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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Transition period from ______ to ______
Commission File Number 0-25849
ONESOURCE INFORMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3204522
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Baker Avenue, Concord, MA 01742
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(Address of principal executive offices, including Zip Code)
(978) 318-4300
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(Registrant's telephone number, including area code)
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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 ___
The number of shares of the issuer's Common Stock, $0.01 par value per share,
outstanding as of August 7, 2001 was 12,601,901.
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ONESOURCE INFORMATION SERVICES, INC.
CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of
June 30, 2001 and December 31, 2000 3
Consolidated Statement of Operations for the
three months and six months ended June 30, 2001 and 2000 4
Consolidated Statement of Cash Flows for the
six months ended June 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 24
Exhibit Index 25
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PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(unaudited)
June 30, December 31,
2001 2000
-------- ------------
Assets
Current assets:
Cash and cash equivalents ................................. $ 23,571 $ 17,338
Accounts receivable, net of allowance for doubtful accounts
of $484 and $672 at June 30, 2001 and
December 31, 2000, respectively ......................... 12,752 19,373
Deferred subscription costs ............................... 5,933 7,281
Prepaid expenses and other current assets ................. 335 314
-------- --------
Total current assets .................................... 42,591 44,306
Property and equipment, net ................................. 4,939 5,118
Goodwill and other intangible assets, net ................... 7,188 8,103
Restricted time deposit ..................................... 603 603
Other assets, net ........................................... 1,019 702
-------- --------
Total assets .......................................... $ 56,340 $ 58,832
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of capital lease obligations .............. $ -- $ 33
Accounts payable .......................................... 1,867 1,859
Accrued expenses .......................................... 3,629 5,864
Accrued royalties ......................................... 3,740 5,494
Deferred revenues ......................................... 27,733 29,229
-------- --------
Total current liabilities ............................... 36,969 42,479
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value:
1,000,000 shares authorized; no shares issued and
outstanding ............................................. -- --
Common stock, $0.01 par value:
35,000,000 shares authorized; 12,715,676 issued and
12,636,676 shares outstanding at June 30, 2001;
12,158,467 shares issued and outstanding at December 31,
2000 .................................................... 127 122
Additional paid-in capital ................................ 32,109 30,309
Unearned compensation ..................................... (125) (174)
Accumulated deficit ....................................... (12,388) (14,033)
Accumulated other comprehensive income .................... 279 129
Treasury stock ............................................ (631) --
-------- --------
Total stockholders' equity ............................ 19,371 16,353
-------- --------
Total liabilities and stockholders' equity ............ $ 56,340 $ 58,832
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Web-based product ..................................... $ 14,323 $ 11,535 $ 28,049 $ 21,604
CD Rom product and other .............................. 686 1,036 1,434 2,525
-------- -------- -------- --------
15,009 12,571 29,483 24,129
-------- -------- -------- --------
Cost of revenues:
Web-based product ..................................... 4,129 3,547 8,142 7,508
CD Rom product and other .............................. 607 706 1,224 1,246
-------- -------- -------- --------
4,736 4,253 9,366 8,754
-------- -------- -------- --------
Gross profit .......................................... 10,273 8,318 20,117 15,375
-------- -------- -------- --------
Operating expenses:
Selling and marketing ................................. 5,105 5,328 10,379 9,937
Platform and product development ...................... 2,022 2,099 4,079 4,450
General and administrative ............................ 1,410 1,237 2,753 2,511
Amortization of goodwill and other intangible assets... 373 376 749 752
-------- -------- -------- --------
Total operating expenses ........................... 8,910 9,040 17,960 17,650
-------- -------- -------- --------
Income (loss) from operations ...................... 1,363 (722) 2,157 (2,275)
Interest expense ........................................ -- (4) (2) (30)
Interest income ......................................... 335 239 599 435
Other income ............................................ -- 500 -- 1,000
-------- -------- -------- --------
Income (loss) before provision for income taxes .... 1,698 13 2,754 (870)
Provision for income taxes .............................. 684 40 1,109 60
-------- -------- -------- --------
Net income (loss) .................................. $ 1,014 $ (27) $ 1,645 $ (930)
======== ======== ======== ========
Basic earnings (loss) per share ......................... $ 0.08 $ (0.00) $ 0.13 $ (0.08)
Diluted earnings (loss) per share ....................... $ 0.07 $ (0.00) $ 0.12 $ (0.08)
Weighted average common shares outstanding:
Basic ................................................. 12,653 11,526 12,496 11,194
Diluted ............................................... 13,682 11,526 13,657 11,194
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
For the six months ended
June 30,
---------------------------
2001 2000
-------- --------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities:
Net income (loss) ............................................. $ 1,645 $ (930)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ............................... 1,485 1,151
Amortization of goodwill and other intangible assets ........ 749 752
Amortization of unearned compensation relating to
grants of stock options .................................... 49 49
Changes in assets and liabilities:
Accounts receivable ....................................... 6,403 3,533
Deferred subscription costs ............................... 1,348 1,188
Prepaid expenses and other assets ......................... (27) 86
Accounts payable .......................................... 46 299
Accrued expenses .......................................... (1,382) 239
Accrued royalties ......................................... (1,754) (1,652)
Deferred revenues ......................................... (1,100) (79)
-------- --------
Net cash provided by operating activities ................... 7,462 4,636
-------- --------
Cash flows relating to investing activities:
Proceeds from restricted time deposits ........................ -- 100
Purchases of property and equipment ........................... (1,152) (2,488)
Capitalization of software development costs .................. (494) (80)
-------- --------
Net cash used by investing activities ....................... (1,646) (2,468)
-------- --------
Cash flows relating to financing activities:
Proceeds from issuance of common stock ........................ 1,150 590
Repurchase of common stock .................................... (631) --
Repayments of capital lease obligations ....................... (33) (112)
-------- --------
Net cash provided by financing activities ................... 486 478
-------- --------
Effect of exchange rate changes on cash and cash equivalents .... (69) (13)
-------- --------
Increase in cash and cash equivalents ........................... 6,233 2,633
Cash and cash equivalents, beginning of period .................. 17,338 13,598
-------- --------
Cash and cash equivalents, end of period ........................ $ 23,571 $ 16,231
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements as of June 30, 2001 and
for the three and six months ended June 30, 2001 and 2000 are unaudited. In the
opinion of OneSource's management, the June 30, 2001 and 2000 unaudited interim
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for those periods. The results of operations
for the six month period ended June 30, 2001 are not necessarily indicative of
the results of operations for the year ending December 31, 2001.
The balance sheet as of December 31, 2000 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in OneSource's
Annual Report on Form 10-K, as filed with the Securities and Exchange Commission
on March 28, 2001.
2. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted earnings (loss)
per share is computed using the sum of the weighted average number of common
stock outstanding during the period and the weighted average number of potential
common stock from the assumed exercise of stock options using the treasury stock
method.
Shares used in calculating basic and diluted earnings (loss) per share are
as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
------ ------ ------ ------
Weighted average shares outstanding
used for basic earnings (loss) per share ...... 12,653 11,526 12,496 11,194
Dilutive stock options .......................... 1,029 -- 1,161 --
------ ------ ------ ------
Weighted average shares outstanding
used for diluted earnings (loss) per share..... 13,682 11,526 13,657 11,194
====== ====== ====== ======
Options to purchase 1,110,158 shares of common stock were outstanding at
June 30, 2001 but were not included in the computation of diluted earnings
(loss) per share because the exercise prices of the options were greater than
the average market price of the Company's common stock during the six months
ended June 30, 2001.
All potential common stock were excluded from the calculation of diluted
loss per share for the three and six months ended June 30, 2000 since its
inclusion would be anti-dilutive. Total
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potential common stock consisted of 3,389,899 stock options outstanding with a
weighted average exercise price of $4.03 per share as of June 30, 2000.
3. Comprehensive Income (Loss)
Total comprehensive income (loss), which includes net income (loss) and the
cumulative foreign currency translation adjustment, was $999,000 and $1,795,000
for the three and six months ended June 30, 2001, respectively, and $109,000 and
($759,000) for the three and six months ended June 30, 2000, respectively.
4. Geographic Information
Revenue was distributed geographically as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
2001 2000 2001 2000
------- ------- ------- -------
United States ..... $11,372 $10,016 $22,375 $19,264
United Kingdom..... 3,637 2,555 7,108 4,865
------- ------- ------- -------
$15,009 $12,571 $29,483 $24,129
======= ======= ======= =======
Substantially all of OneSource's identifiable assets are located in the United
States.
5. Treasury Stock
In April 2001, the Company announced a Stock Buyback Program to repurchase
up to 1,000,000 shares of the Company's common stock over the next twelve
months. As of June 30, 2001, the Company had repurchased 79,000 shares of its
common stock at an average price of $7.99 per share.
6. Subsequent Event
In July 2001, The Company initiated a cost reduction program, which
includes an 11% reduction in the overall Company workforce. The Company
estimates that it will incur a one-time charge in the third quarter 2001 of
approximately $475,000 to $500,000 related to the workforce reduction.
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7. Recently Issued Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires use of the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminated the pooling-of-interests method.
The Company does not believe that the adoption of SFAS No. 141 will have a
significant impact on its financial statements. SFAS No. 142 is effective for
the Company on January 1, 2002 and requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangible
assets into goodwill, the reassessment of the useful lives of existing
recognized intangible assets, the reclassification of certain intangible assets
out of previously reported goodwill and the identification of reporting units
for purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
within six months from the date of adoption. The Company is currently assessing
but has not yet determined the impact of SFAS No. 142 on its financial position
and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below contain trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. Actual results
and the timing of certain events could differ materially from those projected in
the forward-looking statements as a result of certain risk factors, including,
but not limited to, those set forth below under "Certain Factors That May Affect
Future Results" and in the Company's Annual Report on Form 10-K as filed with
the Securities and Exchange Commission on March 28, 2001.
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, OneSource's business primarily
involved providing business information to the financial community via CD Rom
technology as the primary method of distribution. The introduction of the
OneSource(R) Business Browser(SM) product line in December 1996 marked a
fundamental shift in the business as OneSource began a transition away from its
legacy CD Rom business and toward Web-based products. The 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. In addition to being accessible via the Web, Business
Browser content can be integrated directly into corporate intranets, portals,
and customer relationship management platforms via AppLink(SM) application
programming interface.
On October 1, 1999, OneSource acquired Corporate Technology Services, Inc.
("Corporate Technology"), a Delaware corporation located in Woburn,
Massachusetts. Corporate Technology was a provider of high technology company
profiles with a focus on emerging private companies.
In May 1998, OneSource sold its CD-Insurance division to allow it to focus
more completely on its new Web-based product line. In connection with the
disposition, OneSource licensed certain of its CD Rom software to the acquirer
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. During the
six-month period ended June 30, 2000, OneSource recorded $1.0 million of other
income related to the software license agreement.
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Revenues from Web-based products accounted for $28.0 million, or 95% of
total revenues, for the six months ended June 30, 2001, an increase from $21.6
million, or 90% of total revenues, for the six months ended June 30, 2000. CD
Rom product and other revenues, which consist of licensing royalties, printed
directories and mailing lists (products acquired as part of the Corporate
Technology acquisition) decreased to $1.4 million, or 5% of total revenues, from
$2.5 million, or 10% of total revenues, for the six months ended June 30, 2000.
The printed directories product line was discontinued at the end of 2000. As of
June 30, 2001, 856 organizations subscribed to the Business Browser product
line, and the annualized contract value for these organizations was $58.7
million.
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 periods, 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 decreased 5% to $27.1 million as of June 30, 2001 from $28.5
million as of December 31, 2000 and increased 17% from $23.2 million as of June
30, 2000. Other revenues are recognized when goods and services are delivered.
Cost of revenues consists primarily of royalties to information providers
and, to a lesser extent, employee salaries and benefits, facilities allocation
and related expenses, software amortization, depreciation associated with
computers for data processing and on-line requirements and Web hosting expenses.
OneSource enters into contracts with its information providers that 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 OneSource revenues, as a fee based on the number
of licensed users that declines as the number of licensed users of the product
increases, as a fixed fee per period, or in some cases, 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 one year, 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 OneSource's
"platform" of core software supporting its 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 OneSource's
KeyID(SM) technology to integrate disparate information sources into OneSource's
Web-based products.
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General and administrative expense consists primarily of employee salaries
and benefits, facilities allocation and related expenses associated with
OneSource's management, finance, human resources, legal, management information
systems and administrative groups.
Subsequent to the quarter ending June 30, 2001, the Company has taken steps
to better align the Company's cost structure with near-term demand. As announced
on July 19, 2001, these steps include reductions in operations, sales and
marketing, and general and administrative spending including an 11% reduction in
the overall Company workforce. Cost-control steps are expected to generate
annualized savings of approximately $2.5 million to $3.0 million. OneSource
anticipates a one-time charge associated with the workforce reduction of
approximately $475,000 to $500,000 in the third quarter of 2001.
COMPARISON OF RESULTS FOR THE QUARTER ENDED JUNE 30, 2001 AND JUNE 30, 2000
Revenues. Total revenues increased 19% to $15.0 million for the quarter
ended June 30, 2001 from $12.6 million for the quarter ended June 30, 2000.
Web-based product revenues increased 24% to $14.3 million for the quarter
ended June 30, 2001 from $11.5 million for the quarter ended June 30, 2000. The
increase was attributable to the addition of 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, which consist of licensing royalties, printed directories and mailing
lists, decreased by 34% to $0.6 million in the second quarter of 2001 from $1.0
million in the second quarter of 2000, primarily as a result of the
discontinuance of the printed directories product line.
Cost of Revenues. Total cost of revenues increased 11% to $4.7 million for
the quarter ended June 30, 2001 from $4.3 million for the quarter ended June 30,
2000. As a percentage of total revenues, total cost of revenues decreased to 32%
for the quarter ended June 30, 2001 from 34% for the quarter ended June 30,
2000. The increase in total cost of revenues was principally due to increased
royalty expense related to the growth in revenue and depreciation expense
associated with computer equipment used for data processing and on-line
requirements. The decrease as a percentage of total revenues is the result of
lower effective royalty rates paid to information providers and lower
production-related expenses.
Cost of Web-based product revenues increased by 16% to $4.1 million for the
quarter ended June 30, 2001 from $3.5 million for the quarter ended June 30,
2000, primarily due to the growth in revenue. As a percentage of Web-based
product revenues, cost of Web-based product revenues decreased to 29% for the
quarter ended June 30, 2001 from 31% for the quarter ended June 30, 2000, and
was principally due to lower costs of acquiring data from information providers.
Cost of CD Rom product and other revenues decreased 14% to $0.6 million for
the quarter ended June 30, 2001 from $0.7 million for the quarter ended June 30,
2000. This decrease was due to lower costs associated with the discontinuance of
the Corporate Technology printed directories business and a decrease in CD Rom
costs attributable to OneSource's discontinuance of its legacy CD Rom product
line at the end of 2000. As a percentage of CD Rom product and other revenues,
cost of CD Rom product and other revenues increased to 88% for the quarter ended
June 30, 2001 from 68% for the quarter ended June 31, 2000, primarily due to
costs associated with the expansion of OneSource's proprietary database.
Selling and Marketing Expense. Selling and marketing expense decreased 4%
to $5.1 million for the quarter ended June 30, 2001 from $5.3 million for the
quarter ended June 30, 2000, principally due to decreased recruiting expense as
a result of lower hiring requirements. Selling and marketing expense decreased
as a percentage of total revenues to 34% for the quarter ended June 30, 2001
from 42% for the quarter ended June 30, 2000. OneSource expects to see a modest
decrease in selling and marketing expense as we adjust our spending levels in
conjunction with our cost reduction program implemented in July 2001.
Platform and Product Development Expense. Platform and product development
expense decreased 4% to $2.0 million for the quarter ended June 30, 2001 from
$2.1 million for the quarter ended June 30, 2000. This decrease was primarily
the result of lower compensation related costs incurred during the quarter.
Platform and product development expense decreased
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as a percentage of total revenues to 13% for the quarter ended June 30, 2001
from 17% for the quarter ended June 30, 2000. We expect to see a modest decrease
in platform and product development expense as we adjust our spending levels in
conjunction with our cost reduction program implemented in July 2001.
General and Administrative Expense. General and administrative expense
increased 14% to $1.4 million for the quarter ended June 30, 2001 from $1.2
million for the quarter ended June 30, 2000. This increase was due principally
to higher compensation related costs. General and administrative expense
decreased as a percentage of total revenues to 9% for the quarter ended June 30,
2001 from 10% for the quarter ended June 30, 2000. We expect to see a modest
decrease in general and administrative expense as we adjust our spending level
in conjunction with our cost reduction program implemented in July 2001.
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets for the quarter ended June 30, 2001 and
2000 was $0.4 million. This expense is the result of the acquisition of
Corporate Technology 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
43% to $0.34 million of net interest income for the quarter ended June 30, 2001
from $0.24 million for the quarter ended June 30, 2000. The increase is the
result of higher invested cash balances and lower interest expense.
Other Income. Other income decreased $0.5 million during the quarter ended
June 30, 2001. This decrease was the result of the expiration of a software
license agreement that ended on December 31, 2000 and was associated with the
May 1998 sale of our CD-Insurance division.
Provision for Income Taxes. Provision for income taxes increased to $0.68
million for the quarter ended June 30, 2001 from $0.04 million for the quarter
ended June 30, 2000. This increase was due to pre-tax income of $1.7 million at
the applicable tax rates for the quarter ended June 30, 2001 as compared to
pre-tax income of $0.01 million for the quarter ended June 30, 2000.
COMPARISON OF RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Revenues. Total revenues increased 22% to $29.5 million for the six months
ended June 30, 2001 from $24.1 million for the six months ended June 30, 2000.
Web-based product revenues increased 30% to $28.0 million for the six
months ended June 30, 2001 from $21.6 million for the six months ended June 30,
2000. The increase was attributable to the addition of 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, which consist of licensing royalties, printed directories and
mailing lists, decreased by 43% to $1.4 million for the first six months of 2001
from $2.5 million for the first six months of 2000, primarily as a result of the
discontinuance of the printed directories product line.
Cost of Revenues. Total cost of revenues increased 7% to $9.4 million for
the six months ended June 30, 2001 from $8.8 million for the six months ended
June 30, 2000. As a percentage of total revenues, total cost of revenues
decreased to 32% for the six months ended June 30, 2001 from 36% for the six
months ended June 30, 2000. The increase in total cost of revenues was
principally due to increased royalty expense related to the growth in revenue
and depreciation expense associated with computer equipment used for data
processing and on-line requirements. The decrease as a percentage of total
revenues is the result of lower effective royalty rates paid to information
providers.
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Cost of Web-based product revenues increased by 8% to $8.1 million for the
six months ended June 30, 2001 from $7.5 million for the six months ended June
30, 2000, primarily due to the growth in revenue and associated incremental
royalty costs. As a percentage of Web-based product revenues, cost of Web-based
product revenues decreased to 29% for the six months ended June 30, 2001 from
35% for the six months ended June 30, 2000, and was principally due to lower
costs of acquiring data from information providers.
Cost of CD Rom product and other revenues decreased 2% to $1.22 million for
the six months ended June 30, 2001 from $1.25 million for the six months ended
June 30, 2000. This decrease was due to lower costs associated with the
discontinuance of the Corporate Technology printed directories business and a
decrease in CD Rom costs attributable to OneSource's discontinuance of its
legacy CD Rom product line at the end of 2000. As a percentage of CD Rom product
and other revenues, cost of CD Rom product and other revenues increased to 85%
for the six months ended June 30, 2001 from 49% for the six months ended June
30, 2000, primarily due to costs associated with the expansion of OneSource's
proprietary database.
Selling and Marketing Expense. Selling and marketing expense increased 4%
to $10.4 million for the six months ended June 30, 2001 from $9.9 million for
the six months ended June 30, 2000, principally due to increased compensation
related costs, but was partially offset by decreased recruiting costs as a
result of lower hiring requirements. Selling and marketing expense decreased as
a percentage of total revenues to 35% for the six months ended June 30, 2001
from 41% for the six months ended June 30, 2000. We expect to see a decrease in
selling and marketing expense as we adjust our spending levels in conjunction
with our cost reduction program implemented in July 2001.
Platform and Product Development Expense. Platform and product development
expense decreased 8% to $4.1 million for the six months ended June 30, 2001 from
$4.5 million for the six months ended June 30, 2000. This decrease was primarily
the result of lower compensation related costs incurred during the period.
Platform and product development expense decreased as a percentage of total
revenues to 14% for the six months ended June 30, 2001 from 18% for the six
months ended June 30, 2000. We expect to see a modest decrease in platform and
product development expense as we adjust our spending levels in conjunction with
our cost reduction program implemented in July 2001.
General and Administrative Expense. General and administrative expense
increased 10% to $2.8 million for the six months ended June 30, 2001 from $2.5
million for the six months ended June 30, 2000. This increase was due
principally to higher compensation related costs. General and administrative
expense decreased as a percentage of total revenues to 9% for the six months
ended June 30, 2001 from 10% for the six months ended June 30, 2000. We expect
to see a modest decrease in general and administrative expense as we adjust our
spending level in conjunction with our cost reduction program implemented in
July 2001.
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets for the six months ended June 30, 2001 and
2000 was $0.7 million. This expense is the result of the acquisition of
Corporate Technology 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
47% to $0.6 million of net interest income for the six months ended June 30,
2001 from $0.4 million for the six months ended June 30, 2000. The increase is
the result of higher invested cash balances and lower interest expense.
Other Income. Other income decreased $1.0 million during the six months
ended June 30, 2001. This decrease was the result of the expiration of a
software license agreement that ended on December 31, 2000 and was associated
with the May 1998 sale of our CD-Insurance division.
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Provision for Income Taxes. Provision for income taxes increased to $1.1
million for the six months ended June 30, 2001 from $0.1 for the six months
ended June 30, 2000. This increase was due to pre-tax income of $2.8 million at
the applicable tax rates for the six months ended June 30, 2001 as compared to a
pre-tax loss of $0.9 million for the six months ended June 30, 2000.
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 in terms of new customers, upgrades and
expansions for existing customers. 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.
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 subscription-based, 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 overall value of
customer contracts in place 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 one month of total invoiced fees that are 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 twelve 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 twelve 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
value. 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 INVOICED
WEB-BASED FEES IN
DEFERRED DEFERRED ANNUALIZED
MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE
- ---------------- --------- ----------- --------------
(IN THOUSANDS)
June 30, 2000.......... $23,165 $ 4,081.0 $48,973
June 30, 2001.......... 27,080 4,890.2 58,682
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We have increased annualized contract value attributable to Web-based
products 20% to $58.7 million as of June 30, 2001 from $49.0 million as of June
30, 2000. The number of Web-based customers has increased 17% to 856 at June 30,
2001 from 731 at June 30, 2000. At the same time, the average annualized
contract value of all Web-based product customers has increased to $68,544 per
customer at June 30, 2001 from $67,000 per customer at June 30, 2000.
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.
Our cash and cash equivalents totaled $23.6 million at June 30, 2001,
compared to $17.3 million at December 31, 2000, and $16.2 million at June 30,
2000. The increase of $6.3 million from December 31, 2000 is primarily due to
cash provided by operating activities.
Net cash provided by operating activities was $7.5 million for the six
months ended June 30, 2001, compared to $4.6 million for the six months ended
June 30, 2000. The net change of $2.9 million period to period is primarily the
result of a net income of $1.6 million compared to a net loss of $0.9 million.
Net cash used in investing activities was $1.6 million for the six months
ended June 30, 2001, compared to $2.5 million for the six months ended June 30,
2000. Cash used in investing activities was primarily used for the purchase of
property and equipment of $1.1 million and $2.5 million during the six months
ended June 30, 2001 and 2000, respectively, as well as $0.5 million used for
software development costs during the six months ended June 30, 2001.
Net cash provided by financing activities was $0.5 million for the six
months ended June 30, 2001 and 2000. Net cash provided by financing activities
consisted of proceeds from the sale of common stock of $1.2 million and $0.6
million during the six months ended June 30, 2001 and 2000, respectively, offset
in part by the repurchase of common stock of $0.6 million during the six months
ended June 30, 2001 and repayments of 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 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.
In April 2001, the Company announced a Stock Buyback Program to repurchase
up to 1,000,000 shares of the Company's common stock over the next twelve
months, at such times when the Company deems such purchases to be an effective
use of cash. Under the stock
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repurchase program, shares may be repurchased, at management's discretion, from
time-to-time at prevailing prices in the open market. As of June 30, 2001, the
Company had repurchased 79,000 shares of its common stock at an average price of
$7.99 per share. The Company intends to leverage its existing cash and cash
equivalents balances to execute the repurchases.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires use of the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminated the pooling-of-interests method.
The Company does not believe that the adoption of SFAS No. 141 will have a
significant impact on its financial statements. SFAS No. 142 is effective for
the Company on January 1, 2002 and requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangible
assets into goodwill, the reassessment of the useful lives of existing
recognized intangible assets, the reclassification of certain intangible assets
out of previously reported goodwill and the identification of reporting units
for purposes of assessing potential future impairments of goodwill. SFAS No. 142
also requires the Company to complete a transitional goodwill impairment test
within six months from the date of adoption. The Company is currently assessing
but has not yet determined the impact of SFAS No. 142 on its financial position
and results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report on Form 10-Q 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 discussed below and in our Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission on March 28, 2001. The
following risk factors should be considered carefully in evaluating OneSource
and its business.
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, and had net income of $2.2
million for the six months ended June 30, 2001. 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 June 30, 2001, we had
an accumulated deficit of $12.4 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 95% of total
revenues for the six months ended June 30, 2001, 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 were 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
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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 increased competition, lack of market
acceptance, insufficient enhancements, 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;
- 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; and
- 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 WHERE 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
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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 CEASED DOING BUSINESS WITH US OR REQUIRE US TO
SIGNIFICANTLY INCREASE OUR ROYALTY OBLIGATIONS, THIS COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS, AND FUTURE SALES OF THE BUSINESS BROWSER PRODUCT MIGHT
BE JEOPARDIZED. 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 (and potentially could be compromised) due to any
failure, delay, or cut-off in the transmission or receipt of this information,
or a requirement by our information providers that royalty payments be
significantly increased.
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 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
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business synergies that we anticipated, and an acquired technology or
proprietary right may not perform as expected for a variety of reasons,
including, but not limited to, the following:
- 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; and
- 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 and services;
- the size, value and timing of both new and renewal subscriptions with
our corporate customers;
- size, value and timing of both new and renewal contracts with our
content providers;
- competition (particularly price and product and service 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;
- overall performance of our products, services, and technology;
- our ability to develop, market, and introduce new and enhanced
versions of our products and services on a timely basis;
- economic conditions specific to the Web, as well as general economic
conditions; and
- 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 we are unable to expand our sales and marketing efforts
and 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
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financial and managerial resources on our part, which could materially impact
our results of operations by potentially subjecting us to significant
liabilities.
WE MAY BE SUBJECT TO POTENTIAL LITIGATION BY ANY THIRD PARTY CONCERNING THE
INFRINGEMENT OF ANY PROPRIETARY RIGHT, AND SUCH LITIGATION COULD BE COSTLY AND
TIME CONSUMING. It is our understanding that there has been substantial
litigation in the information services industry involving intellectual property
rights. Although we believe that we have not infringed, and are not infringing,
the intellectual property of others through our Business Browser product line
and CD Rom product, if such claims were asserted, they may have a material
adverse effect on our business, results of operations, and financial condition.
In addition, to the extent that we license from third party information
providers informational content that is included in our Business Browser product
line, our potential exposure to copyright infringement actions may increase
because we must rely upon warranties and representations by such third party
information providers as to the origin and ownership of content that we are
subsequently licensing to the licensed users of our Business Browser products;
such warranties and representations may be inaccurate or inadequate. In
addition, although we generally obtain indemnification provisions in our
agreements with third party information providers, indemnification may not be
adequate compensation for breach of such warranties and representations. In the
future, litigation may be necessary to defend, enforce, and/or protect our own
intellectual property, including, but not limited to, our copyrights, patents,
trademarks, and other proprietary information. We may also potentially be
subject to litigation to defend against claimed infringement of the rights of
others. Any such litigation could be costly, and divert management's attention,
either of which could have a material adverse effect on our business, results of
operations, and financial condition. In addition, adverse determinations in such
litigation could result in the loss of our proprietary rights, subject us to
significant liabilities, require us to seek licenses from additional third
parties, cause our customers to prematurely cancel their subscriptions to our
products, and prevent us from selling our products; any one of these results
could have a material adverse effect on our business, results of operations, and
financial condition. Our general liability insurance may not cover any of these
claims or may not be adequate to protect us against all liability that may be
imposed.
IF WE 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;
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. The loss of the services of one or a group of
our key personnel could have a material, adverse effect on development of new
products and services, our ability to manage the business, and our financial
condition. In addition, 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
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costs of retaining the services of such personnel, thus potentially hindering
our financial condition.
IF WE ARE UNABLE TO MAINTAIN OUR REPUTATION AND EXPAND OUR NAME
RECOGNITION, WE MIGHT HAVE DIFFICULTY ATTRACTING NEW BUSINESS AND RETAINING OUR
CURRENT CUSTOMER BASE AND EMPLOYEES, AND OUR BUSINESS MIGHT SUFFER. We believe
that establishing and maintaining a solid reputation and name recognition are
critical for attracting and retaining customers as well as employees. We believe
that the importance of reputation and name recognition is increasing and will
continue to increase due to the growing number of providers of Web-based
business and financial information. If our reputation is damaged or if potential
customers and employees are not familiar with our services, we may not be able
to attract new, or retain existing, customers and employees. Promotion and
enhancement of our name will depend largely on our success in continuing to
provide quality services and successfully market our services. If customers do
not perceive our services to be effective or of high quality, our brand name and
reputation will suffer.
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements.
We are 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 not
significant for the six months ended June 30, 2001.
We also own financial instruments that are sensitive to market risks as
part of our investment portfolio. The investment portfolio is used to preserve
our capital until it is required to fund operations, including our 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.
PART II- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 19, 1999, we commenced an initial public offering of 3,636,000
shares of common stock, $0.01 par value per share, pursuant to a final
prospectus dated May 19, 1999.
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The prospectus was contained in OneSource's registration statement on Form S-1,
which was declared effective by the Securities and Exchange Commission (SEC File
No. 333-73263) on May 18, 1999. Of the 3,636,000 shares of common stock offered,
2,500,000 shares were offered and sold by OneSource and 1,136,000 shares were
offered and sold by certain stockholders of OneSource. The offering closed on
May 24, 1999 upon the sale of all 3,636,000 shares. The aggregate offering price
of the offering to the public was $43,632,000, with proceeds to OneSource and
the selling stockholders, after deduction of the underwriting discount, of
$27,900,000 and $12,677,760, respectively. The aggregate amount of expenses
incurred by OneSource in connection with the issuance and distribution of the
shares of common stock sold in the offering were approximately $3.9 million,
including approximately $3.0 million in underwriting discounts and commissions
and $0.9 million in other offering expenses.
The net proceeds to OneSource from the offering, after deducting
underwriting discounts and commissions and other offering expenses were
approximately $27.0 million.
The net proceeds from the offering, less $6.8 million used to pay off
long-term debt and $7.6 million used to acquire Corporate Technology Information
Services, Inc., have been invested in interest bearing, investment grade
securities.
Since the initial public offering, OneSource has produced positive cash
flow and has not needed to further draw from these funds for day-to-day
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The annual meeting of stockholders was held on May 24, 2001.
b. The four directors elected at the meeting were Martin Kahn, Daniel J.
Schimmel, Carl P. Fisher, and Henry Ancona.
c. A vote was proposed to (1) elect four directors to the Company's Board of
Directors, each to serve for a term of one year or until his successor is
duly elected and qualified; (2) consider and act upon a proposal to approve
an amendment to the 1999 Stock Option and Incentive Plan to increase the
aggregate number of shares of Common Stock that may be issued pursuant to
said plan by 1 million shares; (3) consider and act upon a proposal to
approve the adoption of the Company's 2001 Non-Employee Director Stock
Option Plan; (4) consider and act upon a proposal to approve an amendment
to the Company's Second Amended and Restated Certificate of Incorporation
increasing from 20 million to 35 million the number of authorized shares of
Common Stock of the Company; (5) consider and act upon a proposal to
approve an amendment to the 1999 Employee Stock Purchase Plan to increase
the aggregate number of shares of Common Stock that may be issued pursuant
to said plan by 100,000 shares; and (6) to ratify the selection of
PricewaterhouseCoopers LLP, independent public accountants, as auditors for
the fiscal year ending December 31, 2001.
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The voting results are as follows:
Votes Votes Votes Broker
For Against Withheld Abstained
----- ------- -------- ---------
(1) Martin Kahn 10,584,833 124,005
Daniel J. Schimmel 10,259,833 449,005
Carl P. Fisher 10,584,833 124,005
Henry Ancona 10,584,833 124,005
(2) Amendment to 1999 Stock Option and 7,232,882 993,342 97,605 2,385,009
Incentive Plan
(3) Adoption of 2001 Non-Employee 7,638,267 585,807 99,755 2,385,009
Director Plan
(4) Amendment to Second Amended and 10,608,593 97,245 3,000
Restated Certificate of
Incorporation to increase authorized
shares
(5) Amendment to 1999 Employee Stock 8,200,419 27,900 95,510 2,385,009
Purchase Plan
(6) Ratification of 10,696,008 4,450 8,380
PricewaterhouseCoopers LLP
d. No information due to inapplicability of item
ITEM 5. OTHER INFORMATION
The following discussion about subsequent events involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements.
Subsequent to the quarter ending June 30, 2001, the Company has taken steps to
better align the Company's cost structure with near-term demand. As announced on
July 19, 2001, these steps include reductions in operations, sales and
marketing, and general and administrative spending, including an 11% reduction
in the overall Company workforce. Cost-control steps are expected to generate
annualized savings of approximately $2.5 million to $3.0 million. OneSource
anticipates a one-time charge associated with the workforce reduction of
approximately $475,000 to $500,000 in the third quarter of 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
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Exhibit
Number Description
------- -----------
10.1 1999 Stock Option and Incentive Plan, as amended
10.2 1999 Employee Stock Purchase Plan, as amended
10.3 2001 Non-Employee Director Stock Option Plan
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by OneSource for the quarter ending
June 30, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONESOURCE INFORMATION SERVICES, INC.
Date: August 10, 2001 By: /s/ Roy D. Landon
------------------------------------
Roy D. Landon
Senior Vice President, Chief
Financial Officer (Principal
Financial Officer)
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EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
======= ================================================ ============
10.1 1999 Stock Option and Incentive Plan, as amended 26
10.2 1999 Employee Stock Purchase Plan, as amended 33
10.3 2001 Non-Employee Director Stock Option Plan 41
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