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, 2003


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

(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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of the issuer’s Common Stock, $0.01 par value per share, outstanding as of August 5, 2003 was 11,323,205.

OneSource Information Services, Inc.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	Item 1. Consolidated Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
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
EX-10.02 1999 Stock Option & Incentive Plan
EX-10.03 1999 Employee Stock Purchase Plan
EX-31.01 Certification of Daniel J. Schimmel, CEO
EX-31.02 Certification of Roy D. Landon, CFO
EX-32.01 906 Cert. of Daniel J. Schimmel, CEO
EX-32.02 906 Certification of Roy D. Landon, CFO

CONTENTS


			Page

Part I FINANCIAL INFORMATION
	Item 1. Consolidated Financial Statements (unaudited)
		Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002		2
		Consolidated Statements of Income for the three months and six months ended June 30, 2003 and 2002		3
		Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002		4
		Notes to Consolidated Financial Statements		5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
	Item 3. Quantitative and Qualitative Disclosures About Market Risk			24
	Item 4. Controls and Procedures			24
Part II OTHER INFORMATION
	Item 1. Legal Proceedings			24
	Item 2. Changes in Securities and Use of Proceeds			25
	Item 3. Defaults upon Senior Securities			25
	Item 4. Submission of Matters to a Vote of Security Holders			25
	Item 5. Other Information			26
	Item 6. Exhibits and Reports on Form 8-K			26
	Signature			28

PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)
(unaudited)


				June 30,			December 31,
				2003			2002

Assets
Current assets:
	Cash and cash equivalents			$	25,563		$	23,096
	Accounts receivable, net of allowance for doubtful accounts of $179 and $299 at June 30, 2003 and December 31, 2002, respectively				9,349			16,499
	Deferred royalties				1,965			2,873
	Deferred commissions				1,407			1,644
	Prepaid expenses and other current assets				899			822

		Total current assets			39,183			44,934
Property and equipment, net					4,411			3,629
Goodwill					4,445			4,445
Acquired intangible assets, net					1,054			1,217
Restricted time deposit					—			603
Long-term deferred royalties					1,517			1,540
Capitalized software development costs, net					3,640			2,250
Other assets					101			180

			Total assets	$	54,351		$	58,798

Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long-term debt			$	512		$	—
	Accounts payable				2,764			2,222
	Accrued compensation and benefits				2,084			2,534
	Accrued royalties				2,453			3,419
	Accrued expenses				2,880			2,857
	Deferred revenues				25,948			30,257

		Total current liabilities			36,641			41,289
Long-term debt					897			—

			Total liabilities		37,538			41,289

Commitments and contingencies (Note 9)					—			—
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 11,449,455 shares outstanding at June 30, 2003; 13,287,453 shares issued and 11,681,741 shares outstanding at December 31, 2002			133			133
	Additional paid-in capital				35,548			35,128
	Accumulated deficit				(5,924	)		(5,856	)
	Accumulated other comprehensive income				583			437
	Treasury stock, at cost				(13,527	)		(12,333	)

		Total stockholders’ equity			16,813			17,509

			Total liabilities and stockholders’ equity	$	54,351		$	58,798

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

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)
(unaudited)


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

			2003			2002		2003			2002

Revenues:
	Web-based product		$	13,837		$	13,803	$	27,934		$	27,452
	CD Rom product and other			562			570		961			1,145

				14,399			14,373		28,895			28,597

Cost of revenues:
	Web-based product			4,238			4,046		8,507			8,034
	CD Rom product and other			402			408		842			833

				4,640			4,454		9,349			8,867

	Gross profit			9,759			9,919		19,546			19,730

Operating expenses:
	Selling and marketing			4,350			4,189		8,794			7,912
	Platform and product development			2,630			2,741		5,321			5,394
	General and administrative			1,705			1,291		3,212			2,866
	Amortization of acquired intangible assets			82			115		163			230

		Total operating expenses		8,767			8,336		17,490			16,402

		Income from operations		992			1,583		2,056			3,328
Interest income				138			102		250			204
Interest expense				(21	)		—		(24	)		—

		Income before provision for income taxes		1,109			1,685		2,282			3,532
Provision for income taxes				422			642		856			1,307

		Net income	$	687		$	1,043	$	1,426		$	2,225

Basic net income per share			$	0.06		$	0.09	$	0.12		$	0.19
Diluted net income per share			$	0.06		$	0.08	$	0.12		$	0.17
Weighted average common shares outstanding:
		Basic		11,558			11,957		11,619			11,992
		Diluted		11,883			12,620		12,000			12,752

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

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(unaudited)


				For the six months ended
				June 30,

				2003			2002

Cash flows relating to operating activities:
	Net income			$	1,426		$	2,225
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			1,544			1,621
		Amortization of acquired intangible assets			163			230
		Amortization of unearned compensation relating to grants of stock options			—			49
		Tax benefit of stock options			421			532
		Loss on disposal of fixed assets			11			—
		Changes in operating assets and liabilities:
			Accounts receivable		7,255			6,891
			Deferred royalties		908			445
			Deferred commissions		237			103
			Prepaid expenses and other assets		7			(43	)
			Long-term deferred royalties		23			(514	)
			Accounts payable		509			(574	)
			Accrued compensation and benefits		(349	)		72
			Accrued royalties		(966	)		(646	)
			Accrued expenses		(105	)		353
			Deferred revenues		(4,548	)		(2,475	)

		Net cash provided by operating activities			6,536			8,269

Cash flows relating to investing activities:
	Decrease in restricted time deposit				603			—
	Purchases of property and equipment				(2,020	)		(679	)
	Capitalization of software development costs				(1,698	)		(427	)

		Net cash used by investing activities			(3,115	)		(1,106	)

Cash flows relating to financing activities:
	Issuance of stock pursuant to stock options and employee stock purchase plan				622			518
	Repurchase of common stock for treasury				(3,310	)		(2,492	)
	Proceeds from equipment line of credit				1,537			—
	Repayments under equipment line of credit				(128	)		—

		Net cash used by financing activities			(1,279	)		(1,974	)

Effect of exchange rate changes on cash and cash equivalents					325			194

Increase in cash and cash equivalents					2,467			5,383
Cash and cash equivalents, beginning of period					23,096			18,162

Cash and cash equivalents, end of period				$	25,563		$	23,545

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, 2003 and for the three- and six-month periods ended June 30, 2003 and 2002 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 six-month period ended June 30, 2003 are not necessarily indicative of the results of operations for the year ending December 31, 2003.

The balance sheet as of December 31, 2002 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 United States Securities and Exchange Commission on March 27, 2003.

2. Net Income Per Share

Basic net income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income 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 net income per share are as follows (in thousands):


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

	2003		2002		2003		2002

Weighted-average shares outstanding used for basic net income per share		11,558		11,957		11,619		11,992
Incremental shares from dilutive stock options		325		663		381		760

Weighted-average shares outstanding used for diluted net income per share		11,883		12,620		12,000		12,752

Options to purchase 2,250,974 and 2,485,195 shares of common stock were outstanding as of June 30, 2003 and 2002, respectively, but were not included in the computation of diluted net income 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, 2003 and 2002, respectively.

3. Accounting for Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards No. 148 (“SFAS No. 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123,” which provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation, and also amends the disclosure provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and net income per share in annual and interim financial statements. OneSource adopted the disclosure provisions of SFAS No. 148 in fiscal year 2002.

If OneSource had elected to recognize compensation cost based on the fair value of all stock awards at grant date as prescribed by SFAS No. 123, the net income and basic and diluted net income per share for three- and six-month periods ended June 30, 2003 and June 30, 2002 would have been reduced to the pro forma amounts shown below:

Three months ended

Six months ended

June 30,

2003

2002

2003

2002

(In thousands, except per share data)

Net income :

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