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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer Identification
organization) No.)
300 BAKER AVENUE, CONCORD, MA 01742
(Address of principal executive offices, including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 318-4300
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based on the closing price of the common stock on March 8, 2001 of
$8.63, as reported on the NASDAQ National Market, was approximately $57,000,000.
Shares of common stock held by each officer and director and by each person who
owns 5% or more of the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for any other purpose.
As of March 8, 2001, the registrant had 12,384,773 shares of common stock
outstanding, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE:
OneSource Information Services, Inc. ("OneSource") intends to file its
proxy statement pursuant to Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 2000. Portions of the proxy statement are
incorporated by reference into Part III of this Annual Report on Form 10-K. In
addition, OneSource has filed a Registration Statement on Form S-1, File No.
333-73263.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business........................................... 3
Item 2. Properties......................................... 9
Item 3. Legal Proceedings.................................. 9
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................. 9
Item 6. Selected Consolidated Financial and Operating
Data............................................. 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 12
Item 7A. Quantitative and Qualitative Disclosure About
Market Risk...................................... 24
Item 8. Financial Statements and Supplementary Data........ 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. 24
PART III
Item 10. Directors and Executive Officers of the
Registrant....................................... 24
Item 11. Executive Compensation............................. 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management....................................... 25
Item 13. Certain Relationships and Related Transactions..... 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.............................. 26
Signature Page.............................................. 28
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PART I
ITEM 1. BUSINESS
Except for historical information contained herein, the matters discussed
in this Annual Report on Form 10-K are forward-looking statements that involve
risks and uncertainties. OneSource makes such forward-looking statements under
the provision of the "Safe Harbor" section of the Private Securities Litigation
Reform Act of 1995. Any forward-looking statements should be considered in light
of the factors described below in Item 7 under "Certain Factors that May Affect
Future Results." Actual results may vary materially from those projected,
anticipated or indicated in any forward-looking statements. In this Annual
Report on Form 10-K, the words "anticipates," "believes," "expects," "intends,"
"future," "could," and similar words or expressions (as well as other words or
expressions referencing future events, conditions or circumstances) identify
forward-looking statements.
GENERAL
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry, and market
intelligence. Our Business Browser(SM) product line integrates comprehensive and
up-to-date business and financial information on over one million public and
private companies from more than 25 information providers and draws upon over
2,500 sources of content. These sources include both textual information, such
as news, trade press, SEC filings, executive biographies and analyst reports,
and numeric information, such as company financial results, stock quotes and
industry statistics. Our customers access this information over the Internet
using standard Web browsers at a fixed annual subscription price. OneSource has
a relationship with Siebel Systems, Inc., a supplier of eBusiness application
software, whereby Siebel Systems has authorized the integration of OneSource
Business Browser content with Siebel's eBusiness Applications via the OneSource
Applink(SM) application programming interface (API).
Our products are designed to address information needs of leading
professional and financial services firms, technology companies and other large
organizations. Representative customers include Accenture, American Express,
Boeing, British Telecom, Deloitte & Touche, Harvard Business School, KPMG Peat
Marwick, MCI/Worldcom, Merrill Lynch, Oracle and SAP.
On October 1, 1999, OneSource acquired Corporate Technology Information
Services, Inc. ("Corporate Technology"), a Delaware corporation located in
Woburn, Massachusetts. Corporate Technology is a provider of high technology
company profiles with a focus on emerging private companies.
At December 31, 2000, 869 organizations subscribed to our Web-based
Business Browser product line, up from 583 at December 31, 1999. On average, our
customers for Web-based products at December 31, 2000 had an annualized contract
value of $67,200 per customer, compared to $66,500 per customer at December 31,
1999. The annualized value of Business Browser customer contracts was $58.3
million at December 31, 2000, having grown from $38.7 million at December 31,
1999. Of this $58.3 million, $43.2 million was attributable to those customers
that were under contract at both December 31, 1999 and 2000. The renewal rate of
the Business Browser product line for 2000 was 86% calculated on a dollar basis.
For more information regarding annualized contract value, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Annualized Contract Value."
OneSource was incorporated in Delaware in July 1993 under the name Datext
Holding Corporation. Our principal executive offices are located at 300 Baker
Avenue, Concord, Massachusetts, 01742 and our telephone number is (978)
318-4300. OneSource's common stock is traded on the NASDAQ National Market
System under the symbol "ONES" and our web address is www.onesource.com.
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PRODUCTS
OneSource's Business Browser product line is designed to be a comprehensive
and easy to use business and financial information resource for professionals
who need quick access to reliable corporate, industry, and market intelligence.
Business Browser products integrate over 2,500 sources of business
information from more than 25 category-leading business and financial
information providers. These sources include both textual information, such as
news, trade press, SEC filings, executive biographies and analyst reports, and
numeric information, such as company financial results, stock quotes and
industry statistics. OneSource uses its proprietary KeyID technology to sort,
prioritize, integrate and link information on over one million public and
private companies worldwide.
Our Business Browser product line is accessed through a standard Web
browser that is already available and familiar to end-users. Because our
products are accessed through standard Web technology, our customers require
minimal installation and systems support and users have full access to the
products at any time from anywhere via the Internet.
OneSource focuses on the functional uses of the business and financial
information it delivers. The Business Browser product line has been designed for
use not only by traditional users of business information, but also throughout
an organization, including sales, marketing, finance, and management
professionals. We apply our knowledge of how business professionals use
information to transform raw, disparate data into meaningful, actionable
information. We focus on integrating and presenting information so that
interpretation, manipulation and analysis can be performed more easily by the
end user. Because the interface is derived from the inquiries of professionals,
users require minimal training to become productive quickly.
OneSource's pricing strategy is designed to be particularly attractive to
large organizations. The Business Browser product line is available at a fixed
annual subscription price that declines on a per-user basis as the total number
of users increases for that customer. The fixed-price model encourages
professionals to use the products as needed without concern for additional
charges, and a declining marginal price per user encourages customers to
distribute our products widely throughout their organizations.
The Business Browser product line includes:
US BUSINESS BROWSER. Released in December 1996, US Business Browser is
focused specifically on the US and Canada. It contains a subset of business and
financial information from the Global Business Browser product. It covers over
250,000 public and private companies in the US and Canada.
UK BUSINESS BROWSER. Released in September 1997, UK Business Browser is a
comprehensive source of information on over 350,000 public and private companies
in the UK.
GLOBAL BUSINESS BROWSER. Because business professionals need a global
perspective to complement deep coverage of local markets, Global Business
Browser is available in two editions. Released in December 1997, Global Business
Browser, US Edition is a single, integrated resource that delivers comprehensive
information on over 350,000 North American and global companies. Global Business
Browser, European Edition, released in December 1999, is an integrated resource
including both European and global content with over 350,000 companies profiled.
EUROPEAN BUSINESS BROWSER. Released in January 1999, European Business
Browser provides users with a comprehensive database on 300,000 public and
private companies across Europe, including 50,000 UK companies. An important
source of data for the European Business Browser is Dun & Bradstreet, a leading
business information source.
Business Browser delivers information in an integrated format. This allows
customers to obtain different types of information from multiple sources in a
single report. Business Browser products organize data around business
applications and transform raw, disparate data into meaningful, actionable
information, delivered according to the characteristics users have defined and
in the custom formats, tables and reports that users
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require. Users who need to perform detailed analysis can also easily transfer
quantitative data into spreadsheets or other desktop tools, such as contact
management software.
Specific applications available through the Business Browser product line
include:
- "Company Profiler" delivers integrated reports on a company's history,
products, competition, industry, executives, current news articles,
and financials. Both summary and detailed company reports are
available, depending on the user's need. In addition, "Corporate
Family Reports" allow users to quickly map relationships among
subsidiaries and divisions of corporations.
- "WatchList Update" automatically keeps track of news articles, news
stories, financial filings and research reports on specified companies
the user monitors.
- "Industry Profiler" delivers reports on market size, segmentation,
financial norms, ratios, and forecasts for a specified industry, as
well as participants, industry news and analysis, and creates research
reports with graphs and statistics that help track industry trends.
- "Company Finder" screens companies by defining key search
characteristics to deliver a targeted list by industry, geography,
size, revenues, employment, or other key characteristics.
- "Topic Search" screens news stories, research reports, business
descriptions, and trade articles for information by topic.
- "Executive Search" provides users with reports on business leaders by
name, company, location, schools, and affiliated organizations.
- "Custom Alerts" sends daily e-mail links to current news on
user-specified companies and topics.
ADDITIONAL SOFTWARE APPLICATIONS
Two additional software applications are available with Business Browser
products:
BUSINESS BROWSER AP. Business Browser AP, which became commercially
available in August 1997, is an advanced Web-based quantitative analysis tool
available as an option with all of the Business Browser products other than
European Business Browser. Business Browser AP lets users screen across a wide
range of public company financial statement items, ratios, growth rates, and
other criteria. It also allows users to produce detailed quantitative reports of
their own design. Business Browser AP also makes EDGAR documents more user
friendly by removing confusing computer codes, formatting tables for easy
viewing and printing, and allowing users to export tables to a spreadsheet.
BUSINESS BROWSER APPLINK. Business Browser AppLink, which became
commercially available in December 1998, is a software toolkit that allows
customers to easily incorporate Business Browser content, such as company
profiles, news, business and trade articles, analyst reports, executive
biographies, industry intelligence, and financial data, directly into corporate
intranet applications. Users have the ability to integrate in-depth, objective
external business information into their existing internal applications such as
prospect and customer databases, sales force automation tools, enterprise
reporting software and corporate Web applications. No special client software or
dedicated servers are necessary.
LEGACY AND OTHER PRODUCTS
Prior to our introduction of Business Browser in 1996, OneSource
distributed business information on CD Rom. At the end of 2000, all CD Rom
products were completely phased out.
With the acquisition of Corporate Technology in October 1999, OneSource
acquired several product lines that include CD Rom and printed directories. The
printed directories product line was discontinued at the end of 2000.
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PLATFORM AND PRODUCT DEVELOPMENT
The product development function is currently carried out by our Global
Strategic Web Applications Team. As of December 31, 2000, we had 77 full-time
employees on this team. This team includes product managers who define
functional software components, end-user interfaces, report formats, and content
requirements; product development engineers who take content feeds from
information partners and write database loader code; and the KeyID team whose
role, through both programming and editorial expertise, is to ensure consistent
integration and presentation of information from multiple underlying sources of
content.
The product development team uses our proprietary KeyID technology to
integrate and link public and private companies worldwide from multiple
databases, each with its own set of incompatible identifiers. Through a
combination of proprietary programmatic and editorial means, this technology
enables us to provide a single and unified presentation from multiple underlying
company databases. It also manages multiple SIC codes and industry mappings
assigned to companies by disparate databases and reclassifies the companies to
comparable categories. The system also keeps track of company name synonyms to
allow searching by commonly used alternative company names. The synonyms feature
allows the user to input one company name or term and to access all information
for that company although it may be categorized under different names or terms
depending on the database. In total, the KeyID database contains 1.1 million
companies, 1.7 million synonyms, and 40,000 URLS.
INFORMATION PROVIDERS
Each Business Browser product combines an array of carefully chosen
financial, company, industry, executive, and news-related content obtained from
leading business and financial information providers identified by our Global
Strategic Web Applications Team.
We enter into contracts with our information providers, which are generally
for a term of at least one year, and which renew for the same period, if not
canceled with advance notice. These contracts may be terminated under certain
circumstances. Under these arrangements, royalties are generally paid on a
quarterly basis to information providers. Royalties are typically calculated
either as a flat percentage of our revenues, as a per-user fee that declines as
the number of authorized users of the product increases, as a fixed fee per
period, or in some cases, we pay a calculated fee based upon product growth
compared to like periods from the prior year.
STRATEGIC ALLIANCES
In 2000, OneSource continued to broaden its opportunities by integrating
directly into corporate intranets through strategic alliances with customer
relationship management (CRM) platform and application providers. Specifically,
we formed a strategic alliance with Siebel Systems, Inc., a leading supplier of
eBusiness application software, and with SageMaker, Inc., a leading enterprise
information portal solutions provider.
CUSTOMERS
At December 31, 2000, 869 organizations had subscribed to our Web-based
Business Browser product line, up from 583 at December 31, 1999. On average, our
customers at December 31, 2000 had an annualized contract value of $67,200 per
customer, compared to $66,500 per customer at December 31, 1999. The annualized
contract value of customer contracts for Business Browser products was $58.3
million at December 31, 2000, having grown from $38.7 million at December 31,
1999. For more information regarding annualized contract value, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Annualized Contract Value."
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The following is a representative list of significant customers in each of
our primary industry sectors as of December 31, 2000:
PROFESSIONAL SERVICES FINANCIAL SERVICES TECHNOLOGY
Accenture American Express AT&T
Arthur D. Little Bank of Scotland Compaq
Bain & Company Bank of Tokyo Data General
Cambridge Technology Partners Bear Stearns JD Edwards
Deloitte & Touche Chase Manhattan Bank Hewlett Packard
KPMG Credit Lyonnais Lockheed Martin
Watson Wyatt Credit Suisse First Boston MCI/Worldcom
Deutsche Bank Securities Nortel
OTHER CORPORATIONS First Union Bank Oracle
Avery Dennison Merrill Lynch SAP
Bayer Oppenheimer Toshiba America
Boeing PricewaterhouseCoopers LLP
British Telecommunications Royal Bank of Canada
Cargill SG Cowen Securities Corp.
Chub Group of Insurance Cos.
Coca-Cola BUSINESS SCHOOLS
General Electric Dartmouth
Johnson & Johnson Duke
Pitney Bowes Harvard
Sears Stanford
Staples University of Florida
University of Southern California
University of Texas
Yale
At December 31, 2000, approximately 55% of our annualized contract value
for Web-based products came from customers in the professional services and
financial services sectors, which have been the traditional customers for
business information products. The remaining 45% of our annualized contract
value at December 31, 2000 for Web-based products represented customers in
sectors that have not historically been heavy consumers of business information
products. At these customers, Business Browser products are used by
professionals throughout the organization, including sales, marketing, finance,
and management personnel, as a result of the products' ease of use and
availability over the Web.
SALES AND MARKETING
We market our products through a direct and telephonic sales force and
marketing staff, which as of December 31, 2000 consisted of 120 full-time
employees based at 15 locations throughout the US and two locations in the UK.
The sales function breaks down into two major parts:
- the initial sale, which is conducted by account executives. Our sales
organization consists of the following groups: Enterprise Sales, which
concentrates on the largest accounts (1,000 or more Business Browser
seats) ; US Strategic Sales, which sells to mid-to-large size companies
(50 to 999 seats); US Telesales, focusing on smaller companies (less than
50 seats); and European Sales, selling into the UK and European markets.
- customer retention and growth through the sale of additional seats and
upgrades, which are primarily handled by account managers.
As of December 31, 2000, we had 26 account executives and 25 account
managers. Compensation for account executives and account managers is comprised
of base salary plus commission. We also employ a telemarketing group that
assists in generating leads for the account executives and retaining existing
clients. As of December 31, 2000, there were 33 members of the telemarketing
group.
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Business Browser products are sold on a subscription basis, generally for a
one-year period. Customers typically prepay for annual subscriptions. Typically,
contracts automatically renew for the same period prior to expiration unless
canceled by the client. The Business Browser product line is available at a
fixed annual subscription price, which declines on a per-user basis as the total
number of users increases. List prices as of January 1, 2001 ranged from $13,000
per year for a single user seat to $373,000 per year for 1,000 user seats.
CUSTOMER SUPPORT
We provide both on-site and telephone support for clients. As of December
31, 2000, we had 15 field support consultants, who provide assistance before and
after sales are completed. For example, they assist in managing free product
trials for prospective customers and expanding the availability of our products
to additional users through training and rollout initiatives within an
organization. They also provide technical consulting, which may be requested by
customers, such as the customization of Web pages for large clients or the
building of prototype applications using AppLink.
As of December 31, 2000, we had five telephone-based customer support
representatives in the US and one in the UK. These representatives operate the
telephone help desk that is open from 8:00 a.m. to 8:00 p.m., local time, Monday
through Friday.
WEBSITE TECHNOLOGY AND OPERATIONS
The OneSource on-line site is located at a dedicated hosting facility
managed by Genuity Solutions Inc. It is a node on the Genuity Solutions Inc.
Internet backbone. The system is available 24 hours a day, seven days a week. A
second hosting facility, managed by Digital Island, is expected to come on-line
in 2001. Each site is intended to serve as a back up in the event of a failure
by the other site.
The OneSource systems administration team closely monitors the usage,
delivery performance and availability of the system. Particular attention is
paid to individual product usage, relative levels of customer activity, speed of
data retrieval and delivery, peak usage figures, uptime statistics, and power
requirements.
COMPETITION
The business information services industry is intensely competitive. We
face direct or indirect competition from numerous companies, including:
- large, well-established business and financial information providers,
such as Dow Jones, Dialog, Lexis-Nexis, Pearson, Reuters, Factiva,
Thomson, Primark, and McGraw-Hill
- on-line information services or Websites targeted to specific markets or
applications, such as NewsEdge, Factset and Bloomberg
- providers of sales, marketing, and credit information, such as Dun &
Bradstreet, InfoUSA and Siebel
- Web retrieval, Web "portal" companies, and other free or low-cost mass
market on-line services, such as Excite, Infoseek, Terra Lycos, Yahoo!
and AOL/Time Warner
- free or low-cost specialized business and financial information Websites,
such as Hoovers.com, Marketwatch.com, Multex.com, and TheStreet.com
The principal competitive factors in our industry are availability of
comprehensive and integrated business and financial information, ease of use,
support and training required, and price/performance characteristics.
EMPLOYEES
We had 257 full-time employees as of December 31, 2000, including 120 in
sales and marketing, 22 in engineering, 18 in production/on-line support, 27 in
finance and administration, and 70 on our Global Strategic Web Applications
Team. Our employees are not represented by any collective bargaining
organization. We have never experienced a work stoppage and we believe our
relationships with our employees are good.
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GEOGRAPHIC INFORMATION
OneSource had revenues of $10.8 million, $8.0 million and $7.0 million in
the U.K. and $41.1 million, $27.5 million and $23.4 million in the U.S. for the
years ended December 31, 2000, 1999 and 1998, respectively.
ITEM 2. PROPERTIES
OneSource's headquarters are currently in approximately 50,900 square feet
of office space located in Concord, Massachusetts. The office space has been
leased through 2004. We lease additional sales offices in Chicago, IL., New
York, NY., San Francisco, CA., Manhattan Beach, CA., Mission Viejo, CA.,
Richardson, TX. and Woking, England and London, England. OneSource believes that
its existing facilities are adequate to meet current requirements, and that
suitable additional or substitute space will be available as needed.
OneSource deems the buildings, machinery and equipment used in its
operations (whether owned or leased), generally to be in good condition and
adequate for the purposes for which they are used.
ITEM 3. LEGAL PROCEEDINGS
OneSource is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of the year ended December 31, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
OneSource's common stock is traded on the NASDAQ National Market System
under the symbol "ONES". Public trading of OneSource's common stock commenced on
May 19, 1999.
(A) Market Price of Common Stock
The following table sets forth the high and low closing prices as reported
by the NASDAQ National Market for the periods indicated.
2000 1999
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HIGH LOW HIGH LOW
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First quarter................................. $14.25 $6.75 -- --
Second quarter................................ $10.50 $5.25 $14.25* $7.22*
Third quarter................................. $12.75 $6.88 $10.38 $6.63
Fourth quarter................................ $13.00 $7.25 $14.00 $7.50
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* commencing May 19,1999.
The quotations represent inter-dealer quotations, without adjustments for
retail markups, markdowns, or commissions, and may not necessarily represent
actual transactions. The number of record holders of OneSource's common stock at
March 1, 2001 was 86.
(B) Use of Proceeds from Sales of Registered Securities
OneSource has not declared or paid any cash dividends on its common stock
and presently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future.
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In May 1999, OneSource completed an initial public offering, (the
"Offering") of 3,636,000 shares of its common stock, of which 2,500,000 shares
were issued and sold by OneSource and 1,136,000 shares were issued and sold by
certain stockholders of OneSource.
The net proceeds to OneSource from the Offering, after deducting
underwriting discounts and commissions and other offering expenses was
approximately $27.0 million.
The net proceeds from the Offering, less $6.8 million used to payoff
long-term debt and $7.6 million used to acquire Corporate Technology, have been
invested in interest bearing, investment grade securities.
(C) Recent Sales of Unregistered Securities
During the year ended December 31, 1999, OneSource issued the following
securities that were not registered under the Securities Act of 1933, as
amended:
GRANTS OF STOCK OPTIONS
In February 1999, OneSource granted options to purchase 40,700 shares of
its common stock at an exercise price of $2.19 per share, 30,525 shares of its
common stock at an exercise price of $5.90 per share and 329,467 shares of its
common stock at an exercise price of $9.93 per share.
EXERCISE OF STOCK OPTIONS
From January 1, 1999 to December 31, 1999, OneSource issued 415,538 shares
of its common stock at exercise prices ranging from $0.12 to $2.18 for an
aggregate purchase price of approximately $419,000 pursuant to the exercise of
employee stock options.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Rule 701 promulgated thereunder. All shares
issuable upon exercise of stock options have been registered by OneSource on a
Registration Statement on Form S-8.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following historical selected consolidated financial and operating data
has been derived from OneSource's audited Consolidated Financial Statements for
each of the five years in the period ended December 31, 2000. The following
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:(1)
Web-based product............................. $47,275 $31,822 $16,058 $ 3,312 $ 15
CD Rom product and other...................... 4,614 3,726 14,370 27,072 30,419
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51,889 35,548 30,428 30,384 30,434
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Cost of revenues:
Web-based product............................. 15,536 13,143 7,863 2,401 295
CD Rom product and other...................... 2,373 1,666 5,792 10,444 12,244
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17,909 14,809 13,655 12,845 12,539
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Gross profit.................................. 33,980 20,739 16,773 17,539 17,895
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Operating expenses:
Selling and marketing......................... 20,519 13,254 11,577 9,167 8,572
Platform and product development.............. 8,842 7,996 6,313 6,375 7,252
General and administrative.................... 5,078 5,474 3,847 3,401 3,664
Amortization of goodwill and other intangible
assets..................................... 1,504 376 -- -- --
------- ------- ------- -------- -------
Total operating expenses................... 35,943 27,100 21,737 18,943 19,488
------- ------- ------- -------- -------
Loss from operations....................... (1,963) (6,361) (4,964) (1,404) (1,593)
Interest income (expense), net.................. 887 47 (595) (930) (733)
Gain on sale of product lines................... -- -- 12,797 501 --
Other income.................................... 2,000 2,000 -- -- 393
------- ------- ------- -------- -------
Income (loss) before income taxes.......... 924 (4,314) 7,238 (1,833) (1,933)
Provision for income taxes...................... 66 133 250 -- --
------- ------- ------- -------- -------
Net income (loss).......................... 858 (4,447) 6,988 (1,833) (1,933)
Less: income attributable to Class P common
stock......................................... -- -- 1,367 414 335
------- ------- ------- -------- -------
Net income (loss) attributable to common
stock.................................... $ 858 $(4,447) $ 5,621 $ (2,247) $(2,268)
======= ======= ======= ======== =======
Earnings (loss) per share: (2)
Class P common stock:
Basic and diluted earnings per share.......... -- -- $ 1.91 $ 0.57 $ 0.47
Weighted average Class P common shares
outstanding................................ -- -- 718 718 719
Common stock:
Basic earnings (loss) per share............... $ 0.07 $ (0.50) $ 0.85 $ (0.34) $ (0.35)
Diluted earnings (loss) per share............. $ 0.06 $ (0.50) $ 0.59 $ (0.34) $ (0.35)
Weighted average common shares outstanding:
Basic...................................... 11,509 8,822 6,641 6,545 6,487
Diluted.................................... 13,509 8,822 9,563 6,545 6,487
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DECEMBER 31,
-------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT NUMBER OF CUSTOMERS DATA)
BALANCE SHEET DATA:
Cash and cash equivalents...................... $17,338 $13,598 $ 8,665 $ 341 $ 535
Working capital (deficit)...................... 1,827 (691) (2,118) (9,792) (8,803)
Total assets................................... 58,832 49,698 27,646 16,644 16,934
Total debt (including capital lease
obligations)................................. 33 234 6,936 8,171 6,661
Deferred revenues.............................. 29,229 24,222 18,022 15,748 15,419
Total stockholders' equity (deficit)........... 16,353 13,363 (6,311) (13,613) (11,827)
OTHER DATA FOR WEB-BASED PRODUCTS:
Annualized contract value (3).................. $58,354 $38,743 $25,920 $ 8,973 $ 412
Number of customers............................ 869 583 445 233 11
Average annualized contract value per
customer..................................... $ 67.2 $ 66.5 $ 58.2 $ 38.5 $ 37.4
- ---------------
(1) In 1997 and 1998, OneSource divested two CD Rom product lines. Revenues
attributable to these divested product lines, which are included in the
statement of operations data through the divestiture date, were $2.6
million, $6.3 million and $6.4 million in the years ended December 31, 1998,
1997 and 1996, respectively. Revenues for the years ended December 31, 2000
and 1999 included $4.2 million and $1.0 million, respectively, from products
and customers related to the acquired Corporate Technology business.
(2) You should read Notes 2 and 7 to the Consolidated Financial Statements for
further description of the calculation of these items.
(3) Annualized contract value represents the invoiced fees for one month for all
customer contracts for Web-based products in effect at the measurement date,
multiplied by 12, without regard to the actual remaining duration of such
contracts. For more information regarding annualized contract value, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Annualized Contract Value."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section should be read in conjunction with the Selected Consolidated
Financial and Operating Data and OneSource's Consolidated Financial Statements
and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.
The following discussion contains forward-looking statements that involve
risks and uncertainties. OneSource makes such forward-looking statements under
the provision of the "Safe Harbor" section of the Private Securities Litigation
Reform Act of 1995. Any forward-looking statements should be considered in light
of the factors described below in Item 7 under "Certain Factors that May Affect
Future Results." Actual results may vary materially from those projected,
anticipated or indicated in any forward-looking statements. In this Annual
Report on Form 10-K, the words "anticipates," "believes," "expects," "intends,"
"future," "could," and similar words or expressions (as well as other words or
expressions referencing future events, conditions or circumstances) identify
forward-looking statements.
OVERVIEW
OneSource provides Web-based business and financial information to
professionals who need quick access to reliable corporate, industry and market
intelligence. OneSource was formed as a division of Lotus Development
Corporation in 1987 and became an independent company when it was purchased in a
management buy-out in 1993. Until December 1996, our business was to provide
business information to the financial community using CD Rom technology as the
primary method of distribution. The introduction of
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Business Browser in December 1996 marked a fundamental shift in our business as
we began a transition away from our legacy CD Rom business and toward Web-based
products. OneSource's Business Browser product line is designed to be a
comprehensive and easy-to-use business and financial information resource,
integrating over 2,500 sources of business information from more than 25
category-leading business and financial information providers. Business Browser
accounted for 91% of the Company's revenue for the year ended December 31, 2000.
On October 1, 1999, OneSource acquired Corporate Technology, a Delaware
corporation located in Woburn, Massachusetts. Corporate Technology is a provider
of high technology company profiles with a focus on emerging private companies.
Pursuant to the terms of an Agreement and Plan of Merger, the consideration paid
by OneSource was $7.6 million in cash. A portion of the cash consideration is
being held in escrow to be released in accordance with the Agreement and Plan of
Merger and an Escrow Agreement. For financial statement purposes, this
acquisition was accounted for as a purchase and, accordingly, the results of
operations of Corporate Technology subsequent to October 1, 1999 have been
included in OneSource's consolidated statements of operations.
In May 1998, we sold our CD-Insurance division to allow us to focus more
completely on our new Web-based product line. We recognized a gain of $12.8
million on this sale during 1998. In addition, in connection with the
disposition, we licensed certain of our CD Rom software to the acquiror in
exchange for $4.0 million of license fees. These license fees were paid in eight
equal quarterly installments beginning January 1, 1999 and ending on December
31, 2000 and were recognized ratably as other income. For each of the years
ended December 31, 2000 and December 31, 1999, OneSource recorded $2.0 million
of other income related to the software license agreement.
Our revenues for both CD Rom and Web-based products consist of monthly
subscription fees from customer contracts. Customer contracts span varying
periods of time but are generally for one year, are renewable for like periods,
and are payable in advance. Subscription fees generally are quoted to clients on
an annual basis but are earned as revenues on a monthly basis over the
subscription period. Invoices are recorded as accounts receivable until paid and
as deferred revenues until earned. Deferred revenues attributable to Web-based
products increased 25% to $28.5 million as of December 31, 2000 from $22.8
million as of December 31, 1999 and increased 79% from $15.9 million as of
December 31, 1998.
Cost of revenues consists primarily of royalties to information providers
and, to a lesser extent, employee salaries and benefits, facilities allocation
and related expenses, depreciation associated with computers for data processing
and on-line requirements and Web hosting expenses. We enter into contracts with
our information providers which are generally for a term of at least one-year
and are automatically renewable if not canceled with advance notice. These
contracts may be terminated under certain circumstances. Under these
arrangements, royalties are generally paid on a quarterly basis to information
providers. Royalties are generally calculated either as a flat percentage of our
revenues, as a per-user fee that declines as the number of authorized users of
the product increases, as a fixed fee per period, or in some cases, we pay a
calculated fee based upon product growth compared to like periods from the prior
year.
Selling and marketing expense consists primarily of employee salaries and
benefits and sales commissions paid to our sales force, customer support
organization and marketing personnel, as well as facilities allocation and
related expenses, direct marketing promotional materials, trade show exhibitions
and advertising. Sales commissions are paid when customers are invoiced and are
recorded as deferred subscription costs, which are amortized ratably over the
term of the contract, typically 12 months, as the associated revenues are
recognized. All other selling and marketing costs are expensed as incurred.
Platform and product development expense consists primarily of employee
salaries and benefits, facilities allocation and related expenses, as well as
outside contractor expenses, relating to the development of our "platform" of
core software supporting our products and the development of new products based
upon that platform. Platform and product development expense includes expenses
relating to the editorial staff that implements our KeyID technology to
integrate disparate information sources into our Web-based products.
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General and administrative expense consists primarily of employee salaries
and benefits, facilities allocation and related expenses associated with
OneSource's management, finance, human resources, management information systems
and administrative groups.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of total revenues represented by each line item in OneSource's consolidated
statement of operations. We can give no assurance that the indicated trends in
revenues or operating results will continue in the future.
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
----- ----- -----
(PERCENTAGE OF TOTAL REVENUES)
Revenues:
Web-based product......................................... 91% 90% 53%
CD Rom product and other.................................. 9 10 47
--- --- ---
Total revenues......................................... 100 100 100
--- --- ---
Cost of revenues:
Web-based product......................................... 30 37 26
CD Rom product and other.................................. 5 5 19
--- --- ---
Total cost of revenues................................. 35 42 45
--- --- ---
Gross profit................................................ 65 58 55
Operating expenses:
Selling and marketing..................................... 39 37 38
Platform and product development.......................... 17 23 21
General and administrative................................ 10 15 12
Amortization of goodwill and other intangible assets...... 3 1 --
--- --- ---
Loss from operations........................................ (4) (18) (16)
Interest income (expense), net.............................. 2 -- (2)
Gain on sale of product line................................ -- -- 42
Other income................................................ 4 6 --
--- --- ---
Income (loss) before income taxes........................... 2 (12) 24
Provision for income taxes.................................. -- -- 1
--- --- ---
Net income (loss)........................................... 2% (12)% 23%
=== === ===
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues. Total revenues increased 46% to $51.9 million for the year ended
December 31, 2000 from $35.5 million for the year ended December 31, 1999. On
October 1, 1999, OneSource acquired Corporate Technology; thereafter, revenues
for the year ended December 31, 2000 and 1999 include $4.2 million and $1.0
million, respectively, of revenue recognized from products and customers related
to the acquired Corporate Technology business. Excluding the Corporate
Technology revenues, total revenues for the year ended December 31, 2000
increased 38%.
Web-based product revenues increased 49% to $47.3 million for the year
ended December 31, 2000 from $31.8 million for the year ended December 31, 1999.
The increase was attributable to new customers, an increase in the number of
user seats purchased by existing customers and the sale of new products to
existing customers. At the same time, CD Rom product and other revenue increased
24% to $4.6 million in 2000 from $3.7 million in 1999 and was attributable to
revenue recognized from products related to the acquired Corporate Technology
business. Excluding revenues attributable to Corporate Technology, CD Rom
revenues
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decreased 86% to $0.4 million for the year ended December 31, 2000 from $2.7
million for the year ended December 31, 1999 as OneSource completed its
transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 21% to $17.9 million for
the year ended December 31, 2000 from $14.8 million for the year ended December
31, 1999. This increase was due to an increase in royalty expense and additional
infrastructure expense necessary to support the growth in revenue. As a
percentage of total revenues, total cost of revenues decreased to 35% in 2000
from 42% in 1999. The decrease in total cost of revenues percentage was
principally due to a decreased effective royalty rate for our Web-based
products, which resulted from the renegotiation of some information provider
agreements to lower royalty rates and contracts where effective royalty rates
decline as the number of seats sold to a customer increases.
Cost of Web-based product revenues increased 18% to $15.5 million for the
year ended December 31, 2000 from $13.1 million for the year ended December 31,
1999. This increase was due to an increase in royalty expense and additional
infrastructure expense necessary to support the growth in revenue. As a
percentage of Web-based product revenues, cost of Web-based product revenues
decreased to 33% in 2000 from 41% in 1999, due to an increase in our customer
base as well as more favorable royalty rates.
Cost of CD Rom product and other revenues increased 42% to $2.4 million for
the year ended December 31, 2000 from $1.7 million for the year ended December
31, 1999. This increase was due to revenue recognized from products related to
the acquired Corporate Technology business. As a percentage of CD Rom product
and other revenues, cost of CD Rom product and other revenues increased to 51%
in 2000 from 45% in 1999, due to higher costs of maintaining and expanding
OneSource's proprietary database.
Selling and Marketing Expense. Selling and marketing expense increased 55%
to $20.5 million for the year ended December 31, 2000 from $13.3 million for the
year ended December 31, 1999 principally due to increased headcount and expenses
incurred to hire and train new sales personnel in connection with our Business
Browser product line. Selling and marketing expense increased as a percentage of
total revenues to 39% in 2000 from 37% in 1999. We expect sales and marketing
expenses to decrease as a percentage of revenue as a result of the growth in
business.
Platform and Product Development Expense. Platform and product development
expense increased 11% to $8.8 million for the year ended December 31, 2000 from
$8.0 million for the year ended December 31, 1999. The increase was principally
due to increased staffing and associated personnel costs to meet new product
demands. As a percentage of total revenues, platform and product development
expense decreased from 23% to 17%. The decrease was due principally to the
growth in revenue and increased productivity.
General and Administrative Expense. General and administrative expense
decreased 7% to $5.1 million for the year ended December 31, 2000 from $5.5
million for the year ended December 31, 1999. The decrease partially relates to
one-time payments incurred as part of our initial public offering in May 1999.
General and administrative expense decreased as a percentage of total revenues
to 10% in 2000 from 15% in 1999, primarily due to one-time payments incurred as
part of our initial public offering in May 1999.
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets expense increased to $1.5 million for the
year ended December 31, 2000 from $0.4 million for the year ended December 31,
1999. The increase is the result of the acquisition of Corporate Technology in
October 1999 and reflects a full year's amortization of goodwill and other
intangible assets acquired as part of that transaction.
Interest Income, Net. Interest income, net of interest expense, increased
to $887,000 for the year ended December 31, 2000 from $47,000 for the year ended
December 31, 1999. This increase is primarily due to an increase in interest
income related to the invested cash balance from the initial public offering
proceeds and a reduction in interest expense following the payoff of long-term
debt in May 1999.
Other Income. Other income was $2.0 million for both years ended December
31, 2000 and 1999 and was attributable to revenues from a software license
agreement entered into in connection with the sale of our CD-Insurance division.
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Provision for Income Taxes. The provision for income taxes for the year
ended December 31, 2000 was $66,000 and related to amounts due for state and
franchise taxes. The provision for income taxes for the year ended December 31,
1999 was $133,000 and related to amounts due for state and franchise taxes.
COMPARISON OF RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Total revenues increased 17% to $35.5 million for the year ended
December 31, 1999 from $30.4 million for the year ended December 31, 1998. In
May 1998, OneSource sold its CD-Insurance division. Revenues from this product
line were $2.6 million for the year ended December 31, 1998. On October 1, 1999,
OneSource acquired Corporate Technology; thereafter, revenues for the year ended
December 31, 1999 include $1.0 million of revenue recognized from products and
customers related to the acquired Corporate Technology business. Excluding the
CD-Insurance division and Corporate Technology revenues, total revenues for the
year ended December 31, 1999 increased 24%.
Web-based product revenues increased 98% to $31.8 million for the year
ended December 31, 1999 from $16.1 million for the year ended December 31, 1998.
The increase was attributable to new customers, an increase in the number of
user seats purchased by existing customers and the sale of new products to
existing customers. At the same time, CD Rom product and other revenues
decreased 74% to $3.7 million in 1999 from $14.4 million in 1998 as OneSource
continued its transition away from its legacy CD Rom business.
Cost of Revenues. Total cost of revenues increased 8% to $14.8 million for
the year ended December 31, 1999 from $13.7 million for the year ended December
31, 1998. This increase was due to an increase in royalty expense and additional
infrastructure expense necessary to support the growth in revenue. As a
percentage of total revenues, total cost of revenues decreased to 42% in 1999
from 45% in 1998. The decrease in total cost of revenues percentage was
principally due to a decreased effective royalty rate for our Web-based
products, which resulted from the renegotiation of some information provider
agreements to lower royalty rates and contracts where effective royalty rates
decline as the number of seats sold to a customer increase.
Cost of Web-based product revenues increased 67% to $13.1 million for the
year ended December 31, 1999 from $7.9 million for the year ended December 31,
1998. This increase was due to an increase in royalty expense and additional
infrastructure expense necessary to support the growth in revenue. As a
percentage of Web-based product revenues, cost of Web-based product revenues
decreased to 41% in 1999 from 49% in 1998, due to an increase in our customer
base as well as more favorable royalty rates.
Cost of CD Rom product and other revenues decreased 71% to $1.7 million for
the year ended December 31, 1999 from $5.8 million for the year ended December
31, 1998. This decrease was due to lower revenues reflecting our shift away from
the CD Rom product line. As a percentage of CD Rom product and other revenues,
cost of CD Rom product and other revenues increased to 45% in 1999 from 40% in
1998, due principally to ongoing costs associated with our legacy CD Rom
products.
Selling and Marketing Expense. Selling and marketing expense increased 14%
to $13.3 million for the year ended December 31, 1999 from $11.6 million for the
year ended December 31, 1998 principally due to increased headcount and expenses
incurred to hire and train new sales personnel in connection with our Business
Browser product line. Selling and marketing expense decreased as a percentage of
total revenues to 37% in 1999 from 38% in 1998.
Platform and Product Development Expense. Platform and product development
expense increased 27% to $8.0 million for the year ended December 31, 1999 from
$6.3 million for the year ended December 31, 1998. The increase was principally
due to increased staffing and associated personnel costs to meet new product
demands. As a percentage of total revenues, platform and product development
expense increased from 21% to 22%. The increase was due principally to
additional headcount to meet new product demands.
General and Administrative Expense. General and administrative expense
increased 42% to $5.5 million for the year ended December 31, 1999 from $3.8
million for the year ended December 31, 1998. The increase primarily relates to
payments to terminate certain arrangements upon the completion of our initial
public offering in May 1999. These expenses included termination fees of $0.5
million to each of William Blair Venture Partners III Limited Partnership and an
affiliate of Information Partners Capital Fund, L.P. in
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connection with our public offering, financial advisory fees of $0.2 million and
expenses in connection with the relocation of our headquarters of $0.1 million.
General and administrative expense increased as a percentage of total revenues
to 15% in 1999 from 12% in 1998.
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets expense for the year ended December 31,
1999 was $0.4 million compared to $0.0 for the year ended December 31, 1998. The
increase is the result of the acquisition of Corporate Technology in October
1999 and the associated amortization of goodwill and other intangible assets
acquired as part of that transaction.
Interest Income, Net. Interest income, net of interest expense, increased
to $47,000 for the year ended December 31, 1999 from $595,000 of net interest
expense for the year ended December 31, 1998. This increase was primarily due to
an increase in interest income related to the invested cash balance from our
initial public offering proceeds and the sale of the CD-Insurance division, as
well as a reduction in interest expense following the payoff of long-term debt
in May 1999. OneSource recognized a one-time expense of $0.3 million relating to
the unamortized portion of the original issue discount when we paid the
outstanding balance on long-term debt in the principal amount of $6.3 million
from the proceeds of our initial public offering.
Other Income. Other income increased $2.0 million for the year ended
December 31, 1999 compared to $0.0 for the year ended December 31, 1998 and was
attributable to revenues from a software license agreement entered into in
connection with the sale of our CD-Insurance division.
Gain on Sale of Product Line. As the result of the sale of the CD-Insurance
division, we recorded a gain of $12.8 million for the year ended December 31,
1998.
Provision for Income Taxes. The provision for income taxes for the year
ended December 31, 1999 was $133,000 and related to amounts due for state and
franchise taxes. The provision for income taxes for the year ended December 31,
1998 was $250,000 and related to the gain on the sale of the CD-Insurance
division.
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QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables set forth a summary of OneSource's unaudited quarterly
operating results for each of the eight quarters in the two-year period ended
December 31, 2000. This information has been derived from unaudited interim
consolidated financial statements that, in the opinion of management, have been
prepared on a basis consistent with the Consolidated Financial Statements
appearing elsewhere in this Annual Report on Form 10-K and include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair statement of such information when read in conjunction with OneSource's
Consolidated Financial Statements and the Notes thereto. Our operating results
for any quarter are not necessarily indicative of results for any future period.
QUARTER ENDED
---------------------------------------------------------------------------------------
2000 1999
------------------------------------------ ------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
Statement of Operations Data:
Revenues:
Web-based product.................... $12,997 $12,674 $11,535 $10,069 $ 9,023 $ 8,383 $ 7,513 $6,903
CD Rom product and other............. 1,107 982 1,036 1,489 1,284 335 867 1,240
------- ------- ------- ------- ------- ------- ------- ------
Total revenues..................... 14,104 13,656 12,571 11,558 10,307 8,718 8,380 8,143
------- ------- ------- ------- ------- ------- ------- ------
Cost of revenues:
Web-based product.................... 4,051 3,977 3,547 3,961 3,376 3,466 3,331 2,970
CD Rom product and other............. 564 563 706 540 628 197 354 487
------- ------- ------- ------- ------- ------- ------- ------
Total cost of revenues............. 4,615 4,540 4,253 4,501 4,004 3,663 3,685 3,457
------- ------- ------- ------- ------- ------- ------- ------
Gross profit........................... 9,489 9,116 8,318 7,057 6,303 5,055 4,695 4,686
------- ------- ------- ------- ------- ------- ------- ------
Operating expenses:
Selling and marketing................ 5,110 5,472 5,328 4,609 4,049 3,284 2,994 2,927
Platform and product development..... 2,279 2,113 2,099 2,351 2,257 2,074 1,947 1,718
General and administrative........... 1,360 1,208 1,237 1,274 1,289 1,068 2,257 860
Amortization of goodwill and other
intangible assets.................. 375 376 376 376 376 -- -- --
------- ------- ------- ------- ------- ------- ------- ------
Total operating expenses........... 9,124 9,169 9,040 8,610 7,971 6,426 7,198 5,505
------- ------- ------- ------- ------- ------- ------- ------
Income (loss) from operations.......... $ 365 $ (53) $ (722) $(1,553) $(1,668) $(1,371) $(2,503) $ (819)
======= ======= ======= ======= ======= ======= ======= ======
(PERCENTAGE OF TOTAL REVENUES)
Revenues:
Web-based product.................... 92% 93% 92% 87% 88% 96% 90% 85%
CD Rom product and other............. 8 7 8 13 12 4 10 15
------- ------- ------- ------- ------- ------- ------- ------
Total revenues..................... 100 100 100 100 100 100 100 100
------- ------- ------- ------- ------- ------- ------- ------
Cost of revenues:
Web-based product.................... 29 29 28 34 33 40 40 36
CD Rom product and other............. 4 4 6 5 6 2 4 6
------- ------- ------- ------- ------- ------- ------- ------
Total cost of revenues............. 33 33 34 39 39 42 44 42
------- ------- ------- ------- ------- ------- ------- ------
Gross profit........................... 67 67 66 61 61 58 56 58
------- ------- ------- ------- ------- ------- ------- ------
Operating expenses:
Selling and marketing................ 36 40 42 40 39 38 36 36
Platform and product development..... 16 15 17 20 22 24 23 21
General and administrative........... 10 9 10 11 12 12 27 11
Amortization of goodwill and other
intangible assets.................. 3 3 3 3 4 -- -- --
------- ------- ------- ------- ------- ------- ------- ------
Total operating expenses........... 65 67 72 74 77 74 86 68
------- ------- ------- ------- ------- ------- ------- ------
Income (loss) from operations.......... 2% --% (6)% (13)% (16)% (16)% (30)% (10)%
======= ======= ======= ======= ======= ======= ======= ======
ANNUALIZED CONTRACT VALUE
One measure of the performance of our business is "annualized contract
value." This is a measurement we use for normalized period-to-period comparisons
to indicate business volume and growth, both in terms of new customers and
upgrades and expansions at existing customers. Our presentation and calculation
of
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annualized contract value may not be comparable to similarly titled measures
used by other companies. It is not an absolute indicator and we cannot guarantee
that any annualized contract value will be ultimately realized as revenues.
We use annualized contract value as a measure of our business because it
shows the growth or decline in our customer base in a way that revenues cannot.
Since our business is a subscription business, revenues are recognized not when
a sale is made, but in ratable portions over the term of the subscription (which
is usually twelve months). As a result, from a revenue viewpoint the addition or
loss of even a major customer contract may not have a dramatic impact on a
quarter-to-quarter basis. On the other hand, by looking at the value of customer
contracts in hand at the end of each quarter, we can more readily see trends in
our business. For example, the addition of a one-year subscription contract with
total payments of $1.0 million may only increase revenues by approximately
$250,000 ($1.0 million divided by four) in the quarter in which the sale is
made, but would increase annualized contract value by $1.0 million. Similarly,
if the customer did not renew that contract, revenues in the next quarter would
only decrease by $250,000, while annualized contract value would decrease by
$1.0 million.
In calculating annualized contract value, we include only those contracts
where the customer has actually been invoiced. Since amounts invoiced are
included in deferred revenues on our balance sheet for all customer contracts
with terms extending beyond the month of invoice, this demonstrates that
annualized contract value is based on actual customer contracts reflected in our
historical financial statements. To compute annualized contract value, we
multiply by twelve the total amount of fees invoiced for one month and included
in deferred revenues. Annualized contract value is not intended to be an
absolute indicator of future revenues. We only annualize existing, invoiced
contracts, but we do so without regard to the remaining term of those contracts.
Most of our contracts are for 12 months, but as of the date that we calculate
annualized contract value the remaining term of nearly all of our contracts will
be less than 12 months. If a customer fails to pay its invoiced fees or
terminates the contract or if we are unable to renew a contract, our revenues in
subsequent periods may be less than expected based solely on annualized contract
values. Conversely, if we add additional customers or renew existing contracts
at higher rates, our revenues in future periods may exceed expectations based
solely on annualized contract value.
The calculation of annualized contract value for our Web-based products is
illustrated below:
ONE MONTH OF
WEB-BASED INVOICED FEES
DEFERRED IN DEFERRED ANNUALIZED
MEASUREMENT DATE REVENUES REVENUES CONTRACT VALUE
---------------- --------- ------------- --------------
(IN THOUSANDS)
December 31, 1999.................................... $22,781 $3,228.6 $38,743
December 31, 2000.................................... 28,528 4,862.8 58,354
We have increased annualized contract value attributable to Web-based
products 51% to $58.3 million as of December 31, 2000 from $38.7 million as of
December 31, 1999. The number of Web-based customers has increased 49% to 869 at
December 31, 2000 from 583 at December 31, 1999. At the same time, the average
annualized contract value of all Web-based product customers has increased 1% to
$67,200 per customer at December 31, 2000 from $66,500 per customer at December
31, 1999. This growth was attributable to an increase in the number of user
seats purchased by customers and the addition of new products.
LIQUIDITY AND CAPITAL RESOURCES
Since acquiring our business from Lotus Development Corporation in 1993, we
have funded our operations through a combination of seller financing, proceeds
received from the sale of Class P common stock and common stock in connection
with the purchase of the business from Lotus Development Corporation, bank debt,
proceeds received from the sale of non-strategic lines of business, capitalized
equipment leases, cash flows from operations and our initial public offering
which closed in May 1999.
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Our cash and cash equivalents totaled $17.3 million at December 31, 2000,
compared to $13.6 million at December 31, 1999, an increase of $3.7 million. The
increase is primarily due to funds provided by operating activities.
Net cash provided by operating activities was $6.6 million for the year
ended December 31, 2000, compared to net cash used in operating activities of
$0.6 million for the year ended December 31, 1999. The net change of $7.2
million period to period is the result of a net income of $0.9 million compared
to a net loss of $4.4 million and increased depreciation and amortization of
$1.9 million.
Net cash used in investing activities was $4.4 million for the year ended
December 31, 2000, compared to $11.1 million for the year ended December 31,
1999. Cash used in investing activities was primarily from purchases of property
and equipment for $4.0 million during the year ended December 31, 2000 and $2.8
million during the year ended December 31, 1999, as well as the acquisition of
Corporate Technology for $7.6 million during 1999.
Net cash provided by financing activities was $1.6 million for the year
ended December 31, 2000, compared to $16.7 million for the year ended December
31, 1999. Net cash provided by financing activities in 2000 primarily consisted
of net proceeds from the sale of common stock under our various stock option and
stock purchase plans, offset in part by repayments of capital lease obligations.
Net cash provided by financing activities in 1999 primarily consisted of net
proceeds from the sale of common stock in our initial public offering, offset in
part by the repurchase and retirement of common stock and repayments of debt and
capital lease obligations.
We do not currently have a line of credit but intend to enter into a
revolving line of credit for letters of credit and general working capital.
We believe that the net proceeds from our initial public offering, together
with our current cash and cash equivalents and funds anticipated to be generated
from operations, will be sufficient to satisfy working capital and capital
expenditure requirements for at least the next twelve months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of
FASB Statement No. 133", which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. OneSource, to
date, has not engaged in derivative and hedging activities, and accordingly does
not believe that the adoption of SFAS No. 133 will have a material impact on the
financial reporting and related disclosures. OneSource will adopt SFAS No. 133
as required by SFAS No. 137 in fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A and 101B, which is effective no later
than the fourth fiscal quarter of fiscal years beginning after December 15,
1999. SAB No. 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The
application of SAB No.101 did not have a significant impact on OneSource's
financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of APB Opinion No. 25." FIN No. 44
primarily clarifies (a) the definition of an employee for purposes of applying
APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as
a noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN No.
44 was
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effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN No. 44 did not impact OneSource's financial position or
results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. OneSource's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including without limitation, those set forth in the
following risk factors and elsewhere in this Annual Report on Form 10-K. In
addition to the other information included or incorporated by reference in this
Annual Report on Form 10-K, the following risk factors should be considered
carefully in evaluating OneSource and its business.
WE HAVE A LIMITED OPERATING HISTORY WITH BUSINESS BROWSER AND THE PRODUCTS
ACQUIRED FROM CORPORATE TECHNOLOGY ON WHICH TO EVALUATE OUR PROSPECTS. We began
operations as an independent company in 1993. We began to migrate our business
to the Web from CD Rom-based products in early 1996, and launched the Web-based
Business Browser product line in December 1996. In 1999, we acquired several
products, primarily consisting of CD Rom, printed directories and mailing lists
from Corporate Technology. Our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered by companies
transitioning to a new product line, particularly companies in the new and
rapidly evolving market for Internet and Web-based business information
products.
WE HAVE A CUMULATIVE DEFICIT AND EXPECT TO CONTINUE TO HAVE A CUMULATIVE
DEFICIT FOR THE FORESEEABLE FUTURE. We incurred losses from operations of
approximately $1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998,
$6.4 million in 1999 and $2.0 million in 2000. In addition, we have not reached
the critical mass of users of Web-based products, that we believe is necessary
to effectively leverage our royalty payments and infrastructure expenses, which
may not allow OneSource to sustain and increase profits. As of December 31,
2000, we had an accumulated deficit of $14.0 million.
WE RELY ON OUR BUSINESS BROWSER PRODUCT LINE, AND WE WILL NOT SUCCEED
UNLESS DEMAND FOR OUR BUSINESS BROWSER PRODUCTS CONTINUES TO GROW. Subscription
revenues from our Business Browser product line accounted for 91% of total
revenues in 2000, 90% of total revenues in 1999, 53% of total revenues in 1998
and 11% of total revenues in 1997. At the end of 2000 we phased out our legacy
CD Rom products that are not part of the Business Browser product line. As a
result, our future financial condition will depend heavily on the success or
failure of our Business Browser product line. Business Browser products were
introduced in December 1996 and it is difficult to predict demand and market
acceptance for these products in the new and rapidly evolving Web-based business
information services market. If the demand for Business Browser products does
not continue to grow, whether due to competition, lack of market acceptance,
failure of Internet or Web use to grow in general, technological change or other
factors, our business would suffer significantly.
ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATION OF OUR
PERFORMANCE. We use "annualized contract value" as a measurement for normalized
period-to-period comparisons to indicate business volume and growth. Our
presentation and calculation of annualized contract value may not be comparable
to similarly titled measures used by other companies. It is not an absolute
indicator and we cannot guarantee that any annualized contract value will be
ultimately realized as revenues.
COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE
GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR
FINANCIAL RESULTS. The business information services industry is intensely
competitive. We face direct or indirect competition from the following types of
companies:
- large, well-established business and financial information providers such
as Dow Jones, Lexis-Nexis, Pearson, Reuters, Factiva, Thomson, Primark
and McGraw-Hill
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- on-line information services or Websites targeted to specific markets or
applications, such as NewsEdge, Factset and Bloomberg
- providers of sales, marketing and credit information such as Dun &
Bradstreet, InfoUSA, Siebel
- Web retrieval, Web "portal" companies and other free or low-cost mass
market on-line services such as Excite, Infoseek, Terra Lycos, Yahoo! and
AOL/Time Warner
- free or low-cost specialized business and financial information Websites
such as Hoovers.com, Marketwatch.com, Multex.com and TheStreet.com
Based on reported operating results, industry reports and other publicly
available information, we believe that many of our existing competitors, as well
as a number of prospective competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in user
requirements, or to devote greater resources to the research, development,
promotion and sale of their products than we can. These competitors may be able
to undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, customers and
information providers. Our competitors also may develop products that are equal
or superior to our products or that achieve greater market acceptance than our
products.
EXPANSION INTO INTERNATIONAL MARKETS IN WHICH WE HAVE LIMITED PRIOR
EXPERIENCE COULD CAUSE MATERIAL AND ADVERSE EFFECTS ON OUR BUSINESS. We
presently have offices in the United Kingdom, but look to expand our business
opportunities into new markets, particularly throughout Europe. Expanding into
diverse international markets exposes us to certain risks of conducting business
that include but are not limited to the following: potential higher costs,
unanticipated regulatory changes, political instability, difficulties in
staffing and managing operations, adverse tax consequences, currency and
exchange rate fluctuations, and seasonal reductions in business activity. In
addition, the impact of language and other cultural differences could result in
product and service offerings that might not satisfy the needs of our customers
and might not be profitable. Further, strategic relationships might be necessary
to facilitate expansion into certain markets, and our business might be
adversely affected if we misallocate our resources and ultimately fail to gain
new or effective alliances in this area.
IF OUR INFORMATION PROVIDERS STOPPED DOING BUSINESS WITH US, WE COULD NOT
CONTINUE TO SELL BUSINESS BROWSER. We do not own or create all of the original
content distributed through our products. We depend significantly on information
providers to supply information and data feeds to us on a timely basis. Our
products could experience interruptions due to any failure or delay in the
transmission or receipt of this information.
IF OUR SOFTWARE IS DEFECTIVE, IT MIGHT BE COSTLY TO CORRECT; WE COULD GET
SUED AND OUR REPUTATION COULD BE HARMED. Complex software like the software we
develop for our products may contain errors or defects, especially when first
implemented, that may be very costly to correct. Defects or errors also could
result in downtime and our business could suffer significantly from potential
adverse customer reaction, negative publicity and harm to our reputation.
WE MAY HAVE DIFFICULTY IDENTIFYING AND COMPETING FOR ACQUISITION
OPPORTUNITIES. Our business strategy includes the pursuit of strategic
acquisitions. From time to time we may engage in discussions with third parties
concerning potential acquisitions of niche expertise, business and proprietary
rights. In executing our acquisition strategy, we may be unable to identify
suitable companies as acquisition candidates, making it more difficult to
acquire suitable companies on favorable terms.
PURSUING AND COMPLETING POTENTIAL ACQUISITIONS COULD DIVERT MANAGEMENT
ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS
RESULTS. If we pursue any acquisition, our management could spend a significant
amount of time and management and financial resources in the acquisition process
and to integrate the acquired business with our existing business. To pay for an
acquisition, we may use capital stock, cash, or a combination of both.
Alternatively, we may borrow money from a bank or other lender. If we use cash
or debt
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financing, our financial liquidity will be reduced. In addition, from an
accounting perspective, an acquisition may involve nonrecurring charges or
involve amortization of significant amounts of goodwill that could adversely
affect our results of operations.
Despite the investment of these management and financial resources and
completion of due diligence with respect to these efforts, an acquisition may
not produce the revenue, earnings or business synergies that we anticipated, and
an acquired technology or proprietary right may not perform as expected for a
variety of reasons, including:
- difficulty in the assimilation of the operations, technologies, rights,
products and personnel of the acquired company
- risks of entering markets in which we have no or limited prior experience
- expenses of any undisclosed or potential legal liabilities of the
acquired company
- the potential loss of key employees of the acquired company
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH
MAKES IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS
AND CONTRIBUTES TO VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK. Our
quarterly revenues, gross profits and results of operations have fluctuated
significantly in the past and we expect them to continue to fluctuate
significantly in the future. In addition, we believe that an important measure
of our business is the annualized contract value at the end of each period,
which also may fluctuate. Causes of such fluctuations have included and may
include, among other factors:
- changes in demand for our products
- the dollar value and timing of both new and renewal subscriptions
- competition (particularly price competition)
- increases in selling and marketing expenses, as well as other operating
expenses
- technical difficulties or system downtime affecting our products or the
Web generally
- economic conditions specific to the Web, as well as general economic
conditions
- consolidation of our customers
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our projected revenue does not meet our expectations,
then we are likely to experience an even larger shortfall in our operating
profit (loss) relative to our expectations. Further, although we are not
presently a party to a lawsuit, any potential claims, even if not meritorious,
against us could result in the expenditure of significant financial and
managerial resources on our part, which could materially impact our results of
operations.
IF WE CONTINUE TO LOSE KEY PERSONNEL AND ARE UNABLE TO ATTRACT ADDITIONAL
AND RETAIN EXISTING KEY PERSONNEL, IT COULD CAUSE A MATERIAL AND ADVERSE EFFECT
ON OUR BUSINESS. Our future success will depend, in substantial part, on the
continued services of our senior management, including Daniel J. Schimmel, our
President and Chief Executive Officer; William G. Schumacher, our Senior Vice
President, Content Development; Philip J. Garlick, our Senior Vice President,
Global Sales; Dileep Hurry, our Senior Vice President, Business Development; Roy
D. Landon, our Senior Vice President and Chief Financial Officer; Michael
Buzzell, our Senior Vice President, Engineering; and Mary F. McCabe, our Senior
Vice President, Product Development. None of our senior management has entered
into employment agreements with us, and we do not maintain key-person life
insurance on any of our employees. In the first quarter of 2001, two members of
our senior management team resigned. We may experience difficulty in
transitioning their replacements into these key management roles. In addition,
the loss of the services of one or a group of our other key personnel could have
a material, adverse effect on development of new products and services, our
ability to manage the business,
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and our financial condition. Further, our future success will also depend on our
continuing ability to attract, retain, and motivate highly qualified technical,
customer support, sales, financial, accounting, and managerial personnel.
Competition for such key personnel is intense, and we cannot assure you that we
will be able to retain such personnel or that we will be able to attract,
assimilate, or retain other highly qualified personnel in the future. Moreover,
competition for highly qualified key personnel may lead to increased costs of
retaining the services of such personnel, thus potentially hindering our
financial condition.
Any one or more of these factors could affect our business, financial
condition and results of operations, and this makes the prediction of results of
operations on a quarterly basis unreliable. As a result, we believe that
period-to-period comparisons of our historical results of operations and
annualized contract values are not necessarily meaningful and should not be
relied upon as an indication for future performance. Also, due to these and
other factors, it is possible that our quarterly results of operations
(including the annualized contract value) may be below expectations. If this
happens, the price of our common stock would likely decrease.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
OneSource is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. However, our exposure to currency
exchange rate fluctuations has been and is expected to continue to be modest due
to the fact that the operations of our United Kingdom subsidiary are almost
exclusively conducted in local currency. Operating results are translated into
United States dollars and consolidated for reporting purposes. The impact of
currency exchange rate movements on intercompany transactions was immaterial for
the years ended December 31, 2000 and 1999. We do not engage in hedging
activities.
OneSource also owns money market funds and government securities that are
sensitive to market risks as part of its investment portfolio. The investment
portfolio is used to preserve OneSource's capital until it is required to fund
operations, including the Company's marketing and product development
activities. None of these market-risk sensitive instruments are held for trading
purposes. The investment portfolio contains instruments that are subject to the
risk of a decline in interest rates. We do not enter into derivatives or any
other financial instruments for trading or speculative purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OneSource's Consolidated Financial Statements and Schedules and the Reports
of Independent Accountants, are set forth beginning on page F-1 of Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
section entitled "Occupations of Directors and Executive Officers" of
OneSource's Proxy Statement for its 2001 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
section entitled "Executive Compensation" of OneSource's Proxy Statement for its
2001 Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2000.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section entitled "Securities Ownership of Certain Beneficial Owners and
Management" of OneSource's Proxy Statement for its 2001 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section entitled "Certain Relationships and Related Transactions" of OneSource's
Proxy Statement for its 2001 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission within 120 days after December 31,
2000.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
The following Consolidated Financial Statements and Schedules and the
Reports of the Independent Accountants are filed herein:
(1) Financial Statements:
Index to Consolidated Financial Statements:
PAGE
----
Report of Independent Accountants........................... F-1
Consolidated Balance Sheet at December 31, 2000 and 1999.... F-2
Consolidated Statement of Operations for the years ended F-3
December 31, 2000, 1999 and 1998..........................
Consolidated Statement of Stockholders' Equity for the years F-4
ended December 31, 2000, 1999 and 1998....................
Consolidated Statement of Cash Flows for the years ended F-6
December 31, 2000, 1999 and 1998..........................
Notes to Consolidated Financial Statements.................. F-7 to F-19
(2) Financial Statement Schedules:
PAGE
----
Report of Independent Accountants on Financial Statement S-1
Schedules.................................................
Schedule II -- Valuation and Qualifying Accounts............ S-2
All other financial statement schedules are omitted because they are not
required, are inapplicable or the information has been included elsewhere in the
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
OneSource did not file any reports on Form 8-K during the quarter ended
December 31, 2000.
OneSource hereby files as part of this Form 10-K the exhibits listed below.
Exhibits that are incorporated herein by reference can be inspected and copied
at the public reference rooms maintained by the Securities and Exchange
Commission in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Securities and Exchange Commission
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at HTTP://WWW.SEC.GOV.
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EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.01 Agreement and Plan of Merger dated September 8, 1999 by and
between the Registrant and Corporate Technology Information
Services, Inc. (filed as Exhibit 2.1 to Form 8-K dated
September 8, 1999, No. 000-25849 and incorporated herein by
reference).
2.02 Escrow Agreement dated September 8, 1999 by and among the
Registrant, Corporate Technology Information Services, Inc.,
Andrew Campbell and Citizens Bank of Massachusetts (filed as
Exhibit 2.2 to Form 8-K dated September 8, 1999, No.
000-25849 and incorporated herein by reference).
3.01 Second Amended and Restated Certificate of Incorporation of
the Registrant (filed as Exhibit 3.02 to the Registration
Statement on Form S-1, No. 333-73263 and incorporated herein
by reference).
3.02 Second Amended and Restated By-Laws of the Registrant (filed
as Exhibit 3.04 to the Registration Statement on Form S-1,
No. 333-73263 and incorporated herein by reference).
10.01* 1993 Stock Purchase and Option Plan (filed as Exhibit 10.01
to the Registration Statement on Form S-1, No. 333-73263 and
incorporated herein by reference).
10.02* 1999 Stock Option and Incentive Plan (filed as Exhibit 10.02
to the Registration Statement on Form S-1, No. 333-73263 and
incorporated herein by reference).
10.03* 1999 Employee Stock Purchase Plan (filed as Exhibit 10.03 to
the Registration Statement on Form S-1, No. 333-73263 and
incorporated herein by reference).
10.04 Registration Agreement dated September 8, 1993 (filed as
Exhibit 10.04 to the Registration Statement on Form S-1, No.
333-73263 and incorporated herein by reference).
10.05 Lease dated January 20, 1999 by and between the Registrant
and 300 Baker Avenue Associates, Limited Partnership (filed
as Exhibit 10.12 to the Registration Statement on Form S-1,
No. 333-73263 and incorporated herein by reference).
10.06 Agreement and Plan of Merger dated February 26, 1999 by and
between the Registrant and OneSource Holding Corporation
(filed as Exhibit 10.13 to the Registration Statement on
Form S-1, No. 333-73263 and incorporated herein by
reference).
10.08 Form of Management Stock Purchase Agreement
10.09 Stock Purchase Agreement dated August 3, 1993, by and among
Lotus Development Corporation, Datext, Inc. and Datext
Holding Corporation (filed as Exhibit 10.10 to the
Registration Statement on Form S-1, No. 333-73263 and
incorporated herein by reference).
10.10 Form of Fee Termination Agreement (filed as Exhibit 10.16 to
the Registration Statement on Form S-1, No. 333-73263 and
incorporate herein by reference).
10.11 Stock Redemption Agreement dated April 21, 1999 (filed as
Exhibit 10.17 to the Registration Statement on Form S-1, No.
333-73263 and incorporated herein by reference).
10.12 Amendment No. 1 to Employee Stock Purchase Plan dated April
21, 1999.
10.13 Amendment No. 2 to Employee Stock Purchase Plan dated July
18, 2000.
10.14 Amendment No. 1 to Stock Option and Incentive Plan dated May
25, 2000.
21.01 Subsidiaries of the Registrant
23.02 Consent of PricewaterhouseCoopers LLP
24.01 Power of Attorney (included in signature page)
- ---------------
* Indicates a management contract or compensatory plan, contract or arrangement
required to be filed as an exhibit pursuant to item 14(c).
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
ONESOURCE INFORMATION SERVICES, INC.
By: /s/ DANIEL J. SCHIMMEL
------------------------------------
President and Chief Executive
Officer
Date: March 28, 2001
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of OneSource Information Services,
Inc. hereby severally constitute and appoint Daniel J. Schimmel and Roy D.
Landon, and each of them singly, with full power of substitution, our true and
lawful attorneys-in-fact and agents to sign for us and in our names in the
capacities indicated below, any amendments to this Form 10-K, and generally to
do all things in our names and on our behalf in such capacities to enable
OneSource Information Services, Inc. to comply with the Securities Exchange Act
of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this report on Form 10-K.
SIGNATURE TITLE(S) DATE
--------- -------- ----
/s/ DANIEL J. SCHIMMEL President and Chief Executive Officer March 28, 2001
- ------------------------------------- (principal executive officer)
Daniel J. Schimmel
/s/ ROY D. LANDON Senior Vice President and Chief March 28, 2001
- ------------------------------------- Financial Officer (principal
Roy D. Landon financial officer)
/s/ MARTIN KAHN Director March 28, 2001
- -------------------------------------
Martin Kahn
/s/ CARL P. FISHER Director March 28, 2001
- -------------------------------------
Carl P. Fisher
/s/ GREGG S. NEWMARK Director March 28, 2001
- -------------------------------------
Gregg S. Newmark
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
OneSource Information Services, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
OneSource Information Services, Inc. and its subsidiaries at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 1, 2001
F-1
30
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------
2000 1999
------- -------
ASSETS
Current assets:
Cash and cash equivalents................................. $17,338 $13,598
Accounts receivable, net of allowance for doubtful
accounts of $672 and $348 at December 31, 2000 and
1999, respectively..................................... 19,373 14,420
Restricted time deposit................................... -- 100
Deferred subscription costs............................... 7,281 7,225
Prepaid expenses and other current assets................. 314 272
------- -------
Total current assets................................... 44,306 35,615
Property and equipment, net................................. 5,118 3,422
Goodwill and other intangible assets, net................... 8,103 9,606
Restricted time deposit..................................... 603 603
Other assets................................................ 702 452
------- -------
Total assets...................................... $58,832 $49,698
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations.............. $ 33 $ 205
Accounts payable.......................................... 1,859 1,501
Accrued expenses.......................................... 5,864 4,618
Accrued royalties......................................... 5,494 5,760
Deferred revenues......................................... 29,229 24,222
------- -------
Total current liabilities.............................. 42,479 36,306
Capital lease obligations, net of current portion........... -- 29
------- -------
Total liabilities................................. 42,479 36,335
------- -------
Commitments (Note 14)....................................... -- --
Stockholders' equity:
Preferred stock, $0.01 par value:
1,000,000 shares authorized; no shares issued and
outstanding............................................ -- --
Common stock, $0.01 par value:
20,000,000 shares authorized; 12,158,467 and 10,381,109
shares issued and outstanding at December 31, 2000 and
1999, respectively..................................... 122 104
Additional paid-in capital................................ 30,309 28,504
Unearned compensation..................................... (174) (271)
Accumulated deficit....................................... (14,033) (14,891)
Accumulated other comprehensive income (loss)............. 129 (83)
------- -------
Total stockholders' equity........................ 16,353 13,363
------- -------
Total liabilities and stockholders' equity........ $58,832 $49,698
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
31
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
Revenues:
Web-based product......................................... $47,275 $31,822 $16,058
CD Rom product and other.................................. 4,614 3,726 14,370
------- ------- -------
51,889 35,548 30,428
------- ------- -------
Cost of revenues:
Web-based product......................................... 15,536 13,143 7,863
CD Rom product and other.................................. 2,373 1,666 5,792
------- ------- -------
17,909 14,809 13,655
------- ------- -------
Gross profit.............................................. 33,980 20,739 16,773
------- ------- -------
Operating expenses:
Selling and marketing..................................... 20,519 13,254 11,577
Platform and product development.......................... 8,842 7,996 6,313
General and administrative................................ 5,079 5,474 3,847
Amortization of goodwill and other intangible assets...... 1,503 376 --
------- ------- -------
Total operating expenses............................... 35,943 27,100 21,737
------- ------- -------
Loss from operations................................... (1,963) (6,361) (4,964)
Interest expense............................................ (91) (663) (878)
Interest income............................................. 978 710 283
Gain on sale of product line................................ -- -- 12,797
Other income................................................ 2,000 2,000 --
------- ------- -------
Income (loss) before provision for income taxes........ 924 (4,314) 7,238
Provision for income taxes.................................. 66 133 250
------- ------- -------
Net income (loss)...................................... 858 (4,447) 6,988
Less: income attributable to Class P common stock........... -- -- 1,367
------- ------- -------
Net income (loss) attributable to common stock.............. $ 858 $(4,447) $ 5,621
======= ======= =======
Class P common stock:
Basic and diluted earnings per share...................... $ -- $ -- $ 1.91
Weighted average Class P common shares outstanding........ -- -- 718
Common stock:
Basic earnings (loss) per share........................... $ 0.07 $ (0.50) $ 0.85
Diluted earnings (loss) per share......................... $ 0.06 $ (0.50) $ 0.59
Weighted average common shares outstanding:
Basic.................................................. 11,509 8,822 6,641
Diluted................................................ 13,509 8,822 9,563
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
32
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
CLASS P
COMMON STOCK COMMON STOCK ADDITIONAL
----------------- ------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
-------- ------ ---------- ------ ---------- ------------ -----------
BALANCE, DECEMBER 31, 1997...................... 717,948 $3,528 6,684,959 $ 67 $ 362 $ -- $(17,432)
Comprehensive loss:
Net income...................................... 6,988
Foreign currency translation adjustment.........
Comprehensive income..........................
Issuance of common stock pursuant to exercise of
options....................................... 90,354 1 22
Unearned compensation relating to grants of
stock options................................. 45 (45)
Amortization of unearned compensation relating
to grants of stock options.................... 6
Compensation relating to modification of stock
options on sale of product line............... 295
Reacquisition and retirement of Class P common
stock......................................... (829) (4)
Reacquisition of common stock for treasury......
-------- ------ ---------- ---- ------- ----- --------
BALANCE, DECEMBER 31, 1998...................... 717,119 3,524 6,775,313 68 724 (39) (10,444)
Comprehensive loss:
Net loss........................................ (4,447)
Foreign currency translation adjustment.........
Comprehensive loss............................
Conversion of Class P common stock and the
preference amount to common stock............. (717,119) (3,524) 999,328 10 3,514
Repurchase and retirement of common stock....... (282,209) (3) (3,384)
Retirement of treasury stock.................... (109,890) (1) (5)
Issuance of common stock pursuant to initial
public offering, net of offering costs........ 2,500,000 25 26,890
Unearned compensation relating to grants of
stock options................................. 346 (346)
Amortization of unearned compensation relating
to grants of stock options.................... 114
Issuance of common stock pursuant to exercise of
options....................................... 415,538 4 415
Issuance of common stock pursuant to exercise of
warrants...................................... 83,029 1 4
-------- ------ ---------- ---- ------- ----- --------
BALANCE, DECEMBER 31, 1999...................... -- -- 10,381,109 104 28,504 (271) (14,891)
Comprehensive income:
Net income...................................... 858
Foreign currency translation adjustment.........
ACCUMULATED
OTHER TREASURY STOCK TOTAL
COMPREHENSIVE ----------------- STOCKHOLDERS' COMPREHENSIVE
INCOME (LOSS) SHARES AMOUNT EQUITY (DEFICIT) INCOME (LOSS)
------------- -------- ------ ---------------- -------------
BALANCE, DECEMBER 31, 1997...................... $(132) 102,564 $(6) $(13,613)
Comprehensive loss:
Net income...................................... 6,988 $6,988
Foreign currency translation adjustment......... (6) (6) (6)
------
Comprehensive income.......................... 6,982
======
Issuance of common stock pursuant to exercise of
options....................................... 23
Unearned compensation relating to grants of
stock options................................. --
Amortization of unearned compensation relating
to grants of stock options.................... 6
Compensation relating to modification of stock
options on sale of product line............... 295
Reacquisition and retirement of Class P common
stock......................................... (4)
Reacquisition of common stock for treasury...... 7,326 -- --
----- -------- --- --------
BALANCE, DECEMBER 31, 1998...................... (138) 109,890 (6) (6,311)
Comprehensive loss:
Net loss........................................ (4,447) (4,447)
Foreign currency translation adjustment......... 55 55 55
------
Comprehensive loss............................ (4,392)
======
Conversion of Class P common stock and the
preference amount to common stock............. --
Repurchase and retirement of common stock....... (3,387)
Retirement of treasury stock.................... (109,890) 6 --
Issuance of common stock pursuant to initial
public offering, net of offering costs........ 26,915
Unearned compensation relating to grants of
stock options................................. --
Amortization of unearned compensation relating
to grants of stock options.................... 114
Issuance of common stock pursuant to exercise of
options....................................... 419
Issuance of common stock pursuant to exercise of
warrants...................................... 5
----- -------- --- --------
BALANCE, DECEMBER 31, 1999...................... (83) -- -- 13,363
Comprehensive income:
Net income...................................... 858 858
Foreign currency translation adjustment......... 212 212 212
------
F-4
33
CLASS P
COMMON STOCK COMMON STOCK ADDITIONAL
----------------- ------------------- PAID-IN UNEARNED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
-------- ------ ---------- ------ ---------- ------------ -----------
Comprehensive income..........................
Amortization of unearned compensation relating
to grants of stock options.................... 97
Issuance of common stock pursuant to exercise of
options....................................... 1,341,024 14 1,532
Issuance of common stock pursuant to employee
stock purchase plan........................... 31,184 -- 273
Issuance of common stock pursuant to exercise of
warrants...................................... 405,150 4 --
-------- ------ ---------- ---- ------- ----- --------
BALANCE, DECEMBER 31, 2000...................... -- $ -- 12,158,467 $122 $30,309 $(174) $(14,033)
======== ====== ========== ==== ======= ===== ========
ACCUMULATED
OTHER TREASURY STOCK TOTAL
COMPREHENSIVE ----------------- STOCKHOLDERS' COMPREHENSIVE
INCOME (LOSS) SHARES AMOUNT EQUITY (DEFICIT) INCOME (LOSS)
------------- -------- ------ ---------------- -------------
Comprehensive income.......................... $1,070
======
Amortization of unearned compensation relating
to grants of stock options.................... 97
Issuance of common stock pursuant to exercise of
options....................................... 1,546
Issuance of common stock pursuant to employee
stock purchase plan........................... 273
Issuance of common stock pursuant to exercise of
warrants...................................... 4
----- -------- --- --------
BALANCE, DECEMBER 31, 2000...................... $ 129 -- $-- $ 16,353
===== ======== === ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
34
ONESOURCE INFORMATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
------- ------- --------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows relating to operating activities:
Net income (loss)......................................... $ 858 $(4,447) $ 6,988
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization.......................... 2,521 1,661 1,518
Amortization of goodwill and other intangible assets... 1,503 376 --
Amortization of unearned compensation relating to
grants of stock options.............................. 97 114 6
Amortization of debt discount.......................... -- 52 121
Loss on sale leaseback transaction..................... -- -- 45
Gain on sale of product line........................... -- -- (12,797)
Changes in assets and liabilities, net of effects of
acquisition of Corporate Technology:
Accounts receivable.................................. (5,225) (4,294) (946)
Deferred subscription costs.......................... (56) (563) (2,217)
Prepaid expenses and other assets.................... 1 (266) (43)
Accounts payable..................................... 433 523 (213)
Accrued expenses..................................... 1,281 528 1,075
Accrued royalties.................................... (266) 1,134 2,283
Deferred revenues.................................... 5,472 4,580 5,373
------- ------- --------
Net cash provided (used) by operating
activities...................................... 6,619 (602) 1,193
------- ------- --------
Cash flows relating to investing activities:
Proceeds from (investment in) restricted time deposits.... 100 (603) (100)
Purchases of property and equipment....................... (4,014) (2,759) (1,252)
Capitalization of software development costs.............. (530) (225) (200)
Net proceeds from sale of product line.................... -- -- 10,563
Acquisition of Corporate Technology, net of cash
acquired............................................... -- (7,560) --
------- ------- --------
Net cash provided (used) by investing
activities...................................... (4,444) (11,147) 9,011
------- ------- --------
Cash flows relating to financing activities:
Proceeds from issuance of common stock, net............... 1,823 27,339 23
Repurchase of Class P common stock and common stock....... -- (3,387) (4)
Net repayments under line of credit....................... -- -- (1,183)
Repayments of term loan................................... -- -- (347)
Repayment of long-term debt............................... -- (6,722) --
Proceeds from sale and leaseback of fixed assets.......... -- -- 228
Repayments of capital lease obligations................... (201) (549) (684)
------- ------- --------
Net cash provided (used) by financing
activities...................................... 1,622 16,681 (1,967)
------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (57) 1 87
------- ------- --------
Increase in cash and cash equivalents....................... 3,740 4,933 8,324
Cash and cash equivalents, beginning of year................ 13,598 8,665 341
------- ------- --------
Cash and cash equivalents, end of year...................... $17,338 $13,598 $ 8,665
======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
35
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
OneSource Information Services, Inc. and its wholly-owned subsidiaries
provide Web-based business and financial information to professionals in
corporations and other enterprises and also publishes information on private
technology companies. OneSource primarily sells its products through a direct
sales force located throughout the United States and United Kingdom. OneSource
manages its business as a single segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of OneSource
Information Services, Inc. and its wholly-owned subsidiaries: Corporate
Technology Information Services, Inc. and OneSource Information Services
Limited, (collectively, "OneSource"). All significant intercompany transactions
and balances have been eliminated.
Revenue Recognition
OneSource's products are sold on a subscription basis pursuant to customer
contracts that span varying periods of time but are generally for a period of
one year. OneSource initially records receivables and defers the related revenue
when persuasive evidence of an arrangement exists, fees are fixed or
determinable, and collection is probable. Revenues are recognized ratably over
the related subscription period beginning when access to products is granted to
the customer in accordance with customer agreements.
OneSource also produces print directories on an annual basis. The related
revenue is recognized upon shipment, provided that there is persuasive evidence
of an arrangement, fees are fixed or determinable, and collection is probable.
Subscription Costs
Subscription costs represent sales commission and royalty costs that are
directly associated with securing a subscription and procuring information to be
delivered over the subscription period, respectively. These costs are deferred
and amortized ratably over the associated subscription period as a component of
selling and marketing expense and cost of revenues, respectively. At December
31, 2000 and 1999, deferred subscription costs consisted of $2.1 million and
$1.7 million, respectively, related to sales commissions and $5.2 million and
$5.5 million, respectively, related to royalties.
Cash and Cash Equivalents
Cash equivalents consist of money market funds with original maturities of
three months or less and are stated at cost which approximates fair market
value. These funds are managed by a financial institution with a strong credit
rating. Accordingly, the investments are subject to minimal credit and market
risks.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, generally three to five years, using the straight-line
method. Equipment held under capital leases is stated at the fair value of the
equipment at inception of the leases and is amortized on a straight-line basis
over the term of the leases.
Advertising Costs
OneSource recognizes advertising expense as incurred. Advertising expense
was approximately $87,000, $42,000 and $195,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
F-7
36
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and Other Intangible Assets
Intangible assets consist primarily of goodwill, trademark, non-compete
agreement, subscriber list and a database. Intangible assets are amortized using
the straight-line method over a period of three to seven years, based on the
estimated useful life. The carrying value of the intangible assets is reviewed
on a quarterly basis for the existence of facts or circumstances both internally
and externally that may suggest impairment. To date, no such impairment has
occurred. OneSource determines whether an impairment has occurred based on gross
expected future cash flows and measures the amount of the impairment based on
the related future estimated discounted cash flows. The cash flow estimates used
to determine the impairment, if any, contain management's best estimates, using
appropriate and customary assumptions and projections at the time.
Platform and Product Development and Software Development Costs
Platform and product development costs, other than certain software
development costs, are charged to expense as incurred. In 1999, the Company
adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which requires
research and development costs associated with the application development stage
to be capitalized for internal use software. At December 31, 2000 and 1999,
OneSource had capitalized software development costs pursuant to the above of
$530,000 and $225,000, respectively. For the years ended December 31, 2000, 1999
and 1998, amortization of capitalized software development costs amounted to
$224,000, $229,000 and $198,000, respectively.
Financial Instruments
The carrying amounts reflected in the consolidated balance sheet for cash
and cash equivalents, restricted time deposits, accounts receivable and capital
lease obligations approximate their fair value due to the short term maturities
of these instruments.
Concentration of Credit Risk
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising OneSource's client base. Ongoing
credit evaluations of customers' financial condition are performed and
collateral is generally not required. OneSource maintains reserves for potential
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
Accounting for Stock-Based Compensation
OneSource accounts for stock-based compensation to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and related interpretation. Accordingly, compensation
expense is recorded for options issued to employees in fixed amounts to the
extent that the fixed exercise prices are less than the fair market value of
OneSource's common stock at the date of grant. OneSource follows the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation" (Note
9). All stock-based awards to non-employees are accounted for at their fair
value in accordance with SFAS No. 123.
Earnings Per Share
Earnings per share is computed in accordance with SFAS No. 128, "Earnings
Per Share." SFAS No. 128 requires the presentation of two amounts: basic
earnings per share and diluted earnings per share. Basic earnings per share is
computed by dividing income available to common shareholders by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per share is computed by dividing income available to common
shareholders by the sum of the weighted average number of shares of
F-8
37
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock outstanding during the year and the weighted average number of
potential common stock from the assumed exercise of stock options and warrants
using the treasury stock method.
For the year ended December 31, 1998, the two-class method of computing
earnings per share has been used since the Class P common stock and the common
stock share ratably in earnings remaining subsequent to the 12% yield on the
Class P common stock. Earnings per share of Class P common stock is calculated
by dividing the yield earned and income (loss) attributable to Class P common
stock by the weighted average number of shares of Class P common stock
outstanding during the period.
Foreign Currency Translation
Assets and liabilities of OneSource's United Kingdom operations, where the
local currency is the functional currency, are translated into US dollars at the
exchange rate in effect as of the balance sheet date, while revenues and
expenses are translated at average exchange rates during the period. The
resultant translation adjustment is reflected as a separate component of
stockholders' equity. Transaction gains and losses, which are not material in
amount, are reflected in the consolidated statement of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires OneSource management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities -- an Amendment of
FASB Statement No. 133", which establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. OneSource, to
date, has not engaged in derivative and hedging activities, and accordingly does
not believe that the adoption of SFAS No. 133 will have a material impact on the
financial reporting and related disclosures. OneSource will adopt SFAS No. 133
as required by SFAS No. 137 in fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," as amended by SAB No. 101A and 101B, which was effective no later
than the fourth fiscal quarter of fiscal years beginning after December 15,
1999. SAB No. 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The
application of SAB No.101 did not have a significant impact on OneSource's
financial position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of APB Opinion No. 25." FIN No. 44
primarily clarifies (a) the definition of an employee for purposes of applying
APB Opinion No. 25, (b) the criteria for determining whether a plan qualifies as
a noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN No.
44 was
F-9
38
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
application of FIN No. 44 did not impact OneSource's financial position or
results of operations.
3. ACQUISITION
On October 1, 1999, OneSource acquired Corporate Technology Information
Services, Inc. ("Corporate Technology"), a Delaware corporation located in
Woburn, Massachusetts (the "Acquisition"). Corporate Technology is a provider of
high technology company profiles with a focus on emerging private companies.
Pursuant to the terms of an Agreement and Plan of Merger, the consideration paid
by OneSource was $7.6 million in cash. A portion of the cash consideration is
being held in escrow to be released in accordance with the Agreement and Plan of
Merger and an Escrow Agreement. The Corporate Technology acquisition has been
accounted for under the purchase method of accounting. Accordingly, the purchase
price was allocated based upon an independent professional appraisal of the fair
value of assets acquired and liabilities assumed. The excess of the purchase
price over the fair value of the tangible assets acquired of $1.0 million and
liabilities assumed of $2.5 million totaled $9,982,000. This amount has been
included in goodwill and other intangible assets (Note 4), which are being
amortized using the straight-line method over applicable periods ranging from
three to seven years; related amortization expense totaled $1,503,000 and
$376,000 for the years ended December 31, 2000 and 1999, respectively. The
operating results of Corporate Technology have been included in the financial
statements since the date of the Acquisition.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following:
DECEMBER 31,
-----------------
2000 1999
------- ------
(IN THOUSANDS)
Goodwill.................................................. $ 7,301 $7,301
Non-compete agreement..................................... 400 400
Subscriber list........................................... 1,150 1,150
Database.................................................. 986 986
Trademark................................................. 145 145
------- ------
9,982 9,982
Less: accumulated amortization............................ (1,879) (376)
------- ------
$ 8,103 $9,606
======= ======
F-10
39
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
------------------
2000 1999
------- -------
(IN THOUSANDS)
Office and computer equipment............................ $ 8,824 $ 6,101
Furniture and fixtures................................... 527 273
------- -------
9,351 6,374
Less: accumulated depreciation and amortization.......... (4,233) (2,952)
------- -------
$ 5,118 $ 3,422
======= =======
At December 31, 2000 and 1999, office and computer equipment under capital
leases totaled $623,000 and $837,000, respectively. Related accumulated
amortization of assets under capital leases totaled $602,000 and $651,000 at
December 31, 2000 and 1999, respectively. During the year ended December 31,
1998, OneSource sold and leased back certain computer equipment with a net book
value of $237,000 for cash proceeds of $228,000. During 2000 and 1999, OneSource
retired $991,000 and $3,124,000, respectively, of fully depreciated property and
equipment.
Total depreciation expense for the years ended December 31, 2000, 1999 and
1998 was $2,297,000, $1,432,000 and $1,320,000, respectively.
6. LONG-TERM DEBT
In connection with the acquisition of the business in 1993, OneSource
entered into a subordinated note agreement with the seller with a face amount of
$5.0 million (the "Note"). The Note accrued interest at 8% per annum, payable
annually commencing March 31, 1995 and was discounted to reflect the market rate
of 12% at the time of issuance. The initial discount totaling $938,000 was being
amortized to interest expense over the life of the Note using the effective
interest method. Interest payments were added to the unpaid principal of the
Note annually if OneSource's cash flow, as defined in the Note agreement, was
less than a specified amount.
Upon the completion of the Company's public offering and in accordance with
the Note agreement, OneSource repaid the Note in May 1999 for $6.8 million of
principal and interest. In conjunction with the repayment, OneSource recognized
$272,000 of interest expense, which represented the remaining unamortized
discount on the Note.
7. EARNINGS PER SHARE
The following tables set forth the computation of earnings per share of
common stock and Class P common stock from net income (loss):
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
Numerator for common stock:
Net income (loss)..................................... $ 858 $(4,447) $6,988
Less: income attributable to Class P common stock..... -- -- 1,367
------- ------- ------
$ 858 $(4,447) $5,621
======= ======= ======
F-11
40
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
Denominator for common stock:
Weighted average shares outstanding used for basic
earnings per share.................................. 11,509 8,822 6,641
Effect of dilutive securities:
Stock options......................................... 2,000 -- 2,433
Common stock warrants................................. -- -- 489
------- ------- ------
Weighted average shares outstanding used for diluted
earnings per share.................................. 13,509 8,822 9,563
------- ------- ------
Numerator for Class P common stock:
Yield earned by Class P common stock.................. $ -- $ -- $ 742
Income (loss) attributable to Class P common stock.... -- -- 625
------- ------- ------
$ -- $ -- $1,367
======= ======= ======
For the year ended December 31, 2000, stock options to purchase 1,062,690
shares of common stock were outstanding, 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 common stock during the
year. At December 31, 1999, total potential common stock consist of 3,675,794
stock options outstanding with a weighted average exercise price of $2.72 per
share and 407,000 common stock warrants exercisable at $0.06 per share.
Basic and diluted earnings per share of Class P common stock are the same,
since there are no securities outstanding that would result in a dilution of
Class P common stock.
8. STOCKHOLDERS' EQUITY
In connection with its initial capitalization, OneSource issued 725,274
shares of Class P common stock and 6,527,466 shares of common stock at $4.91 per
share and $0.06 per share, respectively. The holders of the Class P common
stock, as a separate class, were entitled to receive first all or a portion of
any distribution, as defined, until the "preference amount" and the original
issuance cost had been paid in full. The preference amount was 12% compounded
quarterly. After all such payments were made, the holders of the Class P common
stock and of the common stock were entitled to share pro rata in the remaining
portion of the distribution, as a single class. No dividends on either the Class
P common stock or the common stock have been declared or paid, and no payments
of the aggregate yield have been made to the Class P common stockholders. As a
result, the Class P common stock was stated at its original issuance cost of
$4.91 per share. On May 24, 1999, the liquidation preference of these shares was
$6,911,000, consisting of its original issuance cost of $3,524,000 and
accumulated "preference amount" of $3,387,000.
Authorized Shares
The authorized capital stock of OneSource consists of 20,000,000 shares of
common stock, $0.01 par value, and 1,000,000 shares of undesignated preferred
stock, $0.01 par value. Prior to the closing of OneSource's public offering,
OneSource's authorized capital stock consisted of 20,000,000 shares of common
stock, $0.01 par value, and 1,250,000 shares of Class P common stock, $0.01 par
value.
Voting Rights
All holders of common stock are entitled to one vote per share on all
matters to be voted upon by OneSource's stockholders.
F-12
41
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
In connection with the Note agreement (Note 6), OneSource issued a warrant
exercisable at $0.06 per share for 407,000 shares of OneSource's common stock.
This warrant was fully exercised in January 2000.
Public Offering
In May 1999, OneSource completed an initial public offering of 3,636,000
shares of its common stock, of which 2,500,000 shares were issued and sold by
OneSource, for net proceeds of $27.0 million. As a result, all outstanding
shares of Class P common stock were automatically converted into 717,119 shares
of OneSource's common stock.
In conjunction with the initial public offering, OneSource converted the
accumulated "preference amount" on Class P common stock of $3,387,000 into
282,209 shares of common stock based on the public offering price of $12.00 per
share. Subsequently, OneSource repurchased and retired the equivalent number of
common stock shares issued for the preference amount at $12.00 per share.
Reserved Shares
At December 31, 2000, OneSource had reserved 3,832,757 shares of common
stock for issuance upon exercise of common stock options.
9. STOCK PLANS
The 1993 Stock Purchase and Option Plan (the "1993 Plan") provides for the
grant of incentive stock options and non-qualified stock options for the
purchase of up to an aggregate of 4,273,500 shares of OneSource's common stock
by employees, directors, consultants and advisors of OneSource. The Board of
Directors determines the term of each option, option price, number of shares for
which each option is granted, whether restrictions will be imposed on the shares
subject to options, and the vesting schedule of each option. The exercise price
for incentive stock options granted may not be less than the fair value per
share of the underlying common stock on the date granted as determined by the
Board of Directors (not less than 110% of the fair value for options granted to
holders of more than 10% of the voting stock of OneSource). Additionally, the
term of the options cannot exceed ten years (five years for options granted to
holders of more than 10% of the voting stock of OneSource). The options
generally vest over a four-year period. In February 1999, there were no shares
of common stock available for grant under the 1993 Plan.
In February 1999, the Board of Directors of OneSource approved the 1999
Stock Option and Incentive Plan (the "1999 Plan") to be effective upon
OneSource's initial public offering. The 1999 Plan provides for the grant of
stock-based awards to employees, officers and directors of, and consultants or
advisors to, OneSource. A total of 1,800,000 shares of common stock are
authorized for issuance upon the exercise of options or other awards granted
under the 1999 Plan.
In February 1999, the Board of Directors of OneSource approved the 1999
Employee Stock Purchase Plan (the "1999 Purchase Plan"), to be effective upon
OneSource's initial public offering. The 1999 Purchase Plan provides for the
issuance of a maximum of 100,000 shares of common stock.
F-13
42
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions under the 1993 Plan and 1999 Plan during the years ended
December 31, 1998, 1999 and 2000 are summarized as follows:
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
Outstanding -- December 31, 1997............................ 3,606,524 $1.35
Granted (weighted average fair value of $1.13)............ 204,925 2.18
Exercised................................................. (90,354) 0.27
Forfeited................................................. (173,179) 1.34
----------
Outstanding -- December 31, 1998............................ 3,547,916 1.43
Granted (weighted average fair value of $3.81)............ 641,613 9.19
Exercised................................................. (415,538) 0.99
Forfeited................................................. (98,197) 5.44
----------
Outstanding -- December 31, 1999............................ 3,675,794 2.72
Granted (weighted average fair value of $4.32)............ 790,915 8.41
Exercised................................................. (1,341,024) 0.74
Forfeited................................................. (216,584) 8.58
----------
Outstanding -- December 31, 2000............................ 2,909,101 4.53
==========
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:
OPTIONS OUTSTANDING VESTED OPTIONS EXERCISABLE
----------------------------------------- --------------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING PRICE LIFE IN YEARS EXERCISABLE PRICE
------------------------ ----------- --------- ------------- ------------ ----------
$0.12 to 2.19.............. 1,793,015 $ 1.79 4.6 1,793,015 $ 1.79
6.25 to 8.63............... 640,447 7.93 9.2 59,729 7.38
9.75 to 10.50.............. 404,168 10.00 8.8 62,030 9.93
12.00 to 12.13............. 71,471 12.08 8.8 17,866 12.08
--------- ---------
2,909,101 $ 4.54 6.3 1,932,640 $ 2.32
========= =========
As of December 31, 1999 and 1998, 2,732,998 and 2,730,457 options were
exercisable, respectively, under the 1993 and 1999 Plans. As of December 31,
2000, there were 923,656 shares of common stock available for grant under the
1999 Plan.
Fair Value
Compensation expense has been recognized for OneSource's stock option plans
under APB No. 25. Had compensation cost been determined based on the fair value
of the options at the grant date consistent with the
F-14
43
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisions of SFAS No. 123, OneSource's net income (loss) and earnings (loss)
per share on a pro forma basis would be as follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
----- ------- ------
Net income (loss) (in thousands):
As reported............................................... $ 858 $(4,447) $6,988
Pro forma................................................. (214) (4,779) 6,909
Basic and diluted earnings per Class P common share:
As reported............................................... -- -- 1.91
Pro forma................................................. -- -- 1.89
Basic earnings per common share:
As reported............................................... 0.07 (0.50) 0.85
Pro forma................................................. (0.02) (0.54) 0.84
Diluted earnings per common share:
As reported............................................... 0.06 (0.50) 0.59
Pro forma................................................. (0.02) (0.54) 0.58
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------ ------ -----
Expected option term (years).............................. 5.0 5.0 5.0
Risk-free interest rate(%)................................ 6.45 5.60 5.58
Expected volatility(%).................................... 50.00 18.78 --
Dividend yield(%)......................................... -- -- --
Weighted-average fair value of options granted............ $ 4.32 $ 3.81 $1.13
Weighted-average fair value of common stock purchased
under the 1999 Purchase Plan............................ $ 3.02 $ -- $ --
Because options vest over several years and additional option grants are
expected to be made in future years, results of operations for future years may
be materially different if the provisions of SFAS No. 123 are applied.
Compensation Expense
In conjunction with the sale of the CD-Insurance division, OneSource
modified the terms of 226,601 stock options held by terminated employees. In
accordance with APB No. 25, compensation expense of $295,000 was recorded as a
reduction of the gain on the sale of the insurance division in the year ended
December 31, 1998.
During 1998, 203,093 stock options were granted with an exercise price of
$2.19 per share and 1,832 stock options were granted with an exercise price of
$1.37 per share; these exercise prices were below the estimated fair market
value of the common stock at the date of grant. Unearned compensation of $45,000
was recorded, in accordance with APB No. 25, and will be amortized over the
related vesting period.
During 1999, 40,700 stock options were granted with an exercise price of
$2.19 per share and 30,525 stock options were granted with an exercise price of
$5.90 per share; these exercise prices were below the estimated fair market
value of the common stock at the date of grant. Unearned compensation of
$438,000, less $92,000 subsequently forfeited by a terminated employee, was
recorded in accordance with APB No. 25 and will be amortized over the related
vesting period of four years. Related compensation expense of $97,000, $114,000
and $6,000 was recorded during the years ended December 31, 2000, 1999 and 1998,
respectively.
Options issued during 2000 were granted at the fair market value of the
common stock at the grant date.
F-15
44
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Components of the income (loss) before income taxes and of the current
provision for income taxes are as follows:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------- ------- ------
(IN THOUSANDS)
Income (loss) before income taxes:
Domestic................................................. $ 2,788 $(3,832) $7,204
Foreign.................................................. (1,864) (482) 34
------- ------- ------
$ 924 $(4,314) $7,238
------- ------- ------
Current provision for income taxes:
Federal.................................................. $ -- $ -- $ 200
State.................................................... 66 133 45
Foreign.................................................. -- -- 5
------- ------- ------
$ 66 $ 133 $ 250
======= ======= ======
OneSource had no deferred provision for income taxes in each of the years
ended December 31, 2000, 1999 and 1998 due to the offsetting effects of the
valuation allowance on its net deferred tax assets. Provision has not been made
for the United States or additional foreign taxes on undistributed earnings of
foreign subsidiaries as those earnings have been permanently reinvested. Such
taxes, if any, are not expected to be significant.
Income taxes computed using the federal statutory income tax rate differ
from OneSource's effective tax rate primarily due to the following:
YEAR ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------- -------
(IN THOUSANDS)
Income tax expense (benefit) at US federal statutory tax
rate..................................................... $ 314 $(1,467) $ 2,461
State income taxes, net of federal tax effect.............. 44 (156) 508
Permanent items............................................ 389 128 21
Other...................................................... 12 36 36
Change in deferred tax asset valuation allowance........... (693) 1,592 (2,776)
------ ------- -------
Provision for income taxes................................. $ 66 $ 133 $ 250
====== ======= =======
F-16
45
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of OneSource's deferred tax assets and liabilities are as
follows:
DECEMBER 31,
----------------
2000 1999
------ -------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.......................... $5,725 $ 3,138
Depreciation.............................................. 754 618
Accrued expenses.......................................... 513 466
Deferred revenues......................................... -- 1,851
Miscellaneous............................................. 308 182
------ -------
Gross deferred tax asset............................... 7,300 6,255
Less: valuation allowance................................. (5,023) (3,858)
------ -------
Total deferred tax assets.............................. 2,277 2,397
------ -------
Deferred tax liabilities:
Prepaid expenses.......................................... 866 684
Deferred royalties........................................ -- 117
Other intangible assets................................... 863 1,052
Amortization of debt discount............................. 72 72
Capitalized software development costs.................... 129 126
Tax operating leases...................................... 347 346
------ -------
Total deferred tax liabilities......................... 2,277 2,397
------ -------
Net deferred tax assets..................................... $ -- $ --
====== =======
A portion of the net operating loss carryforwards totaling approximately
$7.3 million relates to deductions for the exercise of non-qualified stock
options and will be credited to additional paid-in capital upon realization.
Approximately $533,000 of the valuation allowance relates to deferred tax assets
acquired from Corporate Technology.
Realization of OneSource's net deferred tax assets is contingent upon the
generation of future taxable income. Due to the uncertainty of realization of
these tax benefits, OneSource has provided a valuation allowance for the full
amount of its net deferred tax assets.
As of December 31, 2000, OneSource has federal and state net operating loss
carryforwards of approximately $12.1 million that begin to expire in 2019 and
2004, respectively. As of December 31, 2000 OneSource had net operating loss
carryforwards of $2.4 million for foreign tax purposes which do not expire.
During 1998, OneSource utilized $8.0 million of net operating loss
carryforwards. Under the provisions of the Internal Revenue Code, if certain
substantial changes in OneSource's ownership should occur, the amount of net
operating loss carryforwards which could be utilized annually to offset future
taxable income and income tax liability may be limited. The amount of any annual
limitation is determined based upon OneSource's value prior to an ownership
change.
11. SALE OF PRODUCT LINES
In May 1998, OneSource sold its CD-Insurance division for $11.0 million in
cash and entered a software license agreement for $4.0 million to be received in
equal quarterly installments for two years commencing January 1, 1999 and ending
on December 31, 2000. In connection with the sale, OneSource also entered a
non-compete agreement for five years. As a result of the sale, OneSource
recorded a gain of $12,797,000 which includes: (i) the recognition of $3,124,000
of deferred revenues and $595,000 of deferred subscription costs based upon the
assumption by the buyer of all obligations to service the existing subscriber
base of the
F-17
46
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
insurance division, (ii) $530,000 of employee severance costs and (iii) $202,000
of expenses associated with the sale. Payments pertaining to the software
license agreement were recognized in other income as support services were
performed and payments were made in accordance with the agreement. OneSource
recorded $2.0 million of other income related to the software license agreement
for both years ended December 31, 2000 and 1999.
12. EMPLOYEE BENEFIT PLANS
After three months of service, OneSource employees are eligible to
participate in a tax deferred savings plan (the "Savings Plan") under Section
401(k) of the Internal Revenue Code. OneSource matches 25% of the first 6%
contributed by the employee and the employee becomes fully vested in OneSource's
matching contribution after three years of service. OneSource's contributions to
the Savings Plan totaled $139,000, $133,000 and $120,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
13. RELATED PARTY TRANSACTIONS
At December 31, 2000 and 1999, OneSource had accounts receivable of
$526,000 and $373,000, respectively, due from two stockholders. OneSource
recognized revenue of $563,000, $558,000 and $318,000 in the years ended
December 31, 2000, 1999 and 1998, respectively, from these stockholders.
Management fees paid to a stockholder and an affiliate of another
stockholder for the years ended December 31, 1999 and 1998 were $68,000 and
$200,000, respectively, and are included in general and administrative expenses.
In addition, in 1999 OneSource paid a termination fee of $500,000 to both a
shareholder and an affiliate of another shareholder in conjunction with the
initial public offering.
14. COMMITMENTS
Leases
OneSource leases facilities and certain equipment under various
noncancellable operating lease agreements. Total rent expense under such leases
was $1.5 million, $1.6 million and $1.1 million for the years ended December 31,
2000, 1999, and 1998, respectively. Future minimum lease commitments under all
noncancellable capital and operating leases at December 31, 2000 are as follows:
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(IN THOUSANDS)
2001.......................................... $ 34 $1,334
2002.......................................... -- 1,206
2003.......................................... -- 1,042
2004.......................................... -- 650
2005.......................................... -- 308
---- ------
Total minimum lease payments.................. 34 $4,540
======
Less: amount representing interest............ (1)
----
Current portion of capital lease
obligations................................. $ 33
====
Royalties
OneSource enters into royalty contracts with content providers, which are
generally for a term of at least one year and renew for the same period if not
cancelled or terminated with advance notice. Under these arrangements, royalties
are generally paid on a quarterly basis to content providers. Royalty expense
for the
F-18
47
ONESOURCE INFORMATION SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years ended December 31, 2000, 1999 and 1998 was $11.5 million, $11.3 million
and $10.0 million, respectively. Future minimum royalty payment obligations at
December 31, 2000 are as follows:
ROYALTY
MINIMUMS
--------------
(IN THOUSANDS)
2001....................................................... $4,266
2002....................................................... 1,786
2003....................................................... 200
2004....................................................... 200
2005....................................................... 200
------
Total minimum royalty payments............................. $6,652
======
Restricted Time Deposits
In connection with several facility leases, OneSource is required to
maintain, on behalf of the landlord, irrevocable letters of credit with a bank
in the total amount of $603,000 over the term of the leases. In addition,
OneSource was required to maintain certificates of deposit in equal amounts as
security for the letters of credit.
15. GEOGRAPHIC INFORMATION
Revenue was distributed geographically as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
United States............................................. $41,080 $27,543 $23,428
United Kingdom............................................ 10,809 8,005 7,000
------- ------- -------
$51,889 $35,548 $30,428
======= ======= =======
Substantially all of OneSource's identifiable assets are located in the
United States.
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is the supplemental cash flow information for all periods
presented:
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
----- ----- -----
(IN THOUSANDS)
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 16 $810 $209
Cash paid for taxes....................................... 73 162 175
Noncash investing and financing activities:
Additions to capital lease obligations for purchases of
fixed assets........................................... $ -- $ -- $183
Additions to capital lease obligations for sale and
leaseback of fixed assets.............................. -- -- 228
Additions to long-term debt for accrued interest.......... -- -- 489
Exchange of property and equipment for the retirement of
capital lease obligations.............................. -- -- 41
F-19
48
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of OneSource Information Services, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated February 1, 2001 listed in the index appearing under Item 14(a)(1)
on page 26 also included an audit of the financial statement schedules listed in
Item 14(a)(2) on page 26 of the Form 10-K. In our opinion, these financial
statement schedules presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 1, 2001
S-1
49
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
ONESOURCE INFORMATION SERVICES, INC.
(IN THOUSANDS)
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS(1) PERIOD
----------- ------------ ---------- ------------- ----------
Year ended December 31, 1998
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts.............. $ 210 $ 120 $ 30 $ 300
Deferred tax asset valuation allowance....... $4,544 $ -- $2,776 $1,768
Year ended December 31, 1999
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts.............. $ 300 $ 96 $ 48 $ 348
Deferred tax asset valuation allowance....... $1,768 $2,090 $ -- $3,858
Year ended December 31, 2000
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts.............. $ 348 $ 339 $ 15 $ 672
Deferred tax asset valuation allowance....... $3,858 $1,165 $ -- $5,023
- ---------------
(1) Doubtful accounts written off, net of recoveries.
S-2