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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: MARCH 31, 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 March 31, 2001, there were 21,615,798 shares of the Company's
common stock, par value $0.01 per share outstanding.
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INFORMATION HOLDINGS INC.
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
As of March 31, 2001 (Unaudited) and December 31, 2000 1
Consolidated Statements of Operations (Unaudited) for the
Three Months Ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 75,618 $ 96,375
Short-term investments 15,659 11,731
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $3,443 AND $3,575, RESPECTIVELY) 26,729 23,378
Inventories 6,509 6,472
Prepaid expenses and other current assets 5,128 4,141
Deferred income taxes 2,489 2,489
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Total current assets 132,132 144,586
Property and equipment, net 6,473 5,802
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $3,656 AND
$5,234, RESPECTIVELY) 4,278 4,188
Publishing rights and other identified intangible assets, net 100,694 91,342
Goodwill (NET OF ACCUMULATED AMORTIZATION OF $2,604 AND
$1,622, RESPECTIVELY) 71,919 61,272
Other assets 5,532 3,806
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TOTAL $321,028 $ 310,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 319 $ 308
Accounts payable 21,734 20,156
Accrued expenses 6,087 5,089
Accrued income taxes 1,843 -
Royalties payable 518 1,204
Deferred subscription revenue 13,973 10,429
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Total current liabilities 44,474 37,186
Capital leases 2,021 2,107
Deferred income taxes 13,852 14,057
Other long-term liabilities 1,357 1,372
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Total liabilities 61,704 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 21,615,798 shares at March 31, 2001
and 21,611,970 shares at December 31, 2000 216 216
Additional paid-in capital 243,121 243,075
Retained earnings 15,987 12,983
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Total stockholders' equity 259,324 256,274
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TOTAL $321,028 $310,996
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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
MARCH 31,
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2001 2000
Revenues $ 24,244 $ 16,090
Cost of sales 5,574 4,570
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Gross profit 18,670 11,520
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Operating expenses:
Selling, general and administrative 11,220 6,896
Depreciation and amortization 3,851 2,190
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Total operating expenses 15,071 9,086
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Income from operations 3,599 2,434
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Other income (expense):
Interest income 1,642 443
Interest expense (136) (145)
Other expense (3) -
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Income before income taxes 5,102 2,732
Provision for income taxes 2,098 1,177
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Net income $ 3,004 $ 1,555
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Basic and diluted earnings per common share amounts:
Net income $ 0.14 $ 0.09
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,004 $ 1,555
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 728 441
Amortization of goodwill and other intangibles 3,123 1,749
Amortization of pre-publication costs 634 496
Deferred income taxes (204) (211)
Loss on disposal of property and equipment 3 -
Other 34 36
Changes in operating assets and liabilities:
Accounts receivable, net 345 (1,382)
Inventories (37) (238)
Prepaid expenses and other current assets (444) (424)
Accounts payable and accrued expenses 1,809 3,401
Royalties payable (686) (682)
Deferred subscription revenue 845 1,235
Other, net (347) (456)
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Net Cash Provided by Operating Activities 8,807 5,520
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property and equipment 2 -
Purchases of property and equipment (994) (382)
Pre-publication costs (724) (234)
Purchases of short-term investments (3,928) -
Acquisitions of businesses (23,891) (94)
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Net Cash Used in Investing Activities (29,535) (710)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (75) (71)
Issuance of common stock in public offering, net - 155,000
Common stock issued from stock options exercised 46 1,052
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Net Cash (Used in) Provided by Financing Activities (29) 155,981
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NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (20,757) 160,791
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 96,375 7,551
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 75,618 $ 168,342
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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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
March 31, 2001, and the consolidated results of operations and cash
flows for the periods presented herein. Results for the three months
ended March 31, 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 $2,212,000 and $3,554,000, respectively.
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D. 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
MARCH 31,
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(IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000
Basic:
Net income $ 3,004 $ 1,555
Average shares outstanding 21,615 17,567
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Basic EPS $ 0.14 $ 0.09
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Diluted:
Net income $ 3,004 $ 1,555
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Average shares outstanding 21,615 17,567
Net effect of dilutive stock options -
based on the treasury stock method 178 301
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Total 21,793 17,868
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Diluted EPS $ 0.14 $ 0.09
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During the first quarter of 2001, employees exercised stock options to
acquire 3,828 shares at an exercise price of $12.00 per share.
E. ACQUISITIONS
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 $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 license
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 Company is currently in the process of obtaining an
independent appraisal regarding the purchase price allocation and
determination of the useful lives of the assets acquired.
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.
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The following unaudited proforma information presents the results of
operations of the Company, as if the 2000 acquisition of Transcender
had taken place as of January 1, 2000, is as follows:
THREE MONTHS
ENDED
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MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2000
Revenues $ 20,331
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Net income $ 280
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Basic earnings per common share $ 0.02
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Diluted earnings per common share $ 0.02
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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.
F. 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
MARCH 31, 2001 MARCH 31, 2000
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SEGMENT SEGMENT
IP STI ITL IP STI
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(IN THOUSANDS)
Revenues from external customers $ 8,105 $ 9,011 $ 7,128 $ 7,245 $ 8,845
EBITDA 2,567 2,262 3,960 3,244 2,241
Operating income 839 1,140 2,332 1,562 1,238
Segment assets 125,925 41,996 62,592 96,341 40,108
-6-
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
MARCH 31,
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(IN THOUSANDS) 2001 2000
Total EBITDA for reportable segments $ 8,789 $ 5,485
Corporate expenses (708) (365)
Interest income 1,506 298
Depreciation and amortization (1) (4,485) (2,686)
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Income before income taxes $ 5,102 $ 2,732
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(1) Depreciation and amortization includes $634,000 and $496,000 of
amortization of pre-publication costs, included in operations in cost
of sales for each of the three month periods ended March 31, 2001 and
2000, respectively.
H. SUBSEQUENT EVENTS
On April 24, 2001, the stockholders of the Company approved a 600,000
share increase in the number of shares reserved for issuance under the
Company's 1998 Stock Option Plan to a total of 1,966,886 shares
reserved for issuance.
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.
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.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended March 31, 2001 Compared to
Three Months Ended March 31, 2000
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REVENUES. In the first quarter of 2001, the Company had revenues of $24.2
million compared with revenues of $16.1 million in the first quarter of 2000, an
increase of $8.1 million or 50.7%. The increase in revenues is primarily due 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 internal growth in sales of
patent information and strong patent annuity payment revenues. Revenues
increased slightly in the Company's scientific reference business, with strong
results in international book sales offsetting lower domestic sales.
COST OF SALES. Cost of sales increased $1.0 million or 22.0% to $5.6 million in
the first 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 first
quarter of 2001 decreased to 23.0% from 28.4% for the corresponding quarter of
2000. The improvement in gross profit margins over the comparable period in 2000
is primarily attributable to the acquisition of Transcender, which has higher
gross margins than the other existing units.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A expenses increased
$4.3 million or 62.7% in the first three months of 2001, to $11.2 million from
$6.9 million in the first three months of 2000. Increased SG&A expenses relate
primarily to the operating expenses of Transcender, which was acquired in 2000
and development expenses of CorporateIntelligence.com. SG&A expenses as a
percentage of revenues increased to 46.3% in the first quarter of 2001, compared
with 42.9% in the corresponding 2000 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the first
quarter of 2001 increased $1.7 million, or 75.8%, to $3.9 million from $2.2
million in the corresponding quarter in 2000, primarily as a result of the
amortization of intangible assets related to the acquisition of Transcender in
November 2000.
INTEREST INCOME (EXPENSE). Net interest income increased to $1.5 million from
$0.3 million due primarily to interest earned on the proceeds from the secondary
public stock offering completed in March 2000.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
for the three months ended March 31, 2001 is 41.1%, which differs 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 43.1% in the prior year
period.
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LIQUIDITY AND CAPITAL RESOURCES:
In the first quarter of fiscal 2000, the Company sold 4,500,000 shares of its
common stock in a public offering and received approximately $155.0 million of
net proceeds. The proceeds from this offering will be used to finance future
acquisitions and for general corporate purposes. See Note E-ACQUISITONS and Note
H - SUBSEQUENT EVENTS. 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 sublimit for the issuance of standby letters of credit (the Credit
Facility). The proceeds from the Credit Facility are intended 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 March 31, 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 March 31, 2001, the
Company was in compliance with all covenants.
Cash and cash equivalents, including short-term investments totaled $91.3
million at March 31, 2001 compared to $108.1 million at December 31, 2000.
Excluding cash, cash equivalents, and short-term investments the Company had a
working capital deficit of $(3.6) million at March 31, 2001 compared to a
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
March 31, 2001 are obligations related to patent annuity payments and deferred
subscription revenue of approximately $32.7 million.
Cash generated from operating activities was $8.8 million for the three months
ended March 31, 2001, derived from net income of $3.0 million plus non-cash
charges of $4.3 million plus an increase in operating liabilities, net of assets
of $1.5 million. This increase in net operating liabilities is primarily the
result of an increase in income tax liabilities offset by the payment of
expenses related to book publishing operations.
Cash used in investing activities was $29.5 million for the three months ended
March 31, 2001 due to acquisition costs for businesses of $23.9 million and
capital expenditures, including pre-publication costs, of $1.7 million.
Excluding acquisitions of businesses and titles, the Company's existing
operations are not capital intensive. The Company also invested an additional
$3.9 million in short-term investments in commercial paper, which are scheduled
to mature in the third quarter of 2001.
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Cash used in financing activities was immaterial for the three months ended
March 31, 2001. The Company has no outstanding debt obligations as of March 31,
2001 related to the new 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. For the year 2001, the Company anticipates that funding
requirements for CorporateIntelligence.com will continue to decrease and
subsequent to fiscal 2001, they will not be significant. 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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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 March 31, 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 March 31, 2001, the Company had entered into forward contracts to acquire
various international currencies, all having maturities of less than five
months, aggregating approximately $15,205,000. Realized gains and losses
relating to the forward contracts were immaterial for the three months ended
March 31, 2001.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITES 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 March 31, 2001:
Underwriting discounts $ 8,595,000
Other expenses $ 522,000
Total expenses $ 9,117,000
Application of proceeds through March 31, 2001:
Acquisitions of businesses and titles $ 88,753,250
Temporary investments $ 66,246,750
(Commercial paper and money market funds)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K:
On March 29, 2001, the Company filed a Current Report on Form 8-K
(the Form 8-K) reporting that the Company acquired the stock of IDRAC SAS from
IMS Health. The Company in a separate transaction also reported that it had
agreed to acquire a 49% interest in GSI Office Management GmbH. The Company has
an option to acquire the remaining 51% after three years.
-12-
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: May 15, 2001 By: /s/ Vincent A. Chippari
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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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