-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P1F5chaijKra8SrW3QiK4xHfPBcIkUG6hIF1k71KeCfGrYY99FZESCRj7GmpFW4I j/9oHXj60rwS/QaYmZFoxA== 0000912057-01-539557.txt : 20020410 0000912057-01-539557.hdr.sgml : 20020410 ACCESSION NUMBER: 0000912057-01-539557 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION HOLDINGS INC CENTRAL INDEX KEY: 0001063744 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 061518007 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14371 FILM NUMBER: 1787610 BUSINESS ADDRESS: STREET 1: 2777 SUMMER STREET STREET 2: SUITE 209 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2034665055 MAIL ADDRESS: STREET 1: 2777 SUMMER STREET STREET 2: SUITE 209 CITY: STAMFORD STATE: CT ZIP: 06905 10-Q 1 a2063684z10-q.txt 10-Q ================================================================================ 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, 2001 ------------------ 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, 2001, there were 21,757,135 shares of the Company's common stock, par value $0.01 per share outstanding. ================================================================================ INFORMATION HOLDINGS INC. ------------------------- INDEX ----- PAGE NUMBER ----------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets 1 As of September 30, 2001 (Unaudited) and December 31, 2000 Consolidated Statements of Operations (Unaudited) for the 2 Three Months Ended September 30, 2001 and 2000 and Nine Months Ended September 30, 2001 and 2000 Consolidated Statements of Cash Flows (Unaudited) for the 3 Nine Months Ended September 30, 2001 and 2000 Notes to Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition 10 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 14 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 INFORMATION HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2001 2000 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 61,268 $ 96,375 Short-term investments 11,829 11,731 Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS OF $3,598 AND $3,575, RESPECTIVELY) 28,049 23,378 Inventories 7,706 6,472 Prepaid expenses and other current assets 5,539 3,649 Income tax receivable 3,859 492 Deferred income taxes 2,489 2,489 -------- -------- Total current assets 120,739 144,586 Property and equipment, net 7,355 5,802 Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $5,140 AND $5,234, RESPECTIVELY) 5,306 4,188 Publishing rights and other identified intangible assets, net 110,752 91,342 Goodwill (NET OF ACCUMULATED AMORTIZATION OF $5,052 AND $1,622, RESPECTIVELY) 73,283 61,272 Other assets 8,248 3,806 -------- -------- TOTAL $325,683 $310,996 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of capitalized lease obligations $ 343 $ 308 Accounts payable 19,196 20,156 Accrued expenses 6,555 5,089 Royalties payable 1,056 1,204 Deferred subscription revenue 11,098 10,429 -------- -------- Total current liabilities 38,248 37,186 Capital leases 1,844 2,107 Deferred income taxes 19,471 14,057 Other long-term liabilities 638 1,372 -------- -------- Total liabilities 60,201 54,722 -------- -------- 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 21,757,135 shares at September 30, 2001 and 21,611,970 shares at December 31, 2000 218 216 Additional paid-in capital 245,894 243,075 Retained earnings 19,359 12,983 Accumulated other comprehensive income 11 -- -------- -------- Total stockholders' equity 265,482 256,274 -------- -------- TOTAL $325,683 $310,996 ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. -1- INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 2001 2000 2001 2000 Revenues $ 26,427 $ 18,151 $ 75,985 $ 50,421 Cost of sales 6,998 5,073 18,540 14,224 --------- ---------- ---------- ---------- Gross profit 19,429 13,078 57,445 36,197 --------- ---------- ---------- ---------- Operating expenses: Selling, general and administrative 12,754 10,009 36,310 24,792 Depreciation and amortization 4,768 2,131 13,366 6,568 --------- ---------- ---------- ---------- Total operating expenses 17,522 12,140 49,676 31,360 --------- ---------- ---------- ---------- Income from operations 1,907 938 7,769 4,837 --------- ---------- ---------- ---------- Other income (expense): Interest income 813 2,598 3,515 5,455 Interest expense (135) (143) (407) (430) Other income 3 - - 3 --------- ---------- ---------- ---------- Income before income taxes 2,588 3,393 10,877 9,865 Provision for income taxes 1,120 1,427 4,501 4,173 --------- ---------- ---------- ---------- Net income $ 1,468 $ 1,966 $ 6,376 $ 5,692 ========= ========== ========== ========== Basic and diluted earnings per common share amounts: Net income $ 0.07 $ 0.09 $ 0.29 $ 0.28 ========= ========== ========== ==========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. -2- INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 2001 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,376 $ 5,692 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,389 1,530 Amortization of goodwill and other intangibles 10,977 5,038 Amortization of pre-publication costs 2,124 1,701 Deferred income taxes (808) (626) Gain on disposal of property and equipment -- (3) Other 104 107 Changes in operating assets and liabilities: Accounts receivable, net (1,451) (2,850) Inventories (358) (885) Prepaid expenses and other current assets (1,065) (1,347) Accounts payable and accrued expenses (6,653) 1,071 Income tax benefit from stock options exercised 830 -- Income taxes (2,995) -- Deferred subscription revenue (2,273) (1,054) Other, net (1,316) (943) --------- --------- Net Cash Provided by Operating Activities 5,881 7,431 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of businesses and titles (36,881) (5,095) Purchases of property and equipment (3,287) (2,345) Pre-publication costs (2,490) (1,855) Purchases of short-term investments (98) (6,875) Proceeds from disposal of property and equipment 5 14 --------- --------- Net Cash Used in Investing Activities (42,751) (16,156) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock in public offering, net -- 155,000 Common stock issued from stock options exercised 1,991 1,820 Principal payments on capital leases (228) (210) --------- --------- Net Cash Provided by Financing Activities 1,763 156,610 --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (35,107) 147,885 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 96,375 7,551 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 61,268 $ 155,436 ========= =========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. -3- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. BASIS OF PRESENTATION The consolidated balance sheet of Information Holdings Inc. (IHI, or the Company) at December 31, 2000 has been derived from IHI's Annual Report on Form 10-K for the year then ended. All other consolidated financial statements contained herein have been prepared by IHI and are unaudited. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2000 and the notes thereto contained in IHI's Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of IHI as of September 30, 2001, and the consolidated results of operations and cash flows for the periods presented herein. Results for the three and nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full fiscal year. B. INVENTORIES Inventories, consisting primarily of finished goods, are stated at the lower of cost (first-in, first-out method) or market. The vast majority of inventories are books, which are reviewed periodically on a title-by-title basis for salability. The cost of inventory determined to be impaired is charged to income in the period of determination. C. PRE-PUBLICATION COSTS Certain expenses related to books, primarily comprised of design and other pre-production costs, are deferred and charged to expense over the estimated product life. These costs are primarily amortized over a four-year period following release of the applicable book, using an accelerated amortization method. During 2001 and 2000, the Company removed from its Balance Sheets fully amortized Pre-publication costs with a cost of approximately $2,218,000 and $3,554,000, respectively. D. INVESTMENT IN UNCONSOLIDATED AFFILIATE On May 3, 2001, the Company completed the acquisition of a 49% interest in GSI Office Management GmbH (GSI) for cash consideration of approximately $3,400,000, with an option to acquire the remaining 51% interest after three years. GSI, based in Germany, is a leading provider of intellectual property management software. At September 30, 2001, the investment in GSI was included in the Consolidated Balance Sheet caption Other Assets. -4- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) E. EARNINGS PER SHARE DATA The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 2001 2000 Basic: Net income $ 1,468 $ 1,966 $ 6,376 $ 5,692 Average common shares outstanding 21,739 21,593 21,662 20,239 ----------- ----------- ----------- ----------- Basic EPS $ 0.07 $ 0.09 $ 0.29 $ 0.28 =========== =========== =========== =========== Diluted: Net income $ 1,468 $ 1,966 $ 6,376 $ 5,692 =========== =========== =========== =========== Average common shares outstanding 21,739 21,593 21,662 20,239 Net effect of dilutive stock options - based on the treasury stock method 114 279 119 260 ----------- ----------- ----------- ----------- Total 21,853 21,872 21,781 20,499 =========== =========== =========== =========== Diluted EPS $ 0.07 $ 0.09 $ 0.29 $ 0.28 =========== =========== =========== ===========
During the first nine months of 2001, employees exercised stock options to acquire 145,165 shares at an exercise price of between $12.00 and $27.81 per share. F. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, BUSINESS COMBINATIONS and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 prohibits the use of the pooling-of-interest method of business combinations initiated after June 30, 2001. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The Company is required to adopt SFAS No. 142 on January 1, 2002. The adoption of SFAS No. 141 did not have a material effect on the Company's consolidated financial position or results of operations. The Company is currently evaluating SFAS No. 142 to determine the impact, if any of adoption on the Company's financial position. In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company is currently evaluating SFAS No. 144 to determine the impact, if any of adoption on the Company's financial position. -5- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) G. ACQUISITIONS On May 15, 2001, the Company acquired the stock of Parthenon Publishing Group (Parthenon), for cash consideration of approximately $8,000,000. Parthenon, based in the United Kingdom, is a leading provider of medical and environmental reference products. Parthenon produces a wide range of books, journals and electronic products covering environmental topics and 35 medical subject areas. The purchase price was preliminarily allocated to net tangible assets of $120,000, publishing rights and other identified intangible assets of $5,480,000, goodwill of $2,000,000 and non-compete agreements of $400,000. On March 29, 2001, the Company acquired the IDRAC business of IMS Health for potential cash consideration of $10,500,000, including an initial payment of approximately $5,500,000 in cash and a contingent payment of $5,000,000 based on the future results of IDRAC. In a separate transaction, the Company also entered into multiple perpetual agreements with IMS Health and certain affiliates for aggregate cash consideration of approximately $17,000,000. IDRAC, based in France, is a leading provider to pharmaceutical companies worldwide of regulatory and intellectual property information related to pharmaceutical product registrations. The purchase price was preliminarily allocated to net liabilities assumed of $2,974,000 publishing rights and other identified intangible assets of $15,000,000 and goodwill of $8,353,000. The Company also recorded goodwill and an offsetting deferred income tax liability as a result of the gross up of acquired intangible assets in the amount of $5,850,000. This goodwill is being amortized using the straight-line method over 15 years. On November 6, 2000, the Company acquired all of the assets of Transcender Corporation for cash consideration of approximately $60,000,000. Transcender develops content and related software distributed over the Internet and in other electronic media to information technology professionals seeking certification in numerous product areas and programming languages. The above acquisitions have been accounted for using the purchase method of accounting and, accordingly, the results of their operations have been included in the Company's results of operations from their respective date of acquisition. The following unaudited pro forma information presents the results of operations of the Company, as if the 2001 acquisition of IDRAC and the 2000 acquisition of Transcender had taken place in January 1, 2000, is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 2001 2000 Revenues $ 24,307 $ 77,841 $ 67,922 ================== ============== ============= Net (loss)income $ (340) $ 6,150 $ 322 ================== ============== ============= Basic (loss)earnings per common share $ (0.02) $ 0.28 $ 0.02 ================== ============== ============= Diluted (loss)earnings per common share $ (0.02) $ 0.28 $ 0.02 ================== ============== =============
-6- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) G. ACQUISITIONS (CONTINUED) These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the operating results that would have occurred had the acquisitions been consummated as of the above date, nor are they necessarily indicative of future operating results. H. SEGMENT INFORMATION The Company has three reportable segments: intellectual property (IP), scientific and technology information (STI) and information technology learning (ITL). The intellectual property segment, which includes MicroPatent, MDC, and IDRAC, provides a broad array of databases, information products and complementary services for intellectual property and regulatory professionals. The scientific and technology information segment is CRC Press, which publishes professional and academic books, journals, newsletters and electronic databases covering areas such as life sciences, environmental sciences, engineering, mathematics, physical sciences and business. The information technology-learning segment was created in the fourth quarter of fiscal 2000 as a result of the Company's strategic acquisition of Transcender. Transcender is a leading online provider of IT certification test-preparation products.
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ----------------------------------- -------------------------- SEGMENT SEGMENT IP STI ITL IP STI ---------- --------- ---------- ----------- ----------- (IN THOUSANDS) Revenues from external customers $10,619 $ 10,994 $ 4,814 $ 7,597 $ 10,554 EBITDA 3,962 2,384 2,002 1,653 2,752 Operating income 1,482 925 355 20 1,666 Segment assets 132,929 55,689 59,166 99,989 41,788 NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ----------------------------------- -------------------------- SEGMENT SEGMENT IP STI ITL IP STI ---------- --------- -------- ----------- ----------- (IN THOUSANDS) Revenues from external customers $29,293 $ 29,581 $17,111 $ 22,150 $ 28,271 EBITDA 10,657 6,588 8,502 7,238 7,465 Operating income 3,948 2,739 3,584 2,181 4,257 Segment assets 132,929 55,689 59,166 99,989 41,788
-7- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) H. SEGMENT INFORMATION (CONTINUED) A reconciliation of combined EBITDA for the intellectual property, scientific and technology information, and information technology learning segments to consolidated income before income taxes is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- (IN THOUSANDS) 2001 2000 2001 2000 Total EBITDA for reportable segments $ 8,348 $ 4,405 $ 25,747 $ 14,703 Corporate expenses (850) (745) (2,488) (1,594) Interest income, net 678 2,455 3,108 5,025 Depreciation and amortization (1) (2) (5,588) (2,722) (15,490) (8,269) ----------- ----------- --------- ---------- Income before income taxes $ 2,588 $ 3,393 $ 10,877 $ 9,865 =========== =========== ========== ===========
(1) Depreciation and amortization includes $820,000 and $591,000 of amortization of pre-publication costs, included in operations in cost of sales for each of the three month periods ended September 30, 2001 and 2000, respectively. (2) Depreciation and amortization includes $2,124,000 and $1,701,000 of amortization of pre-publication costs, included in operations in cost of sales for each of the nine month periods ended September 30, 2001 and 2000, respectively. I. COMPREHENSIVE INCOME The following table is a reconciliation of the Company's net income to comprehensive income:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- (IN THOUSANDS) 2001 2000 2001 2000 Net income $ 1,468 $ 1,966 $ 6,376 $ 5,692 Other comprehensive income, net of taxes of $49 and $4, respectively: Foreign currency translation adjustment 77 -- 7 -- ----------- ----------- ----------- ----------- Comprehensive income $ 1,545 $ 1,966 $ 6,383 $ 5,692 =========== =========== =========== ===========
-8- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) J. SUBSEQUENT EVENT On November 13, 2001, the Company entered into an agreement to acquire all of the outstanding common shares of Liquent, Inc. in a cash tender offer at $2.27 per share. Completion of the transaction is contingent on, among other things, IHI's receipt of greater than 50% of the shares of Liquent in the tender offer. The aggregate cash consideration for the acquisition of 100% of the common shares will approximate $43.5 million, excluding transaction fees. At September 30, 2001, Liquent had approximately $12.6 million of cash and cash equivalents and debt of approximately $0.4 million. In addition to the merger agreement, the Company entered into an agreement with certain stockholders representing approximately 47% of the common shares of Liquent to acquire those shares at the tender offer price of $2.27 per share. -9- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Three Months Ended September 30, 2001 Compared to THREE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES. In the third quarter of 2001, the Company had revenues of $26.4 million compared to revenues of $18.2 million in the third quarter of 2000, an increase of $8.2 million or 45.6%. The increase in revenues is due primarily to strong results associated with IT learning products, as a result of the acquisition of Transcender in November 2000. Revenues also increased in the Company's intellectual property group based on strong internal growth in sales of patent information and patent annuity payment services, and revenues of IDRAC, which was acquired in March 2001. Revenues also increased in the Company's scientific and technology information group resulting from the acquisition of Parthenon in May 2001, offsetting lower domestic sales following the terrorist attacks. COST OF SALES. Cost of sales increased $2.0 million or 37.9% to $7.0 million in the third quarter of 2001 compared to $5.0 million in the corresponding quarter in 2000. Cost of sales expressed as a percentage of revenues in the third quarter of 2001 decreased to 26.5% from 27.9% for the corresponding quarter of 2000. The improvement in gross profit margins over the comparable period in 2000 is primarily attributable to the acquisitions of Transcender and IDRAC, which have higher gross margins than the other existing units, offset by higher costs at CRC Press and MicroPatent primarily related to product mix at both, and book publishing operations at CRC Press. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased $2.7 million or 27.4% in the third quarter of 2001, to $12.7 million from $10.0 million in the third quarter of 2000. Increased S,G&A expenses relate primarily to operating expenses of Transcender, IDRAC, and Parthenon which were acquired in November 2000, March 2001, and May 2001, respectively. S,G&A expenses as a percentage of revenues decreased to 48.3% in the third quarter of 2001, compared to 55.1% in the corresponding 2000 quarter. The improvement in margins is a direct result of a reduction in development spending in the LPS group over prior year levels. DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the third quarter of 2001 increased $2.7 million, or 123.7%, to $4.8 million from $2.1 million in the corresponding quarter in 2000, primarily as a result of the amortization of intangible assets related to the acquisitions of Transcender, IDRAC, and Parthenon. INTEREST INCOME (EXPENSE). Net interest income (expense) decreased to $0.7 million from $2.4 million due primarily to lower interest earned, resulting from cash used from our secondary public stock offering to acquire businesses over the last four quarters. Additionally, the average interest rate earned decreased from 6.2% in the third quarter of 2000, to 3.6% in the corresponding 2001 quarter. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the three months ended September 30, 2001 is 43.3%, which differed from the statutory rate primarily as a result of state and local income taxes and non-deductible amortization in excess of the purchase price over net assets acquired. This compares with an effective tax rate of 42.1% in the prior year. In the third quarter of fiscal 2001 the Company was also subject to foreign taxes, which were immaterial in the period. -10- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Nine Months Ended September 30, 2001 Compared to NINE MONTHS ENDED SEPTEMBER 30, 2000 REVENUES. In the first nine months of 2001, the Company had revenues of $76.0 million compared to revenues of $50.4 million in the first nine months of 2000, an increase of $25.6 million or 50.7%. The increase in revenues is due primarily to strong results associated with IT learning products, as a result of the acquisition of Transcender in November 2000. Revenues also increased in the Company's intellectual property group based on strong internal growth in sales of patent information and patent annuity payment services, and revenues of IDRAC, which was acquired in March 2001. Revenues also increased in the Company's scientific and technology information group resulting from the acquisition of Parthenon in May 2001, as well as strong results in international book sales, offsetting lower domestic sales partly caused by the terrorist attacks. COST OF SALES. Cost of sales increased $4.3 million or 30.3% to $18.5 million in the first nine months of 2001 compared to $14.2 million in the corresponding period in 2000. Cost of sales, expressed as a percentage of revenues in the first nine months of 2001, decreased to 24.4% from 28.2% for the corresponding period of 2000. The improvement in gross profit margins over the comparable period in 2000 is primarily attributable to the acquisitions of Transcender and IDRAC, which have higher gross margins than the other existing units, offset by higher costs at CRC Press primarily related to product mix and book publishing operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased $11.5 million or 46.5% in the first nine months of 2001, to $36.3 million from $24.8 million for the first nine months of 2000. Increased S,G&A expenses relate primarily to operating expenses of Transcender, IDRAC and Parthenon, which were acquired in November 2000, March 2001 and May 2001, respectively. S,G&A expenses as a percentage of revenues decreased to 47.8% in the first nine months of 2001 compared with 49.2% in the corresponding 2000 period. The improvement in margins is a direct result of a reduction in development spending in the LPS group over prior year levels. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first nine months of 2001 increased $6.8 million, or 103.5%, to $13.3 million from $6.5 million in the corresponding period in 2000, primarily as a result of the amortization of intangible assets related to the acquisitions of Transcender and IDRAC and increased depreciation related to capital expenditures in fiscal 2001. INTEREST INCOME (EXPENSE). Net interest income (expense) decreased to $3.1 million from $5.0 million due primarily to lower interest earned, resulting from cash used from our secondary public stock offering to acquire businesses over the last four quarters. Additionally, the average interest rate earned decreased from 5.7% in 2000 to 4.6% in 2001. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the nine months ended September 30, 2001 is 41.4%, which differed from the statutory rate primarily as a result of state and local income taxes and non-deductible amortization in excess of the purchase price over net assets acquired. This compares with an effective tax rate of 42.3% in the prior year. In the first nine months of fiscal 2001 the Company was also subject to foreign taxes, which were immaterial in the period. -11- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) LIQUIDITY AND CAPITAL RESOURCES: In the first quarter of 2000, the Company sold 4,500,000 shares of its common stock in a public offering and received approximately $155 million of net proceeds. As of September 30, 2001, proceeds of approximately $100 million have been used from this offering to fund several strategic acquisitions in the Company's information and publishing businesses. See Note G - ACQUISITIONS. The remaining net proceeds are intended to be used to finance future acquisitions, see Note J - SUBSEQUENT Events and pending such uses, will be invested in short-term, investment grade securities. On September 24, 1999, the Company entered into a seven-year revolving credit facility in an amount not to exceed $50,000,000 initially, including a $10,000,000 sub-limit for the issuance of standby letters of credit (the Credit Facility). The proceeds from the Credit Facility are to be used to fund acquisitions, to meet short-term working capital needs and for general corporate purposes. Borrowings under the Credit Facility bear interest at either the higher of the bank's prime rate and one-half of 1% in excess of the overnight federal funds rate plus a margin of 0.50% to 1.25% or the Eurodollar Rate plus a margin of 1.5% to 2.25%, depending on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. The Company also pays a commitment fee of 0.375% on the unused portion of the Credit Facility. As of and for the period ended September 30, 2001, the Company had no outstanding borrowings under the Credit Facility. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios related to fixed charge coverage, leverage and interest coverage, in addition to certain other covenants. As of September 30, 2001, the Company was in compliance with all covenants. Cash and cash equivalents, including short-term investments totaled $73.1 million at September 30, 2001 compared to $108.1 million at December 31, 2000. Excluding cash, cash equivalents, and short-term investments, the Company had working capital of $9.4 million at September 30, 2001 compared to working capital deficit of $(0.7) million at December 31, 2000. Since the Company receives patent annuity payments and subscription payments in advance, the Company's existing operations are expected to maintain low or negative working capital balances, excluding cash. Included in current liabilities at September 30, 2001 are obligations related to patent annuity payments and deferred subscription revenue of approximately $25.7 million. Cash generated from operating activities was $5.9 million for the nine months ended September 30, 2001, derived from net income of $6.4 million plus non-cash charges of $14.8 million minus a decrease in operating liabilities and increase in operating assets of $15.3 million. The decrease in operating liabilities and increase in operating assets is primarily due to the operations of businesses acquired in fiscal 2001, the payments of expenses related to book publishing operations and income tax liabilities and the timing of deferred subscription revenue and patent annuity billings and payments. -12- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Cash used in investing activities was $42.8 million for the nine months ended September 30, 2001 due to acquisition costs for businesses and titles of $36.9 million and capital expenditures, including pre-publication costs, of $5.8 million. Excluding acquisitions of businesses and titles, the Company's existing operations are not capital intensive. Cash generated from financing activities was $1.8 million for the nine months ended September 30, 2001, primarily due to net cash proceeds received from the issuance of common stock from stock option exercises. The Company has no outstanding debt obligations as of September 30, 2001 related to the Credit Facility. The Company believes that funds generated from operations, together with cash on hand and borrowings available under its Credit Facility, will be sufficient to fund the cash requirements of its existing operations for the foreseeable future. The Company currently has no commitments for material capital expenditures. The Company may choose to obtain additional capital or financing to consummate future acquisitions. Future operating requirements and capital needs may be subject to economic conditions and other factors, many of which are beyond the Company's control. SEASONALITY The Company's business is somewhat seasonal, with revenues typically reaching slightly higher levels during the third and fourth quarters of each calendar year, based on publication schedules and other factors. In 2000, 31% of the Company's revenues were generated during the fourth quarter with the first, second and third quarters accounting for 22%, 22% and 25% of revenues, respectively. In addition, the Company may experience fluctuations in revenues from period to period based on the timing of acquisitions and new product launches. EFFECTS OF INFLATION The Company believes that inflation has not had a material impact on the results of operations presented herein. FORWARD-LOOKING STATEMENTS The information above contains forward-looking statements, including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, and intentions that are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements contained in this Form 10-Q should be read in conjunction with the Company's disclosures under the heading IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS contained in the Company's 2000 Annual Report on Form 10-K. -13- 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 September 30, 2001, the Company had no outstanding borrowings under the Credit Facility. The Company routinely enters into forward contracts to acquire various international currencies in an effort to hedge foreign currency transaction exposures of its operations. Such forward contracts have been designated as hedges for future annual payments to related international regulatory agencies. At September 30, 2001, the Company had entered into forward contracts to acquire various international currencies, all having maturities of less than five months, aggregating approximately $16,560,000. Realized gains and losses relating to the forward contracts were immaterial for the three and nine months ended September 30, 2001. The Company also enters into foreign currency transactions to hedge certain cash flow exposures related to IDRAC to the end of the year. Such forward contracts have been designated as hedges for future cash flow exposures on operations. At September 30, 2001, the Company had entered into forward contracts to acquire French francs, all having maturities of less than three months, aggregating approximately $1,122,000. Realized gains and losses relating to the forward contracts were immaterial for the three and nine months ended September 30, 2001. -14 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The following report relates to the Company's secondary public stock offering:
Commission file number of registration statement: 333-30202 Effective Date: March 14, 2000 Expenses incurred through September 30, 2001: Underwriting discounts $ 8,595,000 Other expenses $ 522,000 Total expenses $ 9,117,000 Application of proceeds through September 30, 2001: Acquisitions of businesses and titles $ 101,743,250 Temporary investments $ 53,256,750 (Commercial paper and money market funds)
ITEM 5. OTHER EVENTS On November 14, 2001, the Company announced that it has signed an agreement to acquire Liquent, Inc. for cash consideration of $2.27 per share, or an aggregate of approximately $43.5 million. The press release announcing the transaction is attached as Exhibit 99.1 and incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 99.1 Press release dated November 14, 2001, announcing an agreement to acquire Liquent, Inc. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the three months ended September 30, 2001. -15- 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, 2001 By: /s/ Vincent A. Chippari ---------------------- --------------------------------------------- Vincent A. Chippari Executive Vice President and Chief Financial Officer Signing on behalf of the registrant and as principal financial and accounting officer -16- EX-99.1 3 a2063684zex-99_1.txt EXHIBIT 99.1 Exhibit 99.1 [GRAPHIC OMITTED] INFORMATION HOLDINGS AGREES TO ACQUIRE LIQUENT, INC. IN A CASH TENDER OFFER AT $2.27 PER SHARE STAMFORD, CT, NOVEMBER 14, 2001 - Information Holdings Inc. (NYSE: IHI) today announced that it has signed an agreement to acquire Liquent, Inc. (NASDAQ: LQNT). IHI will commence a tender offer to acquire all outstanding shares of Liquent common stock for cash consideration of $2.27 per share. The transaction has been approved by the Board of Directors of both IHI and Liquent and shareholders representing 47% of Liquent's outstanding shares have agreed to tender their shares. Liquent (formerly ESPS) is a leading provider of application software and related services, primarily to the life sciences industry. Its products are used by leading pharmaceutical, biotechnology and contract research organizations to create new drug applications, reports, proposals and technical documentation. Liquent will become part of IHI's Intellectual Property (IP) Group. Liquent's services will be packaged with IHI's regulatory services (IDRAC) and IP databases (MicroPatent) over time to provide a unique total solution to life science organizations worldwide. Commenting on the announcement, Mason Slaine, IHI's President & CEO said, "Liquent has a well-established market position based on its powerful technologies and high value-added services. IHI's complementary strengths will enable the combined businesses to leverage content, customer relationships, technologies and product development in the important life sciences industry." Rick Dool, Liquent's President and CEO stated, "IHI's purchase represents a compelling opportunity for our shareholders and we are pleased to become an Information Holdings company. Our new ownership and the relationships with IHI's IDRAC and other IP businesses will enable us to provide even more value to our customers." IHI will commence the tender offer within two weeks. The completion of the tender offer is contingent on, among other things, IHI receiving greater than 50% of the Liquent shares. The transaction is expected to be completed during the first quarter of 2002. Wachovia Securities is acting as financial advisor to IHI in the transaction. ABOUT INFORMATION HOLDINGS INC. Information Holdings Inc. is a leading provider of information products and services to scientific, technical, medical, intellectual property and IT learning markets. Through its Intellectual Property Group, which includes MicroPatent(R), Master Data Center(TM), IDRAC(R) and LPS Group, the Company provides a broad array of databases, information products and complementary services for intellectual property and regulatory professionals. The Company is recognized as a leading provider of intellectual property information over the Internet. The Company's CRC Press(R) business 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 Company's Transcender(R) unit is a leading online provider of IT certification test-preparation products. Its products include exam simulations for certifications from major hardware and software providers. Information Holdings Inc. is listed on the New York Stock Exchange and trades under the symbol: IHI. This press release includes statements that may constitute forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations contained in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. This information may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, factors detailed in the Company's Securities and Exchange Commission filings. For further information, contact: Vincent A. Chippari Information Holdings Inc. 203-961-9208 vchippari@informationholdings.com -----END PRIVACY-ENHANCED MESSAGE-----