SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 001-12275
COGNIZANT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1450569
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(State of Incorporation) (I.R.S. Employer Identification No.)
200 Nyala Farms, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 222-4200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d)of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title of Class Shares Outstanding
Common Stock, at June 30, 1997
par value $.01 per share 164,189,009
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COGNIZANT CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE(S)
Item 1. Financial Statements
Condensensed Consolidated Statements of Income (Unaudited)
Three Months Ended June 30, 1997 and 1996 3
Six Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Financial Position (Unaudited)
June 30, 1997 and December 31, 1996 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
<CAPTION>
Three Months Ended
June 30,
-------------------------------------------
<S> <C> <C>
1997 1996
------------------ ----------------
Operating Revenue $ 464,609 $ 415,703
Operating Costs 195,377 174,138
Selling and Administrative Expenses 139,431 127,166
Depreciation and Amortization 34,642 32,487
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Operating Income 95,159 81,912
Interest Income 3,832 1,615
Interest Expense (131) (143)
Other Expense - Net (10,542) (6,821)
------------------ ----------------
Non-Operating Expense - Net (6,841) (5,349)
Income Before Provision for Taxes 88,318 76,563
Provision for Income Taxes (28,263) (33,688)
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Net Income $ 60,055 $ 42,875
================== ================
Earnings Per Share of Common Stock $.36 $.25
================== ================
Average Number of Shares Outstanding 165,526,000 170,057,000
================== ================
<FN>
See accompanying notes to the condensed consolidated financial statements (unaudited)
</FN>
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<TABLE>
COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
<CAPTION>
Six Months Ended
June 30,
-------------------------------------------
<S> <C> <C>
1997 1996
---------------- ----------------
Operating Revenue $ 899,310 $ 785,722
Operating Costs 388,493 334,682
Selling and Administrative Expenses 266,277 244,334
Depreciation and Amortization 72,134 65,816
---------------- ----------------
Operating Income 172,406 140,890
Interest Income 9,202 3,702
Interest Expense (581) (411)
Gains from Dispositions 5,436 0
Other Expense - Net (20,343) (8,194)
---------------- ----------------
Non-Operating Expense - Net (6,286) (4,903)
Income Before Provision for Taxes 166,120 135,987
Provision for Income Taxes (53,160) (59,835)
---------------- ----------------
Net Income $ 112,960 $ 76,152
================ ================
Earnings Per Share of Common Stock $.67 $.45
================ ================
Average Number of Shares Outstanding 167,610,000 169,808,000
================ ================
<FN>
See accompanying notes to the condensed consolidated financial statements (unaudited).
</FN>
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<TABLE>
COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(Dollar amounts in thousands)
<CAPTION>
<S> <C> <C>
June 30, December 31,
1997 1996
------------------- --------------------
Assets
Current Assets
Cash and Cash Equivalents $ 429,204 $ 428,520
Accounts Receivable-Net 469,910 453,791
Other Current Assets 109,810 112,151
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Total Current Assets 1,008,924 994,462
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Marketable Securities and Other Investments 133,347 117,706
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Property, Plant and Equipment-Net 263,174 268,888
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Other Assets-Net
Computer Software 139,002 139,040
Goodwill 237,282 251,483
Other Assets 105,608 103,403
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Total Other Assets-Net 481,892 493,926
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Total Assets $ 1,887,337 $ 1,874,982
=================== ====================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts and Notes Payable $ 53,075 $ 46,923
Accrued and Other Current Liabilities 242,843 266,932
Accrued Income Taxes 61,193 63,416
Deferred Revenues 353,685 292,970
------------------- --------------------
Total Current Liabilities 710,796 670,241
Postretirement and Postemployment Benefits 60,279 60,269
Deferred Income Taxes 85,746 105,074
Minority Interests 225,434 90,635
Other Liabilities 74,356 76,150
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Total Liabilities 1,156,611 1,002,369
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Shareholders' Equity 730,726 872,613
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Total Liabilities and Shareholders'Equity $ 1,887,337 $ 1,874,982
=================== ====================
<FN>
See accompanying notes to the condensed consolidated financial statements (unaudited).
</FN>
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<TABLE>
COGNIZANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1997 1996
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 112,960 $ 76,152
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 72,134 65,816
Gain from Sale of Investment (5,436) 0
Restructuring Payments 0 (2,036)
Postemployment Benefits Expense 0 3,334
Postemployment Benefits Payments (4,059) (8,751)
Payments Related to 1995 Non-recurring Charge (2,886) (8,073)
Net (Increase) Decrease in Accounts Receivable (32,533) 7,083
Net Increase in Deferred Revenues 63,214 24,437
Minority Interest Expense 18,960 12,006
Deferred Income Taxes 8,861 26,255
Net (Decrease) Increase in Accrued Income Taxes (21,620) 2,822
Net Increase in Other Working Capital Items (28,694) (41,612)
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Net Cash Provided by Operating Activities 180,901 157,433
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Cash Flows from Investing Activities:
Proceeds from Maturities of Marketable Securities 18,285 14,129
Payments for Marketable Securities (15,488) (44,685)
Payments for Acquisitions of Businesses (8,128) 0
Proceeds from Sale of Investments 17,999 0
Capital Expenditures (47,668) (27,846)
Additions to Computer Software (27,921) (16,877)
Additions to Deferred Charges (14,543) (13,817)
(Increase) Decrease in Investments (14,831) 3,455
Other 19,309 (738)
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Net Cash Used in Investing Activities (72,986) (86,379)
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Cash Flows from Financing Activities:
Payments for Purchase of Treasury Shares (204,564) 0
Proceeds from Exercise of Stock Options 4,345 0
Payments of Dividends (10,092) 0
Other Stock Transactions with Employees 8,706 6,390
Net Transfers to The Dun & Bradstreet Corporation 0 (44,359)
Third-Parties Investment in Partnerships 100,000 0
Other (538) (4,350)
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Net Cash Used in Financing Activities (102,143) (42,319)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (5,088) (1,788)
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Increase in Cash and Cash Equivalents 684 26,947
Cash and Cash Equivalents, Beginning of Year 428,520 157,105
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Cash and Cash Equivalents, End of Period $ 429,204 $ 184,052
=====================================================================================================================
<FN>
See accompanying notes to the condensed consolidated financial statements (unaudited).
</FN>
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COGNIZANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollar amounts in thousands - (Unaudited)
Note 1- Interim Consolidated Financial Statements
These interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the consolidated financial statements and related notes of Cognizant
Corporation (the "Company") in the 1996 Annual Report on Form 10-K. In the
opinion of management, all adjustments considered necessary for a fair
presentation of financial position, results of operations and cash flows for the
periods presented have been included. Certain prior-year amounts have been
reclassified to conform with the 1997 presentation.
Note 2 - Investment Partnership
Three of the Company's subsidiaries participate in a limited partnership,
one of which serves as general partner. In the second quarter, third party
investors contributed $100 million to the partnership, in exchange for limited
partnership interests. The partnership, which is a separate and distinct legal
entity, is in the business of licensing database assets and computer software.
For financial reporting purposes, the assets, liabilities, results of operations
and cash flows of the partnership are included in the Company's consolidated
financial statements.
Note 3 - Investments
As of June 30, 1997, the Company had the ability to exercise voting control
of Gartner Group Inc. ("Gartner"), with a voting interest exceeding 50%.
Accordingly, the Company has continued to consolidate Gartner. In the third
quarter, the Company expects its voting interest will fall below 50%, based upon
the exercise of Gartner employee stock options. When this occurs, the Company
will deconsolidate Gartner and account for its ownership interest on the equity
basis. Additionally, prior quarters of 1997 will be restated to deconsolidate
and present Gartner on an equity basis. Although net income and earnings per
share will remain the same, revenue and operating income for these prior
quarters will be restated.
In July 1997, the Company realized gains arising from the sale of certain
Cognizant Enterprise Investments and will continue to consider opportunities to
monetize such investments.
In a separate third quarter assessment, management is evaluating strategic
options for Pilot Software, which might include divestiture, restructuring or
reorganization.
Any actions taken regarding these investments are not expected, in
aggregate, to have a significant impact on the Company's results of operations
or financial position.
Note 4 - Litigation
The Company and its subsidiaries are involved in legal proceedings and
litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal
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Note 4 - Litigation (continued)
proceedings, claims and litigation, if decided adversely, could have a
material effect on quarterly or annual operating results or cash flows when
resolved in a future period. However, in the opinion of management, these
matters will not materially affect the Company's consolidated financial
position.
In addition, on July 29, 1996, Information Resources, Inc. ("IRI") filed a
complaint in the United States District Court for the Southern District of New
York, naming as defendants The Dun & Bradstreet Corporation ("Dun &
Bradstreet"), A.C. Nielsen Company ("A.C. Nielsen") and I.M.S. International,
Inc. ("IMS"), a company that is owned by the Company (the "IRI Action").
The complaint alleges various violations of the United States antitrust
laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with contract and a
claim of tortious interference with a prospective business relationship. These
claims relate to the acquisition by defendants of Survey Research Group Limited
("SRG"). IRI alleges that SRG violated an alleged agreement with IRI when it
agreed to be acquired by the defendants and that the defendants induced SRG to
breach that agreement. IRI's complaint alleges damages in excess of $350,000,
which amount IRI has asked to be trebled under the antitrust laws. IRI also
seeks punitive damages in an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in
the complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen filed a counterclaim alleging
that IRI has made false and misleading statements about its services and
commercial activities. On July 7, 1997, IRI filed an amended complaint
repleading its claim of attempted monopolization in the United States and
realleging its other claims.
In connection with the IRI Action, Dun & Bradstreet, ACNielsen Corporation
("ACNielsen") (the parent company of A.C. Nielsen) and the Company have entered
into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint Defense
Agreement") pursuant to which they have agreed (i) to certain arrangements
allocating potential liabilities ("IRI Liabilities") that may arise out of or in
connection with the IRI Action and (ii) to conduct a joint defense of such
action. In particular, the Indemnity and Joint Defense Agreement provides that
ACNielsen will assume exclusive liability for IRI Liabilities up to a maximum
amount to be calculated at the time such liabilities, if any, become payable
(the "ACN Maximum Amount"), and that the Company and Dun & Bradstreet will share
liability equally for any amounts in excess of the ACN Maximum Amount.
The ACN Maximum Amount will be determined by an investment banking firm as
the maximum amount which ACNielsen is able to pay after giving effect to (i) any
plan submitted by such investment bank which is designed to maximize the
claims-paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion (but which will not
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Note 4 - Litigation (continued)
require any action requiring stockholder approval), and (ii) payment of
related fees and expenses. For these purposes, financial viability means the
ability of ACNielsen, after giving effect to such plan, the payment of related
fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as
they become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
Management of the Company is unable to predict at this time the final
outcome of this matter or whether the resolution of the matter could materially
affect the Company's results of operations, cash flows or financial position.
Note 5 - Financial Instruments with Off-Balance-Sheet Risk
IMS uses foreign exchange forward contracts which provide for the sale of
foreign currencies to hedge a portion of committed revenues. While these hedging
instruments are subject to fluctuations in value, such fluctuations are offset
by changes in the value of the underlying exposures being hedged. The principal
currencies hedged are the Japanese Yen, German Mark, Swiss Franc and Italian
Lira. At May 31, 1997, the notional amount hedged was $56,000. These forward
contracts are valued at market quotes and have expiration dates through July
1997. Gains and losses on forward contracts of committed foreign currency
revenues are included in deferred revenues and deferred until such revenues are
recognized.
In addition, foreign exchange forward contracts are entered into in the
normal course of business to hedge against foreign exchange movements on certain
assets and liabilities of subsidiaries that are denominated in currencies other
than the subsidiary's functional currency. At May 31, 1997, IMS had
approximately $84,000 in foreign exchange forward contracts outstanding with
various expiration dates through June 1997.
The Company does not use any derivatives for trading or speculative
purposes. If a derivative ceases to qualify for hedge accounting, it is
accounted for on a mark-to-market basis.
Note 6 - Adoption of Statements of Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share" which simplifies existing computational guidelines, revises disclosure
requirements and increases the comparability of earnings per share data on an
international basis. The Company is currently evaluating the new statement;
however, the impact of adoption of SFAS No. 128 on the Company's financial
statements is not expected to be significant. This statement is effective for
financial statements for periods ending after December 15, 1997 and requires
restatement of all prior period earnings per share data presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in comprehensive income be shown in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for periods ending after
December 15, 1997. Management has not yet evaluated the effects of this change
on the Company's financial statements.
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Note 6 - Adoption of Statements of Financial Accounting Standards - (continued)
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers, and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
financial statements for periods ending after December 15, 1997. Management has
not yet evaluated the effects of this change on the Company's financial
statements.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollar amounts in thousands, except per share data)
Revenue for the second quarter of 1997 increased 11.8% to $464,609 from
$415,703 for the second quarter of the prior year. For the quarter ended March
31, 1996, reported results for Gartner, included in Cognizant's financial
statements, varied from Gartner's reported results, due to timing differences in
their quarterly closing schedules ("the Gartner timing difference"). Reported
results were based on preliminary Gartner financial results, which were $6,900
lower in revenue than Gartner's final reported results. The variance was
adjusted in 1996 second quarter results. This created a higher growth rate for
Gartner in the Company's 1997 first quarter results, relative to Gartner's
reported results, and a lower growth comparison in the Company's 1997 second
quarter results. Adjusting for the Gartner timing difference, revenue for the
second quarter 1997 increased 13.7%.
Consolidated first-half revenue increased 14.5% to $899,310 from $785,722
for the comparable period a year ago. The increase reflected continued high
growth at Gartner, through strengthening of its product line and new product
offerings, moderate revenue growth at IMS, and double-digit revenue growth at
Nielsen Media Research Inc. ("Nielsen Media Research"). The increase was
partially offset by declining revenues at Pilot Software Inc. ("Pilot"). The
impact of a stronger U.S. dollar decreased revenue by approximately 2% in the
second quarter and in the first half, including the impact of gains related to
the Company's hedging strategy.
Operating income for the second quarter increased 16.2% to $95,159 from
$81,912 for the second quarter of the prior year. Excluding the impact of
discontinued operations in 1996, operating income for the second quarter
increased 18.1%. Adjusting for the Gartner timing difference and discontinued
operations, operating income for the second quarter 1997 increased 20.8%.
Consolidated first half operating income increased 22.4% to $172,406 from
$140,890 for the comparable period a year ago. Excluding the impact of
discontinued operations in 1996, consolidated first half operating income for
1997 increased 23.6%. Operating income growth outpaced revenue growth primarily
due to Gartner's ability to take advantage of economies of scale and IMS's
ability to leverage its resources. The impact of a stronger U.S. dollar
decreased operating income less than 1% in the second quarter and by
approximately 2% in the first half, including the impact of gains related to the
Company's hedging strategy.
Non-operating expense-net for the second quarter was $6,841 compared with
non-operating expense-net of $5,349 for the prior year. First half non-operating
expense-net was $6,286, compared with non-operating expense-net of $4,903 a year
ago.
The Company's effective tax rate was 32.0% for the second quarter and first
half of 1997, compared with an effective tax rate of 44.0% in the comparable
periods of the prior year. The Company has initiated global tax planning
strategies that have lowered its effective tax rate.
The Company's net income for the second quarter increased 40.1% to $60,055
from $42,875 in the comparable period of the prior year. Consolidated first half
net income increased 48.3% to $112,960, from $76,152 for the comparable period a
year ago. First half net income in 1997 includes an after-tax gain of $3,696
from the sale of WEFA Group, Inc. ("WEFA"), a Cognizant Enterprises venture
capital fund investment. Excluding the impact of the higher tax rate and
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued) (Dollar amounts in thousands, except per share
data)
discontinued operations in 1996, net income for the quarter and the first
half increased 17.4% and 23.5%, respectively. Excluding the WEFA gain in first
quarter of 1997 first half net income growth is 19.4%.
Earnings per share for the second quarter increased 44.0% to $.36 from $.25
in the prior year. First half earnings per share was $.67, compared with
earnings per share of $.45 a year ago. Excluding the impact of the higher tax
rate and discontinued operations in 1996 earning per share for the quarter and
the first half increased 20.0% and 24.1%, respectively. Excluding the impact of
the 1997 first quarter WEFA gain of $.02 per share, earnings per share increased
20.4% for the first half.
On February 18, 1997 the Company announced that its Board of Directors had
authorized a systematic stock repurchase program to buy up to 8.5 million shares
of the Company's outstanding common stock over a two-year period. Through June
30, 1997, 6.2 million shares have been acquired at a total cost of $204,564.
Stock repurchases are held in Treasury and reissued upon exercise of employee
stock options.
Results by Business Segment
The Marketing Information Services segment consists of IMS, Nielsen Media
Research, as well as Pilot, Erisco Inc., Cognizant Technology Solutions
Corporation and Cognizant Enterprises. Marketing Information Services revenue
for the second quarter 1997 increased 8.6% to $338,260 from $311,393 in the
comparable period of the prior year, up 11.0% excluding the impact of a stronger
U.S. dollar and the impact of gains related to the Company's hedging strategy.
IMS had second quarter revenue in 1997 of $229,364, up 8.0% from $212,337 in the
second quarter 1996. Excluding the impact of a stronger U.S. dollar and the
impact of gains related to the Company's hedging strategy, IMS revenue increased
11.4%. IMS revenue growth benefited from strong performance of its sales
management products, geographic expansion and excellent growth of its electronic
territory management product. Nielsen Media Research revenue for the second
quarter 1997 increased 11.5% to $87,184 from $78,194 in the comparable period of
the prior year. The growth at Nielsen Media Research was driven by the addition
of a new metered market and the continued impact of new broadcast and cable
network subscribers. Growth in the second quarter 1997 was held down by
declining revenues at Pilot Software.
Marketing Information Services first half revenue increased 9.6% to
$653,836 from $596,665 for the comparable period a year ago, up 11.4% excluding
the impact of a stronger U.S. dollar and the impact of gains related to the
Company's hedging strategy. Revenue growth in the first half was adversely
impacted by declining revenues at Pilot Software.
Marketing Information Services operating income for the second quarter 1997
increased 7.9% to $73,791 from $68,418 in the comparable period of the prior
year, up 8.7% excluding the impact of a stronger U.S. dollar and the impact of
gains related to the Company's hedging
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued) (Dollar amounts in thousands)
Results by Business Segment (continued)
strategy. IMS, the largest business within this segment, had second quarter
operating income growth in 1997 of 16.8%. Excluding the impact of a stronger
U.S. dollar and the impact of gains related to the Company's hedging strategy,
IMS operating income increased 17.8%. Nielsen Media Research operating income
for the second quarter 1997 increased 11.1%. Growth in the second quarter 1997
was partially offset by a higher operating loss at Pilot Software.
Marketing Information Services first half operating income increased 6.8%
to $128,578 from $120,425 for the comparable period a year ago, and up 8.7%
excluding the impact of a stronger U.S. dollar and the impact of gains related
to the Company's hedging strategy. Operating Income growth in the first half was
partially offset by a higher operating loss at Pilot Software.
In July 1997, the Company realized gains arising from the sale of certain
Cognizant Enterprise Investments and will continue to consider opportunities to
monetize such investments.
In a separate third quarter assessment, management is evaluating strategic
options for Pilot Software, which might include divestiture, restructuring or
reorganization.
Any actions taken regarding these investments are not expected, in
aggregate, to have a significant impact on the Company's results of operations
or financial position.
The Information Technology Services segment consists of the Company's
majority-owned subsidiary, Gartner. Information Technology Services revenue for
the second quarter 1997 increased 21.1% to $126,349 from $104,310 in the
comparable period of the prior year. Second quarter revenue growth, adjusted for
the Gartner timing difference, was 29.7%. The growth reflected Gartner's
continued strengthening of its product line and the introduction of new product
offerings. Information Technology Services first half revenue increased 29.8% to
$245,474 from $189,057 for the comparable period a year ago.
Information Technology Services operating income for the second quarter
1997 increased 22.1% to $28,458 from $23,299 in the comparable period of the
prior year. Second quarter operating income growth, adjusted for the Gartner
timing difference, was 32.4%. Information Technology Services first half
operating income increased 42.2% to $57,818 from $40,666 for the comparable
period a year ago.
As of June 30, 1997, the Company had the ability to exercise voting control
of Gartner, with a voting interest exceeding 50%. Accordingly, the Company has
continued to consolidate Gartner. In the third quarter, the Company expects its
voting interest will fall below 50%, based upon the exercise of Gartner employee
stock options. When this occurs, the Company will deconsolidate Gartner and
account for its ownership interest on the equity basis. Additionally, prior
quarters of 1997 will be restated to deconsolidate and present Gartner on an
equity basis. Although net income and earnings per share will remain the same,
revenue and operating income for these prior quarters will be restated.
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Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Dollar amounts in thousands)
Net cash provided by operating activities totaled $180,901 for the six
months ended June 30, 1997 compared with $157,433 for the comparable period in
1996. The increase of $23,468 principally reflects an increase in business
operating results ($43,126), (including net income and depreciation and
amortization), an increase in deferred revenues ($38,777) at IMS and Gartner, a
lower increase in other working capital items ($12,918) and reduced
restructuring, postemployment and 1995 non-recurring charge payments in 1997
($11,915). These sources were partially offset by an increase in accounts
receivable in 1997 compared to a decrease in 1996 ($39,616), primarily
reflecting increased sales at IMS and Gartner, and a change in deferred and
accrued income taxes ($41,836), primarily payment of taxes.
Net cash used in investing activities totaled $72,986 for 1997 compared
with $86,379 for the comparable period in 1996. The decrease in cash used for
investing activities of $13,393 is principally due to lower payments for and
higher proceeds from marketable securities by Gartner ($33,353) and proceeds
from sale of investments ($17,999), partially offset by an increase in capital
expenditures ($19,822) and an increase in investments ($18,286).
Net cash used in financing activities totaled $102,143 for the six months
ended in 1997 compared with $42,319 for the comparable period in 1996. The
increase in cash usage of $59,824 is primarily due to payments for the purchase
of treasury shares ($204,564) and dividends paid ($10,092) in 1997, partially
offset by third party investments in partnerships ($100,000) and net transfers
to The Dun & Bradstreet Corporation ($44,359 in 1996).
Changes in Financial Position at June 30, 1997 Compared to December 31, 1996
(Dollar amounts in thousands)
Deferred Revenues increased to $353,685 at June 30, 1997, from $292,970 at
December 31, 1996, primarily reflecting an increase in subscription sales at
Gartner and IMS.
Minority Interests increased to $225,434 at June 30, 1997, from $90,635 at
December 31, 1996, primarily reflecting the third party investment in
partnerships ($100,000) and an increase in minority interest related to Gartner
($34,464).
Shareholders' Equity decreased to $730,726 at June 30, 1997, from $872,613
at December 31, 1996, primarily reflecting the purchase of treasury shares
($204,564), payments of dividends ($10,092) and the change in cumulative
translation adjustment ($42,484), partially offset by net income ($112,960).
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Cognizant Corporation was held on May
27, 1997.
The following nominees for director named in the Proxy Statement dated
April 24, 1997 were elected at the Meeting by the votes indicated.
For Withheld
-------------------- -----------------------
John P. Imlay, Jr. 124,874,705 14,107,688
Robert Kamerschen 124,882,482 14,099,911
H. Eugene Lockhart 124,855,745 14,126,648
The votes in favor of the election of the nominees represent at least 89.8%
of the shares present at the meeting.
Approval of the appointment of Coopers & Lybrand L.L.P. as Independent
Accountants was approved by the following vote:
For Against Abstain
------------------- ---------------- ----------------
Number of Shares 138,460,305 163,590 358,498
The proposal on the implementation of Cognizant Employee Stock Purchase
Plan was approved by the following vote:
For Against Abstain
------------------- ---------------- ----------------
Number of Shares 135,245,034 2,852,995 884,364
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule
(Filed Electronically)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended June 30,
1997.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COGNIZANT CORPORATION
---------------------
(Registrant)
Date: July 21, 1997 By: /s/ Victoria R. Fash
------------------------------
(Signature)
Victoria R. Fash
Executive Vice President & Chief Financial Officer
Date: July 21, 1997 By: /s/ James C. Malone
===============================
(Signature)
James C. Malone
Senior Vice President - Finance & Controller
-16-
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 429,204
<SECURITIES> 133,347
<RECEIVABLES> 469,910
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