**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

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**FORM 10-Q**

 

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 
| **For the quarterly period ended:** |   | **September 30, 2003** |
|-------------------------------------|--------|-----------------------------|
|                                |   |                        |
| **Commission File Number:**         |   | **1-14371**                 |

 

**INFORMATION HOLDINGS INC.**

(Exact name of registrant asspecified in its charter)

 
| **DELAWARE**                                               |   | **06-1518007**                        |
|------------------------------------------------------------|--------|---------------------------------------|
| (State  of incorporation)                                  |   | (IRS  Employer Identification Number) |
|                                                       |   |                                  |
| **2777  Summer Street, Suite 209  Stamford, Connecticut**  |   | **06905**                             |
| (Address of principal executive  offices)                  |   | (Zip Code)                            |
|                                                       |   |
| **(203) 961-9106**                                         |
| (Registrant’s  telephone number, including area code) |

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.                                                                                                                                                                                                                 oYesýNo

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act).                                    ýYeso No

 

As ofNovember 12, 2003, there were 20,874,654 shares of the Company’s commonstock, par value $0.01 per share, outstanding.

 

 

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INFORMATION HOLDINGS INC.

 

INDEX

 
| PART I.  | FINANCIAL INFORMATION                                                                                                                                                   |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                    |
| Item 1.  | Financial Statements:                                                                                                                                                   |
|     |                                                                                                                                                                    |
|     | Consolidated Balance Sheets  As of September 30, 2003 (Unaudited) and December 31, 2002                                                                       |
|     |                                                                                                                                                                    |
|     | Consolidated Statements of Operations  (Unaudited) for the  Three Months Ended September 30, 2003 and 2002 and  Nine Months Ended September 30, 2003 and 2002 |
|     |                                                                                                                                                                    |
|     | Consolidated Statements of Cash Flows  (Unaudited) for the  Nine Months Ended September 30, 2003 and 2002                                                          |
|     |                                                                                                                                                                    |
|     | Notes to Consolidated Financial Statements  (Unaudited)                                                                                                                 |
|     |                                                                                                                                                                    |
| Item 2.  | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                                                             |
|     |                                                                                                                                                                    |
| Item 3.  | Quantitative and Qualitative Disclosures  About Market Risk                                                                                                             |
|     |                                                                                                                                                                    |
| Item 4.  | Controls and Procedures                                                                                                                                                 |
|     |                                                                                                                                                                    |
| PART II. | OTHER INFORMATION                                                                                                                                                       |
|     |                                                                                                                                                                    |
| Item 1.  | Legal Proceedings                                                                                                                                                       |
|     |                                                                                                                                                                    |
| Item 2.  | Changes in Securities and Use of Proceeds                                                                                                                               |
|     |                                                                                                                                                                    |
| Item 5.  | Other  Events                                                                                                                                                           |
|     |                                                                                                                                                                    |
| Item 6.  | Exhibits and Reports on Form 8-K                                                                                                                                        |
|     |                                                                                                                                                                    |
|     | Signature                                                                                                                                                               |

 

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**INFORMATIONHOLDINGS INC.**

*****CONSOLIDATED BALANCE SHEETS**(Inthousands, except share data)*

 
|                                                                                                                                                                            |   | **September 30,  2003** |     | **December 31,  2002** |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|-----------------------------|----------|
|                                                                                                                                                                            |   | **(Unaudited)**              |     |                        |     |
| ***ASSETS***                                                                                                                                                                    |   |                         |     |                        |     |
|                                                                                                                                                                            |   |                         | * * |                        | * * |
| *CURRENT ASSETS:*                                                                                                                                                               |   |                         |     |                        |     |
| Cash and equivalents                                                                                                                                                            |   | $                            | 42,046   |                        | $        | 53,910 |   |
| Short-term investments                                                                                                                                                          |   | 12,361                       |     | 13,056                      |     |
| Restricted cash                                                                                                                                                                 |   | 3,000                        |     | —                      |     |
| Accounts receivable *(net of allowance for doubtful accounts and sales  returns of $717 and $503, respectively)*                                                                |   | 27,107                       |     | 29,375                      |     |
| Prepaid expenses and other current assets                                                                                                                                       |   | 4,285                        |     | 3,940                       |     |
| Deferred income taxes                                                                                                                                                           |   | 4,067                        |     | 4,589                       |     |
| Total assets of discontinued operations                                                                                                                                         |   | —                       |     | 59,653                      |     |
| Total current  assets                                                                                                                                                           |   | 92,866                       |     | 164,523                     |     |
| Investments                                                                                                                                                                     |   | 87,470                       |     | —                      |     |
| Property and equipment, net                                                                                                                                                     |   | 4,573                        |     | 5,837                       |     |
| Identified intangible assets, net                                                                                                                                               |   | 66,315                       |     | 72,309                      |     |
| Goodwill                                                                                                                                                                        |   | 83,140                       |     | 83,099                      |     |
| Other assets                                                                                                                                                                    |   | 3,872                        |     | 3,233                       |     |
|                                                                                                                                                                            |   |                         |     |                        |     |
| TOTAL                                                                                                                                                                           |   | $                            | 338,236  |                        | $        | 329,001 |   |
|                                                                                                                                                                            |   |                         |     |                        |     |
| ***LIABILITIES  AND STOCKHOLDERS’ EQUITY***                                                                                                                                |   |                         |     |                        |     |
|                                                                                                                                                                            |   |                         |     |                        |     |
| *CURRENT LIABILITIES:*                                                                                                                                                          |   |                         |     |                        |     |
| Accounts payable                                                                                                                                                                |   | $                            | 26,542   |                        | $        | 26,224 |   |
| Accrued expenses                                                                                                                                                                |   | 11,299                       |     | 11,098                      |     |
| Accrued income taxes                                                                                                                                                            |   | 8,413                        |     | 2,794                       |     |
| Deferred subscription revenue                                                                                                                                                   |   | 17,791                       |     | 21,129                      |     |
| Total liabilities of discontinued  operations                                                                                                                                   |   | —                       |     | 17,891                      |     |
| Total current  liabilities                                                                                                                                                      |   | 64,045                       |     | 79,136                      |     |
|                                                                                                                                                                            |   |                         |     |                        |     |
| Other long-term liabilities                                                                                                                                                     |   | *—*                     |     | 125                         |     |
| Total liabilities                                                                                                                                                               |   | 64,045                       |     | 79,261                      |     |
|                                                                                                                                                                            |   |                         |     |                        |     |
| *STOCKHOLDERS’ EQUITY:*                                                                                                                                                    |   |                         |     |                        |     |
| Preferred stock,  $.01 par value; 1,000,000 shares authorized; none issued                                                                                                      |   | $                            | —   |                        | $        | — |   |
| Common stock, $.01 par value; authorized  50,000,000 shares; issued 21,880,062 and 21,815,677 shares, respectively;  outstanding 20,872,862 and 21,433,777 shares, respectively |   | 219                          |     | 218                         |     |
| Additional paid-in capital                                                                                                                                                      |   | 247,923                      |     | 247,026                     |     |
| Retained  earnings                                                                                                                                                              |   | 40,115                       |     | 7,097                       |     |
| Treasury stock, at cost, 1,007,200 and  381,900 shares, respectively                                                                                                            |   | (14,723                      | )        | (5,227                      | )        |
| Accumulated other comprehensive income                                                                                                                                          |   | 657                          |     | 626                         |     |
| Total stockholders’ equity                                                                                                                                                 |   | 274,191                      |     | 249,740                     |     |
|                                                                                                                                                                            |   |                         |     |                        |     |
| TOTAL                                                                                                                                                                           |   | $                            | 338,236  |                        | $        | 329,001 |   |

 

*See notes tounaudited consolidated financial statements.*

 

1

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**INFORMATIONHOLDINGS INC.**

 

*CONSOLIDATED STATEMENTS OF OPERATIONS*(Unaudited)*(Inthousands, except per share data)*

* *
|                                                                 |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|----------------------------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
|                                                                 |   | **2003**                                    |   | **2002**                                   |   | **2003** |   | **2002** |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Revenues                                                             |   | $                                           | 20,789 |                                       | $      | 21,663 |   | $ | 64,923 |   | $ | 66,676 |   |
| Cost of  sales                                                       |   | 6,033                                       |   | 6,068                                      |   | 19,156 |   | 17,835 |   |
| Gross profit                                                         |   | 14,756                                      |   | 15,595                                     |   | 45,767 |   | 48,841 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Operating  expenses:                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Selling,  general and administrative                                 |   | 10,928                                      |   | 10,804                                     |   | 32,533 |   | 30,993 |   |
| Depreciation  and amortization                                       |   | 3,092                                       |   | 3,533                                      |   | 9,207 |   | 10,582 |   |
| Impairment  of long-lived assets                                     |   | —                                      |   | 3,063                                      |   | — |   | 3,063 |   |
| Total  operating expenses                                            |   | 14,020                                      |   | 17,400                                     |   | 41,740 |   | 44,638 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Income  (loss) from operations                                       |   | 736                                         |   | (1,805                                     | )      | 4,027 |   | 4,203 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Other income  (expense):                                             |   |                                        |   |                                       |   |   |   |   |   |
| Interest  income                                                     |   | 544                                         |   | 228                                        |   | 1,411 |   | 746 |   |
| Interest  expense                                                    |   | (25                                         | )      | (87                                        | )      | (84 | ) | (264 | ) |
| Early  termination of credit agreement                               |   | —                                      |   | —                                     |   | (575 | ) | — |   |
| Other  (expense) income                                              |   | (3                                          | )      | 11                                         |   | (3 | ) | 8 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Income  (loss) from continuing operations   before income taxes |   | 1,252                                       |   | (1,653                                     | )      | 4,776 |   | 4,693 |   |
| Provision  for (benefit from) income taxes                           |   | 488                                         |   | (674                                       | )      | 1,729 |   | 1,646 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Income (loss)  from continuing operations                            |   | 764                                         |   | (979                                       | )      | 3,047 |   | 3,047 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Income from  discontinued operations, net of income taxes            |   | 388                                         |   | 912                                        |   | 29,971 |   | 2,768 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Net income  (loss)                                                   |   | $                                           | 1,152  |                                       | $      | (67 | ) | $ | 33,018 |   | $ | 5,815 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |   |   |   |   |
| Net income  (loss) per basic common share:                           |   |                                        |   |                                       |   |   |   |   |   |
| Continuing  operations                                               |   | $                                           | 0.04   |                                       | $      | (0.04 | ) | $ | 0.14 |   | $ | 0.14 |   |
| Discontinued  operations                                             |   | $                                           | 0.02   |                                       | $      | 0.04 |   | $ | 1.42 |   | $ | 0.13 |   |
| Net income                                                           |   | $                                           | 0.06   |                                       | $      | 0.00 |   | $ | 1.56 |   | $ | 0.27 |   |
|                                                                 |   |                                        |   |                                       |   |   |   |   |   |
| Net income  (loss) per diluted common share:                         |   |                                        |   |                                       |   |   |   |   |   |
| Continuing  operations                                               |   | $                                           | 0.04   |                                       | $      | (0.04 | ) | $ | 0.14 |   | $ | 0.14 |   |
| Discontinued  operations                                             |   | $                                           | 0.02   |                                       | $      | 0.04 |   | $ | 1.41 |   | $ | 0.13 |   |
| Net income                                                           |   | $                                           | 0.06   |                                       | $      | 0.00 |   | $ | 1.56 |   | $ | 0.27 |   |

 

*See notes to unaudited consolidated financial statements*.

 

2

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**INFORMATION HOLDINGS INC.**

 

##### *CONSOLIDATED STATEMENTS OF CASH FLOWS*(Unaudited)(In thousands)

 
|                                                                               |   | **Nine  Months Ended  September 30,** |   |
|------------------------------------------------------------------------------------|--------|--------------------------------------------|--------|
|                                                                               |   | **2003**                                   |   | **2002** |   |
| CASH FLOWS  FROM OPERATING ACTIVITIES:                                             |   |                                       |   |   |   |
| Net income                                                                         |   | $                                          | 33,018 |   | $ | 5,815 |   |
| Gain on sale  of assets of discontinued operations                                 |   | (30,720                                    | )      | — |   |
| Loss  (income) from discontinued operations                                        |   | 749                                        |   | (2,768 | ) |
| Income from  continuing operations                                                 |   | 3,047                                      |   | 3,047 |   |
|                                                                               |   |                                       |   |   |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |   |                                       |   |   |   |
| Depreciation                                                                       |   | 3,212                                      |   | 3,398 |   |
| Amortization  of other intangible assets                                           |   | 5,995                                      |   | 7,184 |   |
| Change in  deferred income taxes                                                   |   | (892                                       | )      | (1,160 | ) |
| Impairment  of long-lived assets                                                   |   | —                                     |   | 3,063 |   |
| Termination  of credit facility                                                    |   | 494                                        |   | — |   |
| Other                                                                              |   | 254                                        |   | 173 |   |
| Changes in  operating assets and liabilities, net of effect of acquisitions:       |   |                                       |   |   |   |
| Decrease  (increase) in accounts receivable, net                                   |   | 2,268                                      |   | (699 | ) |
| Decrease in  prepaid and other current assets                                      |   | 669                                        |   | 893 |   |
| (Decrease)  increase in accounts payable and accrued expenses                      |   | (1,170                                     | )      | 1,143 |   |
| Income tax  benefit from stock options exercised                                   |   | 125                                        |   | 329 |   |
| Net change  in income taxes (receivable) payable                                   |   | (10,533                                    | )      | 114 |   |
| Decrease in  deferred revenue                                                      |   | (3,338                                     | )      | (804 | ) |
| Net change  in other assets and liabilities                                        |   | (126                                       | )      | (370 | ) |
| Net Cash  Provided by Continuing Operations                                        |   | 5                                          |   | 16,311 |   |
| Net Cash  Provided by Discontinued Operations                                      |   | 907                                        |   | 5,770 |   |
| Net Cash  Provided by Operating Activities                                         |   | 912                                        |   | 22,081 |   |
|                                                                               |   |                                       |   |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES:                                             |   |                                       |   |   |   |
| Net proceeds  from sale of discontinued operations                                 |   | 89,809                                     |   | — |   |
| Acquisitions  of businesses                                                        |   | —                                     |   | (14,043 | ) |
| Purchases of  property and equipment                                               |   | (1,551                                     | )      | (1,858 | ) |
| Proceeds  from maturities of investments held to maturity                          |   | 13,056                                     |   | 8,008 |   |
| Purchase of  investments available for sale                                        |   | (138,797                                   | )      | — |   |
| Proceeds  from sales and maturities of investments available for sale              |   | 38,966                                     |   | — |   |
| Amounts  deposited in escrow fund                                                  |   | (3,000                                     | )      | — |   |
| Capitalized  software development cost                                             |   | (1,142                                     | )      | (589 | ) |
| Capitalized  internal-use software                                                 |   | (380                                       | )      | (243 | ) |
| Proceeds  from disposal of property and equipment                                  |   | —                                     |   | 51 |   |
| Net Cash  Used in Continuing Operations                                            |   | (3,039                                     | )      | (8,674 | ) |
| Net Cash  Used in Discontinued Operations                                          |   | (801                                       | )      | (3,819 | ) |
| Net Cash  Used in Investing Activities                                             |   | (3,840                                     | )      | (12,493 | ) |
|                                                                               |   |                                       |   |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES:                                             |   |                                       |   |   |   |
| Common stock  issued from stock options exercised                                  |   | 773                                        |   | 786 |   |
| Purchase of  treasury stock                                                        |   | (9,496                                     | )      | — |   |
| Principal  payments on capital leases                                              |   | (107                                       | )      | (99 | ) |
| Net Cash  (Used in) Provided by Continuing Operations                              |   | (8,830                                     | )      | 687 |   |
| Net Cash  Used in Discontinued Operations                                          |   | (106                                       | )      | (263 | ) |
| Net Cash  (Used in) Provided by Financing Activities                               |   | (8,936                                     | )      | 424 |   |
|                                                                               |   |                                       |   |   |   |
| NET  (DECREASE) INCREASE IN CASH AND EQUIVALENTS                                   |   | (11,864                                    | )      | 10,012 |   |
|                                                                               |   |                                       |   |   |   |
| CASH AND  EQUIVALENTS AT BEGINNING OF PERIOD                                       |   | 53,910                                     |   | 38,612 |   |
|                                                                               |   |                                       |   |   |   |
| CASH AND  EQUIVALENTS AT END OF PERIOD                                             |   | $                                          | 42,046 |   | $ | 48,624 |   |

 

*See notes to unaudited consolidated financial statements.*

 

3

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**INFORMATION HOLDINGS INC.**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

# **A.**                                    BASIS OF PRESENTATION

# ** **

The consolidated balance sheet of InformationHoldings Inc. (IHI, or the Company) at December 31, 2002 has been derivedfrom IHI’s Annual Report on Form 10-K for the year then ended as adjusted toreflect the disposition of CRC (as defined in Note C – *Discontinued Operations*).  All other consolidated financial statementscontained herein have been prepared by IHI and are unaudited.  These consolidated financial statementsshould be read in conjunction with the consolidated financial statements forthe year ended December 31, 2002 and the notes thereto contained in IHI’sAnnual Report on Form 10-K.

 

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with the instructions toForm 10-Q and Article 10 of Regulation S-X, and do not include allinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  However, in the opinion of management, theaccompanying unaudited consolidated financial statements contain alladjustments, consisting of normal recurring adjustments, necessary to presentfairly the consolidated financial position of IHI as of September 30,2003, and the consolidated results of operations and cash flows for the periodspresented herein.  Operating results forthe three and nine months ended September 30, 2003 are not necessarilyindicative of the results that may be expected for the year endedDecember 31, 2003.

 

On April 8, 2003, the Company soldsubstantially all of the assets and liabilities of its wholly owned subsidiaryCRC (See Note C – *Discontinued Operations*).  Accordingly, for financial statementpurposes, the assets, liabilities, results of operations and cash flows of thiscomponent have been segregated from those of continuing operations and arepresented in the Company’s financial statements as discontinued operations forall periods presented herein.

 

***Stock-based Compensation -***The Company grants stock options for a fixed numberof shares to employees with an exercise price equal to the fair value of theshares at the date of grant.  TheCompany accounts for its stock option grants under the provisions of AccountingPrinciples Board Opinion No. 25 - *Accountingfor Stock Issued to Employees,*which utilizes the intrinsic valuemethod.  Since stock options are grantedby the Company with exercise prices equal to the market price of the underlyingstock at the date of grant, no compensation expense has been recognized.

 

InDecember 2002, The Financial Accounting Standards Board (FASB) issued SFASNo. 148 - *Accounting for Stock-BasedCompensation - Transition and Disclosure, an amendment of SFAS No. 123*(SFASNo. 148).  This statement amends SFASNo. 123 - *Accounting for Stock-BasedCompensation*(SFAS No. 123), to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation, and requires prominent disclosures ininterim and annual financial statements.

 

4

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# ** **

Had compensation cost for theCompany’s stock option plan been determined based on the fair value of theoptions at the dates of grant consistent with the requirements of SFAS No. 148and SFAS No. 123, the Company’s net income (loss) and earnings (loss) per sharewould have been the pro forma amounts indicated below:

 
|                                                                                                                             |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
| **(In thousands, except per share data):**                                                                                       |   | **2003**                                    |   | **2002**                                   |   | **2003** |   | **2002** |   |
|                                                                                                                             |   |                                        |   |                                       |   |   |   |   |   |
| Net income (loss) as reported                                                                                                    |   | $                                           | 1,152  |                                       | $      | (67 | ) | $ | 33,018 |   | $ | 5,815 |   |
| Deduct: Total stock-based employee expense  determined under fair value based method for all awards, net of related tax  effects |   | (996                                        | )      | (1,011                                     | )      | (2,920 | ) | (2,786 | ) |
| Pro forma                                                                                                                        |   | $                                           | 156    |                                       | $      | (1,078 | ) | $ | 30,098 |   | $ | 3,029 |   |
|                                                                                                                             |   |                                        |   |                                       |   |   |   |   |   |
| Basic and diluted earnings (loss) per common  share:                                                                             |   |                                        |   |                                       |   |   |   |   |   |
| As reported                                                                                                                      |   | $                                           | 0.06   |                                       | $      | 0.00 |   | $ | 1.56 |   | $ | 0.27 |   |
| Pro forma                                                                                                                        |   | $                                           | 0.01   |                                       | $      | (0.05 | ) | $ | 1.42 |   | $ | 0.14 |   |

 

The effects on pro forma net income(loss) and earnings (loss) per share of expensing the estimated fair value ofstock options are not necessarily representative of the effects on reported netincome  (loss) for future years due tosuch factors as the vesting period of the stock options and the potential forissuance of additional stock options in future years.

 

**B**.                                    **INVESTMENTS**

 

DuringAugust 2003, the Company entered into a taxable fixed income portfolioprogram (the Investment Program) in order to increase investment returns oncash not immediately needed in operations. The portfolio is held in custody by a major financial institution and,in accordance with guidelines set forth by the Company, consists of U.Sdenominated taxable fixed income securities with maximum effective maturitiesof three years.  The Company accountsfor its investments in accordance with SFAS No. 115 - *Accounting for Certain Investments in Debt and EquitySecurities*.  As ofSeptember 30, 2003, the Company classified its investments asavailable-for-sale securities.  Thesesecurities are primarily comprised of U.S. government notes, collateralizedmortgage obligations, and corporate notes and bonds.  Prior to August 2003, the Company invested primarily inshort-term commercial paper classified as investments held to maturity.

 

5

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Securities withoriginal maturities of one year or less are classified as short-terminvestments.  Securities with original maturitiesof longer than one year are classified as long-term if the Company has theability and the intent to hold the securities more than one year, and areincluded in Investments on the accompanying Consolidated Balance Sheet.  Securities are carried at fair value.  Unrealized holding gains and losses, net ofthe related tax effect, are excluded from earnings and reported as a separatecomponent of stockholders’ equity until realized (See Note G – *Comprehensive Income*).  Dividend and interest income, includingamortization of premiums and discounts arising at acquisition, are included inearnings.  The following tablesummarizes the Company’s investments: 

 
|                                                              |   | **September 30,  2003** |   |
|-------------------------------------------------------------------|--------|------------------------------|--------|
| **(In thousands)**                                                |   | **Amortized  Cost**          |   | **Gross  Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Estimated  Fair  Value** |   | **Maturities  In Months** |   |
| *Available-for-sale securities*  *(carried  at fair value):* |   |                         |   |   |   |   |   |   |   |   |   |
| U.S. government notes                                             |   | $                            | 41,007 |   | $ | 287 |   | $ | — |   | $ | 41,294 |   | 11-36 |   |
| Collateralized mortgage obligations                               |   | 6,102                        |   | 99 |   | — |   | 6,201 |   | 13-27 |   |
| Corporate notes and bonds                                         |   | 52,017                       |   | 322 |   | (3 | ) | 52,336 |   | 11-36 |   |
|                                                              |   |                         |   |   |   |   |   |   |   |   |   |
| Total                                                             |   | $                            | 99,126 |   | $ | 708 |   | $ | (3 | ) | $ | 99,831 |   |   |   |
|                                                              |   |                         |   |   |   |   |   |   |   |   |   |
| Reported as:                                                      |   |                         |   |   |   |   |   |   |   |   |   |
| Short-term investments                                            |   |                         |   |   |   |   |   | $ | 12,361 |   |   |   |
| Investments                                                       |   |                         |   |   |   |   |   | 87,470 |   |   |   |
|                                                              |   |                         |   |   |   |   |   |   |   |   |   |
| Total                                                             |   |                         |   |   |   |   |   | $ | 99,831 |   |   |   |
|                                                                   |        |                              |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                                                                |   | **December 31,  2002** | *** *** |
|---------------------------------------------------------------------|--------|-----------------------------|--------------|
| **(In thousands)**                                                  |   | **Amortized  Cost**         |         | **Gross  Unrealized  Gains** |   | **Gross  Unrealized  Losses** |   | **Estimated  Fair  Value** |   | **Maturities  In Months** | *** *** |
| *Held-to-maturity securities*  *(carried  at amortized cost):* |   |                        |         |   |   |   |   |   |   |   |   |
| Commercial paper                                                    |   | $                           | 12,556       |   | $ | — |   | $ | — |   | $ | 12,556 |   | 3-6 |   |
| Corporate bonds                                                     |   | 500                         |         | — |   | — |   | 500 |   | 6 |   |
|                                                                |   |                        |         |   |   |   |   |   |   |   |   |
| Total                                                               |   | $                           | 13,056       |   | $ | — |   | $ | — |   | $ | 13,056 |   |   |   |
|                                                                |   |                        |         |   |   |   |   |   |   |   |   |
| Reported as:                                                        |   |                        |         |   |   |   |   |   |   |   |   |
| Short-term investments                                              |   |                        |         |   |   |   |   | $ | 13,056 |   |   |   |
| Investments                                                         |   |                        |         |   |   |   |   | — |   |   |   |
|                                                                |   |                        |         |   |   |   |   |   |   |   |   |
| Total                                                               |   |                        |         |   |   |   |   | $ | 13,056 |   |   |   |
|                                                                     |        |                             |              |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

6

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Proceeds fromsales of available-for-sale securities were approximately $33.0 million for thethree and nine months ended September 30, 2003.  Realized gains and losses on sales of its available-for-salesecurities were not material in the three and nine months endedSeptember 30, 2003.  The Companyuses the specific identification method to account for gains and losses onavailable-for-sale securities.

 

DuringAugust 2003, and resulting from the Company’s newly implemented InvestmentProgram, securities with a net carrying amount of approximately $12.4 millionwere transferred from the held-to-maturity classification to securitiesavailable-for-sale.  The grossunrealized loss related to the transferred securities amounted to approximately$97,000.

 

**C.**                                    DISCONTINUED OPERATIONS

** **

On February 27, 2003, the Companyentered into a definitive purchase agreement (the Purchase Agreement) to sellsubstantially all of the assets and certain liabilities of its wholly ownedsubsidiaries CRC Press LLC (CRC Press), CRC Press (U.K.) LLC and ParthenonPublishing Group, Inc. (together, CRC), to CRC Press I LLC and Routledge No. 2Limited, both wholly owned subsidiaries of Taylor & Francis Group plc(together, the Buyer).

 

CRC comprised the entirety of the Company’sscientific and technology information (STI) segment.  Subsequent to the date of sale, the Company will no longer haveoperations in the STI segment.  Inaccordance with SFAS No. 144 – *Accountingfor the Impairment or Disposal of Long-Lived Assets*, all assets,liabilities, results of operations and cash flows of this component have beensegregated from those of continuing operations and are presented in theCompany’s September 30, 2003 financial statements as discontinuedoperations.  Additionally, the Company’sfinancial statements have been reclassified to reflect the STI segment as adiscontinued operation for all periods presented (See Note F - *Segment Information*).

 

The transaction was completed on April 8, 2003.  During the second quarter the Companyreceived net proceeds of approximately $92 million, representing the cashconsideration for the assets sold less deal related expenses paid throughJune 30, 2003.  Subsequent toJune 30, 2003, and in accordance with the Purchase Agreement, the saleprice was adjusted based on the closing balance sheet of CRC.  This adjustment resulted in a third quarterpayment to the Buyer in the amount of approximately $2 million.  Approximately $3 million of the proceeds isbeing held in escrow related to representations and warranties contained in thePurchase Agreement.  These proceeds willbecome available to the Company in April 2004 unless the Buyer assertsclaims under the Purchase Agreement. All proceeds held in escrow will remain classified as Restricted cash onthe accompanying Consolidated Balance Sheet until made available to theCompany.

 

The Company recognized a gain of $30.7 million, net of income taxesassociated with the transaction of $16.0 million, which was recorded as part ofdiscontinued operations.

 

7

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** **

Summaryoperating results for the discontinued STI operations follow:

 
|                                                       |   | **Three Months  Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|------------------------------------------------------------|--------|---------------------------------------------|--------|-------------------------------------------|--------|
| **(In thousands)**                                         |   | **2002**                                    |   | *** 2003**                                |   | **2002** |   |
|                                                       |   |                                        |   |                                      |   |   |   |   |   |   |
| Revenues                                                   |   | $                                           | 12,922 |                                      | $      | 10,976 |   | $ | 36,842 |   |
|                                                       |   |                                        |   |                                      |   |   |   |
| Pre-tax income  (loss) from discontinued operations   |   | 1,407                                       |   | (1,126                                    | )      | 4,260 |   |
| (Provision for) benefit from  income taxes                 |   | (495                                        | )      | 377                                       |   | (1,492 | ) |
| Net income (loss) from  discontinued operations            |   | 912                                         |   | (749                                      | )      | 2,768 |   |
| Gain on  disposal of discontinued operations, net of taxes |   | —                                      |   | 30,720                                    |   | — |   |
| Income from discontinued  operations                       |   | $                                           | 912    |                                      | $      | 29,971 |   | $ | 2,768 |   |

 

----

*Reflects results through disposal on April 8, 2003.

 

Duringthe three months ended September 30, 2003, the Company recorded a gain onthe disposal of discontinued operations, net of taxes, of $388,000.

 

Summarizedunaudited balance sheet information for the discontinued STI operations asincluded within the accompanying Consolidated Balance Sheet atDecember 31, 2002 consists of the following:

 
| **(In thousands)**                            |   |   |   |
|-----------------------------------------------|--------|--------|--------|
|                                          |   |   |   |
| Assets:                                       |   |   |   |
| Current  assets                               |   | $      | 21,348 |   |
| Property and  equipment, net                  |   | 2,109  |   |
| Identified  intangible assets, net            |   | 28,130 |   |
| Goodwill,  net                                |   | 5,868  |   |
| Other  long-term assets                       |   | 2,198  |   |
| Total assets  of discontinued operations      |   | $      | 59,653 |   |
|                                          |   |   |   |
| Liabilities:                                  |   |   |   |
| Current  liabilities                          |   | $      | 14,529 |   |
| Long-term  liabilities                        |   | 3,362  |   |
| Total  liabilities of discontinued operations |   | $      | 17,891 |   |

 

8

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**D.****                                    EARNINGS(LOSS) PER SHARE DATA**

 

The following table sets forth the denominators usedin computing basic and diluted earnings (loss) per common share for the periodsindicated:

 
|                                                                            |   | **Three Months Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|---------------------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
| **(In thousands)**                                                              |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
|                                                                            |   |                                       |   |                                      |   |   |   |   |   |
| Weighted average common shares  outstanding:                                    |   |                                       |   |                                      |   |   |   |   |   |
| Basic                                                                           |   | 20,872                                     |   | 21,814                                    |   | 21,159 |   | 21,794 |   |
| Net effect of dilutive stock  options – based on the treasury stock method |   | 39                                         |   | —                                    |   | 35 |   | 138 |   |
| Diluted                                                                         |   | 20,911                                     |   | 21,814                                    |   | 21,194 |   | 21,932 |   |

 

During the first nine months of 2003, employeesexercised stock options to acquire 64,385 shares at an exercise price of $12.00per share.  For the three and ninemonths ended September 30, 2003, 881,276 and 918,276 stock options,respectively, were excluded from the computation of diluted earnings per commonshare due to their antidilutive effect. For the three and nine months ended September 30, 2002, 1,263,795and 703,398 stock options, respectively, were excluded from the computation ofdiluted earnings per common share due to their antidilutive effect.

 

**E.**                                      ACQUISITIONS

** **

On May 9, 2002, the Company acquiredsubstantially all of the assets of Aurigin Systems, Inc. (Aurigin) for cashconsideration of approximately $14,043,000 including the assumption of certainliabilities.  Aurigin provides intellectualproperty management systems used primarily by corporations to search, analyze,annotate and group patent information, as well as proprietary corporatedata.  The purchase price was allocatedto net tangible liabilities of $1,553,000,identified intangible assets of $1,600,000 and tax-deductible goodwill of $13,996,000.  TheCompany has obtained an independent appraisal of the fair value of theidentified intangible assets and their remaining useful lives (six years).

 

The Aurigin acquisition has been accounted for using the purchase methodof accounting and, accordingly, the results of its operations have beenincluded in the Company’s results of operations from its date of acquisition.

 

9

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** **

The following unaudited pro forma information presents the results ofcontinuing operations of the Company, as if the 2002 acquisition of Aurigin hadtaken place as of January 1, 2002:

 

| **(In thousands, except per share data)** |   | **Nine Months  Ended  September 30,  2002** |   |
|-------------------------------------------|--------|--------------------------------------------------|--------|
|                                      |   |                                             |   |
| Revenues                                  |   | $                                                | 68,756 |   |
| Net income                                |   | $                                                | 2,904  |   |
| Basic earnings per common share           |   | $                                                | 0.13   |   |
| Diluted earnings per common share         |   | $                                                | 0.13   |   |

 

These pro forma results of operations have been prepared for comparativepurposes only and do not purport to be indicative of the operating results thatwould have occurred had the acquisitions been consummated as of the above date,nor are they necessarily indicative of future operating results.

 

**F.****                                     ****SEGMENT INFORMATION**

 

As of September 30***,*** 2003, the Company has two reportable segmentscontributing to its results from continuing operations: data and software.  The data segment, which includesMicroPatent, Master Data Center (MDC) and IDRAC, provides a broad array ofdatabases, information products and complementary services for intellectualproperty and regulatory professionals. The software segment, which includes Liquent and Transcender, providessoftware and related services in the life science and IT learning markets.  Liquent is a leading provider of lifescience content assembly and publishing solutions, while Transcender is aleading online provider of IT certification test-preparation products.  The Other reportable segment includesunallocated corporate items.  Corporateassets consist principally of cash and equivalents, investments and deferredincome taxes.

 

As ofDecember 31, 2002, the date of the Company’s most recently filed AnnualReport on Form 10-K, the Company had three reportable segments: intellectualproperty (IP), which included MicroPatent, MDC, Liquent and IDRAC; informationtechnology learning (ITL), which included Transcender; and scientific andtechnology information (STI), comprised solely of its wholly owned subsidiaryCRC.

 

In February 2003, the Company determined toexit the STI segment and, on February 27, 2003, the Company entered into aPurchase Agreement to sell substantially all of the assets and certainliabilities of CRC to CRC Press I LLC and Routledge No. 2 Limited, both whollyowned subsidiaries of Taylor & Francis Group plc (See Note C - *Discontinued Operations*).  The transaction was completed onApril 8, 2003.

 

10

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In September 2003, the Company changed thecomposition of its remaining segments from IP and ITL to data and software tomore accurately reflect the way management operates the Company and assessesthe Company’s performance.  All corresponding items of segment information forearlier presented periods have been restated for comparative purposes.

 

The following tables set forth theinformation for the Company’s reportable segments of continuing operations forthe periods indicated:

 
|                              |   | **Three Months  Ended  September 30, 2003** |   | **Three Months  Ended  September 30, 2002** |   |
|-----------------------------------|--------|--------------------------------------------------|--------|--------------------------------------------------|--------|
|                              |   | **Segment**                                      |   | **Segment**                                      |   |
| **(In thousands)**                |   | **Data**                                         |   | **Software**                                     |   | **Other** |   | **Data** |   | **Software** |   | **Other** |   |
|                              |   |                                             |   |                                             |   |   |   |   |   |   |   |   |   |
| Revenues from external customers  |   | $                                                | 14,478 |                                             | $      | 6,296 |   | $ | 15 |   | $ | 12,496 |   | $ | 9,115 |   | $ | 52 |   |
| EBITDA                            |   | 5,957                                            |   | (1,069                                           | )      | (986 | ) | 1,429 |   | 1,467 |   | (1,079 | ) |
| Income (loss) from operations     |   | 3,831                                            |   | (2,104                                           | )      | (991 | ) | (667 | ) | (40 | ) | (1,098 | ) |
| Segment assets excluding goodwill |   | 109,133                                          |   | 20,011                                           |   | 125,952 |   | 117,355 |   | 32,456 |   | 40,541 |   |
| Goodwill                          |   | 43,898                                           |   | 39,242                                           |   | — |   | 43,937 |   | 69,142 |   | — |   |
|                                   |        |                                                  |        |                                                  |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                              |   | **Nine Months  Ended  September 30, 2003** |   | **Nine Months  Ended  September 30, 2002** |   |
|-----------------------------------|--------|-------------------------------------------------|--------|-------------------------------------------------|--------|
|                              |   | **Segment**                                     |   | **Segment**                                     |   |
| **(In thousands)**                |   | **Data**                                        |   | **Software**                                    |   | **Other** |   | **Data** |   | **Software** |   | **Other** |   |
|                              |   |                                            |   |                                            |   |   |   |   |   |   |   |   |   |
| Revenues from external customers  |   | $                                               | 42,687 |                                            | $      | 22,214 |   | $ | 22 |   | $ | 36,313 |   | $ | 30,260 |   | $ | 103 |   |
| EBITDA                            |   | 17,117                                          |   | 169                                             |   | (4,402 | ) | 11,370 |   | 6,825 |   | (3,324 | ) |
| Income (loss) from operations     |   | 10,824                                          |   | (2,936                                          | )      | (3,861 | ) | 5,255 |   | 2,328 |   | (3,380 | ) |
| Segment assets excluding goodwill |   | 109,133                                         |   | 20,011                                          |   | 125,952 |   | 117,355 |   | 32,456 |   | 40,541 |   |
| Goodwill                          |   | 43,898                                          |   | 39,242                                          |   | — |   | 43,937 |   | 69,142 |   | — |   |
|                                   |        |                                                 |        |                                                 |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

During the fourth quarter of 2002, theCompany recorded a pre-tax impairment charge of approximately $36.2 millionrelated to the carrying value of goodwill and other intangible assets in itssoftware segment related to Transcender, thus resulting in a decrease inrelated amortization expense recorded during the nine months ended September 30,2003.

 

11

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The Company evaluates theperformance of its segments based primarily on revenues and EBITDA (earningsbefore interest, taxes, depreciation and amortization).  The Company believes that EBITDA is the mostuseful measure of business unit earnings because it more closely approximatesthe cash generating ability of each business compared to income (loss) fromoperations.  Income (loss) fromoperations includes charges for depreciation and amortization, the majority ofwhich relate to amortization of intangibleassets.  The Company generally does notincur capital expenditures to replace intangible assets within existingoperations.  A reconciliation of EBITDAto income (loss) from operations for each segment follows:

 
|                                   |   | **Three  Months Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|----------------------------------------|--------|---------------------------------------------|--------|-------------------------------------------|--------|
| **(In thousands)**                     |   | **2003**                                    |   | **2002**                                  |   | **2003** |   | **2002** |   |
|                                   |   |                                        |   |                                      |   |   |   |   |   |
| *Data segment*                         |   |                                        |   |                                      |   |   |   |   |   |
| EBITDA                                 |   | $                                           | 5,957  |                                      | $      | 1,429 |   | $ | 17,117 |   | $ | 11,370 |   |
| Amortization  of capitalized software  |   | (2                                          | )      | (17                                       | )      | (11 | ) | (17 | ) |
| Depreciation  and amortization         |   | (2,133                                      | )      | (2,079                                    | )      | (6,309 | ) | (6,098 | ) |
| Other  expense                         |   | 9                                           |   | —                                    |   | 27 |   | — |   |
| Income  (loss) from operations         |   | $                                           | 3,831  |                                      | $      | (667 | ) | $ | 10,824 |   | $ | 5,255 |   |
|                                   |   |                                        |   |                                      |   |   |   |   |   |
| *Software segment*                     |   |                                        |   |                                      |   |   |   |   |   |
| EBITDA                                 |   | $                                           | (1,069 | )                                         | $      | 1,467 |   | $ | 169 |   | $ | 6,825 |   |
| Amortization  of capitalized software  |   | (75                                         | )      | (61                                       | )      | (217 | ) | (61 | ) |
| Depreciation  and amortization         |   | (954                                        | )      | (1,435                                    | )      | (2,864 | ) | (4,425 | ) |
| Other income                           |   | (6                                          | )      | (11                                       | )      | (24 | ) | (11 | ) |
| (Loss)  income from operations         |   | $                                           | (2,104 | )                                         | $      | (40 | ) | $ | (2,936 | ) | $ | 2,328 |   |
|                                   |   |                                        |   |                                      |   |   |   |   |   |
| *Other*                                |   |                                        |   |                                      |   |   |   |   |   |
| EBITDA                                 |   | $                                           | (986   | )                                         | $      | (1,079 | ) | $ | (4,402 | ) | $ | (3,324 | ) |
| Depreciation  and amortization         |   | (5                                          | )      | (19                                       | )      | (34 | ) | (59 | ) |
| Early  termination of credit agreement |   | —                                      |   | —                                    |   | 575 |   | — |   |
| Other  expense                         |   | —                                      |   | —                                    |   | — |   | 3 |   |
| Loss from  operations                  |   | $                                           | (991   | )                                         | $      | (1,098 | ) | $ | (3,861 | ) | $ | (3,380 | ) |

** **

12

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For informational purposes, detailed below arehistorical quarterly results, restated to reflect the Company’s currentreportable segments:

 
|                             |   | **Three Months  Ended  June 30, 2003** |   | **Three Months  Ended  June 30, 2002** |   |
|----------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|--------|
|                             |   | **Segment**                                 |   | **Segment**                                 |   |
| **(In thousands)**               |   | **Data**                                    |   | **Software**                                |   | **Other** |   | **Data** |   | **Software** |   | **Other** |   |
|                             |   |                                        |   |                                        |   |   |   |   |   |   |   |   |   |
| Revenues from external customers |   | $                                           | 14,394 |                                        | $      | 7,525 |   | $ | 7 |   | $ | 12,689 |   | $ | 10,055 |   | $ | 37 |   |
| EBITDA                           |   | 5,609                                       |   | 309                                         |   | (1,417 | ) | 5,098 |   | 2,412 |   | (1,089 | ) |
| Income (loss) from operations    |   | 3,524                                       |   | (702                                        | )      | (1,426 | ) | 3,010 |   | 917 |   | (1,106 | ) |
|                                  |        |                                             |        |                                             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
|                             |   | **Three Months  Ended  March 31, 2003** |   | **Three Months  Ended  March 31, 2002** |   |
|----------------------------------|--------|----------------------------------------------|--------|----------------------------------------------|--------|
|                             |   | **Segment**                                  |   | **Segment**                                  |   |
| **(In thousands)**               |   | **Data**                                     |   | **Software**                                 |   | **Other** |   | **Data** |   | **Software** |   | **Other** |   |
|                             |   |                                         |   |                                         |   |   |   |   |   |   |   |   |   |
| Revenues from external customers |   | $                                            | 13,815 |                                         | $      | 8,393 |   | $ | — |   | $ | 11,128 |   | $ | 11,090 |   | $ | 14 |   |
| EBITDA                           |   | 5,551                                        |   | 929                                          |   | (1,999 | ) | 4,843 |   | 2,946 |   | (1,156 | ) |
| Income (loss) from operations    |   | 3,469                                        |   | (130                                         | )      | (1,444 | ) | 2,912 |   | 1,451 |   | (1,176 | ) |
|                                  |        |                                              |        |                                              |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**G.**                                    COMPREHENSIVE INCOME

** **

The following table is areconciliation of the Company’s net income to comprehensive income:

 
|                                                                 |   | **Three Months Ended  September 30,** |   | **Nine Months Ended  September 30,** |   |
|----------------------------------------------------------------------|--------|--------------------------------------------|--------|-------------------------------------------|--------|
| **(In thousands)**                                                   |   | **2003**                                   |   | **2002**                                  |   | **2003** |   | **2002** |   |
|                                                                 |   |                                       |   |                                      |   |   |   |   |   |
| Net income  (loss)                                                   |   | $                                          | 1,152  |                                      | $      | (67 | ) | $ | 33,018 |   | $ | 5,815 |   |
| Other  comprehensive income (loss):                                  |   |                                       |   |                                      |   |   |   |   |   |
| Net  unrealized gain on available-for-sale investments, net of taxes |   | 437                                        |   | —                                    |   | 437 |   | — |   |
| Foreign  currency translation adjustment                             |   | 3                                          |   | 145                                       |   | (406 | ) | 64 |   |
| Comprehensive  income                                                |   | $                                          | 1,592  |                                      | $      | 78 |   | $ | 33,049 |   | $ | 5,879 |   |

 

13

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**H.*****                                   *TREASURY STOCK**

 

On October 28, 2002, theCompany announced that its Board of Directors authorized the Company torepurchase up to $30,000,000 of its common stock.  Subsequently, on July 9, 2003, it was announced that theCompany’s Board of Directors had approved an increase in the previouslyauthorized share buyback program from $30,000,000 to $50,000,000.

 

The purchases may be made from timeto time on the open market or in negotiated transactions in compliance withRule 10b-18 of the Securities Exchange Act of 1934, as amended.  The authorization to repurchase the Company’scommon stock will remain in effect until the Company’s Chief Executive Officerdeems it appropriate to terminate the repurchase program.  Treasury stock purchases are accounted forunder the cost method whereby the entire cost of the acquired stock is recordedas treasury stock.  As of September 30,2003, the Company repurchased a total of 1,007,200 shares of common stockpursuant to the repurchase authorization at a total cost of $14,723,000.

 

**J.****                                      IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS**

 

In April 2003, the FASB issuedSFAS No. 149 - *Amendment of Statement 133 onDerivative Instruments and Hedging Activities*(SFAS No. 149).  SFAS No. 149 amends and clarifies theaccounting for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities under SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*.  SFAS No. 149 isgenerally effective for contracts entered into or modified after June 30,2003 and for hedging relationships designated after June 30, 2003.  The adoption of SFAS No. 149 on July 1,2003, as required, had no impact on the Company’s consolidated financialstatements.

 

In May 2003, the FASB issuedSFAS No. 150 - *Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity*(SFASNo. 150).  SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  SFAS No. 150 requires that certain financialinstruments be classified as liabilities that were previously consideredequity.  The adoption of this standardon July 1, 2003, as required, had no impact on the Company’s consolidatedfinancial statements.

 

14

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**INFORMATIONHOLDINGS INC.**

** **

MANAGEMENT’SDISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

**Item2***.**           **Management’s Discussion and Analysisof Financial Condition and Results of Operations***

 

*The followingdiscussion and analysis presents a review of the Company for the three and ninemonths ended September 30, 2003 and 2002. This review should be read in conjunction with the consolidatedfinancial statements and notes presented herein as well as Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in the Company’s 2002 Annual Report on Form 10-K.*

 

**Overview**

 

*Impact of Acquisitions and Divestitures*

 

A key component of the Company’s historical growth has been to pursueacquisitions where opportunities exist to internally grow the acquiredcompanies’ revenues and increase profitability through operatingefficiencies.  Since beginningoperations in January 1997, the Company has completed 14 substantialacquisitions, including seven in the data segment, two in the software segment andfive in the former scientific and technology information segment, as well assome minor acquisitions that are not otherwise disclosed herein.

 

As of December 31, 2002, the date of the Company’s most recentlyfiled Annual Report on Form 10-K, the Company had three reportable segments:intellectual property (IP), which included MicroPatent, Master Data Center(MDC), Liquent and IDRAC; information technology learning (ITL), which includedTranscender; and scientific and technology information (STI), comprised solelyof its wholly owned subsidiary CRC.

 

On April 8, 2003, the Company completed the sale of CRC Press andits subsidiaries (together, CRC), comprising the entirety of its STIsegment.  For the periods presentedherein, results for this segment have been recorded as discontinued operations.

 

In September 2003, theCompany changed the composition of its remaining segments from IP and ITL todata and software to more accurately reflect the way management operates theCompany and assesses the Company’s performance.  The data segment includes MicroPatent, MDC and IDRAC.  The software segment includes Transcenderand Liquent.  All corresponding items ofsegment information for earlier presented periods have been restated forcomparative purposes.

 

The Company is currently negotiating certain acquisition transactionswhich may or may not be successfully concluded. Any additional acquisitionsthat are completed will further the Company's growth and operating strategies.If the Company acquires additional businesses, its sales mix, market focus,cost structure and operating leverage may change significantly.  Consequently, the Company’s historical andfuture results of operations reflect and will reflect the impact of acquisitions,and period-to-period comparisons may not be meaningful in some respects.  Historical information for companiessubsequent to their acquisition may include integration and other costs thatare not expected to continue in the future.

 

15

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**ConsolidatedResults of Operations**

 

*Three Months Ended September 30, 2003 Compared to Three MonthsEnded September 30, 2002*

 

*Summary*

* *

Revenues decreased $0.9 million, or 4%, to $20.8 million from $21.7million.  Revenues decreased by $2.8million, or 31%, in the software segment, partially offset by an increase of$2.0 million, or 16%, in the data segment. Gross profits decreased by $0.8 million, or 5%, with gross profitmargins declining to 71.0% from 72.0%. The decrease in gross margins is due primarily to lower software licenserevenues in the Company’s Liquent unit based on the significant gross profitcontribution of incremental license revenues. Selling, general and administrative expenses (SG&A) increased by$0.1 million, or 1%, due primarily to severance charges recorded at theCompany’s Liquent unit during the third quarter of 2003, partially offset by areduction in operating expenses resulting from cost containment initiatives atthe Company’s Transcender unit. Depreciation and amortization decreased by $0.4 million, or 12%, dueprimarily to decreased amortization of intangible assets in the Company’sTranscender unit following an impairment charge recorded in the fourth quarterof fiscal 2002.  During the thirdquarter of 2002, the Company recorded an impairment charge of approximately$3.1 million related to its investment in GSI Office Management GmbH (the GSICharge).  Based on the factors above,income (loss) from operations increased $2.5 million, to $0.7 million from$(1.8) million.

 

Net interest income increased $0.4 million to $0.5 million from $0.1million due primarily to increased interest income earned on invested cashproceeds received from the sale of CRC and a cessation of finance costamortization following the termination of the Company’s creditfacility in March 2003.

 

The provision for (benefit from) income taxes as a percentage ofpre-tax income (loss) was approximately 39% in the third quarter of 2003,compared to approximately (41%) in the third quarter of 2002.  The effective tax rate differs fromstatutory rates primarily as a result of state, local and foreign income taxes,and amortization of intangible assets that is not tax deductible.

 

Income (loss) from continuing operations approximated $0.8 million, or$0.04 per diluted common share, in the third quarter of 2003, compared to$(1.0) million, or $(0.04) per diluted common share, in the third quarter of2002.

 

Income from discontinued operations approximated $0.4 million, or $0.02per diluted common share, in the third quarter of 2003, compared to $0.9million, or $0.04 per diluted common share, in the third quarter of 2002.  Income recorded during the third quarter of2003 reflects an adjustment to the recorded gain on the sale of CRC based onCRC’s closing date balance sheet. Income recorded during the third quarter of 2002 reflects normaloperations of the discontinued STI segment for that period.

 

16

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The Company evaluates theperformance of its segments based primarily on revenues and EBITDA (earningsbefore interest, taxes, depreciation and amortization).  The Company believes that EBITDA is the mostuseful measure of business unit earnings because it more closely approximatesthe cash generating ability of each business compared to income (loss) fromoperations.  Income (loss) fromoperations includes charges for depreciation and amortization, the majority ofwhich relate to amortization of intangible assets.  The Company generally does not incur capital expenditures toreplace intangible assets within existing operations.

 

**SegmentReview**

 

*Data*

* *

Revenues increased $2.0 million, or 16%, to $14.5 million from $12.5million.  The strongest areas of revenuegrowth included:  revenues from patentinformation subscriptions at MicroPatent resulting from strong growth in coresubscriptions; intellectual property management services at MDC; and databasesubscriptions at IDRAC.

 

Income (loss) from operations increased $4.5 million to $3.8 millionfrom $(0.7) million.  The increase isprimarily the result of increases at MicroPatent and MDC, due to the revenueincreases noted above and relatively stable operating expenses, coupled withthe impact of the $3.1 million GSI Charge recorded during the third quarter of2002.  EBITDA increased $4.5 million to$6.0 million from $1.4 million.  EBITDAmargins approximated 41% in the third quarter of 2003, compared to 11% in thethird quarter of 2002.  The mostsignificant factors in the increase were the growth in segment revenues and theimpact of GSI Charge recorded during the third quarter of 2002.

 

*Software*

* *

Revenues decreased $2.8 million, or 31%, to $6.3million from $9.1 million.  Revenues inthis segment have been adversely impacted by difficult software marketconditions.  Revenues declined atLiquent, both with respect to software license sales and services, whileTranscender license sales declined due to unfavorable product release cyclesfor IT certifications.

 

Loss from operations in this segment increased $2.1 million to $2.1 millionin the third quarter of 2003.  Loss fromoperations increased at Liquent, due primarily to the revenue decreases notedabove and severance charges of $0.7 million incurred in the third quarter of2003.  Loss from operations alsoincreased at Transcender due primarily to decreased profit contribution fromlower revenues, partially offset by lower amortization of intangible assets anda reduction in operating expenses resulting from cost containmentinitiatives.  EBITDA in this segmentdecreased $2.5 million to $(1.1) million from $1.5 million.  EBITDA margins approximated (17%) in thethird quarter of 2003, compared to 16% in the third quarter of 2002.  The most significant factor in the decreasewas the decline in revenues as noted above.

 

17

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*Nine Months Ended September 30, 2003 Compared to Nine Months EndedSeptember 30, 2002*

 

*Summary*

* *

Revenues decreased $1.8 million, or 3%, to $64.9 million from $66.7million.  Revenues decreased by $8.0million, or 27%, in the software segment, partially offset by an increase of$6.4 million, or 18%, in the data segment. Gross profits decreased by $3.1 million, or 6%, with gross profitmargins declining to 70.5% from 73.3%. The decrease in gross margins is due primarily to lower software licenserevenues in the Company’s Liquent unit, based on the significant gross profitcontribution of incremental license revenues. SG&A increased by $1.5 million, or 5%, due primarily to costsrelated to Aurigin Systems, which was acquired in May 2002.  SG&A decreased in the software segmentbased on cost containment initiatives at the Company’s Transcender unit,partially offset by severance charges recorded at the Company’s Liquent unitduring the third quarter of 2003. Depreciation and amortization decreased by $1.4 million, or 13%, dueprimarily to decreased amortization of intangible assets in the Company’sTranscender unit following an impairment charge recorded in the fourth quarterof fiscal 2002.  During the first ninemonths of 2002, the Company recorded a GSI Charge of approximately $3.1million.  Based on the factors above,income from operations decreased by $0.2 million, or 4%, to $4.0 million from$4.2 million.

 

During the first nine months of 2003, the Company incurred costs ofapproximately $0.6 million associated with the early termination of a creditagreement.  There were no outstandingborrowings under the credit agreement. The credit agreement was terminated to facilitate the sale of CRC.  Under the terms of the credit facility, theassets of CRC and other IHI subsidiaries had been pledged as security.  The early termination costs includeapproximately $0.5 million for the write-off of unamortized fees, representinga non-cash charge.

 

Net interest income increased $0.8 million to $1.3 million from $0.5million due primarily to increased interest income earned on invested cashproceeds received from the sale of CRC and a cessation of finance costamortization following the termination of the Company’s creditfacility in March 2003.

 

The provision for income taxes as a percentage of pre-tax income wasapproximately 36% in the first nine months of 2003, compared to approximately35% in the first nine months of 2002. The effective tax rate differs from statutory rates primarily as aresult of state, local and foreign income taxes, and amortization of intangibleassets, which is not tax deductible.

 

Income from continuing operations remained stable at approximately $3.0million, or $0.14 per diluted common share, in the first nine months of 2003and 2002.

 

Income from discontinued operations approximated $30.0 million, or$1.41 per diluted common share, in the first nine months of 2003, compared to$2.8 million, or $0.13 per diluted common share, in the first nine months of2002.  Income from discontinuedoperations increased primarily as the result of a recorded gain on sale ofCRC.  The gain totaled $30.7 million,net of income taxes associated with the transaction of $16.0 million.

 

18

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**SegmentReview**

 

*Data*

* *

Revenues increased $6.4 million, or 18%, to $42.7 million from $36.3million.  The strongest areas of revenuegrowth included:  revenues from patentinformation subscriptions at MicroPatent, both as a result of the acquisitionof Aurigin in May 2002 and strong growth in core subscriptions;intellectual property management services at MDC; and database subscriptions atIDRAC.

 

Income from operations increased $5.6 million to $10.8 million from$5.3 million.  Income from operationsincreased at MicroPatent due primarily to the revenue increases noted above,partially offset by costs associated with Aurigin.  Income from operations increased at MDC due to strong revenuegrowth and relatively stable operating expenses, coupled with the impact of theGSI Charge recorded during the third quarter of 2002.  EBITDA increased $5.7 million, or 51%, to $17.1 million from$11.4 million.  EBITDA margins approximated40% in the first nine months of 2003, compared to 31% in the first nine monthsof 2002.  The most significant factorsin the increase were the growth in segment revenues and impact of the GSICharge.

 

*Software*

* *

Revenues decreased $8.0 million, or 27%, to $22.2million from $30.3 million.  Revenues inthis segment have been adversely impacted by difficult software marketconditions.  Revenues declined atLiquent, both with respect to software license sales and services, whileTranscender license sales declined due to unfavorable product release cyclesfor IT certifications.

 

(Loss) income from operations in this segment decreased $5.3 million to$(2.9) million from $2.3 million. Income from operations decreased at Liquent due primarily to the revenuedecreases noted above and severance charges of $0.7 million recorded in thethird quarter of 2003.  Income fromoperations decreased at Transcender due primarily to decreased profitcontribution from lower revenues, partially offset by lower amortization ofintangible assets and a reduction in operating expenses resulting from costcontainment initiatives.  EBITDA in thissegment decreased $6.7 million, or 98%, to $0.2 million from $6.8 million.  EBITDA margins approximated 1% in the firstnine months of 2003, compared to 23% in the first nine months of 2002.  The most significant factor in the decreasewas the decline in revenues as noted above.

 

19

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*Reconciliation ofSegment EBITDA to Income (Loss) from Operations*

* *

A reconciliation of EBITDA toincome (loss) from operations for each segment follows:

 
|                                   |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|----------------------------------------|--------|---------------------------------------------|--------|--------------------------------------------|--------|
| **(In thousands)**                     |   | **2003**                                    |   | **2002**                                   |   | **2003** |   | **2002** |   |
|                                   |   |                                        |   |                                       |   |   |   |   |   |
| *Data segment*                         |   |                                        |   |                                       |   |   |   |   |   |
| EBITDA                                 |   | $                                           | 5,957  |                                       | $      | 1,429 |   | $ | 17,117 |   | $ | 11,370 |   |
| Amortization  of capitalized software  |   | (2                                          | )      | (17                                        | )      | (11 | ) | (17 | ) |
| Depreciation  and amortization         |   | (2,133                                      | )      | (2,079                                     | )      | (6,309 | ) | (6,098 | ) |
| Other  expense                         |   | 9                                           |   | —                                     |   | 27 |   | — |   |
| Income  (loss) from operations         |   | $                                           | 3,831  |                                       | $      | (667 | ) | $ | 10,824 |   | $ | 5,255 |   |
|                                   |   |                                        |   |                                       |   |   |   |   |   |
| *Software segment*                     |   |                                        |   |                                       |   |   |   |   |   |
| EBITDA                                 |   | $                                           | (1,069 | )                                          | $      | 1,467 |   | $ | 169 |   | $ | 6,825 |   |
| Amortization  of capitalized software  |   | (75                                         | )      | (61                                        | )      | (217 | ) | (61 | ) |
| Depreciation  and amortization         |   | (954                                        | )      | (1,435                                     | )      | (2,864 | ) | (4,425 | ) |
| Other income                           |   | (6                                          | )      | (11                                        | )      | (24 | ) | (11 | ) |
| (Loss)  income from operations         |   | $                                           | (2,104 | )                                          | $      | (40 | ) | $ | (2,936 | ) | $ | 2,328 |   |
|                                   |   |                                        |   |                                       |   |   |   |   |   |
| *Other*                                |   |                                        |   |                                       |   |   |   |   |   |
| EBITDA                                 |   | $                                           | (986   | )                                          | $      | (1,079 | ) | $ | (4,402 | ) | $ | (3,324 | ) |
| Depreciation  and amortization         |   | (5                                          | )      | (19                                        | )      | (34 | ) | (59 | ) |
| Early  termination of credit agreement |   | —                                      |   | —                                     |   | 575 |   | — |   |
| Other  expense                         |   | —                                      |   | —                                     |   | — |   | 3 |   |
| Loss from  operations                  |   | $                                           | (991   | )                                          | $      | (1,098 | ) | $ | (3,861 | ) | $ | (3,380 | ) |

 

20

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**Liquidityand Capital Resources**

 

On April 8, 2003, theCompany completed the sale of CRC and received net proceeds of approximately$90 million, representing the cash consideration for the assets sold less dealrelated expenses paid through September 30, 2003.  The Company estimates that approximately$0.7 million in deal related costs will be paid subsequent toSeptember 30, 2003.  Approximately$3 million of the proceeds is being held in escrow related to representationsand warranties contained in the purchase agreement.  These proceeds will become available to the Company inApril 2004 unless the buyer asserts claims under the purchase agreement.  All proceeds held in escrow will remainclassified as restricted cash until made available to the Company.  The proceeds from the sale of the STIsegment, net of income taxes associated with the transaction, will be used tofinance future acquisitions and for general corporate purposes.  The Company currently does not have anybinding agreements with respect to any prospective material acquisitions.  Pending such uses, the proceeds will beinvested in accordance with the Company’s Investment Program (as defined inNote B - *Investments*).

 

In March 2000, the Company sold 4.5 million shares of its commonstock and received approximately $155 million of net proceeds.  As of September 30, 2003, proceeds ofapproximately $148 million have been used from this offering to fundacquisitions.

 

The Company’s Board ofDirectors authorized a share repurchase program in October 2002, enablingthe Company to repurchase up to $30 million of its common stock.  In July 2003, the Company’s Board ofDirectors approved an increase in the previously authorized share buybackprogram from $30 million to $50 million. Through November 12, 2003, the Company had purchased approximately$14.7 million of its common stock.  TheCompany may use up to an additional $35.3 million of cash and equivalents inthe future to purchase additional shares of its common stock.

 

Cash and equivalents, includingshort-term investments, totaled $54.4 million at September 30, 2003compared to $67.0 million at December 31, 2002.  During 2003, the Company received net cash proceeds ofapproximately $90 million from the disposition of its STI segment.  As a result, the Investment Programinitiated in August 2003 by the Company includes investments of $87.5million with maturities of 12 to 36 months.  These investments are comprised of U.S. government notes,collateralized mortgage obligations, and corporate notes and bonds.  Excluding cash, cash equivalents andshort-term investments, the Company’s continuing operations had a workingcapital deficit of $(25.6) million at September 30, 2003 compared to aworking capital deficit of $(23.3) million at December 31, 2002.  The Company receives patent annuity paymentsand subscription payments in advance and is, therefore, expected to maintainvery low or negative working capital balances, excluding cash and short-terminvestments.  Included in currentliabilities at September 30, 2003, are obligations related to patentannuity payments of approximately $25.1 million and deferred revenue ofapproximately $17.8 million.

 

21

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Cash generated from operating activities of continuing operations was$0.0 million for the nine months ended September 30, 2003, derived fromincome of $3.0 million plus non-cash charges of $9.1 million and a decrease innet operating liabilities of $12.1 million during the period.  The decrease in net operating liabilities isprimarily the result of payments for federal income taxes, the timing of the recognitionof deferred subscription revenue, and the timing of accounts payable andaccrued expense liabilities.  Thesedecreases were partially offset by decreased accounts receivable, primarilyrelated to the timing of and the increase in the number of patent annuitypayments at MDC.

 

Cash used in investing activities from continuing operations was $3.0million for the nine months ended September 30, 2003 due primarily to anincrease in investment purchases, net of sales and maturities, of $86.8million, offset by net the proceeds received from the sale of CRC ofapproximately $90 million, less $3 million deposited in escrow funds.  Capital expenditures, including capitalizedsoftware costs, approximated $3.1 million in the first nine months of 2003.  Excluding acquisitions of businesses, the Company’sexisting operations are not capital intensive.

 

Cash used in financing activities from continuing operations was $8.8million for the nine months ended September 30, 2003.  During 2003, the Company repurchased sharesof its common stock at a cost of $9.5 million, which was partially offset bynet cash proceeds received from the issuance of common stock from stock optionexercises of $0.8 million.

 

Total cash provided by discontinued operations was immaterial in theperiod ended September 30, 2003.  Totalcash from operating activities was $0.9 million, offset by capital spending ofapproximately $0.8 million, including purchases of equipment and capitalizedpre-publication costs and $0.1 million in payments of capital leases.

 

The Company believes that cash on hand and funds generated fromoperations will be sufficient to fund the cash requirements of its existingoperations for the foreseeable future. The Company currently has no commitments for material capitalexpenditures or binding agreements with respect to any prospective materialacquisitions.  The Company may choose toobtain additional capital or financing to consummate future acquisitions.  Future operating requirements and capitalneeds may be subject to economic conditions and other factors, many of whichare beyond the Company’s control.

 

22

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**Seasonality**

 

The Company does not believeits businesses have significant seasonality. The Company may experience fluctuations in revenues from period toperiod based on the timing of acquisitions, new product launches and the timingof license sales.

 

**Effectsof Inflation**

 

The Company believes thatinflation has not had a material impact on the results of operations presentedherein.

 

**CriticalAccounting Policies**

 

*Investments*- During August 2003, the Company entered into a taxable fixed incomeportfolio program in order to increase investment returns on cash notimmediately needed in operations.  TheCompany accounts for its investments in accordance with SFAS No. 115 - *Accounting for Certain Investments in Debt and EquitySecurities*.  As ofSeptember 30, 2003, the Company classified its investments asavailable-for-sale securities.  Thesesecurities are primarily comprised of U.S. government notes, collateralizedmortgage obligations, and corporate notes and bonds.  Securities with original maturities of one year or less areclassified as short-term investments. Securities with original maturities of longer than one year areclassified as long-term if the Company has the ability and the intent to holdthe securities more than one year. Securities are carried at fair value. Unrealized gains and losses, net of the related tax effect, are excludedfrom earnings and reported as a separate component of shareholders’ equityuntil realized.  Dividend and interestincome, including amortization of premiums and discounts arising atacquisition, are included in earnings.  The Companyuses the specific identification method to account for realized gains and losseson available-for-sale securities.

 

The Company’s accountingpolicies are disclosed in the Company’s 2002 Annual Report on Form 10-K.  Other than with respect to investments, aspresented above, there have been no material changes to these policies duringthe first nine months of 2003.

 

**Impactof Recent Accounting Pronouncements**

 

In April 2003, the FASBissued SFAS No. 149 - *Amendment of Statement133 on Derivative Instruments and Hedging Activities*(SFAS No.149).  SFAS No. 149 amends and clarifiesthe accounting for derivative instruments, including certain derivativeinstruments embedded in other contracts, and for hedging activities under SFASNo. 133, *Accounting for DerivativeInstruments and Hedging Activities*. SFAS No. 149 is generally effective for contracts entered into ormodified after June 30, 2003 and for hedging relationships designatedafter June 30, 2003.  The adoptionof SFAS No. 149 on July 1, 2003, as required, had no impact on the Company’sconsolidated financial statements.

 

In May 2003, the FASBissued SFAS No. 150 - *Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity*(SFASNo. 150).  SFAS No. 150 establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity.  SFAS No. 150 requires that certain financialinstruments be classified as liabilities that were previously consideredequity.  The adoption of this standardon July 1, 2003, as required, had no impact on the Company’s consolidatedfinancial statements.

 

23

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**Forward-LookingStatements**

 

Certain statements in thisreport contain forward-looking statements, including, without limitation,statements relating to the Company’s plans, strategies, objectives,expectations, and intentions that are made pursuant to the “safe harbor”provisions of the Private Securities Litigation Reform Act of 1995.  Readers are cautioned that forward-lookingstatements contained in this Form 10-Q should be read in conjunction with theCompany’s disclosures under the heading*Important Factors Relating to Forward-LookingStatements*contained in the Company’s 2002 Annual Report on Form10-K.

 

**Item 3.****           Quantitative andQualitative Disclosure About Market Risk**

 

*Interest Rate Risk* - During August 2003,the Company entered into a taxable fixed income portfolio program in order toincrease investment returns on cash not immediately needed in operations.  The Company classifies its investments asavailable-for-sale securities. Available-for-sale securities are of investment grade and are primarilycomprised of U.S. government notes, collateralized mortgage obligations, andcorporate notes and bonds, all with varying maturities.  Unrealized holding gains and losses, net ofthe related tax effect, are excluded from earnings and reported as a separatecomponent of stockholders’ equity until realized.  At any time, a sharp rise in interest rates could have a materialadverse impact on the fair value of the Company’s investment portfolio.  Conversely, declines in interest rates couldhave a material favorable impact on interest earnings from the Company’sinvestment portfolio.  We do notcurrently hedge these interest rate exposures.

 

Prior tothe termination of the Credit Facility in March 2003, the Companywas subject to market risks arising from changes in interest rates.  Interest rate exposure resulted from changesin the Eurodollar or the prime rate, which were used to determine the interestrate applicable to borrowings under the Credit Facility.  The Company had no outstanding borrowingsunder the Credit Facility at any time since its inception.

 

*Foreign Currency ExchangeRate Risk*-**The financial statements of the Company’sforeign subsidiaries are translated from the local currency into U.S.dollars.  Assets and liabilities aretranslated using current exchange rates, except certain accounts ofsubsidiaries whose functional currency is the U.S. dollar, and translationadjustments are accumulated in a separate component of stockholders’equity.  Revenue and expenses aretranslated at average monthly exchange rates, and translation adjustments arecharged and credited to income.  As such, theCompany’s operating results are affected by fluctuations in the value of theU.S. dollar compared to the British pound and the Euro.  During the three and nine monthsended September 30, 2003, the Company’s operating results include aforeign exchange losses of $43,000 and $49,000, respectively.

 

A subsidiary of the Companyroutinely enters into forward contracts to acquire various internationalcurrencies in an effort to hedge foreign currency transaction exposures of itsoperations.  Such forward contracts havebeen designated as hedges for future annual patent payments to relatedinternational regulatory agencies.  AtSeptember 30, 2003, the subsidiary of the Company had entered into forwardcontracts to acquire various international currencies, all having maturities ofless than seven months, aggregating approximately $25,325,000.  Realized gains and losses relating to theforward contracts were immaterial for the three and nine months endedSeptember 30, 2003.

 

The Company has only limited involvement withderivative financial instruments and does not use them for trading purposes.

 

24

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**Item4.****           Controls and Procedures**

 

As of September 30, 2003,an evaluation was performed under the supervision and with the participation ofthe Company’s management, including the Chief Executive Officer (CEO) and ChiefFinancial Officer (CFO), of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures pursuant to Rules 13a-14(e)and 15d-14(e) under the Exchange Act. Based on that evaluation, the Company’s management, including the CEOand CFO, concluded that the Company’s current disclosure controls andprocedures were effective as of September 30, 2003.   There have been no significant changes inthe Company’s internal controls over financial reporting during the most recentquarter that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal controls over financial reporting.

 

25

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**INFORMATION HOLDINGS INC.**

 

**PARTII. OTHER INFORMATION**

 

**Item 1.****          ****Legal Proceedings**

** **

There have been no materialdevelopments in the legal proceedings reported in the Company’s Annual Reportof Form 10-K for the year ended December 31, 2002.

 

**Item2.****           Changes in Securitiesand Use of Proceeds**

 

The following report relates to the Company’s secondary public stockoffering:

 
| Commission file number of registration  statement:        |   | 333-30202           |        |
|-----------------------------------------------------------|--------|---------------------|-------------|
| Effective Date:                                           |   | March 14, 2000 |        |
|                                                      |   |                |        |
| Expenses incurred through  September 30, 2003:       |   |                |        |
| Underwriting discounts                                    |   | $                   | 8,595,000   |   |
| Other expenses                                            |   | $                   | 522,000     |   |
| Total expenses                                            |   | $                   | 9,117,000   |   |
|                                                      |   |                |        |
| Application of proceeds through  September 30, 2003: |   |                |        |
| Acquisitions of businesses, titles and  equity interests  |   | $                   | 147,828,000 |   |
| Temporary investments (Money market funds)                |   | $                   | 7,172,000   |   |

 

**Item5.****          ****OtherEvents**

** **

OnNovember 6, 2003, the employment agreement of Aneel M. Pandey, ChiefExecutive Officer of the Company’s Transcender unit, expired.

 

26

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**Item6.****           Exhibits and Reports onForm 8-K**

 
| (a)    |   | Exhibits                                                                                                                                                                                                      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                          |
| 10.22  |   | Amendment to Employment  Agreement, dated as of September 2, 2003, between Information Holdings  Inc. and Jay Nadler                                                                                     |
|   |   |                                                                                                                                                                                                          |
| 31.1   |   | Certification by Chief  Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange  Act of 1934, as amended                                                                                   |
|   |   |                                                                                                                                                                                                          |
| 31.2   |   | Certification by Chief  Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange  Act of 1934, as amended                                                                                   |
|   |   |                                                                                                                                                                                                          |
| 32.1   |   | Certification by Chief  Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                                                                                                                          |
| (b)    |   | Reports on Form 8-K                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                          |
|   |   | None                                                                                                                                                                                                          |

 

27

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**SIGNATURE**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934, asamended, the registrant has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 
|   | INFORMATION HOLDINGS INC.                                                              |
|--------|----------------------------------------------------------------------------------------|
|   |                                                                                   |
|   |                                                                                   |
| Date:  | November 12,  2003                                                                |   | By: | /s/Vincent A. Chippari |   |
|   | Vincent A. Chippari                                                                    |
|   | Executive Vice President and Chief  Financial Officer                                  |
|   |                                                                                   |
|   | Signing on behalf of the registrant and  as principal financial and accounting officer |
|        |                                                                                        |  |  |  |  |

 

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