10-K 1 b38202ose10-k.txt ONESOURCE INFORMATION SERVICES INC. 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-25849 ONESOURCE INFORMATION SERVICES, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-3204522 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification organization) No.)
300 BAKER AVENUE, CONCORD, MA 01742 (Address of principal executive offices, including zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 318-4300 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of class) ------------------------------ 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. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant, based on the closing price of the common stock on March 8, 2001 of $8.63, as reported on the NASDAQ National Market, was approximately $57,000,000. Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose. As of March 8, 2001, the registrant had 12,384,773 shares of common stock outstanding, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: OneSource Information Services, Inc. ("OneSource") intends to file its proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2000. Portions of the proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K. In addition, OneSource has filed a Registration Statement on Form S-1, File No. 333-73263. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business........................................... 3 Item 2. Properties......................................... 9 Item 3. Legal Proceedings.................................. 9 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 9 Item 6. Selected Consolidated Financial and Operating Data............................................. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12 Item 7A. Quantitative and Qualitative Disclosure About Market Risk...................................... 24 Item 8. Financial Statements and Supplementary Data........ 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 24 PART III Item 10. Directors and Executive Officers of the Registrant....................................... 24 Item 11. Executive Compensation............................. 24 Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 25 Item 13. Certain Relationships and Related Transactions..... 25 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 26 Signature Page.............................................. 28
3 PART I ITEM 1. BUSINESS Except for historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties. OneSource makes such forward-looking statements under the provision of the "Safe Harbor" section of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements should be considered in light of the factors described below in Item 7 under "Certain Factors that May Affect Future Results." Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Annual Report on Form 10-K, the words "anticipates," "believes," "expects," "intends," "future," "could," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. GENERAL OneSource provides Web-based business and financial information to professionals who need quick access to reliable corporate, industry, and market intelligence. Our Business Browser(SM) product line integrates comprehensive and up-to-date business and financial information on over one million public and private companies from more than 25 information providers and draws upon over 2,500 sources of content. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. Our customers access this information over the Internet using standard Web browsers at a fixed annual subscription price. OneSource has a relationship with Siebel Systems, Inc., a supplier of eBusiness application software, whereby Siebel Systems has authorized the integration of OneSource Business Browser content with Siebel's eBusiness Applications via the OneSource Applink(SM) application programming interface (API). Our products are designed to address information needs of leading professional and financial services firms, technology companies and other large organizations. Representative customers include Accenture, American Express, Boeing, British Telecom, Deloitte & Touche, Harvard Business School, KPMG Peat Marwick, MCI/Worldcom, Merrill Lynch, Oracle and SAP. On October 1, 1999, OneSource acquired Corporate Technology Information Services, Inc. ("Corporate Technology"), a Delaware corporation located in Woburn, Massachusetts. Corporate Technology is a provider of high technology company profiles with a focus on emerging private companies. At December 31, 2000, 869 organizations subscribed to our Web-based Business Browser product line, up from 583 at December 31, 1999. On average, our customers for Web-based products at December 31, 2000 had an annualized contract value of $67,200 per customer, compared to $66,500 per customer at December 31, 1999. The annualized value of Business Browser customer contracts was $58.3 million at December 31, 2000, having grown from $38.7 million at December 31, 1999. Of this $58.3 million, $43.2 million was attributable to those customers that were under contract at both December 31, 1999 and 2000. The renewal rate of the Business Browser product line for 2000 was 86% calculated on a dollar basis. For more information regarding annualized contract value, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Annualized Contract Value." OneSource was incorporated in Delaware in July 1993 under the name Datext Holding Corporation. Our principal executive offices are located at 300 Baker Avenue, Concord, Massachusetts, 01742 and our telephone number is (978) 318-4300. OneSource's common stock is traded on the NASDAQ National Market System under the symbol "ONES" and our web address is www.onesource.com. 3 4 PRODUCTS OneSource's Business Browser product line is designed to be a comprehensive and easy to use business and financial information resource for professionals who need quick access to reliable corporate, industry, and market intelligence. Business Browser products integrate over 2,500 sources of business information from more than 25 category-leading business and financial information providers. These sources include both textual information, such as news, trade press, SEC filings, executive biographies and analyst reports, and numeric information, such as company financial results, stock quotes and industry statistics. OneSource uses its proprietary KeyID technology to sort, prioritize, integrate and link information on over one million public and private companies worldwide. Our Business Browser product line is accessed through a standard Web browser that is already available and familiar to end-users. Because our products are accessed through standard Web technology, our customers require minimal installation and systems support and users have full access to the products at any time from anywhere via the Internet. OneSource focuses on the functional uses of the business and financial information it delivers. The Business Browser product line has been designed for use not only by traditional users of business information, but also throughout an organization, including sales, marketing, finance, and management professionals. We apply our knowledge of how business professionals use information to transform raw, disparate data into meaningful, actionable information. We focus on integrating and presenting information so that interpretation, manipulation and analysis can be performed more easily by the end user. Because the interface is derived from the inquiries of professionals, users require minimal training to become productive quickly. OneSource's pricing strategy is designed to be particularly attractive to large organizations. The Business Browser product line is available at a fixed annual subscription price that declines on a per-user basis as the total number of users increases for that customer. The fixed-price model encourages professionals to use the products as needed without concern for additional charges, and a declining marginal price per user encourages customers to distribute our products widely throughout their organizations. The Business Browser product line includes: US BUSINESS BROWSER. Released in December 1996, US Business Browser is focused specifically on the US and Canada. It contains a subset of business and financial information from the Global Business Browser product. It covers over 250,000 public and private companies in the US and Canada. UK BUSINESS BROWSER. Released in September 1997, UK Business Browser is a comprehensive source of information on over 350,000 public and private companies in the UK. GLOBAL BUSINESS BROWSER. Because business professionals need a global perspective to complement deep coverage of local markets, Global Business Browser is available in two editions. Released in December 1997, Global Business Browser, US Edition is a single, integrated resource that delivers comprehensive information on over 350,000 North American and global companies. Global Business Browser, European Edition, released in December 1999, is an integrated resource including both European and global content with over 350,000 companies profiled. EUROPEAN BUSINESS BROWSER. Released in January 1999, European Business Browser provides users with a comprehensive database on 300,000 public and private companies across Europe, including 50,000 UK companies. An important source of data for the European Business Browser is Dun & Bradstreet, a leading business information source. Business Browser delivers information in an integrated format. This allows customers to obtain different types of information from multiple sources in a single report. Business Browser products organize data around business applications and transform raw, disparate data into meaningful, actionable information, delivered according to the characteristics users have defined and in the custom formats, tables and reports that users 4 5 require. Users who need to perform detailed analysis can also easily transfer quantitative data into spreadsheets or other desktop tools, such as contact management software. Specific applications available through the Business Browser product line include: - "Company Profiler" delivers integrated reports on a company's history, products, competition, industry, executives, current news articles, and financials. Both summary and detailed company reports are available, depending on the user's need. In addition, "Corporate Family Reports" allow users to quickly map relationships among subsidiaries and divisions of corporations. - "WatchList Update" automatically keeps track of news articles, news stories, financial filings and research reports on specified companies the user monitors. - "Industry Profiler" delivers reports on market size, segmentation, financial norms, ratios, and forecasts for a specified industry, as well as participants, industry news and analysis, and creates research reports with graphs and statistics that help track industry trends. - "Company Finder" screens companies by defining key search characteristics to deliver a targeted list by industry, geography, size, revenues, employment, or other key characteristics. - "Topic Search" screens news stories, research reports, business descriptions, and trade articles for information by topic. - "Executive Search" provides users with reports on business leaders by name, company, location, schools, and affiliated organizations. - "Custom Alerts" sends daily e-mail links to current news on user-specified companies and topics. ADDITIONAL SOFTWARE APPLICATIONS Two additional software applications are available with Business Browser products: BUSINESS BROWSER AP. Business Browser AP, which became commercially available in August 1997, is an advanced Web-based quantitative analysis tool available as an option with all of the Business Browser products other than European Business Browser. Business Browser AP lets users screen across a wide range of public company financial statement items, ratios, growth rates, and other criteria. It also allows users to produce detailed quantitative reports of their own design. Business Browser AP also makes EDGAR documents more user friendly by removing confusing computer codes, formatting tables for easy viewing and printing, and allowing users to export tables to a spreadsheet. BUSINESS BROWSER APPLINK. Business Browser AppLink, which became commercially available in December 1998, is a software toolkit that allows customers to easily incorporate Business Browser content, such as company profiles, news, business and trade articles, analyst reports, executive biographies, industry intelligence, and financial data, directly into corporate intranet applications. Users have the ability to integrate in-depth, objective external business information into their existing internal applications such as prospect and customer databases, sales force automation tools, enterprise reporting software and corporate Web applications. No special client software or dedicated servers are necessary. LEGACY AND OTHER PRODUCTS Prior to our introduction of Business Browser in 1996, OneSource distributed business information on CD Rom. At the end of 2000, all CD Rom products were completely phased out. With the acquisition of Corporate Technology in October 1999, OneSource acquired several product lines that include CD Rom and printed directories. The printed directories product line was discontinued at the end of 2000. 5 6 PLATFORM AND PRODUCT DEVELOPMENT The product development function is currently carried out by our Global Strategic Web Applications Team. As of December 31, 2000, we had 77 full-time employees on this team. This team includes product managers who define functional software components, end-user interfaces, report formats, and content requirements; product development engineers who take content feeds from information partners and write database loader code; and the KeyID team whose role, through both programming and editorial expertise, is to ensure consistent integration and presentation of information from multiple underlying sources of content. The product development team uses our proprietary KeyID technology to integrate and link public and private companies worldwide from multiple databases, each with its own set of incompatible identifiers. Through a combination of proprietary programmatic and editorial means, this technology enables us to provide a single and unified presentation from multiple underlying company databases. It also manages multiple SIC codes and industry mappings assigned to companies by disparate databases and reclassifies the companies to comparable categories. The system also keeps track of company name synonyms to allow searching by commonly used alternative company names. The synonyms feature allows the user to input one company name or term and to access all information for that company although it may be categorized under different names or terms depending on the database. In total, the KeyID database contains 1.1 million companies, 1.7 million synonyms, and 40,000 URLS. INFORMATION PROVIDERS Each Business Browser product combines an array of carefully chosen financial, company, industry, executive, and news-related content obtained from leading business and financial information providers identified by our Global Strategic Web Applications Team. We enter into contracts with our information providers, which are generally for a term of at least one year, and which renew for the same period, if not canceled with advance notice. These contracts may be terminated under certain circumstances. Under these arrangements, royalties are generally paid on a quarterly basis to information providers. Royalties are typically calculated either as a flat percentage of our revenues, as a per-user fee that declines as the number of authorized users of the product increases, as a fixed fee per period, or in some cases, we pay a calculated fee based upon product growth compared to like periods from the prior year. STRATEGIC ALLIANCES In 2000, OneSource continued to broaden its opportunities by integrating directly into corporate intranets through strategic alliances with customer relationship management (CRM) platform and application providers. Specifically, we formed a strategic alliance with Siebel Systems, Inc., a leading supplier of eBusiness application software, and with SageMaker, Inc., a leading enterprise information portal solutions provider. CUSTOMERS At December 31, 2000, 869 organizations had subscribed to our Web-based Business Browser product line, up from 583 at December 31, 1999. On average, our customers at December 31, 2000 had an annualized contract value of $67,200 per customer, compared to $66,500 per customer at December 31, 1999. The annualized contract value of customer contracts for Business Browser products was $58.3 million at December 31, 2000, having grown from $38.7 million at December 31, 1999. For more information regarding annualized contract value, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Annualized Contract Value." 6 7 The following is a representative list of significant customers in each of our primary industry sectors as of December 31, 2000: PROFESSIONAL SERVICES FINANCIAL SERVICES TECHNOLOGY Accenture American Express AT&T Arthur D. Little Bank of Scotland Compaq Bain & Company Bank of Tokyo Data General Cambridge Technology Partners Bear Stearns JD Edwards Deloitte & Touche Chase Manhattan Bank Hewlett Packard KPMG Credit Lyonnais Lockheed Martin Watson Wyatt Credit Suisse First Boston MCI/Worldcom Deutsche Bank Securities Nortel OTHER CORPORATIONS First Union Bank Oracle Avery Dennison Merrill Lynch SAP Bayer Oppenheimer Toshiba America Boeing PricewaterhouseCoopers LLP British Telecommunications Royal Bank of Canada Cargill SG Cowen Securities Corp. Chub Group of Insurance Cos. Coca-Cola BUSINESS SCHOOLS General Electric Dartmouth Johnson & Johnson Duke Pitney Bowes Harvard Sears Stanford Staples University of Florida University of Southern California University of Texas Yale
At December 31, 2000, approximately 55% of our annualized contract value for Web-based products came from customers in the professional services and financial services sectors, which have been the traditional customers for business information products. The remaining 45% of our annualized contract value at December 31, 2000 for Web-based products represented customers in sectors that have not historically been heavy consumers of business information products. At these customers, Business Browser products are used by professionals throughout the organization, including sales, marketing, finance, and management personnel, as a result of the products' ease of use and availability over the Web. SALES AND MARKETING We market our products through a direct and telephonic sales force and marketing staff, which as of December 31, 2000 consisted of 120 full-time employees based at 15 locations throughout the US and two locations in the UK. The sales function breaks down into two major parts: - the initial sale, which is conducted by account executives. Our sales organization consists of the following groups: Enterprise Sales, which concentrates on the largest accounts (1,000 or more Business Browser seats) ; US Strategic Sales, which sells to mid-to-large size companies (50 to 999 seats); US Telesales, focusing on smaller companies (less than 50 seats); and European Sales, selling into the UK and European markets. - customer retention and growth through the sale of additional seats and upgrades, which are primarily handled by account managers. As of December 31, 2000, we had 26 account executives and 25 account managers. Compensation for account executives and account managers is comprised of base salary plus commission. We also employ a telemarketing group that assists in generating leads for the account executives and retaining existing clients. As of December 31, 2000, there were 33 members of the telemarketing group. 7 8 Business Browser products are sold on a subscription basis, generally for a one-year period. Customers typically prepay for annual subscriptions. Typically, contracts automatically renew for the same period prior to expiration unless canceled by the client. The Business Browser product line is available at a fixed annual subscription price, which declines on a per-user basis as the total number of users increases. List prices as of January 1, 2001 ranged from $13,000 per year for a single user seat to $373,000 per year for 1,000 user seats. CUSTOMER SUPPORT We provide both on-site and telephone support for clients. As of December 31, 2000, we had 15 field support consultants, who provide assistance before and after sales are completed. For example, they assist in managing free product trials for prospective customers and expanding the availability of our products to additional users through training and rollout initiatives within an organization. They also provide technical consulting, which may be requested by customers, such as the customization of Web pages for large clients or the building of prototype applications using AppLink. As of December 31, 2000, we had five telephone-based customer support representatives in the US and one in the UK. These representatives operate the telephone help desk that is open from 8:00 a.m. to 8:00 p.m., local time, Monday through Friday. WEBSITE TECHNOLOGY AND OPERATIONS The OneSource on-line site is located at a dedicated hosting facility managed by Genuity Solutions Inc. It is a node on the Genuity Solutions Inc. Internet backbone. The system is available 24 hours a day, seven days a week. A second hosting facility, managed by Digital Island, is expected to come on-line in 2001. Each site is intended to serve as a back up in the event of a failure by the other site. The OneSource systems administration team closely monitors the usage, delivery performance and availability of the system. Particular attention is paid to individual product usage, relative levels of customer activity, speed of data retrieval and delivery, peak usage figures, uptime statistics, and power requirements. COMPETITION The business information services industry is intensely competitive. We face direct or indirect competition from numerous companies, including: - large, well-established business and financial information providers, such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Factiva, Thomson, Primark, and McGraw-Hill - on-line information services or Websites targeted to specific markets or applications, such as NewsEdge, Factset and Bloomberg - providers of sales, marketing, and credit information, such as Dun & Bradstreet, InfoUSA and Siebel - Web retrieval, Web "portal" companies, and other free or low-cost mass market on-line services, such as Excite, Infoseek, Terra Lycos, Yahoo! and AOL/Time Warner - free or low-cost specialized business and financial information Websites, such as Hoovers.com, Marketwatch.com, Multex.com, and TheStreet.com The principal competitive factors in our industry are availability of comprehensive and integrated business and financial information, ease of use, support and training required, and price/performance characteristics. EMPLOYEES We had 257 full-time employees as of December 31, 2000, including 120 in sales and marketing, 22 in engineering, 18 in production/on-line support, 27 in finance and administration, and 70 on our Global Strategic Web Applications Team. Our employees are not represented by any collective bargaining organization. We have never experienced a work stoppage and we believe our relationships with our employees are good. 8 9 GEOGRAPHIC INFORMATION OneSource had revenues of $10.8 million, $8.0 million and $7.0 million in the U.K. and $41.1 million, $27.5 million and $23.4 million in the U.S. for the years ended December 31, 2000, 1999 and 1998, respectively. ITEM 2. PROPERTIES OneSource's headquarters are currently in approximately 50,900 square feet of office space located in Concord, Massachusetts. The office space has been leased through 2004. We lease additional sales offices in Chicago, IL., New York, NY., San Francisco, CA., Manhattan Beach, CA., Mission Viejo, CA., Richardson, TX. and Woking, England and London, England. OneSource believes that its existing facilities are adequate to meet current requirements, and that suitable additional or substitute space will be available as needed. OneSource deems the buildings, machinery and equipment used in its operations (whether owned or leased), generally to be in good condition and adequate for the purposes for which they are used. ITEM 3. LEGAL PROCEEDINGS OneSource is not a party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our security holders during the fourth quarter of the year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS OneSource's common stock is traded on the NASDAQ National Market System under the symbol "ONES". Public trading of OneSource's common stock commenced on May 19, 1999. (A) Market Price of Common Stock The following table sets forth the high and low closing prices as reported by the NASDAQ National Market for the periods indicated.
2000 1999 -------------- -------------- HIGH LOW HIGH LOW ------ ----- ------ ----- First quarter................................. $14.25 $6.75 -- -- Second quarter................................ $10.50 $5.25 $14.25* $7.22* Third quarter................................. $12.75 $6.88 $10.38 $6.63 Fourth quarter................................ $13.00 $7.25 $14.00 $7.50
--------------- * commencing May 19,1999. The quotations represent inter-dealer quotations, without adjustments for retail markups, markdowns, or commissions, and may not necessarily represent actual transactions. The number of record holders of OneSource's common stock at March 1, 2001 was 86. (B) Use of Proceeds from Sales of Registered Securities OneSource has not declared or paid any cash dividends on its common stock and presently intends to retain its future earnings, if any, to fund the development and growth of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. 9 10 In May 1999, OneSource completed an initial public offering, (the "Offering") of 3,636,000 shares of its common stock, of which 2,500,000 shares were issued and sold by OneSource and 1,136,000 shares were issued and sold by certain stockholders of OneSource. The net proceeds to OneSource from the Offering, after deducting underwriting discounts and commissions and other offering expenses was approximately $27.0 million. The net proceeds from the Offering, less $6.8 million used to payoff long-term debt and $7.6 million used to acquire Corporate Technology, have been invested in interest bearing, investment grade securities. (C) Recent Sales of Unregistered Securities During the year ended December 31, 1999, OneSource issued the following securities that were not registered under the Securities Act of 1933, as amended: GRANTS OF STOCK OPTIONS In February 1999, OneSource granted options to purchase 40,700 shares of its common stock at an exercise price of $2.19 per share, 30,525 shares of its common stock at an exercise price of $5.90 per share and 329,467 shares of its common stock at an exercise price of $9.93 per share. EXERCISE OF STOCK OPTIONS From January 1, 1999 to December 31, 1999, OneSource issued 415,538 shares of its common stock at exercise prices ranging from $0.12 to $2.18 for an aggregate purchase price of approximately $419,000 pursuant to the exercise of employee stock options. No underwriters were involved in the foregoing sales of securities. Such sales were made in reliance upon an exemption from the registration provisions of the Securities Act set forth in Rule 701 promulgated thereunder. All shares issuable upon exercise of stock options have been registered by OneSource on a Registration Statement on Form S-8. 10 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following historical selected consolidated financial and operating data has been derived from OneSource's audited Consolidated Financial Statements for each of the five years in the period ended December 31, 2000. The following consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31, ------------------------------------------------ 2000 1999 1998 1997 1996 ------- ------- ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues:(1) Web-based product............................. $47,275 $31,822 $16,058 $ 3,312 $ 15 CD Rom product and other...................... 4,614 3,726 14,370 27,072 30,419 ------- ------- ------- -------- ------- 51,889 35,548 30,428 30,384 30,434 ------- ------- ------- -------- ------- Cost of revenues: Web-based product............................. 15,536 13,143 7,863 2,401 295 CD Rom product and other...................... 2,373 1,666 5,792 10,444 12,244 ------- ------- ------- -------- ------- 17,909 14,809 13,655 12,845 12,539 ------- ------- ------- -------- ------- Gross profit.................................. 33,980 20,739 16,773 17,539 17,895 ------- ------- ------- -------- ------- Operating expenses: Selling and marketing......................... 20,519 13,254 11,577 9,167 8,572 Platform and product development.............. 8,842 7,996 6,313 6,375 7,252 General and administrative.................... 5,078 5,474 3,847 3,401 3,664 Amortization of goodwill and other intangible assets..................................... 1,504 376 -- -- -- ------- ------- ------- -------- ------- Total operating expenses................... 35,943 27,100 21,737 18,943 19,488 ------- ------- ------- -------- ------- Loss from operations....................... (1,963) (6,361) (4,964) (1,404) (1,593) Interest income (expense), net.................. 887 47 (595) (930) (733) Gain on sale of product lines................... -- -- 12,797 501 -- Other income.................................... 2,000 2,000 -- -- 393 ------- ------- ------- -------- ------- Income (loss) before income taxes.......... 924 (4,314) 7,238 (1,833) (1,933) Provision for income taxes...................... 66 133 250 -- -- ------- ------- ------- -------- ------- Net income (loss).......................... 858 (4,447) 6,988 (1,833) (1,933) Less: income attributable to Class P common stock......................................... -- -- 1,367 414 335 ------- ------- ------- -------- ------- Net income (loss) attributable to common stock.................................... $ 858 $(4,447) $ 5,621 $ (2,247) $(2,268) ======= ======= ======= ======== ======= Earnings (loss) per share: (2) Class P common stock: Basic and diluted earnings per share.......... -- -- $ 1.91 $ 0.57 $ 0.47 Weighted average Class P common shares outstanding................................ -- -- 718 718 719 Common stock: Basic earnings (loss) per share............... $ 0.07 $ (0.50) $ 0.85 $ (0.34) $ (0.35) Diluted earnings (loss) per share............. $ 0.06 $ (0.50) $ 0.59 $ (0.34) $ (0.35) Weighted average common shares outstanding: Basic...................................... 11,509 8,822 6,641 6,545 6,487 Diluted.................................... 13,509 8,822 9,563 6,545 6,487
11 12
DECEMBER 31, ------------------------------------------------- 2000 1999 1998 1997 1996 ------- ------- ------- -------- -------- (IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA) BALANCE SHEET DATA: Cash and cash equivalents...................... $17,338 $13,598 $ 8,665 $ 341 $ 535 Working capital (deficit)...................... 1,827 (691) (2,118) (9,792) (8,803) Total assets................................... 58,832 49,698 27,646 16,644 16,934 Total debt (including capital lease obligations)................................. 33 234 6,936 8,171 6,661 Deferred revenues.............................. 29,229 24,222 18,022 15,748 15,419 Total stockholders' equity (deficit)........... 16,353 13,363 (6,311) (13,613) (11,827) OTHER DATA FOR WEB-BASED PRODUCTS: Annualized contract value (3).................. $58,354 $38,743 $25,920 $ 8,973 $ 412 Number of customers............................ 869 583 445 233 11 Average annualized contract value per customer..................................... $ 67.2 $ 66.5 $ 58.2 $ 38.5 $ 37.4
--------------- (1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues attributable to these divested product lines, which are included in the statement of operations data through the divestiture date, were $2.6 million, $6.3 million and $6.4 million in the years ended December 31, 1998, 1997 and 1996, respectively. Revenues for the years ended December 31, 2000 and 1999 included $4.2 million and $1.0 million, respectively, from products and customers related to the acquired Corporate Technology business. (2) You should read Notes 2 and 7 to the Consolidated Financial Statements for further description of the calculation of these items. (3) Annualized contract value represents the invoiced fees for one month for all customer contracts for Web-based products in effect at the measurement date, multiplied by 12, without regard to the actual remaining duration of such contracts. For more information regarding annualized contract value, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Annualized Contract Value." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section should be read in conjunction with the Selected Consolidated Financial and Operating Data and OneSource's Consolidated Financial Statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. OneSource makes such forward-looking statements under the provision of the "Safe Harbor" section of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements should be considered in light of the factors described below in Item 7 under "Certain Factors that May Affect Future Results." Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Annual Report on Form 10-K, the words "anticipates," "believes," "expects," "intends," "future," "could," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements. OVERVIEW OneSource provides Web-based business and financial information to professionals who need quick access to reliable corporate, industry and market intelligence. OneSource was formed as a division of Lotus Development Corporation in 1987 and became an independent company when it was purchased in a management buy-out in 1993. Until December 1996, our business was to provide business information to the financial community using CD Rom technology as the primary method of distribution. The introduction of 12 13 Business Browser in December 1996 marked a fundamental shift in our business as we began a transition away from our legacy CD Rom business and toward Web-based products. OneSource's Business Browser product line is designed to be a comprehensive and easy-to-use business and financial information resource, integrating over 2,500 sources of business information from more than 25 category-leading business and financial information providers. Business Browser accounted for 91% of the Company's revenue for the year ended December 31, 2000. On October 1, 1999, OneSource acquired Corporate Technology, a Delaware corporation located in Woburn, Massachusetts. Corporate Technology is a provider of high technology company profiles with a focus on emerging private companies. Pursuant to the terms of an Agreement and Plan of Merger, the consideration paid by OneSource was $7.6 million in cash. A portion of the cash consideration is being held in escrow to be released in accordance with the Agreement and Plan of Merger and an Escrow Agreement. For financial statement purposes, this acquisition was accounted for as a purchase and, accordingly, the results of operations of Corporate Technology subsequent to October 1, 1999 have been included in OneSource's consolidated statements of operations. In May 1998, we sold our CD-Insurance division to allow us to focus more completely on our new Web-based product line. We recognized a gain of $12.8 million on this sale during 1998. In addition, in connection with the disposition, we licensed certain of our CD Rom software to the acquiror in exchange for $4.0 million of license fees. These license fees were paid in eight equal quarterly installments beginning January 1, 1999 and ending on December 31, 2000 and were recognized ratably as other income. For each of the years ended December 31, 2000 and December 31, 1999, OneSource recorded $2.0 million of other income related to the software license agreement. Our revenues for both CD Rom and Web-based products consist of monthly subscription fees from customer contracts. Customer contracts span varying periods of time but are generally for one year, are renewable for like periods, and are payable in advance. Subscription fees generally are quoted to clients on an annual basis but are earned as revenues on a monthly basis over the subscription period. Invoices are recorded as accounts receivable until paid and as deferred revenues until earned. Deferred revenues attributable to Web-based products increased 25% to $28.5 million as of December 31, 2000 from $22.8 million as of December 31, 1999 and increased 79% from $15.9 million as of December 31, 1998. Cost of revenues consists primarily of royalties to information providers and, to a lesser extent, employee salaries and benefits, facilities allocation and related expenses, depreciation associated with computers for data processing and on-line requirements and Web hosting expenses. We enter into contracts with our information providers which are generally for a term of at least one-year and are automatically renewable if not canceled with advance notice. These contracts may be terminated under certain circumstances. Under these arrangements, royalties are generally paid on a quarterly basis to information providers. Royalties are generally calculated either as a flat percentage of our revenues, as a per-user fee that declines as the number of authorized users of the product increases, as a fixed fee per period, or in some cases, we pay a calculated fee based upon product growth compared to like periods from the prior year. Selling and marketing expense consists primarily of employee salaries and benefits and sales commissions paid to our sales force, customer support organization and marketing personnel, as well as facilities allocation and related expenses, direct marketing promotional materials, trade show exhibitions and advertising. Sales commissions are paid when customers are invoiced and are recorded as deferred subscription costs, which are amortized ratably over the term of the contract, typically 12 months, as the associated revenues are recognized. All other selling and marketing costs are expensed as incurred. Platform and product development expense consists primarily of employee salaries and benefits, facilities allocation and related expenses, as well as outside contractor expenses, relating to the development of our "platform" of core software supporting our products and the development of new products based upon that platform. Platform and product development expense includes expenses relating to the editorial staff that implements our KeyID technology to integrate disparate information sources into our Web-based products. 13 14 General and administrative expense consists primarily of employee salaries and benefits, facilities allocation and related expenses associated with OneSource's management, finance, human resources, management information systems and administrative groups. Results of Operations The following table sets forth, for the periods indicated, the percentage of total revenues represented by each line item in OneSource's consolidated statement of operations. We can give no assurance that the indicated trends in revenues or operating results will continue in the future.
YEAR ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 ----- ----- ----- (PERCENTAGE OF TOTAL REVENUES) Revenues: Web-based product......................................... 91% 90% 53% CD Rom product and other.................................. 9 10 47 --- --- --- Total revenues......................................... 100 100 100 --- --- --- Cost of revenues: Web-based product......................................... 30 37 26 CD Rom product and other.................................. 5 5 19 --- --- --- Total cost of revenues................................. 35 42 45 --- --- --- Gross profit................................................ 65 58 55 Operating expenses: Selling and marketing..................................... 39 37 38 Platform and product development.......................... 17 23 21 General and administrative................................ 10 15 12 Amortization of goodwill and other intangible assets...... 3 1 -- --- --- --- Loss from operations........................................ (4) (18) (16) Interest income (expense), net.............................. 2 -- (2) Gain on sale of product line................................ -- -- 42 Other income................................................ 4 6 -- --- --- --- Income (loss) before income taxes........................... 2 (12) 24 Provision for income taxes.................................. -- -- 1 --- --- --- Net income (loss)........................................... 2% (12)% 23% === === ===
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 Revenues. Total revenues increased 46% to $51.9 million for the year ended December 31, 2000 from $35.5 million for the year ended December 31, 1999. On October 1, 1999, OneSource acquired Corporate Technology; thereafter, revenues for the year ended December 31, 2000 and 1999 include $4.2 million and $1.0 million, respectively, of revenue recognized from products and customers related to the acquired Corporate Technology business. Excluding the Corporate Technology revenues, total revenues for the year ended December 31, 2000 increased 38%. Web-based product revenues increased 49% to $47.3 million for the year ended December 31, 2000 from $31.8 million for the year ended December 31, 1999. The increase was attributable to new customers, an increase in the number of user seats purchased by existing customers and the sale of new products to existing customers. At the same time, CD Rom product and other revenue increased 24% to $4.6 million in 2000 from $3.7 million in 1999 and was attributable to revenue recognized from products related to the acquired Corporate Technology business. Excluding revenues attributable to Corporate Technology, CD Rom revenues 14 15 decreased 86% to $0.4 million for the year ended December 31, 2000 from $2.7 million for the year ended December 31, 1999 as OneSource completed its transition away from its legacy CD Rom business. Cost of Revenues. Total cost of revenues increased 21% to $17.9 million for the year ended December 31, 2000 from $14.8 million for the year ended December 31, 1999. This increase was due to an increase in royalty expense and additional infrastructure expense necessary to support the growth in revenue. As a percentage of total revenues, total cost of revenues decreased to 35% in 2000 from 42% in 1999. The decrease in total cost of revenues percentage was principally due to a decreased effective royalty rate for our Web-based products, which resulted from the renegotiation of some information provider agreements to lower royalty rates and contracts where effective royalty rates decline as the number of seats sold to a customer increases. Cost of Web-based product revenues increased 18% to $15.5 million for the year ended December 31, 2000 from $13.1 million for the year ended December 31, 1999. This increase was due to an increase in royalty expense and additional infrastructure expense necessary to support the growth in revenue. As a percentage of Web-based product revenues, cost of Web-based product revenues decreased to 33% in 2000 from 41% in 1999, due to an increase in our customer base as well as more favorable royalty rates. Cost of CD Rom product and other revenues increased 42% to $2.4 million for the year ended December 31, 2000 from $1.7 million for the year ended December 31, 1999. This increase was due to revenue recognized from products related to the acquired Corporate Technology business. As a percentage of CD Rom product and other revenues, cost of CD Rom product and other revenues increased to 51% in 2000 from 45% in 1999, due to higher costs of maintaining and expanding OneSource's proprietary database. Selling and Marketing Expense. Selling and marketing expense increased 55% to $20.5 million for the year ended December 31, 2000 from $13.3 million for the year ended December 31, 1999 principally due to increased headcount and expenses incurred to hire and train new sales personnel in connection with our Business Browser product line. Selling and marketing expense increased as a percentage of total revenues to 39% in 2000 from 37% in 1999. We expect sales and marketing expenses to decrease as a percentage of revenue as a result of the growth in business. Platform and Product Development Expense. Platform and product development expense increased 11% to $8.8 million for the year ended December 31, 2000 from $8.0 million for the year ended December 31, 1999. The increase was principally due to increased staffing and associated personnel costs to meet new product demands. As a percentage of total revenues, platform and product development expense decreased from 23% to 17%. The decrease was due principally to the growth in revenue and increased productivity. General and Administrative Expense. General and administrative expense decreased 7% to $5.1 million for the year ended December 31, 2000 from $5.5 million for the year ended December 31, 1999. The decrease partially relates to one-time payments incurred as part of our initial public offering in May 1999. General and administrative expense decreased as a percentage of total revenues to 10% in 2000 from 15% in 1999, primarily due to one-time payments incurred as part of our initial public offering in May 1999. Amortization of Goodwill and Other Intangible Assets. Amortization of goodwill and other intangible assets expense increased to $1.5 million for the year ended December 31, 2000 from $0.4 million for the year ended December 31, 1999. The increase is the result of the acquisition of Corporate Technology in October 1999 and reflects a full year's amortization of goodwill and other intangible assets acquired as part of that transaction. Interest Income, Net. Interest income, net of interest expense, increased to $887,000 for the year ended December 31, 2000 from $47,000 for the year ended December 31, 1999. This increase is primarily due to an increase in interest income related to the invested cash balance from the initial public offering proceeds and a reduction in interest expense following the payoff of long-term debt in May 1999. Other Income. Other income was $2.0 million for both years ended December 31, 2000 and 1999 and was attributable to revenues from a software license agreement entered into in connection with the sale of our CD-Insurance division. 15 16 Provision for Income Taxes. The provision for income taxes for the year ended December 31, 2000 was $66,000 and related to amounts due for state and franchise taxes. The provision for income taxes for the year ended December 31, 1999 was $133,000 and related to amounts due for state and franchise taxes. COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 Revenues. Total revenues increased 17% to $35.5 million for the year ended December 31, 1999 from $30.4 million for the year ended December 31, 1998. In May 1998, OneSource sold its CD-Insurance division. Revenues from this product line were $2.6 million for the year ended December 31, 1998. On October 1, 1999, OneSource acquired Corporate Technology; thereafter, revenues for the year ended December 31, 1999 include $1.0 million of revenue recognized from products and customers related to the acquired Corporate Technology business. Excluding the CD-Insurance division and Corporate Technology revenues, total revenues for the year ended December 31, 1999 increased 24%. Web-based product revenues increased 98% to $31.8 million for the year ended December 31, 1999 from $16.1 million for the year ended December 31, 1998. The increase was attributable to new customers, an increase in the number of user seats purchased by existing customers and the sale of new products to existing customers. At the same time, CD Rom product and other revenues decreased 74% to $3.7 million in 1999 from $14.4 million in 1998 as OneSource continued its transition away from its legacy CD Rom business. Cost of Revenues. Total cost of revenues increased 8% to $14.8 million for the year ended December 31, 1999 from $13.7 million for the year ended December 31, 1998. This increase was due to an increase in royalty expense and additional infrastructure expense necessary to support the growth in revenue. As a percentage of total revenues, total cost of revenues decreased to 42% in 1999 from 45% in 1998. The decrease in total cost of revenues percentage was principally due to a decreased effective royalty rate for our Web-based products, which resulted from the renegotiation of some information provider agreements to lower royalty rates and contracts where effective royalty rates decline as the number of seats sold to a customer increase. Cost of Web-based product revenues increased 67% to $13.1 million for the year ended December 31, 1999 from $7.9 million for the year ended December 31, 1998. This increase was due to an increase in royalty expense and additional infrastructure expense necessary to support the growth in revenue. As a percentage of Web-based product revenues, cost of Web-based product revenues decreased to 41% in 1999 from 49% in 1998, due to an increase in our customer base as well as more favorable royalty rates. Cost of CD Rom product and other revenues decreased 71% to $1.7 million for the year ended December 31, 1999 from $5.8 million for the year ended December 31, 1998. This decrease was due to lower revenues reflecting our shift away from the CD Rom product line. As a percentage of CD Rom product and other revenues, cost of CD Rom product and other revenues increased to 45% in 1999 from 40% in 1998, due principally to ongoing costs associated with our legacy CD Rom products. Selling and Marketing Expense. Selling and marketing expense increased 14% to $13.3 million for the year ended December 31, 1999 from $11.6 million for the year ended December 31, 1998 principally due to increased headcount and expenses incurred to hire and train new sales personnel in connection with our Business Browser product line. Selling and marketing expense decreased as a percentage of total revenues to 37% in 1999 from 38% in 1998. Platform and Product Development Expense. Platform and product development expense increased 27% to $8.0 million for the year ended December 31, 1999 from $6.3 million for the year ended December 31, 1998. The increase was principally due to increased staffing and associated personnel costs to meet new product demands. As a percentage of total revenues, platform and product development expense increased from 21% to 22%. The increase was due principally to additional headcount to meet new product demands. General and Administrative Expense. General and administrative expense increased 42% to $5.5 million for the year ended December 31, 1999 from $3.8 million for the year ended December 31, 1998. The increase primarily relates to payments to terminate certain arrangements upon the completion of our initial public offering in May 1999. These expenses included termination fees of $0.5 million to each of William Blair Venture Partners III Limited Partnership and an affiliate of Information Partners Capital Fund, L.P. in 16 17 connection with our public offering, financial advisory fees of $0.2 million and expenses in connection with the relocation of our headquarters of $0.1 million. General and administrative expense increased as a percentage of total revenues to 15% in 1999 from 12% in 1998. Amortization of Goodwill and Other Intangible Assets. Amortization of goodwill and other intangible assets expense for the year ended December 31, 1999 was $0.4 million compared to $0.0 for the year ended December 31, 1998. The increase is the result of the acquisition of Corporate Technology in October 1999 and the associated amortization of goodwill and other intangible assets acquired as part of that transaction. Interest Income, Net. Interest income, net of interest expense, increased to $47,000 for the year ended December 31, 1999 from $595,000 of net interest expense for the year ended December 31, 1998. This increase was primarily due to an increase in interest income related to the invested cash balance from our initial public offering proceeds and the sale of the CD-Insurance division, as well as a reduction in interest expense following the payoff of long-term debt in May 1999. OneSource recognized a one-time expense of $0.3 million relating to the unamortized portion of the original issue discount when we paid the outstanding balance on long-term debt in the principal amount of $6.3 million from the proceeds of our initial public offering. Other Income. Other income increased $2.0 million for the year ended December 31, 1999 compared to $0.0 for the year ended December 31, 1998 and was attributable to revenues from a software license agreement entered into in connection with the sale of our CD-Insurance division. Gain on Sale of Product Line. As the result of the sale of the CD-Insurance division, we recorded a gain of $12.8 million for the year ended December 31, 1998. Provision for Income Taxes. The provision for income taxes for the year ended December 31, 1999 was $133,000 and related to amounts due for state and franchise taxes. The provision for income taxes for the year ended December 31, 1998 was $250,000 and related to the gain on the sale of the CD-Insurance division. 17 18 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following tables set forth a summary of OneSource's unaudited quarterly operating results for each of the eight quarters in the two-year period ended December 31, 2000. This information has been derived from unaudited interim consolidated financial statements that, in the opinion of management, have been prepared on a basis consistent with the Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of such information when read in conjunction with OneSource's Consolidated Financial Statements and the Notes thereto. Our operating results for any quarter are not necessarily indicative of results for any future period.
QUARTER ENDED --------------------------------------------------------------------------------------- 2000 1999 ------------------------------------------ ------------------------------------------ DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31, -------- --------- -------- -------- -------- --------- -------- -------- (IN THOUSANDS) Statement of Operations Data: Revenues: Web-based product.................... $12,997 $12,674 $11,535 $10,069 $ 9,023 $ 8,383 $ 7,513 $6,903 CD Rom product and other............. 1,107 982 1,036 1,489 1,284 335 867 1,240 ------- ------- ------- ------- ------- ------- ------- ------ Total revenues..................... 14,104 13,656 12,571 11,558 10,307 8,718 8,380 8,143 ------- ------- ------- ------- ------- ------- ------- ------ Cost of revenues: Web-based product.................... 4,051 3,977 3,547 3,961 3,376 3,466 3,331 2,970 CD Rom product and other............. 564 563 706 540 628 197 354 487 ------- ------- ------- ------- ------- ------- ------- ------ Total cost of revenues............. 4,615 4,540 4,253 4,501 4,004 3,663 3,685 3,457 ------- ------- ------- ------- ------- ------- ------- ------ Gross profit........................... 9,489 9,116 8,318 7,057 6,303 5,055 4,695 4,686 ------- ------- ------- ------- ------- ------- ------- ------ Operating expenses: Selling and marketing................ 5,110 5,472 5,328 4,609 4,049 3,284 2,994 2,927 Platform and product development..... 2,279 2,113 2,099 2,351 2,257 2,074 1,947 1,718 General and administrative........... 1,360 1,208 1,237 1,274 1,289 1,068 2,257 860 Amortization of goodwill and other intangible assets.................. 375 376 376 376 376 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------ Total operating expenses........... 9,124 9,169 9,040 8,610 7,971 6,426 7,198 5,505 ------- ------- ------- ------- ------- ------- ------- ------ Income (loss) from operations.......... $ 365 $ (53) $ (722) $(1,553) $(1,668) $(1,371) $(2,503) $ (819) ======= ======= ======= ======= ======= ======= ======= ======
(PERCENTAGE OF TOTAL REVENUES) Revenues: Web-based product.................... 92% 93% 92% 87% 88% 96% 90% 85% CD Rom product and other............. 8 7 8 13 12 4 10 15 ------- ------- ------- ------- ------- ------- ------- ------ Total revenues..................... 100 100 100 100 100 100 100 100 ------- ------- ------- ------- ------- ------- ------- ------ Cost of revenues: Web-based product.................... 29 29 28 34 33 40 40 36 CD Rom product and other............. 4 4 6 5 6 2 4 6 ------- ------- ------- ------- ------- ------- ------- ------ Total cost of revenues............. 33 33 34 39 39 42 44 42 ------- ------- ------- ------- ------- ------- ------- ------ Gross profit........................... 67 67 66 61 61 58 56 58 ------- ------- ------- ------- ------- ------- ------- ------ Operating expenses: Selling and marketing................ 36 40 42 40 39 38 36 36 Platform and product development..... 16 15 17 20 22 24 23 21 General and administrative........... 10 9 10 11 12 12 27 11 Amortization of goodwill and other intangible assets.................. 3 3 3 3 4 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------ Total operating expenses........... 65 67 72 74 77 74 86 68 ------- ------- ------- ------- ------- ------- ------- ------ Income (loss) from operations.......... 2% --% (6)% (13)% (16)% (16)% (30)% (10)% ======= ======= ======= ======= ======= ======= ======= ======
ANNUALIZED CONTRACT VALUE One measure of the performance of our business is "annualized contract value." This is a measurement we use for normalized period-to-period comparisons to indicate business volume and growth, both in terms of new customers and upgrades and expansions at existing customers. Our presentation and calculation of 18 19 annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator and we cannot guarantee that any annualized contract value will be ultimately realized as revenues. We use annualized contract value as a measure of our business because it shows the growth or decline in our customer base in a way that revenues cannot. Since our business is a subscription business, revenues are recognized not when a sale is made, but in ratable portions over the term of the subscription (which is usually twelve months). As a result, from a revenue viewpoint the addition or loss of even a major customer contract may not have a dramatic impact on a quarter-to-quarter basis. On the other hand, by looking at the value of customer contracts in hand at the end of each quarter, we can more readily see trends in our business. For example, the addition of a one-year subscription contract with total payments of $1.0 million may only increase revenues by approximately $250,000 ($1.0 million divided by four) in the quarter in which the sale is made, but would increase annualized contract value by $1.0 million. Similarly, if the customer did not renew that contract, revenues in the next quarter would only decrease by $250,000, while annualized contract value would decrease by $1.0 million. In calculating annualized contract value, we include only those contracts where the customer has actually been invoiced. Since amounts invoiced are included in deferred revenues on our balance sheet for all customer contracts with terms extending beyond the month of invoice, this demonstrates that annualized contract value is based on actual customer contracts reflected in our historical financial statements. To compute annualized contract value, we multiply by twelve the total amount of fees invoiced for one month and included in deferred revenues. Annualized contract value is not intended to be an absolute indicator of future revenues. We only annualize existing, invoiced contracts, but we do so without regard to the remaining term of those contracts. Most of our contracts are for 12 months, but as of the date that we calculate annualized contract value the remaining term of nearly all of our contracts will be less than 12 months. If a customer fails to pay its invoiced fees or terminates the contract or if we are unable to renew a contract, our revenues in subsequent periods may be less than expected based solely on annualized contract values. Conversely, if we add additional customers or renew existing contracts at higher rates, our revenues in future periods may exceed expectations based solely on annualized contract value. The calculation of annualized contract value for our Web-based products is illustrated below:
ONE MONTH OF WEB-BASED INVOICED FEES DEFERRED IN DEFERRED ANNUALIZED MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE ---------------- --------- ------------- -------------- (IN THOUSANDS) December 31, 1999.................................... $22,781 $3,228.6 $38,743 December 31, 2000.................................... 28,528 4,862.8 58,354
We have increased annualized contract value attributable to Web-based products 51% to $58.3 million as of December 31, 2000 from $38.7 million as of December 31, 1999. The number of Web-based customers has increased 49% to 869 at December 31, 2000 from 583 at December 31, 1999. At the same time, the average annualized contract value of all Web-based product customers has increased 1% to $67,200 per customer at December 31, 2000 from $66,500 per customer at December 31, 1999. This growth was attributable to an increase in the number of user seats purchased by customers and the addition of new products. LIQUIDITY AND CAPITAL RESOURCES Since acquiring our business from Lotus Development Corporation in 1993, we have funded our operations through a combination of seller financing, proceeds received from the sale of Class P common stock and common stock in connection with the purchase of the business from Lotus Development Corporation, bank debt, proceeds received from the sale of non-strategic lines of business, capitalized equipment leases, cash flows from operations and our initial public offering which closed in May 1999. 19 20 Our cash and cash equivalents totaled $17.3 million at December 31, 2000, compared to $13.6 million at December 31, 1999, an increase of $3.7 million. The increase is primarily due to funds provided by operating activities. Net cash provided by operating activities was $6.6 million for the year ended December 31, 2000, compared to net cash used in operating activities of $0.6 million for the year ended December 31, 1999. The net change of $7.2 million period to period is the result of a net income of $0.9 million compared to a net loss of $4.4 million and increased depreciation and amortization of $1.9 million. Net cash used in investing activities was $4.4 million for the year ended December 31, 2000, compared to $11.1 million for the year ended December 31, 1999. Cash used in investing activities was primarily from purchases of property and equipment for $4.0 million during the year ended December 31, 2000 and $2.8 million during the year ended December 31, 1999, as well as the acquisition of Corporate Technology for $7.6 million during 1999. Net cash provided by financing activities was $1.6 million for the year ended December 31, 2000, compared to $16.7 million for the year ended December 31, 1999. Net cash provided by financing activities in 2000 primarily consisted of net proceeds from the sale of common stock under our various stock option and stock purchase plans, offset in part by repayments of capital lease obligations. Net cash provided by financing activities in 1999 primarily consisted of net proceeds from the sale of common stock in our initial public offering, offset in part by the repurchase and retirement of common stock and repayments of debt and capital lease obligations. We do not currently have a line of credit but intend to enter into a revolving line of credit for letters of credit and general working capital. We believe that the net proceeds from our initial public offering, together with our current cash and cash equivalents and funds anticipated to be generated from operations, will be sufficient to satisfy working capital and capital expenditure requirements for at least the next twelve months. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. OneSource, to date, has not engaged in derivative and hedging activities, and accordingly does not believe that the adoption of SFAS No. 133 will have a material impact on the financial reporting and related disclosures. OneSource will adopt SFAS No. 133 as required by SFAS No. 137 in fiscal year 2001. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as amended by SAB No. 101A and 101B, which is effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The application of SAB No.101 did not have a significant impact on OneSource's financial position or results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an interpretation of APB Opinion No. 25." FIN No. 44 primarily clarifies (a) the definition of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 was 20 21 effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN No. 44 did not impact OneSource's financial position or results of operations. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties. OneSource's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including without limitation, those set forth in the following risk factors and elsewhere in this Annual Report on Form 10-K. In addition to the other information included or incorporated by reference in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating OneSource and its business. WE HAVE A LIMITED OPERATING HISTORY WITH BUSINESS BROWSER AND THE PRODUCTS ACQUIRED FROM CORPORATE TECHNOLOGY ON WHICH TO EVALUATE OUR PROSPECTS. We began operations as an independent company in 1993. We began to migrate our business to the Web from CD Rom-based products in early 1996, and launched the Web-based Business Browser product line in December 1996. In 1999, we acquired several products, primarily consisting of CD Rom, printed directories and mailing lists from Corporate Technology. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies transitioning to a new product line, particularly companies in the new and rapidly evolving market for Internet and Web-based business information products. WE HAVE A CUMULATIVE DEFICIT AND EXPECT TO CONTINUE TO HAVE A CUMULATIVE DEFICIT FOR THE FORESEEABLE FUTURE. We incurred losses from operations of approximately $1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998, $6.4 million in 1999 and $2.0 million in 2000. In addition, we have not reached the critical mass of users of Web-based products, that we believe is necessary to effectively leverage our royalty payments and infrastructure expenses, which may not allow OneSource to sustain and increase profits. As of December 31, 2000, we had an accumulated deficit of $14.0 million. WE RELY ON OUR BUSINESS BROWSER PRODUCT LINE, AND WE WILL NOT SUCCEED UNLESS DEMAND FOR OUR BUSINESS BROWSER PRODUCTS CONTINUES TO GROW. Subscription revenues from our Business Browser product line accounted for 91% of total revenues in 2000, 90% of total revenues in 1999, 53% of total revenues in 1998 and 11% of total revenues in 1997. At the end of 2000 we phased out our legacy CD Rom products that are not part of the Business Browser product line. As a result, our future financial condition will depend heavily on the success or failure of our Business Browser product line. Business Browser products were introduced in December 1996 and it is difficult to predict demand and market acceptance for these products in the new and rapidly evolving Web-based business information services market. If the demand for Business Browser products does not continue to grow, whether due to competition, lack of market acceptance, failure of Internet or Web use to grow in general, technological change or other factors, our business would suffer significantly. ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATION OF OUR PERFORMANCE. We use "annualized contract value" as a measurement for normalized period-to-period comparisons to indicate business volume and growth. Our presentation and calculation of annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator and we cannot guarantee that any annualized contract value will be ultimately realized as revenues. COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS. The business information services industry is intensely competitive. We face direct or indirect competition from the following types of companies: - large, well-established business and financial information providers such as Dow Jones, Lexis-Nexis, Pearson, Reuters, Factiva, Thomson, Primark and McGraw-Hill 21 22 - on-line information services or Websites targeted to specific markets or applications, such as NewsEdge, Factset and Bloomberg - providers of sales, marketing and credit information such as Dun & Bradstreet, InfoUSA, Siebel - Web retrieval, Web "portal" companies and other free or low-cost mass market on-line services such as Excite, Infoseek, Terra Lycos, Yahoo! and AOL/Time Warner - free or low-cost specialized business and financial information Websites such as Hoovers.com, Marketwatch.com, Multex.com and TheStreet.com Based on reported operating results, industry reports and other publicly available information, we believe that many of our existing competitors, as well as a number of prospective competitors, have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in user requirements, or to devote greater resources to the research, development, promotion and sale of their products than we can. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, customers and information providers. Our competitors also may develop products that are equal or superior to our products or that achieve greater market acceptance than our products. EXPANSION INTO INTERNATIONAL MARKETS IN WHICH WE HAVE LIMITED PRIOR EXPERIENCE COULD CAUSE MATERIAL AND ADVERSE EFFECTS ON OUR BUSINESS. We presently have offices in the United Kingdom, but look to expand our business opportunities into new markets, particularly throughout Europe. Expanding into diverse international markets exposes us to certain risks of conducting business that include but are not limited to the following: potential higher costs, unanticipated regulatory changes, political instability, difficulties in staffing and managing operations, adverse tax consequences, currency and exchange rate fluctuations, and seasonal reductions in business activity. In addition, the impact of language and other cultural differences could result in product and service offerings that might not satisfy the needs of our customers and might not be profitable. Further, strategic relationships might be necessary to facilitate expansion into certain markets, and our business might be adversely affected if we misallocate our resources and ultimately fail to gain new or effective alliances in this area. IF OUR INFORMATION PROVIDERS STOPPED DOING BUSINESS WITH US, WE COULD NOT CONTINUE TO SELL BUSINESS BROWSER. We do not own or create all of the original content distributed through our products. We depend significantly on information providers to supply information and data feeds to us on a timely basis. Our products could experience interruptions due to any failure or delay in the transmission or receipt of this information. IF OUR SOFTWARE IS DEFECTIVE, IT MIGHT BE COSTLY TO CORRECT; WE COULD GET SUED AND OUR REPUTATION COULD BE HARMED. Complex software like the software we develop for our products may contain errors or defects, especially when first implemented, that may be very costly to correct. Defects or errors also could result in downtime and our business could suffer significantly from potential adverse customer reaction, negative publicity and harm to our reputation. WE MAY HAVE DIFFICULTY IDENTIFYING AND COMPETING FOR ACQUISITION OPPORTUNITIES. Our business strategy includes the pursuit of strategic acquisitions. From time to time we may engage in discussions with third parties concerning potential acquisitions of niche expertise, business and proprietary rights. In executing our acquisition strategy, we may be unable to identify suitable companies as acquisition candidates, making it more difficult to acquire suitable companies on favorable terms. PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS. If we pursue any acquisition, our management could spend a significant amount of time and management and financial resources in the acquisition process and to integrate the acquired business with our existing business. To pay for an acquisition, we may use capital stock, cash, or a combination of both. Alternatively, we may borrow money from a bank or other lender. If we use cash or debt 22 23 financing, our financial liquidity will be reduced. In addition, from an accounting perspective, an acquisition may involve nonrecurring charges or involve amortization of significant amounts of goodwill that could adversely affect our results of operations. Despite the investment of these management and financial resources and completion of due diligence with respect to these efforts, an acquisition may not produce the revenue, earnings or business synergies that we anticipated, and an acquired technology or proprietary right may not perform as expected for a variety of reasons, including: - difficulty in the assimilation of the operations, technologies, rights, products and personnel of the acquired company - risks of entering markets in which we have no or limited prior experience - expenses of any undisclosed or potential legal liabilities of the acquired company - the potential loss of key employees of the acquired company WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH MAKES IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS AND CONTRIBUTES TO VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK. Our quarterly revenues, gross profits and results of operations have fluctuated significantly in the past and we expect them to continue to fluctuate significantly in the future. In addition, we believe that an important measure of our business is the annualized contract value at the end of each period, which also may fluctuate. Causes of such fluctuations have included and may include, among other factors: - changes in demand for our products - the dollar value and timing of both new and renewal subscriptions - competition (particularly price competition) - increases in selling and marketing expenses, as well as other operating expenses - technical difficulties or system downtime affecting our products or the Web generally - economic conditions specific to the Web, as well as general economic conditions - consolidation of our customers In addition, a substantial portion of our expenses, including most product development and selling and marketing expenses, must be incurred in advance of revenue generation. If our projected revenue does not meet our expectations, then we are likely to experience an even larger shortfall in our operating profit (loss) relative to our expectations. Further, although we are not presently a party to a lawsuit, any potential claims, even if not meritorious, against us could result in the expenditure of significant financial and managerial resources on our part, which could materially impact our results of operations. IF WE CONTINUE TO LOSE KEY PERSONNEL AND ARE UNABLE TO ATTRACT ADDITIONAL AND RETAIN EXISTING KEY PERSONNEL, IT COULD CAUSE A MATERIAL AND ADVERSE EFFECT ON OUR BUSINESS. Our future success will depend, in substantial part, on the continued services of our senior management, including Daniel J. Schimmel, our President and Chief Executive Officer; William G. Schumacher, our Senior Vice President, Content Development; Philip J. Garlick, our Senior Vice President, Global Sales; Dileep Hurry, our Senior Vice President, Business Development; Roy D. Landon, our Senior Vice President and Chief Financial Officer; Michael Buzzell, our Senior Vice President, Engineering; and Mary F. McCabe, our Senior Vice President, Product Development. None of our senior management has entered into employment agreements with us, and we do not maintain key-person life insurance on any of our employees. In the first quarter of 2001, two members of our senior management team resigned. We may experience difficulty in transitioning their replacements into these key management roles. In addition, the loss of the services of one or a group of our other key personnel could have a material, adverse effect on development of new products and services, our ability to manage the business, 23 24 and our financial condition. Further, our future success will also depend on our continuing ability to attract, retain, and motivate highly qualified technical, customer support, sales, financial, accounting, and managerial personnel. Competition for such key personnel is intense, and we cannot assure you that we will be able to retain such personnel or that we will be able to attract, assimilate, or retain other highly qualified personnel in the future. Moreover, competition for highly qualified key personnel may lead to increased costs of retaining the services of such personnel, thus potentially hindering our financial condition. Any one or more of these factors could affect our business, financial condition and results of operations, and this makes the prediction of results of operations on a quarterly basis unreliable. As a result, we believe that period-to-period comparisons of our historical results of operations and annualized contract values are not necessarily meaningful and should not be relied upon as an indication for future performance. Also, due to these and other factors, it is possible that our quarterly results of operations (including the annualized contract value) may be below expectations. If this happens, the price of our common stock would likely decrease. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK OneSource is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. However, our exposure to currency exchange rate fluctuations has been and is expected to continue to be modest due to the fact that the operations of our United Kingdom subsidiary are almost exclusively conducted in local currency. Operating results are translated into United States dollars and consolidated for reporting purposes. The impact of currency exchange rate movements on intercompany transactions was immaterial for the years ended December 31, 2000 and 1999. We do not engage in hedging activities. OneSource also owns money market funds and government securities that are sensitive to market risks as part of its investment portfolio. The investment portfolio is used to preserve OneSource's capital until it is required to fund operations, including the Company's marketing and product development activities. None of these market-risk sensitive instruments are held for trading purposes. The investment portfolio contains instruments that are subject to the risk of a decline in interest rates. We do not enter into derivatives or any other financial instruments for trading or speculative purposes. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OneSource's Consolidated Financial Statements and Schedules and the Reports of Independent Accountants, are set forth beginning on page F-1 of Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is incorporated by reference to the section entitled "Occupations of Directors and Executive Officers" of OneSource's Proxy Statement for its 2001 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2000. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the section entitled "Executive Compensation" of OneSource's Proxy Statement for its 2001 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2000. 24 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the section entitled "Securities Ownership of Certain Beneficial Owners and Management" of OneSource's Proxy Statement for its 2001 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the section entitled "Certain Relationships and Related Transactions" of OneSource's Proxy Statement for its 2001 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2000. 25 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT: The following Consolidated Financial Statements and Schedules and the Reports of the Independent Accountants are filed herein: (1) Financial Statements: Index to Consolidated Financial Statements: PAGE ---- Report of Independent Accountants........................... F-1 Consolidated Balance Sheet at December 31, 2000 and 1999.... F-2 Consolidated Statement of Operations for the years ended F-3 December 31, 2000, 1999 and 1998.......................... Consolidated Statement of Stockholders' Equity for the years F-4 ended December 31, 2000, 1999 and 1998.................... Consolidated Statement of Cash Flows for the years ended F-6 December 31, 2000, 1999 and 1998.......................... Notes to Consolidated Financial Statements.................. F-7 to F-19 (2) Financial Statement Schedules: PAGE ---- Report of Independent Accountants on Financial Statement S-1 Schedules................................................. Schedule II -- Valuation and Qualifying Accounts............ S-2 All other financial statement schedules are omitted because they are not required, are inapplicable or the information has been included elsewhere in the financial statements or notes thereto. (b) REPORTS ON FORM 8-K OneSource did not file any reports on Form 8-K during the quarter ended December 31, 2000. OneSource hereby files as part of this Form 10-K the exhibits listed below. Exhibits that are incorporated herein by reference can be inspected and copied at the public reference rooms maintained by the Securities and Exchange Commission in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. Securities and Exchange Commission filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at HTTP://WWW.SEC.GOV. 26 27
EXHIBIT NO. DESCRIPTION ----------- ----------- 2.01 Agreement and Plan of Merger dated September 8, 1999 by and between the Registrant and Corporate Technology Information Services, Inc. (filed as Exhibit 2.1 to Form 8-K dated September 8, 1999, No. 000-25849 and incorporated herein by reference). 2.02 Escrow Agreement dated September 8, 1999 by and among the Registrant, Corporate Technology Information Services, Inc., Andrew Campbell and Citizens Bank of Massachusetts (filed as Exhibit 2.2 to Form 8-K dated September 8, 1999, No. 000-25849 and incorporated herein by reference). 3.01 Second Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.02 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 3.02 Second Amended and Restated By-Laws of the Registrant (filed as Exhibit 3.04 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.01* 1993 Stock Purchase and Option Plan (filed as Exhibit 10.01 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.02* 1999 Stock Option and Incentive Plan (filed as Exhibit 10.02 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.03* 1999 Employee Stock Purchase Plan (filed as Exhibit 10.03 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.04 Registration Agreement dated September 8, 1993 (filed as Exhibit 10.04 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.05 Lease dated January 20, 1999 by and between the Registrant and 300 Baker Avenue Associates, Limited Partnership (filed as Exhibit 10.12 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.06 Agreement and Plan of Merger dated February 26, 1999 by and between the Registrant and OneSource Holding Corporation (filed as Exhibit 10.13 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.08 Form of Management Stock Purchase Agreement 10.09 Stock Purchase Agreement dated August 3, 1993, by and among Lotus Development Corporation, Datext, Inc. and Datext Holding Corporation (filed as Exhibit 10.10 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.10 Form of Fee Termination Agreement (filed as Exhibit 10.16 to the Registration Statement on Form S-1, No. 333-73263 and incorporate herein by reference). 10.11 Stock Redemption Agreement dated April 21, 1999 (filed as Exhibit 10.17 to the Registration Statement on Form S-1, No. 333-73263 and incorporated herein by reference). 10.12 Amendment No. 1 to Employee Stock Purchase Plan dated April 21, 1999. 10.13 Amendment No. 2 to Employee Stock Purchase Plan dated July 18, 2000. 10.14 Amendment No. 1 to Stock Option and Incentive Plan dated May 25, 2000. 21.01 Subsidiaries of the Registrant 23.02 Consent of PricewaterhouseCoopers LLP 24.01 Power of Attorney (included in signature page)
--------------- * Indicates a management contract or compensatory plan, contract or arrangement required to be filed as an exhibit pursuant to item 14(c). 27 28 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ONESOURCE INFORMATION SERVICES, INC. By: /s/ DANIEL J. SCHIMMEL ------------------------------------ President and Chief Executive Officer Date: March 28, 2001 POWER OF ATTORNEY AND SIGNATURES The undersigned officers and directors of OneSource Information Services, Inc. hereby severally constitute and appoint Daniel J. Schimmel and Roy D. Landon, and each of them singly, with full power of substitution, our true and lawful attorneys-in-fact and agents to sign for us and in our names in the capacities indicated below, any amendments to this Form 10-K, and generally to do all things in our names and on our behalf in such capacities to enable OneSource Information Services, Inc. to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this report on Form 10-K.
SIGNATURE TITLE(S) DATE --------- -------- ---- /s/ DANIEL J. SCHIMMEL President and Chief Executive Officer March 28, 2001 ------------------------------------- (principal executive officer) Daniel J. Schimmel /s/ ROY D. LANDON Senior Vice President and Chief March 28, 2001 ------------------------------------- Financial Officer (principal Roy D. Landon financial officer) /s/ MARTIN KAHN Director March 28, 2001 ------------------------------------- Martin Kahn /s/ CARL P. FISHER Director March 28, 2001 ------------------------------------- Carl P. Fisher /s/ GREGG S. NEWMARK Director March 28, 2001 ------------------------------------- Gregg S. Newmark
28 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of OneSource Information Services, Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of OneSource Information Services, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 1, 2001 F-1 30 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ----------------- 2000 1999 ------- ------- ASSETS Current assets: Cash and cash equivalents................................. $17,338 $13,598 Accounts receivable, net of allowance for doubtful accounts of $672 and $348 at December 31, 2000 and 1999, respectively..................................... 19,373 14,420 Restricted time deposit................................... -- 100 Deferred subscription costs............................... 7,281 7,225 Prepaid expenses and other current assets................. 314 272 ------- ------- Total current assets................................... 44,306 35,615 Property and equipment, net................................. 5,118 3,422 Goodwill and other intangible assets, net................... 8,103 9,606 Restricted time deposit..................................... 603 603 Other assets................................................ 702 452 ------- ------- Total assets...................................... $58,832 $49,698 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligations.............. $ 33 $ 205 Accounts payable.......................................... 1,859 1,501 Accrued expenses.......................................... 5,864 4,618 Accrued royalties......................................... 5,494 5,760 Deferred revenues......................................... 29,229 24,222 ------- ------- Total current liabilities.............................. 42,479 36,306 Capital lease obligations, net of current portion........... -- 29 ------- ------- Total liabilities................................. 42,479 36,335 ------- ------- Commitments (Note 14)....................................... -- -- Stockholders' equity: Preferred stock, $0.01 par value: 1,000,000 shares authorized; no shares issued and outstanding............................................ -- -- Common stock, $0.01 par value: 20,000,000 shares authorized; 12,158,467 and 10,381,109 shares issued and outstanding at December 31, 2000 and 1999, respectively..................................... 122 104 Additional paid-in capital................................ 30,309 28,504 Unearned compensation..................................... (174) (271) Accumulated deficit....................................... (14,033) (14,891) Accumulated other comprehensive income (loss)............. 129 (83) ------- ------- Total stockholders' equity........................ 16,353 13,363 ------- ------- Total liabilities and stockholders' equity........ $58,832 $49,698 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-2 31 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------- ------- Revenues: Web-based product......................................... $47,275 $31,822 $16,058 CD Rom product and other.................................. 4,614 3,726 14,370 ------- ------- ------- 51,889 35,548 30,428 ------- ------- ------- Cost of revenues: Web-based product......................................... 15,536 13,143 7,863 CD Rom product and other.................................. 2,373 1,666 5,792 ------- ------- ------- 17,909 14,809 13,655 ------- ------- ------- Gross profit.............................................. 33,980 20,739 16,773 ------- ------- ------- Operating expenses: Selling and marketing..................................... 20,519 13,254 11,577 Platform and product development.......................... 8,842 7,996 6,313 General and administrative................................ 5,079 5,474 3,847 Amortization of goodwill and other intangible assets...... 1,503 376 -- ------- ------- ------- Total operating expenses............................... 35,943 27,100 21,737 ------- ------- ------- Loss from operations................................... (1,963) (6,361) (4,964) Interest expense............................................ (91) (663) (878) Interest income............................................. 978 710 283 Gain on sale of product line................................ -- -- 12,797 Other income................................................ 2,000 2,000 -- ------- ------- ------- Income (loss) before provision for income taxes........ 924 (4,314) 7,238 Provision for income taxes.................................. 66 133 250 ------- ------- ------- Net income (loss)...................................... 858 (4,447) 6,988 Less: income attributable to Class P common stock........... -- -- 1,367 ------- ------- ------- Net income (loss) attributable to common stock.............. $ 858 $(4,447) $ 5,621 ======= ======= ======= Class P common stock: Basic and diluted earnings per share...................... $ -- $ -- $ 1.91 Weighted average Class P common shares outstanding........ -- -- 718 Common stock: Basic earnings (loss) per share........................... $ 0.07 $ (0.50) $ 0.85 Diluted earnings (loss) per share......................... $ 0.06 $ (0.50) $ 0.59 Weighted average common shares outstanding: Basic.................................................. 11,509 8,822 6,641 Diluted................................................ 13,509 8,822 9,563
The accompanying notes are an integral part of these consolidated financial statements. F-3 32 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
CLASS P COMMON STOCK COMMON STOCK ADDITIONAL ----------------- ------------------- PAID-IN UNEARNED ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT -------- ------ ---------- ------ ---------- ------------ ----------- BALANCE, DECEMBER 31, 1997...................... 717,948 $3,528 6,684,959 $ 67 $ 362 $ -- $(17,432) Comprehensive loss: Net income...................................... 6,988 Foreign currency translation adjustment......... Comprehensive income.......................... Issuance of common stock pursuant to exercise of options....................................... 90,354 1 22 Unearned compensation relating to grants of stock options................................. 45 (45) Amortization of unearned compensation relating to grants of stock options.................... 6 Compensation relating to modification of stock options on sale of product line............... 295 Reacquisition and retirement of Class P common stock......................................... (829) (4) Reacquisition of common stock for treasury...... -------- ------ ---------- ---- ------- ----- -------- BALANCE, DECEMBER 31, 1998...................... 717,119 3,524 6,775,313 68 724 (39) (10,444) Comprehensive loss: Net loss........................................ (4,447) Foreign currency translation adjustment......... Comprehensive loss............................ Conversion of Class P common stock and the preference amount to common stock............. (717,119) (3,524) 999,328 10 3,514 Repurchase and retirement of common stock....... (282,209) (3) (3,384) Retirement of treasury stock.................... (109,890) (1) (5) Issuance of common stock pursuant to initial public offering, net of offering costs........ 2,500,000 25 26,890 Unearned compensation relating to grants of stock options................................. 346 (346) Amortization of unearned compensation relating to grants of stock options.................... 114 Issuance of common stock pursuant to exercise of options....................................... 415,538 4 415 Issuance of common stock pursuant to exercise of warrants...................................... 83,029 1 4 -------- ------ ---------- ---- ------- ----- -------- BALANCE, DECEMBER 31, 1999...................... -- -- 10,381,109 104 28,504 (271) (14,891) Comprehensive income: Net income...................................... 858 Foreign currency translation adjustment......... ACCUMULATED OTHER TREASURY STOCK TOTAL COMPREHENSIVE ----------------- STOCKHOLDERS' COMPREHENSIVE INCOME (LOSS) SHARES AMOUNT EQUITY (DEFICIT) INCOME (LOSS) ------------- -------- ------ ---------------- ------------- BALANCE, DECEMBER 31, 1997...................... $(132) 102,564 $(6) $(13,613) Comprehensive loss: Net income...................................... 6,988 $6,988 Foreign currency translation adjustment......... (6) (6) (6) ------ Comprehensive income.......................... 6,982 ====== Issuance of common stock pursuant to exercise of options....................................... 23 Unearned compensation relating to grants of stock options................................. -- Amortization of unearned compensation relating to grants of stock options.................... 6 Compensation relating to modification of stock options on sale of product line............... 295 Reacquisition and retirement of Class P common stock......................................... (4) Reacquisition of common stock for treasury...... 7,326 -- -- ----- -------- --- -------- BALANCE, DECEMBER 31, 1998...................... (138) 109,890 (6) (6,311) Comprehensive loss: Net loss........................................ (4,447) (4,447) Foreign currency translation adjustment......... 55 55 55 ------ Comprehensive loss............................ (4,392) ====== Conversion of Class P common stock and the preference amount to common stock............. -- Repurchase and retirement of common stock....... (3,387) Retirement of treasury stock.................... (109,890) 6 -- Issuance of common stock pursuant to initial public offering, net of offering costs........ 26,915 Unearned compensation relating to grants of stock options................................. -- Amortization of unearned compensation relating to grants of stock options.................... 114 Issuance of common stock pursuant to exercise of options....................................... 419 Issuance of common stock pursuant to exercise of warrants...................................... 5 ----- -------- --- -------- BALANCE, DECEMBER 31, 1999...................... (83) -- -- 13,363 Comprehensive income: Net income...................................... 858 858 Foreign currency translation adjustment......... 212 212 212 ------
F-4 33
CLASS P COMMON STOCK COMMON STOCK ADDITIONAL ----------------- ------------------- PAID-IN UNEARNED ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT -------- ------ ---------- ------ ---------- ------------ ----------- Comprehensive income.......................... Amortization of unearned compensation relating to grants of stock options.................... 97 Issuance of common stock pursuant to exercise of options....................................... 1,341,024 14 1,532 Issuance of common stock pursuant to employee stock purchase plan........................... 31,184 -- 273 Issuance of common stock pursuant to exercise of warrants...................................... 405,150 4 -- -------- ------ ---------- ---- ------- ----- -------- BALANCE, DECEMBER 31, 2000...................... -- $ -- 12,158,467 $122 $30,309 $(174) $(14,033) ======== ====== ========== ==== ======= ===== ======== ACCUMULATED OTHER TREASURY STOCK TOTAL COMPREHENSIVE ----------------- STOCKHOLDERS' COMPREHENSIVE INCOME (LOSS) SHARES AMOUNT EQUITY (DEFICIT) INCOME (LOSS) ------------- -------- ------ ---------------- ------------- Comprehensive income.......................... $1,070 ====== Amortization of unearned compensation relating to grants of stock options.................... 97 Issuance of common stock pursuant to exercise of options....................................... 1,546 Issuance of common stock pursuant to employee stock purchase plan........................... 273 Issuance of common stock pursuant to exercise of warrants...................................... 4 ----- -------- --- -------- BALANCE, DECEMBER 31, 2000...................... $ 129 -- $-- $ 16,353 ===== ======== === ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 34 ONESOURCE INFORMATION SERVICES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------- 2000 1999 1998 ------- ------- -------- Increase (Decrease) in Cash and Cash Equivalents Cash flows relating to operating activities: Net income (loss)......................................... $ 858 $(4,447) $ 6,988 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization.......................... 2,521 1,661 1,518 Amortization of goodwill and other intangible assets... 1,503 376 -- Amortization of unearned compensation relating to grants of stock options.............................. 97 114 6 Amortization of debt discount.......................... -- 52 121 Loss on sale leaseback transaction..................... -- -- 45 Gain on sale of product line........................... -- -- (12,797) Changes in assets and liabilities, net of effects of acquisition of Corporate Technology: Accounts receivable.................................. (5,225) (4,294) (946) Deferred subscription costs.......................... (56) (563) (2,217) Prepaid expenses and other assets.................... 1 (266) (43) Accounts payable..................................... 433 523 (213) Accrued expenses..................................... 1,281 528 1,075 Accrued royalties.................................... (266) 1,134 2,283 Deferred revenues.................................... 5,472 4,580 5,373 ------- ------- -------- Net cash provided (used) by operating activities...................................... 6,619 (602) 1,193 ------- ------- -------- Cash flows relating to investing activities: Proceeds from (investment in) restricted time deposits.... 100 (603) (100) Purchases of property and equipment....................... (4,014) (2,759) (1,252) Capitalization of software development costs.............. (530) (225) (200) Net proceeds from sale of product line.................... -- -- 10,563 Acquisition of Corporate Technology, net of cash acquired............................................... -- (7,560) -- ------- ------- -------- Net cash provided (used) by investing activities...................................... (4,444) (11,147) 9,011 ------- ------- -------- Cash flows relating to financing activities: Proceeds from issuance of common stock, net............... 1,823 27,339 23 Repurchase of Class P common stock and common stock....... -- (3,387) (4) Net repayments under line of credit....................... -- -- (1,183) Repayments of term loan................................... -- -- (347) Repayment of long-term debt............................... -- (6,722) -- Proceeds from sale and leaseback of fixed assets.......... -- -- 228 Repayments of capital lease obligations................... (201) (549) (684) ------- ------- -------- Net cash provided (used) by financing activities...................................... 1,622 16,681 (1,967) ------- ------- -------- Effect of exchange rate changes on cash and cash equivalents............................................... (57) 1 87 ------- ------- -------- Increase in cash and cash equivalents....................... 3,740 4,933 8,324 Cash and cash equivalents, beginning of year................ 13,598 8,665 341 ------- ------- -------- Cash and cash equivalents, end of year...................... $17,338 $13,598 $ 8,665 ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 35 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS OneSource Information Services, Inc. and its wholly-owned subsidiaries provide Web-based business and financial information to professionals in corporations and other enterprises and also publishes information on private technology companies. OneSource primarily sells its products through a direct sales force located throughout the United States and United Kingdom. OneSource manages its business as a single segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of OneSource Information Services, Inc. and its wholly-owned subsidiaries: Corporate Technology Information Services, Inc. and OneSource Information Services Limited, (collectively, "OneSource"). All significant intercompany transactions and balances have been eliminated. Revenue Recognition OneSource's products are sold on a subscription basis pursuant to customer contracts that span varying periods of time but are generally for a period of one year. OneSource initially records receivables and defers the related revenue when persuasive evidence of an arrangement exists, fees are fixed or determinable, and collection is probable. Revenues are recognized ratably over the related subscription period beginning when access to products is granted to the customer in accordance with customer agreements. OneSource also produces print directories on an annual basis. The related revenue is recognized upon shipment, provided that there is persuasive evidence of an arrangement, fees are fixed or determinable, and collection is probable. Subscription Costs Subscription costs represent sales commission and royalty costs that are directly associated with securing a subscription and procuring information to be delivered over the subscription period, respectively. These costs are deferred and amortized ratably over the associated subscription period as a component of selling and marketing expense and cost of revenues, respectively. At December 31, 2000 and 1999, deferred subscription costs consisted of $2.1 million and $1.7 million, respectively, related to sales commissions and $5.2 million and $5.5 million, respectively, related to royalties. Cash and Cash Equivalents Cash equivalents consist of money market funds with original maturities of three months or less and are stated at cost which approximates fair market value. These funds are managed by a financial institution with a strong credit rating. Accordingly, the investments are subject to minimal credit and market risks. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives, generally three to five years, using the straight-line method. Equipment held under capital leases is stated at the fair value of the equipment at inception of the leases and is amortized on a straight-line basis over the term of the leases. Advertising Costs OneSource recognizes advertising expense as incurred. Advertising expense was approximately $87,000, $42,000 and $195,000 for the years ended December 31, 2000, 1999 and 1998, respectively. F-7 36 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Goodwill and Other Intangible Assets Intangible assets consist primarily of goodwill, trademark, non-compete agreement, subscriber list and a database. Intangible assets are amortized using the straight-line method over a period of three to seven years, based on the estimated useful life. The carrying value of the intangible assets is reviewed on a quarterly basis for the existence of facts or circumstances both internally and externally that may suggest impairment. To date, no such impairment has occurred. OneSource determines whether an impairment has occurred based on gross expected future cash flows and measures the amount of the impairment based on the related future estimated discounted cash flows. The cash flow estimates used to determine the impairment, if any, contain management's best estimates, using appropriate and customary assumptions and projections at the time. Platform and Product Development and Software Development Costs Platform and product development costs, other than certain software development costs, are charged to expense as incurred. In 1999, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires research and development costs associated with the application development stage to be capitalized for internal use software. At December 31, 2000 and 1999, OneSource had capitalized software development costs pursuant to the above of $530,000 and $225,000, respectively. For the years ended December 31, 2000, 1999 and 1998, amortization of capitalized software development costs amounted to $224,000, $229,000 and $198,000, respectively. Financial Instruments The carrying amounts reflected in the consolidated balance sheet for cash and cash equivalents, restricted time deposits, accounts receivable and capital lease obligations approximate their fair value due to the short term maturities of these instruments. Concentration of Credit Risk Concentration of credit risk with respect to accounts receivable is limited due to the large number of companies comprising OneSource's client base. Ongoing credit evaluations of customers' financial condition are performed and collateral is generally not required. OneSource maintains reserves for potential credit losses and such losses, in the aggregate, have not exceeded management's expectations. Accounting for Stock-Based Compensation OneSource accounts for stock-based compensation to employees in accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretation. Accordingly, compensation expense is recorded for options issued to employees in fixed amounts to the extent that the fixed exercise prices are less than the fair market value of OneSource's common stock at the date of grant. OneSource follows the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" (Note 9). All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123. Earnings Per Share Earnings per share is computed in accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the presentation of two amounts: basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing income available to common shareholders by the sum of the weighted average number of shares of F-8 37 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) common stock outstanding during the year and the weighted average number of potential common stock from the assumed exercise of stock options and warrants using the treasury stock method. For the year ended December 31, 1998, the two-class method of computing earnings per share has been used since the Class P common stock and the common stock share ratably in earnings remaining subsequent to the 12% yield on the Class P common stock. Earnings per share of Class P common stock is calculated by dividing the yield earned and income (loss) attributable to Class P common stock by the weighted average number of shares of Class P common stock outstanding during the period. Foreign Currency Translation Assets and liabilities of OneSource's United Kingdom operations, where the local currency is the functional currency, are translated into US dollars at the exchange rate in effect as of the balance sheet date, while revenues and expenses are translated at average exchange rates during the period. The resultant translation adjustment is reflected as a separate component of stockholders' equity. Transaction gains and losses, which are not material in amount, are reflected in the consolidated statement of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires OneSource management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. OneSource, to date, has not engaged in derivative and hedging activities, and accordingly does not believe that the adoption of SFAS No. 133 will have a material impact on the financial reporting and related disclosures. OneSource will adopt SFAS No. 133 as required by SFAS No. 137 in fiscal year 2001. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," as amended by SAB No. 101A and 101B, which was effective no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. SAB No. 101 provides guidance on applying generally accepted accounting principles to revenue recognition issues in financial statements. The application of SAB No.101 did not have a significant impact on OneSource's financial position or results of operations. In March 2000, the Financial Accounting Standard Board issued FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an interpretation of APB Opinion No. 25." FIN No. 44 primarily clarifies (a) the definition of an employee for purposes of applying APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of previously fixed stock options or awards, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 was F-9 38 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The application of FIN No. 44 did not impact OneSource's financial position or results of operations. 3. ACQUISITION On October 1, 1999, OneSource acquired Corporate Technology Information Services, Inc. ("Corporate Technology"), a Delaware corporation located in Woburn, Massachusetts (the "Acquisition"). Corporate Technology is a provider of high technology company profiles with a focus on emerging private companies. Pursuant to the terms of an Agreement and Plan of Merger, the consideration paid by OneSource was $7.6 million in cash. A portion of the cash consideration is being held in escrow to be released in accordance with the Agreement and Plan of Merger and an Escrow Agreement. The Corporate Technology acquisition has been accounted for under the purchase method of accounting. Accordingly, the purchase price was allocated based upon an independent professional appraisal of the fair value of assets acquired and liabilities assumed. The excess of the purchase price over the fair value of the tangible assets acquired of $1.0 million and liabilities assumed of $2.5 million totaled $9,982,000. This amount has been included in goodwill and other intangible assets (Note 4), which are being amortized using the straight-line method over applicable periods ranging from three to seven years; related amortization expense totaled $1,503,000 and $376,000 for the years ended December 31, 2000 and 1999, respectively. The operating results of Corporate Technology have been included in the financial statements since the date of the Acquisition. 4. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets consist of the following:
DECEMBER 31, ----------------- 2000 1999 ------- ------ (IN THOUSANDS) Goodwill.................................................. $ 7,301 $7,301 Non-compete agreement..................................... 400 400 Subscriber list........................................... 1,150 1,150 Database.................................................. 986 986 Trademark................................................. 145 145 ------- ------ 9,982 9,982 Less: accumulated amortization............................ (1,879) (376) ------- ------ $ 8,103 $9,606 ======= ======
F-10 39 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------------ 2000 1999 ------- ------- (IN THOUSANDS) Office and computer equipment............................ $ 8,824 $ 6,101 Furniture and fixtures................................... 527 273 ------- ------- 9,351 6,374 Less: accumulated depreciation and amortization.......... (4,233) (2,952) ------- ------- $ 5,118 $ 3,422 ======= =======
At December 31, 2000 and 1999, office and computer equipment under capital leases totaled $623,000 and $837,000, respectively. Related accumulated amortization of assets under capital leases totaled $602,000 and $651,000 at December 31, 2000 and 1999, respectively. During the year ended December 31, 1998, OneSource sold and leased back certain computer equipment with a net book value of $237,000 for cash proceeds of $228,000. During 2000 and 1999, OneSource retired $991,000 and $3,124,000, respectively, of fully depreciated property and equipment. Total depreciation expense for the years ended December 31, 2000, 1999 and 1998 was $2,297,000, $1,432,000 and $1,320,000, respectively. 6. LONG-TERM DEBT In connection with the acquisition of the business in 1993, OneSource entered into a subordinated note agreement with the seller with a face amount of $5.0 million (the "Note"). The Note accrued interest at 8% per annum, payable annually commencing March 31, 1995 and was discounted to reflect the market rate of 12% at the time of issuance. The initial discount totaling $938,000 was being amortized to interest expense over the life of the Note using the effective interest method. Interest payments were added to the unpaid principal of the Note annually if OneSource's cash flow, as defined in the Note agreement, was less than a specified amount. Upon the completion of the Company's public offering and in accordance with the Note agreement, OneSource repaid the Note in May 1999 for $6.8 million of principal and interest. In conjunction with the repayment, OneSource recognized $272,000 of interest expense, which represented the remaining unamortized discount on the Note. 7. EARNINGS PER SHARE The following tables set forth the computation of earnings per share of common stock and Class P common stock from net income (loss):
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------- ------- ------ (IN THOUSANDS) Numerator for common stock: Net income (loss)..................................... $ 858 $(4,447) $6,988 Less: income attributable to Class P common stock..... -- -- 1,367 ------- ------- ------ $ 858 $(4,447) $5,621 ======= ======= ======
F-11 40 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------- ------- ------ (IN THOUSANDS) Denominator for common stock: Weighted average shares outstanding used for basic earnings per share.................................. 11,509 8,822 6,641 Effect of dilutive securities: Stock options......................................... 2,000 -- 2,433 Common stock warrants................................. -- -- 489 ------- ------- ------ Weighted average shares outstanding used for diluted earnings per share.................................. 13,509 8,822 9,563 ------- ------- ------ Numerator for Class P common stock: Yield earned by Class P common stock.................. $ -- $ -- $ 742 Income (loss) attributable to Class P common stock.... -- -- 625 ------- ------- ------ $ -- $ -- $1,367 ======= ======= ======
For the year ended December 31, 2000, stock options to purchase 1,062,690 shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of common stock during the year. At December 31, 1999, total potential common stock consist of 3,675,794 stock options outstanding with a weighted average exercise price of $2.72 per share and 407,000 common stock warrants exercisable at $0.06 per share. Basic and diluted earnings per share of Class P common stock are the same, since there are no securities outstanding that would result in a dilution of Class P common stock. 8. STOCKHOLDERS' EQUITY In connection with its initial capitalization, OneSource issued 725,274 shares of Class P common stock and 6,527,466 shares of common stock at $4.91 per share and $0.06 per share, respectively. The holders of the Class P common stock, as a separate class, were entitled to receive first all or a portion of any distribution, as defined, until the "preference amount" and the original issuance cost had been paid in full. The preference amount was 12% compounded quarterly. After all such payments were made, the holders of the Class P common stock and of the common stock were entitled to share pro rata in the remaining portion of the distribution, as a single class. No dividends on either the Class P common stock or the common stock have been declared or paid, and no payments of the aggregate yield have been made to the Class P common stockholders. As a result, the Class P common stock was stated at its original issuance cost of $4.91 per share. On May 24, 1999, the liquidation preference of these shares was $6,911,000, consisting of its original issuance cost of $3,524,000 and accumulated "preference amount" of $3,387,000. Authorized Shares The authorized capital stock of OneSource consists of 20,000,000 shares of common stock, $0.01 par value, and 1,000,000 shares of undesignated preferred stock, $0.01 par value. Prior to the closing of OneSource's public offering, OneSource's authorized capital stock consisted of 20,000,000 shares of common stock, $0.01 par value, and 1,250,000 shares of Class P common stock, $0.01 par value. Voting Rights All holders of common stock are entitled to one vote per share on all matters to be voted upon by OneSource's stockholders. F-12 41 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Warrants In connection with the Note agreement (Note 6), OneSource issued a warrant exercisable at $0.06 per share for 407,000 shares of OneSource's common stock. This warrant was fully exercised in January 2000. Public Offering In May 1999, OneSource completed an initial public offering of 3,636,000 shares of its common stock, of which 2,500,000 shares were issued and sold by OneSource, for net proceeds of $27.0 million. As a result, all outstanding shares of Class P common stock were automatically converted into 717,119 shares of OneSource's common stock. In conjunction with the initial public offering, OneSource converted the accumulated "preference amount" on Class P common stock of $3,387,000 into 282,209 shares of common stock based on the public offering price of $12.00 per share. Subsequently, OneSource repurchased and retired the equivalent number of common stock shares issued for the preference amount at $12.00 per share. Reserved Shares At December 31, 2000, OneSource had reserved 3,832,757 shares of common stock for issuance upon exercise of common stock options. 9. STOCK PLANS The 1993 Stock Purchase and Option Plan (the "1993 Plan") provides for the grant of incentive stock options and non-qualified stock options for the purchase of up to an aggregate of 4,273,500 shares of OneSource's common stock by employees, directors, consultants and advisors of OneSource. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject to options, and the vesting schedule of each option. The exercise price for incentive stock options granted may not be less than the fair value per share of the underlying common stock on the date granted as determined by the Board of Directors (not less than 110% of the fair value for options granted to holders of more than 10% of the voting stock of OneSource). Additionally, the term of the options cannot exceed ten years (five years for options granted to holders of more than 10% of the voting stock of OneSource). The options generally vest over a four-year period. In February 1999, there were no shares of common stock available for grant under the 1993 Plan. In February 1999, the Board of Directors of OneSource approved the 1999 Stock Option and Incentive Plan (the "1999 Plan") to be effective upon OneSource's initial public offering. The 1999 Plan provides for the grant of stock-based awards to employees, officers and directors of, and consultants or advisors to, OneSource. A total of 1,800,000 shares of common stock are authorized for issuance upon the exercise of options or other awards granted under the 1999 Plan. In February 1999, the Board of Directors of OneSource approved the 1999 Employee Stock Purchase Plan (the "1999 Purchase Plan"), to be effective upon OneSource's initial public offering. The 1999 Purchase Plan provides for the issuance of a maximum of 100,000 shares of common stock. F-13 42 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Transactions under the 1993 Plan and 1999 Plan during the years ended December 31, 1998, 1999 and 2000 are summarized as follows:
WEIGHTED- NUMBER OF AVERAGE SHARES EXERCISE PRICE ---------- -------------- Outstanding -- December 31, 1997............................ 3,606,524 $1.35 Granted (weighted average fair value of $1.13)............ 204,925 2.18 Exercised................................................. (90,354) 0.27 Forfeited................................................. (173,179) 1.34 ---------- Outstanding -- December 31, 1998............................ 3,547,916 1.43 Granted (weighted average fair value of $3.81)............ 641,613 9.19 Exercised................................................. (415,538) 0.99 Forfeited................................................. (98,197) 5.44 ---------- Outstanding -- December 31, 1999............................ 3,675,794 2.72 Granted (weighted average fair value of $4.32)............ 790,915 8.41 Exercised................................................. (1,341,024) 0.74 Forfeited................................................. (216,584) 8.58 ---------- Outstanding -- December 31, 2000............................ 2,909,101 4.53 ==========
The following table summarizes information about stock options outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING VESTED OPTIONS EXERCISABLE ----------------------------------------- -------------------------- WEIGHTED- WEIGHTED- AVERAGE WEIGHTED- AVERAGE REMAINING AVERAGE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING PRICE LIFE IN YEARS EXERCISABLE PRICE ------------------------ ----------- --------- ------------- ------------ ---------- $0.12 to 2.19.............. 1,793,015 $ 1.79 4.6 1,793,015 $ 1.79 6.25 to 8.63............... 640,447 7.93 9.2 59,729 7.38 9.75 to 10.50.............. 404,168 10.00 8.8 62,030 9.93 12.00 to 12.13............. 71,471 12.08 8.8 17,866 12.08 --------- --------- 2,909,101 $ 4.54 6.3 1,932,640 $ 2.32 ========= =========
As of December 31, 1999 and 1998, 2,732,998 and 2,730,457 options were exercisable, respectively, under the 1993 and 1999 Plans. As of December 31, 2000, there were 923,656 shares of common stock available for grant under the 1999 Plan. Fair Value Compensation expense has been recognized for OneSource's stock option plans under APB No. 25. Had compensation cost been determined based on the fair value of the options at the grant date consistent with the F-14 43 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) provisions of SFAS No. 123, OneSource's net income (loss) and earnings (loss) per share on a pro forma basis would be as follows:
YEAR ENDED DECEMBER 31, ------------------------ 2000 1999 1998 ----- ------- ------ Net income (loss) (in thousands): As reported............................................... $ 858 $(4,447) $6,988 Pro forma................................................. (214) (4,779) 6,909 Basic and diluted earnings per Class P common share: As reported............................................... -- -- 1.91 Pro forma................................................. -- -- 1.89 Basic earnings per common share: As reported............................................... 0.07 (0.50) 0.85 Pro forma................................................. (0.02) (0.54) 0.84 Diluted earnings per common share: As reported............................................... 0.06 (0.50) 0.59 Pro forma................................................. (0.02) (0.54) 0.58
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
YEAR ENDED DECEMBER 31, ------------------------- 2000 1999 1998 ------ ------ ----- Expected option term (years).............................. 5.0 5.0 5.0 Risk-free interest rate(%)................................ 6.45 5.60 5.58 Expected volatility(%).................................... 50.00 18.78 -- Dividend yield(%)......................................... -- -- -- Weighted-average fair value of options granted............ $ 4.32 $ 3.81 $1.13 Weighted-average fair value of common stock purchased under the 1999 Purchase Plan............................ $ 3.02 $ -- $ --
Because options vest over several years and additional option grants are expected to be made in future years, results of operations for future years may be materially different if the provisions of SFAS No. 123 are applied. Compensation Expense In conjunction with the sale of the CD-Insurance division, OneSource modified the terms of 226,601 stock options held by terminated employees. In accordance with APB No. 25, compensation expense of $295,000 was recorded as a reduction of the gain on the sale of the insurance division in the year ended December 31, 1998. During 1998, 203,093 stock options were granted with an exercise price of $2.19 per share and 1,832 stock options were granted with an exercise price of $1.37 per share; these exercise prices were below the estimated fair market value of the common stock at the date of grant. Unearned compensation of $45,000 was recorded, in accordance with APB No. 25, and will be amortized over the related vesting period. During 1999, 40,700 stock options were granted with an exercise price of $2.19 per share and 30,525 stock options were granted with an exercise price of $5.90 per share; these exercise prices were below the estimated fair market value of the common stock at the date of grant. Unearned compensation of $438,000, less $92,000 subsequently forfeited by a terminated employee, was recorded in accordance with APB No. 25 and will be amortized over the related vesting period of four years. Related compensation expense of $97,000, $114,000 and $6,000 was recorded during the years ended December 31, 2000, 1999 and 1998, respectively. Options issued during 2000 were granted at the fair market value of the common stock at the grant date. F-15 44 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. INCOME TAXES Components of the income (loss) before income taxes and of the current provision for income taxes are as follows:
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------- ------- ------ (IN THOUSANDS) Income (loss) before income taxes: Domestic................................................. $ 2,788 $(3,832) $7,204 Foreign.................................................. (1,864) (482) 34 ------- ------- ------ $ 924 $(4,314) $7,238 ------- ------- ------ Current provision for income taxes: Federal.................................................. $ -- $ -- $ 200 State.................................................... 66 133 45 Foreign.................................................. -- -- 5 ------- ------- ------ $ 66 $ 133 $ 250 ======= ======= ======
OneSource had no deferred provision for income taxes in each of the years ended December 31, 2000, 1999 and 1998 due to the offsetting effects of the valuation allowance on its net deferred tax assets. Provision has not been made for the United States or additional foreign taxes on undistributed earnings of foreign subsidiaries as those earnings have been permanently reinvested. Such taxes, if any, are not expected to be significant. Income taxes computed using the federal statutory income tax rate differ from OneSource's effective tax rate primarily due to the following:
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------- ------- (IN THOUSANDS) Income tax expense (benefit) at US federal statutory tax rate..................................................... $ 314 $(1,467) $ 2,461 State income taxes, net of federal tax effect.............. 44 (156) 508 Permanent items............................................ 389 128 21 Other...................................................... 12 36 36 Change in deferred tax asset valuation allowance........... (693) 1,592 (2,776) ------ ------- ------- Provision for income taxes................................. $ 66 $ 133 $ 250 ====== ======= =======
F-16 45 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Components of OneSource's deferred tax assets and liabilities are as follows:
DECEMBER 31, ---------------- 2000 1999 ------ ------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards.......................... $5,725 $ 3,138 Depreciation.............................................. 754 618 Accrued expenses.......................................... 513 466 Deferred revenues......................................... -- 1,851 Miscellaneous............................................. 308 182 ------ ------- Gross deferred tax asset............................... 7,300 6,255 Less: valuation allowance................................. (5,023) (3,858) ------ ------- Total deferred tax assets.............................. 2,277 2,397 ------ ------- Deferred tax liabilities: Prepaid expenses.......................................... 866 684 Deferred royalties........................................ -- 117 Other intangible assets................................... 863 1,052 Amortization of debt discount............................. 72 72 Capitalized software development costs.................... 129 126 Tax operating leases...................................... 347 346 ------ ------- Total deferred tax liabilities......................... 2,277 2,397 ------ ------- Net deferred tax assets..................................... $ -- $ -- ====== =======
A portion of the net operating loss carryforwards totaling approximately $7.3 million relates to deductions for the exercise of non-qualified stock options and will be credited to additional paid-in capital upon realization. Approximately $533,000 of the valuation allowance relates to deferred tax assets acquired from Corporate Technology. Realization of OneSource's net deferred tax assets is contingent upon the generation of future taxable income. Due to the uncertainty of realization of these tax benefits, OneSource has provided a valuation allowance for the full amount of its net deferred tax assets. As of December 31, 2000, OneSource has federal and state net operating loss carryforwards of approximately $12.1 million that begin to expire in 2019 and 2004, respectively. As of December 31, 2000 OneSource had net operating loss carryforwards of $2.4 million for foreign tax purposes which do not expire. During 1998, OneSource utilized $8.0 million of net operating loss carryforwards. Under the provisions of the Internal Revenue Code, if certain substantial changes in OneSource's ownership should occur, the amount of net operating loss carryforwards which could be utilized annually to offset future taxable income and income tax liability may be limited. The amount of any annual limitation is determined based upon OneSource's value prior to an ownership change. 11. SALE OF PRODUCT LINES In May 1998, OneSource sold its CD-Insurance division for $11.0 million in cash and entered a software license agreement for $4.0 million to be received in equal quarterly installments for two years commencing January 1, 1999 and ending on December 31, 2000. In connection with the sale, OneSource also entered a non-compete agreement for five years. As a result of the sale, OneSource recorded a gain of $12,797,000 which includes: (i) the recognition of $3,124,000 of deferred revenues and $595,000 of deferred subscription costs based upon the assumption by the buyer of all obligations to service the existing subscriber base of the F-17 46 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) insurance division, (ii) $530,000 of employee severance costs and (iii) $202,000 of expenses associated with the sale. Payments pertaining to the software license agreement were recognized in other income as support services were performed and payments were made in accordance with the agreement. OneSource recorded $2.0 million of other income related to the software license agreement for both years ended December 31, 2000 and 1999. 12. EMPLOYEE BENEFIT PLANS After three months of service, OneSource employees are eligible to participate in a tax deferred savings plan (the "Savings Plan") under Section 401(k) of the Internal Revenue Code. OneSource matches 25% of the first 6% contributed by the employee and the employee becomes fully vested in OneSource's matching contribution after three years of service. OneSource's contributions to the Savings Plan totaled $139,000, $133,000 and $120,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 13. RELATED PARTY TRANSACTIONS At December 31, 2000 and 1999, OneSource had accounts receivable of $526,000 and $373,000, respectively, due from two stockholders. OneSource recognized revenue of $563,000, $558,000 and $318,000 in the years ended December 31, 2000, 1999 and 1998, respectively, from these stockholders. Management fees paid to a stockholder and an affiliate of another stockholder for the years ended December 31, 1999 and 1998 were $68,000 and $200,000, respectively, and are included in general and administrative expenses. In addition, in 1999 OneSource paid a termination fee of $500,000 to both a shareholder and an affiliate of another shareholder in conjunction with the initial public offering. 14. COMMITMENTS Leases OneSource leases facilities and certain equipment under various noncancellable operating lease agreements. Total rent expense under such leases was $1.5 million, $1.6 million and $1.1 million for the years ended December 31, 2000, 1999, and 1998, respectively. Future minimum lease commitments under all noncancellable capital and operating leases at December 31, 2000 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- (IN THOUSANDS) 2001.......................................... $ 34 $1,334 2002.......................................... -- 1,206 2003.......................................... -- 1,042 2004.......................................... -- 650 2005.......................................... -- 308 ---- ------ Total minimum lease payments.................. 34 $4,540 ====== Less: amount representing interest............ (1) ---- Current portion of capital lease obligations................................. $ 33 ====
Royalties OneSource enters into royalty contracts with content providers, which are generally for a term of at least one year and renew for the same period if not cancelled or terminated with advance notice. Under these arrangements, royalties are generally paid on a quarterly basis to content providers. Royalty expense for the F-18 47 ONESOURCE INFORMATION SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) years ended December 31, 2000, 1999 and 1998 was $11.5 million, $11.3 million and $10.0 million, respectively. Future minimum royalty payment obligations at December 31, 2000 are as follows:
ROYALTY MINIMUMS -------------- (IN THOUSANDS) 2001....................................................... $4,266 2002....................................................... 1,786 2003....................................................... 200 2004....................................................... 200 2005....................................................... 200 ------ Total minimum royalty payments............................. $6,652 ======
Restricted Time Deposits In connection with several facility leases, OneSource is required to maintain, on behalf of the landlord, irrevocable letters of credit with a bank in the total amount of $603,000 over the term of the leases. In addition, OneSource was required to maintain certificates of deposit in equal amounts as security for the letters of credit. 15. GEOGRAPHIC INFORMATION Revenue was distributed geographically as follows:
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) United States............................................. $41,080 $27,543 $23,428 United Kingdom............................................ 10,809 8,005 7,000 ------- ------- ------- $51,889 $35,548 $30,428 ======= ======= =======
Substantially all of OneSource's identifiable assets are located in the United States. 16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The following is the supplemental cash flow information for all periods presented:
YEAR ENDED DECEMBER 31, ----------------------- 2000 1999 1998 ----- ----- ----- (IN THOUSANDS) Supplemental disclosure of cash flow information: Cash paid for interest.................................... $ 16 $810 $209 Cash paid for taxes....................................... 73 162 175 Noncash investing and financing activities: Additions to capital lease obligations for purchases of fixed assets........................................... $ -- $ -- $183 Additions to capital lease obligations for sale and leaseback of fixed assets.............................. -- -- 228 Additions to long-term debt for accrued interest.......... -- -- 489 Exchange of property and equipment for the retirement of capital lease obligations.............................. -- -- 41
F-19 48 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of OneSource Information Services, Inc.: Our audits of the consolidated financial statements referred to in our report dated February 1, 2001 listed in the index appearing under Item 14(a)(1) on page 26 also included an audit of the financial statement schedules listed in Item 14(a)(2) on page 26 of the Form 10-K. In our opinion, these financial statement schedules presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 1, 2001 S-1 49 SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS ONESOURCE INFORMATION SERVICES, INC. (IN THOUSANDS)
BALANCE AT BALANCE AT BEGINNING OF CHARGED TO END OF DESCRIPTION PERIOD OPERATIONS DEDUCTIONS(1) PERIOD ----------- ------------ ---------- ------------- ---------- Year ended December 31, 1998 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts.............. $ 210 $ 120 $ 30 $ 300 Deferred tax asset valuation allowance....... $4,544 $ -- $2,776 $1,768 Year ended December 31, 1999 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts.............. $ 300 $ 96 $ 48 $ 348 Deferred tax asset valuation allowance....... $1,768 $2,090 $ -- $3,858 Year ended December 31, 2000 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts.............. $ 348 $ 339 $ 15 $ 672 Deferred tax asset valuation allowance....... $3,858 $1,165 $ -- $5,023
--------------- (1) Doubtful accounts written off, net of recoveries. S-2