ONESOURCE INFORMATION SERVICES INC - 10-Q Quarterly Report

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, 2002


[ ]		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

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

300 Baker Avenue, Concord, MA 01742

(Address of principal executive offices, including Zip Code)

(978) 318-4300

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

The number of shares of the issuer’s Common Stock, $0.01 par value per share, outstanding as of August 6, 2002 was 11,900,256.

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	Item 1. Consolidated Financial Statements
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF INCOME
		CONSOLIDATED STATEMENT OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II- OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds.
	Item 3. Defaults upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K.
SIGNATURE
EXHIBIT INDEX
EX-10.1 1999 STOCK OPTION AND INCENTIVE PLAN
EX-99.1 906 CERTIFICATION, DANIEL SCHIMMEL
EX-99.2 906 CERTIFICATION, ROY LANDON

OneSource Information Services, Inc.

CONTENTS


			Page

Part I		FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements

		Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001	3

		Consolidated Statement of Income for the three months and six months ended June 30, 2002 and 2001	4

		Consolidated Statement of Cash Flows for the six months ended June 30, 2002 and 2001	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Part II		OTHER INFORMATION

	Item 1.	Legal Proceedings	31

	Item 2.	Changes in Securities and Use of Proceeds	31

	Item 3.	Defaults upon Senior Securities	32

	Item 4.	Submission of Matters to a Vote of Security Holders	32

	Item 5.	Other Information	33

	Item 6.	Exhibits and Reports on Form 8-K	33

	Signature		34

	Exhibit Index		35

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,
					2002			2001

Assets
Current assets:
	Cash and cash equivalents			$	23,545		$	18,162
	Accounts receivable, net of allowance for doubtful accounts
		of $526 and $770 at June 30, 2002 and December 31, 2001, respectively			10,159			16,925
	Deferred subscription costs				3,927			4,475
	Prepaid expenses and other current assets				429			380

		Total current assets			38,060			39,942
Property and equipment, net					3,683			4,353
Goodwill					4,715			4,978
Other intangible assets, net					1,415			1,645
Restricted time deposit					603			603
Long-term deferred subscription costs					1,540			1,026
Other assets, net					1,168			996

		Total assets		$	51,184		$	53,543

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable			$	1,145		$	1,734
	Accrued compensation and benefits				2,070			2,171
	Accrued expenses				2,864			2,655
	Accrued royalties				3,193			3,839
	Deferred revenues				25,031			27,144

		Total current liabilities			34,303			37,543

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; 13,223,856 shares issued and 11,930,856 shares outstanding at June 30, 2002; 13,021,464 shares issued and 12,060,864 shares outstanding at December 31, 2001			132			130
Additional paid-in capital					34,202			33,154
Unearned compensation					(28	)		(77	)
Accumulated deficit					(7,152	)		(9,377	)
Accumulated other comprehensive income					316			267
Treasury stock, at cost					(10,589	)		(8,097	)

		Total stockholders’ equity			16,881			16,000

			Total liabilities and stockholders’ equity	$	51,184		$	53,543

The accompanying notes are an integral part of these consolidated financial statements.

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(unaudited)


			For the three months ended				For the six months ended
			June 30,				June 30,

			2002		2001		2002		2001

Revenues:
	Web-based product		$	13,803	$	14,323	$	27,452	$	28,049
	CD Rom product and other			570		686		1,145		1,434

				14,373		15,009		28,597		29,483

Cost of revenues:
	Web-based product			4,046		4,129		8,034		8,142
	CD Rom product and other			408		607		833		1,224

				4,454		4,736		8,867		9,366

Gross profit				9,919		10,273		19,730		20,117

	Operating expenses:
	Selling and marketing			4,189		5,105		7,912		10,379
	Platform and product development			2,741		2,022		5,394		4,079
	General and administrative			1,291		1,410		2,866		2,753
	Amortization of goodwill			—		258		—		519
	Amortization of other intangible assets			115		115		230		230

		Total operating expenses		8,336		8,910		16,402		17,960

		Income from operations		1,583		1,363		3,328		2,157
Interest expense				—		—		—		(2	)
Interest income				102		335		204		599

		Income before provision for income taxes		1,685		1,698		3,532		2,754
Provision for income taxes				642		684		1,307		1,109

		Net income	$	1,043	$	1,014	$	2,225	$	1,645

Basic earnings per share			$	0.09	$	0.08	$	0.19	$	0.13
Diluted earnings per share			$	0.08	$	0.07	$	0.17	$	0.12
Weighted average common shares outstanding:
	Basic			11,957		12,653		11,992		12,496
	Diluted			12,620		13,682		12,752		13,657

The accompanying notes are an integral part of these consolidated financial statements.

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)


				For the six months ended
				June 30,

				2002			2001

Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities:
	Net income			$	2,225		$	1,645
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			1,621			1,485
		Amortization of goodwill			—			519
		Amortization of other intangible assets			230			230
		Amortization of unearned compensation relating to grants of stock options			49			49
		Changes in operating assets and liabilities:
			Accounts receivable		6,891			6,403
			Deferred subscription costs		548			1,348
			Prepaid expenses and other assets		(43	)		(27	)
			Long-term deferred subscription costs		(514	)		—
			Accounts payable		(574	)		46
			Acccrued compensation and benefits		72			(1,428	)
			Accrued expenses		885			46
			Accrued royalties		(646	)		(1,754	)
			Deferred revenues		(2,475	)		(1,100	)

		Net cash provided by operating activities			8,269			7,462

Cash flows relating to investing activities:
	Purchases of property and equipment				(679	)		(1,152	)
	Capitalization of software development costs				(427	)		(494	)

		Net cash used by investing activities			(1,106	)		(1,646	)

Cash flows relating to financing activities:
	Proceeds from issuance of common stock				518			1,150
	Repurchase of common stock				(2,492	)		(631	)
	Repayments of capital lease obligations				—			(33	)

		Net cash provided (used) by financing activities			(1,974	)		486

Effect of exchange rate changes on cash and cash equivalents					194			(69	)

Increase in cash and cash equivalents					5,383			6,233
Cash and cash equivalents, beginning of period					18,162			17,338

Cash and cash equivalents, end of period				$	23,545		$	23,571

The accompanying notes are an integral part of these consolidated financial statements.

ONESOURCE INFORMATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Basis of Presentation

The accompanying consolidated financial statements of OneSource Information Services, Inc. (“OneSource”) as of June 30, 2002 and for the three- and six-month periods ended June 30, 2002 and 2001 are unaudited. In the opinion of OneSource’s management, the June 30, 2002 and 2001 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, 2002 are not necessarily indicative of the results of operations for the year ending December 31, 2002.

The balance sheet as of December 31, 2001 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 27, 2002.

2. Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the sum of the weighted average number of common stock outstanding during the period and, if dilutive, 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 per share are as follows (in thousands):


	Three months ended				Six months ended
	June 30,				June 30,

	2002		2001		2002		2001

Weighted average shares outstanding used for basic earnings per share		11,957		12,653		11,992		12,496
Dilutive stock options		663		1,029		760		1,161

Weighted average shares outstanding used for diluted earnings per share		12,620		13,682		12,752		13,657

Options to purchase 2,485,195 and 1,110,158 shares of common stock were outstanding as of June 30, 2002 and 2001, respectively, but were not included in the

computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of OneSource’s common stock during the three and six months ended June 30, 2002 and 2001.

3. Goodwill and Other Intangible Assets

As of January 1, 2002, OneSource adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and other intangible assets with indefinite lives are no longer amortized, but instead are reviewed for impairment annually, or more frequently if impairment indicators arise.

In connection with the adoption of SFAS No. 142, OneSource was required to perform a transitional impairment assessment of goodwill within six months of adoption of this standard. SFAS No. 142 requires that OneSource identify its reporting units and determine the carrying value of each of those reporting units by assigning assets and liabilities, including existing goodwill and intangible assets, to those reporting units. OneSource has concluded that it currently has one reporting unit, and has assigned the entire balance of goodwill to this reporting unit for purposes of performing the transitional impairment test. The fair value of this reporting unit was determined by calculating OneSource’s market capitalization based on the closing price of its common stock, as quoted on Nasdaq. OneSource completed its transitional impairment assessment of goodwill during the first quarter of 2002, and determined that goodwill was not impaired. OneSource will perform its annual goodwill impairment test during the third quarter of each fiscal year as well as on an event-driven basis as necessary, as is required under SFAS No. 142.

The following table reflects the unaudited net income of OneSource, giving effect to SFAS No. 142 as if it were adopted on January 1, 2001:


	Three months ended				Six months ended
	June 30,				June 30,

	2002		2001		2002		2001

	(In thousands, except earnings per share)
Net income, as reported	$	1,043	$	1,014	$	2,225	$	1,645
Add back: amortization expense		—

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