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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 2000
Commission File Number: 1-14371
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 September 30, 2000, there were 21,603,716 shares of the Company's
common stock, par value $0.01 per share outstanding.
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<PAGE>
INFORMATION HOLDINGS INC.
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
As of September 30, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations (Unaudited) for the 2
Three Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) for the 3
Nine Months Ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 155,436 $ 7,551
Short-term investment 6,875 --
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $3,380 AND $2,621, RESPECTIVELY) 19,859 16,997
Inventories 5,963 5,078
Prepaid expenses and other current assets 3,520 2,173
Deferred income taxes 2,137 2,137
--------- ---------
Total current assets 193,790 33,936
Property and equipment, net 5,305 4,377
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $4,638 AND
$3,249, RESPECTIVELY) 3,619 3,478
Publishing rights and other identified intangible assets, net 77,278 78,260
Goodwill (NET OF ACCUMULATED AMORTIZATION OF $953 AND
$320, RESPECTIVELY) 15,587 15,629
Other assets 5,730 2,978
--------- ---------
TOTAL $ 301,309 $ 138,658
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 297 $ 279
Accounts payable 16,112 13,339
Accrued expenses 3,639 3,360
Accrued income taxes (119) 2,119
Royalties payable 709 1,304
Deferred subscription revenue 8,277 9,280
--------- ---------
Total current liabilities 28,915 29,681
Capital leases 2,187 2,415
Deferred income taxes 14,940 14,976
Other long-term liabilities 678 651
--------- ---------
Total liabilities 46,720 47,723
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued $ -- $ --
Common stock, $.01 par value; 50,000,000 shares
authorized; 21,603,716 issued at September 30, 2000
and 16,953,550 at December 31, 1999 216 170
Additional paid-in capital 242,790 84,874
Retained earnings 11,583 5,891
--------- ---------
Total stockholders' equity 254,589 90,935
--------- ---------
TOTAL $ 301,309 $ 138,658
========= =========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-1-
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INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 18,151 $ 14,833 $ 50,421 $ 39,865
Cost of sales 5,073 3,847 14,224 10,590
-------- -------- -------- --------
Gross profit 13,078 10,986 36,197 29,275
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 10,009 7,208 24,792 20,890
Depreciation and amortization 2,131 1,683 6,568 3,741
-------- -------- -------- --------
Total operating expenses 12,140 8,891 31,360 24,631
-------- -------- -------- --------
Income from operations 938 2,095 4,837 4,644
-------- -------- -------- --------
Other income (expense):
Interest income 2,598 288 5,455 1,539
Interest expense (143) (66) (430) (210)
Other income (expense) -- -- 3 (18)
-------- -------- -------- --------
Income before provision for income taxes 3,393 2,317 9,865 5,955
Provision for income taxes 1,427 1,030 4,173 2,449
-------- -------- -------- --------
Net income $ 1,966 $ 1,287 $ 5,692 $ 3,506
======== ======== ======== ========
Net income per common share amounts:
Basic earnings $ 0.09 $ 0.08 $ 0.28 $ 0.21
======== ======== ======== ========
Diluted earnings $ 0.09 $ 0.08 $ 0.28 $ 0.20
======== ======== ======== ========
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
-2-
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INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,692 $ 3,506
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,530 1,155
Amortization of goodwill and other intangibles 5,038 2,586
Amortization of pre-publication costs 1,701 1,857
(Gain) loss on disposal of property and equipment (3) 18
Deferred income taxes (626) (105)
Other 107 --
Changes in operating assets and liabilities:
Accounts receivable, net (2,850) (4,537)
Inventories (885) (443)
Prepaid expenses and other current assets (1,347) (829)
Accounts payable and accrued expenses 1,666 2,889
Royalties payable (595) (954)
Deferred subscription revenue (1,054) (2,330)
Other, net (943) (464)
--------- ---------
Net Cash Provided by Operating Activities 7,431 2,349
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 14 11
Purchases of property and equipment (2,345) (1,020)
Pre-publication costs (1,855) (1,282)
Acquisitions of businesses and titles (5,095) (53,425)
Purchase of short-term investment (6,875) --
--------- ---------
Net Cash Used in Investing Activities (16,156) (55,716)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in public offering 155,000 --
Common stock issued from stock options exercised 1,820 58
Principal payments on capital leases (210) (196)
Financing costs for new credit facility -- (875)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 156,610 (1,013)
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 147,885 (54,380)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,551 57,270
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 155,436 $ 2,890
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
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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, 1999 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, 1999 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
September 30, 2000, and the consolidated results of operations and cash
flows for the periods presented herein. Results for the three and nine
months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full fiscal year.
B. SHORT-TERM INVESTMENT
At September 30, 2000, the Company held a short-term investment in
commercial paper, which was classified as held-to-maturity. The
investment has a maturity date within one year and is stated at its
amortized cost.
C. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories at September 30, 2000 and December 31,
1999 consist solely of finished goods. 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.
D. 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 2000 and 1999, the Company
removed from its Balance Sheets fully amortized pre-publication costs
with a cost of approximately $3,554,000 and $1,645,000, respectively.
-4-
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
E. SECONDARY OFFERING
On March 14, 2000, the Securities and Exchange Commission declared
effective the Company's registration statement on Form S-3, pursuant to
which the Company completed a public offering on March 20, 2000 of
4,500,000 shares of its common stock at a price of $36.50 per share.
The net proceeds to the Company, after deducting underwriting
discounts, commissions and offering expenses was approximately
$155,000,000. The net proceeds from this offering will be used to
develop and market the CorporateIntelligence.com website, to finance
future acquisitions and for general corporate purposes.
See Note J- SUBSEQUENT EVENT.
F. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per common share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Basic:
Net income $ 1,966 $ 1,287 $ 5,692 $ 3,506
Average shares outstanding 21,593 16,946 20,239 16,944
----------- ----------- ----------- -----------
Basic EPS $ 0.09 $ 0.08 $ 0.28 $ 0.21
=========== =========== =========== ===========
Diluted:
Net income $ 1,966 $ 1,287 $ 5,692 $ 3,506
=========== =========== =========== ===========
Average shares outstanding 21,593 16,946 20,239 16,944
Net effect of dilutive stock options -
based on the treasury stock method 279 182 260 176
----------- ----------- ----------- -----------
Total 21,872 17,128 20,499 17,120
=========== =========== =========== ===========
Diluted EPS $ 0.09 $ 0.08 $ 0.28 $ 0.20
=========== =========== =========== ===========
</TABLE>
During the first nine months of 2000, employees exercised stock options
to acquire 150,166 shares at an exercise price of between $12.00 and
$19.125 per share.
G. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". This
standard amends SFAS No. 133. "Accounting for Derivative Instruments
and Hedging Activities", and addresses a limited number of issues
causing implementation difficulties. The adoption of SFAS No. 138 is
not expected to have a material effect on the Company's consolidated
financial position or results of operations.
-5-
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
H. ACQUISITIONS
The pro forma unaudited results of operations for the three and nine
months ended September 30, 1999, assuming consummation of the 1999
acquisitions of MDC and Faxpat as of January 1, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
------------- -------------
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1999
<S> <C> <C>
Revenues $ 16,119 $ 47,295
Net income 1,197 2,715
Basic earnings per common share $ 0.07 $ 0.16
============= =============
Diluted earnings per common share $ 0.07 $ 0.16
============= =============
</TABLE>
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.
I. SEGMENT INFORMATION
The Company has identified the following two reportable segments:
intellectual property (IP) and scientific and technology information
(STI). The intellectual property segment, through its
CorporateIntelligence.com unit, which includes MicroPatent and MDC,
provides a broad array of databases, information products and
complementary services for intellectual property 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------------- --------------------------
SEGMENT SEGMENT
IP STI IP STI
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers $ 7,597 $ 10,554 $ 5,033 $ 9,800
EBITDA 1,653 2,752 2,119 2,735
Operating income 20 1,666 933 1,630
Segment assets 99,989 41,788 90,899 41,051
</TABLE>
-6-
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
I. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- --------------------
SEGMENT SEGMENT
IP STI IP STI
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers $ 22,150 $ 28,271 $ 10,542 $ 29,323
EBITDA 7,238 7,465 4,264 7,198
Operating income 2,181 4,257 2,051 3,835
Segment assets 99,989 41,788 90,899 41,051
</TABLE>
A reconciliation of combined EBITDA for the intellectual property and
scientific and technology information segments to consolidated income
before income taxes is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
(IN THOUSANDS) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Total EBITDA for reportable segments $ 4,405 $ 4,854 $ 14,703 $ 11,462
Corporate expenses (745) (466) (1,594) (1,238)
Interest income 2,455 222 5,025 1,329
Depreciation and amortization (1) (2) (2,722) (2,293) (8,269) (5,598)
-------- -------- -------- --------
Income before income taxes $ 3,393 $ 2,317 $ 9,865 $ 5,955
======== ======== ======== ========
</TABLE>
(1) Depreciation and amortization includes $591,000 and $610,000
of amortization of pre-publication costs, included in
operations in cost of sales for each of the three month
periods ended September 30, 2000 and 1999, respectively.
(2) Depreciation and amortization includes $1,701,000 and
$1,857,000 of amortization of pre-publication costs, included
in operations in cost of sales for each of the nine month
periods ended September 30, 2000 and 1999, respectively.
J. SUBSEQUENT EVENT
On November 6, 2000, the Company acquired all of the assets of
Transcender Corporation (Transcender) for cash consideration of
approximately $60,000,000. Transcender is a leading provider of on-line
IT certification products. 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 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.
-7-
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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 September 30, 2000 Compared to
Three Months Ended September 30, 1999
-------------------------------------------------
REVENUES. In the third quarter of 2000, the Company had revenues of $18.2
million compared to revenues of $14.8 million in the third quarter of 1999, an
increase of $3.4 million or 22.4%. The increase in revenues for the third
quarter of 2000 was due to several factors including strong internal growth in
Internet-based sales of patent information and patent file histories at
MicroPatent of approximately $1.0 million. Revenues at Master Data Center, which
was acquired in August 1999, increased $1.4 million, reflective of a full
quarter of revenue for 2000, and book sales at CRC Press increased $0.6 million.
Overall book sales for the third quarter of 2000 were 8.0% higher than the prior
years' quarter and international sales continue to improve over earlier 2000
quarters.
COST OF SALES. Cost of sales increased $1.2 million or 31.9% to $5.0 million in
the third quarter of 2000 compared to $3.8 million in the corresponding quarter
in 1999. Cost of sales expressed as a percentage of revenues in the third
quarter of 2000 increased to 27.9% from 25.9% for the corresponding quarter of
1999. The increase in the costs of sales over the comparable period in 1999 is
primarily attributable to lower gross margins as a result of a change in sales
channel mix at CRC Press. These increases were partially offset by improved
margins in the intellectual property businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$2.8 million or 38.9% in the third quarter of 2000, to $10.0 million from $7.2
million in the third quarter of 1999. Increased S,G&A expenses relate primarily
to operating expenses of businesses acquired in the third quarter of 1999 and
development spending on CorporateIntelligence.com. S,G&A expenses as a
percentage of revenues excluding development spending on
CorporateIntelligence.com decreased to 43.7% in the third quarter of 2000,
compared to 48.6% in the corresponding 1999 quarter. The improvement in margins
is a direct result of increased efficiency levels achieved in both newly
acquired and in existing businesses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the third
quarter of 2000 increased $0.4 million, or 26.6%, to $2.1 million from $1.7
million in the corresponding quarter in 1999, primarily as a result of the
amortization of intangible assets of businesses acquired in the last half of
fiscal 1999 and increased depreciation due to capital expenditures purchased in
fiscal 2000.
INTEREST INCOME (EXPENSE). Interest income (expense) increased to $2.4 million
from $0.2 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 September 30, 2000 is 42.1%, 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 44.5% in the prior year.
-8-
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
-------------------------------------------------
REVENUES. In the first nine months of 2000, the Company had revenues of $50.4
million compared to revenues of $39.9 million in the first nine months of 1999,
an increase of $10.5 million or 26.5%. The increase in revenues is primarily due
to an increase in Internet-based sales of patent information of approximately
$3.0 million at MicroPatent and an increase of $1.8 million in sales of patent
file histories at Optipat and Faxpat, businesses acquired in fiscal 1999.
Revenues at Master Data Center, which was acquired in August 1999, increased
$6.3 million, reflective of a full nine months of revenue for the period ended
September 30, 2000. These increases were partially offset by a decline of $0.8
million in international book sales at CRC Press. The Company previously
terminated an international distribution agreement in January 2000, and was
contractually restricted from selling many of its scientific information
products internationally for a 45-day period. International book sales increased
from previous quarter levels and further improvements are expected to continue
in the fourth quarter of 2000.
COST OF SALES. Cost of sales increased $3.6 million or 34.3% to $14.2 million in
the nine months of 2000 compared to $10.6 million in the corresponding period in
1999. Cost of sales expressed as a percentage of revenues in the first nine
months of 2000 increased to 28.2% from 26.6% for the corresponding period of
1999. The increase in the cost of sales percentage over the comparable period in
1999 is primarily attributable to the acquisition of MDC, which has historically
lower gross margins than the Company's other existing units. Gross margins for
the intellectual property businesses including MDC continued to improve over
previous periods as a result of the successful integration of acquired
businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$3.9 million or 18.7% in the first nine months of 2000, to $24.8 million from
$20.9 million for the first nine months of 1999. Increased S,G&A expenses relate
primarily to operating expenses of businesses acquired in the third quarter of
1999 and development spending on CorporateIntelligence.com, partly offset by a
decline in selling costs and improved efficiency levels in marketing and
production at CRC Press. S,G&A expenses as a percentage of revenues excluding
development spending on CorporateIntelligence.com decreased to 42.9% in the
first nine months of 2000, compared with 52.4% in the corresponding 1999 period.
The improvement in margins is a direct result of increased efficiency levels
achieved in both newly acquired and in existing businesses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first nine
months of 2000 increased $2.8 million, or 75.6%, to $6.5 million from $3.7
million in the corresponding period in 1999, primarily as a result of the
amortization of intangible assets of businesses acquired in the last half of
fiscal 1999.
INTEREST INCOME (EXPENSE). Interest income (expense) increased to $5.0 million
from $1.3 million due primarily to interest earned on the proceeds from the
secondary public stock offering completed in March 2000.
-9-
<PAGE>
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
for the nine months ended September 30, 2000 is 42.3%, 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 41.1% in the prior year.
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 $155.0 million of net
proceeds. The proceeds from this offering will be used for the development and
marketing of the CorporateIntelligence.com website, to finance future
acquisitions, and for general corporate purposes. See Note J - SUBSEQUENT EVENT.
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
September 30, 2000, 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 September 30, 2000, the
Company was in compliance with all covenants.
Cash and cash equivalents including short-term investments totaled $162.3
million at September 30, 2000 compared to $7.6 million at December 31, 1999.
Excluding cash, cash equivalents, and short-term investments the Company had
working capital of $2.6 million at September 30, 2000 compared to a working
capital deficit of $(3.3) million at December 31, 1999. 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
September 30, 2000 are obligations related to patent annuity payments and
deferred subscription revenue of approximately $20.3 million.
Cash generated by operating activities was $7.4 million for the nine months
ended September 30, 2000, derived from net income of $5.7 million plus non-cash
charges of $7.7 million less an increase in operating assets, net of liabilities
of $6.0 million. This increase in net operating assets is primarily the result
of an increase in customer receivables resulting from strong third quarter sales
and the payment of expenses related to book publishing operations in
anticipation of fourth quarter sales.
-10-
<PAGE>
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cash used in investing activities was $16.2 million for the nine months ended
September 30, 2000 due to capital expenditures, including pre-publication costs
of $4.2 million and acquisition costs of $5.1 million. Excluding acquisitions of
businesses and titles, the Company's existing operations are not capital
intensive. Capital expenditures for fiscal 2000 include approximately $1.1
million of non-recurring purchases of new computer equipment necessary to
facilitate the Company's increased Internet capacity. Additionally, the Company
invested $6.9 million in a short-term investment in commercial paper, which is
scheduled to mature in January 2001.
Cash generated from financing activities was $156.6 million for the nine months
ended September 30, 2000, and primarily related to net cash proceeds received
from the issuance of common stock as a result of the Company's secondary common
stock offering of 4,500,000 shares at a price of $36.50 per share. See Note E -
SECONDARY OFFERING. The Company has no outstanding debt obligations as of
September 30, 2000 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 2000, the Company expects to incur expenditures
aggregating $6.0 million in connection with the rollout of
CorporateIntelligence.com. Actual expenditures may vary depending on the timing
of the commercial rollout, the development and integration of the databases, the
hiring of additional technical staff and market acceptance of this web site, as
well as other factors. As of September 30, 2000 the Company has incurred $3.3
million of costs related to CorporateIntelligence.com. 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 historical publication schedules. In 1999, 32% of the Company's
revenues were generated during the fourth quarter with the first, second and
third quarters accounting for 21%, 22% and 25% of revenues, respectively. In
addition, the Company may experience fluctuation 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.
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<PAGE>
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 1999
Annual Report on Form 10-K.
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 September 30, 2000, 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. At September 30, 2000, the Company had entered into
forward contracts, all having maturities of less than three months, to acquire
various international currencies, aggregating $9,571,000. Realized gains and
losses relating to the forward contracts were immaterial for the three and nine
months ended September 30, 2000.
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<PAGE>
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:
<TABLE>
<S> <C>
Commission file number of registration statement: 333-30202
Effective Date: March 14, 2000
Expenses incurred through September 30, 2000:
Underwriting discounts $ 8,595,000
Other expenses $ 655,000
Total expenses $ 9,250,000
Application of proceeds through September 30, 2000:
Acquisitions of businesses and titles $ 5,095,250
Temporary investments (US Treasury Bills) $ 149,904,750
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three
months ended September 30, 2000.
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<PAGE>
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: NOVEMBER 14, 2000 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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