-----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, G/0l3myjnpiyScQq2ycv3hp8N3IdMHycG40nPT6c5NrwmX85u2vRwKQPt6pi+oZQ 5JuUEAKvJTWqJtDBnp/1ow== 0001047469-99-029404.txt : 19990809 0001047469-99-029404.hdr.sgml : 19990809 ACCESSION NUMBER: 0001047469-99-029404 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990802 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: SEC FILE NUMBER: 001-14371 FILM NUMBER: 99676061 BUSINESS ADDRESS: STREET 1: 2777 SUMMER STREET CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2034665055 MAIL ADDRESS: STREET 1: 2777 SUMMER STREET CITY: STAMFORD STATE: CT ZIP: 06905 10-Q 1 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: June 30, 1999 ------------- 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, 1999, there were 16,943,189 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 June 30, 1999 (Unaudited) and December 31, 1998 Consolidated Statements of Operations (Unaudited) for the 2 Three Months Ended June 30, 1999 and 1998 and Six Months Ended June 30, 1999 and 1998 Consolidated Statements of Cash Flows (Unaudited) for the 3 Six Months Ended June 30, 1999 and 1998 Notes to Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial Condition 7 and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12 Signature 13
INFORMATION HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30 DECEMBER 31 1999 1998 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 54,730 $ 57,270 Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS OF $307 AND $911, RESPECTIVELY) 7,117 9,286 Inventories 5,192 4,832 Prepaid expenses and other current assets 2,847 1,945 Deferred income taxes 777 777 ------------- ------------- Total current assets 70,663 74,110 Property and equipment, net 4,273 4,173 Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $2,065 AND $2,350, RESPECTIVELY) 3,202 3,474 Publishing rights and other intangible assets, net 23,565 21,601 Other assets 1,613 1,369 Deferred income taxes 64 64 ------------- ------------- TOTAL $ 103,380 $ 104,791 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of capitalized lease obligations $ 267 $ 261 Accounts payable 2,672 4,074 Accrued expenses 655 1,821 Royalties payable 1,963 1,935 Deferred subscription revenue 7,434 8,530 ------------- ------------- Total current liabilities 12,991 16,621 Capital leases 2,554 2,694 Other long-term liabilities 823 683 ------------- ------------- Total liabilities 16,368 19,998 ------------- ------------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued $ -- $ -- Common stock, $.01 par value; 50,000,000 shares authorized; 16,943,189 issued and outstanding 169 169 Additional paid-in capital 84,750 84,750 Retained earnings(deficit) 2,093 (126) ------------- ------------- Total stockholders' equity 87,012 84,793 ------------- ------------- TOTAL $ 103,380 $ 104,791 ------------- ------------- ------------- -------------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. -1- INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1999 1998 1999 1998 --------- ---------- ---------- ---------- Revenues $ 12,977 $ 10,345 $ 25,032 $ 21,073 Cost of sales 3,542 2,518 6,743 5,376 --------- ---------- ---------- ---------- Gross profit 9,435 7,827 18,289 15,697 --------- ---------- ---------- ---------- Operating expenses: Selling, general and administrative 7,100 6,347 13,682 12,319 Depreciation and amortization 1,056 1,293 2,058 2,571 --------- ---------- ---------- ---------- Total operating expenses 8,156 7,640 15,740 14,890 --------- ---------- ---------- ---------- Income from operations 1,279 187 2,549 807 --------- ---------- ---------- ---------- Other income (expense): Interest income 640 85 1,251 225 Interest expense (75) (54) (144) (157) Other expense (18) -- (18) -- ---------- ---------- ---------- ---------- Income before income taxes 1,826 218 3,638 875 Provision for income taxes 719 36 1,419 92 --------- ---------- ---------- ---------- Net income $ 1,107 $ 182 $ 2,219 $ 783 --------- ---------- ---------- ---------- --------- ---------- ---------- ---------- Net income per common share amounts: Basic earnings $ 0.07 $ 0.13 --------- ---------- --------- ---------- Diluted earnings $ 0.06 $ 0.13 --------- ---------- --------- ---------- Pro forma income data: Income before income taxes, as reported $ 218 $ 875 Pro forma income taxes 36 92 ---------- ---------- Pro forma net income $ 182 $ 783 ---------- ---------- ---------- ---------- Pro forma earnings per share $ 0.01 $ 0.05 ---------- ---------- ---------- ----------
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. -2- INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, --------------------------------- 1999 1998 ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,219 $ 783 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 755 549 Amortization of intangibles 1,303 2,022 Amortization of pre-publication costs 1,210 1,108 Loss on disposal of property and equipment 18 -- Changes in operating assets and liabilities: Accounts receivable, net 2,592 1,594 Inventories (361) (176) Prepaid expenses and other current assets (920) (1,063) Accounts payable and accrued expenses (2,952) (1,582) Royalties payable 28 (33) Deferred subscription revenue (1,096) (591) Other, net (176) (367) -------------- -------------- Net Cash Provided by Operating Activities 2,620 2,244 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 11 -- Purchases of property and equipment (719) (295) Pre-publication costs (779) (594) Acquisitions of businesses and titles (3,539) (160) -------------- --------------- Net Cash Used in Investing Activities (5,026) (1,049) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments under revolving credit facility -- (2,000) Net repayments under capital leases (134) (113) Capital contributions -- 11 ------------- -------------- Net Cash Used in Financing Activities (134) (2,102) -------------- -------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (2,540) (907) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,270 10,280 ------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54,730 $ 9,373 ------------- -------------- ------------- --------------
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, 1998 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, 1998 and the notes thereto contained in IHI's Annual Report on Form 10-K for the year then ended. The accompanying unaudited consolidated financial statements have been prepared in accordance with Article 10 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 financial position of IHI as of June 30, 1999, and the results of their operations and their cash flows for the periods presented herein. Results for the three and six months ended June 30, 1999 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, 1999 and December 31, 1998 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 1999, the Company removed from its Balance Sheet fully amortized Pre-publication costs with a cost of approximately $1,645,000. D. PURCHASE OF MASTER DATA CENTER As previously announced, the Company entered into an agreement in May, 1999 to acquire 100% of the stock of Master Data Center, Inc. (MDC) for cash consideration of approximately $33,000,000. MDC provides patent annuity payment services and complementary software products for managing patent and trademark portfolios. The transaction is expected to be completed during the third quarter of 1999. -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 Six Months Ended Ended ------------ ------------ June 30 June 30 (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1999 Basic: Net income $ 1,107 $ 2,219 Average shares outstanding 16,943 16,943 ------------ ------------ Basic EPS $ 0.07 $ 0.13 ------------ ------------ ------------ ------------ Diluted: Net income $ 1,107 $ 2,219 ------------ ------------ ------------ ------------ Average shares outstanding 16,943 16,943 Net effect of dilutive stock options - based on the treasury stock method 202 180 ------------ ------------ Total 17,145 17,123 ------------ ------------ ------------ ------------ Diluted EPS $ 0.06 $ 0.13 ------------ ------------ ------------ ------------
No historical earnings per share data are presented for the three months and six months ended June 30, 1998 as the Company does not consider such data meaningful. The pro forma earnings per share data presented were computed using 16,943,189 shares outstanding, which reflects all shares outstanding following the initial public offering, as if such shares were outstanding since January 1, 1998. F. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June of 1999, the Financial Accounting Standards Board (FASB) issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133. The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. The rule will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. In the opinion of the Company's management, adoption of this new accounting standard will not have any impact on the Company's consolidated financial position or results of operations. -5- INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) G. SUBSEQUENT EVENTS On July 19, 1999, the Company acquired all of the assets of Faxpat, Inc. (Faxpat) for cash consideration of approximately $9,300,000. Faxpat is a leading provider of patent documents and file histories to the legal and corporate markets. In July 1999, the Company signed a commitment letter to enter into a seven-year revolving credit facility in an amount not to exceed $50,000,000 initially, including a sublimit for the issuance of standby letters of credit (the Credit Facility). The Credit Facility may be increased to $75,000,000, subject to certain conditions. The proceeds from the Credit Facility are intended to be used to fund acquisitions, meet short-term working capital needs and for general corporate purposes, and to pay fees and expenses incurred in connection with the Credit Facility. 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 Credit Facility is secured by a first priority perfected pledge of all notes and capital stock owned and a first priority perfected security interest in all other assets, subject to certain exceptions owned by the Company and all direct and indirect operating subsidiaries and will be guaranteed by the Company and such subsidiaries. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios and meet other financial conditions. The Credit Facility also prohibits the Company from incurring certain additional indebtedness, limits certain investments, mergers or consolidations and restricts substantial asset sales, and dividends. Financing related to the bank Credit Facility is expected to be completed by August 31, 1999. -6- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 REVENUES. In the second quarter of 1999, the Company had revenues of $13.0 million compared to revenues of $10.3 million in the second quarter of 1998, an increase of $2.6 million or 25.4%. The increase in revenues is primarily due to an increase of $0.8 million in international book sales; an increase of $0.6 million in Internet sales of patent information; an increase of $0.5 million in CRC Press electronic product revenues; an increase of $0.5 million in domestic book sales; and an increase of $0.4 million in sales of patents and file histories related to Optipat, which was acquired in January 1999. COST OF SALES. Cost of sales increased $1.0 million or 40.7% to $3.5 million in the second quarter of 1999 compared to $2.5 million in the corresponding quarter in 1998. Cost of sales expressed as a percentage of revenues in the second quarter of 1999 increased to 27.3% from 24.3% for the corresponding quarter of 1998. The increase in the costs of sales over the comparable period in 1998 is primarily attributable to the acquisition of Optipat which has a higher cost structure than MicroPatent and higher costs at CRC Press primarily related to book publishing operations and investments in electronic products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased $0.8 million or 11.9% in the second quarter of 1999, to $7.1 million from $6.3 million in the second quarter of 1998, principally as a result of increased personnel costs at CRC Press, due to business growth, and operating expenses of Optipat. S,G&A expenses as a percentage of revenues decreased to 54.7% in the second quarter of 1999, compared to 61.4% in the corresponding 1998 quarter. DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the second quarter of 1999 decreased $0.2 million, or 18.3%, to $1.1 million from $1.3 million in the corresponding quarter in 1998, due primarily to decreased amortization of intangible assets. INTEREST INCOME. Interest income increased to $0.6 million from $0.1 million due primarily to interest earned on the proceeds from the initial public offering. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the three months ended June 30, 1999 is 39.4%. This compares with an effective tax rate of 16.5% in the prior year. The Company did not record a provision for Federal income taxes in the prior year period due to the use of net operating loss carry-forwards. -7- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 REVENUES. In the first six months of 1999, the Company had revenues of $25.0 million compared to revenues of $21.0 million in the first half of 1998, an increase of $4.0 million or 18.8%. The increase in revenues is primarily due to an increase of $1.3 million in international book sales; an increase of $1.1 million in Internet sales of patent information; an increase of $1.1 million in CRC Press electronic product revenues; and an increase of $1.0 million in sales of patents and file histories related to Optipat. All other revenues decreased $0.5 million due to several factors, including timing of product releases. COST OF SALES. Cost of sales increased $1.3 million or 25.4% to $6.7 million in the first half of 1999 compared to $5.4 million in the corresponding period in 1998. Cost of sales expressed as a percentage of revenues in the first six months of 1999 increased to 26.9% from 25.5% for the corresponding period of 1998. The slight increase in the costs of sales over the comparable period in 1998 is primarily attributable to the acquisition of Optipat which has a higher cost structure than MicroPatent and higher costs at CRC Press primarily related to book publishing operations and investments in electronic products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses increased $1.4 million or 11.1% in the first six months of 1999, to $13.7 million from $12.3 million for the first half of 1998, principally as a result of increased personnel at CRC Press and operating expenses of Optipat. S,G&A expenses as a percentage of revenues decreased to 54.7% in the first half of 1999, compared with 58.5% in the corresponding 1998 period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first half 1999 decreased $0.5 million, or 20.0%, to $2.1 million from $2.6 million in the corresponding period in 1998, due primarily to decreased amortization of intangible assets. INTEREST INCOME. Interest income increased to $1.3 million from $0.2 million due primarily to interest earned on the proceeds from the initial public offering. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the six months ended June 30, 1999 is 39.0%. This compares with an effective tax rate of 10.5% in the prior year. The Company did not record a provision for Federal income taxes in the prior year period due to the use of net operating loss carry-forwards. FINANCIAL CONDITION: Prior to August 1998, the financing requirements of the Company have been funded through cash generated by operating activities and capital contributions from the founding stockholders. In August 1998, the Company completed an initial public offering of its common stock to raise funds. In July 1999, the Company signed a commitment letter to enter into a seven-year revolving credit facility in an amount not to exceed $50,000,000, including a 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, meet short-term working capital needs and for general corporate purposes, and to pay fees and expenses incurred in connection with the Credit Facility. See Note G - SUBSEQUENT EVENTS. -8- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Cash and cash equivalents totaled $54.7 million at June 30, 1999 compared to $57.3 million at December 31, 1998. Excluding cash and cash equivalents, the Company had working capital of $2.9 million at June 30, 1999 compared to working capital of $0.2 million at December 31, 1998. Since the Company receives subscription payments in advance, the Company's existing operations are expected to maintain low or negative working capital balances, excluding cash. Deferred subscription revenues, a non-cash obligation included in current liabilities, totaled $7.4 million at June 30, 1999. Cash generated by operating activities was $2.6 million for the six months ended June 30, 1999, derived from net income of $2.2 million plus non-cash charges of $3.3 million less an increase in operating assets, net of liabilities of $2.9 million. This increase in operating assets and liabilities is primarily the result of payment of expenses related to book publishing operations and the payment of income tax liabilities, offset by collections of customer receivables. Cash used in investing activities was $5.0 million for the six months ended June 30, 1999 due to capital expenditures, including pre-publication costs, of $1.5 million and acquisition costs of $3.5 million. Excluding acquisitions of businesses and titles, the Company's existing operations are not capital intensive. Cash used in financing activities was $0.1 million for the six months ended June 30, 1999, related to payments on approximately $2.8 million of capitalized lease obligations. The Company currently has no additional debt obligations as of June 30, 1999. As noted above it is the Company's intention to enter into a Revolving Credit Facility agreement, to provide the Company with expanded capacity for future acquisitions and working capital needs as they arise. The Company believes that net cash provided by operations, together with cash on hand and other available sources of funds, will be sufficient to fund the cash requirements of its existing operations. Excluding acquisition activity, the Company does not expect to use the proceeds of the initial public offering to fund operations. The Company currently has no commitments for material capital expenditures. However, future operating requirements and capital needs may be subject to economic conditions and other factors, many of which are beyond the Company's control. The Company will continue to use the remaining net proceeds from the initial public offering for general corporate purposes including acquisitions. See Note D - PURCHASE OF MASTER DATA CENTER and Note G SUBSEQUENT EVENTS. Pending such uses, the remaining net proceeds will be invested in short-term, investment grade securities. -9- INFORMATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 1998, 30% of the Company's revenues were generated during the fourth quarter with the first, second and third quarters accounting for 23%, 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. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer systems that use two digits rather than four to define the applicable year, which may prevent such systems from accurately processing dates ending in the Year 2000 and after. This could result in system failures or in miscalculations causing disruption of operations, including, but not limited to, an inability to process transactions, to send and receive electronic data, or to engage in routine business activities and operations. The Company has completed its assessment of all currently used computer systems and is in the final stages of completing a plan of action to correct those areas that will be affected by the Year 2000 issue. Conversion of all critical data processing systems is virtually complete. The Company anticipates that the conversion of the remaining critical systems and all non-critical systems will be completed by the end of October 1999. Presently, the Company has completed the conversion of all environmental equipment, telephones, personal computer hardware and software outside of the Company's information systems. The Company expects the cost for all upgrades to be approximately $200,000; the cost incurred to date is $50,000. The estimate includes internal costs, but excludes the costs to upgrade and replace systems in the normal course of business. The Company's goal is to complete any upgrade requirements by the end of fiscal 1999, but does not expect that the cost for subsequent upgrades will be material to the Company's consolidated financial statements. Management's assessment of the risks associated with the Year 2000 project and the status of the Company's contingency plans are unchanged from that described in the 1998 annual report on Form 10-K. 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 1998 Annual Report on Form 10-K. -10- 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 None. -11- PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The following report relates to the Company's initial public offering: Commission file number of registration statement: 333-56665 Effective Date: August 6, 1998 Expenses incurred through June 30, 1999: Underwriting discounts $ 3,887,747 Other expenses $ 1,589,413 Total expenses $ 5,477,160 Application of proceeds through June 30, 1999: Acquisition of product lines $ 7,186,700 Temporary investments (US Treasury Bills) $ 44,004,412
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Company's Annual Meeting of Stockholders on April 27, 1999 a total of 16,277,413 shares, or 96%, of outstanding shares were represented and entitled to vote. (a) The following members were elected to the Board of Directors:
Total Vote For Total Vote Withheld Each Director From Each Director ------------- ------------------ Michael E. Danzinger 16,264,663 12,750 David R. Haas 16,267,813 9,600 Sidney Lapidus 16,267,663 9,750 David E. Libowitz 16,267,813 9,600 Mason P. Slaine 16,267,813 9,600
(b) The following proposal was approved: Ratification of Ernst & Young LLP as the independent auditors for the Company for the 1999 fiscal year. Affirmative Votes 13,806,799 Negative Votes 410 Abstain 2,470,204
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 10.1 Employment Agreement, dated May 17, 1999, between CRC Press LLC and Norman R. Snesil. 27.1 Financial Data Schedule (b) Reports on Form 8-K: 1 Current Report on Form 8-K dated May 19, 1999 (earliest event reported May 17, 1999), Item 5 was reported. The registrant announced that it had agreed to acquire all of the outstanding stock of Master Data Center, Inc., a Michigan corporation, for consideration of approximately $33,000,000. -12- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INFORMATION HOLDINGS INC. Date: August 2, 1999 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 EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of May 17, 1999, between CRC PRESS LLC, a Delaware limited liability company (the "Company"), and Norman R. Snesil (the "Executive"). R E C I T A L S: WHEREAS, the Company recognizes that the future growth, profitability and success of the Company's business will be substantially and materially enhanced by the employment of the Executive by the Company; WHEREAS, the Company desires to employ the Executive and the Executive has indicated his willingness to provide his services, on the terms and conditions set forth herein; NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. (a) DUTIES. The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to the terms and conditions contained herein, the Executive shall serve as President and Chief Executive Officer of the Company and, in such capacity, shall report to the Chairman and Board of Directors of the Company (the "Board of Directors") and shall have such duties as are typically performed by a President and Chief Executive Officer of a corporation, together with such additional duties, commensurate with the Executive's position as President and Chief Executive Officer of the Company, as may be assigned to the Executive from time to time by the Chairman or Board of Directors. (b) LOCATION. The principal location of the Executive's employment shall be in Boca Raton, Florida, or such other place that the Company and the Executive shall mutually deem appropriate. The Executive understands and agrees that he may be required to travel from time to time for business reasons. Section 2. TERM. Unless terminated pursuant to Section 6 hereof, the Executive's employment hereunder shall commence on the date hereof and shall continue during the period ending on the second anniversary of the date hereof (the "Employment Term"). Section 3. Compensation. (a) SALARY. As compensation for the performance of the Executive's services hereunder, the Company shall pay to the Executive a salary (the "Salary") of $225,000 per annum. The Salary shall be payable in accordance with the payroll practices of the Company as the same shall exist from time to time. In no event shall the Salary be decreased during the Employment Term. (b) BONUS PLAN. The Executive shall be eligible to receive an annual cash bonus in an amount up to 50% of the Salary ("Bonus"), based upon meeting objectives determined by the Chairman and the Board of Directors; PROVIDED, HOWEVER, that 50% of the Bonus for the first twelve months of the Employment Term shall be paid to the Executive in advance in equal installments in accordance with the payroll practices of the Company as the same shall exist from time to time over the course of the first twelve months of the Employment Term, provided that the Executive remains employed throughout such period (the "Advance Bonus"). The portion of the Bonus in excess of the Advance Bonus received by the Executive following each calendar year, if any, shall be paid after the Company's financial results for the relevant year are finally determined. (c) BENEFITS. In addition to the Salary and Bonus, the Executive shall be entitled to participate in health, insurance, pension, automobile and other benefits provided to other senior executives of the Company on terms no less favorable than those available to such other senior executives of the Company; PROVIDED HOWEVER, that the automobile benefit shall not exceed $1,000 per month. The Executive shall also be entitled to the same number of vacation days, holidays, sick days and other benefits as are generally allowed to other senior executives of businesses of comparable size and geography as the Company. (d) STOCK OPTIONS. The Executive shall receive, as of the date hereof, an option to acquire 50,000 shares of the common stock of the Company's parent (the "Option"). The exercise price of the Option shall be equal to the closing market price of the common stock of the Company's parent on the date of grant. The Option shall vest as to 16,666 shares on the first anniversary of the date of grant, as to an additional 16,667 shares on the second anniversary of the date of grant and as to the remaining 16,667 shares on the third anniversary of the date of grant. The Executive acknowledges and agrees that the grant of Option is conditioned upon the execution of the standard option agreement of the Company's parent (the "Option Agreement"). The Option shall be governed by (and shall be subject in all instances to) the Option Agreement. As set forth in the stock option plan of the Company's parent (the "Option Plan"), upon a Change of Control (as such term is defined in the Option Plan), all Option shares owned by the Executive shall vest and become immediately exercisable as of the date immediately preceding the date of such Change of Control. Section 4. EXCLUSIVITY. During the Employment Term, the Executive shall devote his full time to the business of the -2- Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him by the Chairman and Board of Directors in accordance with the terms of this Agreement, shall use his best efforts to promote and serve the interests of the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may (i) participate in the activities of professional trade organizations related to the business of the Company and (ii) engage in personal investing activities, PROVIDED that activities set forth in these clauses (i) and (ii), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder. Section 5. REIMBURSEMENT FOR EXPENSES. The Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, entertainment, lodging and similar items in accordance with the Company's expense reimbursement policy, as the same may be modified by the Board of Directors from time to time. The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of such expenditures in accordance with the financial policy of the Company, as in effect from time to time. Section 6. TERMINATION. (a) DEATH. This Agreement shall automatically terminate upon the death of the Executive, and upon such event, the Executive's estate shall be entitled to receive the amounts specified in Section 6(e) below as if termination had occurred without Cause (as defined below). (b) DISABILITY. If the Executive is unable to perform the duties required of him under this Agreement because of illness, incapacity, or physical or mental disability, this Agreement shall remain in full force and effect and the Company shall pay all compensation required to be paid to the Executive hereunder, unless the Executive is unable to perform the duties required of him under this Agreement for an aggregate of 180 days (whether or not consecutive) during any 12-month period during the term of this Agreement, in which event this Agreement (other than Sections 6(e), 7, 8, 9, 10, 11 and 12 hereof), including, but not limited to, the Company's obligations to pay any Salary or to provide any privileges under this Agreement, shall terminate at the end of the 180 days of complete disability. (c) CAUSE. The Company may terminate the Executive's employment during the Employment Term for "Cause" as that term is defined below. In the event of termination pursuant to this Section 6(c) for Cause, the Company shall deliver to the Executive written notice setting forth the basis for such termination, which notice shall set forth the nature of the Cause -3- which is the reason for such termination. Termination of the Executive's employment hereunder shall be effective upon delivery of such notice of termination. For purposes of this Agreement, "Cause" shall mean: (i) the Executive's failure (except where due to a disability contemplated by Section 6(b) hereof), neglect or refusal to perform the duties of his position hereunder which failure, neglect or refusal shall not have been corrected by the Executive within 30 days of receipt by the Executive of written notice from the Company of such failure, neglect or refusal, which notice shall set forth the nature of said failure, neglect or refusal; (ii) any willful or intentional act of the Executive that has the effect of injuring the business of the Company or its affiliates in any material respect; (iii) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board of Directors or (B) is the result of the Executive's illness, or incapacity (in which event the provisions of Section 6(b) hereof shall control); (iv) use of illegal drugs by the Executive or repeated drunkenness; (v) conviction of the Executive for the commission of a felony or (vi) the commission by the Executive of an act of fraud or embezzlement against the Company. (d) RESIGNATION. The Executive shall not have the right to terminate his employment at any time during the Employment Term. (e) PAYMENTS. In the event that the Executive's employment hereunder terminates for any reason, the Company shall pay to the Executive all amounts accrued but unpaid hereunder through the date of termination in respect of Salary, unused vacation or unreimbursed expenses. Notwithstanding the foregoing, the Executive shall not be entitled to receive any additional payments if he (i) is terminated for Cause, (ii) terminated by the Company pursuant to Section 6(f) hereof or (iii) resigns in violation of Section 6(d) hereof. In the event the Executive's employment hereunder is terminated by the Company without Cause (and without notice as provided in Section 6(f) hereof), in addition to the amounts specified in the foregoing sentence, (i) the Executive shall continue to receive the Salary (less any applicable withholding or similar taxes) at the rate in effect hereunder on the date of such termination periodically, in accordance with the Company's prevailing payroll practices, for the shorter (A) a period of eighteen (18) months following the date of such termination or (B) the remainder of the Employment Term (the "Severance Term") and (ii) the Executive (and/or his covered dependents) shall continue to receive any health or insurance benefits provided to him as of the date of such termination in accordance with Section 3(c) hereof during the Severance Term. Amounts owed by the Company in respect of the Salary or reimbursement for expenses under the provisions of Section 5 hereof shall, except as otherwise set forth in this Section 6(e), be paid promptly upon any termination. Upon any termination of the Executive's employment for any reason, all of the rights, privileges, duties and obligations of the Executive -4- hereunder shall cease, except for his rights under this Section 6(e) and his obligations under Sections 7, 8, 9, 10, 11 and 12 hereunder. (f) TERMINATION BY COMPANY NOTICE. On or after the the first anniversary of the date hereof, the Company may terminate the Executive without cause and for any reason, upon 180 days' written notice to the Executive. In the event of such termination by notice, the Executive shall be entitled to those payments provided for in the first sentence of Section 6(e) hereof. Section 7. NON-DISCLOSURE, NON-INTERFERENCE AND INVENTIONS. (a) NO COMPETING EMPLOYMENT. The Executive acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company's business and assets and by his current employment with the Company and its subsidiaries, the Executive has obtained and will obtain such knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company and to the Company's substantial detriment. Therefore, the Executive agrees that for the period commencing on the date of this Agreement and ending on the first anniversary of the termination of the Executive's employment hereunder (such period is hereinafter referred to as the "Restricted Period"), the Executive shall not participate or engage, directly or indirectly, for himself or on behalf of any person or entity, in any business activities which compete with the business of the Company; PROVIDED, HOWEVER, that the foregoing shall not preclude the Executive from owning less than 1% of the shares of a public company. (b) NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive, except in connection with the performance of his duties hereunder, shall not disclose to any person or entity or use, either during the Employment Term or at any time thereafter, any information not in the public domain or generally known in the industry, in any form, acquired by the Executive while employed by the Company or any predecessor to the Company's business or, if acquired following the Employment Term, such information which, to the Executive's knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company or any of its subsidiaries or affiliates, relating to the Company, its subsidiaries or affiliates. The Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, the Executive shall return to the Company the originals and all copies of any such information -5- provided to or acquired by the Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by the Executive during the course of his employment. (c) NO INTERFERENCE. During the Restricted Period, the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company or its subsidiaries, or otherwise directly interfere with the relationship of the Company or its subsidiaries with, any person who, to the knowledge of the Executive, is employed by or otherwise engaged to perform services for the Company or its subsidiaries (including, but not limited to, any independent sales representatives or organizations) or who is, or was within the then most recent twelve-month period, a customer or client, of the Company, its predecessors or any of its subsidiaries. The placement of any general classified or "help wanted" advertisements and/or general solicitations to the public at large shall not constitute a violation of this Section 7(c) unless the Executive's name is contained in such advertisements or solicitations. (d) INVENTIONS, ETC. The Executive hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, during his employment by the Company which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company, or which otherwise relate to or pertain to the business, functions or operations of the Company or which arise from the efforts of the Executive during the course of his employment for the Company. The Executive shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be necessary or required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any invention relating to the business of the Company and disclosed by the Executive within one year following the termination of his employment with the Company shall be deemed to fall within the provisions of this paragraph unless proved to have been first conceived and made following such termination. -6- Section 8. INJUNCTIVE RELIEF. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company or its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach of Section 7 hereof, restraining the Executive from engaging in activities prohibited by Section 7 hereof or such other relief as may be required specifically to enforce any of the covenants in Section 7 hereof. Section 9. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE. The Executive represents and warrants to the Company as follows: (a) This Agreement, upon execution and delivery by the Executive, will be duly executed and delivered by the Executive and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Executive enforceable against the Executive in accordance with its terms. (b) Neither the execution and delivery of this Agreement nor the performance of this Agreement in accordance with its terms and conditions by the Executive (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Executive. Without limiting the generality of the foregoing, the Executive is not a party to any non-competition, non-solicitation, no hire or similar agreement that restricts in any way the Executive's ability to engage in any business or to solicit or hire the employees of any person. The representations and warranties of the Executive contained in this Section 9 shall survive the execution, delivery and performance of this Agreement. Section 10. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the parties, including, but not limited to, the Executive's heirs and the personal representatives of the Executive's estate; PROVIDED, HOWEVER, that neither party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the Company shall have the unrestricted right to -7- assign this Agreement and to delegate all or any part of its obligations hereunder to any of its subsidiaries or affiliates, but in such event such assignee shall expressly assume all obligations of the Company hereunder and the Company shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. Nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement. Section 11. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; PROVIDED, HOWEVER, that any such waiver, alteration, amendment or modification is consented to on the Company's behalf by the Board of Directors. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver. Section 12. SEVERABILITY AND GOVERNING LAW. The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Section 13. NOTICES. (i) All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or certified mail, postage prepaid: (1) if to the Executive such address as the Executive may have furnished the Company in writing, (2) if to the Company, at c/o Information Holdings Inc., 2777 Summer Street, Stamford, Connecticut 06905, marked for the attention of the President and Chief Executive Officer, or at such other address as it may have furnished in writing to the Executive, or -8- (ii) Any notice so addressed shall be deemed to be given: if delivered by hand, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. Section 14. SECTION HEADINGS. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or provision hereof. Section 15. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding and agreement of the parties hereto regarding the employment of the Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement. Section 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. -9- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CRC PRESS LLC By: /s/Mason Slaine ------------------------------------ Mason Slaine Chairman By: /s/Norman R. Snesil ------------------------------------ Norman R. Snesil -10- EX-27.1 3 EX-27-1
5 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 54730 0 7424 307 5192 70663 6928 2655 103380 12991 2554 0 0 169 86843 103380 25032 25032 6743 6743 18 (405) 144 3638 1419 2219 0 0 0 2219 0.13 0.13
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