**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

**(MarkOne)**

 
| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                       |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                                         |
| ** ** | **For the Quarterly Period Ended September 30,  2004**                                                                                                                                                             |
| ** ** | ** **                                                                                                                                                                                                         |
| ** ** | **OR**                                                                                                                                                                                                             |
| ** ** | ** **                                                                                                                                                                                                         |
| **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                      |
| ** ** | ** **                                                                                                                                                                                                         |
| ** ** | **For the transition  period from                 to                ** |

 

**Commission File No.  1-14371**

 

**INFORMATION HOLDINGS INC.**

(Exact name of Registrant asspecified in its charter)

 
| **Delaware**                                                     | ** ** | **06-1518007**                      |
|------------------------------------------------------------------|------------|-------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |       | (IRS  Employer  Identification No.) |
|                                                             |       |                                |
| **2777  Summer Street, Suite 602  Stamford, Connecticut**        | ** ** | **06905**                           |
| (Address  of principal executive offices)                        |       | (Zip  Code)                         |

 

**(203) 961-9106**

(Registrant’s telephonenumber, including area code)

 

Indicateby check 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 during thepreceding 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.                                                      ý Yes o No

 

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

ý Yes o No  

 

As of November1, 2004, there were 20,923,131 shares of the Company’s common stock, par value$0.01 per share, outstanding.

 

 

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**INFORMATION HOLDINGS INC.**

Form 10-Q for the Quarter Ended September 30, 2004

 

Table of Contents

 
| **PART I.   FINANCIAL  INFORMATION** |
|------------------------------------------------|
|                                           |   |   |
| Item 1.                                        | Financial Statements: |   |
|                                           |   |   |
|                                           | Consolidated Balance Sheets  As of September 30, 2004 (Unaudited) and December 31, 2003 |   |
|                                           |   |   |
|                                           | Consolidated  Statements of Operations (Unaudited) for the  Three Months Ended September 30, 2004 and 2003 and  Nine Months Ended September 30, 2004 and 2003 |   |
|                                           |   |   |
|                                           | Consolidated  Statements of Cash Flows (Unaudited) for the  Nine Months Ended September 30, 2004 and 2003 |   |
|                                           |   |   |
|                                           | 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 4.                                        | Submission  of Matters to a Vote of Security Holders |   |
|                                           |   |   |
| Item 6.                                        | Exhibits and Reports on Form 8-K |   |
|                                           |   |   |
|                                           | Signature |   |

 

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**INFORMATION HOLDINGS INC.**

###### *CONSOLIDATEDBALANCE SHEETS*

*(In thousands, except share data)*

 
| *** ***                                                                                                                                                                    | *** *** | **September 30,  2004** | ** ** | **December 31,  2003** | *** *** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------|------------|------------------------|--------------|
| ** **                                                                                                                                                                      | ** **   | **(Unaudited)**         | ** ** | ** **             | ** **   |
| ***ASSETS***                                                                                                                                                                    |         |                    |       |                   |         |
| *** ***                                                                                                                                                                    |         |                    |       |                   |         |
| *CURRENT ASSETS:*                                                                                                                                                               |         |                    |       |                   |         |
| Cash and cash equivalents                                                                                                                                                       |         | $                       | 58,805     |                   | $            | 39,693 |   |
| Short-term investments                                                                                                                                                          |         | 9,281                   |       | 12,271                 |         |
| Restricted cash                                                                                                                                                                 |         | —                  |       | 3,000                  |         |
| Accounts receivable*(net of  allowance for doubtful accounts of $581 and $693, respectively)*                                                                                   |         | 35,651                  |       | 37,650                 |         |
| Prepaid expenses and other current assets                                                                                                                                       |         | 4,922                   |       | 5,669                  |         |
| Income taxes receivable                                                                                                                                                         |         | 202                     |       | 11,899                 |         |
| Deferred income taxes                                                                                                                                                           |         | 2,001                   |       | 2,001                  |         |
| Total current assets                                                                                                                                                            |         | 110,862                 |       | 112,183                |         |
| Investments                                                                                                                                                                     |         | 86,071                  |       | 83,207                 |         |
| Property and equipment, net                                                                                                                                                     |         | 3,952                   |       | 4,281                  |         |
| Identified intangible assets, net                                                                                                                                               |         | 65,320                  |       | 70,248                 |         |
| Goodwill                                                                                                                                                                        |         | 99,699                  |       | 100,871                |         |
| Other assets                                                                                                                                                                    |         | 5,839                   |       | 3,880                  |         |
| TOTAL                                                                                                                                                                           |         | $                       | 371,743    |                   | $            | 374,670 |   |
|                                                                                                                                                                            |         |                    |       |                   |         |
| ***LIABILITIES AND STOCKHOLDERS’ EQUITY***                                                                                                                                 |         |                    |       |                   |         |
| *** ***                                                                                                                                                                    |         |                    |       |                   |         |
| *CURRENT LIABILITIES:*                                                                                                                                                          |         |                    |       |                   |         |
| Accounts payable                                                                                                                                                                |         | $                       | 32,105     |                   | $            | 32,073 |   |
| Accrued expenses                                                                                                                                                                |         | 13,290                  |       | 18,124                 |         |
| Deferred revenue                                                                                                                                                                |         | 22,302                  |       | 25,753                 |         |
| Total current liabilities                                                                                                                                                       |         | 67,697                  |       | 75,950                 |         |
| Long-term deferred income taxes                                                                                                                                                 |         | 14,789                  |       | 16,307                 |         |
| Total liabilities                                                                                                                                                               |         | 82,486                  |       | 92,257                 |         |
|                                                                                                                                                                            |         |                    |       |                   |         |
| *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 21,930,331 and 21,882,604 shares, respectively; outstanding  20,923,131 and 20,875,404 shares, respectively |         | 219                     |       | 219                    |         |
| Additional paid-in capital                                                                                                                                                      |         | 248,966                 |       | 247,964                |         |
| Retained earnings                                                                                                                                                               |         | 44,907                  |       | 38,304                 |         |
| Treasury stock, at cost, 1,007,200 shares,  in both periods                                                                                                                     |         | (14,723                 | )          | (14,723                | )            |
| Accumulated other comprehensive income                                                                                                                                          |         | 9,888                   |       | 10,649                 |         |
| Total stockholders’ equity                                                                                                                                                 |         | 289,257                 |       | 282,413                |         |
| TOTAL                                                                                                                                                                           |         | $                       | 371,743    |                   | $            | 374,670 |   |

 

*Seenotes to unaudited consolidated financial statements.*

 

1

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**INFORMATION HOLDINGS INC.**

*CONSOLIDATED STATEMENTS OF OPERATIONS*

(Unaudited)

 
| ** **                                                       | ** **   | **Three  Months Ended  September 30,** | ** ** | **Nine  Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------|--------------|----------------------------------------|------------|---------------------------------------|------------|
| **(In thousands, except per share data)**                        | *** *** | **2004**                               | ** ** | **2003**                              | ** ** | **2004** | ** ** | **2003** | *** *** |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Revenues:                                                        |         |                                   |       |                                  |       |   |   |   |   |
| Product                                                          |         | $                                      | 13,055     |                                  | $          | 11,466 |   | $ | 41,214 |   | $ | 35,372 |   |
| Service                                                          |         | 10,226                                 |       | 7,456                                 |       | 29,747 |   | 22,962 |   |
| Total revenues                                                   |         | 23,281                                 |       | 18,922                                |       | 70,961 |   | 58,334 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Cost of sales:                                                   |         |                                   |       |                                  |       |   |   |   |   |
| Product                                                          |         | 3,119                                  |       | 2,885                                 |       | 9,521 |   | 8,948 |   |
| Service                                                          |         | 3,412                                  |       | 2,988                                 |       | 10,449 |   | 9,680 |   |
| Total cost of sales                                              |         | 6,531                                  |       | 5,873                                 |       | 19,970 |   | 18,628 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Gross profit                                                     |         | 16,750                                 |       | 13,049                                |       | 50,991 |   | 39,706 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Operating expenses:                                              |         |                                   |       |                                  |       |   |   |   |   |
| Selling, general and administrative                              |         | 10,088                                 |       | 9,194                                 |       | 31,111 |   | 27,234 |   |
| Depreciation and amortization                                    |         | 2,839                                  |       | 2,719                                 |       | 8,876 |   | 8,073 |   |
| Total operating expenses                                         |         | 12,927                                 |       | 11,913                                |       | 39,987 |   | 35,307 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Income from operations                                           |         | 3,823                                  |       | 1,136                                 |       | 11,004 |   | 4,399 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Other income (expense):                                          |         |                                   |       |                                  |       |   |   |   |   |
| Interest income, net                                             |         | 792                                    |       | 519                                   |       | 2,367 |   | 1,327 |   |
| Costs associated with pending merger                             |         | (778                                   | )          | —                                |       | (1,368 | ) | — |   |
| Early termination of credit agreement                            |         | —                                 |       | —                                |       | — |   | (575 | ) |
| Other income (expense), net                                      |         | 3                                      |       | (3                                    | )          | 321 |   | (3 | ) |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Income from continuing operations before  income taxes           |         | 3,840                                  |       | 1,652                                 |       | 12,324 |   | 5,148 |   |
| Provision for income taxes                                       |         | 1,389                                  |       | 629                                   |       | 4,360 |   | 1,870 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Income from continuing operations                                |         | 2,451                                  |       | 1,023                                 |       | 7,964 |   | 3,278 |   |
| Income (loss) from discontinued operations,  net of income taxes |         | —                                 |       | 129                                   |       | (1,361 | ) | 29,740 |   |
| Net income                                                       |         | $                                      | 2,451      |                                  | $          | 1,152 |   | $ | 6,603 |   | $ | 33,018 |   |
|                                                             |         |                                   |       |                                  |       |   |   |   |   |
| Net income (loss) per basic common share:                        |         |                                   |       |                                  |       |   |   |   |   |
| Continuing operations                                            |         | $                                      | 0.12       |                                  | $          | 0.05 |   | $ | 0.38 |   | $ | 0.15 |   |
| Discontinued operations                                          |         | 0.00                                   |       | 0.01                                  |       | (0.07 | ) | 1.41 |   |
| Net income                                                       |         | $                                      | 0.12       |                                  | $          | 0.06 |   | $ | 0.32 |   | $ | 1.56 |   |
| Net income (loss) per diluted common share:                      |         |                                   |       |                                  |       |   |   |   |   |
| Continuing operations                                            |         | $                                      | 0.12       |                                  | $          | 0.05 |   | $ | 0.38 |   | $ | 0.15 |   |
| Discontinued operations                                          |         | 0.00                                   |       | 0.01                                  |       | (0.06 | ) | 1.40 |   |
| Net income                                                       |         | $                                      | 0.12       |                                  | $          | 0.06 |   | $ | 0.31 |   | $ | 1.56 |   |
| Weighted number of common shares  outstanding:                   |         |                                   |       |                                  |       |   |   |   |   |
| Basic                                                            |         | 20,922                                 |       | 20,872                                |       | 20,903 |   | 21,159 |   |
| Diluted                                                          |         | 21,127                                 |       | 20,911                                |       | 21,060 |   | 21,194 |   |

* *

*Seenotes to unaudited consolidated financial statements*.

 

2

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**INFORMATION HOLDINGS INC.**

##### *CONSOLIDATED STATEMENTS OF CASH FLOWS*

(Unaudited) (*i**n thousands)*

 
| ** **                                                                         | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                         | ** ** | **2004**                             | ** ** | **2003** | *** *** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |       |                                 |       |   |   |
| Net income                                                                         |       | $                                    | 6,603      |   | $ | 33,018 |   |
| Gain on sale of assets of discontinued  operations                                 |       | —                               |       | (30,720 | ) |
| Loss from discontinued operations                                                  |       | 1,361                                |       | 980 |   |
| Income from continuing operations                                                  |       | 7,964                                |       | 3,278 |   |
|                                                                               |       |                                 |       |   |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                                 |       |   |   |
| Depreciation                                                                       |       | 2,810                                |       | 2,977 |   |
| Amortization of other intangible assets                                            |       | 6,066                                |       | 5,096 |   |
| Gain on sale of assets                                                             |       | (418                                 | )          | — |   |
| Change in deferred income taxes                                                    |       | (1,795                               | )          | (892 | ) |
| Termination of credit facility                                                     |       | —                               |       | 494 |   |
| Net amortization of premiums on investments  available for sale                    |       | 1,902                                |       | — |   |
| Other                                                                              |       | (318                                 | )          | 155 |   |
| Changes in operating assets and  liabilities:                                      |       |                                 |       |   |   |
| Decrease in accounts receivable, net                                               |       | 1,832                                |       | 2,242 |   |
| Decrease in prepaid and other current  assets                                      |       | 995                                  |       | 719 |   |
| Decrease in accounts payable and accrued  expenses                                 |       | (5,665                               | )          | (1,300 | ) |
| Income tax benefit from stock options  exercised                                   |       | 126                                  |       | 125 |   |
| Net change in income taxes payable  (receivable)                                   |       | 12,516                               |       | (10,498 | ) |
| Decrease in deferred revenue                                                       |       | (3,761                               | )          | (3,692 | ) |
| Net change in other assets and liabilities                                         |       | 71                                   |       | 331 |   |
| Net Cash Provided by (Used in) Continuing  Operations                              |       | 22,325                               |       | (965 | ) |
| Net Cash Provided by Discontinued  Operations                                      |       | —                               |       | 1,727 |   |
| Net Cash Provided by Operating Activities                                          |       | 22,325                               |       | 762 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |       |                                 |       |   |   |
| Proceeds from sale of discontinued  operations, net of transaction costs           |       | (1,113                               | )          | 89,809 |   |
| Purchases of property and equipment                                                |       | (1,823                               | )          | (1,517 | ) |
| Proceeds from maturities of investments  held to maturity                          |       | —                               |       | 13,056 |   |
| Purchases of investments available for sale                                        |       | (63,732                              | )          | (138,797 | ) |
| Proceeds from sales and maturities of  investments available for sale              |       | 61,956                               |       | 38,966 |   |
| Net proceeds on sale of assets                                                     |       | 517                                  |       | — |   |
| Amounts received from (deposited in) escrow  funds                                 |       | 3,000                                |       | (3,000 | ) |
| Capitalized software development cost                                              |       | (2,509                               | )          | (1,142 | ) |
| Capitalized internal-use software                                                  |       | (283                                 | )          | (380 | ) |
| Net Cash Used in Continuing Operations                                             |       | (3,987                               | )          | (3,005 | ) |
| Net Cash Used in Discontinued Operations                                           |       | —                               |       | (835 | ) |
| Net Cash Used in Investing Activities                                              |       | (3,987                               | )          | (3,840 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |       |                                 |       |   |   |
| Common stock issued from stock options  exercised                                  |       | 876                                  |       | 773 |   |
| Purchase of common stock for treasury                                              |       | —                               |       | (9,496 | ) |
| Principal payments on capital leases                                               |       | (63                                  | )          | (107 | ) |
| Net Cash Provided by (Used in) Continuing  Operations                              |       | 813                                  |       | (8,830 | ) |
| Net Cash Used in Discontinued Operations                                           |       | —                               |       | (106 | ) |
| Net Cash Provided by (Used in) Financing  Activities                               |       | 813                                  |       | (8,936 | ) |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                            |       | (39                                  | )          | 150 |   |
| NET INCREASE (DECREASE) IN CASH AND  EQUIVALENTS                                   |       | 19,112                               |       | (11,864 | ) |
| CASH AND EQUIVALENTS, BEGINNING OF PERIOD                                          |       | 39,693                               |       | 53,910 |   |
| CASH AND EQUIVALENTS, END OF PERIOD                                                |       | $                                    | 58,805     |   | $ | 42,046 |   |

* *

*See notes to unauditedconsolidated financial statements.*

 

3

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**INFORMATION HOLDINGS INC.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

 

**A.****                                    THECOMPANY**

 

InformationHoldings Inc. (IHI or the Company) is a leading provider of informationproducts and services to intellectual property and life science markets.  IHI’s data businesses, which includeMicroPatent, Master Data Center (MDC) and IDRAC, provide a broad array ofdatabases, information products and complementary services for intellectualproperty and regulatory professionals. IHI’s Liquent unit is a leading provider of life science regulatoryintelligence and publishing solutions.

 

**B.****                                    THETHOMSON MERGER AGREEMENT**

 

OnJune 28, 2004, the Company entered into an Agreement and Plan of Merger (theMerger Agreement) with The Thomson Corporation (Thomson), a global leader inproviding integrated information solutions to business and professionalcustomers whose common shares are traded on the Toronto Stock Exchange(TSX:TOC) and the New York Stock Exchange (NYSE:TOC).  The provisions of the Merger Agreement arecomplicated and not easily summarized. Readers should review the definitive proxy statement and proxy statementsupplement (the Proxy Statement) filed with the Securities and ExchangeCommission (SEC) on July 27, 2004 and August 6, 2004, respectively, whichcontain additional information about the merger and include a copy of theMerger Agreement.

 

Underthe terms of the Merger Agreement, a Thomson subsidiary will merge into theCompany as a result of which Thomson will acquire all of the outstanding commonstock of Information Holdings Inc. at a price of $28.00 per share in cash,representing an aggregate cost of approximately $441 million, net of cash andinvestments held by IHI, as of the date of the Merger Agreement.  Consummation of the transaction is subject toregulatory approvals and other customary closing conditions.  The IHI stockholders approved the Merger Agreementat a special meeting of its stockholders held on August 31, 2004.  At the time the merger becomes effective,each share of the Company’s common stock will be converted into the right toreceive $28.00 in cash. Options to acquire shares under the Company’s 1998Stock Option Plan will become fully vested and be converted into the right toreceive the excess of $28.00 per share over the applicable stock optionexercise price.  Fees associated with thetransaction and incurred for the three and nine months ended September 30, 2004approximated $0.8 million and $1.4 million, respectively.  Assuming completion of the transaction byDecember 31, 2004, IHI expects to incur additional expenses related to thistransaction totaling approximately $5 million, which include:  investment banking, legal and accountingfees, and other fees and expenses associated with the transaction.

 

TheCompany has agreed that from the date of the signing of the Merger Agreement,until the closing date of the merger, it will, and will cause each of itssubsidiaries to, carry on business in the ordinary course, and use commerciallyreasonable efforts to preserve intact its respective current businessorganizations, to keep its assets in good working condition, maintain theconfidential nature of and legal protections applicable to materialintellectual property rights, keep available the services of its respectivecurrent executive officers and key employees and maintain good workingrelationships with persons having a material business relationship with theCompany.  The Company has also agreed tocertain restrictions during this period related to items including, among otherthings: changes in capital structure, dividends, changes in

 

4

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organizationaldocuments, acquisitions and dispositions, material agreements, employeebenefits and compensation, accounting and tax practices, and capitalexpenditures.  These items are discussedin greater detail in the Proxy Statement.

 

The Proxy Statement includes adescription of the termination provisions included in the MergerAgreement.  Pursuant to the MergerAgreement, the Company must pay to Thomson $20 million if the MergerAgreement is terminated under the circumstances set forth in the MergerAgreement and the Proxy Statement.  Asdescribed in the proxy statement supplement, under the terms of the memorandumof understanding, which is subject to certain conditions, setting forth theterms of a negotiated settlement of the purported class action lawsuitdescribed in Note H — *Legal Proceedings*,the termination fee payable to Thomson would be reduced from $20 million to$18.5 million.

 

**C.****                                    BASISOF PRESENTATION**

 

The consolidated balance sheet ofthe Company at December 31, 2003 has been derived from IHI’s Annual Report onForm 10-K for the year then ended.  Allother consolidated financial statements contained herein have been prepared byIHI and are unaudited.  These consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements for the year ended December 31, 2003 and the notes theretocontained in IHI’s Annual Report on Form 10-K.

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with the instructions to Form 10-Q and Article 10 of Regulation S-X,and do not include all information and footnotes required by accountingprinciples generally accepted in the United States for complete financialstatements.  However, in the opinion of management,the accompanying unaudited consolidated financial statements contain alladjustments, consisting of normal recurring adjustments, necessary to presentfairly the consolidated financial position of IHI as of September 30, 2004, andthe consolidated results of operations and cash flows for the periods presentedherein.  Operating results for the threeand nine months ended September 30, 2004 are not necessarily indicative of theresults that may be expected for the year ended December 31, 2004.

 

Theconsolidated financial statements include the accounts of IHI and its whollyowned subsidiaries.  All significantintercompany balances and transactions have been eliminated in consolidation.

 

During2003, the Company sold substantially all of the assets and certain liabilitiesof its wholly owned subsidiaries Transcender LLC and CRC Press and Subsidiaries(See Note F — *Discontinued Operations*).  Accordingly, for financial statementpurposes, the assets, liabilities, results of operations and cash flows ofthese components have been segregated from those of continuing operations andare presented in the Company’s consolidated financial statements asdiscontinued operations for all periods presented herein.

 

5

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**D.****                                    ACCOUNTINGFOR STOCK-BASED COMPENSATION**

 

Under the terms of the MergerAgreement, the Company is not permitted to grant future stock options betweenthe date of the Merger Agreement and the effective date of the merger withoutThomson’s consent.  Prior to the date ofthe Merger Agreement, the Company granted stock options for a fixed number ofshares to employees and non-employee directors with an exercise price equal tothe fair value of the shares at the date of grant.  The Company accounts for its stock optiongrants under the provisions of Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees,*whichutilizes the intrinsic value method. Since stock options were granted by the Company with exercise pricesequal to the market price of the underlying stock at the date of grant, nocompensation expense has been recognized in the Company’s ConsolidatedStatements of Operations.

 

Had compensation cost for theCompany’s stock option plan been recognized based upon the estimated fair valueof the options at the dates of grant consistent with the requirements ofStatement of Financial Accounting Standards (SFAS) No. 123, *Accounting for Stock-Based Compensation*,as amended by SFAS No. 148, *Accounting forStock-Based Compensation – Transition and Disclosure*, the Company’snet income and earnings per share would have been the pro forma amountsindicated below:

 
| ** **                                                                                                                           | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| **(In thousands, except per share data):**                                                                                           | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
|                                                                                                                                 |       |                                  |       |                                 |         |   |   |   |   |
| Net income as reported                                                                                                               |       | $                                     | 2,451      |                                 | $            | 1,152 |   | $ | 6,603 |   | $ | 33,018 |   |
| Deduct: Total stock-based compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | (200                                  | )          | (496                                 | )            | (1,107 | ) | (1,890 | ) |
| Pro forma net income                                                                                                                 |       | $                                     | 2,251      |                                 | $            | 656 |   | $ | 5,496 |   | $ | 31,128 |   |
|                                                                                                                                 |       |                                  |       |                                 |         |   |   |   |   |
| Earnings per common share:                                                                                                           |       |                                  |       |                                 |         |   |   |   |   |
| Basic – as reported                                                                                                             |       | $                                     | 0.12       |                                 | $            | 0.06 |   | $ | 0.32 |   | $ | 1.56 |   |
| Basic – pro forma                                                                                                               |       | $                                     | 0.11       |                                 | $            | 0.03 |   | $ | 0.26 |   | $ | 1.47 |   |
| Diluted – as reported                                                                                                           |       | $                                     | 0.12       |                                 | $            | 0.06 |   | $ | 0.31 |   | $ | 1.56 |   |
| Diluted – pro forma                                                                                                             |       | $                                     | 0.11       |                                 | $            | 0.03 |   | $ | 0.26 |   | $ | 1.47 |   |

 

The effects on pro forma net incomeand earnings per share of expensing the estimated fair value of stock optionsare not necessarily representative of the effects on reported net income forfuture years due to such factors as the vesting period of the stock options andthe potential for issuance of additional stock options in future years.  For purposes of pro forma disclosure, theestimated fair value of options granted is amortized to expense over the optionvesting period.

 

The Company estimates the fairvalue of each option grant on the date of grant using the Black-Scholesoption-pricing model (the Black-Scholes Model) using certain assumptions.  These assumptions are evaluated and revised,as necessary, to reflect market conditions and the Company’s experience.  The Black-Scholes Model was developed for usein estimating the value of traded options that have no vesting restrictions andare fully transferable.  Because theCompany’s employee stock options have characteristics significantly differentfrom those of traded options, and because changes in the subjective inputassumptions can materially affect the estimate, in management’s opinion, theexisting Black-Scholes Model may not provide a reliable measure of the fairvalue of the Company’s employee stock options.

 

6

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**E.****                                      ACQUISITION**

 

On December 1, 2003, the Companyacquired the issued share capital of CDC Solutions Limited (CDC), a privatecompany based in the United Kingdom for cash consideration of approximately$26,287,000 (Cash Consideration).  CDC isa leading provider of life science regulatory intelligence and publishingsolutions.  The Cash Considerationincludes approximately $22,126,000 of initial consideration, approximately$3,836,000 currently held in escrow for estimated guaranteed earnouts asdefined and calculated in accordance with the underlying Share PurchaseAgreement (SPA), and approximately $325,000 of closing costs associated withthe transaction.

 

In the first quarter of 2004 theCompany received a valuation of the fair value of the identified intangibleassets and their estimated useful lives which range from four to tenyears.  The purchase price of CDC wasaccordingly adjusted to reflect acquired identified intangible assets of$4,810,000, and the related deferred tax liability recorded as a result of thegross up of acquired intangible assets was adjusted to $1,443,000 based on the valuation.  In addition, during the first nine months of2004 certain other adjustments to the purchase price were recorded to increasenet tangible assets acquired to $12,000. Accordingly, non-deductible goodwill was adjusted to $22,908,000.

 

In accordance with the Company’s plan to integratethe CDC business with its Liquent business, the Company accrued as of theacquisition date approximately $765,000 of costs at CDC related to severanceand for the remaining lease costs related to abandoned property.  As of September 30, 2004, the Company paid$452,000 of severance and $135,000 of lease costs against the liability.  For the year ended December 31, 2003,severance and integration costs of $749,000 had been charged to expense atLiquent related to the CDC integration. The remaining liability at December 31, 2003 related to these costs was$606,000.  During the first quarter of2004, Liquent charged additional severance costs related to the CDC integrationof approximately $108,000 to Selling, general and administrative expense.  The Company paid $270,000 of severance costsand $163,000 of lease costs during the first nine months of 2004.  The remaining liability for lease costs of$280,000 will be paid over the life of the lease, which terminates in October2005.

 

In addition to guaranteed futureconsideration of approximately $3,836,000, which has been paid into escrow, thesellers were entitled to additional consideration dependent on the revenue ofCDC for the year ended December 31, 2003. Based on calculations outlined in the SPA, the Company accruedadditional consideration as of December 31, 2003 of approximately $1,147,000,which was paid during the second quarter of 2004.

 

The Company has a further liabilityto the sellers for Earnout Consideration (as defined in the SPA) which is to becalculated by March 31, 2007 based on formulas related to revenues and EBITDA(earnings before interest, taxes, depreciation and amortization) of thecombined Liquent-CDC business for the three-year period ending December 31,2006 (the Earnout Period).  Amounts duefor the Earnout Consideration, if any, will be paid during the second quarterof 2007, unless the provisions related to a change in control discussed belowcome into effect.  Earnout Considerationwill become due if the combined business has greater than 10% annual compoundrevenue growth during the Earnout Period, or if EBITDA exceeds $15,000,000 foreither the year ending December 31, 2006 or on average for the three years ofthe Earnout Period.  The EarnoutConsideration is subject to a maximum of £10,000,000 and could be as low aszero.

 

In the event of a sale of all orsubstantially all of the share capital of the Company or the combinedLiquent-CDC business during the Earnout Period, the sellers have the right, butnot an obligation, to

 

7

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elect a payout of the EarnoutConsideration.  The payout of the EarnoutConsideration in the event of a sale varies depending on the year of such saleand the operating performance of the combined business through the date ofsale.  The range of payout is zero to £5,000,000if a sale occurs in 2004, zero to £7,500,000 if a sale occurs in 2005 and zeroto £10,000,000 if a sale occurs in 2006.

 

The CDC acquisition has been accountedfor using the purchase method of accounting and, accordingly, the results ofits operations have been included in the Company’s results of operations fromits date of acquisition.

 

The following unaudited pro formainformation presents the results of operations of the Company as if the 2003acquisition of CDC had taken place on January 1, 2003:

 

| **(In  thousands, except per share data)** | *** *** | **Three  Months  Ended  September 30,  2003** | *** *** | **Nine  Months  Ended  September 30,  2003** | *** *** |
|--------------------------------------------|--------------|-----------------------------------------------|--------------|----------------------------------------------|--------------|
|                                       |         |                                          |         |                                         |         |
| Revenues                                   |         | $                                             | 21,740       |                                         | $            | 66,763 |   |
| Net income                                 |         | $                                             | 424          |                                         | $            | 933 |   |
| Basic income per common share              |         | $                                             | 0.02         |                                         | $            | 0.04 |   |
| Diluted income per common share            |         | $                                             | 0.02         |                                         | $            | 0.04 |   |

 

Thesepro forma results of operations have been prepared for comparative purposesonly and do not purport to be indicative of the operating results that wouldhave occurred had the acquisition been consummated as of the above date, norare they necessarily indicative of future operating results.

 

**F.****                                      DISCONTINUEDOPERATIONS**

 

On December 22, 2003, the Companyentered into an Asset Purchase Agreement to sell substantially all of theassets and certain liabilities of Transcender LLC (Transcender) to Self TestSoftware, Inc., a subsidiary of Kaplan, Inc. (the Transcender Buyer).  The transaction was completed on December 31,2003.  The Company received net proceedsof $9.0 million, representing the cash consideration for the assets sold lessdeal related expenses.  During the firstnine months of 2004, the Company recorded a loss on sale of $1.4 million, netof income tax benefits, within discontinued operations primarily related tocharges for abandoned real estate lease commitments and severance costs relatedto employees terminated in 2004.  Priorto sale, Transcender was included as part of the software segment (See Note I –*Segment Information*).

 

Pursuant to an Interim TransitionServices Agreement (the TSA) between the Company and the Transcender Buyer, theCompany acted as a service provider to the Transcender Buyer for the periodfrom December 31, 2003 to May 31, 2004 (the Transition Period).  The TSA required the Company to retain allemployees of Transcender through March 31, 2004 and certain employees throughMay 31, 2004.  The Transcender Buyer reimbursedthe Company in full for all employee costs and incidental expenses during theTransition Period.  The Company wasresponsible to pay severance costs to any employee that was not offeredemployment or did not accept employment with the Transcender Buyer (theTerminated Employees).  During the first sixmonths of 2004, the Company accrued and paid severance and related costs ofapproximately $0.3 million to the Terminated Employees; which costs resulted ina charge in discontinued operations of approximately $0.2 million, netof income tax benefits.  The Company has notincurred any

 

8

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additional severance and relatedcosts associated with the Terminated Employees subsequent to June 30,2004.  The Transcender Buyer alsoreimbursed the Company in full for all real estate costs through March 31, 2004and for a portion of real estate costs from April 1, 2004 through May 31,2004.  Effective May 31, 2004 (theAbandonment Date), the Company abandoned office and warehouse space associatedwith its former Transcender operations (the Transcender Space).  As of the Abandonment Date, the Companyaccrued approximately$1.7 million representing future lease commitments, net of estimatedsublease income of $1.0 million associated with the Transcender Space.  The Company recorded a charge of $1.1million, net of income tax benefits, in discontinued operations during the secondquarter of 2004 related to the abandoned properties.  The Company has incurred approximately $250,000 ofreal estate costs since the Abandonment Date.  Theremaining lease commitment is expected to be paid over the life of the lease,which expires in March 2008.  The Companyis actively seeking to sublet the Transcender Space, but there is no assurancethat the Company will be able to sublet the space.  Accordingly, the Company may incur anadditional charge to discontinued operations related to the remaining leasecommitment in the future.

 

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. 2 Limited, both wholly owned subsidiaries ofTaylor & Francis Group plc.  Thetransaction was completed on April 8, 2003. The Company received net proceeds of approximately $90 million,representing the cash consideration for the assets sold less deal relatedexpenses and an adjustment made based on the closing balance sheet of CRC inaccordance with the Purchase Agreement. On April 8, 2004 the Company received $3.0 million of proceedspreviously held in escrow related to representations and warranties containedin the Purchase Agreement.  CRC comprisedthe entirety of the Company’s former scientific and technology information(STI) segment.  Subsequent to the date ofsale, the Company no longer has operations in the STI segment (See Note I – *Segment Information*).

 

Summary operating results for thediscontinued operations follow:

 
| ** **                                                           | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|----------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| **(In thousands)**                                                   | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
|                                                                 |       |                                  |       |                                 |         |   |   |   |   |
| Revenues                                                             |       | $                                     | —     |                                 | $            | 1,867 |   | $ | — |   | $ | 17,565 |   |
|                                                                 |       |                                  |       |                                 |         |   |   |   |   |
| Loss from discontinued operations before  income taxes               |       | —                                |       | (400                                 | )            | — |   | (1,498 | ) |
| Benefit from income taxes on discontinued  operations                |       | —                                |       | 141                                  |         | — |   | 518 |   |
| Gain (loss) on sale of discontinued  operations, net of income taxes |       | —                                |       | 388                                  |         | (1,361 | ) | 30,720 |   |
| Income (loss) from discontinued operations,  net of income taxes     |       | $                                     | —     |                                 | $            | 129 |   | $ | (1,361 | ) | $ | 29,740 |   |
|                                                                      |            |                                       |            |                                      |              |  |  |  |  |  |  |  |  |  |

 

9

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**G.****                                   ****EARNINGS (LOSS) PER SHARE**

 

The following table sets forth thedenominators used in computing basic and diluted earnings (loss) per commonshare for the periods indicated:

 
| ** **                                                                      | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|---------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| **(In thousands)**                                                              | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
|                                                                            |       |                                  |       |                                 |         |   |   |   |   |
| Weighted average common shares outstanding:                                     |       |                                  |       |                                 |         |   |   |   |   |
| Basic                                                                           |       | 20,922                                |       | 20,872                               |         | 20,903 |   | 21,159 |   |
| Net effect of dilutive stock options –  based on the treasury stock method |       | 205                                   |       | 39                                   |         | 157 |   | 35 |   |
| Diluted                                                                         |       | 21,127                                |       | 20,911                               |         | 21,060 |   | 21,194 |   |

 

For the three months endedSeptember 30, 2004 and 2003, 262,248 and 881,276 stock options, respectively,were excluded from the computation of diluted earnings per common share due totheir antidilutive effect.  For the ninemonths ended September 30, 2004 and 2003, 402,748 and 918,276 stock options,respectively, were excluded from the computation of diluted earnings per commonshare due to their antidilutive effect.

 

**H.****                                    COMMITMENTSAND CONTINGENCIES**

 

***LegalProceedings***

 

On July 1, 2004, an action was filed as a purportedclass action in the Court of Chancery of the State of Delaware in and for NewCastle County (Myszkowski v. Information Holdings Inc. et al., C.A. No. 537-N)against IHI, its directors and Thomson (the Class Action).  The complaint alleges, among other things,that approval of the merger by the Company’s directors amounted to a breach offiduciary duty, that the $28.00 cash consideration per share to be received bythe Company’s stockholders in the merger does not represent the true value ofIHI and that there were relationships among Thomson, Warburg Pincus LLC, a NewYork limited liability company that manages Warburg, Pincus Ventures L.P., andsome of the Company’s directors that created conflicts of interest preventingthese directors from acting in the best interest of the Company’sstockholders.  The complaint asks for aninjunction against the merger and damages as well as awarding the plaintiffsthe costs and disbursements of this Class Action, including attorneys’ andexperts’ fees.  The plaintiff and thedefendants have negotiated a settlement to dismiss the action with prejudice,subject to (i) the drafting and execution of the settlement documents and theother agreements necessary to effectuate the terms of the proposed settlement;(ii) the completion by the plaintiff and his counsel of appropriateconfirmatory discovery in the action sufficient to satisfy the plaintiff’scounsel that the proposed settlement is fair and reasonable; (iii) final courtapproval of the settlement and dismissal of the action with prejudice andwithout awarding costs to any party, except as agreed by the parties; and (iv)consummation of the merger, provided, that this condition (iv) shall bedeemed to have been satisfied if the merger is not consummated due to(a) the merger not receiving the requisite vote of holders of outstandingshares of IHI common stock or (b) circumstances that give rise to the right ofThomson to receive from IHI a termination fee pursuant to the terms of theMerger Agreement.  As part of the memorandumof understanding, which is subject to certain conditions, setting forth theterms of a negotiated settlement, IHI agreed to provide the additionaldisclosure set forth in the proxy statement supplement filed with the SEC onAugust 6, 2004, and to pay fees and expenses of the plaintiff’s counsel in theamount of $280,000.  Additionally,Thomson agreed to reduce from $20 million to $18.5 million the termination feeto

 

10

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which it is entitled if the Merger Agreement isterminated under certain circumstances as described in the Merger Agreement andthe Proxy Statement.  IHI and the otherdefendants continue to deny all of the allegations of wrongdoing contained inthe complaint.  The settlement is not,and should not be construed as, an admission of wrongdoing or liability by anydefendant.

 

In addition, from time to time the Company is aparty to other legal and administrative proceedings, claims, and litigationarising in the ordinary course of its business. While the outcome of thesematters is currently not determinable, management does not expect that theultimate costs to resolve these matters either singularly or in aggregate willhave a material adverse effect on the Company’s consolidated financialposition, results of operations or cash flows.

 

***MergerCommitments***

 

In addition to the termination feethe Company could be required to pay Thomson as described above in *Legal Proceedings*, the Company has an engagement letter withMorgan Stanley & Company that provides for the payment of a transaction feeequal to 1% of the transaction value upon completion of the merger.  The transaction value, estimated at $441million as of the date of the Merger Agreement, is defined as the grossproceeds to the stockholders, less the amount of cash and marketable securitiesheld by the Company at the closing date.

 

***LeaseCommitments***

 

The Company primarily leases office space, and officeand computer equipment, for its primarydomestic operating units based principally in the following states:  California,Connecticut, Michigan, Pennsylvania and Virginia.  The Company also leases office space for itsprimary foreign operating units based principally in France and England. Theleases generally provide for the lessee to pay taxes, maintenance, insuranceand certain other operating costs of the leased property, and certain leasesinclude escalation clauses.

####  

During the second quarter of 2004,the Company abandoned office and warehouse space associated with itsTranscender Space.  Future leaseobligations associated with the Transcender Space are included below, net ofestimated sublease income (See Note F – *DiscontinuedOperations*).

 

Future annual minimum leasepayments including estimated escalation amounts under noncancelable operatingleases as of September 30, 2004 are asfollows (in thousands):

 

| **Year ending December 31,**  | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
| 2004 (remaining three months) |       | $          | 808        |   |
| 2005                          |       | 2,800      |       |
| 2006                          |       | 1,735      |       |
| 2007                          |       | 1,443      |       |
| 2008                          |       | 928        |       |
| Thereafter                    |       | 3,476      |       |
| Total minimum lease payments  |       | $          | 11,190     |   |

 

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**I.****                                         SEGMENTINFORMATION**

 

Operating segments are defined ascomponents of an enterprise for which separate financial information isavailable and regularly reviewed by the Company’s senior management.  The Company evaluates earnings performancebased on EBITDA of the respective business units.

 

The Company has two reportablesegments contributing to its results from continuing operations: data andsoftware.  The data segment, whichincludes MicroPatent, MDC and IDRAC, provides a broad array of databases,information products and complementary services for intellectual property andregulatory professionals.  The softwaresegment is comprised solely of Liquent, a leading provider of life scienceregulatory intelligence and publishing solutions.  Other includes unallocated corporate items,which primarily consists of corporate expenses and merger costs.

 

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

 
| ** **                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|-----------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| ** **                        | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
| REVENUES FROM EXTERNAL CUSTOMERS: |       |                                  |       |                                 |         |   |   |   |   |
| Data                              |       | $                                     | 16,568     |                                 | $            | 14,478 |   | $ | 48,162 |   | $ | 42,687 |   |
| Software (1)                      |       | 6,713                                 |       | 4,429                                |         | 22,799 |   | 15,625 |   |
| Other                             |       | —                                |       | 15                                   |         | — |   | 22 |   |
|                              |       | $                                     | 23,281     |                                 | $            | 18,922 |   | $ | 70,961 |   | $ | 58,334 |   |
|                              |       |                                  |       |                                 |         |   |   |   |   |
| EBITDA:                           |       |                                  |       |                                 |         |   |   |   |   |
| Data                              |       | $                                     | 7,555      |                                 | $            | 5,877 |   | $ | 21,203 |   | $ | 17,037 |   |
| Software (1)                      |       | 482                                   |       | (995                                 | )            | 3,134 |   | (612 | ) |
| Other                             |       | (2,075                                | )          | (986                                 | )            | (5,279 | ) | (4,402 | ) |
|                              |       | $                                     | 5,962      |                                 | $            | 3,896 |   | $ | 19,058 |   | $ | 12,023 |   |
|                              |       |                                  |       |                                 |         |   |   |   |   |
| INCOME (LOSS) FROM OPERATIONS:    |       |                                  |       |                                 |         |   |   |   |   |
| Data                              |       | $                                     | 5,426      |                                 | $            | 3,751 |   | $ | 14,096 |   | $ | 10,744 |   |
| Software (1)                      |       | (303                                  | )          | (1,624                               | )            | 708 |   | (2,484 | ) |
| Other                             |       | (1,300                                | )          | (991                                 | )            | (3,800 | ) | (3,861 | ) |
|                              |       | $                                     | 3,823      |                                 | $            | 1,136 |   | $ | 11,004 |   | $ | 4,399 |   |

 

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(1)                                  Resultsinclude operations of CDC from the date of the acquisition December 1, 2003only (See Note E - *Acquisition*).

 

The Company evaluates the earnings performanceof its segments based primarily on EBITDA. The Company believes that EBITDA isthe most useful measure of business unit earnings because it more closelyapproximates the cash generating ability of each business compared to income(loss) from operations.  Income (loss)from operations includes charges for depreciation and amortization, the majorityof which relate to amortization of intangible assets.  The Company generally does not incur capitalexpenditures to replace intangible assets within existing operations.

 

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A reconciliation of EBITDA toincome from continuing operations is as follows (in thousands):

 
| ** **                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                             | ** ** | **2004**                              | ** ** | **2003**                             | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                   |       |                                  |       |                                 |       |   |   |   |   |
| EBITDA                                                 |       | $                                     | 5,962      |                                 | $          | 3,896 |   | $ | 19,058 |   | $ | 12,023 |   |
| Depreciation and amortization (1)                      |       | (2,914                                | )          | (2,763                               | )          | (9,101 | ) | (8,202 | ) |
| Interest income, net                                   |       | 792                                   |       | 519                                  |       | 2,367 |   | 1,327 |   |
| Income from continuing operations before  income taxes |       | 3,840                                 |       | 1,652                                |       | 12,324 |   | 5,148 |   |
| Provision for income taxes                             |       | 1,389                                 |       | 629                                  |       | 4,360 |   | 1,870 |   |
| Income from continuing operations                      |       | $                                     | 2,451      |                                 | $          | 1,023 |   | $ | 7,964 |   | $ | 3,278 |   |

 

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(1)          Depreciationand amortization includes $75,000 and $44,000 of amortization of capitalizedsoftware, classified as Cost of sales for the three months ended September 30,2004 and 2003, respectively.  For thenine months ended September 30, 2004 and 2003, respectively, depreciation andamortization includes $225,000 and $129,000 of amortization of capitalizedsoftware classified as Cost of sales.

 

**J.****                                     ****COMPREHENSIVEINCOME (LOSS)**

 

Comprehensive income is comprisedof net income and other comprehensive income (loss).  Accumulated other comprehensive incomeincludes foreign currency translation adjustments and unrealized gains andlosses, net of the related tax effect, on available-for-sale securities and onderivative instruments designated and qualifying as cash flow hedges.  The following table is a reconciliation ofthe Company’s net income to comprehensive income:

*** ***
| ** **                                                                     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|--------------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| **(in thousands)**                                                             | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
|                                                                           |       |                                  |       |                                 |         |   |   |   |   |
| Net income                                                                     |       | $                                     | 2,451      |                                 | $            | 1,152 |   | $ | 6,603 |   | $ | 33,018 |   |
| Other comprehensive income (loss):                                             |       |                                  |       |                                 |         |   |   |   |   |
| Change in net unrealized gains and (losses)  on available-for-sale investments |       | 621                                   |       | —                               |         | (979 | ) | — |   |
| Change in net unrealized gains and (losses)  on cash flow hedges               |       | 1                                     |       | —                               |         | (165 | ) | — |   |
| Reclass adjustment for net (losses) gains  realized in net income              |       | (17                                   | )          | —                               |         | 148 |   | — |   |
| Foreign currency translation adjustments                                       |       | 558                                   |       | 3                                    |         | (143 | ) | (406 | ) |
| Estimated tax (expense) benefit                                                |       | (230                                  | )          | —                               |         | 378 |   | — |   |
| Net change in other comprehensive income  (loss)                               |       | 933                                   |       | 3                                    |         | (761 | ) | (406 | ) |
|                                                                           |       |                                  |       |                                 |         |   |   |   |   |
| Comprehensive income                                                           |       | $                                     | 3,384      |                                 | $            | 1,155 |   | $ | 5,842 |   | $ | 32,612 |   |
|                                                                                |            |                                       |            |                                      |              |  |  |  |  |  |  |  |  |  |

 

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**Item 2****.****          *****Management’s Discussion andAnalysis of Financial Condition and Results of Operations***

 

*Thefollowing discussion and analysis presents a review of Information HoldingsInc. (IHI or the Company) for the three and nine months ended September 30,2004 and 2003.  This review should beread in conjunction with the consolidated financial statements and notespresented herein as well as Management’s Discussion and Analysis of FinancialCondition and Results of Operations contained in the Company’s 2003 AnnualReport on Form 10-K.*

 

*Certainstatements in this report 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 “safeharbor” provisions of the Private Securities Litigation Reform Act of1995.  Actual results of the Companycould differ materially from those anticipated in these forward-lookingstatements as a result of certain risks and uncertainties.  Readers are cautioned not to place unduereliance on the forward-looking statements and that forward-looking statementscontained in this Form 10-Q should be read in conjunction with the Company’sdisclosures within this Item 2 and under the heading Item 1.  Business – Risk Factors contained in theCompany’s 2003 Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise anyforward-looking statement, whether as a result of future events, newinformation or otherwise.*

 

**ProposedMerger with Thomson**

 

OnJune 28, 2004, the Company entered into an Agreement and Plan of Merger (theMerger Agreement) with The Thomson Corporation (Thomson), a global leader inproviding integrated information solutions to business and professionalcustomers.  Under the terms of the MergerAgreement, a Thomson subsidiary will merge into the Company as a result ofwhich Thomson will acquire all of the outstanding common stock of InformationHoldings Inc. at a price of $28.00 per share in cash, representing an aggregatecost of approximately $441 million, net of cash and investments held by IHI, asof the date of the Merger Agreement. Consummation of the transaction is subject to regulatory approvals andother customary closing conditions.  TheIHI stockholders approved the Merger Agreement at a special meeting of its stockholdersheld on August 31, 2004.  At the time themerger becomes effective, each share of the Company’s common stock will beconverted into the right to receive $28.00 in cash. Options to acquire sharesunder the Company’s 1998 stock option plan will become fully vested and beconverted into the right to receive the excess of $28.00 per share over theapplicable stock option exercise price. Fees associated with the transaction and incurred for the three and ninemonths ended September 30, 2004 approximated $0.8 million and $1.4 million,respectively.  Assuming completion of thetransaction by December 31, 2004, IHI expects to incur additional expensesrelated to this transaction totaling approximately $5 million, whichinclude:  investment banking, legal andaccounting fees, and other fees and expenses associated with the transaction.

 

TheCompany has agreed that from the date of the signing of the Merger Agreement,until the closing date of the merger, it will, and will cause each of itssubsidiaries to, carry on business in the ordinary course, and use commerciallyreasonable efforts to preserve intact its respective current businessorganizations, to keep its assets in good working condition, maintain theconfidential nature of and legal protections applicable to materialintellectual property rights, keep available the services of its respectivecurrent executive officers and key employees and maintain good workingrelationships with persons having a material business relationship with theCompany.  The Company has also agreed tocertain restrictions during this period related to items including, among otherthings:  changes in capital structure,dividends, changes in organizational documents, acquisitions and dispositions,material agreements, employee benefits and compensation, accounting and taxpractices, and capital expenditures.

 

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**Overview**

 

The discussions that follow do nottake into account the potential impact of the Company’s proposed merger withThomson announced on June 28, 2004, except for costs associated with theplanned merger which are reflected in the Company’s results for the three andnine months ended September 30, 2004.

 

*Impact of Acquisitions and Divestitures*

 

Akey 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 beginning operationsin January 1997, the Company has completed 15 substantial acquisitions,including seven in the data segment, two in the software segment and six in theformer scientific and technology information and IT learning segments, as wellas some minor acquisitions that are not otherwise disclosed herein.

 

TheCompany has two reportable segments contributing to its results from continuingoperations: data and software.  The datasegment, which includes MicroPatent, Master Data Center (MDC) and IDRAC,provides a broad array of databases, information products and complementaryservices for intellectual property and regulatory professionals.  The software segment is comprised solely ofLiquent, a leading provider of life science regulatory intelligence and publishingsolutions.  Other includes unallocatedcorporate items, consisting primarily of corporate expenses, merger costs andinterest income earned on the Company’s taxable fixed income portfolio program(the Investment Program).  Corporateassets consist principally of cash, cash equivalents and investments.

 

OnFebruary 27, 2003, the Company entered into a definitive purchase agreement(the Purchase Agreement) to sell substantially all of the assets and certainliabilities of CRC Press and its subsidiaries (CRC) to CRC Press I LLC andRoutledge No. 2 Limited, both wholly owned subsidiaries of Taylor & FrancisGroup plc.  The transaction was completedon April 8, 2003.

 

OnDecember 1, 2003, the Company acquired the issued share capital of CDCSolutions Limited (CDC) for cash consideration of approximately $26.3million.  CDC, a leading provider of lifescience regulatory intelligence and publishing solutions, has been integratedwith the Company’s Liquent business.  Theresults of operations of the acquired business have been included in the ConsolidatedStatement of Operations from the date of acquisition.  Since CDC has been combined with Liquent, CDCoperations are included in the software segment for reporting purposes.

 

On December 22, 2003, the Company sold itsTranscender LLC (Transcender) business to a subsidiary of Kaplan, Inc.(Kaplan).  Under the terms of the AssetPurchase Agreement, Kaplan acquired substantially all of the assets and assumedcertain operating liabilities.  Thetransaction had an effective date of December 31, 2003.

 

In accordance with Statement of FinancialAccounting Standards No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, all assets,liabilities, results of operations and cash flows of Transcender and CRC havebeen segregated from those of continuing operations and are presented in theCompany’s financial statements as discontinued operations.  Additionally, the Company’s financialstatements have been reclassified to reflect Transcender and CRC as discontinuedoperations for all prior periods presented herein.

 

**CriticalAccounting Policies**

 

The discussion andanalysis of the Company’s financial condition and results of operations arebased on the Company’s consolidated financial statements.  The preparation of these financial statementsin conformity with accountingprinciples generally accepted in the United States requires management to

 

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make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  These estimates include, but are not limitedto, revenue recognition, bad debt allowances, income taxes, and the valuationof goodwill and other identified intangible assets.  The Company bases its estimates on historicalexperience and on various other assumptions that it believes to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Actual results may differ from these estimates under differentassumptions or conditions.

 

The Company’s criticalaccounting policies are disclosed in the Company’s 2003 Annual Report on Form10-K.  There have been no materialchanges to these policies during the first nine months of fiscal 2004.

 

**ConsolidatedResults of Operations**

 

*ThreeMonths Ended September 30, 2004 Compared to Three Months Ended September 30,2003*

 

*Summary*

 

Total revenues increased $4.4million, or 23%, to $23.3 million. Revenues increased by $2.1 million, or 14%, in the data segment and $2.3million, or 52%, in the software segment. During the quarter ended September 30, 2004, the Company derivedapproximately 56% of its revenues from product sales and approximately 44% fromservice revenues.

 

Productrevenues, which are derived from software license agreements, databasesubscriptions, and the sale of patent searching, retrieval and analysisproducts, increased $1.6 million, or 14%, to $13.1 million.  Overall, new and existing customers increaseddemand for the Company’s products in 2004. MicroPatent experienced increased volume of core subscription productsales and in file history transactional revenues, while IDRAC experienced anincrease in database subscriptions. Product revenues also increased as the result of the acquisition of CDCin December 2003.  Service revenues,which include fees for software maintenance, consulting, training, patentannuity and trademark renewal payment services, increased $2.8 million, or 37%,to $10.2 million.  The increase wasprimarily attributable to the growth of the service business as a result of theacquisition of CDC.  Service revenuesalso increased at MDC primarily as the result of volume increases inintellectual property management services, due to increased sales of existingservices to new customers, in addition to increased average pricing.

 

Totalcost of sales increased $0.7 million, or 11%, to $6.5 million.  Gross profit margins increased to 71.9% inthe third quarter of 2004, from 69.0% for the corresponding period in2003.  The improvement in gross profitswas due primarily to cost efficiencies as a result of the successfulintegration of the Company’s Liquent and CDC business units and the favorableimpact of foreign exchange at IDRAC.

 

Selling,general and administrative expenses (SG&A) increased by $0.9 million, or10%, to $10.1 million due primarily to operating expenses related to CDC.  Partially offsetting these expense increaseswere decreased severance costs, as the Company’s Liquent unit incurredseverance expenses of approximately $0.7 million in the prior year.  Depreciation and amortization increased by$0.1 million, or 4%, to $2.8 million due primarily to amortization ofintangible assets associated with the acquisition of CDC and the impact offoreign exchange fluctuations on amortization of intangible assets in theCompany’s IDRAC unit during the third quarter of 2004, partially offset bydecreased depreciation on property and equipment.

 

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Basedon the factors above, income from operations increased $2.7 million, or 236%,to $3.8 million.

 

Duringthe third quarter of 2004, the Company recorded $0.8 million of non-operatingexpenses directly related to proxy costs, legal and accounting servicesassociated with the pending acquisition of IHI by Thomson.

 

Netinterest income increased by $0.3 million, or 53%, to $0.8 million.  Interest income increased by approximately$0.3 million in 2004 due primarily to higher yields earned in the Company’sInvestment Program initiated in August 2003, and increased balances of cash andinvestments, including proceeds and tax refunds received related todiscontinued operations.

 

Basedon the factors above, income from continuing operations before income taxesincreased by $2.2 million to $3.8 million.

 

Theprovision for income taxes as a percentage of pre-tax income was approximately36% in the third quarter of 2004, compared to approximately 38% for thecorresponding period in 2003.  Theeffective tax rate differs from statutory rates primarily as a result of state,local and foreign income taxes and permanent items.  The decrease in the tax rate is due to thefavorable impact of permanent book-tax differences, which increased in dollaramount due to the CDC acquisition, partially offset by the increase in pre-taxincome.

 

Basedon the factors above, income from continuing operations increased by $1.4million to $2.5 million, or $0.12 per diluted common share, in the thirdquarter of 2004 from $1.0 million, or $0.05 per diluted common share, in thethird quarter of 2003.

 

Therewere no results from discontinued operations during the third quarter of 2004.Income from discontinued operations approximated $0.1 million, or $0.01 perdiluted common share, in the third quarter of 2003.  Income from discontinued operations in thethird quarter of 2003 relates to a slight revision in the gain on sale of CRCPress, partially offset by operating losses at Transcender.

 

TheCompany evaluates the performance of its segments based primarily on revenuesand EBITDA (earnings before interest, taxes, depreciation andamortization).  The Company believes thatEBITDA is the most useful measure of business unit earnings because it moreclosely approximates the cash generating ability of each business compared toincome (loss) from operations.  Income (loss)from operations includes charges for depreciation and amortization, themajority of which relate to amortization of intangible assets.  The Company generally does not incur capitalexpenditures to replace intangible assets within existing operations.  A reconciliation of segment EBITDA to income(loss) from continuing operations before income taxes is presented after thediscussion of operating results.

 

*SegmentReview*

 

*Data*

 

Totalrevenues increased $2.1 million, or 14%, to $16.6 million.  During the quarter ended September 30, 2004,the data segment derived approximately 71% of its revenues from product salesand approximately 29% from service revenues. Product revenues increased $0.9 million, or 8%, to $11.7 million.  The strongest areas of product revenue growthincluded:  patent informationsubscriptions; MicroPatent transactional revenues related to file histories;and database subscriptions at IDRAC.  Theprimary growth driver in each area was increased volume and, in the case ofIDRAC, favorable foreign exchange rates. MicroPatent volume growth relates primarily to sales of PatentWeb andAureka products to new customers, as well as file history sales to both new andexisting customers.  IDRAC

 

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volumegrowth relates primarily to increased sales of existing products and servicesto new customers.  Service revenuesincreased $1.2 million, or 33%, to $4.9 million.  Data segment service revenues, which are derivedsolely from MDC, increased primarily as the result of volume increases in intellectualproperty management services due primarily to sales of existing services to newcustomers, in addition to increased average pricing.

 

Totalsegment cost of sales increased $0.5 million, or 12%, to $4.6 million.  Total segment gross profit margins increasedto 72.3% in the third quarter of 2004, from 71.8% for the corresponding periodin 2003.  Gross product profit marginsincreased to 75.2% from 74.2%, while gross service profit margins increased to65.5% from 64.7%.   The increase in grossproduct profit margins is due primarily to higher gross profits at IDRAC, whichhad relatively flat costs while increasing revenues, while the increase ingross service profit margins is attributable to operating leverage associatedwith increased revenues at MDC.

 

Incomefrom operations increased $1.7 million, or 45%, to $5.4 million.  Income from operations increased dueprimarily to the gross profit increases noted above. SG&A expenses,depreciation and amortization were relatively consistent with the prior yearperiod.

 

EBITDAincreased $1.7 million, or 29%, to $7.6 million.  EBITDA margins approximated 46% in the thirdquarter of 2004, compared to 41% for the corresponding period in 2003, dueprimarily to the increase in gross profits.

 

*Software*

 

Revenuesincreased $2.3 million, or 52%, to $6.7 million.  All revenues in the segment relate toLiquent.  During the quarter endedSeptember 30, 2004, Liquent derived approximately 80% of its revenues fromservice revenues and approximately 20% from product sales.  Service revenues increased $1.6 million, or41%, to $5.4 million.  The increase ismainly attributable to increased volume in maintenance revenues as a result ofthe acquisition of CDC, coupled with volume growth related to sales of coresoftware products to existing customers of Liquent and CDC.  Product revenues increased $0.7 million, or114%, to $1.3 million due to revenues associated with the acquisition ofCDC.  Software product revenues werebelow expected levels due to the volume of completed license deals.  The Company’s pipeline of potential licensesales has remained relatively strong, although a lower percentage of deals haveclosed than historically experienced by the Company.  The Company currently expects to generateincreased license sales from its new *InSight Manager*products beginning in December 2004.

 

Totalsegment cost of sales increased $0.2 million, or 9%, to $1.9 million.  Total segment gross profits increased to71.0% during the third quarter of 2004, from 59.7% for the corresponding periodin 2003.  Gross service profit marginsincreased to 67.7% from 55.2%, while gross product profit margins decreased to84.1% from 86.7%.  Total software segmentgross profits increased primarily as a result of cost reduction initiatives andefficiencies resulting from the successful integration of the Company’s Liquentand CDC business units.

 

Lossfrom operations in this segment decreased $1.3 million to $0.3 million.  The improvement is due primarily to revenueincreases as a result of the acquisition of CDC and severance costs of $0.7million recorded in the prior year period, partially offset by:  costs associated with CDC in the thirdquarter of 2004; the impact of below expected overall software revenues due todelayed license deals; and the impact of additional amortization of CDCintangible assets.

 

EBITDAin this segment increased $1.5 million to $0.5 million.  EBITDA margins approximated 7% in the thirdquarter of 2004, whereas the segment experienced a loss in the third quarter of2003.  The most

 

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significantfactors in the increase were increased revenues, cost efficiencies resultingfrom the integration of CDC and the absence of severance costs in the currentyear period.

 

*Other*

 

Lossesfrom other operations increased by $0.3 million to $1.3 million in thirdquarter of 2004, due primarily to increased professional fees at corporate.

 

Duringthe third quarter of 2004, the Company recorded $0.8 million of non-operatingexpenses directly related to proxy costs, legal and accounting servicesassociated with the pending acquisition of IHI by Thomson.

 

*Nine Months EndedSeptember 30, 2004 Compared to Nine Months Ended September 30, 2003*

 

*Summary*

 

Totalrevenues increased $12.6 million, or 22%, to $71.0 million.  Revenues increased by $5.5 million, or 13%,in the data segment and $7.2 million, or 46%, in the software segment.  During the first nine months of 2004, the Companyderived approximately 58% of its revenues from product sales and approximately42% from service revenues.

 

Productrevenues, which are derived from software license agreements, databasesubscriptions, and the sale of patent search, retrieval and analysis products,increased $5.8 million, or 17%, to $41.2 million.  Overall, new and existing customers increaseddemand for the Company’s products in 2004. MicroPatent experienced increased volume of core subscription productsales and in file history transactional revenues, while IDRAC experienced anincrease in database subscriptions.  Product revenues also increased as the result of the acquisition of CDCin December 2003.  Service revenues,which include fees for software maintenance, consulting, training, patentannuity and trademark renewal services, increased $6.8 million, or 30%, to$29.7 million.  The increase wasprimarily attributable to the growth of the service business as a result of theacquisition of CDC.  Service revenuesalso increased at MDC primarily as the result of volume increases inintellectual property management services, due to increased sales of existingservices to new customers, in addition to increased average pricing.

 

Totalcost of sales increased $1.3 million, or 7%, to $20.0 million.  Gross profit margins increased to 71.9% inthe first nine months of 2004, from 68.1% in the corresponding period of2003.  The improvement in gross profitmargins is due primarily to cost efficiencies resulting from the successfulintegration of the Company’s Liquent and CDC business units, as well as a shiftin sales mix towards higher margin products at MicroPatent.

 

SG&Aincreased by $3.9 million, or 14%, to $31.1 million due primarily to operatingexpenses related to CDC.  Partiallyoffsetting these expense increases were decreased severance costs, as theCompany’s Liquent unit incurred severance expenses of approximately $0.8million in the prior year.  Depreciationand amortization increased by $0.8 million, or 10%, to $8.9 million dueprimarily to amortization of intangible assets associated with the acquisitionof CDC and the impact of foreign exchange fluctuations on amortization ofintangible assets in the Company’s IDRAC unit.

 

Basedon the factors above, income from operations increased $6.6 million, or 150%,to $11.0 million.

 

Duringthe first nine months of 2004, the Company recorded $1.4 million ofnon-operating expenses directly related to proxy costs, legal and accountingservices associated with the pending acquisition of IHI by Thomson.  The merger expenses were partially offset bya $0.4 million gain on sale of patents at MicroPatent recorded in 2004.  During the first nine months of 2003, theCompany charged 

 

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approximately$0.6 million to non-operating expenses associated with the early termination ofa credit agreement.  The earlytermination costs included approximately $0.5 million for the write-off ofunamortized fees, representing a non-cash charge.

 

Netinterest income increased by $1.0 million, or 78%, to $2.4 million.  Interest income increased by approximately$1.0 million in 2004 due primarily to higher yields earned in the Company’sInvestment Program initiated in August 2003, and increased balances of cash andinvestments, including proceeds received related to discontinued operations.

 

Basedon the factors above, income from continuing operations before income taxesincreased by $7.2 million, or 139%, to $12.3 million.

 

Theprovision for income taxes as a percentage of pre-tax income remainedrelatively stable at approximately 35% in the first nine months of 2004compared to 36% in the prior year period. The effective tax rate differs from statutory rates primarily as aresult of state, local and foreign income taxes and permanent items.  The tax rate remained relatively constant dueto the favorable impact of permanent book-tax differences, which increased indollar amount as a result of the CDC acquisition, offset by the increase inpre-tax income.

 

Basedon the factors above, income from continuing operations increased by $4.7million to $8.0 million, or $0.38 per diluted common share, in the first ninemonths of 2004 from $3.3 million, or $0.15 per diluted common share, in thefirst nine months of 2003.

 

(Loss)income from discontinued operations approximated $(1.4) million, or $(0.07) perdiluted common share, in the first nine months of 2004, compared to $29.7million, or $1.41 per diluted common share, in the first nine months of2003.  Loss from discontinued operationsin the first nine months of 2004 is related to charges for remaining abandonedreal estate obligations and severance following the disposition ofTranscender.  Income from discontinuedoperations in the first nine months of 2003 is related primarily to a gain onthe disposition of the assets of CRC. The gain totaled $30.7 million, net of income taxes associated with thetransaction of $16.1 million.

 

Areconciliation of segment EBITDA to income (loss) from continuing operationsbefore income taxes is presented after the discussion of operating results.

 

*SegmentReview*

 

*Data*

 

Totalrevenues increased $5.5 million, or 13%, to $48.2 million.  During the first nine months of 2004, thedata segment derived approximately 72% of its revenues from product sales andapproximately 28% from service revenues. Product revenues increased $2.9 million, or 9%, to $34.8 million.  The strongest areas of product revenue growthincluded:  patent informationsubscriptions; MicroPatent transactional revenues related to file histories;and database subscriptions at IDRAC.  Theprimary growth driver in each area was increased volume and, in the case ofIDRAC, favorable foreign exchange rates. MicroPatent volume growth relates primarily to sales of PatentWeb andAureka products to new customers, as well as file history sales to both new andexisting customers.  IDRAC volume growthrelates primarily to increased sales of existing products and services to newcustomers.  Service revenues increased$2.6 million, or 24%, to $13.4 million. Data segment service revenues, which are derived solely from MDC, increasedprimarily as the result of volume increases in intellectual property managementservices due primarily to sales of existing services to new customers, inaddition to increased average pricing.

 

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Totalsegment cost of sales increased $1.3 million, or 11%, to $13.7 million.  Total segment gross profit margins increasedto 71.5% in the first nine months of 2004, from 70.9% for the correspondingperiod in 2003.  Gross product profitmargins increased to 74.8% from 73.4%, while gross service profit marginsdecreased to 62.7% from 63.6%.   Theincrease in gross product profit margins is due primarily to higher grossprofits at MicroPatent resulting from increased web based transactions whichhave relatively fixed costs, while the decrease in gross service profit marginsis attributable to the increased production and customer service-relatedcompensation expense in the first half of the year at MDC.

 

Incomefrom operations increased $3.3 million, or 31%, to $14.1 million.  Income from operations increased dueprimarily to the gross profit increases noted above; partially offset by theincrease in compensation expense at MDC and increased amortization ofintangible assets at IDRAC due to exchange rate fluctuations.

 

Duringthe first nine months of 2004, MicroPatent recorded a gain of $0.4 million, netof associated deal costs of $0.2 million, related to the sale of patents.

 

EBITDAincreased $4.2 million, or 24%, to $21.2 million.  EBITDA margins approximated 44% in the firstnine months of 2004, compared to 40% in the first nine months of 2003.  The most significant factors in the increasewere the growth in segment revenues, partially offset by increased compensationexpense.

 

*Software*

 

Revenuesincreased $7.2 million, or 46%, to $22.8 million.  All revenues in the segment relate toLiquent.  During the first nine months of2004, Liquent derived approximately 72% of its revenues from service revenuesand approximately 28% from product sales. Service revenues increased $4.2 million, or 35%, to $16.4 million.  The increase is mainly attributable toincreased volume in maintenance revenues as a result of the acquisition of CDC,coupled with volume growth related to sales of core software products toexisting customers of Liquent and CDC. Product revenues increased $2.9 million, or 84%, to $6.4 million, dueprimarily to revenues associated with the acquisition of CDC.  Software product revenues were below expectedlevels due to the volume of completed license deals.  The Company’s pipeline of potential licensesales has remained relatively strong, although a lower percentage of deals haveclosed than historically experienced by the Company.  The Company currently expects to generateincreased license sales from its new *InSight Manager*products beginning in December 2004.

 

Totalsegment cost of sales was consistent with the prior year at $6.2 million.  Total segment gross margins increased to72.7% in the first nine months of 2004, from 60.2% for the corresponding periodin 2003.  Gross service margins increasedto 66.6% from 52.7%, while gross product margins increased to 88.1% from86.4%.   Total software segment grossmargins increased primarily as a result of cost reduction initiatives andefficiencies resulting from the successful integration of the Company’s Liquentand CDC business units.

 

Income(loss) from operations in this segment increased $3.2 million to $0.7million.  Income from operationsincreased at Liquent due primarily to the revenue increases resulting from theDecember 2003 acquisition of CDC and decreased severance costs, partiallyoffset by a full nine months of costs associated with CDC in 2004 and theimpact of additional amortization of CDC intangible assets.  Income from operations trailed expectedlevels due to impact of license sales discussed above.

 

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EBITDAin this segment increased $3.7 million to $3.1 million.  EBITDA margins approximated 14% in the firstnine months of 2004, compared to a loss in the prior year period.  The most significant factors in the increasewere increased revenues, decreased severance costs and cost efficienciesresulting from the integration of CDC.

 

*Other*

 

Lossesfrom other operations decreased by $0.1 million, to $3.8 million in the firstnine months of 2004.  Losses from otheroperations were relatively consistent, with a decrease in costs related topatent licensing activities in the Company’s LPS unit offset by slightly highercorporate overhead costs.

 

Duringthe first nine months of 2004, the Company recorded $1.4 million ofnon-operating expenses directly related to proxy costs, legal and accountingservices associated with the pending acquisition of IHI by Thomson.  During the first nine months of 2003, theCompany charged approximately $0.6 million to non-operating expenses associatedwith the early termination of a credit agreement.  The early termination costs includedapproximately $0.5 million for the write-off of unamortized fees, representinga non-cash charge.

 

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A reconciliation of segment EBITDAto income (loss) from continuing operations before income taxes follows:

 
| ** **                                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | *** *** |
|---------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------------|
| **(In thousands)**                                            | ** ** | **2004**                              | ** ** | **2003**                             | ** **   | **2004** | ** ** | **2003** | *** *** |
| ** **                                                    | ** ** | ** **                            | ** ** | ** **                           | ** **   | ** ** | ** ** | ** ** | ** ** |
| *Data segment*                                                |       |                                  |       |                                 |         |   |   |   |   |
| EBITDA                                                        |       | $                                     | 7,555      |                                 | $            | 5,877 |   | $ | 21,203 |   | $ | 17,037 |   |
| Amortization of capitalized software                          |       | —                                |       | (2                                   | )            | (1 | ) | (11 | ) |
| Depreciation and amortization                                 |       | (2,136                                | )          | (2,133                               | )            | (6,696 | ) | (6,309 | ) |
| Interest income, net                                          |       | 61                                    |       | 21                                   |         | 151 |   | 140 |   |
| Income from continuing operations before  income taxes        |       | 5,480                                 |       | 3,763                                |         | 14,657 |   | 10,857 |   |
|                                                          |       |                                  |       |                                 |         |   |   |   |   |
| *Software segment*                                            |       |                                  |       |                                 |         |   |   |   |   |
| EBITDA                                                        |       | 482                                   |       | (995                                 | )            | 3,134 |   | (612 | ) |
| Amortization of capitalized software                          |       | (75                                   | )          | (42                                  | )            | (224 | ) | (118 | ) |
| Depreciation and amortization                                 |       | (700                                  | )          | (581                                 | )            | (2,168 | ) | (1,730 | ) |
| Interest income (expense), net                                |       | 5                                     |       | (4                                   | )            | 11 |   | (11 | ) |
| (Loss) income from continuing operations  before income taxes |       | (288                                  | )          | (1,622                               | )            | 753 |   | (2,471 | ) |
|                                                          |       |                                  |       |                                 |         |   |   |   |   |
| *Other*                                                       |       |                                  |       |                                 |         |   |   |   |   |
| EBITDA                                                        |       | (2,075                                | )          | (986                                 | )            | (5,279 | ) | (4,402 | ) |
| Depreciation and amortization                                 |       | (3                                    | )          | (5                                   | )            | (12 | ) | (34 | ) |
| Interest income, net                                          |       | 726                                   |       | 502                                  |         | 2,205 |   | 1,198 |   |
| Loss from continuing operations before  income taxes          |       | (1,352                                | )          | (489                                 | )            | (3,086 | ) | (3,238 | ) |
|                                                          |       |                                  |       |                                 |         |   |   |   |   |
| *Consolidated*                                                |       |                                  |       |                                 |         |   |   |   |   |
| EBITDA                                                        |       | 5,962                                 |       | 3,896                                |         | 19,058 |   | 12,023 |   |
| Amortization of capitalized software                          |       | (75                                   | )          | (44                                  | )            | (225 | ) | (129 | ) |
| Depreciation and amortization                                 |       | (2,839                                | )          | (2,719                               | )            | (8,876 | ) | (8,073 | ) |
| Interest income, net                                          |       | 792                                   |       | 519                                  |         | 2,367 |   | 1,327 |   |
| Income from continuing operations before  income taxes        |       | $                                     | 3,840      |                                 | $            | 1,652 |   | $ | 12,324 |   | $ | 5,148 |   |

 

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**Liquidityand Capital Resources**

 

*The ThomsonMerger Agreement*

 

OnJune 28, 2004, the Company entered into a Merger Agreement with Thomson, aglobal leader in providing integrated information solutions to business andprofessional customers.  Under the termsof the Merger Agreement, a Thomson subsidiary will acquire all of theoutstanding common stock of Information Holdings Inc. at a price of $28.00 pershare in cash, representing an aggregate cost of approximately $441 million,net of cash and investments held by IHI, as of the date of the MergerAgreement.  Consummation of thetransaction is subject to regulatory approvals and other customary closingconditions.  The IHI stockholdersapproved the Merger Agreement at a special meeting of its stockholders held onAugust 31, 2004.  Fees associated withthe transaction and incurred for the nine months ended September 30, 2004approximated $1.4 million.  Assumingcompletion of the transaction by December 31, 2004, IHI expects to incuradditional expenses related to this transaction totaling approximately $5million, which include:  investmentbanking, legal and accounting fees, and other fees and expenses associated withthe transaction.  A significant portionof the remaining fees are only payable only upon completion of the sale of IHI.

 

TheCompany has agreed to certain restrictions during the period between the signingof the Merger Agreement and the completion of the merger related to itemsincluding, among other things: changes in capital structure, dividends, changesin organizational documents, acquisitions and dispositions, materialagreements, employee benefits and compensation, accounting and tax practices,and capital expenditures.   Theserestrictions may limit the Company’s ability to engage in certain transactionsand to fund certain projects it may have otherwise engaged in.  Additionally, the Company must pay to Thomson$20 million if the Merger Agreement is terminated under the circumstancesset forth in the Merger Agreement and the Proxy Statement.  As described in the proxy statementsupplement, under the terms of the memorandum of understanding, which issubject to certain conditions, setting forth the terms of a negotiatedsettlement of the purported class action lawsuit described in Note H –*Legal Proceedings*, the termination feepayable to Thomson would be reduced from $20 million to $18.5 million.  Any payment of any such termination fee wouldmaterially reduce the Company’s cash and working capital.

 

During the period between thesigning of the Merger Agreement and the completion of the merger, the Companyhas certain restrictions on the use of its cash, as discussed in Note B – *The Thomson Merger Agreement*.  Theprimary provision related to cash and investments requires the Company toreinvest proceeds from investments that mature into short-term (less than30-day) U.S. dollar deposits.

 

*Transcender Sale*

 

OnDecember 31, 2003, the Company completed the sale of its Transcender businessunit.  The Company received net proceedsof $9.0 million representing the cash consideration for the assets sold lessdeal related expenses.  In connectionwith the sale of Transcender, effective May 31, 2004 (the Abandonment Date),the Company abandoned certain office and warehouse space (the TranscenderSpace).  As of the Abandonment Date, theCompany accrued approximately $1.7 million representing future lease commitments,net of estimated sublease income of $1.0 million associated with theTranscender Space.   The Company hasincurred approximately $250,000 of real estate costs since theAbandonment Date.  The remaining lease commitmentis expected to be paid over the life of the lease, which expires in March2008.  The Company is actively seeking tosublet the Transcender Space, but there is no assurance that the Company willbe able to sublet the space. Accordingly, the Company may incur an additional charge to discontinuedoperations related to the remaining lease commitment in the future.

 

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*CRC Sale*

 

OnApril 8, 2003, the Company completed the sale of CRC and received net proceedsof approximately $90 million, representing the cash consideration for theassets sold less deal related expenses and an adjustment made based on theclosing balance sheet of CRC in accordance with the underlying PurchaseAgreement. On April 8, 2004, the Company received $3.0 million of proceedspreviously held in escrow related to certain representations and warrantiescontained in the Purchase Agreement.  Allproceeds previously held in escrow were classified as Restricted cash in theConsolidated Balance Sheets.  The Companyhas no material obligations remaining related to this transaction, nor does ithave any additional future proceeds.

 

# ***CDC Acquisition***

 

OnDecember 1, 2003, the Company acquired the issued share capital of CDC for cashconsideration of approximately $26.3 million, including approximately $3.8million currently held in escrow for estimated guaranteed earnouts as definedand calculated in accordance with the underlying Share Purchase Agreement(SPA).

 

Underthe terms of the SPA, the sellers are entitled to potential futureconsideration dependent on future operating results.  In addition to guaranteed futureconsideration of approximately $3.8 million, which has been paid into escrow,the Company has a further liability to the sellers based on the combined futureoperating results of Liquent and CDC for the three year period ending December31, 2006 (the Earnout Consideration). The specific provisions of each contingency are detailed in Note E - *Acquisition*.  The Earnout Consideration could be as littleas zero and as much as £10,000,000. Amounts due for Earnout Consideration, if any, will be paid during thesecond quarter of 2007 unless the provisions related to a change in control asoutlined in Note E – *Acquisition*come into effect.

 

Allpayments associated with the transaction are expected to be paid from cash onhand or from operating cash flow from existing businesses.

 

*Nine Months EndedSeptember 30, 2004 Cash Flows*

 

Cashand cash equivalents, including short-term investments, totaled $68.1 millionat September 30, 2004 compared to $52.0 million at December 31, 2003.  During the first half of 2004, the Companyreceived a federal income tax refund of approximately $10.8 million as a resultof the sale of Transcender and $3.0 million for amounts previously held in escrowrelated to the sale of CRC.  Theaforementioned funds have been invested in accordance with the Company’sInvestment Program.  At September 30,2004, the Company’s Investment Program also included $86.1 million of long-terminvestments, comprised of U.S. government notes, collateralized mortgageobligations, and corporate notes and bonds. Maturities of the Company’s long-term investments range from one tothree years.  Excluding cash, cashequivalents and short-term investments, the Company’s continuing operations hadworking capital deficits at September 30, 2004 and at December 31, 2003.  The Company receives patent annuity paymentsand subscription payments in advance and, therefore, the Company’s existingoperations are expected to maintain very low or negative working capitalbalances, excluding cash, cash equivalents and short-term investments.  Included in current liabilities at September30, 2004, are obligations related to patent annuity payments of approximately$30.3 million and deferred revenue of approximately $22.3 million.  The Company’s cash position remains strongwith currently over $154 million in cash, cash equivalents and investments, andno debt.  These funds will be used forcash requirements of the Company’s existing operations for the foreseeablefuture including all contractual obligations as they become due.  The Company currently does not have anyagreements, arrangements or understandings with respect to any prospectivematerial acquisitions.  Pending suchuses, the Company will continue to manage the funds in accordance with IHI’sInvestment Program and the terms of the Merger Agreement.

 

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Cashgenerated from operating activities of continuing operations was $22.3 millionfor the nine months ended September 30, 2004, derived from income of $8.0million plus non-cash charges of $8.2 million and a decrease in net operatingassets of $6.1 million during the period. The decrease in net operating assets relates primarily to a decrease inincome taxes receivable, resulting from a federal income tax refund ofapproximately $10.8 million received during March 2004.  Estimated income tax payments made during2003 were refunded to the Company in 2004 as a result of tax losses realizedfrom the sale of Transcender in December 2003. The decrease in net operating assets was also due to a net decrease inaccounts receivable.  The mostsignificant receivables decreases were at MicroPatent and IDRAC wherecollections continue to be strong.  Thesedecreases were partially offset by an increase in receivables at MDC, due totiming of customer cash receipts.  Thesedecreases in net operating assets were partially offset by a decrease inaccrued expenses primarily at Liquent based on the payment of integration anddeal related costs associated with the acquisition of CDC, a business acquiredin December 2003.  In addition, deferredrevenue decreased at MicroPatent and IDRAC based on the timing of therecognition of deferred subscription revenue.

 

Cashused in investing activities from continuing operations was $4.0 million forthe nine months ended September 30, 2004 due primarily to an increase ininvestment purchases, net of sales and maturities, of $1.8 million andadditional transaction costs of $1.4 million paid in the first nine months of2004 related to the dispositions of CRC and Transcender.  These uses of cash were partially offset bythe receipt of $3.0 million of proceeds previously held in escrow related tothe sale of CRC, net proceeds received by the Company of $0.5 million resultingfrom the Patent Sale and $0.3 million of additional proceeds received on thesale of Transcender as a result of a post-closing adjustment.  Capital expenditures, including capitalizedsoftware costs, approximated $4.6 million for the nine months ended September30, 2004.  Excluding acquisitions ofbusinesses, the Company’s existing operations are not capital intensive.

 

Cashprovided by financing activities from continuing operations was $0.8 millionfor the nine months ended September 30, 2004, primarily the result of net cashproceeds received from the issuance of common stock from stock optionexercises.  As of September 30, 2004,approximately $35 million remains authorized for future common stock repurchasespursuant to the Company’s share buyback program.  During the period between the signing of theMerger Agreement and the completion of the merger, the Company is prohibitedfrom repurchasing shares.

 

Theeffect of exchange rates on cash and cash equivalents were immaterial in theperiod.  Exchange rates were impacted byforeign currency translation of local currency to the U.S. dollar of balancesrecorded within the Company’s European subsidiaries IDRAC and Liquent.

 

*FutureNoncancelable Minimum Lease Payments*

Futureannual minimum lease payments including estimated escalation amounts undernoncancelable operating leases as of September 30, 2004 are as follows (in thousands):

 

| **Year ending December 31,**  | ** ** | ** ** | ** ** |
|-------------------------------|------------|------------|------------|
| 2004 (remaining three months) |       | $          | 808        |   |
| 2005                          |       | 2,800      |       |
| 2006                          |       | 1,735      |       |
| 2007                          |       | 1,443      |       |
| 2008                          |       | 928        |       |
| Thereafter                    |       | 3,476      |       |
| Total minimum lease payments  |       | $          | 11,190     |   |

 

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Based on past performance andcurrent expectations, the Company believes that available cash and cashequivalents, together with funds generated from operations and amounts includedin its Investment Program will be sufficient to fund the cash requirements ofits existing operations for the foreseeable future including all contractualobligations as they become due. Other than normal operating expenses, cashrequirements for the balance of 2004 are expected to consist primarily ofcapital expenditures related to enhancements to the Company’s productioncapacity and information systems.  Future operating requirements andcapital needs may be subject to economic conditions and other factors, many ofwhich are beyond the Company’s control.

 

During the period between thesigning of the Merger Agreement and the completion of the merger, the Companyhas certain restrictions on the use of its cash, as discussed in Note B — *The Thomson Merger Agreement*.  Amongthese restrictions is the requirement to obtain the consent of Thomson foracquisitions and for capital expenditures on an individual basis in excess of$250,000 or in an aggregate amount in excess of $1.3 million for the fourthquarter of 2004 and $1.5 million per quarter thereafter.  The Companybelieves that it can fund its normal capital requirements within the prescribedlimits.

 

**Seasonality and QuarterlyResults**

 

The Company does not believe itsbusinesses have significant seasonality. However, new product launches and the timing of license sales may affectquarterly results.  Accordingly, resultsfor any quarter are not necessarily indicative of the results that may beachieved for the full year.

 

**Item 3****.****           *Quantitativeand Qualitative Disclosure About Market Risk***

* *

*Interest Rate Risk* - The primary objectiveof the Company’s investment activities is to preserve the principal while atthe same time maximizing yields without significantly increasing the risk.  To achieve this objective, the Companymaintains its portfolio of cash equivalents and investments in a variety ofsecurities, including U.S. government notes, collateralized mortgageobligations, and corporate notes and bonds. As of September 30, 2004, approximately 10% of the Company’s portfoliomatures in one year or less, with the remainder maturing in less than threeyears.   The Company does not usederivative financial instruments in its investment portfolio.  Investments are placed with high creditquality issuers and, by policy, the Company limits the amount of creditexposure to any one issuer.  The Companydoes not hold securities for trading purposes.

 

At anytime, a sharp rise in interest rates could have a material adverse impact onthe 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.  As of September 30, 2004,the aggregate fair value of available-for-sale securities yielding unrealizedlosses amounted to approximately $83,146,000. Due to the short-term nature of unrealized loss positions, no unrealizedlosses are considered to be other than temporary.  The Company does not currently hedge interestrate exposures.

 

*Foreign Currency ExchangeRate Risk*-**The financial statements of the Company’s foreignsubsidiaries are translated from the local currency into U.S. dollars.  Assets and liabilities are translated usingexchange rates in effect at the balance sheet date, 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 are translated ataverage monthly exchange rates, and translation adjustments are charged andcredited 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 quarters ended September 30, 2004and 2003, the Company’s operating results include net foreign exchange lossesof $41,000 and $43,000, respectively. During the nine months ended September 30, 2004 and 2003, the Company’soperating results include net foreign exchange losses of $45,000 and $49,000,respectively.

 

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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, 2004, the subsidiary of the Company had entered into forwardcontracts to acquire various international currencies, all having maturities ofless than seven months, aggregating approximately $29,921,000.  Net realized gains relating to forwardcontracts for the three and nine months ended September 30, 2004 were $85,000and $208,000, respectively.  Net realizedgains and losses relating to forward contracts were immaterial for the threeand nine months ended September 30, 2003.

 

TheCompany has only limited involvement with derivative financial instruments anddoes not use them for trading purposes.

 

**Item 4****.****           *Controlsand Procedures***

 

As of September 30, 2004, anevaluation 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-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based on that evaluation, the Company’smanagement, including the CEO and CFO, concluded that the Company’s currentdisclosure controls and procedures were effective as of September 30, 2004.  During the third quarter of 2004 theCompany’s MicroPatent subsidiary upgraded its integrated accounting software, whichincludes a contracts reporting module, in order to improve its internalcontrols over financial reporting.  Exceptas noted above, there have been no other changes in the Company’s internal controlsover financial reporting during the most recent quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.

 

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**PART II**. OTHER INFORMATION

 

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

 

Reference is made to Part I, Item3, *Legal Proceedings*, in the Company’s Form10K for the fiscal year ended December 31, 2003 and to Part II, Item 1, *Legal Proceedings*, in the Company’s Quarterly Reports onForm 10-Q for the quarters ended March 31, 2004 and June 30, 2004, for acomplete description of the proceedings reported therein and certain subsequentdevelopments of the proceedings reported therein.

 

In addition, from time to time theCompany is a party to other legal and administrative proceedings, claims, andlitigation arising in the ordinary course of its business.  While the outcome of these matters iscurrently not determinable, management does not expect that the ultimate coststo resolve these matters either singularly or in aggregate will have a materialadverse effect on the Company’s consolidated financial position, results ofoperations or cash flows.

 

**Item 4****.****           *Submission of Matters to a Vote of Security Holders***

 

ASpecial Meeting of the Company’s Stockholders was held on August 31, 2004.  A total of 17,378,519 shares, or 83% of thetotal outstanding shares, were represented and entitled to vote.  The following proposals were approved by thevotes indicated below:

 

(a)                                  A proposal for the adoption of the Agreementand Plan of Merger, dated as of June 28, 2004, among Information Holdings Inc.,The Thomson Corporation, an Ontario, Canada corporation (Thomson), and ThymeCorporation, a Delaware corporation and an indirect wholly owned subsidiary ofThomson (Thyme).

 

| Affirmative Votes |   | 17,053,383 |   |
|-------------------|--------|------------|--------|
| Negative Votes    |   | 15,036     |   |
| Abstain           |   | 310,100    |   |

 

(b)                                 A proposal to grant the persons named asproxies discretionary authority to vote to adjourn the Special Meeting, ifnecessary.

 

| Affirmative Votes |   | 14,419,366 |   |
|-------------------|--------|------------|--------|
| Negative Votes    |   | 2,642,525  |   |
| Abstain           |   | 316,628    |   |

 

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**Item 6****.****           *Exhibits and Reports on Form 8-K***

 

(a)                                  Exhibits

 
| **No.** | ** ** | **Description**                                                                                                                                                                     |
|---------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                |
| 31.1    |       | Certification of Principal  Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|    |       |                                                                                                                                                                                |
| 31.2    |       | Certification of Principal  Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of  1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|    |       |                                                                                                                                                                                |
| 32.1    |       | Certification of Principal  Executive 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          |
|    |       |                                                                                                                                                                                |
| 32.2    |       | Certification of Principal  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

 

On July 23, 2004, the Company furnished a CurrentReport on Form 8-K announcing the preliminary financial results of the Companyfor the quarter ended June 30, 2004.  Inaccordance with Item 12 of Form 8-K, the Form 8-K and the press releaseattached as an exhibit thereto were furnished and not “filed” with the SEC.

 

On August 12, 2004, the Company filed a CurrentReport on Form 8-K announcing that IHI and Thomson have received a request foradditional information and documentary material from the Department of Justice(DOJ) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 followingthe DOJ’s review of the proposed acquisition of IHI by Thomson. The PressRelease was attached thereto as an exhibit and was incorporated therein byreference.

 

On August 31, 2004, the Company filed a CurrentReport on Form 8-K announcing that at the IHI Special Stockholders’ Meetingheld on August 31, 2004, the stockholders of IHI voted to adopt the Agreementand Plan of Merger, dated as of June 28, 2004, by and among IHI, Thomson, andThyme.  The press release was attachedthereto as an exhibit and was incorporated therein by reference.

 

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**SIGNATURE**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                               |   |   |   |                          | INFORMATION  HOLDINGS INC. |
|------------------------------------|--------|--------|--------|-------------------------------|----------------------------|
|                               |   |   |   |                          |                       |
|                               |   |   |   |                          |                       |
| Date:   November 3, 2004 |   |   | 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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