice areas. Circulation for the Company's
newsletters ranges from approximately 300 to 1,700, with an average circulation
of over 700. The total number of paid subscribers for all newsletters was
approximately 18,700 as of December 31, 1998. The following table sets forth a
list of the Company's newsletters:
NEWSLETTERS
Accounting for Law Firms
The Bankruptcy Strategist
Business Crimes Bulletin: Compliance and Litigation
Cable TV and New Media
Commercial Leasing Law & Strategy
Computer Law Strategist
Corporate Control Alert
The Corporate Counsellor
Delaware Corporate Law Reporter
Employment Law Strategist
Entertainment Law & Finance
Environmental Compliance and Litigation Strategy
Equipment Leasing
eSecurities
Fen Phen Litigation Strategist
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Healthcare Fraud and Abuse
The Intellectual Property Strategist
The Internet Newsletter: Legal & Business Aspects
Law Firm Partnership & Benefits Report
Leader's Franchising Business & Law Alert
Legal Online
Legal Tech
Marketing for Lawyers
The Matrimonial Strategist
Medical Malpractice Law & Strategy
Medical/Legal Aspects of Breast Implants
Money Laundering Law Report
Multimedia and Web Strategist
New York Real Estate Law Reporter
Personal Injury Reporter
Product Liability Law & Strategy
Y2K Counselor
BOOKS. The Company currently publishes 123 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 the Company's books are updated
once or twice per year with inserts to keep the material current. The Company
focuses on publishing books that cover particularly dynamic areas of law that
lend themselves to frequent supplementation.
The Company most often develops the concept for a new book and then solicits
an author to write the text. However, in certain cases, the Company has received
unsolicited manuscripts which it has ultimately published. Authors who have
written books for the Company include prominent attorneys and judges such as
Martin Lipton, Judge Jed Rakoff, James Freund and James Goodale.
Historically, most of ALM's books have focused on state issues, while NLP's
books have dealt primarily with national legal topics. The following tables set
forth the Company's current offering of books:
BOOKS
State and Local Subjects
Connecticut Appellate Practice and Procedure
Connecticut Criminal Caselaw Handbook
Connecticut Foreclosures: An Attorney's Manual of Practice and Procedure
Connecticut Labor and Employment Law
Connecticut Summary Process Manual
Connecticut Unfair Trade Practices Act
Connecticut Uninsured and Underinsured Motorist
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Courtroom Success: A View From the Bench
Dallas County Bench Book (Texas)
Encyclopedia of New Jersey Causes of Action
Georgia Bench Book
Guide to Connecticut Limited Liability Companies
Handbook of Forms for the Connecticut Family Lawyer
Harris County Bench Book (Texas)
Insurance Laws
Marketing and Maintaining a Family Law Mediation Practice
Mediation: A Texas Practice Guide
New Jersey Brownfields Law
New Jersey Employment Law
New Jersey Insurance Law
New Jersey Product Liability Law
Pennsylvania Tax Handbook
Pennsylvania District and County Reports
Pennsylvania Court Rules
Pennsylvania: The Legal Directory
Pleadings and Pretrial Practice (Connecticut)
Representing Clients in Mediation
Tarrant County Bench Book (Texas)
Travis County Bench Book (Texas)
Texas Criminal Codes and Rules
Texas Legal Malpractice & Lawyer Discipline
Texas Legal Research
The Perfect Plea
Visiting Judges Bench Book
BOOKS
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 Workplace
Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate
Acquisitions
Antitrust Basics
Antitrust: An Economic Approach
Changing the Situs of a Trust
Class Actions: The Law of 50 States
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Communications Law and Practice
Computer Law: Drafting and Negotiating Forms and Agreements
Corporate Internal Investigations
Corporate Sentencing Guidelines: Compliance and Mitigation
Divorce, Separation and the Distribution of Property
Doing Business on the Internet: Forms and Analysis
Due Diligence in Business Transactions
Employee Benefits Law: ERISA and Beyond
Raoul Felder's Encyclopedia of Matrimonial Clauses
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 Rules of Civil Procedure
Federal Taxation of Intellectual Property Transfers
Federal Taxation of Real Estate
Federal Taxation of S Corporations
Federal Trade Commission: Law, Practice and Procedure
Ferrara on Insider Trading and The Wall
Franchising: Realities and Remedies
Franchising: Realities and Remedies Forms Volume
Going Private
Grand Jury Practice
Ground Leases and Land Acquisition Contracts
Health Care Fraud
Hospital Liability
"I'd Rather Do It Myself": How to Set Up Your Own Law Firm
Insurance Coverage Disputes
Intellectual Property Law: Commercial, Creative and Industrial Property
Internet and Online Law
Law and Business in the European Single Market
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
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Marketing the Law Firm: Business Development Techniques
Maximizing Law Firm Profitability: Hiring, Training and Developing Productive
Lawyers
Merit Systems Protection Board: Rights and Remedies
Model Terms of Engagement
Modern Visual Evidence
Multifamily Housing: Federal Programs for the Private Sector
Multimedia Law: Forms and Analysis
Negotiated Acquisitions of Companies, Subsidiaries and Divisions
Negotiating and Drafting Office Leases
Negotiation: Strategies for Law and Business
Partnership and Joint Venture Agreements
Private Real Estate Syndications
Product Liability
Product Liability: Winning Strategies and Techniques
Products Liability: Recreation and Sports Equipment
Real Estate, A Guide for the Profession
Real Estate Financing
Reducing Personal Income Taxes: A Guide to Deductions and Credits
Reorganizations under Chapter 11 of the Bankruptcy Code
RICO: Civil and Criminal, Law and Strategy
Savings Institutions: Mergers, Acquisitions and Conversions
Securities Practice and Electronic Technology
Securities Regulation: Liabilities and Remedies
Sex Discrimination and Sexual Harassment in the Workplace
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 Judgments
Takeovers and Freezeouts
Tax Aspects of Divorce and Separation
The Law and Practice of Secured Transactions: 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
CONFERENCES AND SEMINARS. Under its LegalTech-Registered Trademark-
tradename, the Company produces conferences and exhibitions relating to law
practice technology in New York, Los Angeles, Chicago, Washington, D.C.,
Atlanta, and Houston. The conferences are generally three-day events that
include vendor exhibits, a
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seminar program, and a variety of workshops and focus sessions. Attendees
typically include attorneys in private practice, corporate counsel, law firm
administrators and information technology personnel, while exhibitors include a
variety of software, hardware, publishing and other technology product related
companies. The Company conducts a number of seminars and conferences for lawyers
and other professionals in related fields. The Company's seminars complement its
other products and services both by serving as powerful marketing vehicles for
the Company's existing books and newsletters, and by generating ideas for new
seminars, books and newsletters. Seminars also introduce the Company to lawyers
who may subsequently write articles or books for the Company.
In addition to its seminar business, the Company operates a small number of
conferences. While its seminars typically involve one or more speakers making
presentations to groups of 75-250 people, conferences generally feature an array
of booths and presentations from various participants over the course of several
days. The Company plans to coordinate additional related conferences in the
coming years.
The following table sets forth the seminars and conferences held in 1998:
SEMINARS
Fen-Phen
Civil Litigation Practice
Legal Tech Internet
Year 2000 Litigation
Acquisitions Of Subsidiaries
Distribution and Dealer Termination
Failure to Diagnose Breast Cancer
Computer Law
General Counsel Conference
Negotiating Joint Ventures and Strategic Alliances
Securities in the Electronic Era
Failure to Diagnose Fetal Distress
Negotiating the Modern Lease
Positioning Your Law Firm for The New Millennium
Negotiating Contracts in the Entertainment Industry
Sports Law
Representing Start Up and Emerging Companies
Review of New Jersey Civil Case Law
Trial of a Failure to Diagnose Breast Cancer Case
Legal and Business Aspects of The Internet
The Employment Litigation Problem
Negotiating Corporate Acquisitions
Baker on No Fault
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CONFERENCES
LegalTech New York (January)
LegalTech Net Washington, D.C.
LegalTech Los Angeles
LegalTech New York (September)
LegalTech Chicago
LegalTech Houston
LegalTech Atlanta
OTHER PRODUCTS AND SERVICES. The Company's uniquely focused customer base
and extensive access to legal information has enabled the Company to create a
wide array of additional ancillary businesses, including: (i)
MA/3000-Registered Trademark-, a case tracking and docketing software package
that allows litigators in New York to track court activity published in the NEW
YORK LAW JOURNAL-Registered Trademark-, and (ii) QDS-TM-, DAILY DECISION
SERVICE-TM- and PICS-TM-, a service which offers subscribers faxed copies on
request of both published and unpublished state and federal court opinions for
New York, New Jersey and Pennsylvania, respectively.
INTERNET SERVICES. In December 1998, the Company launched the Internet's
most extensive daily national legal newsource through its Law News Network site
(www.lawnewsnetwork.com). Law News Network provides updated legal news and
information from the Company's publications as well as original content, online
advertising and specialized legal subscription services. In addition, the site
acts as a convenient gateway to other legal information on the Internet. In
addition, the Company operates several leading regional legal websites including
NYLJ.COM-TM-, CAL LAW-TM-, ILLINOIS LAW-TM-, PALAWNET-TM-, and TEX LAW-TM- and
DELAWNET-TM-.
PRINTING AND DISTRIBUTION
Layouts for the Company's publications are prepared in-house, while the
large majority of the Company's printing activities, and all of its distribution
activities, are outsourced.
COMPETITION
The Company competes for advertising and subscription revenues with
publishers of special-interest legal newspapers and magazines with similar
editorial content. However, in most of the Company's markets, its newspaper is
the only newspaper focused on serving the legal community. The Company also
competes 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
which 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 the Company's publications. The Company also faces
significant competition from other legal publishers and legal service providers
in its on-line and professional information services divisions.
INTELLECTUAL PROPERTY
The Company owns a number of registered and unregistered trademarks for use
in connection with its business, including trademarks in the titles of its major
periodicals such as THE AMERICAN LAWYER-Registered Trademark-, CORPORATE
COUNSEL-TM-, THE NATIONAL LAW JOURNAL-Registered Trademark-, and NEW YORK LAW
JOURNAL-Registered Trademark-. 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 in the United States Patent and Trademark Office.
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The Company approaches copyright ownership with respect to its publications
in the same manner as is customary within the publishing industry generally.
Consequently, the Company owns the copyright in all of its newspapers, magazines
and newsletters, as compilations, and also owns the copyright in most of its
books. With respect to the specific articles in its publications, the Company
generally obtains the assignment of all right, title and interest in original
materials created by the Company's full-time journalists and editors as well as
by paid contributors. For articles authored by outside contributors, the Company
generally obtains only the exclusive "first-time publication" and non-exclusive
republication rights. Judicial opinions, court schedules and docketing
information are provided to the Company directly by the courts, on a
non-exclusive basis, and is public information. The Company also claims
ownership of the copyright in its MA/3000-Registered Trademark- tracking and
docketing software. See "--Product Lines." Copyrights in software can be
enforced against plagiarists of the source code or the copyrightable "look and
feel" of the program, but do not protect the concepts and ideas contained in the
program, nor do they prevent others from developing a competing case tracking
and docketing program.
The Company licenses the content of certain of its publications and forms to
third parties, including West Publishing Company, and LEXIS/NEXIS, on a
non-exclusive basis, for republication and dissemination on electronic databases
marketed by the licensees. After the expiration of their initial terms (the
latest of which is April, 2001), the licenses automatically renew, subject to
either parties' right to terminate at the end of each subsequent term.
Some of the Company's products, such as QDS, the DAILY DECISION SERVICE and
PICS, utilize the extensive databases of court decisions compiled by the
Company. The Company also has extensive subscriber and other customer databases
which it believes would be extremely difficult to replicate. The Company
attempts 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, 1998, the Company employed approximately 870 full-time
employees, 21 of whom are subject to a single collective bargaining agreement.
The Company believes that its relations with its employees are satisfactory.
SIGNIFICANT TRANSACTIONS
LEGALTECH ACQUISITION. On March 3, 1998, a newly formed wholly-owned
subsidiary of the Company purchased all of the assets and assumed certain of the
liabilities related to Corporate Presentations, Inc. ("LegalTech" or "Corporate
Presentations") for approximately $10.8 million in cash (the "LegalTech
Acquisition"). The Company funded the LegalTech Acquisition with available cash
flow.
LEGAL COMMUNICATIONS, LTD. ACQUISITION. On March 31, 1998, the Company and
a wholly-owned subsidiary of the Company entered into a definitive agreement
with Legal Communications, Ltd. ("LCL"), to acquire, effective as of April 1,
1998, substantially all of the legal publishing-related assets and to assume
certain liabilities of LCL for an aggregate purchase price of $20 million in
cash subject to changes in the net worth of LCL between December 31, 1997 and
March 31, 1998 (the "LCL Acquisition").
On October 28, 1998, ALM purchased substantially all of the assets and
assumed certain of the liabilities related to the DELAWARE LAW MONTHLY from the
partnership which owned the DELAWARE LAW MONTHLY. The aggregate purchase price
for the assets was $280,000 payable in four equal annual installments of $70,000
per year.
REVOLVING CREDIT FACILITY. On March 25, 1998, the Company entered into a
$40 million, five-year senior secured revolving credit facility (the "Revolving
Credit Facility") with a group of banks to be
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available for working capital and general corporate purposes, including
acquisitions and capital expenditures.
The Revolving Credit Facility is guaranteed by Holdings and by all existing
and future subsidiaries of the Company. In addition, the Revolving Credit
Facility is secured by a first priority security interest in substantially all
of the properties and assets of the Company and its existing and future domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. The Revolving Credit
Facility contains customary covenants commensurate with the size of the
Revolving Credit Facility that restrict the ability of the Company and its
subsidiaries to take certain actions.
ADDITIONAL EQUITY CONTRIBUTION. On April 14, 1998, Holdings contributed an
aggregate of $15 million to the equity capital of the Company. The proceeds of
the equity contribution were used to fund acquisitions and to provide capital
for aggressive internal growth.
ITEM 2. PROPERTIES
The Company operates from various locations throughout the United States.
Its corporate headquarters are based in New York. Information relating to the
Company's corporate headquarters and other significant regional offices which
are owned or leased is set forth in the following table:
LEASE
STREET ADDRESS CITY/STATE SQUARE FOOTAGE EXPIRATION
- ------------------------------------------------------- ----------------------- --------------- ---------------
345 Park Avenue South.................................. New York, NY 55,000 Sept. 2008
105 Madison Avenue..................................... New York, NY 37,500 Sept. 2008
238 Mulberry Street.................................... Newark, NJ 7,022 Dec. 2006
625 Polk Street........................................ San Francisco, CA 7,100 Apr. 2000
900 Jackson Street..................................... Dallas, TX 10,190 Dec. 2003
1005 Congress Street................................... Austin, TX 1,992 May 1999
815 Walker Street...................................... Houston, TX 1,724 May 2001
190 Pryor Street, S.W.................................. Atlanta, GA 20,000 Owned
1730 M Street, N.W..................................... Washington, DC 8,856 Mar. 2001
1 Post Road............................................ Fairfield, CT 6,520 Dec. 2002
1 S.E. Third Avenue.................................... Miami, FL 19,742 Sept. 2004
150 N.E. 7th Street.................................... Miami, FL 17,001 Sept. 2004
633 South Andrews Avenue............................... Fort Lauderdale, FL 3,408 Jan. 2003
330 Clematis Street.................................... W. Palm Beach, FL 2,927 Jan. 2004
901 Market Street...................................... Wilmington, DE 1,089 Aug. 2001
1617 JFK Blvd.......................................... Philadelphia, PA 11,997 July 2001
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on its financial condition or on the results of its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MARKETS
A majority of the Company's common stock is owned by U.S. Equity Partners,
L.P. and its affiliates. There is no public trading market for the Company's
common stock.
The Company has never paid any cash dividends on its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected historical financial information (i)
for Old ALM, as of and for the years ended December 31, 1994, 1995 and 1996,
(ii) for NLP, as of and for the years ended December 31, 1994, 1995 and 1996,
(iii) for Old ALM, as of and for the seven months ended July 31, 1997, (iv) for
Holdings, as of and for the five months ended December 31, 1997 and the year
ended December 31, 1998, and (v) for NLP, as of and for the period from January
1, 1997 through December 21, 1997. The financial data for Holdings, as of and
for the year ended December 31, 1998, the five months ended December 31, 1997
and the financial data for Old ALM for the seven months ended July 31, 1997 and
the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Arthur Andersen LLP. The financial data for NLP as of and
for the period from January 1, 1997 through December 21, 1997 were derived from
financial statements audited by Arthur Andersen LLP and financial data for NLP
for the years ended December 31, 1995 and 1996 were derived from financial
statements audited by Leslie Sufrin and Company, P.C. The audited financial
statements and the related notes thereto are included elsewhere in this Report.
Unaudited financial data include (i) Old ALM financial data for the year ended
December 31, 1994 and (ii) NLP financial data for the year ended December 31,
1994. In the opinion of management such unaudited financial data have been
prepared on the same basis as the audited financial statements included
elsewhere herein, and include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for such
periods. 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
Report. See "Index to Financial Statements."
14
AMERICAN LAWYER MEDIA, L.P.
AND AMERICAN LAWYER MEDIA HOLDINGS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
AMERICAN LAWYER MEDIA HOLDINGS,
PREDECESSOR COMPANY INC.
---------------------------------------------- --------------------------------
SEVEN
MONTHS FIVE MONTHS TWELVE MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
--------------------------------- JULY 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1997 1998
----------- --------- --------- ----------- --------------- ---------------
OPERATING DATA:
Revenues:
Periodicals:
Advertising.............................. $ 23,872 $ 25,037 $ 26,659 $ 18,146 $ 13,410 $ 67,510
Subscription............................. 10,483 10,884 11,304 6,719 5,260 23,172
Ancillary Products and Services............ 7,980 8,387 8,467 4,532 4,142 28,208
Internet Services.......................... 685 3,238 5,474 2,148 1,162 2,639
----------- --------- --------- ----------- ------- ---------------
Total Revenues......................... 43,020 47,546 51,904 31,545 23,974 121,529
----------- --------- --------- ----------- ------- ---------------
Operating Costs and Expenses:
Editorial.................................. 7,075 7,073 7,141 4,023 3,323 15,523
Production and Distribution................ 11,170 12,587 12,469 6,919 5,766 26,266
Selling.................................... 7,208 6,913 7,479 4,640 3,656 19,002
General and Administrative................. 15,790 16,506 16,829 9,531 7,145 30,012
Internet Services.......................... 7,760 10,854 11,886 6,464 2,988 4,667
Depreciation and Amortization.............. 3,506 2,680 2,488 1,590 3,273 26,302
Shutdown of ALM Internet Services.......... -- -- -- -- 3,000 --
----------- --------- --------- ----------- ------- ---------------
Total Operating Costs and Expenses..... 52,509 56,613 58,292 33,167 29,151 121,772
----------- --------- --------- ----------- ------- ---------------
Operating (loss)....................... (9,489) (9,067) (6,388) (1,622) (5,177) (243)
Interest expense, net........................ (667) (1,384) (1,972) (1,420) (2,534) (22,916)
Benefit for Income Tax....................... -- -- -- -- -- 3,403
----------- --------- --------- ----------- ------- ---------------
(Loss) before minority interest.............. (10,156) (10,451) (8,360) (3,042) (7,711) (19,756))
Minority interest............................ 1,847 2,334 172 -- -- --
----------- --------- --------- ----------- ------- ---------------
Net loss..................................... $ (8,309) $ (8,117) $ (8,188) $ (3,042) $ (7,711) $ (19,756)
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit).................... $ (6,376) $ (7,066) $ (7,009) $ (5,895) $ (8,322) $ (14,850)
Total assets................................. 20,931 19,313 19,482 18,982 361,314 367,860
Long-term debt (including current
maturities)................................ 13,524 22,114 30,150 34,742 210,119 223,038
Partners' (deficit) and Stockholder's
equity..................................... (11,647) (19,759) (26,300) (29,342) 67,289 62,533
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and
Services................................. $ 1,092 $ 1,229 $ 2,512 $ 4,284 $ 2,922 $ 28,087
Internet Services.......................... (7,075) (7,616) (6,412) (4,316) (4,826) (2,028)
----------- --------- --------- ----------- ------- ---------------
Total.................................. $ (5,983) $ (6,387) $ (3,900) $ (32) $ (1,904) $ 26,059
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
Capital Expenditures:
Periodicals and Ancillary Products and
Services................................. $ 1,102 $ 864 $ 1,118 $ 439 $ 357 $ 3,767
Internet Services.......................... 386 617 1,084 1,532 7 144
----------- --------- --------- ----------- ------- ---------------
Total.................................. $ 1,488 $ 1,481 $ 2,202 $ 1,971 $ 364 $ 3,911
----------- --------- --------- ----------- ------- ---------------
----------- --------- --------- ----------- ------- ---------------
- ------------------------
(1) "EBITDA" is defined as income before interest, income taxes, depreciation
and amortization and gain on sale of assets. 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 ALM'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 title measures of other
companies.
15
NATIONAL LAW PUBLISHING COMPANY, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
PERIOD FROM
YEARS ENDED DECEMBER 31, JANUARY 1, 1997
------------------------------- THROUGH
1994 1995 1996 DECEMBER 21, 1997
--------- --------- --------- -----------------
OPERATING DATA:
Revenues:
Periodicals:
Advertising............................................................ $ 18,612 $ 21,387 $ 23,319 $ 26,402
Subscription........................................................... 9,105 9,694 9,759 9,504
Ancillary Products and Services.......................................... 11,437 12,729 13,398 13,926
Internet Services........................................................ -- 264 747 1,109
--------- --------- --------- --------
Total Revenues....................................................... 39,154 44,074 47,223 50,941
--------- --------- --------- --------
Operating Costs and Expenses:
Editorial................................................................ 5,451 5,778 5,929 5,837
Production and Distribution.............................................. 7,621 8,146 8,679 9,872
Selling.................................................................. 8,831 9,776 8,991 8,211
General and Administrative............................................... 7,726 7,620 8,047 8,722
Internet Services........................................................ -- 2,947 1,704 1,657
Depreciation and Amortization............................................ 3,130 6,329 7,487 7,283
Special Compensation Charge.............................................. -- -- -- 6,926
--------- --------- --------- --------
Total Operating Costs and Expenses................................... 32,759 40,596 40,837 48,508
--------- --------- --------- --------
Operating income..................................................... 6,395 3,478 6,386 2,433
Interest expense, net...................................................... (4,734) (5,458) (6,013) (5,137)
Other income (expense)..................................................... (320) (211) 181 --
--------- --------- --------- --------
Income (loss) before income taxes.......................................... 1,341 (2,191) 554 (2,704)
Benefit (provision) for income taxes....................................... (763) 523 (3,007) (2,508)
--------- --------- --------- --------
Net income (loss).......................................................... $ 578 $ (1,668) $ (2,453) $ (5,212)
--------- --------- --------- --------
--------- --------- --------- --------
BALANCE SHEET DATA:
(At End of Period)
Working capital (deficit).................................................. $ (2,868) $ (4,717) $ (2,081) $ (2,204)
Total assets............................................................... 21,217 154,125 147,311 139,610
Long-term debt (including current maturities).............................. 54,600 70,900 70,300 59,500
Stockholders' equity (deficit)............................................. (44,842) 65,620 63,167 64,782
OTHER DATA:
EBITDA: (1)
Periodicals and Ancillary Products and Services.......................... $ 9,525 $ 12,490 $ 14,830 $ 10,264
Internet Services........................................................ -- (2,683) (957) (548)
--------- --------- --------- --------
Total................................................................ $ 9,525 $ 9,807 $ 13,873 $ 9,716
--------- --------- --------- --------
--------- --------- --------- --------
Capital Expenditures:
Periodicals and Ancillary Products and Services.......................... $ 1,511 $ 436 $ 486 $ 473
Internet Services........................................................ 296 172 26 42
--------- --------- --------- --------
Total................................................................ $ 1,807 $ 608 $ 512 $ 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.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the "Selected
Financial Data" and the historical consolidated financial statements of the
Company, including the notes thereto, included elsewhere in this Form 10-K.
OVERVIEW
In March 1998, the Company acquired all the assets and certain liabilities
of LegalTech for approximately $10.8 million. The excess purchase price over the
net liabilities acquired was $11.3 million. In April 1998, the Company acquired
the assets and certain liabilities of LCL for approximately $20.1 million. The
excess purchase price over the net assets acquired was allocated $14.3 million
and $6.3 million to identified intangibles and goodwill, respectively. The
allocation was based on the assets' respective fair values at acquisition date.
The results of operations of the acquisitions have been included in the
Company's results of operations since the respective acquisition dates.
In August 1997, the Investors, through ALM, consummated the ALM Acquisition,
and in December 1997, ALM consummated the NLP Acquisition. The Acquisitions have
been accounted for using the purchase method of accounting. The results of
operations of Old ALM have been included in the financial statements of the
Company since August 1, 1997, the effective date of the ALM Acquisition, and the
results of operations of NLP have been included in the financial statements of
the Company since December 22, 1997, the closing date of the NLP Acquisition. As
a result, the Acquisitions will prospectively affect the Company's results of
operations in certain significant respects. 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 tangible and intangible assets acquired by the Company based
upon their respective fair values as of the acquisition date.
17
The following table presents the results of operations for the year ended
December 31, 1998, the calculation for the combined period ended December 31,
1997 and the results for the year ended December 31, 1996 (in thousands):
AMERICAN LAWYER MEDIA, INC.
OLD ALM
------------------------------ ----------------------------
YEAR SEVEN MONTHS FIVE MONTHS COMBINED NLP
ENDED ENDED ENDED YEAR ENDED JAN. 1, 1997 TOTAL
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, THROUGH COMBINED
1996 1997 1997 1997 DEC. 21, 1997 1997
------------- --------------- ------------- ------------- --------------- -----------
Operating Data:
Revenues:
Periodicals
Advertising........................ 26,659 18,146 13,410 31,556 26,402 57,958
Subscription....................... 11,304 6,719 5,260 11,979 9,504 21,483
Ancillary Products and Services...... 8,467 4,532 4,142 8,674 13,926 22,600
Internet Services.................... 5,474 2,148 1,162 3,310 1,109 4,419
------ ------ ------ ------ ------ -----------
Total revenues................... 51,904 31,545 23,974 55,519 50,941 106,460
------ ------ ------ ------ ------ -----------
Operating Costs and Expenses:
Editorial............................ 7,141 4,023 3,323 7,346 5,837 13,183
Production and Distribution.......... 12,469 6,919 5,766 12,685 9,872 22,557
Selling.............................. 7,479 4,640 3,656 8,296 8,211 16,507
General and Administrative........... 16,829 9,531 7,145 16,676 8,722 25,398
Internet Services.................... 11,886 6,464 2,988 9,452 1,657 11,109
Depreciation and Amortization........ 2,488 1,590 3,273 4,863 7,283 12,146
Shutdown of ALM Internet Services.... -- -- 3,000 3,000 -- 3,000
Special Compensation Charge.......... -- -- -- -- 6,926 6,926
------ ------ ------ ------ ------ -----------
Total Operating Costs and
Expenses......................... 58,292 33,167 29,151 62,318 48,508 110,826
------ ------ ------ ------ ------ -----------
Operating (loss)................. (6,388) (1,622) (5,177) (6,799) 2,433 (4,366)
------ ------ ------ ------ ------ -----------
------ ------ ------ ------ ------ -----------
YEAR ENDED
DECEMBER 31,
1998
-------------
Operating Data:
Revenues:
Periodicals
Advertising........................ 67,510
Subscription....................... 23,172
Ancillary Products and Services...... 28,208
Internet Services.................... 2,639
-------------
Total revenues................... 121,529
-------------
Operating Costs and Expenses:
Editorial............................ 15,523
Production and Distribution.......... 26,266
Selling.............................. 19,002
General and Administrative........... 30,012
Internet Services.................... 4,667
Depreciation and Amortization........ 26,302
Shutdown of ALM Internet Services.... --
Special Compensation Charge.......... --
-------------
Total Operating Costs and
Expenses......................... 121,772
-------------
Operating (loss)................. (243)
-------------
-------------
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The following discussion includes the year ended December 31, 1997 which is
derived from the financial information for Old ALM for the seven months ended
July 31, 1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from January 1, 1997 through December 21, 1997, presented above. As a
result, the financial information for the combined year ended December 31, 1997
has not been prepared on a basis in conformity with GAAP.
For the year ended December 31, 1998, the financial results include the
acquisitions of LegalTech, LCL and the Delaware Acquisition, since acquisition
dates .
OVERVIEW. Net revenues increased by $15.1 million, or 14.2%, from $106.5
million for the year ended December 31, 1997 to $121.5 million for the year
ended December 31, 1998. Total operating costs and expenses increased $10.9
million, or 9.9%, from $110.8 million for the year ended December 31, 1997 to
$121.8 million for the year ended December 31, 1998 due primarily to a $14.2
million increase in depreciation and amortization resulting from the ALM and NLP
acquisitions. As a result, the operating loss decreased $4.1 million, or 94.4%,
from a loss of $4.4 million for the year ended December 31, 1997 to a loss of
$0.2 million for the year ended December 31, 1998, while EBITDA increased $18.3
million, or 234.9%, from $7.8 million for the year ended December 31, 1997 to
$26.1 million for the year ended December 31, 1998. Internet Services revenues
decreased $1.8 million, or 40.3%, from $4.4 million for the year ended December
31, 1997 to $2.6 million for the year ended December 31, 1998. Internet Services
expenses decreased $6.4 million, or 58.0%, from $11.1 million for the year ended
December 31, 1997 to
18
$4.7 million for the year ended December 31, 1998. Also included in the
operating costs for 1997 was a special compensation charge of $6.9 million
reflecting stock option and bonus payments related to the sale of NLP.
Accordingly, excluding the net operating loss from Internet Services, the
shutdown charge, and the one time special compensation charge, operating income
decreased $10.5 million, or 85.4%, from $12.2 million for the year ended
December 31, 1997 to $1.8 million for the year ended December 31, 1998, while
EBITDA increased $3.7 million, or 15.1%, from $24.4 million to $28.1 million
over the same periods.
REVENUES. Advertising revenues increased $9.6 million, or 16.5%, from $58.0
million for the year ended December 31, 1997 to $67.5 million for the year ended
December 31, 1998. The acquisition of LCL accounted for $3.9 million of this
increase. Without LCL, revenues increased $5.7 million, or 9.8%, due principally
to an increase in advertising rates as well as an overall increase in
advertising pages.
Subscription revenues increased $1.7 million, or 7.9%, from $21.5 million
for the year ended December 31, 1997 to $23.2 million for the year ended
December 31, 1998. This increase was primarily due to the acquisition of LCL.
Revenues from ancillary products and services increased $5.6 million, or
24.8%, from $22.6 million for the year ended December 31, 1997 to $28.2 million
for the year ended December 31, 1998. The additions of LCL and LegalTech
accounted for $3.1 million of the increase. The $2.5 million balance of this
increase was due to an increase in the number of book updates released along
with increased royalty income. In addition, a portion of book sales historically
recorded in the fourth quarter were shipped and included in the first quarter
results of 1998.
Revenues from Internet Services decreased $1.8 million, or 40.3%, from $4.4
million for the year ended December 31, 1997 to $2.6 million for the year ended
December 31, 1998. This decrease is attributable primarily to the shutdown of
Counsel Connect, Old ALM's internet service.
OPERATING EXPENSES. Total operating costs and expenses increased $10.9
million, or 9.9%, from $110.8 million for the year ended December 31, 1997 to
$121.8 million for the year ended December 31, 1998. This increase is due to a
$14.2 million increase in depreciation and amortization resulting from the ALM
and NLP acquisitions. The inclusion of $7.1 million in expenses from LCL and
LegalTech as well as other normal operating expense increases were offset by the
reduction in internet service expenses.
Editorial expenses increased by $2.3 million, or 17.8%, from $13.2 million
for the year ended December 31, 1997 to $15.5 million for the year ended
December 31, 1998 as a number of key vacant positions were filled. The addition
of LCL accounted for $0.7 million of the increase.
Production and distribution expenses increased $3.7 million, or 16.4%, from
$22.6 million for the year ended December 31, 1997 to $26.3 million for the year
ended December 31, 1998. The addition of LCL and LegalTech accounted for $2.0
million of the increase. The remainder of this increase is primarily the result
of the increased book sales as well as higher paper usage at ALM's printing
facilities.
Selling expenses increased $2.5 million, or 15.1%, from $16.5 million for
the year ended December 31, 1997 to $19.0 million for the year ended December
31, 1998. This increase is primarily the result of the additions of LCL and
LegalTech.
General and administrative expenses increased $4.6 million, or 18.2%, from
$25.4 million for the year ended December 31, 1997 to $30.0 million for the year
ended December 31, 1998. This increase reflects $2.0 million of costs associated
with the addition of LCL and LegalTech. The balance of the increase is primarily
the result of transition costs associated with the Company's new corporate
structure and salary increases.
Internet Services expenses decreased $6.4 million, or 58.0%, from $11.1
million for the year ended December 31, 1997 to $4.7 million for the year ended
December 31, 1998. This decrease is the direct result of the shutdown of Counsel
Connect.
19
Depreciation and amortization expenses increased $14.2 million, or 116.5%,
from $12.1 million for the year ended December 31, 1997 to $26.3 million for the
year ended December 31, 1998. These expenses are not comparable for the two
periods due to purchase accounting adjustments related to the ALM and NLP
acquisitions.
OPERATING INCOME. As a result of the above factors, the operating loss
decreased $4.1 million, or 94.4%, from $4.4 million for the year ended December
31, 1997 to $0.2 million for the year ended December 31, 1998. EBITDA increased
$18.3 million, or 234.9%, from $7.8 million for the year ended December 31, 1997
to $26.1 million for the year ended December 31, 1998. Excluding the one-time
charges in 1997 related to the shutdown of Counsel Connect and special
compensation charge, EBITDA increased $8.4 million, or 47.2%, from $17.7 million
for the year ended December 31, 1997 to $26.1 million for the year ended
December 31, 1998. Excluding all Internet Services and the special compensation
charge, EBITDA increased $3.7 million, or 15.1%, from $24.4 million for the year
ended December 31, 1997 to $28.1 million for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion for the year ended December 31, 1997 is derived
from the financial information for Old ALM for the seven months ended July 31,
1997 and for ALM for the five months ended December 31, 1997, including
adjustments for the ALM Acquisition and financial information for NLP for the
period from December 22, 1997 through December 31, 1997, presented above. As a
result, the financial information for the combined year ended December 31, 1997,
has not been prepared on a basis in conformity with GAAP.
INTERNET SERVICES. ALM's prior Internet service, Counsel Connect, incurred
material expenses for the years ended December 31, 1996 and December 31, 1997
due to the nature of the service. Counsel Connect was a service which attempted
to serve all the Internet needs of its lawyer subscribers: security,
connectivity, customer service and editorial content. The technology necessary
to provide and support these services necessitated material spending on
connectivity costs, outside system providers and internal personnel to do
programming and handle customer inquiries. The ambitious editorial content,
which included seminars and discussion forums also resulted in spending material
amounts on editorial staff and outside content providers. In an attempt to
enroll enough subscribers to cover these costs there was also a material amount
spent on advertising and sales efforts.
Due to these costs and the lack of sufficient associated revenues, the
Company decided to shut down Counsel Connect and transfer certain remaining
components into a new combined service. These components include trademarks,
trade names, customer lists, and certain Counsel Connect employees. The new
service will not be an Internet service provider. The Company has also made the
decision to eliminate the high level of Internet security which was an integral
part of Counsel Connect's intended appeal to its lawyer subscribers. This
decision creates a simpler Internet site and eliminates the need for technical
and customer service employees.
The Company's decision to shut down Counsel Connect was made in light of the
NLP acquisition and the changes discussed above have since been implemented. The
contracts with Counsel Connect's Internet providers have been or are in the
process of being renegotiated or terminated. The following comparison of the
years ended December 31, 1996 and 1997 excludes operating data relating to
Counsel Connect. Management believes that a comparison which excludes such
operating data provides a more meaningful discussion of ALM's results of
operations for such periods.
Net operating losses for Internet Services were $6.4 million for the year
ended December 31, 1996 and $9.1 million for the year ended December 31, 1997.
The historical financial data for ALM for the five months ended December 31,
1997 includes expenses of $5.9 million related to the shut down. This amount
includes Internet Services operating expenses of $2.9 million as well as a
provision of $3.0 million to cover
20
severance costs, uncollectible receivables, writedown of computer and network
equipment and the termination or restructuring of certain contracts related to
network services that provided internet access.
OVERVIEW. Net revenues (excluding Internet Services) increased $5.8
million, or 12.4%, from $46.4 million for the year ended December 31, 1996 to
$52.2 million for the year ended December 31, 1997. Total operating costs and
expenses (excluding Internet Services) increased $3.5 million, or 7.5%, from
$46.4 million to $49.9 million over the same period. Operating income (excluding
Internet Services) increased $2.3 million from breakeven for the year ended
December 31, 1996 to $2.3 million for the year ended December 31, 1997 while
EBITDA increased $4.7 million from $2.5 million to $7.2 million over the same
period.
REVENUES. Advertising revenues increased $4.9 million, or 18.4%, from $26.7
million for the year ended December 31, 1996 to $31.6 million for the year ended
December 31, 1997. The increase in advertising revenues was primarily
attributable to an increase in the total volume of advertising pages stemming,
in part, from both an increase in the frequency of CORPORATE COUNSEL and from
strong legal industry trends.
Subscription revenues increased $0.7 million, or 6.0%, from $11.3 million
for the year ended December 31, 1996 to $12.0 million for the year ended
December 31, 1997. While total paid circulation remained essentially constant,
subscription rates increased relative to the same period in 1996. A portion of
the increase in subscription revenues was also attributable to ALM's newly
initiated efforts to convert its CORPORATE COUNSEL MAGAZINE from free
distribution to a paid subscriber base as well as the inclusion of NLP's
subscription revenue for the period from December 22, 1997 through December 31,
1997 of $0.3 million.
Revenues from ancillary products and services increased $0.2 million, or
2.4%, from $8.5 million for the year ended December 31, 1996 to $8.7 million for
the year ended December 31, 1997. The increase is due to the inclusion of NLP's
ancillary revenue of $0.5 million for the period from December 22, 1997 through
December 31, 1997.
OPERATING EXPENSES. Total operating costs and expenses (excluding Internet
Services) increased $3.5 million, or 7.5%, from $46.4 million for the year ended
December 31, 1996 to $49.9 million for the year ended December 31, 1997.
Editorial expenses increased $0.2 million, or 2.9%, from $7.1 million for the
year ended December 31, 1996 to $7.4 million for the year ended December 31,
1997 due to the inclusion of NLP's editorial expenses of $0.2 million for the
period from December 22, 1997 through December 31, 1997. Production and
distribution expenses increased $0.2 million, or 1.7%, from $12.5 million for
the year ended December 31, 1996 to $12.7 million for the year ended December
31, 1997 due to the inclusion of NLP's production and distribution cost of $0.3
million for the period from December 22, 1997 through December 31, 1997. Selling
expenses increased $0.8 million, or 10.9%, from $7.5 million for the year ended
December 31, 1996 to $8.3 million for the year ended December 31, 1997. This
increase was a direct result of increased advertising sales and associated
commissions as well as inclusion of $0.4 million of NLP expenses for the period
from December 22, 1997 through December 31, 1997. General and administrative
expenses decreased $0.2 million, or 0.9%, from $16.8 million to $16.7 million
over the same periods. This decrease was due, in part, to the elimination in
1997 of certain executive bonus compensation for the former Chairman of Old ALM,
who resigned prior to the ALM Acquisition.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$2.5 million for the year ended December 31, 1996 and $4.9 million for the year
ended December 31, 1997. These expenses are not comparable for the two periods
due to purchase accounting adjustments related to the ALM and NLP Acquisitions.
Amortization of goodwill and intangibles related to the acquisitions for the
five months ended December 31, 1997 was $2.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating income
(excluding Internet Services) increased $2.3 million from breakeven for the year
ended December 31, 1996 to $2.3 million for
21
the year ended December 31, 1997. EBITDA increased $4.7 million from $2.5
million for the year ended December 31, 1996 to $7.2 million for the year ended
December 31, 1997.
CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
1997 were $0.8 million excluding $1.5 million for Internet Services. The
majority of such expenditures related to ongoing activities. Capital
expenditures for the year ended December 31, 1996 were $1.1 million excluding
$1.1 million for Internet Services.
RESULTS OF OPERATIONS--NLP
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
The following discussion for the year ended December 31, 1997 is derived
from the financial information for NLP until the consummation of the NLP
Acquisition, which occurred on December 22, 1997. As a result, the financial
information for the year ended December 31, 1996 is compared to the period from
January 1, 1997 through December 21, 1997.
OVERVIEW. Net revenues increased by $3.7 million, or 7.9%, from $47.2
million for the year ended December 31, 1996 to $50.9 million for the year ended
December 31, 1997. Total operating costs and expenses increased $7.7 million, or
18.8%, from $40.8 million to $48.5 million. As a result, operating income
decreased $4.0 million, or 61.9%, from $6.4 million to $2.4 million. Included in
the operating costs for 1997, however, was a special compensation charge of $6.9
million reflecting stock option and bonus payments related to the sale of NLP,
which were paid by the sellers. Without this charge, total operating costs and
expenses increased at a rate substantially less than the rate of increase in
revenues over the same period, increasing only $0.8 million, or 1.8%, from $40.8
million to $41.6 million with operating income increasing $3.0 million, or
46.6%, from $6.4 million to $9.4 million. Internet Services revenues increased
$0.4 million, or 48.5%, from $0.7 million for the year ended December 31, 1996
to $1.1 million for the year ended December 31, 1997, while Internet Services
expenses remained essentially constant at $1.7 million for the same periods.
Accordingly, excluding both the special compensation charge and the net
operating loss from Internet Services, operating income would have increased
$2.6 million, or 34.9%, from $7.3 million to $9.9 million, while EBITDA would
have increased $2.4 million, or 15.9%, from $14.8 million to $17.2 million over
the same periods.
REVENUES. Advertising revenues increased $3.1 million, or 13.2%, from $23.3
million for the year ended December 31, 1996 to $26.4 million for the year ended
December 31, 1997. This increase was due principally to an increase in
advertising rates, an overall increase in advertising pages and the publication
of three additional issues of LAW TECHNOLOGY NEWS partially offset by the
inclusion of the results from the final eleven days of 1997 in the Company's
figures. In relation to advertising revenues, this period includes seven issues
of the NEW YORK LAW JOURNAL and two issues of THE NATIONAL LAW JOURNAL.
Subscription revenues decreased $0.3 million, or 2.6%, from $9.8 million for
the year ended December 31, 1996 to $9.5 million for the year ended December 31,
1997 due to the inclusion of the results from the final eleven days of 1997 in
the Company's figures. Otherwise, increases in subscription rates at both the
NEW YORK LAW JOURNAL and THE NATIONAL LAW JOURNAL were largely offset by
decreases in paid circulation at both publications.
Revenues from ancillary products and services increased $0.5 million, or
3.9%, from $13.4 million for the year ended December 31, 1996 to $13.9 million
for the year ended December 31, 1997. Significant growth was realized in
newsletters, seminars, books (driven by the addition of four new titles) and
MA/3000, NLP's case tracking and docketing service, as well as a 31.4% increase
in royalty income from licensing NLP's proprietary content to third party
information providers. Overall however, the increase was partially offset by the
inclusion of the results from the final eleven days of 1997 in the Company's
figures. In addition, a change in the revenue recognition policy for books
resulted in a portion of the sales, which under the traditional policy would
have been realized in 1997, being included in the results for 1998.
22
Revenues from Internet Services increased $0.4 million, or 48.5%, from $0.7
million for the year ended December 31, 1996 to $1.1 million for the year ended
December 31, 1997. This increase is attributable primarily to strong growth in
display advertising on LAW JOURNAL EXTRA!. Internet advertising revenues have
grown rapidly since the conversion of LAW JOURNAL EXTRA! from a proprietary
online system to a predominantly advertising-supported web-based service at the
end of 1995.
OPERATING EXPENSES. Total operating costs and expenses increased $7.7
million, or 18.8%, from $40.8 million, or 86.5% of revenues, for the year ended
December 31, 1996 to $48.5 million, or 95.2% of revenues, for the year ended
December 31, 1997. Included in the operating costs for 1997 however, was a
special compensation charge of $6.9 million reflecting stock option and bonus
payments related to the sale of NLP which were paid by the sellers. Without this
charge, total operating costs and expenses increased at a rate substantially
less than the rate of increase in revenues over the same period, increasing only
$0.8 million, or 1.8% from $40.8 million to $41.6 million. Due to the nature of
the business, incremental revenue growth often does not require corresponding
increases in operating expenses. Editorial expenses decreased slightly, by $0.1
million, or 1.6%, from $5.9 million for the year ended December 31, 1996 to $5.8
million for the year ended December 31, 1997, reflecting the inclusion of the
results from the final eleven days of 1997 in the Company's figures. Editorial
expenses consist primarily of salaries of editorial staff and fees paid to
outside contributors. While the overall change in editorial expenses was
insignificant, changes were made to the mix of editorial staff to add coverage
of certain areas that have strong advertiser support.
Production and distribution expenses increased $1.2 million, or 13.7%, from
$8.7 million for the year ended December 31, 1996 to $9.9 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of fulfillment costs of $1.0 million from selling to
production and distribution. Otherwise, the marginal increase of $0.2 million,
or 1.9%, was attributable primarily to LAW TECHNOLOGY NEWS, which experienced an
increase in production and distribution expenses of 39.2% due to the addition of
three issues and an increase in controlled circulation of 10,000 per issue,
partially offset by the final seven issues of the NEW YORK LAW JOURNAL and two
issues of THE NATIONAL LAW JOURNAL which are included in the Company's results.
Selling expenses decreased $0.8 million, or 8.7% from $9.0 million for the
year ended December 31, 1996 to $8.2 million for the year ended December 31,
1997. This decrease is primarily the result of a change in the expense
classification of fulfillment costs of $1.0 million from selling to production
and distribution and of bad debt expense of $0.7 million from selling to general
and administrative. Without these changes, the increase of $0.9 million, or
10.8%, is primarily due to a change in method of accounting for deferred
subscriber acquisition costs, an increase in efforts designed to update and
improve the controlled circulation list of LAW TECHNOLOGY NEWS, and a 17.3%
increase in commission expense directly related to the increase in advertising
sales.
General and administrative expenses increased $0.7 million, or 8.4%, from
$8.0 million for the year ended December 31, 1996 to $8.7 million for the year
ended December 31, 1997. This increase is primarily the result of a change in
the expense classification of bad debt expenses of $0.7 million from selling to
general and administrative. Without this change, general and administrative
expenses remained essentially constant despite the increase in revenues.
Internet Services expenses remained essentially constant at $1.7 million for
the years ended December 31, 1996 and 1997. Such expenses are comprised
primarily of website maintenance costs, advertising sales expenses and expenses
related to editorial staff for the LAW JOURNAL EXTRA! service.
Depreciation and amortization expenses decreased by $0.2 million, or 2.7%,
from $7.5 million for the year ended December 31, 1996 to $7.3 million for the
year ended December 31, 1997.
OPERATING INCOME. As a result of the above factors, and without the special
compensation charge of $6.9 million, operating income would have increased $3.0
million, or 46.6%, from $6.4 million, or 13.5% of
23
revenues, for the year ended December 31, 1996 to $9.4 million, or 18.4% of
revenues, for the year ended December 31, 1997 and EBITDA would have increased
$2.8 million, or 20.0%, from $13.9 million, or 29.4% of revenues, for the year
ended December 31, 1996 to $16.6 million, or 32.7% of revenues, for the year
ended December 31, 1997. The increase in operating margins was due to NLP's
ability to hold increases in operating costs and expenses to 1.8% while revenues
grew at 7.9%.
CAPITAL EXPENDITURES. Capital expenditures remained essentially constant at
$0.5 million for the years ended December 31, 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES. The Company's operations are not usually capital
intensive. Capital expenditures were $3.9 million for the year ended December
31, 1998. Capital spending in 1999 is expected to be approximately $8.0 million.
This is higher than historical and expected future spending due to new editorial
and advertising systems to support new initiatives and facilities.
NET CASH PROVIDED BY OPERATING ACTIVITIES. Net cash provided by operating
activities was $0.6 million for the year ended December 31, 1998 as a net loss
of $19.8 million, along with reductions in accounts payable, accrued expenses
and other non-current liabilities of $1.5 million, $3.0 million and $1.9 million
respectively, were more than offset by depreciation and amortization of $26.3
million.
NET CASH USED IN INVESTING ACTIVITIES. Net cash used in investing
activities was $35.7 million for the year ended December 31, 1998. In March
1998, the Company acquired LegalTech for $10.8 million in cash and incurred $0.2
million in deal costs. In April 1998, the Company acquired LCL for $20.1 million
in cash and incurred $0.5 million of deal costs. In addition, capital
expenditures were $3.9 million for the year.
NET CASH PROVIDED BY FINANCING ACTIVITIES. Net cash provided by financing
activities totaled $26.1 million for the year ended December 31, 1998, which
primarily reflects a $15.0 million capital contribution made by Holdings, a
drawdown of $8.5 million under the revolving credit agreement and accretion of
interest on senior discount notes of $4.4 million.
WORKING CAPITAL. The Company has favorable cash flow characteristics
resulting from its high level of advance payments by subscribers, low working
capital investment, minimal capital expenditure needs, predictable cost
structure and high margins. Because cash receipts associated with subscriptions
are received toward the beginning of a subscription cycle, the Company's
periodicals business requires minimal investment in working capital.
LIQUIDITY. Holdings is a holding company which has no significant assets
other than its investments in its direct and indirect subsidiaries, and
therefore, its ability to make payments with respect to the Exchange Discount
Notes is dependent upon the receipt or dividends or other payments from the
Company. The Company's principal sources of funds are anticipated to be cash
flows from operating activities, which may be supplemented by borrowings under
the Revolving Credit Facility. The Company believes that these funds will be
sufficient to meet its current and future financial obligations, including the
payment of principal and interest on the Notes, working capital, capital
expenditures and other obligations. No assurance can be given, however, that
this will be the case. The Company's future operating performance and ability to
service or refinance the Notes and to repay, extend or refinance any credit
agreements to which it is a party will be subject to future economic conditions
and to financial, business and other factors, many of which are beyond the
Company's control.
The Senior Note Indenture and the Revolving Credit Facility significantly
restrict the distribution of funds by Holdings' subsidiaries. There can be no
assurance that the agreements governing indebtedness of Holdings' subsidiaries
will permit such subsidiaries to distribute funds to Holdings in amounts
sufficient to pay the Accreted Value or the principal or interest on the
Exchange Discount Notes when the same becomes due (whether at maturity, upon
acceleration or redemption or otherwise). The Exchange
24
Discount Notes will be effectively subordinated in right of payment to all
existing and future claims of creditors of subsidiaries of Holdings, including
the holders of the Senior Notes and trade creditors. As of December 31, 1997,
the subsidiaries of Holdings had approximately $208.4 million aggregate
principal amount of liabilities outstanding.
YEAR 2000 COMPLIANCE. The Company is in the process of modifying, upgrading
or replacing its computer software applications and systems which the Company
expects will accommodate the "Year 2000" dating changes necessary to permit
correct recording of year dates for 2000 and later years. The Company has
developed a technology plan which the Company is currently implementing, to
replace all client and server based software systems necessary to be Year 2000
compliant. The applications that the Company is installing and upgrading
include, but are not limited to, our Editorial and workflow systems (QPS),
Classified/Display (Atex), Accounting (Solomon), Payroll (ADP),
circulation/fulfillment (Multi-pub), e-mail (MS Exchange) and its business suite
applications (MS Office 97 and 98). All vendors have assured the Company in
writing that their respective software packages are Year 2000 compliant.
The Company has also upgraded its network infrastructure with a 100baseT
switched environment. Layer three switches form the backbone of the Company's
new infrastructure, that also incorporates gigabit technology. The Company has
also purchased new Servers (Compaq Proliants) and implemented failover systems
such as a Compaq Standby Recovery Server in an effort to both ensure complete
redundancy, and Year 2000 compliance. With respect to desktop applications, the
Company is continuing its efforts to replace all systems purchased before 1999
with new systems. This includes both PC and Mac clients. Both Dell (PCs) and
Apple (Macs) have committed to the Company in writing that their systems are
Year 2000 compliant.
The Company is working with its system software vendors to ensure that
necessary patches are installed to make the Company Year 2000 compliant. These
vendors include, but are not limited to; Microsoft (Window NT workstation and
Server), Novell (NetWare 4.x), Sun (Solaris 2.4), and Apple (Mac OS 8.5).
Following completion of all current work, the Company intends to hire a Year
2000 consultant to help verify the integrity of all systems; hardware
(networking and desktop), and software (application and system). The Company
does not expect that the cost of its Year 2000 compliance program will be
material to its financial condition or results of operations. The Company
believes that it will be able to achieve compliance by the end of 1999, and does
not currently anticipate any material disruption in its operations as the result
of any failure by the Company to be in compliance. The Company does not
currently have any adverse information concerning the compliance status of its
suppliers and customers.
The Company's management is currently working on Y2K contingency plans that
include a description of the resources, staff roles, procedures, and timetables
needed for its implementation. These plans will include the following strategies
for meeting minimum acceptable output requirements for each critical business
process: quick fix, partial replacement, full redundancy and outsourcing. The
basic implementation modes for the quick fix, partial and full replacement of
functionality provided by failed mission-critical systems are manual
replacement, semi-automated replacement and automated replacement. These plans
will be completed for each critical business process no later than three months
prior to the date management currently projects the process to be Y2K compliant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On March 25, 1998, Holdings and the Company (as the "Borrower") signed a
Credit Agreement with various banks that has a combined Revolving Commitment in
the initial principal amount of $40,000,000. The Revolving Credit Facility is
guaranteed by Holdings and by all subsidiaries of the Company. In addition, the
Revolving Credit Facility is secured by a first priority security interest in
substantially all of the properties and assets of the Company and its domestic
subsidiaries, including a pledge of all of the stock of such subsidiaries, and a
pledge by Holdings of all of the stock of the Company. Each revolving loan shall
bear interest on the outstanding principal amount from the borrowing date until
it becomes due
25
at a rate per annum equal to the "Base Rate" or the Eurodollar rate plus the
"Applicable Margin" of 1.5% for base rate loans and 2.5% 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 $8,500,000 at December 31, 1998. The
interest rate at December 31, 1998, was 7.75%. A 10% increase in the average
rate, during 1998, would have increased the Company's net loss to approximately
$(19,771,000).
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.
26
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, directors and certain other key employees of the Company and
Holdings, as of March 15, 1999.
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF
THE COMPANY AND HOLDINGS
Bruce Wasserstein.................................... 51 Chairman and Director
William L. Pollak.................................... 43 President, Chief Executive Officer and Director
Anup Bagaria......................................... 26 Director
Bruce Barnes......................................... 37 Director
Michael J. Biondi.................................... 41 Director
Robert C. Clark...................................... 55 Director
Donald G. Drapkin.................................... 51 Director
James A. Finkelstein................................. 50 Director
Andrew G.T. Moore, II................................ 63 Director
Jack Berkowitz....................................... 52 Vice President, Strategic Planning
Steven Farbman....................................... 38 Vice President and Chief Operating Officer
Stephen C. Jacobs.................................... 37 Vice President, General Counsel and Secretary
Leslye G. Katz....................................... 44 Vice President and Chief Financial Officer
Paul Mastronardi..................................... 40 Vice President, Finance
Peter E. Scheer...................................... 48 Vice President, Electronic Publishing
Winthrop Stevens..................................... 57 Vice President, Consumer Advertising
Kevin Vermuelen...................................... 35 Vice President National Advertising
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. Directors will also be eligible to participate
in an equity participation plan to be established.
The Board has established an executive committee (the "Executive Committee")
consisting of three members, currently Bruce Wasserstein, Bruce Barnes and Anup
Bagaria. The Executive Committee has been delegated the authority to approve (i)
the acquisition and divestiture by the Company of an affiliate of the Company of
all or a portion of one or more business entities for a price of up to $25
million, (ii) the appointment of senior officers of the company or its
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 is Chairman of the Board of Directors of the Company and
Holdings. He is Chairman, Chief Executive Officer and founder of WPG.
Previously, Mr. Wasserstein served as a Director and the Chairman of Maybelline,
Inc. and as 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
27
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 and the University of Michigan.
William L. Pollak has served as President, Chief Executive Officer and
Director since March 1998. Before joining the Company, Mr. Pollak spent 16 years
at the New York Times, where he held a variety of positions, most recently as
Executive Vice President, Circulation. Mr. Pollak received an M.B.A. from
Harvard Business School in 1982 and a B.A. from Harvard College in 1978.
Anup Bagaria has served as a Director of the Company and Holdings since
their founding. He is a Vice President of Wasserstein Perella & Co., Inc. He
graduated from the Massachusetts Institute of Technology.
Bruce R. Barnes has served as a director of the Company and Holdings since
November 1998. Dr. Barnes has been Managing Director of Wasserstein Perella &
Co., Inc. since February 1997 and has been a senior member of its Merchant
Banking Group since September 1998. He was Executive Vice President of Ziff
Brothers Investments, L.L.C., a private investment company, from January 1995 to
June 1996. Prior to that, at Ziff Communications Company, a privately-held
publishing and media company, Dr. Barnes was Senior Vice President and Chief
Financial Officer from September 1993 to December 1994 and was Vice President
and Special Assistant to the Chairman from November 1992 to September 1993. Dr.
Barnes received a B.A. in Economics MAGNA CUM LAUDE and a Ph.D. in Economics
from the University of Pennsylvania. Dr. Barnes is also a director of Collins &
Aikman Corporation.
Michael J. Biondi has served as a Director of the Company and Holdings since
March 1998. He is 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, Mr. Biondi was a member of the First Boston Mergers &
Acquisitions Group, and practiced law at Skadden, Arps, Slate, Meagher & Flom.
Robert C. Clark has served as a Director of the Company and Holdings since
their founding. He has been Dean of the Harvard Law School since 1989 and is
Royall Professor of Law. Mr. Clark joined Harvard Law School in 1979 after four
years at Yale Law School, where he was a tenured professor. Mr. Clark is a
corporate law specialist and author of numerous texts and legal articles. Prior
to his academic career, he was an attorney with Ropes & Gray. Professor Clark
has a Ph.D. from Columbia University and a J.D. MAGNA CUM LAUDE from Harvard Law
School. He is a trustee of Teachers' Insurance Annuity Association (TIAA). He is
currently a Director of Collins & Aikman Corp. and of Household International,
Inc. He was previously a Director of Maybelline, Inc.
Donald G. Drapkin has served as a Director of the Company and Holdings since
their founding. He has been a Director and Vice Chairman and Director of
MacAndrews & Forbes Holdings Inc. and various of its affiliates since 1987. Mr.
Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom
for more than five years prior to 1987. Mr. Drapkin also is a Director of the
following corporations which file reports pursuant to the Exchange Act: Algos
Pharmaceutical Corporation, Anthracite Capital, Inc., BlackRock Asset Investors,
Cardio Technologies, Inc., The Molson Companies, Limited, Revlon Consumer
Products Corporation, Revlon, Inc., Playboy Enterprises, Inc., Weider Nutrition
International, Inc., and VIMR Pharmaceuticals Inc. (On December 27, 1996,
Marvel, Marvel Holdings, Marvel Parent, and Marvel III, of which Mr. Drapkin was
a Director on such date and several subsidiaries of Marvel filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)
James A. Finkelstein has served as a Director of the Company and Holdings
since March 1998. He has been President and Chief Executive Officer of JAF
Communications, LLC since July 1998. Prior to that, Mr. Finkelstein served as
President and Chief Executive Officer of NLP and its predecessor companies since
1974. He joined the New York Law Publishing Company in 1970. He was the former
publisher of the
28
NEW YORK LAW JOURNAL and the founder and publisher of THE NATIONAL LAW JOURNAL.
Mr. Finkelstein holds a B.A. from New York University and an Honorary Doctor of
Laws degree from Hofstra Law School. He currently serves on the Faculty of Arts
and Sciences Board of Overseers at New York University.
Andrew G. T. Moore, II has served as a Director of the Company and Holdings
since their founding. He is a Managing Director of Wasserstein Perella and is a
former Justice of the Delaware Supreme Court. Justice Moore served on the
Delaware Supreme Court for 12 years until 1994. 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. He graduated from Tulane University with
B.B.A. and J.D. degrees. He served as law clerk to Delaware Chief Justice
Charles L. Terry, Jr. in 1963. From 1964-1982 Justice Moore practiced law in
Wilmington, Delaware, primarily in the field of corporate litigation. He was a
partner of the firm of Connolly, Bove, Lodge & Hutz.
Jack Berkowitz has served as Vice President, Strategic Planning of the
Company since January, 1999. Mr. Berkowitz had served as a consultant to the
Company for the past year. Mr. Berkowitz is a 25 year veteran of the publishing
industry. As a consultant, in addition to the Company, his client roster has
included Cowles Business Media, Hearst Magazines, Time Inc., Felker Media,
Associated Newspapers and Adweek. Mr. Berkowitz had previously served as
Executive Vice President of the Village Voice and President of The Nation.
Steven Farbman has been Vice President and Chief Operating Officer of the
Company since 1998. He served in a variety of capacities at NLP since January
1986, including President of Law Journal Seminars-Press and Senior Vice
President and Chief Operating Officer. Prior to joining NLP, Mr. Farbman spent
two years as Business Manager of NEW YORK CONSTRUCTION NEWS, a weekly newspaper
based in New York City and worked in marketing for Warner Communications, Inc.
Mr. Farbman graduated from The George Washington University in Washington, D.C.
Stephen C. Jacobs has served as Vice President, General Counsel and
Secretary of the Company since May 1998. Prior to joining the Company, Mr.
Jacobs was Assistant General Counsel, Global Transactions for American
International Group, Inc. Previously, he was in private practice at Winthrop
Stimson Putnam & Roberts and at Hunton & Williams, both in New York. Mr. Jacobs
holds a B.A., CUM LAUDE, from the University of Pennsylvania and a J.D. from
Columbia University.
Leslye G. Katz has served as Vice President and Chief Financial Officer of
the Company since September 1998. Prior to joining the Company, Ms. Katz served
as Vice President and Treasurer of IMS Health, Inc. Previously, she held senior
financial management positions for 18 years in the publishing industry, most
recently as Senior Vice President and Chief Financial Officer of Reuben H.
Donnelley. Ms. Katz began her career at The Dun and Bradstreet Corporation where
she held a variety of financial management positions. She received a bachelor's
degree from Brown University and a master's degree in business administration
from the Wharton School of the University of Pennsylvania.
Paul Mastronardi has been Vice President, Finance of the Company since 1998.
He joined NLP in March 1996 as Chief Financial Officer and was elected Vice
President, Finance in April 1996. He served as Director of Financial Planning
for Bantam Doubleday Bell, a division of Bertelsmann Inc., from April 1995 to
March 1996. Prior to that time, Mr. Mastronardi spent fourteen years at Gruner &
Jahr USA Publishing, where he served in a variety of capacities, including Staff
Accountant, Manager of Information Systems, Senior Financial Manager and
Director of Financial Planning. Mr. Mastronardi holds a B.S. in Accounting and
an M.S. in Finance from St. John's University.
29
Winthrop Stevens has served as Vice President, Consumer Advertising for the
Company since April 1998. Previously, Mr. Stevens had been Senior Vice
President, Sales and Marketing for VNU (United Dutch Publishing Companies). His
career in publishing and advertising sales has included 14 years at the New York
Times Magazine Group and 15 years at Readers Digest.
Kevin Vermuelen has been Vice President, National Advertising of the Company
since 1998. Prior to that he was a Vice President of Sales for NLP since 1996.
Mr. Vermuelen joined NLP in October 1992. He previously worked for Miller
Freeman and Gordon Publications as a Regional Manager. Mr. Vermuelen graduated
from Brockport State University in 1985.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table includes individual compensation
information for the Chief Executive Officer and certain other executive officers
of the Company for the year ended December 31, 1998 (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company
during the year ended December 31, 1998. There were no options to purchase
capital stock of the Company or Holdings granted to or held by the Named
Executive Officers during or at the end of the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------------------------------------------
OTHER ANNUAL ALL OTHER
COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) SALARY ($) BONUS ($) ($)
- ---------------------------------------------------- --------- ----------- ----------- ------------- -------------
William Pollak, President and Chief Executive
Officer(1)........................................ 1998 325,000 333,000 539,256(2)
Steven Farbman, Vice President-Chief Operating
Officer(3)........................................ 1998 244,200 75,000
Leslye G. Katz, Vice President and Chief Financial
Officer(4)........................................ 1998 100,000 50,000 204,200(5)
Stephen C. Jacobs, Vice President, General Counsel
and Secretary(6) 1998 133,333 33,333
Paul Mastronardi, Vice President-Finance............ 1998 137,250 65,000
- ------------------------
(1) Executive's employment with the Company pursuant to his employment agreement
commenced as of March 9, 1998. See "Employment Agreements".
(2) Represents payments made by the Company to Mr. Pollak pursuant to the terms
of his employment agreement with the Company to reimburse him for the value
of options forfeited upon his resignation from his former employer.
(3) Executive's employment with the Company pursuant to his employment agreement
commenced as of August 1, 1998. See "Employment Agreements."
(4) Executive's employment with the Company pursuant to her employment agreement
commenced as of September 1, 1998. See "Employment Agreements".
(5) Represents payment made by the Company to Ms. Katz pursuant to the terms of
her employment agreement with the Company to reimburse her for the value of
options forfeited upon her resignation from her previous employer.
(6) Executive's employment with the Company pursuant to his employment agreement
commenced as of May 4, 1998. See "Employment Agreements."
30
EMPLOYMENT AGREEMENTS
Effective March 9, 1998, the Company hired Mr. Pollak as its President and
Chief Executive Officer pursuant to a five year employment agreement. The
employment agreement provides for an annual base salary of $400,000, subject to
increases of 5% annually during the term. In addition, the employment agreement
provides for a bonus of $400,000 after the first year of the term and a bonus of
between 50% and 150% of the base salary, as determined by the Board of
Directors, in each of the remaining years of the term. Mr Pollak is also
entitled to payments for options granted to him and forfeited upon his
resignation from his former employer. The employment agreement provides that if
Mr. Pollak's employment is terminated by the Company without cause or by Mr.
Pollak with good reason, Mr. Pollak will be entitled to severance equal to the
amount of Mr. Pollak'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. The employment agreement also
provides that the Company will adopt a stock option plan and will issue options
to purchase shares of common stock of the Company pursuant to the terms and
conditions to be set forth in a stock option award agreement between Mr. Pollack
and the Company.
The Company has an employment agreement with Mr. Farbman which provides for
the employment of Mr. Farbman with the Company as Vice President and Chief
Operating Officer expiring on December 31, 1999. The employment agreement
provides for an annual base salary of $250,000. In addition, the employment
agreement provides for contingent bonuses during the term. The employment
agreement provides that if Mr. Farbman's employment is terminated by the Company
without cause or by Mr. Farbman with good reason, Mr. Farbman will be entitled
to severance equal to the amount of Mr. Farbman's salary through the termination
date and bonus accrued but unpaid, and six months' salary commencing on the
termination date, together with any accrued but unpaid bonus.
Effective September 1, 1998, the Company hired Ms. Katz as its Vice
President and Chief Financial Officer pursuant to a five year employment
agreement. The employment agreement provides for an annual base salary of
$300,000 subject to increases of 5% annually during the term. In addition, the
employment agreement provides for a bonus of $150,000 after the first year of
the term and a bonus of between 25% and 75% of the base salary, as determined by
the Board of Directors, in each of the remaining years of the term. Ms. Katz is
also entitled to payments for options granted to her and forfeited upon her
resignation from her prior employer. The employment agreement provides that if
Ms. Katz's employment is terminated by the Company without cause or by Ms. Katz
with good reason, Ms. Katz will be entitled to severance equal to the amount of
Ms. Katz'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. The employment agreement also provides that the Company will
adopt a stock option plan and will issue options to purchase shares of common
stock of the Company pursuant to terms and conditions to be set forth in a stock
option award agreement between Ms. Katz and the Company.
Effective May 4, 1998, the Company hired Stephen C. Jacobs as its Vice
President, General Counsel and Secretary pursuant to a five year employment
agreement. The employment agreement provides for an annual base salary of
$200,000 subject to increases of 5% annually during the term. In addition, the
employment agreement provides for a bonus of $50,000 after the first year o