ONESOURCE INFORMATION SERVICES INC - 10-Q Quarterly Report

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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, 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		(IRS Employer Identification No.)
incorporation or organization)

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 November 5, 2003 was 11,351,053.

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-31.01 SECT. 302 CERTIFICATION (C.E.O.)
EX-31.02 SECT. 302 CERTIFICATION (C.F.O.)
EX-32.01 SECT. 906 CERTIFICATION (C.E.O.)
EX-32.02 SECT. 906 CERTIFICATION (C.F.O.)

OneSource Information Services, Inc.

CONTENTS


			Page

Part I		FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets (unaudited) as of September 30, 2003 and December 31, 2002		3
		Consolidated Statements of Income (unaudited) for the three months and nine months ended September 30, 2003 and 2002		4
		Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2003 and 2002		5
		Notes to Consolidated Financial Statements (unaudited)		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
	Item 4.	Controls and Procedures		26
Part II		OTHER INFORMATION
	Item 1.	Legal Proceedings		27
	Item 2.	Changes in Securities and Use of Proceeds		27
	Item 3.	Defaults upon Senior Securities		28
	Item 4.	Submission of Matters to a Vote of Security Holders		28
	Item 5.	Other Information		28

PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)


				September 30,			December 31,
				2003			2002

Assets
Current assets:
	Cash and cash equivalents			$	22,318		$	23,096
	Accounts receivable, net of allowance for doubtful accounts of $153 and $299 at September 30, 2003 and December 31, 2002, respectively				6,690			16,499
	Deferred royalties				1,596			2,873
	Deferred commissions				1,198			1,644
	Prepaid expenses and other current assets				1,018			822

		Total current assets			32,820			44,934
Property and equipment, net					4,568			3,629
Goodwill					4,445			4,445
Acquired intangible assets, net					972			1,217
Restricted time deposit					—			603
Long-term deferred royalties					1,517			1,540
Capitalized software development costs, net					3,959			2,250
Other assets					102			180

			Total assets	$	48,383		$	58,798

Liabilities and Stockholders’ Equity
Current liabilities:
	Current portion of long-term debt			$	948		$	—
	Accounts payable				1,322			2,222
	Accrued compensation and benefits				1,710			2,534
	Accrued royalties				2,412			3,419
	Accrued expenses				1,954			2,857
	Deferred revenues				23,342			30,257

		Total current liabilities			31,688			41,289
Long-term debt					1,639			—

			Total liabilities		33,327			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 11,190,598 shares outstanding at September 30, 2003; 13,287,453 shares issued and 11,681,741 shares outstanding at December 31, 2002			133			133
	Additional paid-in capital				35,791			35,128
	Accumulated deficit				(5,922	)		(5,856	)
	Accumulated other comprehensive income				644			437
	Treasury stock, at cost				(15,590	)		(12,333	)

		Total stockholders’ equity			15,056			17,509

			Total liabilities and stockholders’ equity	$	48,383		$	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 nine months ended
			September 30,						September 30,

			2003			2002			2003			2002

Revenues:
	Web-based product		$	13,522		$	14,042		$	41,456		$	41,494
	CD Rom product and other			368			515			1,329			1,660

		Total revenues		13,890			14,557			42,785			43,154

Cost of revenues:
	Web-based product			4,059			4,063			12,566			12,097
	CD Rom product and other			383			438			1,225			1,271

		Total cost of revenues		4,442			4,501			13,791			13,368

	Gross profit			9,448			10,056			28,994			29,786

Operating expenses:
	Selling and marketing			4,133			4,385			12,927			12,297
	Platform and product development			2,683			2,279			8,004			7,673
	General and administrative			1,522			1,677			4,734			4,543
	Amortization of acquired intangible assets			82			115			245			345

		Total operating expenses		8,420			8,456			25,910			24,858

		Income from operations		1,028			1,600			3,084			4,928
Interest income				93			127			343			331
Interest expense				(18	)		(32	)		(42	)		(32	)

		Income before provision for income taxes		1,103			1,695			3,385			5,227
Provision for income taxes				413			627			1,269			1,934

		Net income	$	690		$	1,068		$	2,116		$	3,293

Basic net income per share			$	0.06		$	0.09		$	0.18		$	0.28
Diluted net income per share			$	0.06		$	0.09		$	0.18		$	0.26
Weighted average common shares outstanding:
		Basic		11,311			11,797			11,515			11,927
		Diluted		11,705			12,368			11,901			12,623

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 nine months ended
				September 30,

				2003			2002

Cash flows relating to operating activities:
	Net income			$	2,116		$	3,293
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			2,308			2,383
		Amortization of acquired intangible assets			245			345
		Amortization of unearned compensation relating to grants of stock options			—			70
		Compensation expense relating to employee stock option modification			51			—
		Tax benefit of stock options			615			554
		(Gain) loss on disposal of fixed assets			(5	)		7
		Changes in operating assets and liabilities:
			Accounts receivable		9,931			9,138
			Deferred royalties		1,277			834
			Deferred commissions		446			147
			Prepaid expenses and other assets		(109	)		(723	)
			Long-term deferred royalties		23			(463	)
			Accounts payable		(932	)		(312	)
			Accrued compensation and benefits		(707	)		(178	)
			Accrued royalties		(1,006	)		(1,010	)
			Accrued expenses		(1,071	)		1,542
			Deferred revenues		(7,223	)		(3,366	)

		Net cash provided by operating activities			5,959			12,261

Cash flows relating to investing activities:
	Decrease in restricted time deposit				603			—
	Purchases of property and equipment				(2,686	)		(1,437	)
	Capitalization of software development costs				(2,255	)		(1,047	)

		Net cash used by investing activities			(4,338	)		(2,484	)

Cash flows relating to financing activities:
	Issuance of stock pursuant to stock options and employee stock purchase plan				1,205			852
	Repurchase of common stock for treasury				(6,647	)		(4,976	)
	Proceeds from equipment line of credit				2,843			—
	Repayments under equipment line of credit				(256	)		—

		Net cash used by financing activities			(2,855	)		(4,124	)

Effect of exchange rate changes on cash and cash equivalents					456			314

Increase (decrease) in cash and cash equivalents					(778	)		5,967
Cash and cash equivalents, beginning of period					23,096			18,162

Cash and cash equivalents, end of period				$	22,318		$	24,129

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 September 30, 2003 and for the three- and nine-month periods ended September 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 nine-month period ended September 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 shares 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				Nine months ended
	September 30,				September 30,

	2003		2002		2003		2002

Weighted-average shares outstanding used for basic net income per share		11,311		11,797		11,515		11,927
Incremental shares from dilutive stock options		394		571		386		696

Weighted-average shares outstanding used for diluted net income per share		11,705		12,368		11,901		12,623

Options to purchase 1,555,123 and 2,690,970 shares of common stock for the three months ended September 30, 2003 and 2002, respectively, and 2,014,048 and 2,059,486 shares of common stock for the nine months ended September 30, 2003 and 2002, respectively, 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.

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, net income and basic and diluted net income per share for three- and nine-month periods ended September 30, 2003 and 2002 would have been reduced to the pro forma amounts shown below:

Three months ended

Nine months ended<

Item 6. Exhibits and Reports on Form 8-K