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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2001
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Commission File Number: 1-14371
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INFORMATION HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1518007
(State of incorporation) (IRS Employer Identification Number)
2777 SUMMER STREET, SUITE 209
STAMFORD, CONNECTICUT 06905
(Address of principal executive offices) (Zip Code)
(203) 961-9106
(Registrant's telephone number, including area code)
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. |X| Yes |_| No
As of June 30, 2001, there were 21,668,970 shares of the Company's common
stock, par value $0.01 per share outstanding.
INFORMATION HOLDINGS INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
As of June 30, 2001 (Unaudited) and December 31, 2000
Consolidated Statements of Operations (Unaudited) for the 2
Three Months Ended June 30, 2001 and 2000 and
Six Months Ended June 30, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) for the 3
Six Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II.OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 55,482 $ 96,375
Short-term investments 20,583 11,731
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $3,178 AND $3,575, RESPECTIVELY) 26,624 23,378
Inventories 7,113 6,472
Prepaid expenses and other current assets 5,750 3,649
Income tax receivable 2,927 492
Deferred income taxes 2,489 2,489
--------- ---------
Total current assets 120,968 144,586
Property and equipment, net 6,797 5,802
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $4,320 AND
$5,234, RESPECTIVELY) 4,861 4,188
Publishing rights and other identified intangible assets, net 112,339 91,342
Goodwill (NET OF ACCUMULATED AMORTIZATION OF $3,879 AND
$1,622, RESPECTIVELY) 76,667 61,272
Other assets 7,878 3,806
--------- ---------
TOTAL $ 329,510 $ 310,996
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 331 $ 308
Accounts payable 21,546 20,156
Accrued expenses 5,387 5,089
Royalties payable 1,317 1,204
Deferred subscription revenue 12,871 10,429
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Total current liabilities 41,452 37,186
Capital leases 1,934 2,107
Deferred income taxes 22,596 14,057
Other long-term liabilities 1,472 1,372
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Total liabilities 67,454 54,722
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued $ -- $ --
Common stock, $.01 par value; 50,000,000 shares authorized,
issued and outstanding 21,668,970 shares at June 30, 2001
and 21,611,970 shares at December 31, 2000 216 216
Additional paid-in capital 244,064 243,075
Retained earnings 17,891 12,983
Accumulated other comprehensive loss (115) --
--------- ---------
Total stockholders' equity 262,056 256,274
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TOTAL $ 329,510 $ 310,996
========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-1-
INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
Revenues $ 25,314 $ 16,180 $ 49,558 $ 32,270
Cost of sales 5,968 4,581 11,542 9,151
-------- -------- -------- --------
Gross profit 19,346 11,599 38,016 23,119
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 12,336 7,887 23,556 14,783
Depreciation and amortization 4,747 2,247 8,598 4,437
-------- -------- -------- --------
Total operating expenses 17,083 10,134 32,154 19,220
-------- -------- -------- --------
Income from operations 2,263 1,465 5,862 3,899
-------- -------- -------- --------
Other income (expense):
Interest income 1,060 2,414 2,702 2,857
Interest expense (136) (142) (272) (287)
Other income (expense) -- 3 (3) 3
-------- -------- -------- --------
Income before income taxes 3,187 3,740 8,289 6,472
Provision for income taxes 1,283 1,569 3,381 2,746
-------- -------- -------- --------
Net income $ 1,904 $ 2,171 $ 4,908 $ 3,726
======== ======== ======== ========
Basic and diluted earnings per common share amounts:
Net income $ 0.09 $ 0.10 $ 0.23 $ 0.19
======== ======== ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-2-
INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,908 $ 3,726
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,553 939
Amortization of goodwill and other intangibles 7,045 3,498
Amortization of pre-publication costs 1,304 1,110
Deferred income taxes (561) (422)
Loss (gain) on disposal of property and equipment 3 (3)
Other 70 71
Changes in operating assets and liabilities:
Accounts receivable, net (287) (660)
Inventories (327) (670)
Prepaid expenses and other current assets (1,214) (644)
Accounts payable and accrued expenses (4,292) 2,893
Income tax benefit from stock options exercised 306 --
Income taxes (2,435) (964)
Deferred subscription revenue (410) (57)
Other, net (590) (948)
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Net Cash Provided by Operating Activities 5,073 7,869
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses and titles (34,066) (2,962)
Purchases of property and equipment (2,006) (1,244)
Pre-publication costs (1,577) (985)
Purchases of short-term investments (8,852) --
Proceeds from disposal of property and equipment 2 14
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Net Cash Used in Investing Activities (46,499) (5,177)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in public offering, net -- 155,000
Common stock issued from stock options exercised 683 1,396
Principal payments on capital leases (150) (140)
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Net Cash Provided by Financing Activities 533 156,256
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (40,893) 158,948
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 96,375 7,551
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 55,482 $ 166,499
========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-3-
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION
The consolidated balance sheet of Information Holdings Inc. (IHI, or the
Company) at December 31, 2000 has been derived from IHI's Annual Report on
Form 10-K for the year then ended. All other consolidated financial
statements contained herein have been prepared by IHI and are unaudited.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements for the year ended December 31, 2000
and the notes thereto contained in IHI's Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission and do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, in the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to present
fairly the consolidated financial position of IHI as of June 30, 2001, and
the consolidated results of operations and cash flows for the periods
presented herein. Results for the three and six months ended June 30, 2001
are not necessarily indicative of the results to be expected for the full
fiscal year.
B. INVENTORIES
Inventories, consisting primarily of finished goods, are stated at the
lower of cost (first-in, first-out method) or market. The vast majority of
inventories are books, which are reviewed periodically on a title-by-title
basis for salability. The cost of inventory determined to be impaired is
charged to income in the period of determination.
C. PRE-PUBLICATION COSTS
Certain expenses related to books, primarily comprised of design and other
pre-production costs, are deferred and charged to expense over the
estimated product life. These costs are primarily amortized over a
four-year period following release of the applicable book, using an
accelerated amortization method. During 2001 and 2000, the Company removed
from its Balance Sheets fully amortized Pre-publication costs with a cost
of approximately $2,218,000 and $3,554,000, respectively.
D. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On May 3, 2001, the Company completed the acquisition of a 49% interest in
GSI Office Management GmbH (GSI) for cash consideration of approximately
$3,400,000, with an option to acquire the remaining 51% interest after
three years. GSI, based in Germany, is a leading provider of intellectual
property management software. At June 30, 2001, the investment in GSI was
included in the Consolidated Balance Sheet caption Other Assets.
-4-
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
E. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 2001 2000
Basic:
Net income $ 1,904 $ 2,171 $ 4,908 $ 3,726
Average shares outstanding 21,633 21,542 21,624 19,555
------- ------- ------- -------
Basic EPS $ 0.09 $ 0.10 $ 0.23 $ 0.19
======= ======= ======= =======
Diluted:
Net income $ 1,904 $ 2,171 $ 4,908 $ 3,726
======= ======= ======= =======
Average shares outstanding 21,633 21,542 21,624 19,555
Net effect of dilutive stock options -
based on the treasury stock method 163 251 164 270
------- ------- ------- -------
Total 21,796 21,793 21,788 19,825
======= ======= ======= =======
Diluted EPS $ 0.09 $ 0.10 $ 0.23 $ 0.19
======= ======= ======= =======
During the first half of 2001, employees exercised stock options to
acquire 57,000 shares at an exercise price of $12.00 per share.
F. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, BUSINESS COMBINATIONS and
SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 prohibits
the use of the pooling-of-interest method of business combinations
initiated after June 30, 2001. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead
would be reviewed for impairment and written down and charged to results
of operations only in the periods in which the recorded value of goodwill
and certain intangibles is more than its fair value. The Company is
required to adopt SFAS No. 142 on January 1, 2002. The adoption of SFAS
No. 141 did not have a material effect on the Company's consolidated
financial position or results of operations. The Company is in the process
of evaluating SFAS No. 142.
-5-
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
G. ACQUISITIONS
On May 15, 2001, the Company acquired the stock of Parthenon Publishing
Group (Parthenon), for cash consideration of approximately $8,000,000.
Parthenon, based in the United Kingdom, is a leading provider of medical
and environmental reference products. Parthenon produces a wide range of
books, journals and electronic products covering environmental topics and
35 medical subject areas. The purchase price was preliminarily allocated
to net tangible assets of $227,000, publishing rights and other identified
intangible assets of $7,373,000 and non-compete agreements of $400,000.
On March 29, 2001, the Company acquired the IDRAC business of IMS Health
for potential cash consideration of $10,500,000, including an initial
payment of approximately $5,500,000 in cash and a contingent payment of
$5,000,000 based on the future results of IDRAC. In a separate
transaction, the Company also entered into multiple perpetual agreements
with IMS Health and certain affiliates for aggregate cash consideration of
approximately $17,000,000. IDRAC, based in France, is a leading provider
to pharmaceutical companies worldwide of regulatory and intellectual
property information related to pharmaceutical product registrations. The
purchase price was preliminarily allocated to net liabilities assumed of
$986,000 publishing rights and other identified intangible assets of
$15,000,000 and goodwill of $8,275,000. The Company also recorded goodwill
and an offsetting deferred income tax liability as a result of the gross
up of acquired intangible assets in the amount of $9,100,000. This
goodwill is being amortized using the straight-line method over 15 years.
On November 6, 2000, the Company acquired all of the assets of Transcender
Corporation for cash consideration of approximately $60,000,000.
Transcender develops content and related software distributed over the
Internet and in other electronic media to information technology
professionals seeking certification in numerous product areas and
programming languages.
The above acquisitions have been accounted for using the purchase method
of accounting and, accordingly, the results of their operations have been
included in the Company's results of operations from their respective date
of acquisition.
The following unaudited pro forma information presents the results of
operations of the Company, as if the 2001 acquisition of IDRAC and the
2000 acquisition of Transcender had taken place in January 1, 2000, is as
follows:
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- ---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 2001 2000
Revenues $ 21,602 $ 51,414 $ 43,615
============== ============== ==============
Net income $ 750 $ 4,682 $ 662
============== ============== ==============
Basic earnings per common share $ 0.03 $ 0.22 $ 0.03
============== ============== ==============
Diluted earnings per common share $ 0.03 $ 0.21 $ 0.03
============== ============== ==============
-6-
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
G. ACQUISITIONS (CONTINUED)
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the operating results
that would have occurred had the acquisitions been consummated as of the
above date, nor are they necessarily indicative of future operating
results.
H. SEGMENT INFORMATION
The Company has three reportable segments: intellectual property (IP),
scientific and technology information (STI) and information technology
learning (ITL). The intellectual property segment, which includes
MicroPatent, MDC, and IDRAC, provides a broad array of databases,
information products and complementary services for intellectual property
and regulatory professionals. The scientific and technology information
segment is CRC Press, which publishes professional and academic books,
journals, newsletters and electronic databases covering areas such as life
sciences, environmental sciences, engineering, mathematics, physical
sciences and business. The information technology-learning segment was
created in the fourth quarter of fiscal 2000 as a result of the Company's
strategic acquisition of Transcender. Transcender is a leading online
provider of IT certification test-preparation products.
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
---------------------------------- ---------------------
SEGMENT SEGMENT
IP STI ITL IP STI
-------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues from external customers $ 10,569 $ 9,576 $ 5,169 $ 7,308 $ 8,872
EBITDA 4,128 1,942 2,540 2,341 2,472
Operating income 1,627 674 897 599 1,353
Segment assets 137,224 53,007 60,661 97,384 40,205
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
---------------------------------- ---------------------
SEGMENT SEGMENT
IP STI ITL IP STI
-------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues from external customers $ 18,674 $ 18,587 $ 12,297 $ 14,553 $ 17,717
EBITDA 6,695 4,204 6,500 5,585 4,713
Operating income 2,466 1,814 3,229 2,161 2,591
Segment assets 137,224 53,007 60,661 97,384 40,205
-7-
INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
H. SEGMENT INFORMATION (CONTINUED)
A reconciliation of combined EBITDA for the intellectual property,
scientific and technology information, and information technology learning
segments to consolidated income before income taxes is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
(IN THOUSANDS) 2001 2000 2001 2000
Total EBITDA for reportable segments $ 8,610 $ 4,813 $ 17,399 $ 10,298
Corporate expenses (930) (484) (1,638) (849)
Interest income, net 924 2,272 2,430 2,570
Depreciation and amortization (1) (2) (5,417) (2,861) (9,902) (5,547)
-------- -------- -------- --------
Income before income taxes $ 3,187 $ 3,740 $ 8,289 $ 6,472
======== ======== ======== ========
(1) Depreciation and amortization includes $670,000 and $614,000 of
amortization of pre-publication costs, included in operations in
cost of sales for each of the three month periods ended June 30,
2001 and 2000, respectively.
(2) Depreciation and amortization includes $1,304,000 and $1,110,000 of
amortization of pre-publication costs, included in operations in
cost of sales for each of the six month periods ended June 30, 2001
and 2000, respectively.
I. COMPREHENSIVE INCOME
The following table is a reconciliation of the Company's net income to
comprehensive income:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(IN THOUSANDS) 2001 2000 2001 2000
Net income $ 1,904 $ 2,171 $ 4,908 $ 3,726
Other comprehensive loss,
net of taxes of $45:
Foreign currency translation adjustment (70) -- (70) --
------- ------- ------- -------
Comprehensive income $ 1,834 $ 2,171 $ 4,838 $ 3,726
======= ======= ======= =======
-8-
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended June 30, 2001 Compared to
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------------------
REVENUES. In the second quarter of 2001, the Company had revenues of $25.3
million compared to revenues of $16.2 million in the second quarter of 2000, an
increase of $9.1 million or 56.5%. The increase in revenues is due primarily to
strong results associated with IT learning products, as a result of the
acquisition of Transcender in November 2000. Revenues also increased in the
Company's intellectual property group based on strong internal growth in sales
of patent information and patent annuity payment services, and revenues of
IDRAC, which was acquired in March 2001. Revenues also increased in the
Company's scientific and technology information group resulting from the
acquisition of Parthenon in May 2001.
COST OF SALES. Cost of sales increased $1.4 million or 30.3% to $6.0 million in
the second quarter of 2001 compared to $4.6 million in the corresponding quarter
in 2000. Cost of sales expressed as a percentage of revenues in the second
quarter of 2001 decreased to 23.6% from 28.3% for the corresponding quarter of
2000. The improvement in gross profit margins over the comparable period in 2000
is primarily attributable to the acquisitions of Transcender and IDRAC, which
have higher gross margins than the other existing units offset by higher costs
at CRC press primarily related to book publishing operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$4.4 million or 56.4% in the second quarter of 2001, to $12.3 million from $7.9
million in the second quarter of 2000. Increased S,G&A expenses relate primarily
to operating expenses of Transcender, IDRAC, and Parthenon which were acquired
in November 2000, March 2001, and May 2001, respectively. S,G&A expenses as a
percentage of revenues remained consistent at 48.7% in the second quarter of
2001 and 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the second
quarter of 2001 increased $2.5 million, or 111.3%, to $4.7 million from $2.2
million in the corresponding quarter in 2000, primarily as a result of the
amortization of intangible assets related to the acquisitions of Transcender and
IDRAC.
INTEREST INCOME (EXPENSE). Net interest income (expense) decreased to $0.9
million from $2.3 million due primarily to lower interest earned, resulting from
cash used from the secondary stock offering to acquire businesses over the last
3 quarters. Additionally, the average interest rate earned decreased from 5.6%
in 2000 to 4.5% in 2001.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
for the three months ended June 30, 2001 is 40.3%, which differed from the
statutory rate primarily as a result of state and local income taxes and
non-deductible amortization in excess of the purchase price over net assets
acquired. This compares with an effective tax rate of 42.0% in the prior year.
In the second quarter of fiscal 2001 the Company was also subject to foreign
taxes, which were immaterial in the period.
-9-
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Six Months Ended June 30, 2001 Compared to
SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------
REVENUES. In the first six months of 2001, the Company had revenues of $49.6
million compared to revenues of $32.3 million in the first half of 2000, an
increase of $17.3 million or 53.6%. The increase in revenues is due primarily to
strong results associated with IT learning products, as a result of the
acquisition of Transcender in November 2000. Revenues also increased in the
Company's intellectual property group based on strong internal growth in sales
of patent information and patent annuity payment services, and revenues of
IDRAC, which was acquired in March 2001. Revenues also increased in the
Company's scientific and technology information group resulting from the
acquisition of Parthenon in May 2001, as well as strong results in international
book sales offsetting lower domestic sales.
COST OF SALES. Cost of sales increased $2.4 million or 26.1% to $11.5 million in
the first half of 2001 compared to $9.1 million in the corresponding period in
2000. Cost of sales, expressed as a percentage of revenues in the first six
months of 2001, decreased to 23.3% from 28.4% for the corresponding period of
2000. The improvement in gross profit margins over the comparable period in 2000
is primarily attributable to the acquisitions of Transcender and IDRAC, which
have higher gross margins than the other existing units offset by higher costs
at CRC press primarily related to book operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$8.8 million or 59.3% in the first six months of 2001, to $23.6 million from
$14.8 million for the first half of 2000. Increased S,G&A expenses relate
primarily to operating expenses of Transcender, IDRAC and Parthenon, which were
acquired in November 2000, March 2001 and May 2001, respectively, and
MicroPatent's development expenses of Trademark.com. S,G&A expenses as a
percentage of revenues increased to 47.5% in the first half of 2001 compared
with 45.8% in the corresponding 2000 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first half
of 2001 increased $4.2 million, or 93.8%, to $8.6 million from $4.4 million in
the corresponding period in 2000, primarily as a result of the amortization of
intangible assets related to the acquisitions of Transcender and IDRAC.
INTEREST INCOME (EXPENSE). Interest income (expense) decreased to $2.4 million
from $2.6 million due primarily to lower interest earned, resulting from cash
used from the secondary public stock offering to acquire businesses over the
last 3 quarters. Additionally, the average interest rate earned decreased from
5.5% in 2000 to 5.0% in 2001.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
for the six months ended June 30, 2001 is 40.8%, which differed from the
statutory rate primarily as a result of state and local income taxes and
non-deductible amortization in excess of the purchase price over net assets
acquired. This compares with an effective tax rate of 42.4% in the prior year.
In the first half of fiscal 2001 the Company was also subject to foreign taxes,
which were immaterial in the period.
-10-
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES:
In the first quarter of 2000, the Company sold 4,500,000 shares of its common
stock in a public offering and received approximately $155 million of net
proceeds. The proceeds from this offering are intended to be used to finance
future acquisitions and for general corporate purposes. See Note G -
ACQUISITIONS. Pending such uses, the remaining net proceeds will be invested in
short-term, investment grade securities.
On September 24, 1999, the Company entered into a seven-year revolving credit
facility in an amount not to exceed $50,000,000 initially, including a
$10,000,000 sub-limit for the issuance of standby letters of credit (the Credit
Facility). The proceeds from the Credit Facility are to be used to fund
acquisitions, to meet short-term working capital needs and for general corporate
purposes.
Borrowings under the Credit Facility bear interest at either the higher of the
bank's prime rate and one-half of 1% in excess of the overnight federal funds
rate plus a margin of 0.50% to 1.25% or the Eurodollar Rate plus a margin of
1.5% to 2.25%, depending on the Company's ratio of indebtedness to earnings
before interest, taxes, depreciation and amortization. The Company also pays a
commitment fee of 0.375% on the unused portion of the Credit Facility. As of and
for the period ended June 30, 2001, the Company had no outstanding borrowings
under the Credit Facility.
Under the terms of the Credit Facility, the Company is required to maintain
certain financial ratios related to fixed charge coverage, leverage and interest
coverage, in addition to certain other covenants. As of June 30, 2001, the
Company was in compliance with all covenants.
Cash and cash equivalents, including short-term investments totaled $76.1
million at June 30, 2001 compared to $108.1 million at December 31, 2000.
Excluding cash, cash equivalents, and short-term investments the Company had
working capital of $3.5 million at June 30, 2001 compared to working capital
deficit of $(0.7) million at December 31, 2000. Since the Company receives
patent annuity payments and subscription payments in advance, the Company's
existing operations are expected to maintain very low or negative working
capital balances, excluding cash. Included in current liabilities at June 30,
2001 are obligations related to patent annuity payments and deferred
subscription revenue of approximately $29.3 million.
Cash generated from operating activities was $5.1 million for the six months
ended June 30, 2001, derived from net income of $4.9 million plus non-cash
charges of $9.4 million minus a decrease in operating liabilities and increase
in operating assets of $9.2 million. The decrease in operating liabilities and
increase in operating assets is primarily due to increased prepaid and other
current assets as a result of businesses acquired in fiscal 2001, the payments
of expenses related to book publishing operations, income tax liabilities, and
the timing of patent annuity payments.
Cash used in investing activities was $46.5 million for the six months ended
June 30, 2001 due to acquisition costs for businesses of $34.1 million and
capital expenditures, including pre-publication costs, of $3.5 million.
Excluding acquisitions of businesses and titles, the Company's existing
operations are not capital intensive. The Company also invested an additional
$8.9 million in short-term investments in commercial paper, which are scheduled
to mature in the fourth quarter of 2001.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cash generated from financing activities was $0.5 million for the six months
ended June 30, 2001, primarily due to net cash proceeds received from the
issuance of common stock from stock option exercises. The Company has no
outstanding debt obligations as of June 30, 2001 related to the Credit Facility.
The Company believes that funds generated from operations, together with cash on
hand and borrowings available under its Credit Facility will be sufficient to
fund the cash requirements of its existing operations for the foreseeable
future. The Company currently has no commitments for material capital
expenditures or agreements with respect to any prospective material
acquisitions. Future operating requirements and capital needs may be subject to
economic conditions and other factors, many of which are beyond the Company's
control.
SEASONALITY
The Company's business is somewhat seasonal, with revenues typically reaching
slightly higher levels during the third and fourth quarters of each calendar
year, based on publication schedules and other factors. In 2000, 31% of the
Company's revenues were generated during the fourth quarter with the first,
second and third quarters accounting for 22%, 22% and 25% of revenues,
respectively. In addition, the Company may experience fluctuations in revenues
from period to period based on the timing of acquisitions and new product
launches.
EFFECTS OF INFLATION
The Company believes that inflation has not had a material impact on the results
of operations presented herein.
FORWARD-LOOKING STATEMENTS
The information above contains forward-looking statements, including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, and intentions that are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that forward-looking statements contained in this Form 10-Q should be
read in conjunction with the Company's disclosures under the heading IMPORTANT
FACTORS RELATING TO FORWARD-LOOKING STATEMENTS contained in the Company's 2000
Annual Report on Form 10-K.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes.
The Company may be subject to market risks arising from changes in interest
rates. Interest rate exposure results from changes in the Eurodollar or the
prime rate, which are used to determine the interest rate applicable to
borrowings under the Credit Facility. As of June 30, 2001, the Company had no
outstanding borrowings under the Credit Facility.
The Company routinely enters into forward contracts to acquire various
international currencies in an effort to hedge foreign currency transaction
exposures of its operations. Such forward contracts have been designated as
hedges for future annual payments to related international regulatory agencies.
At June 30, 2001, the Company had entered into forward contracts to acquire
various international currencies, all having maturities of less than five
months, aggregating approximately $13,087,000. Realized gains and losses
relating to the forward contracts were immaterial for the three and six months
ended June 30, 2001.
The Company also enters into foreign currency transactions to hedge certain cash
flow exposures related to IDRAC to the end of the year. Such forward contracts
have been designated as hedges for future cash flow exposures on operations. At
June 30, 2001, the Company had entered into forward contracts to acquire French
francs, all having maturities of less than six months, aggregating approximately
$2,244,000. Realized gains and losses relating to the forward contracts were
immaterial for the three and six months ended June 30, 2001.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following report relates to the Company's secondary public stock offering:
Commission file number of registration statement: 333-30202
Effective Date: March 14, 2000
Expenses incurred through June 30, 2001:
Underwriting discounts $ 8,595,000
Other expenses $ 522,000
Total expenses $ 9,117,000
Application of proceeds through June 30, 2001:
Acquisitions of businesses and titles $98,928,250
Temporary investments $56,071,750
(Commercial paper and money market funds)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders on April 24, 2001 a total of
17,382,602 shares, or 80%, of outstanding shares were represented and entitled
to vote.
(a) The following members were elected to the Board of Directors:
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
Michael E. Danzinger 17,220,948 161,654
David R. Haas 17,220,753 161,849
Sidney Lapidus 17,214,943 167,659
David E. Libowitz 17,215,018 167,584
Mason P. Slaine 16,550,201 832,401
(b) The following proposal was approved:
The amendment to the 1998 Stock Option Plan.
Affirmative Votes 15,631,577
Negative Votes 1,736,879
Abstain 14,146
(c) The following proposal was approved:
Ratification of Ernst & Young LLP as the independent public accountants for the
Company for the 2001 fiscal year.
Affirmative Votes 17,375,452
Negative Votes 6,460
Abstain 690
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three months
ended June 30, 2001.
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SIGNATURE
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.
INFORMATION HOLDINGS INC.
Date: AUGUST 14, 2001 By: /S/ VINCENT A. CHIPPARI
--------------------- ---------------------------------------------
Vincent A. Chippari
Executive Vice President and Chief
Financial Officer
Signing on behalf of the registrant and
as principal financial and accounting officer
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