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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the Quarter ended
     
Commission file number
June 29, 2002
     
1-3246
 
 
PROQUEST COMPANY
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
     
36-3580106
(State or Other Jurisdiction of
     
(I.R.S. Employer
Incorporation or Organization)
     
Identification No.)
300 North Zeeb Road, Ann Arbor, Michigan
     
48103-1553
(Address of Principal Executive Offices)
     
(Zip Code)
 
 
Registrant’s telephone number, including area code: (734) 761-4700
 
 
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 Registrant’s Common Stock, $.001 par value, outstanding as of August 7, 2002 was 27,991,853.

Table of Contents
TABLE OF CONTENTS
 
PART I.
   
FINANCIAL INFORMATION
   
PAGE
Item 1.
   
Consolidated Financial Statements
     
       
1
       
2
       
3
       
4
Item 2.
      
12
Item 3.
      
23
PART II.
   
OTHER INFORMATION
     
Item 1.
      
24
Item 4.
      
24
Item 5.
      
25
Item 6.
      
25
  
26

Table of Contents
ProQuest Company and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
    
Thirteen Weeks Ended
     
Twenty-Six Weeks Ended
  
    
June 29, 2002
     
June 30, 2001
     
June 29, 2002
     
June 30, 2001
  
Net sales
   
$
108,980
 
   
$
100,743
 
   
$
211,732
 
   
$
196,596
 
Cost of sales
   
 
(51,620
)
   
 
(45,555
)
   
 
(99,370
)
   
 
(92,695
)
    
  
  
  
Gross profit
   
 
57,360
 
   
 
55,188
 
   
 
112,362
 
   
 
103,901
 
Research and development expense
   
 
(5,533
)
   
 
(5,499
)
   
 
(10,489
)
   
 
(10,581
)
Selling and administrative expense
   
 
(28,541
)
   
 
(33,207
)
   
 
(58,069
)
   
 
(62,597
)
    
  
  
  
Earnings from continuing operations before interest, income taxes, and equity in loss of affiliate
   
 
23,286
 
   
 
16,482
 
   
 
43,804
 
   
 
30,723
 
Net interest expense:
                                    
Interest income
   
 
581
 
   
 
72
 
   
 
1,153
 
   
 
182
 
Interest expense
   
 
(7,495
)
   
 
(6,360
)
   
 
(15,233
)
   
 
(12,548
)
    
  
  
  
Net interest expense
   
 
(6,914
)
   
 
(6,288
)
   
 
(14,080
)
   
 
(12,366
)
Earnings from continuing operations before income taxes and equity in loss of affiliate
   
 
16,372
 
   
 
10,194
 
   
 
29,724
 
   
 
18,357
 
Income tax expense
   
 
(6,221
)
   
 
(4,077
)
   
 
(11,295
)
   
 
(7,343
)
Equity in loss of affiliate
   
 
—  
 
   
 
(6,101
)
   
 
—  
 
   
 
(11,572
)
    
  
  
  
Earnings (loss) from continuing operations
   
 
10,151
 
   
 
16
 
   
 
18,429
 
   
 
(558
)
Discontinued Operations:
                                    
Earnings (loss) from discontinued operations, net (less applicable income taxes (benefit) of $0, $(75), $0 and $1,403 respectively)
   
 
—  
 
   
 
(112
)
   
 
—  
 
   
 
2,105
 
Gain on sales of discontinued operations, net (less applicable income taxes of $29,056)
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
43,583
 
    
  
  
  
Net earnings (loss)
   
$
10,151
 
   
$
(96
)
   
$
18,429
 
   
$
45,130
 
    
  
  
  
Net earnings (loss) per common share:
                                    
Basic:
                                    
Earnings (loss) from continuing operations
   
 
0.41
 
   
 
—  
 
   
 
0.76
 
   
 
(0.02
)
Earnings from discontinued operations
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
0.09
 
Gain on sales of discontinued operations
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
1.84
 
Net earnings (loss)
   
 
0.41
 
   
 
—  
 
   
 
0.76
 
   
 
1.91
 
Diluted:
                                    
Earnings (loss) from continuing operations
   
 
0.40
 
   
 
—  
 
   
 
0.74
 
   
 
(0.02
)
Earnings from discontinued operations
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
0.09
 
Gain on sales of discontinued operations
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
1.84
 
Net earnings (loss)
   
 
0.40
 
   
 
—  
 
   
 
0.74
 
   
 
1.91
 
Average number of common shares and equivalents outstanding:
                                    
Basic
   
 
24,620
 
   
 
23,718
 
   
 
24,375
 
   
 
23,670
 
Diluted
   
 
25,153
 
   
 
23,985
 
   
 
24,913
 
   
 
23,670
 
 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

1

Table of Contents
 
ProQuest Company and Subsidiaries
Consolidated Balance Sheets
As of June 29, 2002 and December 29, 2001
(In thousands)
(Unaudited)
 
    
2002
     
2001
  
Assets
              
Current assets:
                  
Cash and cash equivalents
   
$
8,986
 
   
$
495
 
Accounts receivable, net
   
 
73,200
 
   
 
89,726
 
Inventory
   
 
4,407
 
   
 
4,441
 
Other current assets
   
 
38,810
 
   
 
33,283
 
    
  
Total current assets
   
 
125,403
 
   
 
127,945
 
Property, plant, equipment, and product masters, at cost
   
 
477,786
 
   
 
446,872
 
Accumulated depreciation
   
 
(314,401
)
   
 
(292,843
)
    
  
Net property, plant, equipment, and product masters
   
 
163,385
 
   
 
154,029
 
Long-term receivables
   
 
24,997
 
   
 
23,200
 
Goodwill
   
 
240,029
 
   
 
231,533
 
Other assets
   
 
95,158
 
   
 
89,226
 
    
  
Total assets
   
$
648,972
 
   
$
625,933
 
    
  
 
Liabilities and Shareholders’ Equity (Deficit)
              
Current liabilities:
                  
Notes payable
   
$
—  
 
   
$
564
 
Current maturities of long-term debt
   
 
218
 
   
 
292
 
Accounts payable
   
 
35,181
 
   
 
40,469
 
Accrued expenses
   
 
53,137
 
   
 
85,740
 
Short-term deferred income
   
 
26,625
 
   
 
26,124
 
Deferred income
   
 
79,853
 
   
 
114,739
 
    
  
Total current liabilities
   
 
195,014
 
   
 
267,928
 
Long-term liabilities:
                  
Long-term debt, less current maturities
   
 
200,015
 
   
 
252,782
 
Long-term deferred income, less current portion
   
 
53,702
 
   
 
59,933
 
Other liabilities
   
 
98,528
 
   
 
90,362
 
    
  
Total long-term liabilities
   
 
352,245
 
   
 
403,077
 
Shareholders’ equity:
                  
Common Stock, $.001 par value, 28,442 shares issued and 27,992 shares outstanding at June 29, 2002 and 24,546 shares issued and 24,096 shares outstanding at December 29, 2001
   
 
28
 
   
 
24
 
Capital surplus
   
 
296,671
 
   
 
169,050
 
Notes receivable from executives
   
 
(693
)
   
 
(1,071
)
Retained earnings (accumulated deficit)
   
 
(177,422
)
   
 
(195,851
)
Treasury stock
   
 
(11,529
)
   
 
(11,335
)
Other comprehensive income (loss):
                  
Accumulated foreign currency translation adjustment
   
 
(805
)
   
 
1,001
 
Unrealized loss from derivatives
   
 
(4,537
)
   
 
(6,890
)
    
  
Accumulated other comprehensive loss
   
 
(5,342
)
   
 
(5,889
)
    
  
Total shareholders’ equity (deficit)
   
 
101,713
 
   
 
(45,072
)
    
  
Total liabilities and shareholders’ equity
   
$
648,972
 
   
$
625,933
 
    
  
 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

2

Table of Contents
ProQuest Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Twenty-Six Weeks Ended June 29, 2002 and June 30, 2001
(In thousands)
(Unaudited)
 
    
2002
     
2001
  
Operating activities:
                  
Earnings (loss) from continuing operations
   
$
18,429
 
   
$
(558
)
Adjustments to reconcile earnings (loss) from continuing operations to net cash used in continuing operating activities:
                  
Equity in loss of affiliates
   
 
—  
 
   
 
11,572
 
Depreciation and amortization
   
 
23,649
 
   
 
27,646
 
Deferred income taxes
   
 
10,157
 
   
 
1,657
 
Changes in operating assets and liabilities:
                  
Accounts receivable, net
   
 
12,542
 
   
 
14,517
 
Inventory
   
 
74
 
   
 
(193
)
Other current assets
   
 
(5,000
)
   
 
(9,328
)
Long-term receivables
   
 
(1,797
)
   
 
152
 
Accounts payable
   
 
(5,632
)
   
 
(11,562
)
Accrued expenses
   
 
(26,648
)
   
 
(14,914
)
Deferred income and other long-term liabilities
   
 
(47,326
)
   
 
(22,647
)
Other assets
   
 
(6,848
)
   
 
(6,340
)
Other, net
   
 
(5,045
)
   
 
(2,012
)
    
  
Net cash used in continuing operations
   
 
(33,445
)
   
 
(12,010
)
Investing activities:
                  
Expenditures for property, plant, equipment, and product masters
   
 
(29,784
)
   
 
(24,510
)
Acquisitions, net of cash acquired
   
 
(2,617
)
   
 
(12,305
)
Proceeds from sales of discontinued operations
   
 
—  
 
   
 
186,000
 
    
  
Net cash (used in) provided by investing activities
   
 
(32,401
)
   
 
149,185
 
Financing activities:
                  
Net decrease in short-term debt
   
 
(770
)
   
 
(10,514
)
Proceeds from long-term debt
   
 
110,750
 
   
 
22,162
 
Repayment of long-term debt
   
 
(163,591
)
   
 
(143,838
)
Proceeds from sales of common stock, net
   
 
123,295
 
   
 
—  
 
Proceeds from exercise of stock options, net
   
 
4,330
 
   
 
3,622
 
    
  
Net cash provided by (used in) financing activities
   
 
74,014
 
   
 
(128,568
)
Net cash used in discontinued operations
   
 
—  
 
   
 
(4,976
)
Effect of exchange rate changes on cash
   
 
323
 
   
 
(485
)
    
  
Increase in cash and cash equivalents
   
 
8,491
 
   
 
3,146
 
Cash and cash equivalents, beginning of period
   
 
495
 
   
 
10,610
 
    
  
Cash and cash equivalents, end of period
   
$
8,986
 
   
$
13,756
 
    
  
 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

3

Table of Contents
ProQuest Company and Subsidiaries
Notes to the Consolidated Financial Statements
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 
Note 1—Basis of Presentation
 
These consolidated financial statements include the accounts of ProQuest Company and its subsidiaries, including Information & Learning (“I&L”) and ProQuest Business Solutions (“PBS”), and are unaudited.
 
As permitted under the Securities and Exchange Commission (“SEC”) requirements for interim reporting, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. Certain reclassifications to the 2001 consolidated financial statements have been made to conform to the 2002 presentation. We believe that these financial statements include all necessary and recurring adjustments for the fair presentation of the interim period results. These financial statements should be read in conjunction with the Consolidated Financial Statements and related notes included in our annual report for the fiscal year ended December 29, 2001.
 
In the first quarter of fiscal 2000, we adopted a plan to divest the Mail and Messaging Technologies and Imaging businesses and our financing subsidiary. During 2001, we completed these divestitures. In 2001, the operating results and net assets of these businesses have been segregated from our continuing operations.
 
Note 2—Significant Accounting Policies
 
Accounts Receivable. Accounts receivable are stated net of the allowance for doubtful accounts which was $1,165 and $1,353 at June 29, 2002 and December 29, 2001, respectively.
 
Inventory. Inventory costs include material, labor and overhead. Inventories are stated at the lower of cost (determined using the first-in, first-out (“FIFO”) method) or market.

4

Table of Contents
 
The components of inventory are shown in the table below as of the dates indicated:
 
    
June 29, 2002
   
December 29, 2001
Finished products
   
$
1,599
   
$
1,821
Products in process and materials
   
 
2,808
   
 
2,620
    
  
Total inventory
   
$
4,407
   
$
4,441
    
  
 
Property, Plant, Equipment, and Product Masters. Property, plant, equipment, and product masters are recorded at cost. The straight-line method of depreciation is primarily used, except for I&L product masters (which represent the cost to create electronic and microform master document copies that are subsequently used in the production process to fulfill customers’ information requirements), which are depreciated on the double declining balance method. Estimated lives range from 10 to 40 years for buildings and building improvements, 3 to 15 years for machinery and equipment and 10 years for product masters. The carrying value of the product masters is $120,677 (net of $215,967 of depreciation) and $104,701 (net of $202,514 of depreciation), at June 29, 2002 and December 29, 2001, respectively.
 
Derivative Financial Instruments and Hedging Activities. All derivative instruments are recognized as assets or liabilities in the balance sheet and measured at fair value.
 
For the first half of fiscal 2002, there were no net gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges. Approximately $6,201 of net derivative losses included in other comprehensive income at June 29, 2002 will be reclassified into earnings within twelve months from that date.
 
Net Earnings per Common Share. Basic net earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is computed by dividing net earnings by the weighted average number of common shares outstanding during the period, and assumes the issuance of additional common shares for all dilutive stock options outstanding during the period. A reconciliation of the weighted average number of common shares and equivalents outstanding in the calculation of basic and diluted

5

Table of Contents
 
earnings per share is shown in the table below for the periods indicated:
 
    
Thirteen Weeks Ended
   
Twenty-Six Weeks Ended
    
June 29,
2002
   
June 30,
2001
   
June 29,
2002
   
June 30,
2001
Basic
   
24,620
   
23,718
   
24,375
   
23,670
Dilutive effect of stock options
   
533
   
267
   
538
   
—  
    
  
  
  
Diluted
   
25,153
   
23,985
   
24,913
   
23,670
    
  
  
  
 
Note 3—Discontinued Operations
 
The gain resulting from the sales of the Imaging and MMT International businesses was derived as follows:
 
    
Total
  
Purchase price
   
$
186,000
 
Net assets, reserves, and expenses
   
 
(113,361
)
    
Gain on sales
   
$
72,639
 
Income tax expense
   
 
(29,056
)
    
Gain on sales of discontinued operations, net of tax
   
$
43,583
 
    

6

Table of Contents
 
Results for discontinued operations are shown in the tables below for the periods indicated:
 
      
Thirteen Weeks Ended June 30, 2001
     
Twenty-Six Weeks Ended June 30, 2001
  
                                                                         
      
MMT N.A. & BHFS
     
Imaging
     
MMT Intl.
     
Total. Disc. Ops.
     
MMT N.A. & BHFS
   
Imaging
     
MMT Intl.
     
Total
Disc. Ops.
  
Net sales
     
$
89,733
     
$
—  
     
$
9,763
 
   
$
99,496
 
   
$
174,592
   
$
10,924
     
$
29,542
 
   
$
215,058
 
EBIT(1)
     
$
4,154
     
$
—  
     
$
(993
)
   
$
3,161
 
   
$
9,116
   
$
1,133
     
$
(893
)
   
$
9,356
 
      
    
    
           
  
    
        
Interest expense
                                
 
(3,348
)
                            
 
(5,848
)
                                 
                           
(Loss) earnings before income taxes
                                
$
(187
)
                            
$
3,508
 
Income tax benefit (expense)
                                
$
75
 
                            
$
(1,403
)
                                 
                           
(Loss) earnings from discontinued     operations
                                
$
(112
)
                            
$
2,105
 
                                 
                           
(1)
EBIT is defined as earnings (loss) from discontinued operations before interest and income taxes.
 
Note 4—Comprehensive Income
 
Comprehensive income or losses include all changes in stockholders’ equity during the period except those resulting from investments by owners and distributions to owners.
 
Comprehensive income is shown in the table below for the periods indicated:
 
    
Thirteen Weeks Ended
     
Twenty-Six Weeks Ended
  
    
June 29,
2002
     
June 30,
2001
     
June 29,
2002
     
June 30,
2001
  
Net earnings (loss)
   
$
10,151
 
   
$
(96
)
   
$
18,429
 
   
$
45,130
 
Other comprehensive income (loss):
                                    
Unrealized gain (loss) from derivative instruments, net of tax
   
 
659
 
   
 
1,233
 
   
 
2,353
 
   
 
(5,361
)
Foreign currency translation adjustments
   
 
(1,346
)
   
 
(338
)
   
 
(1,806
)
   
 
429
 
    
  
  
  
Comprehensive income
   
$
9,464
 
   
$
799
 
   
$
18,976
 
   
$
40,198
 
    
  
  
  
 
The net unrealized gain (loss) on derivative instruments and foreign currency translation adjustments do not impact our current income tax expense.

7

Table of Contents
 
Note 5—Segment Reporting
 
Information concerning our reportable business segments is shown in the tables below for the periods indicated:
 
    
Thirteen Weeks Ended June 29, 2002
    
I&L
   
PBS
   
Corp.
     
Total
Net Sales
   
$
64,973
   
$
44,007
   
$
—  
 
   
$
108,980
Earnings from continuing operations before interest and taxes
   
 
13,126
   
 
13,075
   
 
(2,915
)
   
 
23,286
Capital Expenditures
   
 
13,708
   
 
463
   
 
25
 
   
 
14,196
Depreciation & Amortization
   
 
10,177
   
 
1,307
   
 
17
 
   
 
11,501
Total Assets
   
 
449,464
   
 
105,125
   
 
94,383
 
   
 
648,972
 
    
Thirteen Weeks Ended June 30, 2001
    
I&L
   
PBS
   
Corp.
     
Total
Net Sales
   
$
59,499
   
$
41,244
   
$
—  
 
   
$
100,743
Earnings from continuing operations before interest and taxes(1)
   
 
9,521
   
 
9,969
   
 
(3,008
)
   
 
16,482
Capital Expenditures
   
 
11,224
   
 
705
   
 
10
 
   
 
11,939
Depreciation & Amortization(2)
   
 
11,656
   
 
1,892
   
 
93
 
   
 
13,641
Total Assets
   
 
378,522
   
 
102,970
   
 
22,996
 
   
 
504,488
 
    
Twenty-Six Weeks Ended June 29, 2002
    
I&L
   
PBS
   
Corp.
     
Total
Net Sales
   
$
125,199
   
$
  86,533
   
$
—  
 
   
$
211,732
Earnings from continuing operations before interest and taxes
   
 
25,925
   
 
23,880
   
 
(6,001
)
   
 
43,804
Capital Expenditures
   
 
28,497
   
 
1,069
   
 
218
 
   
 
29,784
Depreciation & Amortization
   
 
20,928
   
 
2,681
   
 
40
 
   
 
23,649

8

Table of Contents
    
Twenty-Six Weeks Ended June 30, 2001
    
I&L
   
PBS
   
Corp.
     
Total
Net Sales
   
$
115,413
   
$
81,183
   
$
—  
 
   
$
196,596
Earnings from continuing operations before interest and taxes(1)
   
 
18,525
   
 
18,507
   
 
(6,309
)
   
 
30,723
Capital Expenditures
   
 
22,251
   
 
2,249
   
 
10
 
   
 
24,510
Depreciation & Amortization(2)
   
 
23,165
   
 
3,815
   
 
202
 
   
 
27,182
(1)
Excludes equity in loss of affiliate and gain on sales of discontinued operations.
(2)
Excludes amortization/write-off of deferred financing costs.
 
Note 6—Investments in Affiliates
 
We own approximately 38% of bigchalk.com, inc. (“bigchalk”) on a fully-diluted basis. bigchalk develops and markets products and services for research, curriculum integration, assessment, peer collaboration and professional development for teachers, librarians and school administrators in the kindergarten through twelfth grade educational community. We account for our investment in bigchalk on the equity method and the carrying value of this investment was $0 at June 29, 2002 and December 29, 2001.
 
We record our equity investment in bigchalk on the consolidated balance sheets within “Other assets” and our share of bigchalk’s losses as “Equity in loss of affiliate.”
 
Summarized financial information of bigchalk, which is accounted for as indicated above, is as follows:
 
Condensed Statements of Operations:
 
    
Thirteen Weeks Ended
     
Twenty-Six Weeks Ended
  
    
June 29,
2002
     
June 30,
2001
     
June 29,
2002
     
June 30,
2001
  
Net sales
   
$
7,067
 
   
$
7,004
 
   
$
13,994
 
   
$
14,138
 
Gross profit
   
 
4,928
 
   
 
4,660
 
   
 
9,620
 
   
 
9,434
 
Loss before income taxes
   
 
(2,174
)
   
 
(9,817
)
   
 
(4,934
)
   
 
(21,353
)
Net loss
   
 
(2,174
)
   
 
(9,667
)
   
 
(4,782
)
   
 
(21,011
)

9

Table of Contents
 
Condensed Statements of Financial Condition:
 
    
June 29, 2002
     
Dec. 29, 2001
  
Current assets
   
$
26,832
 
   
$
28,985
 
Non-current assets
   
 
13,774
 
   
 
18,852
 
    
  
Total assets
   
$
40,606
 
   
$
47,837
 
    
  
Current liabilities
   
$
17,921
 
   
$
20,592
 
Non-current liabilities
   
 
127,058
 
   
 
117,344
 
Stockholders’ deficit
   
 
(104,373
)
   
 
(90,099
)
    
  
Total liabilities and stockholders’deficit
   
$
40,606
 
   
$
47,837
 
    
  
 
Note 7—Goodwill and Other Intangible Assets
 
In the first quarter of fiscal 2002, we adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment on an annual basis.
 
The following sets forth a reconciliation of net earnings and earnings per share information adjusted for the non-amortization provisions for SFAS No. 142 for the periods indicated:
 
    
Thirteen Weeks Ended
     
Twenty-Six Weeks
Ended
  
    
June 29, 2002
   
June 30, 2001
     
June 29, 2002
   
June 30, 2001
  
Earnings (loss) from continuing operations
   
$
10,151
   
$
16
 
   
$
18,429
   
$
(558
)
(Loss) earnings from discontinued operations, net of tax benefit
   
 
—  
   
 
(112
)
   
 
—  
   
 
2,105
 
Gain on sales of discontinued operations, net of tax
   
 
—  
   
 
—  
 
   
 
—  
   
 
43,583
 
Add back: Goodwill amortization, net of tax
   
 
—  
   
 
1,279
 
   
 
—  
   
 
2,515
 
    
  
  
  
Adjusted net earnings
   
$
10,151
   
$
1,183
 
   
$
18,429
   
$
47,645
 
    
  
  
  
 
    
Thirteen Weeks
Ended
   
Twenty-Six Weeks Ended
  
    
June 29, 2002
   
June 30, 2001
   
June 29, 2002
   
June 30, 2001
  
Basic net earnings per share:
                              
Earnings (loss) from continuing operations
   
$
0.41
   
$
—  
   
$
0.76
   
$
(0.02
)
Earnings from discontinued operations
   
 
—  
   
 
—  
   
 
—  
   
 
0.09
 
Gain on sales of discontinued operations
   
 
—  
   
 
—  
   
 
—  
   
 
1.84
 
Add back: Goodwill amortization
   
 
—  
   
 
0.05
   
 
—  
   
 
0.11
 
    
  
  
  
Adjusted
   
$
0.41
   
$
0.05
   
$
0.76
   
$
2.02
 
    
  
  
  

10

Table of Contents
 
    
Thirteen Weeks
Ended
   
Twenty-Six Weeks Ended
  
    
June 29, 2002
   
June 30, 2001
   
June 29, 2002
   
June 30, 2001
  
Diluted net earnings per share:
                              
Earnings (loss) from continuing operations
   
$
0.40
   
$
—  
   
$
0.74
   
$
(0.02
)
Earnings from discontinued operations
   
 
—  
   
 
—  
   
 
—  
   
 
0.09
 
Gain on sales of discontinued operations
   
 
—  
   
 
—  
   
 
—  
   
 
1.84
 
Add back: Goodwill amortization
   
 
—  
   
 
0.05
   
 
—  
   
 
0.11
 
    
  
  
  
Adjusted
   
$
0.40
   
$
0.05
   
$
0.74
   
$
2.02
 
    
  
  
  
 
The changes in the carrying amount of goodwill for the twenty-six weeks ended June 29, 2002 are as follows:
 
    
I&L
   
PBS
   
Total
Balance as of December 30, 2001
   
$
183,948
   
$
47,585
   
$
231,533
Reclassification of goodwill previously included in other assets
   
 
2,054
   
 
—  
   
 
2,054
Goodwill acquired and adjustments (1)
   
 
6,442
   
 
—  
   
 
6,442
    
  
  
Balance as of June 29, 2002
   
$
192,444
   
$
47,585
   
$
240,029
    
  
  
(1)
Adjustments primarily relate to the adjustment of our preliminary purchase price allocations for several acquisitions. Specifically, the ultimate goodwill associated with certain acquisitions continues to be adjusted as the value of the assets and liabilities acquired are finalized.
 
Note 8—Stock Offering
 
On June 21, 2002, we successfully completed a secondary stock offering of 3.7 million shares of common stock at a price of $35.40 per share in which we received net proceeds of $123.3 million, after offering expenses.

11

Table of Contents
 
Item 2.
 
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
This section should be read in conjunction with the Consolidated Financial Statements of ProQuest Company and Subsidiaries (collectively the “Company”) and the notes thereto included in the annual report for the year ended December 29, 2001.
 
Safe Harbor for Forward-Looking Statements
 
Except for the historical information and discussions contained herein, statements contained in this release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors, including, without limitation, the cost and availability of intellectual property from third parties, decreases in the ability to attract and retain employees, obtain capital, including interest rate risks, unexpected merger-related effects, business execution risk, risk of new competitors, any necessary regulatory approvals, decreases in funding for Internet access as well as overall acceptance and usage of the Internet in the education and library markets, the availability of free or advertising-supported research information on the Internet, including effects of and rate of acceptance of Internet-based solutions, changes in the business services market, changes in the automotive industry, and general economic conditions, all of which could cause actual results to differ materially, and such other risks as discussed in our filings with the SEC, including without limitation, our Annual Report on Form 10-K for fiscal 2001. These factors may cause our actual results to differ from any forward-looking statement. We are under no obligation to update or revise any of these forward-looking statements.

12

Table of Contents
 
Results of Operations
 
Second Quarter of Fiscal 2002 Compared to Second Quarter of Fiscal 2001
 
    
Thirteen Weeks Ended
(dollars in millions)
  
                                
 
Pro Forma (2)
  
    
June 29, 2002
     
% of sales
     
June 30, 2001
     
% of sales
     
June 30, 2001
     
% of sales
  
Net sales
   
$
109.0
 
   
100.0
%
   
$
100.7
 
   
100.0
%
   
$
100.7
 
   
100
%
Cost of sales
   
 
(51.6
)
   
(47.3
%)
   
 
(45.5
)
   
(45.2
%)
   
 
(47.6
)
   
(47.3
%)
    
  
  
  
  
  
Gross profit
   
 
57.4
 
   
52.7
%
   
 
55.2
 
   
54.8
%
   
 
53.1
 
   
52.7
%
Research and development
   
 
(5.5
)
   
(5.1
%)
   
 
(5.5
)
   
(5.4
%)
   
 
(5.5
)
   
(5.4
%)
Selling and administrative expense
   
 
(28.6
)
   
(26.2
%)
   
 
(33.2
)
   
(33.0
%)
   
 
(29.1
)
   
(28.9
%)
    
  
  
  
  
  
Earnings from continuing operations before interest, income taxes and equity in loss of affilate
   
 
23.3
 
   
21.4
%
   
 
16.5
 
   
16.4
%
   
 
18.5
 
   
18.4
%
Net interest expense
   
 
(6.9
)
   
(6.3
%)
   
 
(6.3
)
   
(6.2
%)
   
 
(6.3
)
   
(6.2
%)
Income tax expense
   
 
(6.2
)
   
(5.7
%)
   
 
(4.1
)
   
(4.1
%)
   
 
(4.9
)
   
(4.9
%)
Equity in loss of affiliate
   
 
—
 
   
—
 
   
 
(6.1
)
   
(6.1
%)
   
 
(6.1
)
   
(6.1
%)
    
  
  
  
  
  
Earnings from continuing operations(1)
   
$
10.2
 
   
9.4
%
   
$
—
 
   
—
 
   
$
1.2
 
   
1.2
%
    
  
  
  
  
  
(1)
Excludes equity in loss of affiliate, gain on sales of discontinued operations and earnings from discontinued operations.
(2)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002, as well as for the reclassification of expenses at I&L included in selling and administrative for the second quarter of 2001 that are included in cost of sales in 2002.
 
Net sales.
 
    
Thirteen Weeks
Ended
    
June 29,
2002
   
June 30,
2001
I&L
   
$
65.0
   
$
59.5
PBS
   
 
44.0
   
 
41.2
    
  
Total
   
$
109.0
   
$
100.7
    
  
 
Our net sales increased $8.3 million, or 8.2%, to $109.0 million in the second quarter of 2002 primarily due to the continuing growth in the sales of electronic products.
 
Net sales at I&L increased $5.5 million, or 9.2%, to $65.0 million primarily as a result of a 14.1% increase in sales of electronic products. Net sales of traditional products (microfilm and paper product) increased 2.9% compared to the second quarter of 2001. A metric that we use to gauge growth in electronic products is the “annualized online subscription contract
 

13

Table of Contents
 
value”. Annualized online subscription contract value is the projected 12-month revenue from all outstanding online subscription contracts. The total annualized online subscription value was $92.7 million and $82.0 million at second quarter end 2002 and 2001, respectively, an increase of 13.0%.
 
Net sales of PBS increased $2.8 million, or 6.8%, to $44.0 million in the second quarter of 2002. This increase is primarily due to continuing strong sales of automotive electronic parts catalogs, which grew 8.9%, an 11.3% increase in sales of our Alison products and a 7.0% increase in sales of our Powersports products. These increases were partially offset by a $1.2 million decrease in sales at Media Solutions.
 
Cost of Sales.
 
    
Thirteen Weeks
Ended
    
June 29,
2002
   
June 30,
2001
     
Pro Forma (1)
June 30,
2001
I&L
   
$
35.1
   
$
30.1
     
$
32.2
PBS
   
 
16.5
   
 
15.4
     
 
15.4
    
  
    
Total
   
$
51.6
   
$
45.5
     
$
47.6
    
  
    
(1)
Amounts have been adjusted for the reclassification at I&L of expenses included in selling and administrative for the second quarter of 2001 that are included in cost of sales in 2002.
 
Our cost of sales increased $4.0 million to $51.6 million in the second quarter of 2002 compared to the adjusted 2001 results, with the gross profit (net sales less cost of sales) percentage remaining relatively unchanged.
 
Research and Development.
 
    
Thirteen Weeks
Ended
    
June 29,
2002
   
June 30,
2001
I&L
   
$
2.9
   
$
2.6
PBS
   
 
2.6
   
 
2.9
    
  
Total
   
$
5.5
   
$
5.5
    
  
 
Research and development expense for the second quarter 2002 remained essentially flat compared to 2001 levels. Our research and development expenditures include investments for database and software development, information delivery systems and other electronic products.

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Table of Contents
 
Selling and Administrative Expense
 
    
Thirteen Weeks Ended
    
June 29,
2002
   
June 30,
2001
     
Pro Forma (1)
June 30,
2001
I&L
   
$
13.9
   
$
17.3
     
$
13.7
PBS
   
 
11.8
   
 
12.9
     
 
12.4
Corporate
   
 
2.9
   
 
3.0
     
 
3.0
    
  
    
Total
   
$
28.6
   
$
33.2
     
$
31.2
    
  
    
(1)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002, as well as for the reclassification at I&L of expenses included in selling and administrative for the second quarter of 2001 that are included in cost of sales in 2002.
 
Selling and administrative expense decreased from the adjusted 2001 results by $0.5 million, or 1.7%. The decrease at PBS is primarily associated with the decrease in sales at Media Solutions and decreased administrative expenses associated with MotorcycleWorld.com. Inc., which ceased operations during 2001.
 
Earnings from Continuing Operations before Interest and Taxes.
 
    
Thirteen Weeks Ended
  
    
June 29,
2002
     
June 30,
2001
       
Pro Forma (1)
June 30,
2001
  
I&L
   
$
13.1
 
   
$
9.5
 
     
$
10.9
 
PBS
   
 
13.1
 
   
 
10.0
 
     
 
10.6
 
Corporate
   
 
(2.9
)
   
 
(3.0
)
     
 
(3.0
)
    
  
    
Total
   
 
23.3
 
   
$
16.5
 
     
$
18.5
 
    
  
    
(1)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002.
 
Earnings from continuing operations before interest and taxes increased from the adjusted 2001 results by $4.8 million, or 25.9%, to $23.3 million in the second quarter of 2002 for the reasons mentioned above.
 

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Table of Contents
 
Net Interest Expense.
 
    
Thirteen Weeks
Ended
  
    
    
June 29,
2002
     
June 30,
2001
  
       
Interest income
   
$
(0.6
)
   
$
(0.1
)
Debt
   
 
3.5
 
   
 
3.5
 
Swaps
   
 
1.9
 
   
 
0.6
 
Monetized contracts
   
 
1.8
 
   
 
1.9
 
Other
   
 
0.3
 
   
 
0.4
 
    
  
Total
   
$
6.9
 
   
$
6.3
 
    
  
 
Net interest expense increased $0.6 million, or 9.5%, to $6.9 million in the second quarter of 2002. Interest income increased due to interest on long term receivables and tax refunds. Interest expense related to debt remained flat as a result of lower interest rates offset by a higher debt level in 2002 versus the debt allocated to continuing operations in 2001. Interest on our fixed rate swaps increased due to a reduction in interest rates. Interest related to the PBS monetized contracts decreased due to the reduced level of monetized contracts at PBS.
 
Income Tax Expense.
 
Income tax expense increased in the second quarter of 2002 as a result of the higher level of pretax profit. Partially offsetting this increase is the change in the effective tax rate from 40% in 2001 to 38% in 2002.

16

Table of Contents
 
First Half 2002 Compared to First Half 2001
 
    
Twenty-Six Weeks Ended
(dollars in millions)
  
    
                                
Pro Forma (2)
  
    
June 29, 2002
     
% of sales
     
June 30, 2001
     
% of sales
     
June 30, 2001
     
% of sales
  
Net sales
   
$
211.7
 
   
100.0
%
   
$
196.6
 
   
100.0
%
   
$
196.6
 
   
100.0
%
Cost of sales
   
 
(99.4
)
   
(47.0
%)
   
 
(92.7
)
   
(47.2
%)
   
 
(96.0
)
   
(48.8
%)
    
  
  
  
  
  
Gross profit
   
 
112.3
 
   
53.0
%
   
 
103.9
 
   
52.8
%
   
 
100.6
 
   
51.2
%
Research and development
   
 
(10.5
)
   
(4.9
%)
   
 
(10.6
)
   
(5.4
%)
   
 
(10.6
)
   
(5.4
%)
Selling and administrative expense
   
 
(58.0
)
   
(27.4
%)
   
 
(62.6
)
   
(31.8
%)
   
 
(55.2
)
   
(28.1
%)
    
  
  
  
  
  
Earnings from continuing operations before interest, income taxes and equity in loss of affiliate
   
 
43.8
 
   
20.7
%
   
 
30.7
 
   
15.6
%
   
 
34.8
 
   
17.7
%
Net interest expense
   
 
(14.1
)
   
(6.7
%)
   
 
(12.4
)
   
(6.3
%)
   
 
(12.4
)
   
(6.3
%)
Income tax expense
   
 
(11.3
)
   
(5.3
%)
   
 
(7.3
)
   
(3.7
%)
   
 
(9.0
)
   
(4.6
%)
Equity in loss of affiliate
   
 
—  
 
   
—  
 
   
 
(11.6
)
   
(5.9
%)
   
 
(11.6
)
   
(5.9
%)
    
  
  
  
  
  
Earnings from continuing operations(1)
   
$
18.4
 
   
8.7
%
   
$
(0.6
)
   
(0.3
%)
   
$
1.8
 
   
0.9
%
    
  
  
  
  
  
(1)
Excludes gain on sales of discontinued operations and earnings from discontinued operations.
(2)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002, as well as for the reclassification of expenses at I&L included in selling and administrative for the first half of 2001 that are included in cost of sales in 2002.
 
Net sales.
 
    
Twenty-Six Weeks Ended
    
June 29,
2002
   
June 30,
2001
       
I&L
   
$
125.2
   
$
115.4
PBS
   
 
86.5
   
 
81.2
    
  
Total
   
$
211.7
   
$
196.6
    
  
 
Our net sales increased $15.1 million, or 7.7%, to $211.7 million in the first half of 2002.
 
Net sales of I&L increased $9.8 million, or 8.5%, to $125.2 million primarily as a result of a 14.7% increase in sales of electronic products. Net sales of traditional products (microfilm and paper product) increased 1.0% compared to the first half of 2001.
 
Net sales of PBS increased $5.3 million, or 6.5%, to $86.5 million in the first half of 2002. This increase is primarily due to continuing strong sales of automotive electronic parts catalogs, which grew 8.5%, a 12.7% increase in sales of our Alison products and an 11.1% increase in sales at Powersports. These increases were partially offset by a $2.9 million decrease in sales at Media Solutions.

17

Table of Contents
 
Cost of Sales.
 
    
Twenty-Six Weeks Ended
    
June 29,
2002
   
June 30,
2001
     
Pro Forma (1)
June 30,
2001
I&L
   
$
67.2
   
$
61.4
     
$
64.7
PBS
   
 
32.2
   
 
31.3
     
 
31.3
    
  
    
Total
   
$
99.4
   
$
92.7
     
$
96.0
    
  
    
(1)
Amounts have been adjusted for the reclassification at I&L of expenses included in selling and administrative for the first half of 2001 that are included in cost of sales in 2002.
 
Our cost of sales increased $3.4 million to $99.4 million in the first half of 2002 compared to the adjusted numbers for 2001, with the gross profit margin (net sales less cost of sales) increasing by 1.8 percentage points to 53.0% due to product mix.
 
Research and Development.
 
    
Twenty-Six Weeks Ended
    
June 29,
2002
   
June 30,
2001
I&L
   
$
5.1
   
$
5.0
PBS
   
 
5.4
   
 
5.6
    
  
Total
   
$
10.5
   
$
10.6
    
  
 
Research and development expense for the first half of 2002 remained essentially flat compared to 2001 levels. Our research and development expenditures include investments for database and software development, information delivery systems and other electronic products.

18

Table of Contents
 
Selling and Administrative Expense
 
    
Twenty-Six Weeks
Ended
                
Pro Forma (1)
June 30,
2001
    
June 29,
2002
   
June 30,
2001
     
I&L
   
$
27.0
   
$
30.5
     
$
24.2
PBS
   
 
25.0
   
 
25.8
     
 
24.7
Corporate
   
 
6.0
   
 
6.3
     
 
6.3
    
  
    
Total
   
$
58.0
   
$
62.6
     
$
55.2
    
  
    
(1)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002, as well as for the reclassification at I&L of expenses included in selling and administrative for the first half of 2001 that are included in cost of sales in 2002.
 
Selling and administrative expense increased $2.8 million, or 5.1%, compared to the adjusted 2001 results due to costs related to recent acquisitions.
 
Earnings from Continuing Operations before Interest and Taxes.
 
    
Twenty-Six Weeks
Ended
                    
Pro Forma (1)
    
June 29,
2002
     
June 30,
2001
       
June 30,
2001
I&L
   
$
25.9
 
   
$
18.5
 
     
$
21.4
PBS
   
 
23.9
 
   
 
18.5
 
     
 
19.7
Corporate
   
 
(6.0
)
   
 
(6.3
)
     
 
(6.3)
    
  
    
Total
   
$
43.8
 
   
$
30.7
 
     
$
34.8
    
  
    
(1)
Amounts have been adjusted to remove goodwill amortization to assist in comparing the results of operations for the periods presented following the adoption of SFAS No. 142 in the first quarter of fiscal 2002.
 
Earnings from continuing operations before interest and taxes increased from the adjusted 2001 results by $9.0 million, or 25.9%, to $43.8 million in the first half of 2002 as a result of the items discussed above.

19

Table of Contents
 
Net Interest Expense.
 
    
Twenty-Six Weeks
Ended
  
    
June 29,
2002
     
June 30,
2001
  
       
Interest income
   
$
(1.2
)
   
$
(0.2
)
Debt
   
 
6.9
 
   
 
7.2
 
Swaps
   
 
4.0
 
   
 
0.6
 
Monetized contracts
   
 
3.6
 
   
 
4.0
 
Other
   
 
0.8
 
   
 
0.8
 
    
  
Total
   
$
14.1
 
   
$
12.4
 
    
  
 
Net interest expense increased $1.7 million, or 13.7%, to $14.1 million in the first half of 2002. Interest income increased due to interest on long term receivables and tax refunds. Interest expense related to debt decreased as a result of lower interest rates partially offset by a higher debt level for 2002 versus the debt allocated to continuing operations in 2001. Interest on our fixed rate swaps increased due to a reduction in interest rates. Interest related to PBS monetized contracts decreased due to the reduced level of monetized contracts at PBS.
 
Income Tax Expense.
 
Income tax expense increased in the first half of 2002 as a result of the higher level of pretax profit, partially offset by a decrease in the effective tax rate from 40% in 2001 to 38% in 2002.
 
Accounts Receivable.
 
    
As of
    
June 29,
2002
     
December 29,
2001
         
I&L
   
$
38.5
     
$
47.0
PBS
   
 
28.0
     
 
28.4
Corporate
   
 
6.7
     
 
14.3
    
    
Total
   
$
73.2
     
$
89.7
    
    
 
Accounts receivable decreased by $16.5 million during the first half ended June 29, 2002. The decrease at I&L is principally the result of our business cycle. Annual subscription invoicing in the fourth quarter resulted in a high level of receivables at year end 2001 which has been reduced as these receivables were collected during the early part of this year. The decrease at Corporate is due to the collection of amounts owed under contractual obligations to provide transition services to certain buyers of our discontinued operations.

20

Table of Contents
 
Deferred Income.
 
    
As of
    
June 29,
2002
   
December 29,
2001
I&L
   
$
75.9
   
$
109.4
PBS
   
 
3.9
   
 
5.3
    
  
Total
   
$
79.8
   
$
114.7
    
  
 
Deferred income decreased by $34.9 million during the first half ended June 29, 2002 as a result of the seasonal nature of I&L’s deferred revenue. At year end, deferred revenue is at a high level due to the year end billings. During the subscription term associated with the first half of 2002, this deferred revenue has been recognized as net sales.
 
Financial Condition and Liquidity
 
Debt (net of cash and cash equivalents) decreased by $61.9 million to $191.2 million in the first half of 2002 as a result of the proceeds from the equity offering of $123.3 million, partially offset by cash used by operations and capital expenditures.
 
In the first half of 2002, we utilized cash for operations of $33.4 million resulting from seasonal working capital requirements, a $7.0 reduction in monetized PBS contracts as well as $12.0 million in payments related to our discontinued operations for liabilities accrued in 2001. Cash from operations is seasonal with net cash utilized in the first half of the year and cash generated during the second half of the year. Cash is utilized in the first half of the year for the following reasons: royalties, license fees and insurance. Additionally, payments of incentive compensation for prior year performance are made in the first half of the year. Cash is generated in the second half of the year since our billing cycle at I&L is such that we bill and collect a significant portion of our annual microfilm subscription fees during this period.
 
We used $32.4 million of cash in our investing activities for the first half of 2002. Capital expenditures increased $5.3 million or 21.6% due to increased expenditures on Historical Newspapers and other digital vault products. Additionally, $2.6 million was used in the acquisition of Micromedia.

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We believe that current cash balances, cash generated from operations, and availability under our line of credit will be adequate to fund the growth in working capital and capital expenditures necessary to support planned increases in sales for the foreseeable future.
 
Interest Rate Risk Management
 
We use variable-rate long-term debt to finance our operations. These debt obligations expose us to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases.
 
Management believes it is prudent to limit the variability of most of our interest payments. To meet this objective, we enter into interest rate swaps to manage fluctuations in cash flows resulting from interest rate risk. We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows.
 
The interest rate swaps change the variable-rate cash flow exposure on the long-term debt obligations to fixed-rate cash flows by entering into receive-variable, pay-fixed interest rate agreements, thereby synthetically creating fixed-rate long-term debt.
 
Debt Refinancing
 
As a result of our equity offering, we are evaluating alternatives to replace our existing credit facility by the end of the third quarter of 2002 in order to reduce our overall borrowing costs. We anticipate that this will result in a one-time charge of approximately $5 million, net of tax. This charge relates to the payment of deferred financing fees and the expense related to the elimination of our interest rate hedges that were put in place five years ago when our company was highly leveraged.

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Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
As a result of our financing activities, we are exposed to changes in interest rates which may adversely affect our results of operations and financial position. In seeking to minimize such risks, we use derivative financial instruments. Specifically, we have entered into interest rate swaps having notional amounts totaling $200 million at June 29, 2002. The potential impact on our earnings from a 50 basis point increase or decrease in quoted interest rates would be approximately $118 thousand expense or benefit for the second quarter of 2002. The interest rate swaps have expiration dates through December 2003. At June 29, 2002, the notional amounts outstanding were $200 million and the approximate weighted-average swap rate versus 3-month LIBOR was 6.14%. As part of replacing our current credit facility by the end of the third quarter of 2002, we terminated all of our existing swaps at the beginning of July 2002.
 
Foreign Currency Risk
 
As a result of our global operations, we are exposed to changes in foreign currencies. Our practice is to hedge our significant operating balance sheet exposures to foreign currency rate fluctuations via use of foreign currency forward or option contracts. We do not utilize financial derivatives for trading or other speculative purposes. We have entered into various contracts to buy or sell foreign currencies. The contracts have maturity dates extending through August 2002, and are for an aggregate notional amount of $57.7 million at June 29, 2002. We are exposed to market risk in the event of nonperformance by our counterparties (major international banks) to these contracts; however, such nonperformance is not anticipated. The potential impact on our earnings from a 10% adverse change in quoted foreign currency rates would be insignificant.

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Table of Contents
 
Part II. Other Information
 
Item 1. Legal Proceedings.
 
The Company is involved in various legal proceedings incidental to its business. Management believes that the outcome of such proceedings will not have a material adverse effect upon the consolidated operations or financial condition of the Company.
 
Item 4. Submission of Matters to a Vote of Security Holders.
 
On April 12, 2002, our annual meeting of shareholders was held and the following matters were voted on:
 
 
1.
The following individuals were elected to the board of directors to serve until the 2003 annual meeting of shareholders and thereafter until their successors are duly elected and qualified:
 
Nominee
   
Votes For
   
Votes abstained
David Bonderman
   
16,948,780
   
4,235,058
David G. Brown
   
20,791,011
   
392,827
Alan Aldworth
   
18,796,245
   
2,387,593
William E. Oberndorf
   
20,657,747
   
526,091
James P. Roemer
   
18,789,401
   
2,394,437
Gary L. Roubos
   
20,790,505
   
393,333
John H. Scully
   
20,657,592
   
526,246
William J. White
   
20,657,840
   
525,998
 
 
2.
The vote to approve amendments to ProQuest Company’s 1995 Employee Stock Option Plan to reserve an additional 1,400,000 shares of common stock for issuance according to the Plan and to limit the number of shares that can be granted each year to any individual, was as follows:
 
Votes for
     
Votes against
     
Votes abstained
     
Broker non-votes
16,360,130
     
3,057,222
     
6,746
     
1,759,740
 
 
3.
The vote to ratify the appointment of KPMG LLP as auditors of ProQuest Company for 2002, was as follows:
 
Votes for
     
Votes against
     
Votes abstained
20,772,105
     
404,722
     
7,011

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Item 5. Other Information.
 
The following information illustrates our pro forma EBIT for all quarters and the full year 2001 adjusted on a pro forma basis for the removal of goodwill amortization in order to assist in comparing the impact of the adoption of SFAS No. 142 that was adopted in the first quarter of fiscal 2002 (in millions):
 
    
First Quarter 2001
     
Second Quarter 2001
     
Third Quarter 2001
     
Fourth Quarter 2001
     
Full Year 2001
  
EBIT (1)
   
ProForma
     
Actual
     
ProForma
     
Actual
     
ProForma
     
Actual
     
ProForma
     
Actual
     
ProForma
     
Actual
  
I&L
   
$
10.4
 
   
$
9.0
 
   
$
11.0
 
   
$
9.5
 
   
$
10.0
 
   
$
8.5
 
   
$
14.7
 
   
$
13.3
 
   
$
46.1
 
   
$
40.3
 
PBS
   
 
9.1
 
   
 
8.5
 
   
 
10.6
 
   
 
10.0
 
   
 
10.7
 
   
 
10.1
 
   
 
12.0
 
   
 
11.4
 
   
 
42.4
 
   
 
40.0
 
Corp. /Other
   
 
(3.3
)
   
 
(3.3
)
   
 
(3.0
)
   
 
(3.0
)
   
 
(2.9
)
   
 
(2.9
)
   
 
(2.4
)
   
 
(2.4
)
   
 
(11.6
)
   
 
(11.6
)
    
  
  
  
  
  
  
  
  
  
Total EBIT
   
$
16.2
 
   
$
14.2
 
   
$
18.6
 
   
$
16.5
 
   
$
17.8
 
   
$
15.7
 
   
$
24.3
 
   
 
22.3
 
   
$
76.9
 
   
$
68.7
 
    
  
  
  
  
  
  
  
  
  
(1)
EBIT is defined as earnings from continuing operations before interest and income taxes, net of nonrecurring items which include equity in loss of affiliate and net gain on sales of discontinued operations.
 
Item 6.    Exhibits and Reports on Form 8-K.
 
(a)  Exhibits:
 
Index Number
   
Description
99.1
   
Certification of Chief Executive Officer and Chief Financial Officer
 
(b)  Reports on Form 8-K.
 
None.

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SIGNATURES
 
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.
 
Date: August 13, 2002
  
PROQUEST COMPANY
    
         
   
/S/  JAMES P. ROEMER
    
   
   
   
Chairman and Chief Executive Officer
    
         
   
/S/  ALAN ALDWORTH
    
   
   
   
President and Chief Operating Officer
    
         
   
/S/  KEVIN GREGORY
    
   
   
   
Vice President, Chief Financial
    
   
Officer and Assistant Secretary
    

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