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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: June 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 June 30, 2000, there were 21,569,072 shares of the Company's
common stock, par value $0.01 per share outstanding.
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INFORMATION HOLDINGS INC.
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
As of June 30, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations (Unaudited) for the 2
Three Months Ended June 30, 2000 and 1999 and
Six Months Ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) for the 3
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
<PAGE>
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $166,499 $ 7,551
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $2,745 AND $2,621, RESPECTIVELY) 17,669 16,997
Inventories 5,748 5,078
Prepaid expenses and other current assets 2,817 2,173
Deferred income taxes 2,137 2,137
-------- --------
Total current assets 194,870 33,936
Property and equipment, net 4,705 4,377
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $4,043 AND
$3,249, RESPECTIVELY) 3,340 3,478
Publishing rights and other identified intangible assets, net 76,429 78,260
Goodwill (NET OF ACCUMULATED AMORTIZATION OF $746 AND
$320, RESPECTIVELY) 15,794 15,629
Other assets 5,963 2,978
-------- --------
TOTAL $301,101 $138,658
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 289 $ 279
Accounts payable 16,506 13,339
Accrued expenses 3,250 3,360
Accrued income taxes 1,155 2,119
Royalties payable 1,380 1,304
Deferred subscription revenue 9,274 9,280
-------- --------
Total current liabilities 31,854 29,681
Capital leases 2,265 2,415
Deferred income taxes 15,145 14,976
Other long-term liabilities 780 651
-------- --------
Total liabilities 50,044 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; 21,569,072 issued at June 30, 2000
and 16,953,550 at December 31, 1999 216 170
Additional paid-in capital 241,224 84,874
Retained earnings 9,617 5,891
-------- --------
Total stockholders' equity 251,057 90,935
-------- --------
TOTAL $301,101 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ----------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 16,180 $ 12,977 $ 32,270 $ 25,032
Cost of sales 4,581 3,542 9,151 6,743
-------- -------- -------- --------
Gross profit 11,599 9,435 23,119 18,289
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 7,887 7,100 14,783 13,682
Depreciation and amortization 2,247 1,056 4,437 2,058
-------- -------- -------- --------
Total operating expenses 10,134 8,156 19,220 15,740
-------- -------- -------- --------
Income from operations 1,465 1,279 3,889 2,549
-------- -------- -------- --------
Other income (expense):
Interest income 2,414 640 2,857 1,251
Interest expense (142) (75) (287) (144)
Other income (expense) 3 (18) 3 (18)
-------- -------- -------- --------
Income before income taxes 3,740 1,826 6,472 3,638
Provision for income taxes 1,569 719 2,746 1,419
-------- -------- -------- --------
Net income $ 2,171 $ 1,107 $ 3,726 $ 2,219
======== ======== ======== ========
Net income per common share amounts:
Basic earnings $ 0.10 $ 0.07 $ 0.19 $ 0.13
======== ======== ======== ========
Diluted earnings $ 0.10 $ 0.06 $ 0.19 $ 0.13
======== ======== ======== ========
</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>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,726 $ 2,219
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 939 755
Amortization of goodwill and other intangibles 3,498 1,303
Amortization of pre-publication costs 1,110 1,247
(Gain) loss on disposal of property and equipment (3) 18
Deferred income taxes (422) --
Other 71 --
Changes in operating assets and liabilities:
Accounts receivable, net (660) 2,592
Inventories (670) (361)
Prepaid expenses and other current assets (644) (920)
Accounts payable and accrued expenses 1,853 (2,952)
Royalties payable 76 28
Deferred subscription revenue (57) (1,096)
Other, net (948) (176)
--------- ---------
Net Cash Provided by Operating Activities 7,869 2,657
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 14 11
Purchases of property and equipment (1,244) (719)
Pre-publication costs (985) (816)
Acquisitions of businesses and titles (2,962) (3,539)
--------- ---------
Net Cash Used in Investing Activities (5,177) (5,063)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in public offering 155,000 --
Common stock issued from stock options exercised 1,396 --
Principal payments on capital leases (140) (134)
--------- ---------
Net Cash Provided by (Used in) Financing Activities 156,256 (134)
--------- ---------
NET INCREASE(DECREASE) IN CASH
AND CASH EQUIVALENTS 158,948 (2,540)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 7,551 57,270
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 166,499 $ 54,730
========= =========
</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. The financial statements should be read in conjunction with
the 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 June
30, 2000, and the consolidated results of their operations and their
cash flows for the periods presented herein. Results for the three and
six months ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full fiscal year.
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories at June 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.
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 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.
D. INVESTMENT IN TECHEX
On May 2, 2000, the Company formed an alliance with Intellectual
Property Technology Exchange, Inc. (TechEx) to jointly develop and
market products to address the online needs of the technology licensing
industry. As part of the alliance, the Company acquired a preferred
interest which is convertible into a 21.5% equity interest in TechEx
for cash consideration of approximately $2,000,000. TechEx is a leader
in intellectual property exchange for the biomedical industry.
-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.
F. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Basic:
Net income $ 2,171 $ 1,107 $ 3,726 $ 2,219
Average shares outstanding 21,542 16,943 19,555 16,943
----------- ----------- ----------- -----------
Basic EPS $ 0.10 $ 0.07 $ 0.19 $ 0.13
=========== =========== =========== ===========
Diluted:
Net income $ 2,171 $ 1,107 $ 3,726 $ 2,219
=========== =========== =========== ===========
Average shares outstanding 21,542 16,943 19,555 16,943
Net effect of dilutive stock options -
based on the treasury stock method 251 202 270 180
----------- ----------- ----------- -----------
Total 21,793 17,145 19,825 17,123
=========== =========== =========== ===========
Diluted EPS $ 0.10 $ 0.06 $ 0.19 $ 0.13
=========== =========== =========== ===========
</TABLE>
During the first half of 2000, employees exercised stock options to
acquire 115,522 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 six
months ended June 30, 1999, assuming consummation of the 1999
acquisitions of MDC and Faxpat as of January 1, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
------------- -----------
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1999
<S> <C> <C>
Revenues $ 16,154 $ 31,176
Net income 799 1,518
Basic earnings per common share $ 0.05 $ 0.09
============== =============
Diluted earnings per common share $ 0.05 $ 0.09
============== =============
</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
JUNE 30, 2000 JUNE 30, 1999
-------------------------- --------------------------
SEGMENT SEGMENT
IP STI IP STI
-------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers $ 7,308 $ 8,872 $ 2,824 $ 10,153
EBITDA 2,341 2,472 1,115 2,240
Operating income 599 1,353 595 1,136
Segment assets 97,384 40,205 8,125 41,883
</TABLE>
-6-
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
I. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
-------------------------- --------------------------
SEGMENT SEGMENT
IP STI IP STI
-------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues from external customers $ 14,553 $ 17,717 $ 5,509 $ 19,523
EBITDA 5,585 4,713 2,145 4,463
Operating income 2,161 2,591 1,118 2,205
Segment assets 97,384 40,205 8,125 41,883
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
(IN THOUSANDS) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Total EBITDA for reportable segments $ 4,813 $ 3,355 $ 10,298 $ 6,608
Corporate expenses (484) (451) (849) (772)
Interest income 2,272 565 2,570 1,107
Depreciation and amortization (1) (2) (2,861) (1,643) (5,547) (3,305)
----------- ----------- ---------- -----------
Income before income taxes $ 3,740 $ 1,826 $ 6,472 $ 3,638
=========== =========== ========== ===========
</TABLE>
(1) Depreciation and amortization includes $614,000 and $587,000 of
amortization of pre-publication costs, included in operations in
cost of sales for each of the three month periods ended June 30,
2000 and 1999, respectively.
(2) Depreciation and amortization includes $1,110,000 and $1,247,000
of amortization of pre-publication costs, included in operations
in cost of sales for each of the six month periods ended June 30,
2000 and 1999, respectively.
-7-
<PAGE>
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended June 30, 2000 Compared to
Three Months Ended June 30, 1999
--------------------------------------------
REVENUES. In the second quarter of 2000, the Company had revenues of $16.2
million compared to revenues of $13.0 million in the second quarter of 1999, an
increase of $3.2 million or 24.7%. The increase in revenues is primarily due to
an increase in Internet-based sales of patent information of approximately $1.1
million at MicroPatent and an increase of $0.9 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, amounted to $2.5 million
for the three months ended June 30, 2000. These increases were partially offset
by a decline of $0.9 million in overall book sales at CRC Press, primarily the
result of lower international book sales and the timing of new title releases.
The international sales decline relates to the termination of a distribution
agreement in the first quarter of fiscal 2000. International revenues while
lower than the prior year have increased 54.4% over first quarter levels and are
expected to continue to grow as the Company's use of its international sales
force and non-exclusive distributors expand.
COST OF SALES. Cost of sales increased $1.0 million or 29.3% to $4.5 million in
the second quarter of 2000 compared to $3.5 million in the corresponding quarter
in 1999. Cost of sales expressed as a percentage of revenues in the second
quarter of 2000 increased to 28.3% from 27.3% for the corresponding quarter of
1999. The slight increase in the costs of sales over the comparable period in
1999 is primarily attributable to the acquisition of MDC, which has a higher
cost structure than the other existing units.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$0.8 million or 11.1% in the second quarter of 2000, to $7.9 million from $7.1
million in the second quarter of 1999. Increased S,G&A expenses relate primarily
to operating expenses of businesses acquired in 1999 and development expenses of
CorporateIntelligence.com, partly offset by a decline in personnel costs and
improved efficiency levels in marketing and production at CRC Press. S,G&A
expenses as a percentage of revenues decreased to 48.7% in the second quarter of
2000, compared to 54.7% in the corresponding 1999 quarter.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the second
quarter of 2000 increased $1.2 million, or 112.8%, to $2.3 million from $1.1
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.
INTEREST INCOME (EXPENSE). Interest income (expense) increased to $2.3 million
from $0.6 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 June 30, 2000 is 42.0%, 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 39.4% 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)
Six Months Ended June 30, 2000 Compared to
Six Months Ended June 30, 1999
------------------------------------------
REVENUES. In the first six months of 2000, the Company had revenues of $32.3
million compared to revenues of $25.0 million in the first half of 1999, an
increase of $7.3 million or 28.9%. The increase in revenues is primarily due to
an increase in Internet-based sales of patent information of approximately $2.3
million at MicroPatent and an increase of $1.6 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, amounted to $4.9 million
for the six months ended June 30, 2000. These increases were partially offset by
a decline of $0.9 million in international book sales and $0.4 million of
electronic product revenue at CRC Press. The Company had 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. Second quarter international sales
increased from first quarter levels and further improvements are expected in the
second half of 2000.
COST OF SALES. Cost of sales increased $2.4 million or 35.7% to $9.1 million in
the first half of 2000 compared to $6.7 million in the corresponding period in
1999. Cost of sales expressed as a percentage of revenues in the first six
months of 2000 increased to 28.4% from 26.9% 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 lower gross
margins than the other existing units. Gross margins at CRC Press and
MicroPatent improved, due to product mix and the successful integration of
acquired businesses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased
$1.1 million or 8.0% in the first six months of 2000, to $14.8 million from
$13.7 million for the first half of 1999. Increased S,G&A expenses relate
primarily to operating expenses of businesses acquired in 1999 and development
expenses of 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 decreased to 45.8% in the first half
of 2000, compared with 54.7% in the corresponding 1999 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first half
of 2000 increased $2.4 million, or 115.6%, to $4.4 million from $2.0 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 $2.6 million
from $1.1 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 six months ended June 30, 2000 is 42.4%, 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 39.0% in the prior year.
-9-
<PAGE>
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 for 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. The Company does not have any agreements or
arrangements with respect to any prospective material acquisitions. Pending such
uses, the 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
June 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 June 30, 2000, the
Company was in compliance with all covenants.
Cash and cash equivalents totaled $166.5 million at June 30, 2000 compared to
$7.6 million at December 31, 1999. Excluding cash and cash equivalents, the
Company had working capital deficit of $(3.5) million at June 30, 2000 compared
to 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
June 30, 2000 are obligations related to patent annuity payments and deferred
subscription revenue of approximately $23.9 million.
Cash generated by operating activities was $7.9 million for the six months ended
June 30, 2000, derived from net income of $3.7 million plus non-cash charges of
$5.2 million less an increase in operating assets, net of liabilities of $1.0
million. This increase in net operating assets is primarily the result of an
increase in patent annuity payments offset by the payment of income tax
liabilities and the payment of expenses related to book publishing operations
and the development of the trademark databases.
Cash used in investing activities was $5.2 million for the six months ended June
30, 2000 due to capital expenditures, including pre-publication costs, of $2.2
million and acquisition costs of $3.0 million. Excluding acquisitions of
businesses and titles, the Company's existing operations are not capital
intensive.
-10-
<PAGE>
INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cash generated from financing activities was $156.3 million for the six months
ended June 30, 2000, and primarily related to net cash proceeds received from
the issuance of common stock as a result of the Company's secondary 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 June
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
ranging between $5.0 million and $10.0 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 June 30, 2000 the Company has incurred $1.2 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.
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.
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<PAGE>
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, 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 June 30, 2000, the Company had entered into
forward contracts, all having maturities of less than three months, to acquire
various international currencies, aggregating $7,854,000. Realized gains and
losses relating to the forward contracts were immaterial for the three and six
months ended June 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>
<CAPTION>
Commission file number of registration statement: 333-30202
Effective Date: March 14, 2000
<S> <C>
Expenses incurred through June 30, 2000:
Underwriting discounts $ 8,595,000
Other expenses $ 655,000
Total expenses $ 9,250,000
Application of proceeds through June 30, 2000:
Acquisitions of businesses and titles $ 2,962,250
Temporary investments (US Treasury Bills) $ 152,037,750
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders on April 25, 2000 a total of
19,068,770 shares, or 89%, of outstanding shares were represented and
entitled to vote.
(a) The following members were elected to the Board of Directors:
<TABLE>
<CAPTION>
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
<S> <C> <C>
Michael E. Danzinger 18,968,805 99,965
David R. Haas 18,968,805 99,965
Sidney Lapidus 18,962,995 105,775
David E. Libowitz 18,962,970 105,800
Mason P. Slaine 18,962,970 105,800
</TABLE>
(b) The following proposal was approved:
The amendment to the 1998 Stock Option Plan.
<TABLE>
<S> <C>
Affirmative Votes 16,426,285
Negative Votes 2,639,955
Abstain 2,530
</TABLE>
(c) The following proposal was approved:
Ratification of Ernst & Young LLP as the independent public accountants for
the Company for the 2000 fiscal year.
<TABLE>
<S> <C>
Affirmative Votes 19,064,180
Negative Votes 2,510
Abstain 2,080
</TABLE>
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
10.1 Employment Agreement, dated as of March 15, 2000 between
Information Ventures LLC and Mason Slaine
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 June 30, 2000.
-14-
<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.
<TABLE>
<S> <C> <C>
Date: August 11, 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
</TABLE>
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