10-Q 1 y00339e10vq.txt FORM 10-Q -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------- FORM 10-Q (Mark One) |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2004. or | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to _____. COMMISSION FILE NUMBER: 333-50117 AMERICAN LAWYER MEDIA, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-3980414 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 345 PARK AVENUE SOUTH NEW YORK, NEW YORK 10010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 779-9200 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of August 12, 2004, there were 100 shares of the Registrant's common stock, $.01 par value, outstanding. -------------------------------------------------------------------------------- EXPLANATORY NOTE The Company is not currently required to file reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and is not currently an "issuer" within the meaning of the Sarbanes-Oxley Act of 2002. The Company is filing this quarterly report on Form 10-Q pursuant to a covenant contained in the Indenture dated December 22, 1997 between the Company and The Bank of New York, as Trustee, governing the Company's 9 3/4 % Senior Notes due 2007. AMERICAN LAWYER MEDIA, INC. INDEX

PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN LAWYER MEDIA, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes to the consolidated financial statements are an integral part of these statements. 1 AMERICAN LAWYER MEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)

The accompanying notes to the consolidated financial statements are an integral part of these statements. 2 AMERICAN LAWYER MEDIA, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)

The accompanying notes to the consolidated financial statements are an integral part of these statements. 3 AMERICAN LAWYER MEDIA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

The accompanying notes to the consolidated financial statements are an integral part of these statements. 4 AMERICAN LAWYER MEDIA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) 1. ORGANIZATION & OPERATIONS American Lawyer Media, Inc. ("we," "us," "our" or the "Company") is a wholly-owned subsidiary of American Lawyer Media Holdings, Inc. ("Holdings"). We publish national and regional legal publications, including The American Lawyer, New York Law Journal, The National Law Journal and Corporate Counsel. Our operations are based in New York with regional offices in seven states, the District of Columbia and London, England. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the interim financial statements include all adjustments, which are of a normal recurring nature, that management considers necessary to fairly present the financial position and the results of operations for such periods. Results of operations of interim periods are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for December 31, 2003. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK Our financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. We believe that we are not exposed to any significant credit risk related to cash and cash equivalents. Concentrations of credit risk with respect to trade accounts receivable are, except for amounts due from legal advertising agents ("Legal Ad Agents"), generally limited due to the large number of customers comprising our customer base. Receivables from Legal Ad Agents aggregated $1.5 million as of June 30, 2004. Such Legal Ad Agents do not have significant liquid net worth and, as a result, we are exposed to a certain level of credit concentration risk in this area, for which we believe we have adequately provided. 5 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Periodical advertising revenues are generated from the placement of display, classified and directory advertisements, as well as legal notices, in our publications. Advertising revenue is recognized upon release of the related publications. Periodical subscription revenues are recognized on a pro rata basis as issues of a subscription are served. Internet subscription revenues are recognized on a pro rata basis over the life of the term of the subscription. Ancillary products and services revenues consist principally of newsletter subscriptions, sales of professional books, seminar and trade show income, income from a daily fax service of court decisions and web and phone research and income from electronic products. Book revenues are recognized upon shipment and are reflected net of estimated returns. Newsletter revenues are recognized on the same basis as subscription revenues. Seminar and trade show revenues are recognized when the seminar or trade show is held. Daily fax service and research revenues are recognized upon fulfillment of orders. Internet advertising revenues are generated from the placement of display and classified advertisements, as well as directory listings, on our websites. Display and classified advertising revenue is recognized upon the release of an advertisement on the particular website. Directory listing revenue is recognized on a pro-rata basis over the life of the directory listing, generally one year. DEFERRED SUBSCRIPTION INCOME Deferred subscription income results from advance payments or orders for subscriptions received from subscribers and is amortized on a straight-line basis over the life of the subscription as issues are served. Subscription receivables of approximately $2,195,000 and $2,122,200 are included in accounts receivable in the accompanying consolidated June 30, 2004 and December 31, 2003 balance sheets, respectively. ADVERTISING AND PROMOTIONAL EXPENDITURES Advertising and promotional expenditures totaled approximately $1,553,000 and $1,748,000 for the three months ended June 30, 2004 and 2003, respectively, and $3,424,000 and $3,351,000 for the six months ended June 30, 2004 and 2003, respectively. These costs are expensed as the related advertisement or campaign is released. CASH AND CASH EQUIVALENTS We consider time deposits and certificates of deposit with original maturities of three months or less to be cash equivalents. 6 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash on our consolidated balance sheet at June 30, 2004 and December 31, 2003 includes $24,400 and $160,000, respectively, of restricted cash collected in association with managing a technology show on behalf of one of our customers. INVENTORIES Inventories consist principally of binding materials utilized by us and our outside printers and professional books published and sold by us. Inventories are stated at the lower of cost, as determined by the average cost method, or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Significant improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is calculated using the straight-line method over the following estimated useful lives: ~~Buildings 25 years Furniture, machinery and equipment 5-9 years Computer equipment and software 3-6 years~~

Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life. In June 2003, we included in depreciation, amortization and other charges a $1.5 million adjustment to write-off certain leasehold improvements and furniture relating to office space abandoned during a prior quarter. The lease was obtained in connection with our acquisition of Law.com, Inc. ("Law.com") on May 1, 2002. INTANGIBLE ASSETS Intangible assets represent advertiser commitments, uniform resource locators, copyrights, trademarks, customer and subscriber lists and non-compete agreements. Under SFAS No. 142, "Goodwill and Other Intangible Assets", an acquired intangible asset should be separately recognized apart from goodwill if the benefit of the intangible is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged. Intangible assets deemed to have finite lives are amortized on a straight-line basis over useful lives ranging from 6 months through 30 years. IMPAIRMENT OF LONG-LIVED ASSETS We evaluate whether there has been an impairment in any of our long-lived assets on an annual basis or if certain circumstances indicate that a possible impairment may exist. An impairment in value exists when the carrying value of a long-lived asset exceeds its fair value. If it is determined that an impairment in value has occurred, the carrying value is written down to its fair value. Goodwill and certain other intangibles are tested for impairment under SFAS No. 142 and all other long-lived assets are tested for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEFERRED FINANCING COSTS Deferred financing costs are amortized over the life of the related debt using the straight-line method. RECLASSIFICATIONS Certain prior period amounts may have been reclassified to conform with the current year presentation. INCOME TAXES Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes", which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. STOCK OPTION PLANS Holdings has a stock option plan under which incentive and nonqualified stock options may be granted periodically to certain of our employees and non-employee directors. Pursuant to SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure", we have elected to continue to account for employee stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees", using an intrinsic value approach to measure compensation expense. Accordingly, no compensation expense has been recognized for options granted under our stock option plan since all such options were granted at exercise prices equal to or greater than fair market value on the date of grant. The following table summarizes relevant information as to our reported results under the intrinsic value method of accounting for stock awards, with supplemental information, as if the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", had been applied to the three and six month periods ended June 30, 2004 and 2003 (in thousands):

8 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PENSION COSTS The components of the net periodic benefit costs realized for the three and six month periods ended June 30, 2004 and 2003 are as follows (in thousands):

For the year ending December 31, 2004, we expect to contribute $563,000 to our retirement plans. As of June 30, 2004, we have contributed $107,000 to our retirement plans. 3. DEBT On December 22, 1997, we issued $175,000,000 aggregate principal amount of 9 3/4% senior notes (the "Notes") due December 15, 2007. The Notes accrue interest at 9.75%, which is payable in cash semi-annually on June 15 and December 15 of each year. The Notes are unsecured general senior obligations and are fully and unconditionally guaranteed, on a joint and several and senior unsecured basis, by each of our existing and future subsidiaries. Separate financial statements of, and other disclosures concerning, the guarantors are not included herein because of the guarantors' full and unconditional guarantee of the Notes and our determination that separate financial statements and other disclosures concerning the guarantors are not material and would not provide any additional meaningful disclosure. The Notes may be redeemed at any time by us, in whole or in part, at various redemption prices that include accrued and unpaid interest. The Notes contain certain covenants that, among other things, limit the incurrence of additional indebtedness by us and our subsidiaries (including the payment of dividends to Holdings), the payment of dividends and other restricted payments by us and our subsidiaries, asset sales, transactions with affiliates, the incurrence of liens and mergers and consolidations. Financing costs, totaling $7,236,000, were capitalized and are being amortized over the term of the Notes. Amortization of deferred financing costs is recorded as interest expense. Assuming there is no redemption of the Notes prior to maturity, the entire principal will be payable on December 15, 2007. As of June 30, 2004, Bruce Wasserstein, chairman of the Board of Directors of us and Holdings, and certain of his affiliates own less than 1% of the Notes. On May 1, 2002, we, The New York Law Publishing Company ("NYLP") and Holdings entered into a credit agreement with GE Corporate Finance ("GECC") and the lenders signatory thereto in accordance with which GECC has provided our operating subsidiary, NYLP, with a $40 million revolving credit facility (the "GECC Facility"). Proceeds from the GECC Facility were used to refinance existing indebtedness, provide working capital and finance capital expenditures. The obligations of NYLP under the GECC Facility are guaranteed by Holdings, us and all of our domestic subsidiaries and are secured by all of the assets of Holdings, us and our domestic subsidiaries (including the stock of all our domestic subsidiaries, as well as 65% of the stock of each of our first-tier foreign subsidiaries). The GECC Facility bears interest at a fluctuating rate determined by reference to (i) the index rate plus a margin of 2.00%, or (ii) the Eurodollar Rate ("LIBOR") plus a margin of 3.5%. We are also required to pay 9 3. DEBT (CONTINUED) customary fees with respect to the GECC Facility, including an up-front arrangement fee, monthly administrative agency fees and commitment fees on the unused portion of the GECC Facility. The GECC Facility includes both affirmative and negative covenants that include meeting certain financial ratios. The term of the GECC Facility is 60 months. On November 13, 2002, the GECC Facility was amended to clarify language in the GECC credit agreement, as well as to allow us to assume a lease by and between 1140 Associates, Inc. and Law.com. In addition, on February 27, 2003, the GECC Facility was amended to modify the covenants relating to the total leverage ratio, interest coverage ratio and fixed charge ratio until December 2004. These covenants now provide alternative compliance levels and associated incremental interest rates. In addition, the GECC Facility was amended to allow for the transaction described below regarding Holdings' 12 1/4% Senior Discount Notes due 2008 (the "Discount Notes"). Also, on December 15, 2003, the GECC Facility was amended to consent to the acquisition from RealLegal, LLC of a business that delivers court calendar information ("MA3000") and to amend our obligations under the lease by and between 1140 Associates, Inc. and Law.com. On February 27, 2003, Holdings entered into a waiver and consent with the holders of the Discount Notes, which provides for the waiver of cash payments by Holdings of semi-annual interest that was to begin in June 2003. The Discount Notes will now become "cash-pay" in December 2004, with the first interest payment due on June 15, 2005. The Discount Notes will continue to accrete until December 2004, at which time the aggregate principal amount of the Discount Notes will be $80,260,705. Beginning on December 15, 2004, cash interest on the Discount Notes will accrue at the rate of 12.25% per annum. As of June 30, 2004, Bruce Wasserstein and certain of his affiliates own approximately 10.3% of the Discount Notes. At June 30, 2004, the amount outstanding under the GECC Facility was $25.0 million. The available balance under the unused commitment reduced by our letters of credit outstanding totaled $12.6 million. A 10% increase in the average interest rate of borrowing under the GECC Facility during the six months ended June 30, 2004 would have decreased our net income to approximately $0.3 million. 4. RESTRUCTURING CHARGE During 2002, upon the decision to restructure certain of our operations, we accrued approximately $1.5 million of restructuring charges. These charges primarily related to severance arrangements for approximately 55 employees in various regions and divisions and were included in operating income. As of June 30, 2004, approximately $0.2 million, representing the unpaid charges, is included in accrued expenses. 10 4. RESTRUCTURING CHARGE (CONTINUED) The following is a summary of our restructuring charge activity (in thousands): Unpaid restructuring charge accrual at December 31, 2003.......................................... $ 281 Less: Payments during the six months ended June 30, 2004.............................................. (58) ----------- Unpaid restructuring charge accrual at June 30, 2004.............................................. $ 223 ===========

5. SEGMENT INFORMATION Operating segments represent components of our business that are evaluated regularly by our chief operating decision makers in assessing performance and resource allocation. We have determined that our reportable segments consist of our regional newspapers (the "Regional Newspapers"), national businesses (the "National Businesses") and our online business, Law.com ("Online"). We have also reflected unallocated costs related to our corporate and administrative functions as a separate unit ("Corporate") so as to not distort our other segments. For the years presented herein, the Regional Newspapers are comprised of the following: New York Law Journal; The National Law Journal; and sixteen other regional newspapers. The economic characteristics, products, services, production processes, customer type and distribution methods are substantially similar. The National Businesses are comprised of the following: our magazine group which includes The American Lawyer and nine other magazines; our newsletters; our hard and soft cover books; our trade shows and seminars; our licensing and syndication business; our litigation services division; our international operations and our MA3000 business. These businesses share substantially the same customer type and geographic regions. Online is comprised of Law.com, which primarily includes web content, seminars and practice and continuing legal education ("CLE") areas. Corporate overhead is comprised of unallocated costs relating to our administrative offices, which include executive management, legal, human resources, accounting, information systems, business development, office services, government affairs and public relations. In addition, Corporate includes ALM Properties, Inc., one of our subsidiaries. We evaluate performance based on the segments' income (loss) from operations before unallocated corporate overhead and interest expense. The accounting policies of the reportable segments are the same as those described in Note 2. 11 5. SEGMENT INFORMATION (CONTINUED) Our operations on a segmented basis were as follows (in thousands):

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

12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our historical consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-Q. Any statements in this quarterly report concerning our business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, together with other statements that are not historical facts, are "forward-looking statements" as that term is defined under the federal securities laws. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, changes in the levels of advertising revenues, changes and delays in new product introductions, customer acceptance of new products and general economic conditions, as well as other risks detailed in our filings with the Securities and Exchange Commission. Business Overview The following discussion compares our financial results for the three and six months ended June 30, 2004 to the three and six months ended June 30, 2003. In June 2003, we included in depreciation, amortization and other charges a $1.5 million adjustment to write-off certain leasehold improvements and furniture relating to office space abandoned during a prior quarter. The lease was obtained in connection with our acquisition of Law.com on May 1, 2002. On December 31, 2003, our wholly-owned subsidiary, The New York Law Publishing Company, acquired the assets, certain liabilities and the business of delivering electronic court calendar information via a product called MA3000 ("MA3000") from RealLegal, LLC ("RealLegal"). The purchase price for this acquisition, including direct acquisition costs, totaled $2.2 million. With this acquisition, we recorded $2.7 million of goodwill and $1.3 million of intangibles. We and RealLegal share substantially all of the same common stockholders. The purchase price was determined based on an independent third party valuation undertaken in 2003. GAAP refers to accounting principles generally accepted in the United States of America. Throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), management discusses financial measures in accordance with GAAP and also on a non-GAAP basis. All references in this MD&A to earnings before interest, income taxes, depreciation, amortization and other charges ("EBITDA") are to a non-GAAP financial measure. We believe that the use of non-GAAP financial measures enables us and investors to evaluate, and compare from period to period, the results from ongoing operations in a more meaningful and consistent manner. Reconciliations of GAAP to non-GAAP financial measures are included on page 25. 13 The following table presents the results of operations for the three and six months ended June 30, 2004 and 2003 (in thousands):

RESULTS OF OPERATIONS Six months ended June 30, 2004 compared to six months ended June 30, 2003 Overview. Revenues increased by $3.7 million, or 5.4%, from $69.0 million for the six months ended June 30, 2003 to $72.7 million for the six months ended June 30, 2004. Operating expenses decreased $0.8 million, or 1.2%, from $62.5 million for the six months ended June 30, 2003 to $61.7 million for the six months ended June 30, 2004. As a result, operating income increased $4.4 million, from $6.6 million for the six months ended June 30, 2003 to $11.0 million for the six months ended June 30, 2004. EBITDA increased $1.9 million, or 13.3%, from $15.0 million for the six months ended June 30, 2003 to $16.9 million for the six months ended June 30, 2004. Net income totaled $0.3 million for the six months ended June 30, 2004 as compared to a net loss of $3.1 million for the six months ended June 30, 2003. Revenues. Revenues increased by $3.7 million, or 5.4%, from $69.0 million for the six months ended June 30, 2003 to $72.7 million for the six months ended June 30, 2004. Revenue growth for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 reflects revenues recorded in our MA3000 business of $1.1 million, as a result of our acquisition of MA3000 on December 31, 2003. In addition, revenues from our tradeshows and seminars, royalty and licensing fees, online continuing legal education ("CLE") fees and subscription revenues in our print publications increased during the six months ended June 30, 2004. These increases were partially offset by a decrease in revenues from the elimination of editorial content fees from RealLegal as a result of our acquisition of MA3000. 14 Advertising revenues increased $0.2 million, from $38.5 million for the six months ended June 30, 2003 to $38.7 million for the six months ended June 30, 2004. Display advertising revenues increased by $0.4 million, despite the decision not to renew a contract to publish certain directories, which totaled $0.4 million in revenues for the six months ended June 30, 2003. This increase was partially offset by a decrease in classified advertising revenues of $0.1 million, and a combined decrease of $0.1 million in law firm, legal notice and consumer advertising revenues. Classified advertising revenues in our print publications declined $0.5 million, offset by an increase in online classified advertising revenues of $0.4 million. Our advertising market share continues to be strong, however, the total volume of advertising is down as compared to the same period last year, as law firms still have not yet begun to increase their volume of recruitment advertising. Subscription revenues increased $0.4 million, or 3.4%, from $12.2 million for the six months ended June 30, 2003 to $12.6 million for the six months ended June 30, 2004. This increase is primarily due to an increase in marketing efforts as well as the publication of two additional issues of The National Law Journal in 2004 as compared to 2003. Revenues from ancillary products and services increased $3.1 million, or 16.8%, from $18.3 million for the six months ended June 30, 2003 to $21.4 million for the six months ended June 30, 2004. The increase in revenues resulted primarily from higher seminar and tradeshow attendance and sponsorships at our New York and West Coast Legal Tech shows, online CLE business and The American Lawyer's 25th Anniversary Dinner. In addition, revenues increased due to MA3000 court research fees, higher royalty and licensing fees primarily from the inclusion of new products in our royalty licensing contracts, higher newsletter sales and increased book sales, despite the decision not to renew a contract which totaled $0.9 million to publish certain directories in 2003. These increases were partially offset by the elimination of editorial content fees as a result of our acquisition of MA3000, as we no longer derive revenue from the sale of this content but rather through court research fees as indicated above. Operating expenses. Operating expenses decreased $0.8 million, or 1.2%, from $62.5 million for the six months ended June 30, 2003 to $61.7 million for the six months ended June 30, 2004. Lower operating expenses during the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 were primarily realized through lower editorial and depreciation and amortization expenses primarily from continued cost containment efforts and from certain intangible assets and other capital assets becoming fully amortized or depreciated in 2003, respectively. These savings were partially offset by increases in production, selling, and general and administrative expenses. Editorial expenses decreased $0.1 million, or 1.0%, from $10.4 million for the six months ended June 30, 2003 to $10.3 million for the six months ended June 30, 2004. The decrease in editorial expenses primarily resulted from realized savings in salaries and related taxes and employee benefits, and consulting and professional fees from our continued cost containment efforts. These decreases were partially offset by an increase in contributing editor fees and artwork and photography in our print publications. Production and distribution expenses increased $0.2 million, or 2.1%, from $12.3 million for the six months ended June 30, 2003 to $12.5 million for the six months ended June 30, 2004. Production and distribution expenses increased primarily due to an increase in production costs related to our seminar and tradeshow revenues and The American Lawyer's 25th Anniversary Dinner. This increase was partially offset by lower paper, printing, fulfillment and other production costs, as we reformatted some of our print publications, and also to a decrease in salaries and related taxes and employee benefits. 15 Selling expenses increased $0.6 million, or 4.4%, from $13.6 million for the six months ended June 30, 2003 to $14.2 million for the six months ended June 30, 2004. The increase in expenses is primarily due to increases in marketing efforts and in salaries and related taxes and employee benefits. This increase was partially offset by a decrease in direct mail efforts. General and administrative expenses increased $1.0 million, or 5.7%, from $17.8 million for the six months ended June 30, 2003 to $18.8 million for the six months ended June 30, 2004. This increase resulted primarily from higher management consulting and professional fees, salary and other compensation and salary related taxes and employee benefits. These increases were partially offset by a reduction in rent expense and other taxes. Depreciation, amortization and other charges decreased $2.5 million, or 30.0%, from $8.4 million for the six months ended June 30, 2003 to $5.9 million for the six months ended June 30, 2004. This decrease resulted primarily from a $1.5 million adjustment in June 30, 2003 to write-off capital assets acquired with the acquisition of Law.com. In addition, we recorded lower amortization and depreciation expense during the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 due to certain non-compete and other intangible assets and certain capital assets being fully amortized or depreciated by the end of 2003. Operating income. As a result of the above factors, our operating income increased $4.4 million, from $6.6 million for the six months ended June 30, 2003 to $11.0 million for the six months ended June 30, 2004. In addition, EBITDA increased $1.9 million, or 13.3%, from $15.0 million for the six months ended June 30, 2003 to $16.9 million for the six months ended June 30, 2004. Interest expense. Total interest expense decreased $0.3 million, from $10.0 million for the six months ended June 30, 2003 to $9.7 million for the six months ended June 30, 2004. This decrease was primarily due to a decrease in the average carrying balance on the GECC Facility coupled with a lower average interest rate. Income taxes. We recorded a net income tax provision of $1.0 million for the six months ended June 30, 2004 as compared to a tax benefit of $0.3 million for the six months ended June 30, 2003. Net income. As a result of the above factors, we recorded net income of $0.3 million for the six months ended June 30, 2004 as compared to a net loss of $3.1 million for the six months ended June 30, 2003 Operating segments. Operating segments represent components of our business that are evaluated regularly by chief operating decision makers in assessing performance and resource allocation. We have determined that our reportable segments consist of our regional newspapers (the "Regional Newspapers"), national businesses (the "National Businesses") and our online business, Law.com ("Online"). We have also reflected unallocated costs related to our corporate and administrative functions as a separate unit ("Corporate") so as to not distort our other segments. For the six months ended June 30, 2004 and 2003 presented herein, the Regional Newspapers are comprised of the following: New York Law Journal; The National Law Journal; and sixteen other newspapers. The economic characteristics, products, services, production processes, customer type and distribution methods are substantially similar. 16 The National Businesses are comprised of the following: The American Lawyer and nine other magazines; our newsletters; our hard and soft cover books; our trade shows and seminars; our licensing and syndication business; our litigation services division; our international operations; and our MA3000 business. These businesses share substantially the same customer type and geographic regions. Online is administered by Law.com and consists primarily of web content, seminars and practice and CLE areas. Corporate is comprised of unallocated costs relating to our administrative offices, which include executive management, legal, human resources, accounting, information systems, business development, office services, government affairs and public relations. In addition, Corporate includes ALM Properties, Inc., one of our subsidiaries. Our operations on a segmented basis were as follows (in thousands):

17 Regional Newspapers Revenues. Revenues for our Regional Newspapers decreased $1.4 million, from $44.1 million for the six months ended June 30, 2003 to $42.7 million for the six months ended June 30, 2004. The overall decline in revenue was due to a decrease in advertising of $0.5 million and book sales of $0.9 million as a result of the decision not to renew a contract to publish certain directories. Adding to the overall decline was a decrease in advertising revenues of $1.0 million, from $29.2 million for the six months ended June 30, 2003 to $28.2 million for the six months ended June 30, 2004. The decrease was due largely to lower classified advertising revenues of $0.5 million, primarily in attorney related help wanted advertising as our publications continue to experience the effects of a weak economy and also to the above-mentioned decision not to renew a contract to publish certain directories. In addition, display advertising, law firm advertising, legal notice advertising and directory revenues also declined. These decreases were partially offset by an increase in subscription revenues and from higher royalty and licensing fees. Operating expenses. Total operating expenses decreased $1.8 million, or 5.9%, from $29.7 million for the six months ended June 30, 2003 to $27.9 million for the six months ended June 30, 2004. Production and editorial expenses decreased primarily due to lower paper, printing, fulfillment and other production costs, salary and related taxes and employee benefits, book royalty expense and other realized savings from our continued cost containment efforts. Selling costs decreased due to lower salary and related taxes and employee benefits, a decrease in direct mail efforts and lower allocated expenses due to a reduction of allocated sales staff resources from the National Businesses segment. General and administrative expenses increased primarily due to higher salary and other compensation and salary related taxes and employee benefits. This increase was partially offset by lower allocated corporate overhead expenses as our overall corporate expenses declined. In addition, we realized a net reduction in our provision for uncollectible accounts due to an improvement in our accounts receivable aging performance, as well as lower rent expense. Operating income. Our operating income increased $0.4 million, from $14.4 million for the six months ended June 30, 2003 to $14.8 million for the six months ended June 30, 2004. EBITDA increased $0.4 million, or 2.8%, from $14.7 million for the six months ended June 30, 2003 to $15.1 million for the six months ended June 30, 2004. National Businesses Revenues. Revenues for our National Businesses increased $4.1 million, or 17.9%, from $22.6 million for the six months ended June 30, 2003 to $26.7 million for the six months ended June 30, 2004. Advertising revenues for our National Businesses increased $0.6 million, from $7.9 million for the six months ended June 30, 2003 to $8.5 million for the six months ended June 30, 2004. This increase was primarily due to increases in display advertising, law firm advertising and directory advertising revenues. In addition, ancillary revenues increased $3.3 million due primarily to higher book sales, seminar and tradeshow revenue, court research fees, royalty and licensing fees and newsletter sales. These increases were partially offset by the elimination of editorial content fees as a result of our acquisition of MA3000, as we no longer derive revenue from the sale of this content to third parties. 18 Operating expenses. Operating expenses for our National Businesses increased $3.8 million, or 22.0%, from $17.3 million for the six months ended June 30, 2003 to $21.1 million for the six months ended June 30, 2004. Production and editorial expenses increased primarily due to higher printing and production, contributing editor, and artwork and photo costs resulting from the addition of three new national magazines; and higher costs associated with the seminar and tradeshow division, as well as an increase in book related costs. Selling expenses increased due to increased marketing efforts, higher salary and related taxes and employee benefits and lower allocated expenses due to a reduction of allocated sales staff resources to the Regional Newspaper segment. In addition, selling expenses increased as fewer costs relating to the sales force were allocated to the selling of online products for Law.com. General and administrative expenses increased due to higher salary and related taxes and employee benefits, increased consulting and professional fees, and an increase in other taxes. This increase was partially offset by a net reduction in our provision for uncollectible accounts due to an improvement in our accounts receivable aging performance. Operating profit. Our operating profit increased $0.3 million, or 4.7%, from $5.3 million for the six months ended June 30, 2003 to $5.6 million for the six months ended June 30, 2004. EBITDA increased $0.3 million, or 4.9%, from $5.3 million for the six months ended June 30, 2003 to $5.6 million for the six months ended June 30, 2004. Online Revenues. Revenues for our online business increased $1.0 million, or 42.9%, from $2.3 million for the six months ended June 30, 2003 to $3.3 million for the six months ended June 30, 2004. Advertising revenues increased by $0.5 million, from $1.4 million for the six months ended June 30, 2003 to $1.9 million for the six months ended June 30, 2004. In addition, seminar and trade show revenues increased by $0.4 million, due to higher sales of online CLE training, and online subscription revenues increased by $0.1 million. Operating expenses. Operating expenses for our online business decreased $2.3 million, or 42.3%, from $5.5 million for the six months ended June 30, 2003 to $3.2 million for the six months ended June 30, 2004. Selling expenses declined by $0.5 million as fewer costs were allocated to Law.com from the National Businesses sales force for online sales efforts. Depreciation and amortization decreased by $2.0 million due to the write-off of leasehold improvements and furniture in 2003. Partially offsetting these decreases was an increase in production expense. Operating income. Our operating income increased $3.3 million, from a loss of $3.2 million for the six months ended June 30, 2003 to a profit of $0.1 million for the six months ended June 30, 2004. EBITDA increased $1.4 million, from an EBITDA loss of $1.1 million for the six months ended June 30, 2003 to a gain of $0.3 million for the six months ended June 30, 2004. Three months ended June 30, 2004 compared to three months ended June 30, 2003 Overview. Revenues increased by $2.6 million, or 7.2%, from $35.1 million for the three months ended June 30, 2003 to $37.7 million for the three months ended June 30, 2004. Operating expenses decreased $0.5 million, or 1.4%, from $31.3 million for the three months ended June 30, 2003 to $30.8 million for the three months ended June 30, 2004. As a result, operating income increased $2.9 million, from $3.9 million for the three months ended June 30, 2003 to $6.8 million for the 19 three months ended June 30, 2004. EBITDA increased $1.1 million, or 12.0%, from $8.7 million for the three months ended June 30, 2003 to $9.8 million for the three months ended June 30, 2004. Net income totaled $1.1 million for the three months ended June 30, 2004 as compared to a net loss of $1.4 million for the three months ended June 30, 2003. Revenues. Revenues increased by $2.6 million, or 7.2%, from $35.1 million for the three months ended June 30, 2003 to $37.7 million for the three months ended June 30, 2004. Revenue growth for the three months ended June 30, 2004 compared to the three months ended June 30, 2003 reflects revenues recorded in our MA3000 business of $0.6 million, as a result of our acquisition of MA3000 on December 31, 2003. In addition, revenues from our tradeshows and seminars, online CLE fees, book revenues, royalty and licensing fees, advertising revenues and subscription revenues in our print publications increased during the three months ended June 30, 2004. These increases were partially offset by the elimination of editorial content fees as a result of our acquisition of MA3000, as we no longer derive revenue from the sale of this content to third parties. Advertising revenues increased $0.5 million, or 2.5%, from $19.9 million for the three months ended June 30, 2003 to $20.4 million for the three months ended June 30, 2004. Higher revenues were recorded in display advertising of $0.3 million and classified advertising of $0.1 million, for the three months ended June 30, 2004. In addition, legal and law firm advertising revenues increased a total of $0.1 million. Subscription revenues increased $0.2 million, or 3.2%, from $6.2 million for the three months ended June 30, 2003 to $6.4 million for the three months ended June 30, 2004. This increase is primarily due to additional marketing efforts year-over-year as well as the publication of an additional issue of The National Law Journal in the three months ended June 30, 2004 as compared to the three months ended June 30, 2003. Revenues from ancillary products and services increased $1.9 million, or 20.3%, from $9.0 million for the three months ended June 30, 2003 to $10.9 million for the three months ended June 30, 2004. The increase in revenues resulted primarily from higher seminar and tradeshow attendance and sponsorships at our West Coast Legal Tech show, online CLE business and The American Lawyer's 25th Anniversary Dinner. In addition, revenues increased from higher book sales, MA3000 court research fees and higher royalty and licensing fees primarily from the inclusion of new products in our royalty licensing contracts. These increases were partially offset by the elimination of editorial content fees as a result of our acquisition of MA3000, as we no longer derive revenue from the sale of this content to third parties but rather through court research fees as indicated above. Operating expenses. Operating expenses decreased $0.5 million, or 1.4%, from $31.3 million for the three months ended June 30, 2003 to $30.8 million for the three months ended June 30, 2004. Lower operating expenses during the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 were primarily realized through lower depreciation and amortization expenses due to certain intangible assets and other capital assets becoming fully amortized or depreciated in 2003. These savings were partially offset by increases in production, selling, and general and administrative expenses. Production and distribution expenses increased $0.8 million, or 13.6%, from $6.0 million for the three months ended June 30, 2003 to $6.8 million for the three months ended June 30, 2004. Production and distribution expenses increased primarily due to an increase in production costs related to our seminar and tradeshow revenues, The American Lawyer's 25th Anniversary Dinner, and book revenues. 20 Selling expenses increased $0.2 million, or 3.8%, from $6.8 million for the three months ended June 30, 2003 to $7.0 million for the three months ended June 30, 2004. The increase in expenses is primarily due to increases in salaries, commissions and related taxes and employee benefits in connection with revenue growth and an increased sales force, and increased marketing efforts. This increase was partially offset by a decrease in direct mail efforts. General and administrative expenses increased $0.5 million, or 5.7%, from $8.5 million for the three months ended June 30, 2003 to $9.0 million for the three months ended June 30, 2004. This increase resulted primarily from a net reduction of our provision for uncollectible accounts during the three months ended June 30, 2003, due to an improvement in our accounts receivable aging performance. Also contributing to the increase is higher management consulting and professional fees, salary and other compensation and related taxes and employee benefits. These increases were partially offset by a reduction in rent expense and other taxes. Depreciation, amortization and other charges decreased $1.9 million, or 39.5%, from $4.9 million for the three months ended June 30, 2003 to $3.0 million for the three months ended June 30, 2004. This decrease resulted primarily from a $1.5 million adjustment in June 30, 2003 to write-off capital assets acquired with the acquisition of Law.com. In addition, we recorded lower amortization and depreciation expense during the three months ended June 30, 2004 as compared to the three months ended June 30, 2003 due to certain non-compete and other intangible assets and certain capital assets being fully amortized or depreciated by the end of 2003. Operating income. As a result of the above factors, our operating income increased $2.9 million, from $3.9 million for the three months ended June 30, 2003 to $6.8 million for the three months ended June 30, 2004. In addition, EBITDA increased $1.1 million, or 12.0%, from $8.7 million for the three months ended June 30, 2003 to $9.8 million for the three months ended June 30, 2004. Interest expense. Total interest expense decreased $0.1 million, from $4.9 million for the three months ended June 30, 2003 to $4.8 million for the three months ended June 30, 2004. This decrease was primarily due to a decrease in the average carrying balance on the GECC Facility coupled with a lower average interest rate. Income taxes. We recorded a net income tax provision of $1.0 million for the three months ended June 30, 2004 as compared to a provision of $0.4 million for the three months ended June 30, 2003. Net income. As a result of the above factors, we recorded net income of $1.1 million for the three months ended June 30, 2004 as compared to a net loss of $1.4 million for the three months ended June 30, 2003. Operating segments. As mentioned above in Note 5 of the Consolidated Financial Statements, and in our six month results, our reportable operating segments are Regional Newspapers, National Businesses, Online and Corporate. 21 Our operations on a segmented basis were as follows (in thousands):

22 Regional Newspapers Revenues. Revenues for our Regional Newspapers remained flat at $21.8 million for the three months ended June 30, 2003 as compared to the three months ended June 30, 2004. Subscription revenues increased $0.1 million from $5.2 million for the three months ended June 30, 2003 to $5.3 million for the three months ended June 30, 2004. This increase was offset by a decrease in advertising revenues of $0.1 million. Operating expenses. Total operating expenses declined $0.1 million, or 0.8%, from $14.2 million for the three months ended June 30, 2003 to $14.1 million for the three months ended June 30, 2004. Production and editorial expenses decreased primarily due to lower salary and related taxes and employee benefits, lower contributing editor costs and other realized savings from our continued cost containment efforts. Selling costs decreased due to a decrease in direct mail efforts and lower allocated expenses due to a reduction of allocated sales staff resources from the National Businesses segment. General and administrative expenses increased primarily due to increased salary and related taxes and employee benefits. This increase was partially offset by lower allocated corporate overhead expenses as our overall corporate expenses declined. In addition, we realized a net reduction in our provision for uncollectible accounts due to an improvement in our accounts receivable aging performance, as well as lower rent and utilities expense. Operating income. Our operating income increased $0.1 million, from $7.6 million for the three months ended June 30, 2003 to $7.7 million for the three months ended June 30, 2004. EBITDA increased $0.1 million, or 1.3%, from $7.8 million for the three months ended June 30, 2003 to $7.9 million for the three months ended June 30, 2004. National Businesses Revenues. Revenues for our National Businesses increased $2.0 million, or 16.4%, from $12.2 million for the three months ended June 30, 2003 to $14.2 million for the three months ended June 30, 2004. Advertising revenues increased $0.2 million, from $4.6 million for the three months ended June 30, 2003 to $4.8 million for the three months ended June 30, 2004. This increase was primarily due to increases in display advertising and law firm advertising revenues. In addition, ancillary revenues increased $1.7 million due primarily to higher seminar and tradeshow revenues, book sales, court research fees and royalty and licensing fees. These increases were partially offset by the elimination of editorial content fees as a result of our acquisition of MA3000, as we no longer derive revenue from the sale of this content but rather through court research fees. In addition, subscription revenues increased $0.1 million. Operating expenses. Operating expenses for our National Businesses increased $1.7 million, or 18.7%, from $8.9 million for the three months ended June 30, 2003 to $10.6 million for the three months ended June 30, 2004. Production expenses increased primarily due to higher costs associated with the seminar and tradeshow division and increased book costs. Selling expenses increased due to higher salary and related taxes and employee benefits and lower allocated expenses due to a reduction of allocated sales staff resources to the Regional Newspaper segment. In addition, selling expenses increased as fewer costs relating to the sales force were allocated to the selling of online products for Law.com. General and administrative expenses increased due to higher salary and related taxes and employee benefits and increased consulting and professional fees. 23 Operating income. Our operating income increased $0.3 million, or 10.2%, from $3.3 million for the three months ended June 30, 2003 to $3.6 million for the three months ended June 30, 2004. EBITDA increased $0.3 million, or 10.3%, from $3.3 million for the three months ended June 30, 2003 to $3.6 million for the three months ended June 30, 2004. Online Revenues. Revenues for our online business increased $0.5 million, or 49.4%, from $1.1 million for the three months ended June 30, 2003 to $1.6 million for the three months ended June 30, 2004. Advertising revenues increased $0.4 million, from $0.7 million for the three months ended June 30, 2003 to $1.1 million for the three months ended June 30, 2004. In addition, seminar and trade show revenues increased $0.4 million, due to higher sales of online CLE training. Operating expenses. Operating expenses for our online business decreased $1.9 million, or 54.4%, from $3.5 million for the three months ended June 30, 2003 to $1.6 million for the three months ended June 30, 2004. Selling expenses declined $0.3 million as fewer costs were allocated to Law.com from the National Businesses sales force for online sales efforts. Depreciation and amortization decreased $1.7 million due to the write-off of leasehold improvements and furniture in 2003. Operating income. Our operating income increased $2.5 million, from a loss of $2.4 million for the three months ended June 30, 2003 to profit of $0.1 million for the three months ended June 30, 2004. EBITDA increased $0.7 million, from an EBITDA loss of $0.6 million for the three months ended June 30, 2003 to a gain of $0.1 million for the three months ended June 30, 2004. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities. Net cash provided by operating activities totaled $6.1 million for the six months ended June 30, 2004, which resulted primarily from depreciation, amortization and other charges of $5.9 million, an increase in deferred income tax of $1.0 million, an increase in accounts payable and accrued expenses of $0.9 million, the amortization of non-cash interest of $0.5 million, and net income of $0.3 million. This was partially offset by an increase in accounts receivable of $1.4 million and a decrease in other non-current liabilities of $0.8 million. Net cash used in investing activities. Net cash used in investing activities was $1.7 million for the six months ended June 30, 2004, resulting entirely from capital expenditures. Capital expenditures. Capital expenditures totaled $1.7 million for the six months ended June 30, 2004 compared to capital expenditures of $1.2 million for the six months ended June 30, 2003. Capital expenditures for both the six months ended June 30, 2004 and 2003 were primarily for continuing system upgrades and development. Net cash used in financing activities. Net cash used in financing activities totaled $5.4 million for the six months ended June 30, 2004, which reflects the net paydown on our GECC Facility. Liquidity. Our principal sources of funds are cash flows from operating activities, which may be supplemented by borrowings under our GECC Facility. The GECC Facility had $25.0 million 24 outstanding as of June 30, 2004 and accrues interest as described in Note 3 to the Consolidated Financial Statements. For details relating to the terms of our GECC Facility entered into on May 1, 2002, see Note 3 to the Consolidated Financial Statements. We believe that these funds will be sufficient to meet our current financial obligations, which include the payment of interest on the Discount Notes, the Notes, interest under our GECC Facility, working capital, capital expenditures and other obligations for the next 12 months. No assurance can be given, however, that this will be the case. Our future operating performance and ability to service or refinance our debt, meet future debt covenants, and to repay, extend or refinance any credit agreements to which we are a party will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES Reconciliations of GAAP to non-GAAP financial measures, such as EBITDA, are provided below (in thousands). We believe that the use of non-GAAP financial measures enables us and investors to evaluate, and compare from period to period, our results from ongoing operations in a more meaningful and consistent manner.

25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The GECC Facility is subject to interest rate volatility. A 10% increase in the average interest rate of borrowing under the GECC Facility during the six months ended June 30, 2004 would have decreased our net income to approximately $0.3 million. ITEM 4. CONTROLS AND PROCEDURES (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be filed under the Exchange Act. (b) Internal Controls Over Financial Reporting. There have not been any changes in the Company's internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 26 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to various litigation matters incidental to the conduct of our business. We do not believe that the outcome of any of the matters in which we are currently involved will have a material adverse effect on our financial condition or on the results of our operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1* Certificate of Incorporation of American Lawyer Media, Inc. 3.2* Certificate of Amendment of the Certificate of Incorporation of American Lawyer Media, Inc. 3.16* Bylaws of American Lawyer Media, Inc. 31.1 Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. ---------- * Exhibits are incorporated by reference from American Lawyer Media, Inc.'s previous filings with the Securities and Exchange Commission. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN LAWYER MEDIA, INC. August 13, 2004 /s/ WILLIAM L. POLLAK ------------------------------------- William L. Pollak President and Chief Executive Officer August 13, 2004 /s/ ERIC F. LUNDBERG ------------------------------------- Eric F. Lundberg Vice President and Chief Financial Officer

AMERICAN LAWYER MEDIA INC 10-Q