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 September 30, 2002 | ||
| OR | ||
| o | 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
(978) 318-4300
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 o
The number of shares of the issuer’s Common Stock, $0.01 par value per share, outstanding as of November 13, 2002 was 11,635,579.
OneSource Information Services, Inc.
CONTENTS
| Page | ||||
| Part I | FINANCIAL INFORMATION | |||
| Item 1. | Consolidated Financial Statements | |||
| Consolidated Balance Sheet as of September 30, 2002 and December 31, 2001 | 3 | |||
| Consolidated Statement of Income for the three months and nine months ended September 30, 2002 and 2001 | 4 | |||
| Consolidated Statement of Cash Flows for the nine months ended September 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 | 32 | ||
| Item 4. | Controls and Procedures | 32 | ||
| Part II | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 33 | ||
| Item 2. | Changes in Securities and Use of Proceeds | 33 | ||
| Item 3. | Defaults upon Senior Securities | 34 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 34 | ||
| Item 5. | Other Information | 34 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 34 | ||
| Signature | 36 | |||
| Certifications | 37 | |||
| Exhibit Index | 40 | |||
2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
(unaudited)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 24,129 | $ | 18,162 | ||||||
Accounts receivable, net of allowance for doubtful accounts
of $402 and $770 at September 30, 2002 and
December 31, 2001, respectively |
7,966 | 16,925 | ||||||||
Deferred royalties |
2,299 | 3,133 | ||||||||
Deferred commissions |
1,195 | 1,342 | ||||||||
Prepaid expenses and other current assets |
986 | 380 | ||||||||
Total current assets |
36,575 | 39,942 | ||||||||
Property and equipment, net |
3,838 | 4,353 | ||||||||
Goodwill |
4,581 | 4,978 | ||||||||
Other intangible assets, net |
1,300 | 1,645 | ||||||||
Restricted time deposit |
603 | 603 | ||||||||
Long-term deferred royalties |
1,489 | 1,026 | ||||||||
Other assets, net |
1,761 | 996 | ||||||||
Total assets |
$ | 50,147 | $ | 53,543 | ||||||
Liabilities and Stockholders’ Equity |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 1,418 | $ | 1,734 | ||||||
Accrued compensation and benefits |
1,865 | 2,171 | ||||||||
Accrued expenses |
3,886 | 2,655 | ||||||||
Accrued royalties |
2,829 | 3,839 | ||||||||
Deferred revenues |
24,285 | 27,144 | ||||||||
Total current liabilities |
34,283 | 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; 13,287,453 shares issued
and 11,658,642 shares outstanding at September 30, 2002;
13,021,464 shares issued and 12,060,864 shares
outstanding at December 31, 2001 |
133 | 130 | ||||||||
Additional paid-in capital |
34,106 | 33,154 | ||||||||
Unearned compensation |
(7 | ) | (77 | ) | ||||||
Accumulated deficit |
(6,084 | ) | (9,377 | ) | ||||||
Accumulated other comprehensive income |
338 | 267 | ||||||||
Treasury stock, at cost |
(12,622 | ) | (8,097 | ) | ||||||
Total stockholders’ equity |
15,864 | 16,000 | ||||||||
Total liabilities and stockholders’ equity |
$ | 50,147 | $ | 53,543 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(unaudited)
| For the three months ended | For the nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues: |
||||||||||||||||||
Web-based product |
$ | 14,042 | $ | 14,059 | $ | 41,494 | $ | 42,108 | ||||||||||
CD Rom product and other |
515 | 611 | 1,660 | 2,045 | ||||||||||||||
| 14,557 | 14,670 | 43,154 | 44,153 | |||||||||||||||
Cost of revenues: |
||||||||||||||||||
Web-based product |
4,063 | 4,123 | 12,097 | 12,265 | ||||||||||||||
CD Rom product and other |
438 | 469 | 1,271 | 1,693 | ||||||||||||||
| 4,501 | 4,592 | 13,368 | 13,958 | |||||||||||||||
Gross profit |
10,056 | 10,078 | 29,786 | 30,195 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Selling and marketing |
4,385 | 4,143 | 12,297 | 14,522 | ||||||||||||||
Platform and product development |
2,279 | 2,080 | 7,673 | 6,159 | ||||||||||||||
General and administrative |
1,677 | 1,490 | 4,543 | 4,243 | ||||||||||||||
Restructuring |
— | 374 | — | 374 | ||||||||||||||
Amortization of goodwill |
— | 253 | — | 772 | ||||||||||||||
Amortization of other intangible assets |
115 | 115 | 345 | 345 | ||||||||||||||
Total operating expenses |
8,456 | 8,455 | 24,858 | 26,415 | ||||||||||||||
Income from operations |
1,600 | 1,623 | 4,928 | 3,780 | ||||||||||||||
Interest expense |
(32 | ) | — | (32 | ) | (2 | ) | |||||||||||
Interest income |
127 | 76 | 331 | 675 | ||||||||||||||
Income before provision for income taxes |
1,695 | 1,699 | 5,227 | 4,453 | ||||||||||||||
Provision for income taxes |
627 | 681 | 1,934 | 1,790 | ||||||||||||||
Net income |
$ | 1,068 | $ | 1,018 | $ | 3,293 | $ | 2,663 | ||||||||||
Basic earnings per share |
$ | 0.09 | $ | 0.08 | $ | 0.28 | $ | 0.21 | ||||||||||
Diluted earnings per share |
$ | 0.09 | $ | 0.07 | $ | 0.26 | $ | 0.20 | ||||||||||
Weighted average common shares outstanding: |
||||||||||||||||||
Basic |
11,797 | 12,547 | 11,927 | 12,513 | ||||||||||||||
Diluted |
12,368 | 13,604 | 12,623 | 13,640 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(unaudited)
| For the nine months ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
Increase (Decrease) in Cash and Cash Equivalents |
|||||||||||
Cash flows relating to operating activities: |
|||||||||||
Net income |
$ | 3,293 | $ | 2,663 | |||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
|||||||||||
Depreciation and amortization |
2,383 | 2,258 | |||||||||
Amortization of goodwill |
— | 772 | |||||||||
Amortization of other intangible assets |
345 | 345 | |||||||||
Amortization of unearned compensation relating to
grants of stock options |
70 | 73 | |||||||||
Tax benefits of disqualifying dispositions of stock options |
554 | 1,060 | |||||||||
Loss on disposal of fixed assets |
7 | 23 | |||||||||
Changes in operating assets and liabilities: |
|||||||||||
Accounts receivable |
9,138 | 9,059 | |||||||||
Deferred royalties |
834 | 1,472 | |||||||||
Deferred commissions |
147 | 726 | |||||||||
Prepaid expenses and other assets |
(723 | ) | (15 | ) | |||||||
Long-term deferred royalties |
(463 | ) | — | ||||||||
Accounts payable |
(312 | ) | (725 | ) | |||||||
Acccrued compensation and benefits |
(178 | ) | (1,293 | ) | |||||||
Accrued expenses |
1,542 | (635 | ) | ||||||||
Accrued royalties |
(1,010 | ) | (2,334 | ) | |||||||
Deferred revenues |
(3,366 | ) | (4,794 | ) | |||||||
Net cash provided by operating activities |
12,261 | 8,655 | |||||||||
Cash flows relating to investing activities: |
|||||||||||
Purchases of property and equipment |
(1,437 | ) | (1,524 | ) | |||||||
Capitalization of software development costs |
(1,047 | ) | (723 | ) | |||||||
Net cash used by investing activities |
(2,484 | ) | (2,247 | ) | |||||||
Cash flows relating to financing activities: |
|||||||||||
Issuance of stock pursuant to stock options and employee
stock purchase plan |
852 | 1,658 | |||||||||
Repurchase of common stock |
(4,976 | ) | (4,113 | ) | |||||||
Repayment of capital lease obligations |
— | (33 | ) | ||||||||
Net cash used by financing activities |
(4,124 | ) | (2,488 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents |
314 | 52 | |||||||||
Increase in cash and cash equivalents |
5,967 | 3,972 | |||||||||
Cash and cash equivalents, beginning of period |
18,162 | 17,338 | |||||||||
Cash and cash equivalents, end of period |
$ | 24,129 | $ | 21,310 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
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 September 30, 2002 and for the three and nine-month periods ended September 30, 2002 and 2001 are unaudited. In the opinion of OneSource’s management, these 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 nine-month period ended September 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 shares of 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):
6
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||
Weighted average shares outstanding
used for basic earnings per share |
11,797 | 12,547 | 11,927 | 12,513 | ||||||||||||
Dilutive stock options |
571 | 1,057 | 696 | 1,127 | ||||||||||||
Weighted average shares outstanding
used for diluted earnings per share |
||||||||||||||||