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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31,1999
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Commission File Number: 1-14371
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INFORMATION HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1518007
(State of incorporation) (IRS Employer Identification Number)
2777 SUMMER STREET, SUITE 209
STAMFORD, CONNECTICUT 06905
(Address of principal executive offices) (Zip Code)
(203) 961-9106
(Registrant's telephone number, including area code)
23 OLD KINGS HIGHWAY SOUTH, DARIEN, CONNECTICUT, 06820
(Former Address of Registrant's Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. x Yes o No
As of March 31, 1999, there were 16,943,189 shares of the Company's
common stock, par value $0.01 per share outstanding.
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INFORMATION HOLDINGS INC.
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INDEX
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Page Number
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements:
Consolidated Balance Sheets 1
As of March 31, 1999(Unaudited) and December 31, 1998
Consolidated Statements of Operations (Unaudited) for the 2
Three Months Ended March 31, 1999 and 1998
Consolidated Statements of Cash Flows (Unaudited) for the 3
Three Months Ended March 31, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
INFORMATION HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
MARCH 31 DECEMBER 31
1999 1998
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 55,232 $ 57,270
Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
SALES RETURNS OF $833 AND $911, RESPECTIVELY) 6,694 9,286
Inventories 5,385 4,832
Prepaid expenses and other current assets 2,811 1,945
Deferred income taxes 777 777
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Total current assets 70,899 74,110
Property and equipment - net 4,460 4,173
Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $1,400 AND
$2,350, RESPECTIVELY) 3,212 3,474
Publishing rights and other intangible assets, net 24,145 21,601
Other assets 1,550 1,369
Deferred income taxes 64 64
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TOTAL $ 104,330 $ 104,791
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease obligations $ 265 $ 261
Accounts payable 3,574 4,074
Accrued expenses 1,320 1,821
Royalties payable 1,473 1,935
Deferred subscription revenue 8,487 8,530
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Total current liabilities 15,119 16,621
Capital leases 2,623 2,694
Other long-term liabilities 683 683
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Total liabilities 18,425 19,998
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STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none issued $ -- $ --
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,943,189 issued and outstanding 169 169
Additional paid-in capital 84,750 84,750
Retained earnings(deficit) 986 (126)
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Total stockholders' equity 85,905 84,793
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TOTAL $ 104,330 $ 104,791
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
1999 1998
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Revenues $ 12,055 $ 10,728
Cost of sales 3,201 2,858
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Gross profit 8,854 7,870
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Operating expenses:
Selling, general and administrative 6,582 5,972
Depreciation and amortization 1,002 1,278
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Total operating expenses 7,584 7,250
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Income from operations 1,270 620
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Other income (expense):
Interest income 611 140
Interest expense (69) (103)
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Income before income taxes 1,812 657
Provision for income taxes 700 56
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Net income $ 1,112 $ 601
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Basic and diluted per common share amounts:
Net Income $ 0.07
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Pro forma income data:
Income before income taxes, as reported $ 657
Pro forma income taxes 56
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Pro forma net income $ 601
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Pro forma earnings per share $ 0.04
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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INFORMATION HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,112 $ 601
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 365 271
Amortization of intangibles 653 1,007
Amortization of pre-publication costs 660 563
Changes in operating assets and liabilities:
Accounts receivable - net 3,015 1,471
Inventories (523) 179
Prepaid expenses and other assets (884) (568)
Accounts payable and accrued expenses (1,385) (2,232)
Royalties payable (462) (591)
Deferred revenue (43) 651
Other - net (180) (272)
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Net Cash Provided by Operating Activities 2,328 1,080
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 11 --
Purchases of property and equipment (498) (133)
Pre-publication costs (270) (209)
Acquisitions of businesses and titles (3,542) (160)
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Net Cash Used in Investing Activities (4,299) (502)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolving credit facility -- (1,000)
Net repayments under capital leases (67) (55)
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Net Cash Used in Financing Activities (67) (1,055)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,038) (477)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 57,270 10,280
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 55,232 $ 9,803
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SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION
The consolidated balance sheet of Information Holdings Inc. (IHI , or
the Company) at December 31, 1998 has been derived from IHI's Annual
Report on Form 10-K for the year then ended. All other consolidated
financial statements contained herein have been prepared by IHI and are
unaudited. The financial statements should be read in conjunction with
the financial statements for the year ended December 31, 1998 and the
notes thereto contained in IHI's Annual Report on Form 10-K.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim
financial statements required to be filed with the Securities and
Exchange Commission and do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position of IHI as of March 31, 1999,
and the results of their operations and their cash flows for the
periods presented herein. Results for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for
the full fiscal year.
B. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories at March 31, 1999 and December 31, 1998
consist solely of finished goods. The vast majority of inventories are
books, which are reviewed periodically on a title-by-title basis for
salability. The cost of inventory determined to be impaired is charged
to income in the period of determination.
C. PRE-PUBLICATION COSTS
Certain expenses related to books, primarily comprised of design and
other pre-production costs, are deferred and charged to expense over
the estimated product life. These costs are primarily amortized over a
four-year period following release of the applicable book, using an
accelerated amortization method. During 1999, the Company removed from
its Balance Sheet fully amortized Pre-publication costs with a cost of
approximately $1,645,000.
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
D. ACQUISITIONS
On January 7, 1999, effectively as of January 1, 1999, the Company
acquired the stock of Optipat, Inc. (Optipat), for cash consideration
of approximately $3,200,000. Optipat provides patent information in
printed format and over the Internet to the corporate and legal
markets. The purchase price was allocated to publishing rights and
other intangible assets of $2,900,000 and net tangible assets of
$300,000. Also in January 1999, the Company purchased the environmental
book-publishing list of Ann Arbor Press for cash consideration of
approximately $350,000. The purchase price was allocated to publishing
rights and other intangible assets of $75,000 and net tangible assets
of $275,000.
E. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended:
MARCH 31
1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic:
Net income $ 1,112
Average shares outstanding 16,943
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Basic EPS $ 0.07
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Diluted:
Net income $ 1,112
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Average shares outstanding 16,943
Net effect of dilutive stock options -
based on the treasury stock method 156
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Total $ 17,099
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Diluted EPS $ 0.07
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No historical earnings per share data are presented for the three
months ended March 31, 1998 as the Company does not consider such data
meaningful. The pro forma earnings per share data presented were
computed using 16,943,189 shares outstanding, which reflects all shares
outstanding following the initial public offering, as if such shares
were outstanding since January 1, 1998.
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INFORMATION HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
F. ADOPTION OF FAS 132
During the first quarter of fiscal 1999, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No.
132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits," which requires additional disclosures relating to a
company's pension and postretirement benefit plans for fiscal years
beginning after December 15, 1998. The Company determined that adoption
of the new standard did not result in any change in the Company's
current disclosure requirements.
G. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June of 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for
derivative instruments and for hedging activities for all fiscal
quarters of fiscal years beginning after June 15, 1999. In the opinion
of the Company's management, adoption of this new accounting standard
will not have any impact on the Company's consolidated financial
position or results of operations.
H. SUBSEQUENT EVENTS
On May 14, 1999, the Company entered into an agreement to acquire 100%
of the stock of Master Data Center, Inc. (MDC) for cash consideration
of approximately $33,000,000. The transaction is expected to be
completed within 90 days following the agreement date. MDC provides
patent annuity payment services and complementary software products for
managing patent and trademark portfolios.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended March 31, 1999 Compared to
Three Months Ended March 31, 1998
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REVENUES. In the first quarter of fiscal 1999, the Company had revenues
of $12.1 million compared with revenues of $10.7 million in the first quarter of
fiscal 1998, an increase of $1.3 million or 12.4%. The increase in revenues is
primarily due to an increase of $0.5 million in CRC Press electronic product
revenues; an increase of $0.4 million in Internet sales of patent information;
and an increase of $0.5 million in sales of patents and file histories related
to Optipat, which was acquired in January 1999. Book sales were relatively flat
in the period due to timing of book releases and international sales.
COST OF SALES. Cost of sales increased $0.3 million or 12.0% to $3.2
million in the first quarter of fiscal 1999 compared to $2.9 million in the
corresponding period in fiscal 1998. Cost of sales expressed as a percentage of
revenues in the first quarter of fiscal 1999 remained consistent with the
corresponding period of fiscal 1998. The increase in the costs of sales over the
comparable period in fiscal 1998 is primarily attributable to the increase in
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). S,G&A expenses
increased $0.6 million or 10.2% in the first three months of fiscal 1999, to
$6.6 million from $6.0 million in the first three months of fiscal 1998,
principally as a result of increased personnel and marketing costs at CRC Press
and operating expenses of Optipat. S,G&A expenses as a percentage of revenues
decreased to 54.6% in the first quarter of fiscal 1999, compared with 55.7% in
the corresponding fiscal 1998 period.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in the
first quarter of fiscal 1999 decreased $0.3 million, or 21.6%, to $1.0 million
from $1.3 million in the corresponding quarter in fiscal 1998, due primarily to
decreased amortization of intangible assets.
INTEREST INCOME. Interest income increased to $0.6 million from $0.1
million due primarily to interest earned on the proceeds from the initial public
offering.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax
income for the three months ended March 31, 1999 is 38.6%. This compares with an
effective tax rate of 8.5% in the prior year. The Company did not record a
provision for Federal income taxes in the prior year period due to the use of
net operating loss carry-forwards.
FINANCIAL CONDITION:
Prior to August 1998, the financing requirements of the Company have been funded
through cash generated by operating activities and capital contributions from
the founding stockholders. In August 1998, the Company completed an initial
public offering of its common stock to raise funds.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Cash and cash equivalents totaled $55.2 million at March 31, 1999 compared to
$57.3 million at December 31, 1998. Excluding cash and cash equivalents, the
Company had working capital of $0.5 million at March 31, 1999 compared to
working capital of $0.2 million at December 31, 1998. Since the Company receives
subscription payments in advance, the Company's existing operations are expected
to maintain very low or negative working capital balances, excluding cash.
Deferred subscription revenues, a non-cash obligation included in current
liabilities, totaled $8.5 million at March 31, 1999.
Cash generated by operating activities was $2.3 million for the three months
ended March 31, 1999, derived from net income of $1.1 million plus non-cash
charges of $1.7 million less an increase in operating assets, net of liabilities
of $0.5 million. This increase in operating assets and liabilities is primarily
the result of payment of expenses related to book publishing operations and the
payment of income tax liabilities, offset by collections of customer
receivables.
Cash used in investing activities was $4.3 million for the three months ended
March 31, 1998 due to capital expenditures, including pre-publication costs, of
$0.8 million and acquisition costs of $3.5 million. Excluding acquisitions of
businesses and titles, the Company's existing operations are not capital
intensive.
Cash used in financing activities was less than $0.1 million for the three
months ended March 31, 1999, related to payments on approximately $2.9 million
of capitalized lease obligations. The Company has no additional debt obligations
as of March 31, 1999. The Company currently does not maintain a working capital
credit facility but believes that, if needed, one would be available at market
rates.
The Company believes that net cash provided by operations, together with cash on
hand and other available sources of funds, will be sufficient to fund the cash
requirements of its existing operations. Excluding acquisition activity, the
Company does not expect to use the proceeds of the initial public offering to
fund operations. The Company currently has no commitments for material capital
expenditures. However, future operating requirements and capital needs may be
subject to economic conditions and other factors, many of which are beyond the
Company's control.
The Company will continue to use the remaining net proceeds from the initial
public offering for general corporate purposes including acquisitions. See Note
H - SUBSEQUENT EVENTS. Pending such uses, the remaining net proceeds will be
invested in short-term, investment grade securities.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
SEASONALITY
The Company's business is somewhat seasonal, with revenues typically reaching
slightly higher levels during the third and fourth quarters of each calendar
year, based on historical publication schedules. In 1998, 30% of the Company's
revenues were generated during the fourth quarter with the first, second and
third quarters accounting for 23%, 22% and 25% of revenues, respectively. In
addition, the Company may experience fluctuation in revenues from period to
period based on the timing of acquisitions and new product launches.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer systems that use two digits rather
than four to define the applicable year, which may prevent such systems from
accurately processing dates ending in the Year 2000 and after. This could result
in system failures or in miscalculations causing disruption of operations,
including, but not limited to, an inability to process transactions, to send and
receive electronic data, or to engage in routine business activities and
operations.
The Company has completed its assessment of all currently used computer systems
and has begun a plan of action to correct those areas that will be affected by
the Year 2000 issue. Presently, conversion of all critical data processing
systems has been completed. The Company anticipates the conversions of
non-critical systems to be completed by mid-1999. The Company expects the cost
for all upgrades to be between $100,000 and $200,000. The estimate includes
internal costs, but excludes the costs to upgrade and replace systems in the
normal course of business.
In fiscal 1998, the Company began an evaluation of the environmental equipment,
telephones, personal computer hardware and software outside of the Company's
information systems. The Company's goal is to complete any upgrade requirements
by the end of fiscal 1999, but does not expect that the cost for subsequent
upgrades will be material to the Company's consolidated financial statements.
Management's assessment of the risks associated with the Year 2000 project and
the status of the Company's contingency plans are unchanged from that described
in the 1998 annual report on Form 10-K.
FORWARD-LOOKING STATEMENTS
The information above contains forward-looking statements, including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, and intentions that are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that forward-looking statements contained in this Form 10-Q should be
read in conjunction with the Company's disclosures under the heading IMPORTANT
FACTORS RELATING TO FORWARD-LOOKING STATEMENTS contained in the Company's 1998
Annual Report on Form 10-K.
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INFORMATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITES AND USE OF PROCEEDS
The following report relates to the Company's initial public offering:
Commission file number of registration statement: 333-56665
Effective Date: August 6, 1998
Expenses incurred through March 31, 1999:
Underwriting discounts $ 3,887,747
Other expenses $ 1,589,413
Total expenses $ 5,477,160
Application of proceeds through March 31, 1999:
Acquisition of product lines $ 7,186,700
Temporary investments (US Treasury Bills) $44,004,412
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the three
months ended March 31, 1999.
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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.
INFORMATION HOLDINGS INC.
Date: May 13, 1999 By: /s/ Vincent A. Chippari
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Vincent A. Chippari
Executive Vice President and Chief
Financial Officer
Signing on behalf of the registrant
and as principal financial and
accounting officer
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